Editorial Notes

[Editorial Notes] A big deal

Jio-Facebook alliance can reshape the retail landscape in India. Partnership raises concerns about data privacy, net neutrality.
By IASToppers
April 28, 2020

Contents

  • Introduction
  • What are the benefits of this deal?
  • Significance on overall ecosystem
  • Opportunities for cross-selling
  • Concerns over this deal
  • Conclusion

A big deal

For IASToppers’ Editorial Simplified Archive, click here

Introduction

Recently, Reliance Industries and Facebook announced that the Facebook will acquire a 9.99 per cent stake in Jio Platforms limited, the holding company of Reliance Jio, for $5.7 billion.

What are the benefits of this deal?

  • The deal will help the Reliance group to reduce its debt burden, something the oil-to-telecom conglomerate has been actively working towards.
  • The two companies expect to benefit from the synergies created by partnerships between the various arms of Reliance and Facebook’s platforms such as WhatsApp.
  • At its core, the idea is to create an ecosystem around JioMart, enabling customers to access the local kirana stores using WhatsApp, combining both offline and online retail.
  • This ability to connect millions of local businesses with end consumers, and provide them a seamless online transaction experience could radically alter the country’s retail landscape.

Significance on overall ecosystem

  • A strategic partnership with India’s largest telecom operator will also be key to Facebook’s future technological plays, particularly in virtual reality (VR) and Internet of Things (IoT), the success of which will depend on access to 5G.
  • Jio has developed its own end-to-end 5G technology, and has sought the approval of the Telecom Authority of India (Trai) for 5G trials.
  • This deal may help in deepening financial inclusion as 400 million users of WhatsApp, may leverage Facebook’s Whatsapp pay-UPI platform.
  • Also, because of Facebook’s Libra cryptocurrency service, this deal could be a step further for experimenting crypto-based payments and blockchain technology on a large scale in India.
  • Facebook has also supported the GoI’s data localisation policies in the past. In contrast, GoI has been ‘less than kind’ towards, large foreign tech companies. In the face of such shaky relations, this partnership may allow Facebook develop a better relationship with ‘key decision-makers’.

Opportunities for cross-selling

  • A scaling up of this model will also provide opportunities for cross-selling (practice of selling an additional product or service to an existing customer).
  • At present, though, the reach of WhatsApp Pay is limited — just over a million Indians are currently have access to the pay feature. 
  • But this sort of model is popular in other Asian economies such as China, Korea and Japan where apps like WeChat have a wide range of product offerings, which induces consumer stickiness.
  • This arrangement also allows Jio to greatly expand its product offering to its more than 370 million-odd subscriber base.
  • The deal may also open up the entire WhatsApp consumer base to Reliance, including those on other telecom platforms such as Airtel and Vodafone.

Concerns over this deal

Market Disruption

  • First, given the dominant market position of the players, concerns over the market structure and its implications for consumer welfare are bound to arise.
  • A significant part of Reliance’s new commerce strategy is to create an ecosystem and engaging consumers with them has become a way of life for most retail majors across the world.
  • Hence, by this deal, JioMart could become a one-stop-shop for e-commerce, social media consumption, instant messaging, and also digital payments.
  • Further, difficulty, or inability of Indian start-ups to compete with big companies are also evident.

Net neutrality

  • Second, the tie-up also raises questions on net neutrality with the possibility of preferential treatment being granted.
  • The Department of Telecommunications (DoT) had adopted the principles of Net neutrality in July 2018.
  • In 2016, the Telecom Regulatory Authority of India banned Facebook’s Free Basics programme from the India, ruling that the system and others like it violate the principles of Net neutrality. The programme was meant to offer free but limited internet access to users. At that time, Facebook had launched the service through a tie-up with Reliance Communications.

Enormous data collection

  • Third, given the data privacy issues highlighted in the past by the Cambridge Analytica episode, for instance, there are apprehensions over the enormous amounts of data that will be collected by these entities, especially when India still does not have a personal data protection law.

Facebook as Powerful telecom Player in India

  • Fourth, this investment may give Facebook access to the 5G technology and telecom infrastructure that it needs.
  • Facebook has previously partnered with a telecom provider in Japan to provide augmented reality (AR)/VRbased products using 5G networks. It also runs the ‘Telecom Infrastructure Project’, which aims to create open source telecom equipment to promote affordable telecom infrastructure in under-connected areas.
  • Some member companies have expressed concerns over the project’s potential to turn Facebook into a powerful telecom player.

Conclusion

It is noteworthy that this is the largest foreign direct investment in the technology sector in India.

However, at the same time, it is fair to ask that will the deal that brings together the world’s largest social media company and the group that is a leader in everything from oil to data.

Regulatory bodies such as the Competition Commission of India and Telecom Regulatory Authority of India have bigger role to play on the major issues that will arise from this deal.  

Hence, such big deal should not be passed without closely scrutinising as the future of India’s Internet economy is at stake.

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