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BUSINESS DEALS

Ambani's digital dream grows with $4.5bn Googlestake in JioAsia's richest man shuns Chinese investors in favor of American giants

Reliance Industries Chairman Mukesh Ambani says the conglomerate is "blessed to have world-class partners likeFacebook, Google and Microsoft." © Reuters

KEN KOYANAGI, Nikkei Asian Review Editor-at-largeJuly 15, 2020 19:40 JST

Updated on July 16, 2020 01:09 JST

TOKYO -- Indian conglomerate Reliance Industries' digital arm Jio Platformshas secured $4.5 billion from Google, adding to a list of new investors thatincludes the biggest names in U.S. technology: Facebook, Intel and Qualcomm.

Google has agreed to buy a 7.7% stake in Jio, Reliance's billionaire owner andchairman Mukesh Ambani said Wednesday at the annual general meeting. Thetwo companies have formed a strategic partnership under which they will jointlydevelop affordable smartphones for 4G and 5G networks, Ambani added.

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The Google deal supports Ambani's digital ambitions. Asia's richest person --with a net worth of $68.5 billion, according to Forbes -- has positioned Jio as ahub for mobile internet service, entertainment and e-commerce reaching India's1.3 billion population.

With the addition of Google's investment, Jio has attracted a total of $20.22billion in strategic capital from U.S. tech companies and financial investments byprivate equity, venture capital and sovereign funds, including KKR and SilverLake, Ambani said.

"We are truly blessed to have world-class partners like Facebook, Google andMicrosoft," Ambani said.

The Google-Jio announcement came after Google CEO Sundar Pichai saidMonday the company would invest about $10 billion in India over the next fiveto seven years in equity investments and grants to companies and social-development projects.

A stake in Jio looks increasingly like a bet on its ability to reach hundreds ofmillions of Indian consumers poised to enter e-commerce for the first time.

Google CEO Sundar Pichai and his wife Anjali Pichai pose at the wedding ceremony of Akash Ambani, son of MukeshAmbani, in India on March 9, 2019. © Reuters

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Jio is the youngest mobile telecom operator in India, having started commercialservice in September 2016. But it has achieved rapid growth by grabbing marketshare from rivals as well as accelerating the expansion of India's internet userbase with its low fees. It became the top mobile carrier in the country last fall. Bythe end of March, it had over 387 million subscribers.

Jio, which started its operation with the 4G mobile network without burden oflegacy networks, in effect kick-started mobile broadband internet in India,leading to rapid penetration of smartphones, mobile apps and services such asmobile payments, video streaming and social messaging like WhatsApp.

India had over 500 million smartphone users at the end of 2019, according toIndian market research firm techARC, and those U.S. tech companies and othersbelieve there is a huge upside in mobile-internet hardware, software and servicesmarkets in India.

The equally huge market of China has in effect shut out U.S. tech giants, blockingaccess to Google's search engine and Gmail service and to social networks likeFacebook and Twitter. India is by default the only single-nation frontier with ascale of a billion people available to many U.S. tech companies.

A joint study by Association of Chambers of Commerce of India andPricewaterhouseCoopers projected in May 2019 that the number of smartphoneusers will grow to 859 million by 2022. Only 3% of India's $792 billion retailbusiness was online in the financial year ended March 2019, according to anestimate by rating house Care Rating.

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In addition to Reliance Industries' top position in the wireless market, the oil-to-telecoms conglomerate is also by far the largest retailer in India with more than11,000 physical stores and $21 billion in revenue with its online portion beingstill negligible. Reliance plans to connect its offline retail and logistics networkswith Jio's digital platform and services to create a strong e-commerce player tocompete with Amazon.com and Walmart Stores' Flipkart.

Noticeably absent from Jio's A-list global tech partners are Chinese tech titans,such as Alibaba Group Holding and Tencent Holdings, both of which havemarket capitalizations comparable to Google, Apple, Facebook and Amazon.com.

Reliance has sought to avoid being caught in the middle of rising U.S.-China techtrade war. Ambani this February told U.S. President Donald Trump during hisvisit to New Delhi that his company is using no Chinese technologies, includingHuawei Technologies' telecom equipment, in developing its upcoming 5Gnetwork.

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Then the India-China bilateral relationship deteriorated in May along theirdisputed Himalayan border. A clash between the two sides in June led to thedeath of 20 Indian servicemen, triggering a nationwide anti-Chinese sentimentin India. The Indian government banned 59 Chinese mobile apps, includingwidely popular TikTok video-sharing app run by ByteDance.

For the past several years, Chinese tech giants have been backing Indian techstartups such as Paytm mobile payment service and Swiggy food delivery service,but have not established partnership with large Indian conglomerates likeReliance. Meanwhile Chinese smartphone brands like Xiaomi and Oppo havegained popularity among Indian consumers. The steep rise in anti-Chinesesentiment may well alter such trends, likely providing U.S. and other non-Chinese players with opportunities to get a piece of Indian digital consumermarket.

Facebook agreed in April to buy a 9.99% stake in Jio for $5.7 billion and entereda strategic partnership where its WhatsApp unit and Jio will collaborate inaccelerating growth of Reliance's e-commerce business. Intel announced thismonth its investment arm, Intel Capital, is buying a 0.39% stake in Jio for $250million while Qualcomm announced on Monday its venture capital arm isinvesting $97 million for a 0.15% Jio stake. In August of last year, Microsoftentered a non-equity business partnership with Jio that will see Jio useMicrosoft's cloud network in its data centers.

Ambani said Reliance regards the investments by Intel and Qualcomm as"strategic" despite being made through corporate venture capital funds. Thecompanies indicated they would collaborate in developing 5G mobile and otheremerging technologies.