Social Experiment

Facebook is in talks to buy a multibillion-dollar stake in India’s Reliance Jio, the mobile services arm of Reliance Industries. According to reports, Facebook is close to signing a preliminary deal for a 10% share in the telecom company that disrupted the India telecom market by providing access to inexpensive data and smartphones. Although the timetable of the agreement is said to have been affected by disruption from the coronavirus outbreak, we don’t doubt that the tenacity of these two companies will push the deal through.

This step could set a major trend among Internet media companies and telecom providers, and alter business models. It seems to validate CCS Insight’s prediction that big Internet companies would take stakes in major telecom operator groups by 2020.

Since its launch in 2016, Reliance Jio has become the top provider of telecom services in India by garnering 370 million subscribers, expanding from mobile telecom into home broadband and e-commerce. It also owns a suite of services including music streaming platform JioSaavn, on-demand live TV service JioTV and payments service JioPay. The company’s valuation at the end of 2019 was estimated to be between $60 billion and $70 billion.

The deal with Reliance Jio would provide Facebook with a doorway into the wide Indian market, which is characterized by complex regulatory challenges. A large player like Reliance Jio can offer a great degree of insight into local conditions.

Facebook has worked with Reliance Jio in the past, including on a digital literacy initiative in 2019. The social media giant has faced numerous hurdles in India. One of them was resistance to its free Internet programme called Free Basics, an effort to provide free access to popular Internet services including Wikipedia and weather forecasts as well as its own social networking apps. Facebook has also run into difficulties in launching support for payments in WhatsApp over a unified payments interface, and came under pressure from the government to remove encryption from the popular messaging service.

International companies have found the going tough with regulatory problems in India, as the government has passed a Personal Data Protection Bill. There are also stipulations that all data that the companies collect from the population must be maintained in servers physically located in the country.

India is now the second-largest smartphone market after China, having pushed the US to the third spot. It has more than 400 million WhatsApp users and over 500 million Internet users, a number that’s likely to rise to 850 million by 2022. Facebook is looking to solidify its position in India, as it faces competition from Chinese platform TikTok. It has invested in multiple local start-ups, including social commerce platform Meesho and education tech start-up Unacademy.

By becoming a partial owner of Reliance Jio, Facebook would gain a significant footing in the Indian telecom market that could spark a trend among other social media companies or, more widely, web giants looking to build a bigger position with cloudification of the 5G network. Facebook may also be looking for some sway at the operator to prioritize or pre-install its own services on Reliance Jio devices.

For Reliance Jio, Facebook’s backing brings financial impetus that will boost its huge investment in deploying telecom infrastructure throughout India.

The deal could also be a lever for the Telecom Infra Project, of which Facebook is a founding member, to exert influence in India. The group’s goal is to disaggregate traditional network deployment methods, and such an approach could bring huge cost-benefits to one of the world’s largest mobile markets.