Jio: Desi-FAANG into making?

Jio is into the limelight for some time and now more than ever since Jio — Facebook deal in late-April. For those who don’t know tech-giant Facebook invested $5.7B in India’s Reliance Jio Platforms.

But the investment stories don’t stop there. Jio is one of the hottest commodities in the Indian stock market right now. They have been raising money like crazy, few deals being:

• 22 Apr 2020: FB — Jio deal
• 4 May 2020: American private equity firm Silver Lake Partners bought a 1% stake in Jio Platforms for Rs 5,655.75 crore ($750 million) — almost doubled the stake by adding another Rs 4,546.80 crore on 5 June 2020.
• 8 May 2020: Vista Equity Partners picked up a 2.32% stake in Jio Platforms for Rs 11,367 crore ($1.5 billion).
• 17 May 2020: General Atlantic picked up 1.34% for Rs 6598.38 crore ($870M).
• 21 May 2020: KKR to invest $1.5 billion in India’s Reliance Jio Platforms
• and so on…

In total, ~12B$ has been raised by Jio in less than 2 months.

As an impact RIL (the parent company of Jio) share is booming and rallying like COVID-19 never happened. It is up roughly 75% from its 52 w/k bottom post-COVID.

Overall, RIL is heading to be debt-free, a goal which is cakewalk right now. On top of external investments, they have raised money via rights issue worth 7B$ in the same month.

Telecom Sector

First of all, let’s check the telecom business. Jio reported profits have tripled in a year along with average revenue per user (ARPU) at Rs 130.6 (1.72$)/user right now. It is not a secret that the price war between telecom companies in India is almost over, which means ARPU is going to increase sharply.

Jio’s entry into market and “price war”

Let me rewind a bit and let’s focus on when this big bang actually started. It was known for some time that Reliance (RIL) will make entry into the telecom sector as soon as it’s non-compete agreement ends with Reliance Communications (RCOM). No! They are not the same company but RIL is managed by Mukesh Ambani while RCOM by Anil Ambani (ADA Group), the tale of two brothers who got their business divided way back in January 2006. There were lot of ups and downs, and the agreement was scrapped in 2010.

Finally, in 2016, Jio entered into this space with a big bang and big announcements by Mukesh Ambani. In this period data was worth Rs 250 ($3.5)/GB, but Jio provided welcome offer having free data, free call, and other services. This offer was then stretched month over month to 10 months to capture the market, and it essentially did. (More about it)

Here is an old image, describing what happened in the charts. :)

This impact caused all the other companies to die a slow death. As much as 5–6 companies were closed in this period and others merged to remain sustainable. The biggest merger being Vodafone and IDEA, now known as “Vodafone IDEA” and traded as $IDEA.

Finally, the market got saturated between 3 private players, Jio, Airtel, and Vodafone Idea. But why Jio got an upper hand in this fight?

There are multiple reasons, which you can think of:

1. Jio invested only in “4G” and had 0 investment in 2G and 3G infrastructure. Airtel and $IDEA on the other hand were supporting all the bandwidths.
2. Jio strategically built an intra-city optic fiber network before jumping into the telecom market. This helped them to provide data at much cheaper rates.
3. And others, like the backing of RIL’s oil business, IPv6 usage from start, etc.

End of the price war

Since November 2019, this war has kind of settle with prices of data increasing slowly and so on.

But has the market consolidated already? Well, technically Vodafone Idea are still in the market but have been struggling with their debts for long, even before AGR issue hit them up. Vodafone has already noted that they’ll pull out from India, seemingly after a merger with Idea in 2018 to create the largest telecom company by subscriber and revenue at that point in time. The only competition worthy in this space currently is Airtel, which posted a loss in Q4 results but an impressive average revenue per user (ARPU) of Rs 154 ($2.5).

However, to add to Jio’s misery, Jio was always projected as “free” or “poor-friendly” which makes it hard for them to raise prices as quickly as Airtel, which generally market banking on “quality”. But once Vodafone Idea is dead, duopoly opens a lot of options for both Jio and Airtel.

What can happen?

• Jio can continue to burn some money here and make sure the third player is out, so it ends up in duopoly if not a monopoly. Meanwhile, Airtel is pushed back on its hope to increase tariffs.
• The race to 5G for which all the companies are already into a fight can open a lot of options. This way 4G can remain cheap while 5G is pitched as a premium commodity.

Editor’s watch list #1

We are missing how much internet/connectivity is compulsory in today’s world (even before COVID) right from banking to Aadhar authentication to signup to normal websites. COVID pushes it even further to have the internet as a basic necessity v/s luxury. The government can bank on this opportunity to push the tracking app as much as possible AND join free internet movement. This can convert the telecom business into a gold mine!

Differentiator

Well, you may be thinking Jio is just a telecom company at the end of the day, why is it being so hyped up? Well no it isn’t. It is much more and now we will deep dive into it.

