Bharti Airtel, Jio call on the digital game, but it's a long haul yet

The big two telecom players have reorganised their digital businesses in readiness to monetise them.

The strategy for the two telco giants Bharti and Reliance has in many ways been similar: restructure their telecom companies to focus attention on their fledgling digital business to open up new revenue opportunities, and provide opportunities in the future to monetise these services.

Just a few weeks ago the Bharti group decided to consolidate the digital businesses under Bharti Airtel, its telecom holding company, and move its mainstay telecom business into a newly created fully-owned subsidiary known as Airtel Ltd.

The digital assets in the B2C space, now under Bharti Airtel, include music platform Wynk Music, aggregated OTT platform Airtel Xstream and bill payment and recharge app Airtel Thanks which collectively had over 200 million customers in Q4 2021 (against 160 million in Q2). That is about half of Bharti’s mobile customer base.

But that is not all. The digital business will also have a range of B2B applications — Airtel IQ, an omni-channel cloud-based communications platform for business, Airtel Ads, an ad tech platform that has already touched an annualised revenue run rate of Rs 1 billion, and Mitra app, which helps manage all Airtel retailer accounts and services. There were an estimated 1.2 million retailers transacting on the app in Q3 FY21. Then there is Airtel Cloud meant for business enterprises. “The digital focus is closely linked with the mobile business because it leverages our growing base of customers who are potential users of these services,” said a top Bharti Airtel executive.

What Bharti has done now, Reliance Industries Ltd (RIL) implemented last year. India’s largest company by market cap created a new holding company in Jio Platforms Ltd (JPL) to house its digital platforms — which included B2C, B2B and technology-enabled solutions for enterprise. But as with Bharti Airtel, Jio Plat­forms also con­trols 100 per cent of the mobile business — in this case Reliance Jio.

The digital market is estimated to grow four to five times by 2025, becoming a $1 trillion opportunity. Also, the mobile market is maturing — subscriber expansion is slowing and the opportunity to raise tariffs in a competitive market is also limited (though, of course, 5G will raise revenues) So, the next big thing for telcos is to leverage their captive subscriber base and focus on monetising their digital offerings.

But that’s still in the future. Revenues from telecom services, especially mobile services, still dominate their earnings.  The digital business had revenues of only around Rs 550 crore in the financial year FY21 — a minuscule percentage of Bharti Airtel’s overall revenues of over Rs 100,000 crore. For Jio Platforms, digital accounts for just 4.36 per cent of its last quarter’s revenues.

Investors looking at a slightly longer term opportunity see marginal upside in the business. JPL is unlisted still but equity analysts at Bank of Amer­ica (BofA) have ascribed an equity value of Rs 106 to JPL’s digital assets against an ascr­ibed valuation of Rs 2,500 for JPL.

This despite the fact that JPL has been a mover and shaker in the business. It has invested around Rs 3,970 billion into building or buying around 25 digital assets and raised over Rs 152,000 crore from investors last year, which include marquee players such as Facebook, Google, Qualcomm as well as PE bigwigs such as KKR and Mubadala. But much of this fund-raising has come on the back of the core mobile services business, Reliance Jio, which was valued at Rs 4.8 trillion based on 9.9 per cent equity investment by Facebook last year.

The two telcos have three distinct sources to raise revenues — subscription from customers, advertising for the B2C business and the B2B digital play. JPL’s entertainment application platforms — such as JioTV and JioCinema — have over 300 million active customers. Add in MyJio, which is like a super app, and the number goes up to 400 million. Bharti has seen the number of monthly active customers in Airtel Thanks now hit 72.5 million while Airtel Xstream which is a newer offering has climbed up to 37.5 million subscribers.

But the problem is these are mostly free channels. And only their respective music apps, Jio’s Saavn and Airtel’s Wynk, have a hybrid model — a free offering and a subscription offering.

Telcos concede that getting subscribers to pay is challenging. Only 25 million of India’s workforce (which translates to 100 million dependents) form the top bracket and are not that price sensitive. But the next 25 million workforce (100 million dependents) is less digitally savvy and is likely to spend over time. For the remaining population the only route to making money through a digital platform is by getting advertising revenue.

That is why both Jio and Airtel are also looking at asset-light collaborative models — tie up with third-party content players such as Netflix or Amazon and make bundled offerings on a revenue-share basis to their customers who pay a small premium.

But as a senior executive Bharti Airtel agrees: “We are taking the first steps in this direction and have already started getting advertisers in.” The company has already roped in over 100 advertisers on its platform — such as PepsiCo, Zomato and CRED. Through the ad tech platform Airtel will use data and analytics to help advertisers reach the target customer. JPL is also experimenting with advertising models in MyJio.

It’s a large market — digital advertising is expected to account for over 40 per cent of all advertising spends at $7.6 billion by 2024 and BofA estimates that Jio will grab 6.5-7 per cent of this market.

The third source of revenue is from the digital B2B business. Airtel has just launched various offerings for enterprises. JPL already has a range of solutions — Haptik, a chatbot technology provider which it bought, has tied up numerous clients which include leading financial services companies and banks; Radisys, another acquisition, that offers face recognition technology and JioMeet (a competitor to Zoom) is seeing traction in universities.

Which giant will call the shots in this market, though, is anybody’s guess still.