Facebook, the largest global social media platform has bought 9.9% stake in Reliance Jio to the tune of US$5.7 billion (Rs 43,574 crore). Reliance Jio is the telecom unit of Reliance Industries Ltd (RIL). The deal gives the social media giant – Facebook a firm foothold in a fast-growing massive digital market and helps the Indian oil-to-telecom conglomerate to significantly cut debt. The deal values Jio at Rs 4.62 lakh crore ($65.95 billion).
The deal will help reduce RIL’s debt burden, which has gone up due to the breakneck expansion of Jio and other businesses. Mukesh Ambani invested around $40 billion to launch Jio in 2016. Apart from launch and expansion of Jio services, RIL has also massively invested in becoming the largest retail player in India with a series of aggressive expansionary moves into consumer-facing businesses such as e-commerce and grocery.
Benefits of the Deal
1. Win Win Situation Both for RIL and Facebook
Recently, Reliance Industries Limited (RIL) has been deploying accelerated efforts to reduce debt by attempting to sell stakes worth billions of dollars in some of its businesses. RIL is in talks with Saudi Aramco to sell 20 percent of its oil to chemicals business and Canadian private equity firm Brookfield Asset Management for a stake in its telecom tower business.
For Facebook, India has in recent years emerged as a critical market. The company has more users in India than any other country. Its WhatsApp chat service, which has attracted 340 million users and is about to launch a key payments service will take on incumbents Paytm, Google Pay, PhonePe and Amazon Pay.
Despite the rapid growth of its social network and WhatsApp, Facebook stumbled with its Free Basics plan to provide free internet services after a ban by Trai, the telecom regulator of India.
With Jio on its side, Facebook has an established ally with a large and well established rural network that is present in sectors ranging from telecom to ecommerce to home internet.
2. Moving Away from Chinese Apps
The deal will help Facebook to fight successfully against the rapidly growing Chinese apps like Tiktok which have attracted India’s youth.
Besides, Facebook and RIL are expected to square off against some formidable online shopping rivals like Amazon, Walmart that have each invested billions in the South Asian market. The deal will also help Facebook & RIL to take firm ground opposite the four way Japanese tech Softbank , US heavyweights Google and China’s Alibaba.
3. Large FDI to Indian Digital Market
The investment by Facebook to the tune of $65.95 billion is probably the largest ever FDI in Telecom sector that can boost the growth of Indian digital market. This is the largest investment for a minority stake by a technology company anywhere in the world and the largest foreign direct investment in the technology space in India.
With Reliance Jio being the biggest telecom operator in the country with more than 370 million subscribers, the deal, which valued Jio at a pre-money valuation of $65.95 billion, makes Facebook the largest minority shareholder in the Indian telecom network as well.
4. New Business Ways for Indian Economy
The investment by Facebook will focus on collaborating with Jio to create new ways for people and businesses to operate more effectively in the growing digital economy. Facebook said, "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.’
For instance, by bringing together JioMart, Jio’s small business initiative, with the power of WhatsApp, the collaboration can enable people to connect with businesses, shop and ultimately purchase products in a seamless mobile experience.
5. Opportunity for 60 Million Small Businesses in India
Facebook-Jio collaboration has an aim to enable new opportunities for businesses of all sizes, but especially for the more than 60 million small businesses across India. Rs.43,574 crore can bring in new narratives to digital transformation for 60 million small businesses and can also ensure tham potential opportunities in a growing digital economy to deliver products & services.
6. Contribution to India’s Economic Recovery
The partnership by RIL-Jio with Facebook will make an important contribution to India’s economic recovery and resurgence in the shortest period of time in the post-Corona era. According to Mukesh Ambani, Chairman & MD of Reliance-Jio “All of us at Reliance are humbled by the opportunity to welcome Facebook as our long-term partner in continuing to grow and transform the digital ecosystem of India for the benefit of all Indians.”
7. Jio: Among Top 5 Listed Companies
Massive investment by Facebook values Jio Platforms amongst the top 5 listed companies in India by market capitalization, within just three and a half years of launch of commercial services.
8. Expects to Cater 900 Million Internet Users
Facebook-RIL Jio deal aims to cater to 900 million internet users in future. As per the recent report by Cisco, India is poised to have more than 900 million internet users due to the increased penetration of affordable smartphones and cheaper internet plans. India will also have around 2.1 billion internet-connected devices by 2023 as per the report.
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Will the deal really benefit India? Cons
1. Only a Commercial Deal to Reduce Reliance Jio Debt Burden
The Face Book - Jio deal is purely commercial in nature as it will help reduce RIL’s debt burden. For Facebook it gets a firm foothold in a fast-growing huge market of India
2. Deal for Company’s Expansion
Jio Platforms, Reliance Retail and Facebook's WhatsApp service have also entered into a commercial partnership agreement to further accelerate Reliance Retail’s new commerce business on the JioMart platform using WhatsApp and to support small businesses on WhatsApp
Last year, Reliance said that it would turn Jio into a new digital services company by investing nearly $15 billion, potentially attracting investors in the run-up to an eventual listing. The Jio-Facebook comes after Microsoft signed a 10-year deal with Reliance in 2019 to power the Indian company’s data centers with its Azure cloud.
Commenting on the deal, RIL said this is the largest investment for a minority stake by a technology company anywhere in the world and the largest FDI in the technology sector in India.
3. Facebook to Tap Jio Network for its Benefit
In less than four years, Jio has brought more than 388 million people online, fueling the creation of innovative new enterprises and connecting people in new ways. Facebook now plans to connect to more people in India together with Jio platforms
Beneficial, if under Watch by Regulator
Since its launch three years ago, Jio, led by billionaire Mukesh Ambani, has grown at a sprinter’s pace to become India’s largest telecom company. It has accumulated some 340 million customers through a barrage of innovations, including offering cut-throat mobile internet prices and a diverse suite of products and including chat services, movies, games and music.
If properly planned and implemented, the Facebook-Jio deal may turn the table in favour of Indian Economy and if left unwatched, the huge profit earned from India may be swept away by Facebook for its own benefit. The Government of India, TRAI and other regulatory authorities have important role to play in this regard.