Facebook, the US-based technology giant is in talks to acquire a stake in top Indian telecom Reliance Jio, a three-and-a-half-year-old subsidiary of India’s most valued firm Reliance Industries. The talks were put on hold because of the coronavirus outbreak. Microsoft has already partnered with Reliance Jio and would provide cloud-computing services to the company.
About Reliance Industries: Reliance Jio
Reliance Industries had soft-launched Jio back in 2015 with its public operations starting in 2016. It started its commercial operation in the second half of 2016, upended the local telecom market by offering bulk of 4G data and free voice calls for six months. Local network operators like Vodafone and Airtel quickly had to revise their data plans and mobile tariffs since a price war kickstarted. But they struggled to match the offerings of Jio, which has amassed over 370 million subscribers to become the top telecom operator in the country. The subscriber market share of Reliance Jio is 32.1% and a revenue market share of 35.4 per cent as of December 2019.
The Zero Debt Goal of RIL
Last year Mr Mukesh Ambani had said that the company will become zero net debt company in 18 months. This is being done through a slew of equity partnerships in various businesses. RIL has been in talks to sell stake in its petrochemicals business to Saudi Arabia’s Aramco, retail Petro pump deals with British oil major BP and for telecom tower assets with Canada’s Brookfield by March 31,2020
What might have interested Facebook in Reliance Jio?
Reliance Jio and Facebook are set to profit equally from the deal. The number of users might have interested Facebook, which attempted and failed to expand its free internet initiative, Free Basics, in India. Free Basics by Facebook offers people access to useful services (websites provide content on news, health, local information and education for free) on their mobile phones in markets where internet access may be less affordable. Free Basics and its services were banned temporarily, by TRAI due to discriminatory tariffs for data services.
The Company has also expanded Express Wi-Fi to India, though its potential and scale remains comparatively small. Express Wi-Fi is an initiative by Facebook that has partnered with 500 local entrepreneurs that provides internet at upwards of 10Mbps speed without any per day limit or restrictions at a very cheap rate. Facebook also has issues related to WhatsApp in launching UPI payments and encryption with the Indian government.
The development comes as Reliance Industries (RIL), the parent company of Reliance Jio, has been looking to induct foreign partners in all its businesses to deleverage itself.
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What will happen if Facebook acquires 10% stake in Reliance Jio?
The ambition of Mr Mukesh Ambani of cutting parent company RIL’s debt to zero by March 2021 will be fulfilled by the deal, since RIL had poured in huge sums of money to expand Reliance Jio to make it the biggest telecom player in the country.
Facebook, which owns WhatsApp and Instagram, will get a significant footing in the Indian telecom market if this deal goes through and since India has significantly more users than any other country. One of the reasons why Facebook wants to acquire 10% stake in Jio Even the number of internet users in India is expected to rise to about 850m by 2022 up from 450m in 2017 according to consultancy PwC.
Facebook has started facing competition from ByteDance’s TikTok in India and has started to take interest in local startups that are building solutions for the Indian market and is doing work beyond the work they do. The reported partnership of Facebook with Reliance Jio would go a long way in helping it serve its interests better in the country.
Facebook to acquire a 10% stake in Jio. It can be a little difficult for the foreign players due to the adjusted gross revenue issue. The issue is that the telephone operators are required to share a percentage of their AGR with the government as annual license fee (LF) and spectrum usage charges (SUC). There was a dispute between DoT and the mobile operators on the how to calculate Adjusted Gross Revenue. The DoT argued that AGR includes all revenues (before discounts) from both telecom and non-telecom services.
The companies claimed that AGR should comprise just the revenue accrued from core services and not dividend, interest income or profit on sale of any investment or fixed assets. Recently the Supreme Court came down heavily on telecom companies over non-payment of dues related to Adjusted gross revenue (AGR)
It will mark the third investment for Facebook in India, if the deal goes through. The company has invested in social commerce startup Meesho and around in ed-tech startup Unacademy.