Abu Dhabi investment fund buys 1.85% Jio Platforms stake

Reliance Industries have found a fifth investor to purchase a handsome stake in Jio Platforms, its digital business unit, with Mubadala signing a $1.2 billion cheque for 1.85%.

Confirmed via Twitter, Khaled Abdulla Al Qubaisi, CEO of the Aerospace, Renewables and ICT portfolios for Mubadala, revealed the $1.2 billion investment will make the firm a stake holder in Jio Platforms, the holding company of disruptive telco Reliance Jio and numerous other digital ventures. “This investment is in line with our current ICT strategy and complements our portfolio of investments in telecoms, satellite operations, data centres and other ICT infrastructure,” Al Qubaisi said.

For Reliance Industries, it certainly caps off a successful seven weeks, though who knows whether there are other irons in the fire.

Jio Platform investments since April 22, 2020
Partner Stake Investment Date
Mubadala 1.85% $1.2 billion 4 June
General Atlantic 1.34% $860 million 18 May
Vista Equity Partner 2.32% $1.5 billion 11 May
Silver Lake 1.15% $750 million 4 May
Facebook 9.9% $5.7 billion 22 April
Total 16.56% $10.01 billion

As you can see from the table above, it certainly has been a profitable couple of weeks for the Reliance Industries MD Mukesh Ambani. Aside from the additional cash which is being invested into the business to continue network deployment and upgrades, there are some interesting synergies.

Facebook, for example, offers interesting opportunities to work with SMEs in the emerging cashless economy. General Atlantic already invests in Doctolib, digital healthcare platform in Europe to connect health professionals and patients. Mubadala is the same.

One of the Mubadala investments happens to be Yahsat, a satellite company which offers voice and data coverage across 161 countries. Not only could this company assist Jio by improving the connectivity patchwork in India, it is also an interesting partner to have in the mix for international roaming.

Each of these investors have expertise and investments which would be of interest to the Jio connectivity mission, or the second wave of monetization which follows the democratisation of the mobile internet.

4G subscriptions in India (2015-21), thousands
Year Bharti Airtel Vodafone Idea Reliance Jio Other Total
2015 1,459 21* 77 1,557
2016 10,800 9,541* 72,000 3,700 95,150
2017 30,000 36,998* 160,091 22,466 242,130
2018 77,067 75,300 280,100 22 433,061
2019 127,345 104,200 370,000 604,745
2020 180,491 105,062 406,978 702,686
2021 219,718 110,344 403,310 754,803

*For simplicity, Vodafone India and Idea Cellular subscriptions have been bundled together

Source: Omdia World Information Series

The table above offers a lot of information, but there are a few very important points which we would like to draw attention to.

Firstly, the total number of 4G subscriptions in India. At 754 million, there is still plenty of headroom for growth in a country where the population exceeds 1.3 billion. Secondly, the Reliance Jio disruption dragged the India market through a digital revolution from 2016 onwards. And third, Reliance Jio has a much greater opportunity to diversify revenues through digital services as it has more 4G subscriptions than its rivals.

When you look at the subscriptions data for all mobile technologies, adding everything from 1G through to 5G, the market share battle looks a lot more flattering for Bharti Airtel and Vodafone Idea, but it is a misleading picture. We are focusing on the 4G subscriptions as there is much more potential for additional revenues from this generation of mobile connectivity.

The blunt force object approach to telecoms is selling more subscriptions at an attractive price. Reliance Jio is clearly better at this than rivals, and there is more opportunity to sell 4G contracts in India. This will make Reliance an interesting investment, but the more savvy investors will look at everything this connectivity enables.

Through Jio Platforms, Reliance Industries has launched ventures into digital entertainment, AI, enterprise connectivity, IOT and many others. Democratising connectivity is an entry point to build a second wave of businesses as more of India is brought into the digital economy. These additional investments could be healthcare orientated, offering an alternative to traditional banking infrastructure or digitising government services. As the growth of Silicon Valley has shown, there is potential to make fortunes by leveraging connectivity.

This is why Jio Platforms is getting foreign investors excited. There is so much more to India’s digital economy than selling 4G subscriptions.

