What does the Google-Airtel alliance mean for Africa?

By Joël Té-Léssia Assoko
Posted on Friday, 4 February 2022 12:09, updated on Tuesday, 8 February 2022 10:32

Airtel advertisement, in Libreville, July 2018. © Jacques Torregano for JA

The agreement between US giant Google and Airtel, the first Indian mobile telephone operator, marks its indirect entry into the shareholding of Airtel Africa and opens the way for developing new smartphone access offers, a sector dominated in Africa by Chinese players, who still risk being subject to US sanctions and a technological blockade.

In a joint statement published on 28 January, the Indian telecoms group Bharti Airtel (present in 14 African countries) and the US telecoms giant Google announced a “multi-year and long-term” partnership.

The agreement, made through the $10bn Google India Digitalisation Fund and launched in July 2020, focuses on the large Asian market.

In detail, it includes a $700m investment to acquire 1.28% of Bharti Airtel and up to $300m that “will go towards implementing commercial agreements.”

Last October, Google, which has been led by Indo-American entrepreneur Sundar Pichai since 2015, said it would invest $1bn over five years “to support the continent’s digital transformation.”

Smartphones, a sector with great potential

Although the first part of the agreement with Airtel only indirectly concerns the continent, it does mark the US colossus’ symbolic entry into the shareholding of one of the African telecom leaders. Bharti Airtel Limited holds about 67% of Airtel Africa Plc (of which 56% directly), which is listed in London and brings together the telecoms group’s subsidiaries in 14 African countries, including Nigeria, the DRC, Congo-Brazzaville, Kenya and Gabon. The US firm obtains an indirect share of some 0.7% of Airtel Africa, according to our calculations.

The second aspect of the partnership could affect African markets more directly. “Under this first commercial agreement, Airtel and Google will work together to develop Airtel’s extensive range of Android devices available to consumers through innovative affordability programmes,” said the two partners.

“Together, our companies will continue to explore other opportunities to reduce barriers to smartphone ownership across a range of price points, in partnership with various device manufacturers,” the Airtel and Google statement added.

A SWOT analysis conducted by the Indian group identifies “smartphone penetration” – the growing market share and number of future users of these modern phones – as one of its “opportunities.”

Making it easier for subscribers to access smartphones is a double win for Airtel – and telecoms operators in general – as it allows them to offer bundled deals that are more expensive than simply buying credit top-ups, but also to sell digital offers and services (games, music, videos, etc.) that are only available on these devices.

On the continent, traditional phones still account for 50% of the market (2020 data), according to the Global System for Mobile Communications (GSMA), which anticipates that “the number of smartphone connections in sub-Saharan Africa will almost double to 678 million by the end of 2025, representing an adoption rate of 65%.”

Another sign of how important this segment is for Airtel is that the group was alarmed last year when it read a report about “the recent announcement of low-cost smartphones by one of its competitors” in India and said it was “evaluating several options to remain competitive in this segment.” This deal with Google appears to be one of these options.

For the time being, the African smartphone market is dominated by Chinese players, including Transsion. With its brands Tecno, Itel and Infinix, the company supplies 47.4% of these types of devices sold in Africa, ahead of Korea’s Samsung (21.3%). Next in line are its compatriots Xiaomi (6.1%) and Oppo (a brand of the BBK Electronics group) as well as Finland’s HMD (which markets the Nokia brand), according to analysts at the International Data Corporation (IDC).

Chinese telecoms players, led by the global colossus Huawei, have found themselves subject to changes in US trade and security policies in recent years. For example, Huawei has lost access to Alphabet’s (Google’s parent company) Android technology and has been forced to quickly develop its own mobile application systems and platforms.

A subsidiary worth over $2.5bn

With 118.2 million customers at the end of 2020, the African continent is Airtel’s second-largest market after India (350.3 million) and ahead of Bangladesh (50.9 million). Over the last five years, Airtel Africa’s customer base has grown by +47.6% over the entire period, compared to +26% in India.

“The telecom sector in Africa continues to have a positive outlook with increasing purchasing power, rapid urbanisation, a rising middle class and growing smartphone penetration,” Airtel noted in its annual report.

For its 2020 financial year ending March 2021, Airtel Africa had an annual turnover of $3.92bn (€3.33bn), up from $3.44bn a year earlier, with a net profit of $339m, down from $370m in 2019-2020. However, the group is pleased to report that its gross operating profit (Ebitda) increased by 24%, with an Ebitda margin of 46.1%, an increase of almost two points over the period.

In recent years, Airtel Africa has increased its number of partnerships. In March 2021, the operator signed an agreement with the US-based TPG’s investment fund The Rise Fund and with the specialist in payment solutions Mastercard, which invested respectively $200m and $100m in its mobile payment subsidiary. “These transactions value Airtel Africa’s mobile money business at $2.65bn on a zero net debt basis,” said the telecoms operator.

In addition to telephony, mobile data and offering entertainment options, the Indian group, which claims to be “number one or two in 12 of our 14 African markets”, intends to fast track the development of a number of other services.

These include: “home broadband, satellite TV, enterprise connectivity, data centres, security, cloud, video conferencing, AdTech [digital advertising technologies].”

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