The Race to 5G – Reliance Jio, the unsung rising star amid the global recession

Many parts of the world are witnessing the coronavirus recession, while many countries including India, the USA, Brazil, etc. are still facing a high number of COVID-19 cases. India with a total of 1.48 million confirmed cases and nearly 500,000 active cases is fighting a crucial battle on one side with the pandemic and the other side with its shrinking economy. Through its financial stimulus package, food incentives, and industry relaxation norms, India has begun to flatten the curve and is showing a U-shaped recovery. Even with an average of nearly 48,300 new cases daily over the last week, India has started its industrial production and is currently headed towards the recovery phase. During the past few months, companies in Telcom, Fintech, EdTech, Pharmaceuticals, Manufacturing of PPEs, Logistics, Internet companies, etc., have seen an exponential rise in their demand and revenue. Over the last few months, Jio Platforms, a subsidiary of Reliance Industries (RIL) has seen mounting growth in terms of foreign capital infusion, operational growth, and future expansion. Many Chinese would know of Indian companies such as Tata, Infosys, Paytm, and Flipkart. RIL is a Fortune 500 Global and India’s most valuable company by market value. It is owned by Mukesh Ambani, who is also Asia’s richest man as stated by Forbes. Reliance Jio started as a telecommunication company and later restructured and diversified itself to provide many services. Today it is India’s leading telecommunication & digital platform service company.

The biggest-continuous fundraise in world history

Jio Platforms has become the new favorite for international tech and VC investors. In less than 8 weeks, Jio Platforms has raised 14.75 billion USD selling 22.38 % stake in the company to 10 global investors and companies worldwide through various deals. In another 4 weeks, it raised a total foreign investment of up to 21 billion USD selling a 32.9% stake in the company. This is the largest continuous fundraise by any company in the world to date. The majority stake of 67.03% in Jio Platforms is owned by the parent company RIL. This started on April 22nd when Facebook invested 5.7 billion USD to acquire a 9.9% stake in the company. It was followed by Silver Lake, PE firm that paid a 12.5% premium of 746 million USD to acquire a 1.15% stake in the company. Later Silver Lake increased its investment by 6 billion USD and acquired a total stake of 2.1% in the company. Silver Lake is a prominent PE firm with portfolio investments in the tech industry in China, the USA, India, etc. It includes Airbnb, Ant Financial, Didi Chuxing, Alibaba, Twitter, Skype, Expedia, Dell, etc. Reliance’s Jio Platform is valued at 70 billion USD, making it the second-highest valued digital platform company in the world after Amazon in terms of EV/EBITDA. These investments will make the parent company RIL debt-free by early 2021. Thus, Jio Platforms is nicknamed as a “Super Subsidiary”.

The reason behind foreign firms’ pouring money into a newly formed company

Reliance’s Jio Platforms was formed in Nov 2019. In less than a year, it became the 4th largest Indian company by market capitalization. Many people may think why so many investments had to come pouring into a digital platform and telecommunication company and why is Jio valued so much. The answer has to do with 4 main reasons:

• India’s large telecommunication market size – userbase & teledensity
• Platform’s diversification into the digital ecosystem
• President Trump’s visit to India
• India’s 5G race

India’s telecommunication market

In 2019, the Indian telecommunication sector has become the world’s highest data consumption/usage per smartphone market of 10 GB per month. Currently, India is ranked the second largest telecom market in the world with a subscriber base of 1.2 billion people. India has one of the cheapest telecom rates (Voice, SMS, Data) in the world. India’s population of 1.3 billion people are moving towards the digital era. The number of internet subscribers in India has increased by CAGR 45.74% during FY06-FY19 to reach 636 million internet users. As of May 2020, there were more than 500 million active internet users. The gross revenue of the Indian telecom sector stood at 17.4 billion in FY20 Q3 (April-December). This coupled with favorable FDI norms and regulatory framework makes the telecom sector one of the top 5 employment generators and one of the fastest-growing sectors in the country. Due to cut-throat competition between the telecom operators, India has the lowest call and data rates in the world. It is only through continuous development, innovation, and first-mover advantage, that these companies can survive and increase their market share in a very competitive segment.

In addition to the call rates, Indian operators offer other benefits with their unlimited plan which costs around 150 - 350 RMB after taxes and offers unlimited voice, data, SMS and a combination of the below

• Complimentary or discounted Netflix subscription for a year
• Complimentary or discounted Amazon Prime subscription for a year
• Complimentary or discounted Zee TV subscription
• Complimentary International lounge access
• Discount coupons to museums and attraction worldwide
• Discount coupons to hotel bookings, online purchases, mobile recharge, etc.

