The ‘Mark and Mukesh’ mega deal worth Rs 43,574 crore by Facebook into Jio Platforms on Wednesday, 22 April, has led to cheer and concerns among telecom, e-digital and e-commerce industry officials and observers.
Industry experts say it “makes sense for the two to come together in the same market” and will have implications on a wide range of issues, including user privacy, FDI and competition regulation.
At a time when both Facebook and Reliance Jio have struggled with their payments operations, in the face of data localisation and competition respectively, it appears clear that the thrust of the partnership will be on e-commerce and digital payments.
Facebook, which has picked up a 9.99 percent stake, in a statement posted on its website, said, "Our goal is to enable new opportunities for businesses of all sizes, but especially for the more than 60 million small businesses across India.”
The digital transformation of India's neighbourhood grocers or ‘kirana' stores occupies a central role in the early outcomes expected from the Facebook-Jio deal.
So, what how do experts view this deal and what aspects of India’s digital economy are likely to be impacted by the coming together of two behemoths?
E-Commerce
RIL hopes to leverage the power of complementary platforms across Jio and Facebook, "especially" to modernise India's small businesses.
"Our focus will be India's 60 million micro, small and medium businesses, 120 million farmers, 30 million small merchants and millions of small and medium enterprises in the informal sector," RIL said in a statement.
Jio Platforms, wholly-owned by Reliance Industries Limited, brings together Jio's digital apps, ecosystems and a high-speed connectivity platform under one umbrella.
How will the e-commerce partnership play out though?
Nikhil Pahwa, founder, Medianama, sees a division of labour between the two where Reliance will act as an ‘omnicommerce’ entity or a facilitator of aggregating small businesses and WhatsApp providing the payments gateway.
“Now with the e-commerce or rather an ‘omnicommerce’ partnership inked with JioMart, it will be Jio’s job to bring local kirana shops onto its platform. This will also be synced with WhatsApp pay for payments,” Pahwa told The Quint.
Digital Payments
Both, Facebook-owned WhatsApp and Jio have struggled with payments. WhatsApp was rolling out payments in 2018 and two years later, it is still struggling to roll it out and hasn’t yet reached scale.
This is because of RBI’s data localisation mandate and also payments competitors like PayTM, which had been very vocal in its opposition to WhatsApp payments at that point of time.
“Jio and WhatsApp haven’t been able to roll-out payments. WhatsApp has great potential because it has the largest daily active user base of any app in the country. They are better together rather than competing for the same market,” said Nikhil Pahwa.
“It makes sense for them to tie up and any hopes that either have in achieving scale was banking on a partnership like this,” Pahwa added.
FDI & Telecom Sector
Industry observers also see the move as a positive step in foreign investment in India, especially in the technology sector.
“The current investment will not only help relieve Jio’s debts that have been incurred due to the inaccurate AGR judgment, but will also lead to more investments in the Indian telecom sector,” Kazim Rizvi, founder of tech policy think-tank, The Dialogue, told The Quint.
Credit Suisse, in a statement, said that Facebook's investment into this entity will further Reliance Industries' digital initiatives and will help in deleveraging.
“The deal will aid in achieving net debt-free (target) by March 2021. As of 31 December 2019, net debt for the group stands at Rs 1,531 billion (Rs 1.53 lakh crore) and with Facebook’s investment, this should put RIL on course to be net debt free by March 2021,” Credit Suisse said in its statement.
However, the embattled telecom sector continues to reel under the erosion of competition as well as the Adjusted Gross Revenue (AGR) judgment by the Supreme Court in October 2019.
The Indian telecom sector has been in a 1.47 lakh crore debt. Moreover, the Supreme Court has ordered telecom companies to pay as per the government’s Aggregate Gross Revenue Formula (AGP), whereby the companies will have to pay Rs 1.5 lakh crore at the earliest. This sum is inclusive of the penalties and interest levied.
The Internet Freedom Foundation, in a Twitter thread, has raised caution regarding the competitiveness of the telecom sector and the impact this deal may have on an already battered sector.
Competition
Competition and regulation researchers, commenting on the development, say that the onus is on the Competition Commission of India as well as TRAI to take proactive steps and announce measures to ensure that a dominance does not translate into abuse.
"If there is a resultant dominance, then it is not a problem but its abuse is a problem. For this, both Competition Commission of India and the Telecom Regulatory Authority of India should work together, and propose ex ante measures also, so that the chance of abuse is limited." Pradeep S Mehta, Secretary General, CUTS International told The Quint.
IFF also raised the context of China’s WeChat, which has emerged as a platform for start-ups and may provide a template for Jio-Facebook to replicate.
“This may also potentially lead to an app ecosystem like Tencent’s WeChat, that can impact innovative start-up offerings for users. We are pressing for reforms in India’s competition laws to enable greater regulatory scrutiny,” IFF said in a statement.
From an online commerce ecosystem perspective, Pahwa adds, “It helps the entire ecosystem for there to be more commerce online, whether that happens through WhatsApp or other means. Except that Google has such a strong head start in that part of the business that Facebook will benefit with this partnership.”
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