Acing the Space at the Onset of 5G

In this period of economic distress, India’s telecom giant Reliance Jio has been acing the business scenario in its bid to establish itself as a debt-free company by March 2021. Jio has been eyeing strategic partnerships for the 5G era in its urge to be self-sufficient and independent of network equipment vendors by tapping into its in-house ability to design and build 5G and Internet of things (IoT) technology. It is a one-of-a-kind move among global telecom operators, most of which rely on third-party vendors for their network equipment. It could also give Jio a first-mover advantage in terms of scalability, automacy, and autonomy in its expansion game over the long run, such as digital inclusion for businesses of all scales and magnitude. 

Why is Jio so attractive to consumers and investors alike?

Jio Logo being displayed inside a retail store in Mumbai, India while people stand in front of the store. (Source: Bloomberg)

Jio’s aggressive business strategies since the company’s inception in September 2016 have led it to the top in the telecom industry. The company is the current market leader with a market share of 34% as per Business Standard, March 6, 2020. The company’s aggressive price wars with existing competitors like Vodafone Idea and Airtel, along with its strategy of offering free 4G network services accompanied with unlimited Internet data consumption for its subscribers for two whole years, made the company a sensation among existing and potential Internet users. With the launch of JioPhones at dirt-cheap rates, the company influenced the transition of around 100 million feature phone users to 4G services, directly striking the ‘connectivity’ problem faced by a majority of Indian population. 

With more than 388 million subscribers and recognition as India’s fifth most valuable company, Jio Platforms have been gaining massive overseas investor interest. Currently, Jio is valued at $65 billion (equity value) and $68.5 billion (enterprise value). Having sold over 22.28% equity, Jio Platforms have raised over ₹1.15 lakh crore (~$15 billion), amidst global lockdown with investments from Facebook, KKR, Silver Lake, Vista Equity Partners, General Atlantic, L Catterton, TPG, Saudi Arabia’s Public Investment Fund, and Abu Dhabi Investment Authority, among others. Also, Qualcomm Ventures is expected to invest $97 million, and Google has shown an interest in making an investment of $4.5 billion for a 7.73% stake in the enterprise. 

What to expect from the mega investments pooled by the brand

A customer stepping on an open truck in a roadshow for Whatsapp, Facebook’s messaging service, and Reliance Jio’s wireless network in Pune, India. (Source: Bloomberg)

Global firms’ investments in Jio Platforms create a synergy that the company intends to capitalise upon by tapping into the digital disruption in India’s retail market.  Post approval by the Competition Commission of India for a 9.99% stake deal ($5.7 billion) with Facebook, Jio plans to leverage WhatsApp’s widespread acceptance among Indian households by signing commercial agreements of partnership to accelerate the growth of Reliance Retail’s digital commerce business via JioMart. The app, JioMart, is being developed into an ecosystem; envisioned as a digital storefront for Reliance Retail, it seeks to digitise local neighbourhood, or ‘kirana’, stores by onboarding them to form a part of its logistics network as a point of supply for consumers. This way, the company intends to establish not only a B2B network via the primary communication medium, WhatsApp, but also a B2C portal to ease e-commerce dealing, provide a payment frontier (WhatsApp Pay-Jio’s Payments Bank), and induce digital transition for both small businesses and consumers. Moreover, the partnership and the resulting success [expected] of JioMart can further Jio’s expansion into fintech as it can lead to the introduction of financial services, like lending and insurance, to users of WhatsApp in the long run. Furthermore, Facebook in return would receive deeper personal data on consumption patterns that could go on to enrich its already extensive database and enlarge its targeted advertising potential.   

As per Neil Shah, partner at Counterpoint Research, “Advertising is the holy grail. Jio is sitting on a goldmine since it hasn’t been able to monetise its users… Besides, Jio can also integrate Facebook’s ad platform into its products on a revenue share basis.”

Jio’s expansion game: Competition and 5G 

Reliance is the biggest conglomerate in India and is restructuring its businesses to make them a part of Jio Platforms. With expansion in telecom, OTT media services, fintech, and retail, Jio has been taking on competition with players from multiple business segments. Having already taken over Airtel and Vodafone Idea, Jio is expected to achieve 44% revenue market share and 48% subscriber market share by FY 2025, as per a Bernstein report. Jio has also collaborated with Viacom and Disney in the content space and has dominant OTT and entertainment platforms in India. With the introduction of ‘same day release’ of movie titles on its platforms, Jio has been gaining traction and market share in the OTT segment and is expected to take on Amazon Prime Video and Netflix in the long run. Jio Platforms have been eyeing retail as well: the launch of JioMart, in partnership with Facebook’s WhatsApp, and AJIO can allow Jio to go head-to-head with Amazon India and Walmart’s Flipkart in the e-commerce space, a market with the potential to grow to $200 billion by 2027, as estimated by KPMG. This aids Jio’s vision of establishing itself as a ‘tech major’ in the near future.

Donald Trump, President of USA, talking to Mukesh Ambani, CEO of Reliance Jio, on 5G

(Source: OpIndia)

Jio is the world’s first carrier to build its own 5G technology infrastructure instead of partnering with network providers like Ericsson, Nokia, and Huawei. Amidst global security concerns over Huawei’s links with the Chinese government and considering US to be a chief influencer in the transformation of Indian telecom sector and critic of Chinese equipment vendors like Huawei in particular, Jio has played a smart game by not incorporating any Chinese component into its country-wide spectrum. On June 15, 2020, India had a violent border clash with China in Galwan Valley, Ladakh, that led to the death of 20 Indian soldiers. This made the government reconsider Indian telecom companies’ partnerships with Huawei and ZTE, and as a result, Jio has the superior hand over its competitors at the onset of the 5G era in India. Also, Jio has been described as ‘clean telco’ by Mike Pompeo, US Secretary of State, along with companies like Orange in France, Telstra in Australia, NTT in Japan, SK and KT in South Korea, and O2 in the UK. By becoming “self-sufficient,” Jio has grabbed a beneficial advantage of friendly India-US trade relations and has turned favourable in the eyes of the US. 

As per Paul Kyungwhoon Cheun, Executive Vice President and Head of Networks Business at Samsung Electronics, “Having superior LTE networks is a key asset for operators in moving towards the 5G era, and Jio has reached that compelling competency.” 

What lies ahead?

Jio, in partnership with Microsoft, is intending to leverage the Microsoft Azure cloud platform and develop innovative cloud-based solutions that can provide startups and small and medium businesses in India an easy and affordable access to cloud infrastructure and the ability to develop faster and more efficient services. 

With its 5G technology, Jio would also be able to customise use cases in accordance with the needs of the domestic market such as wireless and wireline services, FTTH (fibre to the home), drone-based surveillance and security, digitisation of the agricultural sector, and industrial IoT technology.

At the current expected pace of developments and expansion, Jio could achieve a valuation of $110 billion and 538 million subscribers by FY 2022, as per BofA Securities. If things flow along the current, Jio could develop into a company akin to AT&T, Verizon of the US, or even Tencent of China.

Thumbnail Credits: Bloomberg