Jio – A digital Ecosystem

Reliance Jio has diversified from telecommunication & broadband service to a digital ecosystem. Today, it has the largest wireless userbase in India. As of the Q4 FY20, it has 388 million subscribers which are 62% of the total active internet users in India. Jio Platforms has become one of the fastest-growing companies in India and it is valued at 70 billion USD. The diversification of their businesses is one of the key drivers that makes it one of the largest companies in India. Jio has its presence in almost anything we can think of. Many of these platforms or subsidiaries of Jio Platforms are highly profitable and are already competing with Amazon, Skype, Zoom, Walmart, Spotify, etc. in India. The major subsidiaries of Jio Platforms which it acquired after disrupting the telecom market 6 years back are:

• Jio Infocomm – Indian telecommunication company
• Jio Mart – Indian online grocery delivery service
• Jio Saavn – Indian online music streaming
• Haptik – Indian AI company
• Radysis – USA based telecom company pioneering in 5G & IoT

Jio has launched a bundle of services and multimedia applications on Google Play Store as part of its 4G services. For many of the services, a user requires a Jio SIM card to access the apps. Reliance has diversified itself into almost all the emerging fields either by acquisition or by strategic partnerships with big tech firms such as Google, Qualcomm, Samsung, Ericsson, etc. In addition to this, Jio is also in the retail & commerce and offline grocery business via Reliance Retail & Reliance Fresh.

President Trump’s visit to India

In February 2020, President Donald Trump visited India. During his visit, he met with India’s top businessmen & CEO’s. It was at this time, Mukesh Ambani announced that they are the only company in the world to not have a single component sourced from China for their 5G trials & 4G network infrastructure. This shifted the focus area of the investors on  Reliance Jio’s upcoming 5G network, which can be marked as one of the major reasons for the continuous foreign investment since then. Also, the investors will be looking at how Jio evolves its collaborations and uses the under-utilized business platforms like the app ecosystem, etc., rather than depending heavily on its telephone business. Trump was supportive of Jio because it did not source components from China. This created a buzz in the global market, where many countries including the USA, Australia, Japan, New Zealand showed an inclination to not source components from Chinese vendors such as Huawei and ZTE. Companies such as Orange in France, Telstra in Australia, NTT in Japan, SK & KT in South Korea, and O2 in the UK are rejecting doing business with Chinese telecom vendors. During this time an Indian company making a similar announcement has attracted investors worldwide to invest in Jio and its subsidiaries.

India’s Race to 5G

In October 2019, during the 3rd edition of the Indian Mobile Congress, Jio announced its partnership with Samsung to bring 5G along with a new traffic security system. Indian Mobile Congress largely revolves around 5G, IoT, and AI. It was, attended by many major telecom players in the world. Globally, all eyes have been set on Jio’s next moves. The world witnessed a technology leap with the deployment of 4G LTE. With 5G trials on the horizon, all the companies are putting their best designs forward to lead the 5G era. The transition to 5G brings more to the table than connectivity, speed, and distance bandwidth. It creates next level technological advancement when it combines with AI, IoT, Edge & Fog Computing, etc.,

Huawei & ZTE are scrutinized and banned from selling telecom equipment to state-run telecom companies in India.  Also, the Indian government is pushing telecom operators to reduce their dependency on the Chinese supply chain across sectors. This gives Jio a needed trigger to dominate the 5G era.

What does all this mean to Jio?

It is undeniable that Jio has a global outreach with its strategic partnerships with many big names in the tech industry. Each of its technology strategic partners aims to address a key issue in India, i.e. Google and Jio plan to launch cost-effective phones for Indians; Facebook and Jio plan to empower small-scale businesses by providing easier payments and seamless business communication using Whatsapp; Samsung & Qualcomm will work with Jio to set up 5G network infrastructure across multiple cities in India. The amount of diversification RIL has with its multiple subsidiaries is enormous. No company in India is more equipped to lead the 5G era than Jio. Jio also has a banking & payment license. Looking at all the suite of services Jio offers, they cover a consumer’s need end to end. Therefore, rather than fighting with Jio separately, these companies want to work with Jio to share the profits when the company grows further. Jeff Bezos, founder of Amazon plans to invest in Reliance Retail (a commerce platform that rivals Flipkart). Looking at the aggressive moves done so far by Mukesh Ambani, we can expect Jio is being geared up to go IPO soon. If Jio continues with this growth momentum, it will be ready to take on giants like Amazon, Alibaba, Huawei, Walmart, and many more, etc.

Currently, it is rivaling many companies in India across sectors i.e. Jio Meet, a video conferencing app, is already a rival to Skype and Google Hangouts. In the following year, we can expect Jio to diversify even more in the EdTech & Fintech space as Jio will soon launch its own VR glasses, digital classrooms, soft loans, etc. Currently, research is underway for Augmented Reality (AR) devices and platform development. It is incredible to see how far one person thinks to make ends meet and provide everything within one ecosystem.

