This article is written by Gaurav Shenoy, a student of GLC, Mumbai.
Table of Contents
Why the sudden gush about Reliance Jio?
This article has been prepared in light of the events which have been taking centre stage in June-July 2020. Needless to say, Mukesh Ambani is making the most of the COVID-19 situation and is taking Jio to newer heights. Therefore, this article analyses the recent surge of investments taking place and the competition implications that they would be having.
As of today, Jio Platforms Limited (JPL) is a subsidiary of Reliance Industries Limited (RIL). JPL owns the digital businesses of Reliance, including Reliance Jio Infocomm Limited (RJIL). RIL has attracted foreign investments to the tune of INR 152,056 crores and has sold 32.97% equity stake in JPL. Two big strategic investors Facebook and Google have taken an equity stake of 9.99 per cent and 7.73 per cent, respectively. The sudden gush is because RIL has managed to get back to back investments from two of the biggest tech companies in the world. This is not something you get to see every day and analysts are now working day and night to observe what may come out of it. Let us see what the shareholding of JPL looks like right now-
|
Entity |
Share in % |
Entity |
Share in % |
|
RIL |
67.03 |
Vista |
2.32 |
|
|
9.99 |
Silver Lake |
2.08 
|
|
|
7.73 |
Mubadala |
1.85 |
|
Qualcomm |
0.15 |
General Atlantic |
1.34 |
|
Intel |
0.39 |
TPG |
0.93 |
|
KKR |
2.32 |
L Catterton |
0.39 |
|
PIF Saudi Arabia |
2.32 |
– |
– |
To understand the current scenario let us take a few steps back.
Acquisitions in JPL and the net debt-free position
In October 2019, RIL created JPL and transferred INR 1.08 lakh crores of debt liabilities of JPL to RIL in exchange for preferential shares in JPL. Such a step was taken to keep the new entity of JPL debt-free to attract investors. From April 2020 to July 15th, 2020, JPL has received massive investments from 13 foreign companies and investing entities, including strategic investments from 4 companies, namely, Facebook Inc., Google LLC, Intel Capital and Qualcomm Ventures.
The strategic investments indicate a much larger plan of JPL to increase its business in the digital economy. The possible future collaborations of JPL with each of the strategic investor has been provided herein.
Facebook is investing INR 43,574 crores to buy a 9.99% stake in JPL. Facebook is a social media giant which has products like Whatsapp, Instagram and other apps. According to the information provided to the Competition Commission of India about the transaction, JioMart will collaborate with Whatsapp to integrate certain Whatsapp services, such as Whatsapp messaging and Whatsapp Pay. JioMart is a business division of JPL and a Reliance Retail Limited (RRL) commerce marketplace which connects customers with its own retail stores and local Kirana stores and other small businesses.
Whatsapp has around 400 million users in India. Whatsapp has a facility to provide a platform for businesses to connect with their customers. But, a 10% stake acquisition indicates that it won’t just be JioMart using Whatsapp platform, but Whatsapp will develop a separate facility to allow JioMart to connect with all its customers.
Qualcomm
Qualcomm Ventures invested INR 730 crores for a 0.15% stake in JPL. Qualcomm is a software technology company that provides services related to mobile hardware, wireless technology, including 5G network equipment. The collaboration is stated to assist JPL to provide 5G network solutions to the Indian consumers and enterprises, including mobile network operators, who are competitors of RJIL. Simultaneously, the expertise of Qualcomm in mobile hardware is likely to be utilized in the smartphone manufacture project of JPL.
Intel
Intel Capital invested INR 1,894 crores in JPL, for a 0.39% stake in the company. Intel is a global tech giant that manufactures processors for PCs, laptops, smartphones and other electronic devices. It was announced that Intel will help JPL to provide advanced cutting-edge technologies to the consumers. Thus, it is likely that Intel is going to play a role in the smartphone project of JPL.
Google announced an investment of INR 33,737 crores in JPL, for a 7.7% stake in the company. Google is a technology company that provides a huge range of products and services, namely, online advertising services, search engine, GMS apps, and other software and hardware products. It was announced that the two companies will develop Android-run 5G smartphones. Thus, it will allow JPL to enter into the smartphone manufacture and sale business. Additionally, being a smartphone manufacturer, it will allow JPL to pre-install its applications, for example, JioMart, and allow a larger customer base for the provision of its services.
Competition ramifications in different markets in India
In order to understand the competition ramifications, each market where JPL has or will have, a presence due to the strategic investments, must be analyzed. As per the transactions, the following markets are probable ones to be impacted.
E-commerce
With the support of Whatsapp, JioMart will possibly reach many consumers and open up a new avenue to reach them, through consumer communication applications. Amongst its competitors are Amazon and Flipkart, whose marketplace platforms have a total market share of around 89%. They possess market power due to network effects, economies of scale and other factors. Reaching out to consumers through consumer communication applications will be a new method, which is absent with Amazon and Flipkart, and it may allow JioMart to rapidly increase its business, by connecting the consumers with their familiar and local kirana stores and other businesses. JioMart, after initially dealing with only groceries and other relevant products, has announced that it will expand its products to include electronics, fashion and phones.
