FB-JIO mega deal
FB SENDS JIO A FRIEND REQUEST
When did FB & Jio reportedly started negotiating ?
On 25th March, 2020, there were reports in the FT that Social media giant Facebook is going to buy a 10% stake in Reliance Jio . As a result of this shares of Jio closed 14.65% higher at ₹1081.25. The FT report also states that Google & Microsoft are also in discussion with Jio separately. Microsoft had said last year that it would provide cloud- computing services to businesses along with jio.Ironically the supposed deal between Facebook & Reliance Jio which no one from Facebook & Jio had confirmed when the report was published on 25th March , gets signed on 22nd April , 2020 .
Why is the Deal important for both companies?
For Facebook it aims to increase the usage of Whatsapp pay in the biggest market of the company,ie., in India.
The secret sauce to this deal is the potential
for Facebook’s payment solutions — WhatsApp Pay. And, this is the reason why
Mark Zuckerberg is paying top dollar for a stake in Mukesh Ambani’s Reliance
Jio.
Mukesh Ambani wants to make Reliance Jio “virtually
debt free” by march 2021.In a move towards this , RIL was Transferred ₹1.07 Lakh
Crores of Debt from Jio in early 2019. Currently, Reliance Jio’s net debt stands at ₹1.53 Lakh Crores.
So this
,deal could serve purposes of both the companies , for Facebook it could help
in increasing the usage & acceptability of Whatsapp Pay and for reliance it
could help in reducing the debt of Reliance Jio to zero. Moreover Reliance also
plans to launch jio mart, this deal would prove to be useful in realizing this
dream.
THE DEAL
It was announced on 22nd April, 2020 that Facebook will invest $5.7billion or ₹43,574
Crore (a 9.99% stake on Fully Diluted basis) in Jio platforms. After the
capital gains and income tax, the final realization from the deal will be
roughly ₹38,000
crores, according to some experts.
Post
this deal Jio now values at 4.62 Lakh Crore Rupees.Also, RIL’s share price
jumped by nearly 6% to ₹1,306
post the announcement of Facebook Deal.
This
partnership will be a direct competition to recent Airtel & Google
partnership.
Peculiarities
of this Deal-
·
Largest FDI deal in technology sector in India
·
Aim of this Deal is to reach 6 crores
MSME, 12 crores Farmers with the help of Digital
Services.
“Our
goal is to enable new opportunities for businesses of all sizes, but especially
for the more than 60 million small businesses across India,” said Facebook’s
chief revenue officer, David Fisher, and the VP and managing director of India,
Ajit Mohan in a post.
“PayTM,
PhonePe and other players will be impacted. They don’t have as much e-commerce
as these guys will have. That will make a big difference,” Vikram Sud, an
independent director at DBS told Business Insider.
Retaining employment at brick-and-mortar stores rather than wipe
it out
“This
is an amazing partnership on the payments side. Whatsapp Pay did not have the
commercial sides of it (that is,no e-commerce platform was there) as Whatsapp was trying to creep into the business. Now,
between Whatsapp, Instagram and Facebook — all the commerce can be done through
Whatsapp Pay,” said Sud.
“By bringing together JioMart, Jio’s small
business initiative, with the power of WhatsApp, we can enable people to
connect with businesses, shop and ultimately purchase products in a seamless
mobile experience,” said Facebook.
It’s a win-win situation for Ambani and
Zuckerberg
WhatsApp has been testing its payments platform in India since
2018. It was only available to a million users under a partnership with ICICI
Bank.
However, the concern for policymakers was whether not it will be
responsible to allow a social messaging app — known for being a vehicle of fake
news or what’s more commonly called the ‘WhatsApp University’ — to also integrate
payments into its platform.
In February this year, two years after the company’s first
trial, WhatsApp finally got the approval to roll out its digital payment
service in a phased manner. In the first phase, it will offer its payment
services to 10 million users in the country.
Jio has very ambitious plans to integrate all kirana stores with
its soon to be launched Jio Mart platform. This is seen as a major competition for
Amazon, Flipkart and other key E-Commerce players. You will get delivery from local stores at a
faster pace as most of deliveries especially routine ones will be made shop in
your locality, while also helping such shopkeepers retain their employment
unlike with the advent of Amazon & Walmart has been demolishing brick-and-mortar
businesses.
Concerns & Hurdles for the deal
Facebook-Reliance Jio deal needs to be scrutinised by the country’s competition watchdog, mainly from the point of view of data that the combined entity will control .
“…we need the law to scrutinise the deal from the data advantage point of view and not just money or market share,” said the official who did not want to be named. “Data is becoming a factor to reckon competitiveness and therefore the data aspects of the competition law need to be sharpened and revisited,” the person said .
Analysts have sought more transparency in how Facebook and Jio will function.
“The government needs to look into the data-sharing agreement between these two parties and it should be made transparent to both consumers and the government,” said Neil Shah, vice president at Counterpoint Research. “One needs to look into intrusive advertising. Since they are using WhatsApp channels for digital commerce, it opens up transaction details of these SMEs to a foreign company. It needs to be clarified that once FB gets access to the millions of Jio users, how will it use (the information)?”
“Access to data is an interesting aspect of this deal, these two companies are like two elephants and the combined entity may have an unfair data advantage,” said the government official cited above. “Once WhatsApp and Jio join (hands), they may end up killing all competition and distort fair market practices.”
CCI(Competition Commission of India) approves investments and mergers and acquisitions (M&A) by examining the market share of the entities involved in a transaction. It can however take suo motu action if it sees cartelisation or if there is a complaint that a company or grouping has higher concentration of market power.
Government officials will also watch out for any violation of net neutrality rules once the integration with Jio and Facebook products is completed.
“At present we don't have any laws on OTT (over-the-top) regulation in the country and this deal will have to be analysed from a larger angle. Obviously there are concerns if Facebook products including WhatsApp tend to work better on a Jio network ? However, this possible violation of net neutrality can only be observed once the deal comes ..
CAIT(Confederation of All India Traders) warns over FB-JIO Deal –
·
Facebook known for violating
domestic laws.
·
Investment should happen in
letter & spirit of India’s FDI
norms.
Though all share price surge, consumer enthusiasm, economic analysis of the deal by the experts , all this is happening but this Deal is still to cross the legal and regulatory hurdles to see broad daylight & to come into existence. So, all the apprehensions, excitement would be pre-mature until clearance is given.
Amazing insight into the most talked about tie up.
ReplyDeleteTo b very frank, being an honest engineer, most of economical aspects of the issue involved in this case are beyond my capacity to comment. However it is something which will impact our country's economy to a large extent.Hence I would leave it for younger generation to handle such affairs. Hats off to u young generation in appreciating such important issues.
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