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Why Jio-Facebook May Work Better Than A Google Or Amazon Combination

Private equity investor Haresh Chawla explains the noise around tech giants’ interest in Indian telecom firms.

A customer steps on board an open truck during a roadshow for Facebook Inc.’s WhatsApp messaging service and Reliance Jio Infocomm Ltd.’s wireless network in Pune, India. (Photographer: Dhiraj Singh/Bloomberg)
A customer steps on board an open truck during a roadshow for Facebook Inc.’s WhatsApp messaging service and Reliance Jio Infocomm Ltd.’s wireless network in Pune, India. (Photographer: Dhiraj Singh/Bloomberg)

The partnership between Reliance Jio Infocomm Ltd. and Facebook Inc. could end up delivering more value than a potential combination of Amazon.com Inc. or Google with another Indian telecom operator.

That’s a bet True North Managers’ Haresh Chawla is willing to make.

The media executive-turned-private equity investor predicts that the natural order of evolution in the industry would be global technology giants partnering telecom firms. There are driving forces converging these two sectors together: tech giants need to reduce dependence on advertising revenue while telecom firms need to build an ecosystem of services to retain customers and extract maximum value from them.

For this, India becomes a potent breeding ground due to its large consumer base and accelerating digital adoption, according to Chawla. Telecom firms and tech giants are moving to capitalise on this.

Mukesh Ambani’s Jio Platforms Ltd. has been the first off the block. Jio Platforms has raised almost Rs 1 lakh crore from a clutch of well-known investors led by Facebook, which picked up a 10% stake in Ambani’s digital venture. Deals between Amazon and Bharti Airtel Ltd. and Google and Vodafone Idea Ltd., are also reportedly in the works. Though, to be sure, both Indian companies have denied being in conversation with these tech investors.

Chawla adds Apple Inc. to the mix, suggesting that the iPhone maker will also look to expand its transaction ecosystem in India.

“If you pull back and see the competition between the four global tech giants, what is happening is they are trying to build an envelope around their consumers,” Chawla, a partner at private equity firm True North, said. As has been successful in China, the effort will be to create platforms that offer everything—from vanilla telecom services to content, payments and e-commerce. Voice-based services will help gatekeep such an ecosystem.

There what happens is, you actually narrow the choices of consumers. On a screen you can visualise 20 choices but with voice they can narrow the choices so that they can dictate the choices.
Haresh Chawla, Partner, True North

India is the fastest-growing internet market with 650 million users, the second highest in the world, according to a Bank of America research report. The Covid-19 pandemic and accompanying lockdowns have prompted a dramatic increase in digital services consumption in India. Acceleration that would have taken five years has happened in three months, Chawla said.

That makes the Jio-Facebook partnership a timely one and one that benefits both. “...there is almost 95% of market share of WhatsApp in the country, that means, Jio gets access to non-Jio customers which is actually almost 95% of the entire telecom network. Fantastic opportunity for Jio to bundle its services with WhatsApp. WhatsApp gets a play into a true transaction business which it doesn’t have.”

Also Read: WhatsApp Gets a Raw Deal in Payments

This will pressure Google and Amazon to partner with other telecom firms, according to the BofA report, with an intention of not “missing the bus”.

Chawla agrees. “You can’t not build an ecosystem,” he said. “When you've seen Facebook make a move, you will want to come in and put your stake in the ground and not just stay back and just ship out code from there that’s designed for India.”

Yet, if Chawla had to put his money in one of the three combinations, he’d pick the Jio-Facebook partnership in India.

“The Jio-Facebook partnership seems that they are going to integrate services and they have stacks outside of telecom ready. The other players don’t,” he said.

Besides a telecom service, Jio has over time acquired or built several over-the-top apps such as music streaming platform Jio Saavn and live streaming service Jio TV. It has invested in content via Network 18 Group. In broadband and cable distribution via Hathway and Den Networks. Parent company Reliance Industries also owns India’s largest grocery retail chain—Reliance Retail. Neither of the two other telecom firms can claim to be anywhere close.

“I don’t know how much value will get extracted from Airtel-Amazon kind of potential partnership. I'm seeing all that value will have to flow to Amazon in any case, and Google, again, I'm not sure. ”

Even the success of Jio-Facebook will come down to how these players coordinate, how they use the data, how they attach their services to each other, how they create layers, Chawla said. There’s not much downside though from an investment point of view. Not for Facebook nor for Amazon or Google if they were to invest.

“The economic value is that there is no risk,” he said. “Most of these companies are listed. Covid-19 has made sure that the value will gallop away as ARPUs go up. So even if you buy a stake in Bharti Airtel today, the fact is that your stake is unlikely to go down in value.”

Also Read: The Rainmaker Behind Mukesh Ambani’s $13 Billion Deal Spree

Watch | Haresh Chawla’s interaction With Menaka Doshi on tech giants' India bet

Edited Excerpts:

In your assessment what does Facebook hope to get out of its investment in Jio Platforms.

Haresh Chawla: I think if you pull back and see what the war between the four global giants which is actually happening, is that, they're trying to create an envelope around the consumer. Essentially, create an ecosystem around the consumer where they can naturally cross-subsidise new businesses and essentially partake of as much transaction revenue as they can.

Remember there is advertising revenue available and that is a large pool today but all of them realise that advertising—we've all become very clever at avoiding ads and slowly you will find that it's becoming more and more expensive to find ad dollars unless of course, people are doing social commerce or doing something viral. Therefore, it’s going to be a stream that has a cap to it. The transaction stream all over the world is massive. Transaction, subscription as we are seeing; when you mention the three, there is actually a fourth—Apple. It makes tons of money selling subscriptions, hardware and retail as well. So, each of them is trying to build an ecosystem around the consumer.

Now, they have seen in China, how these ecosystems have evolved into large markets. Remember, America is only now just becoming mobile-first. China is the primary example of a mobile-first digital economy. There they have seen the rise of oligopolies—there is a Tencent ecosystem, there is the Alibaba ecosystem, there is Baidu ecosystem. Each of these ecosystems is almost like a self-propelling network, which has got a massive network effect. It has got a wrap-around on consumers in the form of a WeChat app or an Alipay app.

So, I think it is very clear that the model of the future will revolve around consumers essentially buying into one or more of the ecosystems and spending their time and money in these.

That’s the way to pullback and see this.

And they are finding ways to become even closer, they are finding ways to put in more intimate gatekeeping; by essentially putting voice. You see what Google is doing, and Apple and Amazon, all of them are trying to remove the screen as a layer as well. They are saying let’s become a zero screen company. There what happens is, you actually narrow the choices of consumers. On a screen you can visualise 20 choices but with voice they can narrow the choices so that they can dictate the choices.

So essentially - I think there are two trends there, one is get close to the consumer and try and dictate their choices. Consumers are lazy; consumers have inertia. Therefore if it is convenient, it is easy, you will naturally use that ecosystem because payment is linked, your