Mad rush to Jio – why the sudden and intense interest?

Jio mad rush
Photo by SeventyFour

What do Facebook and Private Equity (PE) firms Silver Lake and Vista Equity Partners have in common?  They have all agreed in the past few days to invest billions in India’s Jio Platforms.  More may potentially follow, judging from the media reports.  By the latest count, another giant PE firm, General Atlantic, and Saudi Arabia’s Sovereign Wealth Fund, PIF, are also in discussion. 

Jio Platforms is Mukesh Ambani’s latest foray into the ICT industry. Mukesh is an Indian billionaire and the eldest son of visionary tycoon Dhirubhai Ambani, the founder in the 70’s of Reliance Industries including Reliance Infocomm, who had promised Indians to make phone calls cheaper than a postcard – a moonshot at the time.  

So why this mad rush, why now, and what potential impact will this have on the investors, to Jio, and to the overall Indian market?

As a close observer and participant in the development of the Indian telecom market in the past three decades, I can’t help but notice a sense of déjà vu – albeit with a major twist.  

The first mad rush into the telecom promised land – India – took place in the ’90s by the who’s who of Western telcos, such as US West, Telecom Italia, British Telecom, and many others.  It didn’t end well.  A second generation of investors, supposedly wiser, rushed through the following decade including the likes of Norway’s Telenor, Russia’s MTS, and emerging markets such as from the GCC and Malaysia.  They did not fare much better.  

Suffice to say that, to date, the Indian telecom sector has been nothing short of a minefield for the world’s telecom operators and investors.  Just ask Vodafone about their latest headaches from dealing with the regulator, or even Amazon, or Walmart that acquired India’s Flipkart, when it comes to navigating with the regulator on the digital front. 

So what is Jio Platforms?  

You’d be excused if you’re confused.  Jio Platforms is a six-month-old umbrella company which owns Reliance Jio Infocomm, the roughly decade-old infrastructure company.  It is fair to say that most of the present value and sunk cost is in the infrastructure-heavy subsidiary. Still, the promise of future digital services revenue lies with the holding firm, which has been the draw for the investors.  Inevitably though, these new shareholders are investing in infrastructure too, hence today’s $60B+ valuation.   But read the PR, and all you will see is a platform for launching diverse digital services and products.  The complete suite is on offer or being planned, including eCommerce subtly named JioMart, thus competing with established giants Amazon and Walmart; and payments competing with the likes of Alibaba-backed Paytm and Google Pay.

Will today’s investors find success where so many before them did not?

The major difference is that in the past, investors piled onto separate entities, occasionally competing, but most often in separate geographical areas, or telecom circles, as they are known in India.  Today’s investment foray is boosting a single entity, Jio Platforms, only.  So, it is a telecom brick and mortar investment after all but wrapped around by a very appealing and promising, albeit start-up, digital business.  

Asia is not short of hugely successful digital firms, first and foremost from the pioneers in China, the likes of Tencent and Alibaba, but also from South East Asia, such as Grab and GoJek, to name just a few.  For more on these, check out my previous piece on the topic.  The question boils down to this one: should investors trust Mukesh Ambani to deliver the all-encompassing Indian digital version?  Judging from the latest headlines, the answer is a resounding yes, pumped by COVID-related cloud boost, and despite the risk and capex-heavy infrastructure business underlying such investments, that have sunk or at least hurt most earlier investors.  

My take

The undisputed winner so far is Mukesh Ambani and his Jio Platforms bet on digital services in India.  Jio needed the investors as it was heavily leveraged.  Second, there is no doubt Facebook has reason to invest in what is one of its largest markets.  Facebook has various ways to monetize its investment over the long term.   This has been well documented, here’s one example.  

As for the PE firms, I am not so sure.  They need to have a long-term horizon and hope for an ever-friendly regulator towards their new bet in the Indian market.  Nothing is less guaranteed, in what is also the world’s largest democracy.  In India, it is easy to get carried away by the promise of the young, emerging, and billion-plus population, but I’d caution against exuberance, once again.  A strategy based on hope and a bet on a friendly macro environment and other intangibles is no recipe for guaranteed success.  Just watch SoftBank’s Vision Fund unravelling from its $100B pedestal, and check the graveyard of former Indian telecom investors from the past three decades.  As for the rest of the Indian telecom operators, they’ve learned to respect and fear the Ambani’s.  Throw in Facebook and other gung-ho deep-pocketed investors with dry powder to burn into the mix, and the situation gets even more combustible.   Buckle your seatbelts.  

Claude Achar

Written by Claude Achcar, Managing Partner, Actel Consulting

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