Additionally, JioMart will have the information on consumer preferences through Facebook, and also Google, and have a better position to advertise its products on Facebook and other social media and websites, like Google. The collaboration with Google is likely to lead to better advertising opportunities and techniques for JioMart.
Furthermore, with JPL entering the smartphone manufacturing market, the possibility of JioMart app being pre-installed and getting more priority and attention than Amazon and Flipkart apps in the upcoming Jio smartphones is higher, as such practices have been applied by Google and Microsoft in the past, which have expanded their business and which have also attracted the attention of antitrust authorities. Furthermore, the anti-Chinese sentiments amongst the Indian people is likely to cause the decline of Chinese investor-supported e-commerce companies, such as Paytm, Flipkart, Big Basket and others, in the e-commerce sector.
Currently, the JioMart app has not been launched. Eventually, it is possible that the JioMart app will be made available only on Whatsapp, leading to a tie-in arrangement between the two; in order to install JioMart one will have to install Whatsapp. Next, Whatsapp-JioMart will charge high commissions from the vendors due to the advertisement of their products. Furthermore, the likelihood of providing benefits and discounts for transactions through the Whatsapp route is high, making it a more favourable route for the consumers than other alternatives. Such practices may even lead up to predatory pricing where JPL is heavily discounting the prices of the products to lure more customers and reduce competition, which had been implemented by RJIL in 2016 in the telecommunications market, where it provided free services to the consumers.
Another feature of Whatsapp, Whatsapp Pay, and of JPL, JioMoney, may become popular due to the provision of transaction facility to JioMart purchases. It is likely that both Whatsapp Pay and JioMoney will be utilised as payment options. The discount facility provided by Amazon for using its payment facility Amazon Pay is likely to be replicated by JPL to increase the market share of Whatsapp Pay/Jio Money.
With other platforms failing in the future due to lack of popularity or having Chinese-links, or lack of capability to match the prices provided by JioMart, JPL is likely to rapidly gain dominance in the e-commerce sector due to its collaboration with Facebook and Google.
In case dominance is achieved, it may lead to monetization of Whatsapp services which will require the consumers to pay for using the JioMart app through Whatsapp platform. The following acts of abuse of dominance may follow: higher commissions are likely to be charged from sellers, predatory pricing, exclusive agreements with the preferred sellers, unfair and discriminatory conditions on sellers of products of competitors of JPL/RRL, preferential/sole listing of products of RRL leading to lack of alternatives to the consumers etc.
Smartphones
With the collaboration with Google, who has manufactured smartphones under the brand Pixel, and the support from Qualcomm and Intel, JPL is expected to manufacture and sell indigenous, affordable Android-run 5G smartphones in the Indian market. With an increase in anti-China sentiments in Indians, the launch of these smartphones will cause a major disturbance in the smartphone market, as the consumers are motivated to buy Indian manufactured devices and shun smartphones of Chinese companies such as Xiaomi, OPPO, VIVO and others, but can’t do it at present due to lack of alternatives in the market.
Currently, these Chinese companies are leading the smartphone market. They have over 80% share in the smartphone market in India. Therefore, the release of JPL-Google smartphones will likely cause a significant shift in the market share from the current players to JPL. With 95% of the smartphones running on Android OS, the possibility of JPL having a dominant position in India after collaborating with Google is high, because Android-run smartphone manufacturers other than Chinese companies, like Samsung, will face an Indian brand which will have the ‘home brand’ tag which has become popular during the COVID-19 crisis due to the ‘Atma Nirbhar Bharat’ slogan given to the people of India to support the local enterprises. After such appeals by a popular government, it is quite certain that the consumers will have a preference for Indian-made JPL-Android smartphones rather than any foreign brands. The affordable 4G/5G smartphones are likely to bring consumers with 2G phones into the smartphone market.
Therefore, all the consumer groups in the mobile phone market are likely to be affected by the launch of the smartphone and attracted towards the JPL-Google smartphone. The joint future dominance of Android and Jio smartphones in India will cause bundling of various other products of JPL, such as mobile network, apps of Google and Facebook, and other JPL apps, which is discussed in the later sections. Besides, the affordable prices of smartphones, which are likely to be further reduced on JioMart, will cause further reduction and elimination of competition in the smartphone manufacturing and sale market.
5G telecommunication network equipment provider
JPL has announced that it has developed a complete indigenous 5G network solution. This is a likely result of the collaboration of JPL with Qualcomm. Additionally, the Indian Government has blocked telecom equipment supplies from Chinese vendors, for the public sector mobile network providers. The government has also hinted that it may ask private mobile network providers like, Airtel and Vodafone-Idea, who have been using Chinese equipment, to refrain from using equipment from Chinese vendors.
