The top telecom leaders in the world’s second most populous country have all captured interest from US tech giants in the past month.
Note: while I was publishing this story, India’s Reliance Jio Platforms announced, on June 7th, its sale of 1.16% of stake to Abu Dhabi Investment Authority for $750 million. This marks the 3rd investment in June, and the 7th foreign investor of the company. This also means Facebook’s shares have been surpassed by the total holdings of the 6 other firms.
On June 4th, Abu Dhabi investment firm Mubadala joined a list of 5 others to invest in India’s Reliance Jio Platforms. In the past month, there seemed to an announcement about Jio securing new money every week. Mubadala is the 6th foreign investor looking to capture an early slice in India’s growing digital economy.
Within 2 months, Jio has raised $12.2 billion selling almost 20% of its equity. That number alone should make you intrigued at what’s going on with the India’s telecom market. As the nation with a population only second to China, India in recent years have emerged as one of the most competitive and appealing global battlegrounds for firms seeking to win over its 1.3 billion people. This piece will examine India’s biggest telecom operators: Jio Platforms, Vodafone Idea, Bharti Airtel and how they’ve managed to thrive at the height of a global pandemic.
A signal from Facebook
Facebook announced its $5.7 billion investment in Jio Platforms on April 21st, making the company Jio’s largest minority shareholder at 9.99%. The sign of confidence from one of the most influential tech companies internationally help set off a string of follow-up investments in Jio. Facebook’s strategic investment will see an ambitious partnership between JioMart (Jio’s small business initiative) and WhatsApp, to allow customers to connect and shop in one seamless packaged experience. Jio is also establishing an online grocery ordering service to be powered completely through WhatsApp messaging. The delivery service that rolled out in April in three areas of Greater Mumbai, is a relevant and timely launch during a period when Indians are trying to minimize trips outside their homes like the rest of the world.
Following the deal made by the Silicon Valley sweetheart, investors started pouring in. Silver Lake, who we’ve seen frequently in recent news by infusing travel companies like Airbnb with cash, invested $750 million in Reliance Jio Platforms within hours of Facebook’s announcement. On June 5th, the investor said that it would double down on its bet by purchasing an additional $400 million stake. Silver Lake now holds 2.08% of the $65 billion Indian firm. Shortly after, US-based Vista Equity Partners scooped up a 2.32% stake for itself. Vista paid $1.5 billion at the same valuation implied by Silver Lake. These rounds would put Jio’s new valuation at a 12.5% premium over Facebook’s original deal. New York-based private equity firm General Atlantic was the 4th investor to write a check. General Atlantic closed an $870 million deal in exchange for a 1.3% stake in Jio. By the end of May, equity firm KKR bought in Jio — a 2.32% stake for $1.5 billion. This makes KKR the 5th major investor, holding equivalent shares with Vista. Finally, Jio’s latest new investor is a sovereign firm from United Arab Emirates, Mubadala. It is the first non-American firm to secure stakes in India’s number-one telecom operator. This week, Mubadala agreed to invest $1.2 billion for a 1.85% stake in Jio. Similarly, this deal valued Jio at its previous-round number of $65 billion. The sum of stakes held by these external investors now match Facebook’s individual ownership.
Interestingly, reports last week indicated that Microsoft was also considering investing in Jio. It’s worthwhile to note, that if this deal goes through, it would not only make Microsoft the 7th foreign investor within 7 weeks, but the only other large tech company with opportunities to build synergy and collaboration around its products besides Facebook. The 5 other investment firms are mainly looking to reap high returns on their portfolio, but Jio may see more to benefit from a fellow tech giant in leveraging new opportunities to elevate its current service and offerings.
Jio?
