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Business deals

Ambani's digital dream grows with $4.5bn Google stake in Jio

Asia'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 like Facebook, Google and Microsoft."   © Reuters

TOKYO -- Indian conglomerate Reliance Industries' digital arm Jio Platforms has secured $4.5 billion from Google, adding to a list of new investors that includes 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 and chairman Mukesh Ambani said Wednesday at the annual general meeting. The two companies have formed a strategic partnership under which they will jointly develop affordable smartphones for 4G and 5G networks, Ambani added.

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 a hub for mobile internet service, entertainment and e-commerce reaching India's 1.3 billion population.

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

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

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

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

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

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

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

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

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

A joint study by Association of Chambers of Commerce of India and PricewaterhouseCoopers projected in May 2019 that the number of smartphone users will grow to 859 million by 2022. Only 3% of India's $792 billion retail business was online in the financial year ended March 2019, according to an estimate by rating house Care Rating.

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 than 11,000 physical stores and $21 billion in revenue with its online portion being still negligible. Reliance plans to connect its offline retail and logistics networks with Jio's digital platform and services to create a strong e-commerce player to compete 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 have market capitalizations comparable to Google, Apple, Facebook and Amazon.com.

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

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

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

Facebook agreed in April to buy a 9.99% stake in Jio for $5.7 billion and entered a strategic partnership where its WhatsApp unit and Jio will collaborate in accelerating growth of Reliance's e-commerce business. Intel announced this month its investment arm, Intel Capital, is buying a 0.39% stake in Jio for $250 million while Qualcomm announced on Monday its venture capital arm is investing $97 million for a 0.15% Jio stake. In August of last year, Microsoft entered a non-equity business partnership with Jio that will see Jio use Microsoft'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. The companies indicated they would collaborate in developing 5G mobile and other emerging technologies.

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