Saturday, 30 May 2020

Facebook ‘commits to India’ with $5.7bn stake in Reliance Jio

by Harry Baldock, Total Telecom
Wednesday 22 April 20

The social media giant has been trying to break into the Indian market for some time and a 10% stake in one of the nation’s leading telcos could be just the way to do it

Facebook have announced today that they have purchased a 10% stake in Indian operator Reliance Jio for the sum of $5.7 billion. The deal was first hinted at last month, but talks had been reportedly delayed due to the coronavirus. However, while the virus shows no signs of slowing in India, it seems that business must go on. The move represents Facebook&rsquo…

Facebook have announced today that they have purchased a 10% stake in Indian operator Reliance Jio for the sum of $5.7 billion.

The deal was first hinted at last month, but talks had been reportedly delayed due to the coronavirus. However, while the virus shows no signs of slowing in India, it seems that business must go on.

The move represents Facebook’s single largest investment in another company, excluding acquisitions, and also makes them Jio’s largest minority shareholder.

Facebook has been trying to really take root in the rapidly growing Indian market for many years to expand the effectively. While US and Canadian Facebook users account for only around 10% of the platforms total user base, they represent nearly half its total revenue. In short, Facebook needs to find a way to monetise rapidly growing markets, especially since China is notably off limits

Four years ago, Facebook attempted its first foray into the Indian market with the launch of a free internet service called Free Basics, but the idea was met with harsh opposition. Far from meaningfully connecting the world’s poorest people as Facebook claimed, the service featured a stripped down version of the internet chock-full of Western third-party content. It was apparently intended as an on-ramp to true, open internet, encouraging users to ultimately pay for mobile data; however, it was slammed by detractors as ‘digital colonialism’ and the Indian government ultimately ordered the social media giant to cease.

Now, Reliance Jio has given them a legitimate way to enter the market, bypassing much of the regulatory red tape.

For the debt-ridden operator itself, the deal will bring in much needed capital. Jio crashed into the Indian telecoms market in 2016 with incredibly low pricing plans, enough to snag them nearly 400 million Indian customers. However, it has yet to make money from these subscribers and the recent collapse of oil prices – the commodity in which owner Mukesh Ambani made his fortune – has left the company’s financial situation less than ideal.

Jio has plans to eliminate its debt by March 2021.

Perhaps the biggest appeal for Facebook in making this agreement is Jio’s diversity. The telco has rapidly expanded into everything from e-commerce to mobile banking, and is even supposedly developing its own 5G technology. The synergies provided between Facebook's WhatsApp and Reliance's JioMart, for example, could prove highly valuable.

 

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