Reliance Industries Limited (RIL), one of the largest conglomerates in the world, held its 43rd annual general meeting (AGM) on July 15. On the occasion, several noteworthy announcements were made for the company’s digital service business, showcasing the ambitions to transform Reliance Jio from a telecom operator into a solutions provider building a whole ecosystem. The AGM was held against the backdrop of a massive and unprecedented stake sale which saw over $15 billion investments in the past 12 weeks. In fact, during the AGM itself, Google was added to the list of strategic investors.
Reliance now has a net debt-free balance sheet, well ahead of its targeted date, which is impressive for a company of such a big size.
As of March 31, 2020, RIL’s total debt stood at $21.41 billion while Jio Platforms alone had raised $15.38 billion (excluding Google), funding over 70% of the total company debt. Reliance has a market cap of over $150 billion and Jio Platforms is close to half of this if we go by the current round of investments.
Jio has been a masterstroke for Reliance. Penetrating the market through affordable data plans and devices helped it build quick scale and value, which is now being realized. Starting as a telecom operator, Jio is now moving towards becoming a tech solutions company. Under its digital business, the Jio telecom arm will provide digital connectivity (wireless broadband, NBIOT, fiber for home and business), which can be leveraged by building solutions on top of it for consumers and enterprise, thus enabling new revenue streams and future-proofing the growth in a country which is at the cusp of digital transformation. Currently, Jio has a 4G network covering 99% of the population and the largest customer base. It has the largest data traffic in India with an average per user consumption of 11.3GB per month (smartphone and JioPhone combined) with approximately 5 hours of engagement per day. This scale, user engagement, robust balance sheet, the app and solutions ecosystem and the fact that Jio is now 5G ready will help it deploy these services and solutions even more effectively.
Exhibit 1: Value Creation Strategy of Jio
Over the last few months, there have been some big names like Facebook that have invested in Jio. One of the new investors, and probably one of the most important ones, is Google:
Google Investment: Potential for disruption
- Google and Jio have entered a binding agreement under which Google will invest $4.4 billion in Jio, from its $10-billion India digitization fund.
- Together they will develop an Android-based operating system for smartphones, committing to bring affordable 4G smartphones to propel upgrade of 350 million feature phones.
- There is also a ready base of Jio Phone users which can upgrade to affordable smartphones.
- This will also help bring users online and enhance the experience and monetization opportunities of a host of Jio platform applications and services.
Exhibit 2: Investments in Jio, Including Google
With this partnership, Jio has hinted at targeting the 2G users and upgrading them to 4G. This will become even more lucrative when it comes to Jio’s hardware offering. Hence, Jio will be taking another shot at entry-level smartphones, partnering closely with Google. Google’s partnership will give it more flexibility to offer stable hardware and software experience. Individually, both Jio, with its initial 4G smartphone launches, and Google, with its Android One program, tried in the past to capture the entry-level smartphone userbase but didn’t succeed. India is the second-largest smartphone market in the world and still underpenetrated relative to many other markets (40% smartphone penetration). This presents a big opportunity for ecosystem players and companies including Google are eyeing growth opportunities in this market. Google’s investment in Jio is surely not a surprise considering the underlying opportunity. This can be leveraged in many ways, especially with a partner like Jio which has strong platform ambitions to scale up not just in India but globally as well.
Jio was able to disrupt the 4G ecosystem in India with affordable data and devices. With its partnership with Google, Jio has the same potential in 5G as well. It is already ready with its 5G solutions and probably will be the fastest in India to launch a 5G network with scale. This combined with an affordable 5G device has the potential to take significant share away from brands as well as operators eying the Indian 5G market in 2021-2022.
Apart from this partnership, there were some industry and consumer applications and solutions also displayed by Jio during the AGM. This is in line with its strategy to be a platform player in the future. Solutions showcased during the AGM included Jio Set Top Box, Jio Glass, Jio Meet and Jio Mart.
Jio Set Top Box: Content aggregation, voice search and more
Jio Set Top Box now aggregates content from 12 providers and users can do voice search through genres, actors, mood, and other categories. Since there are multiple apps, which means multiple logins, Jio has gone for a single sign-in, thus making the interface more user friendly.
There is an increasing demand for content and aggregation of OTT players in the market. With movie halls closed due to the COVID-19 pandemic, there is also an increase in the number of movies being released on OTT platforms. Users are staying home and consuming content, which can work in favor of Jio Set Top Box.
Jio Glass: Display of capability
Jio also unveiled its mixed reality glass, which weighs only 75 grams. It offers support to 25 apps, personalized audio, cable to attach to smartphones, holographic call, and support for the presentation. There are several opportunities and use cases for Jio Glass, some of which are listed below:
- Integration with Jio Meet
- Integration with Embibe (online education app from Jio) to provide classroom experience at home and innovative learning approaches using holograms.
- Jio Glass also has the potential to be integrated with the solutions Jio may bring out for the manufacturing segment.
Virtual reality has been the buzz word and potentially one of the most disruptive technologies being talked about now. The experience of VR Glass will be much holistic with 5G at the back end, which remains elusive in India. While this shows what Jio is capable of, the commercialization of Jio Glass could well be two to three years down the line.
Exhibit 3: Virtual Meeting Using Jio Glass
Jio Meet: Bringing online collaboration and use cases
Jio Meet is the online meeting platform from Jio. The platform offers no limit on the number of participants and the duration of the call. Several use cases were shown for education and healthcare. The ed-tech sector is growing substantially in India and Jio can leverage this by the integration of Jio Meet with Embibe. Another opportunity is the integration of Jio Meet with Jio Health Hub for online consultation.
Jio Mart: Digitizing retail with scale
Jio Mart is an O2O model (Online to Offline) which will connect the local grocery retailers directly with the consumers and replace the cash-rich business model. The omnichannel tech platform has already registered 250,000 orders a day in 200 cities through its beta version. Jio now plans to expand this both in scale and new offerings (will scale to electronics, fashion, pharma, and health). Jio Mart holds one of the largest potentials for Reliance, especially after investment from Facebook. We have analyzed this in a previous blog (read here). Reliance is the biggest retailer in India and two-thirds of the Reliance retail stores are in Tier 2 and Tier 3 cities. Jio Mart can act as a single platform for its own retail business to come online and to extend the reach into smaller cities with huge untapped potential.
In this AGM, Jio has showcased its ambition to transform itself into a tech ecosystem player with an approach to provide industry solutions, some of which were showcased during the event. With the scale and user engagement achieved, the readiness of 5G and strategic partnerships with the likes of Microsoft, Facebook, Google, Qualcomm and Intel, Jio has laid a solid foundation to achieve its ambition in the coming years. The roles of telecom operators and internet giants have been converging over the last few years and Jio is a prime example of this. The telecom operators are now pivoting from being connection providers to transforming themselves into end-to-end players. Jio is transforming into a “Super Operator”.