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The Jio and Facebook Deal: Some Interesting Facts

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On 22nd of April 2020, a deal took place between the world’s IT giant Facebook and India’s mobile network provider leader Jio.

 
 
 
 
 
The telecommunication sector in India has many disruptive changes with introduction of Jio in the market. Earlier the charges of data were at Rs. 200-300 for 1 GB which was brought down to Rs.1.5-3 for 1 GB and also making the calling facilities almost free. All the telecom giants around India were facing tough competition from the new entrant Jio. The biggest drawback for Jio is that it is Debt oriented organization and its parent company Jio Platforms was seeking opportunities to reduce the debt factor and eventually making it a debt free organization. IT giant Facebook’s investment in Jio is a move towards it.

 
Amid all the speculations and assumptions regarding the deal, it was floated out that Facebook will buy 9.99% stake of Reliance Jio for a whopping price of Rs 43,574 crore. It is considered to be the largest FDI till date in India’s Technology sector. According to Economic Times, “The deal’s effect was also seen on the working of D-Street where Reliance Industries Limited’s shares closed 10.3% higher at Rs.1,363.35 on the BSE on 22nd of April also it surged up to 12% in intraday value”.

 
So, now the question is why the richest business giant of India is required to sell a considerable stake of one of his premium earning company, what will be the positive effects of the deal for Reliance Jio and Reliance Industries? Let’s crunch up with some of the interesting facts and outcomes of the deal.

 

About Jio

Jio platforms is the parent organization for Phone and Data unit Reliance Jio Infocomm and also to the various digital app platform like Jio Mart, Jio Cinema, Jio T.V., Jio Fibres and several other platforms. Jio came into lime light in December 2015, when it came forward with initial 4G data plans in India which was initially provided to users for free of cost and later with affordable plans. It turned out to be a disruptive business strategy for Indian Telecomm Sector. Some of the strategies applications provided by Jio to its customers are:

  • My Jio
  • Jio Saavn
  • Jio Call
  • Jio T.V.
  • Jio Security Malware
  • Jio Chat
  • Jio Mediaware
  • Jio Health hub

There are some other applications as well, but either they are under development or under maintenance phase.

 

About Facebook

Facebook was founded in 2004 as a social networking site for the students of Harvard University, which later turned out to be largest social networking platform in the world. From the time Facebook started public operations, it acquired around 75-80 other companies around the globe of which the deal to acquire Instagram in 2012 and WhatsApp in 2014 are considered to be major revenue magnets for the company.
The social media statistics shows a clear position of Facebook among global social media companies.

 

Insights of Jio and Facebook deal

With the closure of the deal,

  • Jio Platforms now value at Rs.4.60 lakh crores*(Approx.)Economic Times
  • Facebook will get a stake of 9.99% in Jio Infocomm.
  • Facebook will also get a seat on the board of Jio Platforms.
  • Reliance Jio Infocomm will continue to remain a wholly owned unit of Jio Platforms.
  • The deal is said to be held on grounds of Full Cash Bases and not any Equity exchange in the mutual buyer company.
  • Jio will provide the ownership to Facebook in fully diluted equity stakes.
  • With this deal, Facebook emerges to be Jio’s largest minority shareholder.

*The valuation changes with fluctuation in dollar prices.

 

Benefits of the Deal to Jio

Reliance is aiming to go as a debt-free entity in future. It is evitable that RIL’s net debt stands at whopping Rs.1,53,130 crores (Approx.)Economic Times.

  • Telecommunication and Retail sectors’ contribution to total revenue is expected to increase to 50% from current5 stage of 32%.
  • Jio Platforms will retain Rs.15000 crores and the remaining portion will be used to pay off organization’s debt.
  • Jio Mart will get technical support of WhatsApp’s business application wing to stand strong against the rivals in the E-commerce market of India.
  • Around 3 crore provision stores across urban India will get a platform to take their business digital and stand strong against various E-commerce giants like Amazon and Flipkart.
  • WhatsApp, the highest used social chatting application in India, will partner will Jio Mart to will help Reliance to go strong in the E-Commerce sector against Amazon and Flipkart.
  • WhatsApp and Jio Mart will continue working as independent entities for their respective companies.

As mentioned by Mr. Mukesh Ambani in video briefing, their focus will be to bring local Kirana Stores to digital platform using Jio Mart as their primary platform with a combine stand of Jio Mart and WhatsApp. It will help Jio to create a strong seller base and local provision stores to stand against the tough E-commerce competition thus creating a win-win situation for both the parties. Currently there is no clarity regarding any the technology transfers to be done.

 

Benefits of the Deal to Facebook

Facebook being the biggest social media platform around the world was eager to enter the e-commerce sector to withstand Amazon and Alphabet. It was also one of the top contenders for Flipkart India deal which was eventually taken over by Alphabet.
Through this deal, Facebook will be able to take its first step in the e-commerce market. Also, it will able to explore the Indian markets with local support of Jio Infocomm. Moreover, WhatsApp is also providing the feature of Business Account in WhatsApp which will get a great boost in the Indian markets. The aim is to pitch in WhatsApp as an independent business tool with a separate platform for it.

 

Benefits to Indian Economy

There are around 3 crores kirana stores in the urban areas across India which are facing a tough competition from major E-commerce players- Amazon and Flipkart. Post the deal, they will get a strong platform to take their business digital and restructure their business. It was also mentioned that Jio Mart will also help various manufactures to directly sell their products through this platform. Thus, it shows good fortunes for Indian Economy’s future.

 
It can be one of the bold moves in Indian Telecom sector. The question arise here is how the other telecom giants react to this deal, will they step up to set their online businesses as well, will they attract any other FDI to cope up with it?
One thing is clear now is that even the Indian organizations are now interested to take their businesses online and are investing handsome amounts for the same. Now it’s all in hands of time and we have to wait for the end of the Covid-19 crises in order to see exact effects of the deal on the telecom sector and the Indian economy.

One Response to “The Jio and Facebook Deal: Some Interesting Facts”

  1. Ujjwal says:

    Good dear.
    Keep it up.

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