Google’s $4.5b investment just made Jio’s 5G strategy a lot clearer

Last week, Jio Platforms added Google to its investor stable, which it says will strengthen its home-grown 5G strategy. The total money raised by Jio recently is over $20 billion — aimed to put Jio at the vanguard of India’s digital transformation. It goes beyond networks; the focus is digital ecosystems.

Image courtesy of Jio

Indian mobile upstart Reliance Jio turned heads last week after announcing that Google will invest $4.5 billion in Jio Platforms – the digital unit of Reliance Industries that runs the mobile network as well as Jio’s music and movie services. It’s the latest of a series of big-money tech investments in Jio Platforms that CEO Mukesh Ambani says will fuel his home-grown 5G ambitions. But perhaps more importantly, it could potentially put Jio at the vanguard of India’s digital transformation.

The Google investment is sizable, buying the search engine giant a 7.7% stake in Jio Platforms, as well as access to the lucrative India market. More to the point, however, Google joins the like of Facebook, Intel Capital and Qualcomm Ventures, who have also invested in the company, as have various private equity firms. Reuters reports that Reliance has sold 33% of Jio Platforms since late April, raising over $20 billion.

At Reliance’s annual general meeting last week, Ambani said the investments have helped Jio become debt-free a year ahead of schedule – a remarkable thing for an Indian mobile operator to be able to say in one of the most hypercompetitive markets in the world with famously low margins. More importantly, will also help strengthen the company’s plans to develop and deploy its own home-grown 5G technology sometime next year, after which it will sell the tech to other operators.

News first emerged of Jio’s in-house 5G tech in March, which raised the eyebrows of some analysts and industry watchers who said 5G was too complex and expensive for Jio to just whip up a solution out of nowhere.

Of course, it’s hard to rate Jio’s 5G chances without knowing details of the solution it says it has developed. However, as we noted at the time, it depends on the solution.

We do know that at some point in its evolution, 5G will be primarily be cloud-native software running on commodity open-source radio access networks (O-RANs). That’s a future in which Jio Platforms (whose network is all-IP with no legacy equipment to support) could potentially thrive.

Also, any operator’s 5G success will depend on having a flexible all-digital platform that can create and support the kinds of services that 5G can support. Jio has reportedly understood this for some time – seven years ago, according to Factor Daily, it established US R&D subsidiary Reliance Jio Infocomm USA in Frisco, Texas in a bid to not only develop cutting edge software for telecoms, blockchain and AI, but also to develop key partnerships with Apple, Qualcomm, Google and other Big Tech powerhouses.

As Ravi Agrawal points out on Foreign Policy, having Google onboard gives Jio access to Google’s R&D into connected and self-driving cars, smart homes and other IoT apps that will benefit from 5G’s ability to support millions of connections with low latency.

Google’s participation could also help Jio develop a new smartphone for the Indian market – a 5G version of its basic 4G “JioPhone”, which has been on the market since 2017 and runs on KaiOS (an operating system in which Google has also invested).

Going digital

Perhaps more importantly, however, investment from Google and Facebook will enable Jio to accelerate India’s path towards becoming a digital economy – if only because it has to if these investments are going to pay off.

According to Radio Free Mobile analyst Richard Windsor, Jio Platform’s current services earned revenues of $1.96 per user per month in the last fiscal year to March 2020. That means Google and Facebook must be banking on Jio promising massive growth in new services – otherwise, at the current rate, it’s going to take them over three centuries to break even.

Given India’s low GDP per capita, Windsor reckons the answer lies in O2O – which here means “offline services that move online, such as commerce, health, agriculture, education and transport.

“This is not really about increasing economic activity but instead is focused on making existing activities easier and more enjoyable creating a shift in value from the offline economy to online,” he writes.

This is essentially what Chinese companies like Alibaba and Tencent have done in China, and the results have been stellar. Windsor adds that the O2O model tends to work well in markets like China and India because the quality of many offline services is so bad and unreliable that the conveniences and efficiencies of a digital version can only be an improvement, even if the digital service is mediocre by developed-market standards.

Jio is already moving in this direction with new apps like JioMart (grocery delivery) and JioMeet (videoconferencing). Moving forward, Jio Platforms plans to innovate even more digital services – and by next year plans to have a 5G-powered network to run them on, and a cheap 5G device for users to access them.

But even if the 5G part takes longer than expected – whether due to technology hiccups, spectrum auction delays or the economic impact of COVID-19 – Jio Platforms could still position itself as the premiere digital platform in India even with 4G connectivity while simultaneously enabling even more people to go digital.

The inevitable Huawei issue

Inevitably there’s been a lot of talk about what this means for Chinese companies like Huawei hoping to cash in on India’s coming 5G market. As the US continues to put pressure on China in general and Huawei in particular, the vendor needs all the market wins it can get. The India market would be a huge win, and a Jio contract would be priceless – it’s the largest mobile operator in the country with over 387 million users.

Unfortunately, the geopolitical winds are not in Huawei’s favor right now – particularly in India, after the recent deadly border skirmishes. Prime Minister Narendra Modi has called for “self-reliance” (essentially code for avoiding Chinese-made smartphones and other products), which also implies that Huawei’s chances of participating in Indian 5G trials once the relevant spectrum is auctioned off have plunged to almost zero. With Jio now possessing the cash (and a stable enough balance sheet) to buy 5G spectrum, it’s likely to be the first, biggest and most lucrative opportunity for 5G vendors like Huawei – and Ambani is essentially saying Jio will not be requiring their services.

How true this is depends on the details of Jio’s 5G solution and the extent to which it needs to pay license fees for 5G patents. On the other hand, with Qualcomm in its stable, Jio Platforms may have all the 5G patents it needs. A 2019 study from GreyB found that while Huawei holds the most 5G-related patents overall, including 19% of patents deemed standards-essential patents (SEPs) for 5G, Qualcomm is a close second on total 5G patents, and holds 12% of SEPs.

Meanwhile, Radio Free Mobile’s Richard Windsor is of the opinion that the study may be overestimating Huawei’s SEP count, as much of the core intellectual property of 5G is “very similar to 4G and may even be replicated.” Even the GreyB report comes with the caveat that vendors tend to overdeclare SEPs, and the process isn’t transparent so it’s hard to determine which are truly essential.

In any case, whatever Jio has up its sleeve in terms of home-grown 5G, we won’t know for sure until it pulls back the curtain. But for now it looks like Huawei won’t be doing business with Jio any time soon.