Amazon can wisely flow into Indian rapids

Tech giants have a mixed track record buying non-controlling stakes but the potential rewards in this instance outweigh the risks

  
A girl checks her mobile phone as she walks past the Bharti Airtel office building in Gurugram, previously known as Gurgaon, on the outskirts of New Delhi, India April 21, 2016.

A girl checks her mobile phone as she walks past the Bharti Airtel office building in Gurugram, previously known as Gurgaon, on the outskirts of New Delhi, India April 21, 2016.

REUTERS/Adnan Abidi/File Photo

(The authors are Reuters Breakingviews columnists. The opinions expressed are their own.)

MUMBAI/ NEW YORK  - India’s technology rapids are enticing giants to jump in. Amazon  may invest $2 billion for a roughly 5% stake in Bharti Airtel, Reuters reported on Friday, hot on the heels of Facebook’s $5.7 billion backing of the Indian telecom operator’s fast-growing rival Jio Platforms. Tech giants have a mixed track record buying non-controlling stakes but the potential rewards in this instance outweigh the risks.

Yahoo scored big after swapping a small local business and $1 billion for a 40% stake in Alibaba in 2005. That was eventually worth well over 50 times as much. But there were some stinkers during the dot-com boom. Microsoft, for example, tried to dominate the TV set-top box market, pouring more than $10 billion into companies including AT&T, Comcast and smaller firms. Its $2.5 billion investment in the UK’s Telewest was sold for just $5 million three years later.

It could go either way in India, but there is an emerging consensus that telecom operator-based outfits will grow to dominate the digital services market. That would be unique: telecom operators elsewhere dabble in some content but broadly remain a so-called dumb pipe: Online services such as shopping, networking and entertainment are left to Alibaba and Tencent in China, and to Alphabet-owned Google and others elsewhere.

Amazon’s interest in Airtel underscores the point. Tycoon Mukesh Ambani’s $142 billion Reliance Industries owns not just Jio Platforms, whose telecom and digital-services unit is valued at $68 billion, but also the country’s largest brick-and-mortar retail operation pushing online and into groceries.

The U.S. e-commerce giant led by Jeff Bezos looks less comprehensive by comparison, having invested $6.5 billion to build its local retail business and more. Taking a stake in Airtel would be reminiscent of Tencent’s 2014 purchase of a stake in shopping outfit JD.com which cemented an alliance against Alibaba.

The new round may not be as risky as past bets. After a bruising price war eliminated smaller rivals, tariffs are rising and India’s telecom industry is settling into a duopoly, with a weak third operator in Vodafone Idea. U.S tech firms are also spending a small amount relative to their own value for an opportunity to lead in a market with a population four times larger than their home base. That’s easy to get onboard with.

CONTEXT NEWS

- Bharti Airtel on June 5 said that there is no proposal under consideration after a Reuters report a day earlier said that Amazon was in early-stage talks to buy a $2 billion stake in the Indian telecom operator.

- If talks to buy a stake fail, the companies could also look at a commercial transaction that could give Bharti’s customers cheap access to Amazon products, one of the sources cited said in the exclusive report.

- An Amazon spokeswoman said the company does “not offer comments on speculation of what we may or may not do in future”.

(The authors are Reuters Breakingviews columnists. The opinions expressed are their own.)

(Editing by Antony Currie and Sharon Lam) ((una.galani@thomsonreuters.com; Reuters Messaging: una.galani.thomsonreuters.com@reuters.net, robert.cyran@thomsonreuters.com; robert.cyran.thomsonreuters.com@reuters.net))

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