Why did Facebook invest $5.7 Billion in an Indian Telecom Company

In April 2020, when the rest of the world is grappling with how best to tackle the pandemic and run their day to day lives, Facebook and Reliance Jio got into one of the best business deals of the decade.

Facebook decided to invest USD 5.7 Billion for 9.99% in Reliance Jio, thus becoming the largest minority shareholder in the company and get access to a country of 1.3 Billion people.

What is Reliance Jio?

Reliance Industries is owned and operated by India’s Richest Man, Mukesh Ambani who in 2016 introduced his telecom network called Jio. His goal was simple and decisive. Penetrate the Indian telecom market by providing free internet service and voice calls to its users. Until this point, data services offered by existing telecom operators in India were similar to the standard global rates.

Here is what Mukesh Ambani’s Jio accomplished with providing free data and voice calls to its customers for almost one year:

1. Jio was able to go on to add 300 million new users to their network, and most of whom were new users. Apart from it being a great value add for their business, having a large number of first-time users on the internet in the country also pushed the digital transformation initiative of the country as a whole.

2. Jio is part of Reliance Industries which owns the largest oil refinery in the world. Thus, the parent company’s financial position allowed them to raise a great deal of debt to cover for these services that were provided free of cost to its customers in their new telecom venture. The most significant advantage here was that an Oil Conglomerate was able to use its financial position to access debt to diversify the business towards the future of the 21st Century, i.e. Telecom and Data.

3. Finally, obliteration of the competition. While competitors in the country were charging almost USD 5 for 1 GB of Data, the new guy comes in and gives you the same quality of 4G data for free. Apart from the data, if you use the Jio network, you also get access to free calling within the country. This service was provided for a full one year. All you need to do is use their network. This forced the competition to slash their prices by up to 80% to retain their customers and restructured the entire industry within a year.

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