Facebook investing $5.7 billion for a 9.9 per cent share in Mukesh Ambani-owned Jio Platforms is big news. Globally, this is the largest investment by a tech firm for a minority stake in any company. In India, this is the largest foreign direct investment in the technology space till date. For Facebook, this is an opportunity to tap into the world’s fastest growing digital market. For Reliance Industries Limited (RIL), this is a chance to make Jio Platforms a strong digital entity in India.

Jio Platforms houses all of RIL’s digital and mobility businesses, including India’s biggest telco Reliance Jio Infocomm (which is also the country’s largest broadband provider) as well as Jio Fiber, MyJio, JioTV, JioCinema, Jio Mart, JioNews, JioSaavn and other services under one banner. As part of the deal, Reliance’s Jio Mart platform will work alongside Facebook-owned WhatsApp to bring over 60 million small scale retailers and kirana vendors online. This is indicative of a broader partnership, involving the eventual merger of services such as payments, streaming, IoT, cloud computing and augmented reality (AR).

Through the deal, Facebook can get access to the detailed data of Jio’s customers to gain insights into consumer behaviour and thus generate serious advertising revenues over time. Meanwhile, Facebook’s strength in digital services, AI and AR can be leveraged by Jio to achieve scale and ubiquity in India. Between Facebook and its allied services, WhatsApp, Messenger and Instagram, there are 600 million-700 million users. These services could be leveraged to expand the Jio platform.

The deal comes at a time when technology has taken centre stage in India amidst the Covid-19 outbreak. People are staying indoors, and are relying on technology tools for work, entertainment, socialising, etc. There has been a significant uptick in digital payments, e-commerce activity and the adoption of online tools in India. These trends are expected to continue, becoming the new normal in the post-Covid era.

The Jio-Facebook deal will undoubtedly shape the future of India’s fledgling tech space. More importantly, it will help facilitate wide-scale digital adoption in the consumer and B2B space. Notably, the two companies hold disparate views on vital matters like data privacy, data localisation and net neutrality, and how these can impact the world’s largest democracy. While the deal signals the dawn of a new digital India, it is critical to ensure that data sovereignty is not compromised.

tele.net takes a look at the significance of the deal for the two parties, and its broader implications for the country’s data ecosystem…

What does the deal mean for Facebook?

While many believe that the nearly 10 per cent stake had cost Facebook a fortune, the potential strategic value that the company can derive from the deal is substantial. The company’s user growth in the western region has begun to plateau and after several failed attempts to enter the Chinese market, it has now shifted its focus to India, which is undoubtedly a big opportunity.

The deal with Jio, the biggest telco in the country, brings in a plethora of direct and indirect benefits. First, it means easy access to the treasure trove of data of about 390 million Jio subscribers. This includes information about their handset type, location, data usage, etc., which can help in targeted advertising. Second, it will help expand the reach of Facebook’s WhatsApp as Jio plans to pre-install the app for customers and businesses associated with the JioMart marketplace. Third, Facebook will be able to monetise its WhatsApp pay service, either individually or by merging it with Jio Money. Fourth, Facebook is likely be integrated with Jio-owned devices. Jio’s new broadband network, Jio Fiber, could also help increase Facebook’s penetration in the country. Further, the investment in Jio Platforms will give Facebook access to 5G technology and telecom infrastructure in the country while protecting it from regulatory scrutiny and compliances. Reportedly, Jio has developed its own end-to-end 5G technology, and has sought approval for 5G trials from the Telecom Regulatory Authority of India (TRAI).

The partnership will help Facebook to deal with competition from Chinese apps like TikTok, which is gaining prominence in India. The collaboration may finally improve Facebook’s shaky and controversial relations with Indian policymakers and regulators.

Reliance’s digital aspirations

RIL affirmed its ambitions to become a digital platform in 2016, when it entered the Indian telecom space. Since then, it has introduced a suite of apps, under the umbrella of Jio Platforms – JioCinema, Jio Money, JioTV, JioChat, JioCloud, JioSecurity, JioMart, JioHealth-Hub, JioMoney, JioMotive for smart car connectivity, etc. These, however, have not taken off as per expectations. On the hardware side, too, apart from the initial success of JioPhone, progress has been rather slow. JioTV and JioCinema are perhaps the only services in the Jio Platforms suite that have captured the attention of Indian users. But these will be truly tested once Jio starts charging for these services.

Jio has spent around Rs 2,500 billion to build its network, comprising nearly 400 million users, but has not yet monetised its user base. Services/Apps under Jio Platforms are yet to take off in a big way and Jio continues to be perceived as yet another telecom carrier while no value is ascribed to its suite of apps, digital investments and capabilities like AI and IoT.

Getting Facebook on board will help Jio take the digital leap. Services like Jio Money could be bolstered if deeply integrated with Facebook. Similarly, Facebook-owned Oculus can support Jio’s AR and mixed-reality initiatives. This deal has created a positive sentiment in the market and over the past month, Jio Platforms has raised a total of Rs 785.62 billion from technology investors like Facebook, Silver Lake, Vista Equity Partners, General Atlantic and KKR. Vista has acquired a 2.32 per cent stake for Rs 113.67 billion, while Silver Lake and General Atlantic have invested Rs 56.55 billion and Rs 66 billion, respectively, in the company. Most recently, US-based global investment firm KKR invested Rs 113.67 billion in Jio for a 2.32 per cent equity stake on a fully diluted basis. This transaction values Jio Platforms at an equity value of Rs 4.91 trillion and an enterprise value of Rs 5.16 trillion. These deals firmly cement Jio Platforms’ position as a tech company.