Jio Platforms is now the most valuable company in India, and accrued over 388 million subscribers in the 4 years since its inception. Jio Platforms, is in actuality, a subsidiary to Reliance Industries, an Indian powerhouse conglomerate headed by billionaire Mukesh Ambani, India’s richest man. Reliance owns businesses across the country engaged in energy, petrochemicals, textiles, natural resources, retail, and telecommunications. This significantly attributed to how Jio was able to lure customers in with its incomparably low pricing on cheap plans that offered perks such as free calling. With efforts to build a one-stop digital commerce platform, Reliance pushes aggressive pricing strategies. The company also dominates a sprawling number of sectors: Jio in telecom, Reliance Retail in brick-and-mortar retailing, Reliance Network18 Media in news networks, Jio Studios in film, and Reliance’s Jamnagar in oil. Ambani, the magnate behind Reliance with a $58 billion net worth, has a high tolerance and willingness to bet big on emerging technologies. As reported by Economic Times, Jio was an early adopter of voice-over-LTE in India, which is comparatively more efficient than traditional networks that its competitors were relying on. With its parent company’s hefty resources and newly announced backings, Jio is shaping up to reach its long-term goal of transforming India’s entire digital ecosystem.
Reliance is on track to check off a to-do for Jio Platforms, a public listing. The Indian telecom has attracted major attention from the public as it vehemently raised pre-IPO funding in past months. Analysts predict a US listing north of $100 billion, expected sometime in 2021. Given Jio’s hunger, recent activity and the company’s typical “efficient” habit, I personally think it won’t take until next year to go public. Nonetheless, the IPO is expected to be a success story for Ambani, Reliance Jio, Wall Street investors who have been anxiously twiddling their thumbs as Jio announced round after round, and its current PE investors whose portfolios have felt discouragement from COVID-19.
“Reliance wants to be a global technology powerhouse,” said Rahul Malhotra, a Bernstein analyst. “With the Facebook partnership, they will build the WeChat of India.” Through its Facebook deal, Ambani is marking a milestone connecting services and providing his customer base an easy and fast access to groceries, clothing, banking and more. This highly invaluable integrated system running through Jio will drive Reliance to become what Ambani envisions as an “everything company.”
The leader and its competitors
As I previously touched on, enjoying the backing from its own parent Reliance undoubtedly contributed to Jio’s drastic rise in India’s telecom market. It was estimated that Reliance pumped in approximately $30 billion in oil-related earnings to subsidize Jio’s low prices. Jio’s competitors, which stood around a dozen when it first entered, were forced to “slash prices, quit, or merge with each other.” Executives from Reliance commented they had no mercy in attacking their competitors. “We have to bleed others to death.”
Last year, Jio became India’s number-one carrier by user count. Meanwhile, rival and fellow second-place Vodafone Idea struggled to catch up. Vodafone Idea is a combined venture between the Indian unit of Britain’s Vodafone Group and billionaire Kumar Mangalam Birla’s Idea Cellular. In 2018, the two entities merged following enormous reductions in margins that threatened to keep both firms afloat, to form Vodafone Idea, which the Indian government stated will help stabilize the industry given the entry of Jio that completely upended the sector. The following year of 2019 was one of the toughest for Vodafone Idea, as it saw a downfall in market share and slipping subscription numbers due to connectivity issues across the country. On top of this, Vodafone Idea lost a 14-year long legal battle against the department of telecommunications (DoT) over the definition of adjusted gross revenue (AGR). The company owned $4 billion in overdue levies and interest to the government. Since the merger, Vodafone Idea has unfortunately lost 118 million subscribers.
As of June 2020, Vodafone Idea has bounced back, re-entering the elite club of the Top 100 most valued Indian companies in terms of market valuation, at the 96th position. Its stock price has surged by 132% from May 5th to June 5th. Vodafone Idea has successfully safeguarded its 23 million paying subscriber base that it’s looking to ramp up to 162 million by 2022, according to Economic Times. Earlier this week, Vodafone Idea and Nokia announced completing phase 1 of the world’s largest deployment of Dynamic Spectrum Refarming (DSR) technology, which will substantially upgrade the user experience with optimal use of spectrum assets in India. With Jio and Facebook in the spotlight, Google was apparently in serious talks last week to invest in Vodafone Idea, for an equity stake of at least 5%. Needless to mention, it would have been a big hit to the Indian economy if Vodafone Idea did not survive its 2019 crisis.