UK Gov launches IOT cybersecurity fund

The Department of Digital, Culture, Media and Sport (DCMS) has launched a £400,000 fund to fuel ambition for the security of internet-connected products.

The ultimate hope will be to kick-start the development of an assurance market for consumer internet-connected products such as wearable devices or smart doorbells. Such assurance schemes could offer accreditation for products which have undergone relevant tests, providing more confidence for consumers to purchases and to make full use of all functionality without fear of poor security.

“We are committed to making the UK the safest place to be online and are developing laws to make sure robust security standards for consumer internet-connected products are built in from the start,” said Digital Infrastructure Minister Matt Warman.

“This new funding will allow shoppers to be sure the products they are buying have better cyber security and help retailers be confident they are stocking secure smart products.

“People should continue to change default passwords on their smart devices and regularly update software to help protect themselves from cyber criminals.”

The idea is a simple one, but a very good one. Should such assurance programmes be nurtured correctly, and the general public be made suitably aware, it would become a factor in the buying decision making process. Manufacturers would be effectively coerced into compliance as sales could be impacted without the presence of the certification.

Alongside this initiative, new laws in the UK will come into play for both enterprise and consumer internet-connected devices. Any device sold in the UK will soon have to adhere to three rules:

  1. Device passwords much be unique with no option to restore to factory settings
  2. Manufacturers must create and maintain a public point of contact to report device or software vulnerabilities
  3. Manufacturers must state how long the device will receive security updates

These rules should form the basis of a more secure digital economy, though product assurance programmes would add more credibility and confidence in the quickly developing segment.

Recent figures from IDC suggest the wearables market is growing, 29.7% year-on-year for the first three months of 2020, though the numbers could have been higher. The on-going COVID-19 pandemic limited shipments due to supply chain disruptions and sourcing component for the products.

While the consumer IOT segment is still in the early development stages, it is critical the industry set the standards on security. Should the segment be allowed to progress too far with bad habits, attempting to correct mistakes and bad practice will become much more difficult. The UK should be applauded for its attempts to get ahead of trends, and hopefully other Governments are taking note.


Telecoms.com Poll:

When will OpenRAN be ready to be embraced by the industry without reservation?

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Google looking at Vodafone Idea investment – report

Google is rumoured to be considering an investment in struggling Indian telco Vodafone Idea as Facebook positions itself for an assault on the market.

India has long been held in high regard for the potential of its economy, but this promise has often failed to translate into profits. Hope has been renewed with Reliance Jio democratising connectivity across the country, and it seems to be getting US investors excited.

According to reports in the Financial Times, Google is looking at an investment in the struggling Vodafone Idea, as much as 5%, as a pathway to Indian riches.

Some have suggested Google’s parent company was considering an investment in Reliance Jio, though these rumours are highly unlikely to progress any further with Facebook’s investment in the disruptive telco. That said, an investment in Vodafone Idea would be a very interesting transaction.

Firstly, Google would like to enter the Indian market. Reliance Jio has forced rivals to re-evaluate tariffs, opening-up connectivity to the masses. Democratised connectivity is a remarkable opportunity for Silicon Valley, one which is not being ignored by anyone else. Google has numerous business units which would benefit; balloons to offer connectivity in rural environments, a cloud computing unit and mobile-native applications from search to video and payments.

Secondly, Vodafone Idea needs input, both financially and operationally. It is facing a considerable spectrum bill from the Government and parent company Vodafone has said it would not be contributing anymore funds. Operationally, something has to change if it is to compete with Reliance Jio and bringing in one of the worlds’ most innovative companies would certainly be a step forward.

This could be a cut-price opportunity for Google to get a solid foot through India’s front door at a time where the market potential is looking very attractive.


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KKR sets aside $1bn to muscle in on European data centre market

US investment firm KKR has outlined vague plans to fuel growth in the European data centre market with $1 billion for a build-to-suit and roll-up acquisition data centre platform.

While it is difficult to translate the overly enthusiastic PR and marketing language which dominates the press release, it does appear to be an effort to build more data centres in the European region.

“The data centre market in Europe presents a unique opportunity to invest behind the secular trend of increased cloud services adoption and demand for data,” said Waldemar Szlezak, MD of KKR.