Therefore, it is likely to create a space for JPL in the telecommunication network equipment supply market in India, with the likely exit of Chinese vendors, a major player being Huawei. Besides, the Atma Nirbhar Bharat slogan will propel its businesses and displace many foreign vendors in the Indian market, leading to dominance in the market.
In addition to mobile network service, the 4G/5G network also affects other vertical segments like DTH and broadband services, in which JPL has a significant presence. Therefore, the vertical integration of JPL in the upstream market may lead to unfair and discriminatory practices by JPL with respect to its competitors in the downstream market, causing a reduction of competition in the downstream market. Therefore, such a venture of entering the equipment supply business will provide an impetus to make JPL a dominant entity on every level of the 4G/5G network market in India.
For example, Jio Fibre (broadband), Jio DTH, Jio smartphones will get preferential treatment from JPL, in comparison to their rivals, in matters of 5G services and provision of 5G network solutions. Preferential treatment may range from discounted rates, better services etc.
Telecommunication service provider
With the advent of RJIL, the telecommunication service providers such as Airtel, Vodafone-Idea and others have suffered great losses in the market. In 3 years, Jio has acquired a leading position with a market share of 32.04% in the mobile network services market in India. Currently, Jio has only 4G network subscribers, while other network providers have 2G and 3G subscribers also.
If JPL sells it’s own 4G/ 5G Android-run affordable smartphones with pre-installed SIM cards of RJIL, it will probably cause further decline of other mobile network operators in the market as people currently using 2G/3G network of other mobile network providers will be able to move towards faster 4G/5G networks and related services of Jio at affordable prices. There have been examples of business activities of Vodafone and Airtel tying up with Apple, to sell the iPhone using Vodafone or Airtel networks. Therefore, it is most likely that Jio will bundle its mobile network service with Jio-Google smartphones. This practise won’t be considered anti-competitive in the beginning as JPL is an entrant in the smartphone market and not market power. Other mobile network providers like Airtel and Vodafone-Idea will have other alternative smartphones to sell their products and services.
Bundling of services will lead to the loss of subscribers of Airtel and Vodafone-Idea, causing a decrease in their market share. This will cause the reduction and elimination of competition in the mobile network service market and is likely to establish the dominance of JPL in that market. The elimination of competitors is likely to lead to abuse of dominance by JPL. The possible abuse of dominance may range from increased tariff rates for calls and data usage, bundling of services, denial of market access and other anti-competitive concerns. Therefore, consumer interests will be harmed and the lack of alternatives in the market will force the consumers to continue with costly and undesirable services.
Other digital markets
Evidently, JPL has other digital products like JioTV, JioCinema, JioMeet, JioCloud and other applications (apps), which are going to benefit from the Jio-Google deal of manufacturing smartphones, as such apps will be likely to be pre-installed in the phones. Bundling of applications with the smartphone will cause a denial of market access to the competitors of JPL in those markets. Products and services of competitors will likely face the loss of consumers, which will lead to decrease in popularity of those apps/platforms with the content developers like movie and music producers, and corresponding suppliers of other apps. Decrease of content on the apps of competitors will further lead to a decrease in consumers, causing a negative network effect on the market share of the competitors.
Therefore, the presence of JPL in such allied markets is also likely to increase and lead to its dominance in those markets. Affordable services provided by various Jio apps might be heavily monetized later, once competitors are eliminated from the market, leading to serious consumer harm. For example, the subscription fee of JioCinema may be increased substantially, once its rivals like Amazon Prime, Netflix and other Over-The-Top (OTT) platforms are eliminated from the market, due to the aforesaid negative network effects.
Conclusion
The current rush of acquisitions in JPL by foreign investors is certainly going to impact the Indian markets. The above-mentioned markets have a higher probability of impact as per the current information available in the public domain.
JPL is likely to vertically integrate completely in the digital space by entering every level, from network equipment supply, mobile network provider, wifi router and modem manufacture, smartphone manufacturer, e-commerce platform, products on e-commerce and other products and services in the digital space.
The vertical integration will lead to business practices like bundling of services, deep discounting and predatory pricing, preferential treatment to products of Jio and private labels of Jio, denial of market access to competitors, unfair treatment to competitors leading to reduction or elimination of competition.
Future acquisitions and deals might bring forth other markets where effects are likely to be noticed, for example, retail markets.
Any acts of bundling, preferential treatment, deep discounting and others, won’t immediately raise anti-competitive concerns in the market due to the nascent stage of JPL, but it has the potential to cause such effects in the future.
Therefore, the present collaborations project a future dominance of Jio in the 5G network, smartphone, e-commerce markets, resulting in complete dominance of JPL in the digital economy of India.
A possible future scenario: A person buying food and other household items from his JioMart app on his Jio 5G smartphone, which is powered by Jio 5G mobile network, which is provided by Jio telecom network equipment, and the payment for the goods will be done by Jio Money; and while enjoying the food that is delivered, the person is enjoying a movie on Jio Cinema or the services of other Jio apps on his smartphone. Simultaneously, he buys some electronic goods of private labels of JPL from JioMart to fulfil his household requirements.
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