Is Jio the next big thing?

Looking at Jio’s aggressive and disruptive expansion agenda, does it mean Jio will be one of the innovation leaders on the global platform? Jio’s go to market and penetration strategy is very different from the big giants in India. Many products and services offered by Jio are not truly innovative as they appear to be more of an Indian alternative to other Western & Chinese offerings. A close look at a few Jio apps in comparison to the Western alternative apps on the Google Play Store shows that they have a very similar UI. Similarly, Jio is offering many of its alternative lookalike digital services at a relatively cheaper price and under one platform.

This does not mean that Jio doesn’t do any innovation. It recently announced through its partnership with Google, it is developing its OS for low-cost mobile phones for an average Indian. Jio is a mix of innovation and lookalike alternatives. Jio is all about aggressive and penetrating business looking at quick returns and fast market entry.

What does this mean for China & the USA?

This kind of approach is very similar to the Chinese digital ecosystem. Many Chinese digital Apps and companies were initially a lookalike of Western apps & companies, but today some of these apps & companies outgrew and provide more innovative offerings.

India recently blocked 59 Chinese Apps and following it blocked another 47 Chinese clone Apps. It plans to block another 200+ apps of Chinese origin including games, cameras, e-commerce stores, etc. India to boost its domestic Indian companies' growth under Make in India 2.0, it is ready to block Chinese non-internet companies as well. This will come into effect in multiple phases slowly. Huawei & ZTE are currently banned from doing business with state-owned enterprises. However, it is not banned from participating in 5G trials. There is still bad news as all the bidding application by Huawei & ZTE filed with the Indian government is under further review with a high chance of being canceled. In light of this, Huawei has already cut down 50% of its employee force in the country. Huawei has already been banned in either doing business or performing 5G trials in the USA, UK, Australia, etc., Such a consecutive phasing of bans on Chinese apps, companies, etc., provides Jio the opportunities to fill the void and replace Chinese dependency in many sectors. With Jio launching its 5G smartphone and OS, an Indian-made mobile handset is more likely to be bought in the Indian market. Chinese mobile companies like Oppo, Vivo, and One Plus's supply chain has been disrupted by holding Chinese imports at all India ports for 100% customs inspection and clearance. It turns out, many products imported from China that are not in the essential sectors (Indian sectors that cannot operate without the Chinese imports) have been stuck at customs for multiple weeks.

India is limiting market access to Chinese products, companies, and investors. India and the US are in a more friendly state than ever. Trump and Presidential Candidate Baiden, both have expressed publicly, if they are elected in Nov 2020 elections, they will provide greater market access to India. This is something India will not move away from and will do whatever it can to be in good terms with the US, even if it means to largely say no to China. The only question for India here is, which next US president will be more favorable to India?

India is a sentiment-driven country in both politics and the economy. Jio is an Indian company, that understands this sentiment more than any foreign company, and being a local company, it is more equipped to rise as a monopoly & be the Indian face of many US companies doing business in India. For this reason, the American companies will be more inclined to have Jio as their face in the Indian market with a minority stake in the company. This can turn Jio into a “Superpower Face”.

Global 5G Roll Out

It was observed that as of Jan 2020, 5G has been deployed in 378 cities in 34 countries. The leading countries are South Korea with a converge in 85 cities, second is China with 57 cities, followed by the USA with 50 cities and the UK with 31 cities. The other countries in the top 10 list are Saudi Arabia, Spain, UAE, Australia, and Germany. This is one of the reasons why the top 10 investors in Jio Platforms are companies from USA, UAE & Saudi Arabia. Globally EMEA (Europe, the Middle East, and Africa) tops the list with 168 cities with 5G networks. Asia comes second with 156 cities, North America with 53 cities.

Many companies are engaged in the deployment and testing of 5G equipment to participate in the eventual build-out of the network globally. Major companies involved in the rollout are:

• Ericsson: participating in field trials and research programs with mobile operators around the world, including Verizon, AT&T (T), China Mobile (CHL), and South Korea's SK Telecom Company Ltd. (SKM), among many others.
• Nokia: It has ongoing collaborative research and testing programs with Verizon, China Mobile, SK Telecom, Japan's NTT Docomo Inc. (DCM), and Deutsche Telekom AG (DTEGY), among others
• Qualcomm: The company is closely involved with the development of 5G industry standards and has produced technological innovations in millimeter wave technology, antenna technology, and other technical areas of 5G development.
• Huawei from China
• Reliance Jio from India
• South Korea SK Telecom Company Ltd.
• Japan’s NTT Docomo Inc.
• Samsung from South Korea
• ZTE from China
• KT from South Korea

With the new normal being more immersed with digital platforms and services, any company looking to monopolize this will lead the race and act as the foundation for the world to transform in the new “Digital Age”.