On the financial side, the deals will help deleverage the balance sheets of RIL, and help it achieve a net cash position at a time when it’s petroleum business has taken a hit amidst the Covid-19 pandemic. These deals will also drive RIL towards its goal of becoming net-debt-free by March 2021. Riding on the success of the deal, RIL has also announced its plans for a rights issue. The company, which has so far grown through internal accruals and debt, plans to ask existing shareholders to subscribe to shares worth Rs 531.25 billion at a 14 per cent discount on its April 30 closing price. This also gives its balance sheet the flexibility to raise money for the next phase of growth. As per media reports, the company is also working with banks for an overseas listing of Jio Platforms in the next 12-24 months.

Apart from money and Facebook’s tech firepower, Jio gets access to hundreds of millions of users across WhatsApp, Facebook and Instagram.

Red flags

Prima facie, the deal seems like a win-win for both the parties. However, analysts have their fair share of concerns around the unfair market competition, breach of data privacy and net neutrality violation. While both the companies have clarified that there is no data sharing agreement between them at present, neither has explicitly ruled out a possibility of the same in the future.

Net neutrality

The net neutrality principle states that all internet content must be treated equally by service providers and no discriminatory practices that hinder or ease access to certain services/content should be practised. The idea is to make the internet space a level playing field for all players, especially those new to the online market. India took a strong stance in favour of the net neutrality principle when TRAI, in 2016, had explicitly forbidden discriminatory tariffs on the basis of content. Interestingly, Facebook was at the receiving end of this then as TRAI had banned its Free Basics project (Facebook’s first attempt to enter the Indian market), which offered free internet to rural users but created a “walled garden of select applications”.

The Jio-Facebook deal can create net neutrality issues  if Jio decides to give preferential treatment to Facebook apps such as the newly launched Lasso and WhatsApp Pay. Lasso is a short format video sharing app that aims to compete with TikTok, which already has about 120 million users in India, its highest outside of China. Meanwhile, the WhatsApp Pay initiative will compete with Google, Amazon and Paytm, among others. Any kind of preferential treatment by Jio, a faster loading speed or better connectivity for Facebook’s services, can lead to a shift in brand loyalty and deeply impact competition.

Data localisation

Data localisation gained prominence in India post the Reserve Bank of India’s (RBI) directive issued in 2018, which mandated the local storage of all payments data. Historically, there has been strong discord between Jio and Facebook as far as their stance on data localisation is concerned. Jio was in the pro-localisation camp, staunchly opposing data colonialism by foreign tech giants. Meanwhile, Facebook led the pack of companies from Silicon Valley that wanted to avoid the heavy compliance costs of data localisation. In fact, permission to WhatsApp Pay was denied by the National Payments Corporation of India as Facebook initially refused to guarantee that WhatsApp will store Indian consumers’ data in India itself.

Data privacy

Facebook and Jio together will have access to a huge database of users’ personal information (over 400 million WhatsApp users and another 390 million Jio subscribers). Since India is yet to finalise its personal data protection law, the Jio-Facebook tie-up may result in the leakage of Indian data to overseas firms. Facebook already has a notorious reputation as far as consumer data privacy is concerned. In the past, Facebook and WhatsApp have practised end-to-end encryption of data and have resisted requests from the Indian government for tracing the origin of messages.

Creation of a super app

The most interesting possibility in this deal is the creation of a super app by the two giants. A super app provides an integrated platform, offering a host of digital functionalities bundled into a single app. Through this, a user can access messaging, video calls, payment services, social media, e-commerce, TV channels, etc. from a number of partners on a single platform. A good example is China-based TenCent’s WeChat, which creates a walled garden ecosystem and prevents the use of other stand-alone apps. The app has close to a billion users in China, and is reportedly used by the Chinese government for surveillance. Such an app is not in the best interest of a growing tech start-up ecosystem in India as it will stifle innovation. Indian tech start-ups have been extremely vocal about the difficulties and challenges they face when competing with big tech companies and the creation of a super app will drive them and several medium-sized companies out of business.

Net, net

For Facebook, with a market cap of over $500 billion, this $5.7 billion investment is a fairly small price to safeguard its interest in India and gain a foothold in its biggest global market. For Jio, the long-term partnership with the Silicon Valley giant will enable it to enter the world of technology.

The mega deal will have major implications for India’s retail, internet and payments ecosystems, as well as on its data governance landscape. Facebook now has a seat on the board of Jio Platforms, which means that its voice will carry some weight in policy deliberations. It will be interesting to see the extent of influence this will have on key upcoming policies including the e-commerce policy and the Personal Data Protection Bill.

Going forward, the Jio-Facebook deal, with the largest and most successful US-based tech companies investing in India’s emerging digital platform, is an indicator of the promise digital India holds for the world. However, it remains to be seen whether this deal will drive India’s digital growth competitively or further the dominance of the two platforms.

By Akanksha Mahajan Marwah