Facebook places huge bet on India with $5.7B Jio stake

Social media giant Facebook is to invest INR435.74 billion (US$5.7 billion) for a 9.99% stake in Jio Platforms, a subsidiary of Reliance Industries, one of India's largest multinational companies and the parent company of Reliance Jio Infocomm, India's only pure-play 4G services provider.

Once the deal is approved by the regulatory authorities, Facebook will become the largest minority shareholder of Jio. The investment is the biggest the social networking giant has ever made and places a huge bet on the developing market.

"With this deal, the borders between utility and platform businesses are blurring," says Dario Talmesio, a principal analyst and the practice leader for 5G and European TMT research at Omdia. "In essence, with the help of Facebook we might see the first example of a telecom operator turning into a digital commerce platform after years of industry fearing that the opposite would have happened."

The collaboration will allow Jio to lower its debt of around 400 billion Indian rupees ($5.2 billion). For Facebook, which already counts India as one of its largest markets, it promises further engagement with Indian citizens, and especially with the country's small and midsized enterprises.

The landmark deal values Jio Platforms at INR4.62 trillion ($60.2 billion), assuming a conversion rate of INR70 to the dollar. Jio, which launched services in 2016 and has more than 300 million subscribers, will continue to remain a subsidiary of Jio Platforms. (See Facebook likes Reliance Jio.)

Big deal targeting India's small businesses
"This partnership will accelerate India's all-round development, fulfilling the needs of Indian people and the Indian economy," said Reliance Industries in a press release. "Our focus will be India's 60 million micro, small and medium businesses, 120 million farmers, 30 million small merchants and millions of small and medium enterprises in the informal sector, in addition to empowering people seeking various digital services."

With more than 300 million subscribers, Facebook has a massive presence in India. Moreover, WhatsApp, the messaging service it owns, has more than 400 million users in the country and has developed several tools, including a payment system, for small businesses. Facebook has also created digital storefronts to allow entrepreneurs to sell goods and services online.

Facebook's hope is that collaboration with Jio Platforms will boost engagement with India's community of small businesses. "One focus of our collaboration with Jio will be creating new ways for people and businesses to operate more effectively in the growing digital economy," said David Fischer, Facebook's chief revenue officer, and Ajit Mohan, its Indian managing director, in a joint statement. "For instance, by bringing together JioMart, Jio's small business initiative, with the power of WhatsApp, we can enable people to connect with businesses, shop and ultimately purchase products in a seamless mobile experience."

Jio Platforms, Reliance Retail and WhatsApp have also entered into a commercial partnership to "further accelerate Reliance Retail's [the retail arm of Reliance Industries] new commerce business on the JioMart platform using WhatsApp and to support small businesses on WhatsApp," says Reliance Industries.

JioMart is a platform for small merchants and small grocery stores. Facebook and Jio are to "work closely to ensure that consumers are able to access the nearest kiranas [neighborhood small grocery stores] who can provide products and services to their homes by transacting seamlessly with JioMart using WhatsApp," they say. (See India's Jio, Facebook team on multi-purpose app – report.)

"At the core of our partnership is the commitment that Mark Zuckerberg, founder of Facebook, and I share for the all-round digital transformation of India and for serving all Indians," said Mukesh Ambani, the chairman and managing director of Reliance Industries, in a video message. "In the post-corona era, I am confident of India's economic recovery and resurgence in the shortest period of time. The partnership will surely make an important contribution to this transformation."

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Jio wants to become the de facto online platform for Indian consumers and is working on several products, including smart homes, connected cars, tele-health and distance learning innovations. The deal with Facebook could help to advance those goals.

While several businesses have been hurt by the coronavirus pandemic, digital companies like Facebook, Amazon and Google are likely to gain as lockdowns and other restrictions on movement force organizations to speed up the digitalization of business processes. (See Big Tech's 'hiring spree' will leave many behind.)

"The country [India] is in the middle of a major digital transformation, and organizations like Jio have played a big part in getting hundreds of millions of Indian people and small businesses online," said Mark Zuckerberg, Facebook's CEO, in a blog on his Facebook page. "With communities around the world in lockdown, many of these entrepreneurs need digital tools they can rely on to find and communicate with customers and grow their businesses. This is something we can help with and that's why we're partnering with Jio to help people and businesses in India create new opportunities."

The deal is especially significant because of Ambani's stated desire to ensure India remains in control of the data it generates.

"Data is the new oil … For India to succeed in this data-driven revolution, we will have to migrate the control and ownership of Indian data back to India. In other words, Indian wealth back to every Indian," he is reported to have said at an event in January 2019. This was later qualified by Nick Clegg, Facebook's vice president of global affairs and communications, who said: "Data isn't oil, a finite commodity to be owned and traded, pumped from the ground and burned in cars and factories. Of course, no analogy is perfect, but a better liquid to liken it to is water, with the global Internet like a great borderless ocean of currents and tides."

Jio recently announced a partnership with Microsoft to offer its suite of services to small businesses.

This is not the first time Facebook has tried to boost its presence in India. It launched its Free Basics plan in India in 2018, offering free access to chosen Internet services for people who could not afford 4G data plans. The program was banned by the Indian authorities because it was seen to be violating the principles of net neutrality.

"After having experimented with free Wi-Fi access, connectivity drones and other innovative Internet-for-all initiatives, Facebook is now getting hands-on with 'traditional' connectivity," says Talmesio. "The two companies share many common goals, and, surely, there will be synergies. However, it is useful to remember that Facebook has acquired a minority stake and presumably will have limited direct involvement in the daily running of the operation. But the ramifications for the wider industry are huge and this deal can be the first step of many."

Recently, Facebook has been trying to get approval for WhatsApp Pay, a payment platform, which is still in beta version. Collaboration with Reliance might help the company to get this rolling.

While it is not yet clear, the Jio-Facebook investment might indirectly impact the country's already stressed telecom sector. If the products it develops persuade small businesses to move to Jio, the move could stoke fears that India's telecom sector is on track to become a duopoly or even monopoly.

— Gagandeep Kaur, contributing editor, special to Light Reading