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Summary

Cash-rich global investors are eagerly looking for cross-border investment options because developed markets might not offer significant returns. The global slowdown amid the COVID-19 pandemic turns the spotlight on a few companies with large customer bases and a focus on innovative digital solutions.

 

Foreign companies and investors see growth opportunity in India

India has nearly 500 million smartphone users, and there is potential to add another 300 million (almost equal to the total US population) in the next five years. The median age in India is below 30, which provides a great opportunity to tech giants and global investors to offer new products, grow business, and generate a healthy return on investment. Over the last four months, Jio Platforms has raised approximately $20 billion from 13 global investors by selling a 32.9% stake. These investors include several private equity firms and strategic investors such as Facebook, Google, Qualcomm, and Intel. Jio Platforms has expanded its portfolio of services to become a multiplay service provider, equipment supplier, content producer, and developer in new technologies (e.g., Jio Glass). There is no other company in India that has such a large product portfolio and 400 million users. Jio Platforms’ parent company has excellent knowledge of India’s regulatory environment and provides a gateway to foreign companies to access India’s growing digital population without unnecessary hurdles. Companies such as Facebook and Google have been trying to comply with the Indian government’s data storage rules to launch new services for several years. Launching products through Jio Platforms could make the process much smoother.

 

Qualcomm’s and Google’s support can help Jio Platforms become a significant player in the 5G handset and network equipment market

Qualcomm’s and Google’s investments in Jio Platforms have a much more strategic rationale. Since Jio Platforms has announced plans to manufacture low-cost smartphones in-house, both these investors can help in building a handset business. Earlier versions of Jio Phones were feature phones developed using KaiOS and were not very successful. However, with Google now as a strategic partner, the next version of Jio Phones should be Android-based smartphones and should capture budget-conscious consumers, especially in rural areas.

Chinese telecoms equipment manufacturers are under scrutiny and have several restrictions in various developed markets. This provides an opportunity to other vendors, and Jio Platforms is looking to take advantage of the situation. The company has suggested that it has developed its own set of 5G equipment, which will be tested once 5G spectrum allocation takes place. Jio is currently working with Samsung for its pan-India 4G LTE and Internet of Things networks and with Nokia for its wireline network in the country. But if this homegrown solution works well for Reliance Jio (it has a pan-India presence), the equipment could be sold to other operators and even in international markets, competing with Nokia, Ericsson, Samsung, and Chinese vendors Huawei and ZTE. Jio’s decision to develop its own 5G technology will reduce dependence on foreign vendors and provide cost-related advantages.

The success of Jio Platforms depends on its ability to monetize its digital products and to create handsets and equipment that are on a par with those of seasoned vendors such as Samsung, Ericsson, and Nokia. India’s late entry into the 5G space might also pour cold water on the company’s growth ambitions.

 

Appendix

Further reading

  • Communications Provider M&A: 1Q20 Review & Outlook, GLB007-000385 (May 2020)
  • Communications Provider M&A: 2Q20 Review & Outlook, GLB007-000419 (Aug 2020)
  • “Analyst Commentary: Facebook’s $5.7bn investment in India’s Reliance Jio is a win for both parties,” GLB001-000079 (April 2020)
  • “Facebook goes telco: Rumored stake in Reliance Jio could create an Indian digital powerhouse,” CES001-000077 (March 2020)

 

Author

Gaurav Shukla, Senior Financial Analyst

[email protected]

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