Facebook Inc. said it would pay $5.7 billion for just under 10% of Indian telecom operator Jio Platforms Ltd., a massive expansion of the social media giant’s commitment to a promising market where it has faced difficulties.
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The deal, unveiled late Tuesday, is Facebook’s largest overseas investment and gives it the opportunity to bring its WhatsApp messaging service—which has more than 400 million users in India—into closer partnership with the mobile operator that upended India’s telecommunications industry with cut-rate data plans.
Jio Platforms Ltd. and its subsidiary, mobile operator Reliance Jio Infocomm Ltd., are part of Indian conglomerate Reliance Industries Ltd. Jio Infocomm provides services to about 388 million customers.
The deal shows how Facebook, like other tech giants, is pushing ahead and taking advantage of its relative strength during a pandemic that is causing most other industries to retreat.
“We’re making a financial investment, and more than that, we’re committing to work together on some major projects that will open up commerce opportunities for people across India,” Facebook CEO Mark Zuckerberg said in a post on his personal Facebook page.
The Jio Platforms deal is Facebook’s second-largest investment in an outside company behind its $22 billion acquisition of WhatsApp in 2014. Facebook’s deal-making ability has been curtailed by antitrust scrutiny in the U.S., where the Federal Trade Commission has been examining whether past acquisitions were designed to head off competitive threats.
The investment, for 9.99% of Jio Platforms, provides the heavily indebted Jio with cash and gives Facebook a powerful partner in a key market where regulators have been hostile to foreign tech firms.
The coronavirus pandemic has taken a toll on Facebook, which late last month reported weakness in its digital advertising business. But it also said use of its products has soared during the pandemic. And with nearly $55 billion in cash and equivalents at the end of last year, it is more than able to weather the crisis.
American firms have been pouring billions of dollars into India’s tech industry, the world’s largest untapped digital market. Hundreds of millions of India’s 1.3 billion people remain disconnected from the internet, having never consumed products online. Amazon.com Inc. has in years past said it is investing $5 billion in the country, while Walmart Inc. in 2018 paid $16 billion for India’s biggest domestic e-commerce startup, Flipkart.
Aside from WhatsApp’s userbase, the core Facebook platform has more than 300 million users in India. While Facebook’s products have achieved broad success in India, some of the company’s business efforts there have struggled. Facebook’s proposal to provide a no-cost, Facebook-centric telecommunications service dubbed “Free Basics” was turned back in 2016, and the company has been unable to gain regulatory approval to expand its payments services via WhatsApp beyond an initial pilot.
Facebook has looked more to India and other developing countries for user growth as it nears saturation in North America and Europe. But emerging markets are still only a fraction of Facebook’s business, with revenues per Facebook user in Asia running at less than a 10th of the average in the U.S. and Canada. And despite WhatsApp’s popularity, Facebook has yet to find a way to produce meaningful revenue from the encrypted messaging service in India and elsewhere.
Jio parent Reliance Industries, owned by billionaire Mukesh Ambani—India’s richest man—has investments in media, retail and natural resources. The company placed much of its digital and telecommunications assets in the newly created Jio Platforms late last year ahead of plans to raise new funds.
Facebook said one way WhatsApp and Jio could work together would be to allow people to use the messaging app to buy products via a new e-commerce effort by Jio aimed at connecting millions of India’s small mom-and-pop grocery stores.
“We can enable people to connect with businesses, shop and ultimately purchase products in a seamless mobile experience,” Facebook Chief Revenue Officer David Fischer and Ajit Mohan, head of Facebook’s India operations, said in a statement announcing the deal.
WhatsApp has, over the years, become the default digital town square in India. It is free, only requires a mobile number to sign up, and its intuitive interface is simple to use for the hundreds of millions of people who are going online for the first time. But dubious messages have spread on the service in recent years—some leading to mob violence in India—and fact checkers in India have identified a slew of messages spreading misinformation related to the coronavirus.
In one of the biggest changes WhatsApp has made to a core feature, the company this month said its users globally can now send along frequently forwarded messages they receive to only one person or group at a time, down from five. Such forwarded messages can “contribute to the spread of misinformation,” the company said at the time.
In February 2018, WhatsApp launched, for a limited number of users, a digital-payments service that runs on an Indian government platform allowing real-time money transfers. At the time, WhatsApp said it hoped to expand it to all users in India soon.
More than two years later, it is still stuck in a trial phase. The government in New Delhi says WhatsApp’s system wouldn’t comply with rules requiring all payment data to be kept inside the country. WhatsApp has said the company has already localized the required data and awaits government approval.
In an interview, Mr. Mohan said the partnership between Facebook and India’s richest man isn’t designed to give the company a regulatory edge or boost average revenue per user. “When we look at India we are really thinking long term,” he said.
Asked about the status of WhatsApp’s mobile payments feature, he said “we are still hoping for approval from regulators.”