The third-place telecom operator is also not free from investor meetings. This week, Reuters reported that Amazon is seeking to buy a 5% stake in Bharti Airtel for $2 billion, further underlining American tech companies’ rush into India. Both Bharti Airtel and Jio added 24 million gross users in the March quarter after an increase in tariffs in December 2019. According to analysis done by financial company Jefferies India, Bharti Airtel’s stock value could rise 50%-100% over the next three years thanks to the revenue boom India is experiencing in its telecommunications sector.
This non-ending wave of foreign interest and investment is a strong indicator that points to India’s fast expanding digital economy and American tech giants’s fear of Facebook gaining a head start through its affiliation with Jio. As we know, Amazon has long had a presence in India through its e-commerce arm, and Amazon making the right investment could help take advantage of that. One thing for certain, is that the telecom sector is receiving investment calls pouring in, we just have to see who are the ones who end up picking up.
When Facebook first released its press release on the deal it made with Jio, it underscored their excitement to take part in the digital revolution happening in India. The country is adopting new technologies, at rapid rates, fuelling its social and economic growth. As more and more of India’s population gain access the internet, all eyes will be on the country as a transformation unfolds.
The keen commitment from US-based companies to collaborate with India is no secret. Furthermore, there is a shared “enemy,” given rising tensions between India and China relations. Millions of Indians have downloaded the popular app “Remove China Apps” as a way to boycott apps like Tik Tok on their phones that are made by a Chinese company. This week, the app was removed by Google. On the other side of the table, I don’t think I need to elaborate on the tensions between China and the US. With a trade war in effect, the States is also accusing China of stealing technology secrets and intellectual property. Chinese companies like Luckin Coffee have been caught in a scandal deceiving shareholders, thus delisted from NASDAQ. This has hindered future Chinese companies to list in the US, and current US-listed Chinese entities to explore a second listing as a backup. Huawei qualifies for another story of its own. Nevertheless, 4 of the top 5 smartphone brands in India are still Chinese companies (Xiaomi, Huawei, Oppo brands). Samsung, the only one who isn’t, is a South Korean company. Could we see Jio partner up with a US company like Facebook to launch a local smartphone brand? After all, these are what consumers need to use in order to access Jio’s services. Extending beyond the software would help Jio own the full consumer experience.
Despite Jio being able to raise billions of dollars, its home country is still severely affected by the global pandemic as cases rise everyday. After the lockdown, it is likely these telecom operators will tweak their working models and reprioritize their efforts. Accelerated by the pandemic, telecom companies are already focusing on all-digital transactions and chatbots. It is likely they will only continue to decentralize customer cart and support, reducing dependence on call centres and related costs. During this time, demand has increased as people stayed indoors with a lack of entertainment options. As a result, analysts have suggested that telcos may be capable of reducing network costs due to the increased demand. We already see telcos extending new discounts up to 6% for customers. All 3 companies I mentioned, Reliance Jio, Vodafone Idea and Bharti Airtel have announced new partnerships with ATMs, kirana, pharmacies stores as retail and convenience shops remain shut.
The first investment in Jio by Facebook caused a “FOMO” wave to crash through Silicon Valley. Moving forward, I suspect new collaborations between the West and the East that stimulate technological growth, enable economic opportunities and combat pressing issues for the people — like the global pandemic.
Jio’s 2016 rife-with-cash entrance may have shook the telecom industry at that time, but Jio can’t possibly get comfortable with its temporary leading market share. The market in India is very much developing and ever-changing — and the race to advance the economy as the first-mover is still a fair game. Who will come out on top? Jio, Vodafone, Airtel… Nobody is safe.
Thanks for reading!
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