The new company, which will be known as Global Technical Realty (GTR), will operate in two ways. First, a build-to-suit programme for the major cloud players. This segment will presumably have an anchor tenant dictating the location, before selling services on to additional cloud players.

Secondly, the team plan to execute a ‘roll-up’ acquisition strategy, a particularly effective business model when economies are facing tough trading conditions. This is a simple, albeit slightly predatory strategy, effectively identifying distressed assets for acquisition, before merging together in a single operation to benefit from scale.

“We are thrilled to have found an investor like KKR that shares our vision for the future of the data centre market,” said GTR CEO and founder Franek Sodzawiczny.

“KKR’s breadth of resources and tremendous expertise will allow GTR to fully participate in this growing market and provide a solid foundation for GTR’s future growth and success.”

Ultimately, KKR and GTR are attempting to capitalise on momentum towards the cloud. The major cloud players have their own data centre footprint of course, which is rapidly expanding, but there is only so much which can be done alone. The built-to-suit programme releases some of the risk associated with data centre investment, while the roll-up acquisition strategy is a quick win for a cash-rich company looking to muscle in on cloud momentum and create an immediate presence.

Today, trends are only heading in one direction. With more companies digitising business processes and workloads, the cloud computing segment is certainly benefiting from societal lockdowns and enforced digital transformation programmes. The big question is how many of these programmes will be returned as the world returns to some semblance of normality.

When we asked Telecoms.com readers how many thought their employers would retain remote working practices 50% said they would have to check into the office once or twice a week and 34% believed they would given the option to work as they please.

It does appear the enforced remote working dynamic has some sustainability in the long run, perhaps kick-starting a wider transformation programme. Nicholas McQuire, SVP and Head of Enterprise Research at CCS Insight told us there has been resistance to the cloud from traditional companies in the past, though once started it should provide a catalyst for greater things.

Aside from these very immediate and unusual drivers for cloud, trends have of course been gradually heading towards a more digitised and distributed world. Netflix, as an example, is very interested in caching as much content in edge data centres, to improve experience for customers, while cloud gaming could also provide greater demand for data centres.

Not only is the world become more digitised, super data centres will have to be supplemented by additional infrastructure to create a distributed cloud. This is an important element to reduce latency and remove choke points when attempting to improve customer experience.

The world is only heading in one direction though the pace of change is unknown for the moment. COVID-19 might have acted as an accelerator for digital transformation, and while this might only be temporary, this is an excellent time for KKR to be throwing money at data centre infrastructure.

A look back at the biggest stories this week

Whether it’s important, depressing or just entertaining, the telecoms industry is always one which attracts attention.

Here are the stories we think are worth a second look at this week:


Reports suggest the BT empire is beginning to crumble

No-one in the UK should be in the same league as BT, but poorly executed strategy has kept rivals within touching distance and now the foundations are reportedly being sold off.

Read the full story here


Microsoft doubles down on the telco cloud with Metaswitch acquisition

Don’t say you weren’t warned, telecoms industry. The tech big guns are trained on your home turf and they’re not afraid to splash the cash.

Read the full story here


Huawei threatened to pull investment from Denmark in response to new screening law

The head of Huawei Denmark sent a letter to the Danish Prime Minister indicating it would rethink its involvement with the country if special security requirements were imposed on it.

Read the full story here


Return to work messages start to appear as Twitter hands power to employees

One of the questions which has lingered over the last few weeks is whether the COVID-19 enforced digital transformation will persist in the long-term, though the answer is becoming a bit clearer.

Read the full story here


ETSI gets to work on new contact tracing app standard

With countries across Europe all trying to reinvent the wheel with their own contact tracing apps, standardization is long overdue.

Read the full story here


Reliance Jio signs a third deal to add another $1.5bn to its bank account

Vista Equity Partners has become the third-largest investor in Reliance Platforms, purchasing a 2.32% equity stake in the disruptive business for $1.5 billion.

Read the full story here


 

Intelsat files for Chapter 11 Bankruptcy

Intelsat has announced it will restructure its finances as it files for Chapter 11 Bankruptcy in the US Bankruptcy Court for the Eastern District of Virginia.

