The Indian conglomerate Reliance Industries is using its newly minted telecom monopoly to expand into other sectors of the Indian economy in partnership with multinational companies including Google, Facebook and Microsoft. Its 5G claims are a signal that it is now a part of the US-led global alliance against China’s tech companies.
The combined market cap of the Reliance oil and telecom empire is US$189 billion, making it the only Indian company in the top 50 global list and 10th in Asia. In four years, Reliance Jio used its parent’s oil and gas revenues to power its way into telecom and become the leading Indian player. It bled the others with its initial low, predatory pricing rates, until they surrendered, accepting Jio as the undisputed market leader.
Jio has also made claims that its network is free from any Chinese equipment, and of an in-house, “indigenous” fifth-generation technology, positioning itself as a major player in the US-China 5G trade war.
But even with its fat oil war chest, the Reliance empire had a huge overhang of debt. To liquidate the loans, it floated Jio Digital as a new platform for services riding on top of the Jio telecom network. In a scant few months, by selling stakes of about 30-32% in this company, it has raised or in the process of raising capital to the tune of $22 billion, and wiping out a major part of its debt.
Apart from financing companies that have invested, there are key tech players with strategic investments ranging from Facebook’s $5.7 billion to Google’s $4.5 billion and Microsoft’s $2 billion. The other $10 billion worth of investments in Jio is from a clutch of venture funds that include sovereign funds of Abu Dhabi and Saudi Arabia.
If we want to understand what Reliance Jio’s market plans are, we need to examine its technology partners that are making strategic investments in Jio. They have all decided that Reliance Jio is the dominant player in the Indian telecom business, and if they want to reach either the Indian consumers or Indian business, they have to align themselves with Jio. The services can be from selling goods, video streaming services, videoconferencing, and payment gateways to providing digital infrastructure services to business.
With the Covid-19 outbreak, the Internet has become even more critical for people, and this is going to stay beyond the pandemic. The pipeline that connects all of us Indians – consumers or business – is now controlled by Jio, and that is why global tech companies are queuing up to get a share of the Jio pie.
Just as Reliance used its oil monopoly to leverage itself into becoming the leading Indian telecom player in just four years, it is now leveraging its leading telecom position to create new monopolies that will provide digital services over this network. It is also eyeing a place in building of future 5G networks in other countries, aligning itself with the US against China in the 5G tech and trade war.
Successive governments of both major parties – the Indian National Congress and Bharatiya Janata Party (BJP) – have allowed Reliance to assert its monopoly muscle. We are now in the end game of Reliance asserting its total control over the Indian market.
The current government of Prime Minister Narendra Modi has even allowed a Reliance back door into India’s largest bank, the State Bank of India, via its 30:70 joint venture with Jio Payments Bank. So Reliance has also the enormous resources of the SBI at its disposal.
All of the digital monopolies aligning with Jio compete against one another, but also complement one another. Google is the key player in a host of cloud services for the personal market through its dominance of the search engine and Gmail. It is this space that it uses to get a huge share of digital ad revenues.
Facebook competes with Google for ad revenues with its Facebook and Instagram platforms, but in the social-media space. Its business offerings on WhatsApp has yet to develop as a major platform for business.
Apart from the PC-based software market, where Microsoft is dominant, it has also built a large cloud-services platform for businesses, where it competes with Amazon, the market leader in this area. Google offers cloud services to companies, but is still some way behind both Amazon and Microsoft. Amazon is the biggest player on digital retailing, a two-sided monopoly: It is a monopoly to sellers as well as to buyers.
All these companies need telecom infrastructure to reach consumers or businesses. As each of them tries to enter new areas, such as finance and payment systems, they need not only tech infrastructure but also a way of “negotiating” the regulatory structures that protect the consumers and the sovereignty of the country.
It is here that Reliance offers a double advantage. It not only has its huge telecom infrastructure but also has the ability to bend India’s regulatory structures. Here both Google with its Google Pay and Facebook with its so-called digital money could find a back door into the Indian market using Reliance’s existing financial infrastructure such as Jio Payment Bank.
In the area of retail, its tech partners are not the competitors to Reliance Retail. Amazon and Walmart-Flipkart are. It is already a crowded marketplace, with many other players getting into e-commerce.
Here again, the Reliance philosophy is simple: Build economies of scale, and bleed the others through under-pricing, even if it means losses for some period. Once the competition surrenders, then the prices can increase, just as it has in the telecom market. This is tried and tested Reliance policy. It needs deep pockets, and a compliant government and regulators. In this, Reliance has been twice blessed, both by the Congress government and the current BJP one.
New in the Reliance game plan is the talk of a 5G network, built entirely in-house. There is no evidence that Reliance has the capacity to develop the technology for building digital networks, let alone build a 5G network from scratch. Even in the petroleum sector, it has always bought technology as products and rarely built any of its own. Its entire 4G network was built by the South Korean company Samsung, a competitor of China’s Huawei in the 5G market.
Among the recent investments in Jio, there is also Qualcomm, one of the major competitors of Huawei for manufacturing wireless chips for 5G base stations and mobile handsets. Though its investment in Jio is small – only $97 million compared with the billions of dollars of the other tech players – are Qualcomm and Samsung, Reliance partnering Reliance in its “indigenous” 5G technology?
Huawei, Qualcomm, Samsung all have strong patent positions in the 5G market. Reliance has none that we know of, unless it has bought up some small players for their intellectual property. Reliance’s strength has been to build at scale, and by doing so, achieve economies that its competition cannot match.
The tech business is very different. It is developing new technologies and create needs that do not exist yet. They are created by virtue of the new technology. Think of personal computers, mobile phones, search engines. In all of these, the market followed the technology, and was built from scratch. The scale came later. Deploying technology at scale, which has been the Reliance core game, does not lend itself to building technology from scratch.
Reliance is using its dominance in mobile networks to emerge as the sole player in 5G. Bharat Sanchar Nigam Ltd (BSNL), a state-owned telecom entity, was gutted long ago, and now Vodafone-Idea is following suit. Bharati Telecom, already burdened by debt, and license fees that it avoided paying earlier and has to pay under a Supreme Court judgment, will find it difficult to compete with Reliance on 5G license fees. This will leave the field open for a Reliance monopoly of 5G as well.
India offers the largest mobile market in the world after China. With a 5G monopoly in the offing, Reliance wants to cobble together an alliance of US, South Korean and possibly other vendors to face the global challenge of Huawei and Chinese equipment suppliers. This is the signal that Reliance is sending to the world: “Join us and we will make you win, but under our flag.” Again, leveraging scale for technology, the familiar Reliance game.
Can this succeed? While predicting the future is foolish, this transformation is far more complex than Reliance envisages. But even if it fails, it will make money out of its failure. Reliance after all has the second-biggest market in the world as captive, the gift of successive governments. This gift will still go on giving, even if fails to create an “indigenous” 5G technology.
This article was provided by Independent Media Institute.
Prabir Purkayastha is the founder and editor-in-chief of NewsClick. He is the president of the Free Software Movement of India and is an engineer and a science activist.