Why is Reliance Industries' debt increasing

Why Facebook and Google are investing billions in the Indian company Jio

Two American tech giants are investing billions in a company that is little known in the West. In India, however, there is no getting around him. It is now rivaling Huawei in building 5G.

When Mukesh Ambani gathered his shareholders on Wednesday, he did so virtually; like most Indians, he is currently in the home office. Ambani had something to announce: Google will invest in its company Jio Platforms and acquire a 7.7% share for $ 4.5 billion. Google CEO Sundar Pichai recently announced that it would be funding India's digital development with around $ 10 billion. His goal: “the next billion users”. Now the tech giant put almost half the amount in Jio.

The Google billions represent the culmination of a series of investments, in total Ambani had raised around $ 20 billion from donors in the past three months in the home office. Investors include Intel, Silver Lake, Qualcomm and also the Saudi Arabian sovereign wealth fund. As recently as April, Facebook acquired a 9.99% stake in Jio for $ 5.7 billion. Facebook CEO Mark Zuckerberg said at the time: "We are proud to be a partner of Jio." It's Facebook's biggest investment since taking over the messenger service Whatsapp in 2014.

But what is Jio anyway?

Revolutionized the industry

Mukash Ambani is India's richest man, he is one of the richest in the world. His fortune is said to be around $ 50 billion. Ambani inherited Reliance Industries, actually a petrochemical company, from his father. Mukash Ambani developed it into India's leading conglomerate, and today Reliance is also active in the textile industry and in the food trade. And in 2016, Ambani set out to revolutionize India's telecommunications industry.

The founding myth of Jio goes like this: Ambani’s daughter studied at Yale, but was spending her semester break at home and wanted to submit a work online - this is what Ambani once said. Ambani's house in Mumbai is 27 stories high and has all sorts of extravagances, a ballroom, a room where it snows. But Ambani's daughter said: "Dad, the internet in our house sucks."

Ambani expanded India's 4G infrastructure and entered the market with rock-bottom prices. Calls via Jio cost nothing, the mobile data was free in the beginning, then cheaper than anywhere else. Jio later also sold cell phones, a cheap model that is not a smartphone, but is 4G-capable - 70 million of these feature phones were sold mainly in rural India. In the meantime, however, Jio has been overtaken by other manufacturers.

Jio now also operates streaming services for music and films, JioSaavn and JioCinema. JioMeet is a service like Zoom and is set to become India's virtual classroom while schools remain closed during the Corona crisis. Today, thanks to consistently low prices, Jio has around 388 million subscribers, many of whom had no access to the Internet before.

This is where tech giants Google and Facebook come into play. India is an important growth market for them - also because, thanks to Jio, people can now use the Internet at prices that are affordable for them: Mobile Internet is cheaper than anywhere else in the world. A gigabyte no longer costs 20 cents. Today around 500 million Indians use the Internet, according to estimates it will be over 300 million more in 2022 - that still only corresponds to around 60% of the population.

India is an important market for Facebook. Many Indians use the social network, but even more use the Whatsapp messenger app. With Whatsapp Pay, Facebook is experimenting with instant payments by mobile phone in India. With its JioMart offer, Jio has access to many retailers, and with the combination of the two services, Whatsapp could soon be even more firmly anchored in everyday Indian life. Previously, Facebook had been thwarted by the government in India, and the number of Whatsapp-Pay users grew only slowly.

For its part, Google has announced that it will work with Jio to develop an affordable smartphone. Many Jio customers use mobile internet, but cannot afford a smartphone, only a feature phone. An earlier attempt by Google to bring its own cell phone to the Indian market failed. This time the company refrains from going it alone. Together with Jio, it wants to compete with Chinese providers with a cheap smartphone.

Political connections

Ambani cleverly uses the global political situation, the rifts between the West and China and the skepticism that the Chinese are facing, especially in the technology sector: After the USA, England is also excluding the Chinese provider Huawei from expanding the 5G network.

At the shareholders' meeting on Wednesday, Ambani surprised everyone with the announcement that his company had developed its own 5G technology. Ambani only half-heartedly hid the fact that this was an attack on Huawei: The news portal “news18.com”, which Ambani controls, called the technology a “Huawei killer”. News18.com also wrote that US Secretary of State Mike Pompeo praised Jio as a clean network because it does not use any Huawei parts.

Ambani wants to get involved when large parts of the world build their 5G infrastructure. He is closely associated with the Indian Prime Minister Narendra Modi. Competitors have already accused Ambani that different conditions apply to them than they do, that rules are being bent, for example when entering the market in Jio 2016. Modi and Ambani share the dream of a digitized India. They also share the ambition to reduce India's dependence on China and to rely on their own digital products. Most recently, India banned 59 Chinese apps. Huawei and the Chinese company ZTE actually wanted to set up India's 5G network, but after the recent conflicts on the Indian-Chinese border, India will hardly allow this.

So it should be the technology conglomerate Jio that will shape India's telecommunications market in the next few years. It has already left its Indian competitors behind in the battle for Internet users. And thanks to foreign investors, Jio has paid off the debts that had accumulated over the past few years.

No wonder, then, that the tech giants Facebook and Google are now jumping up. With their participation, they have each secured a seat on Jio's board of directors.