Although it sounds very pessimistic, Chapter 11 Bankruptcy is not the end of the world. It is very expensive, thanks to hefty legal and administrative fees, but it allows an organisation to reorganise debts. It allows a business to survive, albeit with some very long-term debts.

It is not ideal of course, effectively admitting that the business model has failed, or a company has not been able to keep pace with the market, but companies can emerge the other side. General Motors and United Airlines both filed for Chapter 11 Bankruptcy in 2009 and 2002 respectively.

Another satellite company, OneWeb, also filed for Chapter 11 Bankruptcy in recent months, suggesting this is a segment of the telco industry which is struggling.

“This is a transformational moment in the history of our company,” said Stephen Spengler, CEO of Intelsat. “Intelsat is the pioneer and foundational architect of the satellite industry. For more than 50 years, we have been respected for quality, innovation, sector leadership, and premium services. Our success has come despite being burdened in recent years by substantial legacy debt. Now is the time to change that.

“We intend to move forward with the accelerated clearing of C-band spectrum in the United States and to achieve a comprehensive solution that would result in a stronger balance sheet. This will position us to invest and pursue our strategic growth objectives, build on our strengths, and serve the mission-critical needs of our customers with additional resources and wind in our sails.”

The FCC has said it will reimburse satellite companies who assist in clearing the C-Band airwaves, but it is an expensive job. Intelsat would be eligible for $4.87 billion from the FCC, however, these funds will drip feed into bank accounts over a long period of time. $1 billion will have to be spend up front, cash which Intelsat clearly does not have, hence the current bureaucratic process.

It does appear the satellite industry is one which is struggling for cash and one which could look very different over the next few years.

Telcos have repeatedly said satellite is an important component of the industry, an element of the connectivity patchwork. To deliver the digital economy, different technologies will have to work seamlessly alongside each other, as there are pros and cons to every aspect.

However, despite the proclamation of importance it appears cash is not flowing through to the satellite segment of the industry. It might well at some point, but who can wait that long? Musk and Bezos probably can.

With Elon Musk and Jeff Bezos investing in this segment, there are two technology titans on the scene who can probably outwait the traditional satellite companies. With big bank accounts fuelling these ventures, these businesses can be patient in the pursuit of profits. This advantage might make this segment look very different in a few years, as some succumb to the pressures of time, while others bask in the ray of financial security.

Silver Lake pays a premium for a chunk of Jio Platforms

Private equity firm Silver Lake has shelled out $750 million for a 1.15% stake in the Indian telco, which represents a 12.5% premium on the price Facebook recently paid.

In the baffling Indian numbers, Silver Lake is handing over ₹5,655.75 crore at an equity value of ₹4.90 lakh crore (~$65 billion). When Facebook bought 10% of the company a fortnight ago, the valuation was more like $57 billion. While we don’t doubt Jio has had a cracking couple of weeks, something else must be going on for the price to shoot up so.

“I am delighted to welcome Silver Lake as a valued partner in continuing to grow and transform the Indian digital ecosystem for the benefit of all Indians,” said India’s richest man Mukesh Ambani, Chairman of Reliance Industries, Jio’s parent. “Silver Lake has an outstanding record of being a valuable partner for leading technology companies globally. Silver Lake is one of the most respected voices in technology and finance. We are excited to leverage insights from their global technology relationships for the Indian Digital Society’s transformation.”

“Jio Platforms is one of the world’s most remarkable companies, led by an incredibly strong and entrepreneurial management team who are driving and actualizing a courageous vision,” said Egon Durban, Silver Lake Co-CEO. “They have brought extraordinary engineering capabilities to bear on bringing the power of low-cost digital services to a mass consumer and small businesses population. The market potential they are addressing is enormous, and we are honored and pleased to have been invited to partner with Mukesh Ambani and the team at Reliance and Jio to help further the Jio mission.”

The reason for the premium remains unclear. It could be that the mere fact Facebook got involved made Jio Platforms 12.5% more attractive as an investment. Then again, as Tech Crunch speculates, Silver Lake could have bought a lower class of share, or is anticipating an imminent IPO. From Jio’s perspective, these infusions of cash could be contingencies against the depressed global economy or could be a war chest for further investment.

Facebook buys into Jio’s disruptive mission

Reliance Industries has announced Facebook will invest roughly $5.7 billion for a 9.9% stake in its telecoms and tech business unit.