⭐ Jio Mart
(Target: Amazon)

It is a hyper-local delivery service which is recently launched (can’t be a better time for it). It has integration with WhatsApp, etc making it readily available to their target audience.

⭐ Jio Apps Ecosystem
(Target: Google Ecosystem)

This is something for which Jio was probably laughed upon, at least I thought to be a waste in the world where people can use Youtube, Online NEWS, Chrome, and so on! But let’s see their ecosystem as of now.

Jio TV

Enjoy live cricket online streaming & 600+ live TV channels on JioTV app at your fingertips, including 100+ HD channels.

Jio Cinema

Meet your on-demand video streaming platform with over 1 lakh+ hours of exciting Movies, TV Shows, Originals, Music videos, Clips, Trailers & more.

There are also Jio Browser, Jio Security, Jio Games, Jio Cloud, Jio Call, Jio Cinema VR, JioMoney Wallet, Jio Saavn, and so on…

What is happening here? Well, you guessed it right, the ecosystem is growing and adding more and more apps quarter by quarter. The even better part is, those apps don’t really suck.

⭐ JioAds
(Snooping Capabilities a.k.a. Advertising, target: Google)

It is one business arm not “commonly” known to exist, but advertisement is the best business out there, how can Jio miss it? Jio is quite infamous already for their snooping/MITM capabilities in the tech community and so on. But now, with the advertisement and data science capabilities of Facebook, these two players can do wonders.

⭐ KaiOS/Android
(Target: Android/Google)

Reliance Jio has invested $7 million in cash for a 16% stake in KaiOS and used it in the past for Jio Phones. Meanwhile, Jio’s also tried to partner with Android in 2017 for affordable 4G phones. Given the Indian market is full of Android at the moment, no matter the solution it would impact android (or keep them at the same stake).

Editor’s watch list #2
The real aspect here is mixing phones, OS, and their existing apps ecosystem!

Once these things are bundled together well, Jio may be looking to sell them at subsidized rates for locking in users to their network, applications, and so on! Along with free/cheap internet obviously to users. 😉

The real push

But ok, everything sounds far fetched right now. Why will anyone leave Youtube, or Paytm, or Amazon for that matter?

Editor’s watch list #3

The deal breaker is changing political scenario unfolding nowadays. We are in times when local things are promoted, along with “Aatm Nirbhar Bharat”, “Make In India” and so on.

We are already in the domestic wave where Chinese apps are openly asked to uninstalled in favor of national interest (example: Remove China Apps), and more focus is given to use Indian applications. I am projecting this moment to grow bigger over time causing uninstall movement not only for Chinese but other non-Indian applications too. Even if it is far fetched right now, it can place Jio’s application ecosystem to the limelight.

Unfortunately/Fortunately for Jio, Google is already getting caught in the crossfire. Example:

Editor’s watch list #4 (Magical Element)

Personal Data Protection Bill 2019 (PDP Bill 2019) was tabled in the Indian Parliament by the Minister of Electronics and Information Technology on 11 December 2019. As of 17 December 2019 the Bill is being analyzed by a Joint Parliamentary Committee (JPC) in consultation with various groups.

In case this bill is passed by the government, Jio and telecom sector, in general, can be a cheap buy even at current prices. It has laid down provisions that can make the life of non-Indian companies a bit hard, major one being “Restrictions on Transfer of data outside India”.

Cutting Edge?

• Jio is hiring like crazy from countries’ top institutes and lateral hires including Google, notably AI and IoT space, and building a strong team.
• Jio to connect billion connected devices via NB-IoT platform
• Jio and their engineering team know how to go-local while Google and US-based FAANG pioneer ongoing global. (including local languages support, etc)
• Jio has acquired multiple AI-based startups, notably Haptik last year.

Bonus: $$$

Jio has already pushed RIL for big rallies and investors are keen to get Jio IPO’ed. And what can be better than ease of IPOs for Indian companies abroad?

Finance Minister has recently announced ease of foreign IPOs, after which Reliance is already looking to use this opportunity and get Jio the IPO it deserves.

Reliance looks at Nasdaq listing for Jio Platforms; IPO likely by 2021

Rumors Rally in telecom space

The last couple of weeks have been crazy for telecom space in India, with a lot of speculation. Here are a few of them (NOTE: none of the below investment talks are either confirmed or denied by any company till now).

Bigger Picture and Conclusion

I believe Jio is expanding like crazy and have already picked up/picking fights with big players. Will it continue to provide good services and compete with current players is a deal-breaker for its future?! This was the only pitfall in the otherwise perfect plan of Jio in the telecom sector and Airtel survived till now.

Open Questions

• Can Google lose this war and isn’t seeing this coming?
• Will India replicate China’s success to keep US companies away from the domestic audience?
• How will Facebook strategically integrate into Jio Ecosystem?

Random; Even though Jio is multi-bragger and business is set to grow like crazy, I will continue to be afraid of Jio and their services on a personal level. It is far-fetched but we may be on the path to replicate China’s model of the great firewall. But this time ISP can act like firewall.

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