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Google Eyes India Telecom Space With Interest in Vodafone

Zacks Equity Research

Alphabet’s GOOGL division Google is reportedly in early stages of talks with the British telecom company, Vodafone, to acquire 5% stake in the latter’s India business unit – Vodafone Idea.

Notably, Vodafone Idea is the joint venture between Vodafone and Aditya Birla Group, which is one of the largest telecom operators in India.

The latest interest of Google in this telecom company highlights its intentions to foray into telecom space of India, which is the second largest market in terms of total internet users, per the India Brand Equity Foundation report (IBEF).

Moreover, the move will aid the search giant’s competitive position against tech companies like Facebook FB and Microsoft MSFT, which are also leaving no stone unturned to bolster their presence in this promising market.

Alphabet Inc. Price and Consensus

Alphabet Inc. Price and Consensus

Alphabet Inc. price-consensus-chart | Alphabet Inc. Quote

Deal Rationale

If the deal materializes then it will be a win-win situation for both Vodafone Idea and Google.

We note that Vodafone Idea is currently stuck in a cash trap as the Department of Telecommunications in India has asked it pay a huge amount of adjusted gross revenue (AGR), which is due.

Consequently, the deal will hold immense significance to the telecom company as Google’s investment will help it to manage its crisis situation.

Meanwhile, the deal will aid Google to expand presence in the telecom market of India, and capitalize on growth opportunities present in it.

Notably, the average rate of data usage per smartphone is 9.8 GB per month in India, per the IBEF report. Further, increasing number of telecommunication subscribers and growing internet user penetration are positive attributes, which are contributing to the telecom market growth of the country.

The number of internet subscribers in India is likely to double and reach 829 million by 2021.

Intensifying Competition

Competition in the telecom space of India is intensifying as growth opportunities in it are alluring enough to attract foreign direct investments into it. Google’s latest move is the testament to this fact.

Further, this is more evident from the social media giant – Facebook’s latest investment of $5.7 billion to buy a 10% stake in Jio Platforms Limited — the digital arm of a massive Indian conglomerate, Reliance Industries (RIL).

The deal, which valued Jio at $65.95 billion, makes Facebook the largest minority shareholder in India’s number one telecom operator.

We note that Google had also shown interest in Reliance Jio apart from Facebook.

Meanwhile, Microsoft is reportedly in negotiation terms with Mukesh Ambani to acquire above 2.5% stake in Jio Platforms by investing up to $2 billion in it.

Nevertheless, Google’s growing endeavors remain noteworthy. The company has strong relationship with Bharti Airtel, which is a strong competitor of Jio.

Airtel is one of the telecom operators on Google’s platform for operators that leverages the latter’s networking infrastructure including its data centers, edge servers and Content Delivery Networks (CDNs) among others.

Further, Google has recently won a deal from Airtel. Per the deal, the latter has received the authority to offer Google Cloud’s G Suite — a suite of cloud computing, productivity and collaboration tools, software and products to its business clients.

We believe strengthening momentum of Google across the telecom operators is likely to aid its presence in the telecom market of India.

Zacks Rank & a Stock to Consider

Alphabet currently has a Zacks Rank #3 (Hold).

A better-ranked stock that can be considered in the broader technology sector is Match Group, Inc. MTCH which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth for Match Group is currently projected at 13.39%.

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