Facebook is an internet company which is still overly reliant on a direct correlation between userbase and revenue growth, and India is a market with a substantial number of unconnected individuals. As one of the fastest growing telecoms and technology businesses in the second most populous country in the world, this is a smart bet.

If $5.7 billion is table stakes to get involved in the Indian market, it could be viewed as a fair price for Facebook to grow its userbase from roughly 300,000. With an estimated population of 819 million aged between 15-64, there is massive potential for growth for the social media giant.

And as a disruptive, fast-growing telco, with side-bets in smartphones, IOT devices, cloud, edge computing, AI, big data and healthcare, Reliance Jio certainly has the ambition which could match Facebook.

Changing fortunes in Indian telecoms market (2018-2019)
Telco Market share** Subscriptions* Year-on-year
Reliance Jio 32.14% 370,000,000 24.3%
Bharti Airtel 28.43% 287,591,000 (1.2%)
Vodafone Idea 28.89% 304,000,000 (27.3%)
BSNL 10.26% 118,025,372 3.2%

* Omdia World Information Series

** Telecom Regulatory Authority of India data

In the press materials, Reliance Jio has stated the focus will be India’s 60 million micro, small and medium businesses, 120 million farmers and 30 million small merchants, suggesting WhatsApp could play a significant role. As a country which lacks wide-spread traditional banking facilities, alternative digital payment platforms are a hotbed of potential.

While Google, Apple, Tencent and numerous others are already eyeing this opportunity, this tie-up with Reliance Jio could provide a material advantage. For example, as part of the partnership Jio Platforms, Reliance Retail and WhatsApp will enter into a commercial partnership agreement to further accelerate the JioMart platform. This direct link to existing Jio customers is a very attractive proposition for the WhatsApp enterprise team.

“When Reliance launched Jio in 2016, we were driven by the dream of India’s Digital Sarvodaya – India’s Inclusive Digital Rise to improve the quality of life of every single Indian and to propel India as the world’s leading Digital Society,” said Mukesh Ambani, Chairman and MD of Reliance Industries.

“All of us at Reliance are therefore humbled by the opportunity to welcome Facebook as our long-term partner in continuing to grow and transform the digital ecosystem of India for the benefit of all Indians.”

As an investment, this transaction fits in perfectly with the overarching Facebook mission to ensure more individuals are brought into the digital society.

While Reliance Jio is a mainstay of the telecoms fraternity nowadays, it wasn’t long ago it was a major disruption to the Indian telco industry, offering radically reduced data tariffs to the masses. It democratised connectivity for Indian consumers, set against a backdrop which had become a very stagnant industry. Like investments in the Telecom Infra Project (TIP), the Libra digital currency and Peruvian telco Internet para Todos Perú (IpT Peru), the objective for Facebook is to bring connectivity to more people.

The TIP mission is to commoditise network infrastructure to bring down the price of deploying equipment in developing markets and rural environments, while the Libra stablecoin creates an entry point to the digital economy for those who lack traditional banking facilities, and IpT Peru is bringing the internet to unconnected communities with OpenRAN infrastructure. Reliance Jio is another company which is helping to connect the unconnected, but why should Facebook care so much?

Facebook revenue streams (2016-2019, year-end)
Year Advertising Other Split (%)
2019 69,655 1,042 98.5/1.5
2018 55,013 825 98.5/1.5
2017 39,942 711 98.2/1.8
2016 26,885 753 97.2/2.8

Facebook investor relations (revenues in millions USD – $)

Although Facebook has been attempting to diversify its revenue streams, the majority is still attributable to the core advertising business. This is a unit which relies on the userbase; there are only so many ads which can be served to an individual before the experience is impacted. To ensure revenues grow but users are not irritated by an overly commercialised platforms, new users need to be attracted to the platform.

In the developed markets, Facebook is reaching saturation point. It will have to add additional services in these markets to continue growing revenues, as well as attract users to the platform in the developing markets.

The financial growth which Facebook has demonstrated year-on-year is quite remarkable, though this is largely due to the core advertising business. The social media giant has largely failed to drive into new markets, with many acquisitions still waiting to pay dividends. The $16 billion WhatsApp acquisition is certainly one, but with the Reliance Jio partnership there is an opportunity to add a greater enterprise and payments venture into the mix.

Although the primary mission is most likely to expand the userbase for the core social media platform, the ambitious nature of Reliance Jio and embryonic stage of the Indian digital economy offers Facebook a significant opportunity to develop new ventures. This is a market which could act as an incubator for the diversification Facebook has been attempting for years.

Alibaba to spend $28 billion in bid for cloud autonomy

Chinese internet giant Alibaba has announced it plans to invest $28 billion over the next three years in its cloud business, including the development of chips and an OS.

“By increasing our investment on cloud infrastructure and fundamental technologies, we hope to continue providing world-class, trusted computing resources to help businesses speed up the recovery process, and offer cloud-based intelligent solutions to support their digital transformation in the post-pandemic world,” said Jeff Zhang, head of Alibaba’s cloud business, according to Techcrunch.

This is being widely reported as a doubling down on the cloud business, which it is, but a profound subtext seems to be Alibaba’s desire to develop more of its own technology. That, in itself, is perfectly sensible, but when viewed in the context of the snowballing tensions between the US and China, especially the latter’s determination to make itself less exposed to trade restrictions from the former, then the announcement takes on some extra nuance.

Alibaba’s financial chest-beating comes just days after Chinese BSS vendor announced the addition of China Mobile as a strategic investor. China and the world’s biggest mobile operator is dropping around $200 million for a 20% stake in the company. As an added bonus, that will also make China Mobile less dependent on non-Chinese vendors for its software. Handy.

The circumstantial evidence is mounting of a major process of balkanisation in the global technology industry, with China and the US seeking to become totally independent of each other regarding hardware and software. That’s fine, but the last thing the rest of the world will need once we emerge from coronavirus financial purgatory is to be caught in the crossfire of a battle of economic wills between Donald Trump and Xi Jinping.

Softbank warns of $17bn blow to Vision Fund investments

COVID-19 is causing waves across the world, and now Japanese telco Softbank has warned the pandemic might well be the cause of ¥1.8 trillion ($17 billion) loss in the investment unit.

With the earning results for full year 2019 due on May 11, Softbank has released a statement to warn investors of some very dampened fortunes. Due to the impact of COVID-19, Softbank is forecasting an operating loss of roughly $12.5 billion, mostly due to the $17 billion blow dealt to the Vision Fund.

To make matters worse, Softbank is also warning of an additional ¥800 million (roughly $7.4 billion) loss to investments which are being held outside the Vision Fund, including WeWork and OneWeb.

Although it is hardly unusual for a company to make adjustments to financial forecasts due to current trading conditions, Twitter and Microsoft are two others who have made similar statements to investors, the impact might be compounded thanks to Softbank’s diversity and some questionable bets.

In 2018, Softbank founder and CEO Masayoshi Son attempted to add diversity to the business through the creation of an investment vehicle, the Vision Fund, though this is where the firm is exposed today. With the Dow Jones and FTSE 100 down 20% and 21% respectively since the beginning of the COVID-19 outbreak in the US and Europe, being an investor in the technology space is a tricky vocation today.

Some of Softbank’s investments are looking pretty positive, Slack for instance, but others are being hit hard by the outbreak. Cash which has been pumped into the real estate industry is not necessarily looking healthy, neither are bets into transportation and logistics. Uber, one of the companies in the portfolio, has seen share price decline by more than 30%.

Outside the impact of COVID-19, there are also other investments which are going sideways. WeWork has proven to be a flop, with the coronavirus covering up much deeper failings, while OneWeb recently filed for Chapter 11 Bankruptcy.

What is worth noting is that not all of the investments made by the Softbank Vision Fund are bad. Investors in such businesses usually have to accept the risk that not every gamble pays off, and while the coronavirus is negatively impacting the investments, it does not mean it will always be a loss maker. Over the last two years, investors have been enjoying the profits of Masayoshi Son’s VC ambitions, and we suspect it will be the same once COVID-19 stops wreaking havoc with society.

The question is what will happen in the interim period? Will investors understand this is only short-term pain, or will there be calls for actions to return to the traditional ways of telcos making money?