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Can Ambani take on Tencent, Huawei and Xiaomi?
WITH the US$28 billion he's raised working from home, India's richest man wants to step into the breach created by the technology cold war between America and China. The two Silicon Valley tech giants that gave him a third of the money will help put him there.
It's an audacious plan. Politicians in many nations, including the US, the UK and India, are reluctant to let Huawei Technologies, which they accuse of being an instrument of the Chinese state, become embedded in the fast-speed Internet networks that will run everything from power stations to autonomous cars.
Mukesh Ambani's four-year-old Jio Platforms has indigenously built its own 5G technology, the tycoon announced at Wednesday's annual general meeting (AGM) of his flagship Reliance Industries. After testing it on the 400 million 4G customers he has in India, he'll offer it to other markets. The news18.com website, also controlled by Mr Ambani, called the technology a "Huawei-killer", and noted that US Secretary of State Mike Pompeo had praised Jio as a clean network for not using the Chinese firm's gear.
While details of Mr Ambani's 5G prowess and the markets he hopes to target are still fuzzy, the planned assault against handset makers is clearer. Alphabet chief executive officer Sundar Pichai made a virtual appearance at the Reliance AGM and pledged US$4.5 billion for a 7.7 per cent stake in Jio and a chance to build an Android operating system. The cheap smartphones running it will migrate 350 million Indians who still use feature phones to mobile Internet. But how much customisation will Google be comfortable with? If it's a lot, the phone may be affordable but tied to Jio's apps. Too little, and the pricing may be unattractive. Somewhere in between those extremes, it's a threat to Xiaomi. As Bloomberg Intelligence analyst Anthea Lai notes, India accounted for 35 per cent of the Chinese vendor's smartphone shipments last year.
One more thing is now evident: WhatsApp, the messaging system of Facebook, which has given Jio US$5.7 billion for a near-10 per cent stake, will drive commerce. The blueprint is again Chinese. Whatsapp's popularity, and its ability to handle payments in real time, make it a perfect platform for Mr Ambani to build a super-app like Tencent Holdings's WeChat, connecting brands with customers.
A bit too much to take
The 300,000 Reliance investors who watched the AGM on JioMeet, Mr Ambani's cloud-conferencing clone of Zoom Video Communications, probably found the sharp pivot away from hydrocarbons a bit too much to take.
Mr Ambani dropped enough hints that last year's plan to sell 20 per cent of his mainstay oils-to-chemicals business to Saudi Aramco was now unlikely. Given the Covid-19 situation, writing a US$15 billion cheque would be a further strain on Aramco's US$75 billion-a-year dividend payout, as my colleague David Fickling has noted. Still, Reliance shares fell 3.8 per cent after Mr Ambani said the unit will be spun off and seek new investors.
Reliance may get saddled with a permanent discount as a holding company of digital, retail and hydrocarbon assets, but the empire could as easily command a premium as India's undeclared national champion.
Just as Mr Ambani wants to emulate several successful Chinese firms at once, the country's policymakers want the same thing for the broader economy: make India the world's factory, by lodging it into the growing chasm between the West and China. But neither the physical infrastructure, nor most of India Inc's balance sheet, is ready. After the pandemic, everything from a broken financial sector to grossly inadequate worker housing, healthcare and social security will compete for fiscal sops from a government trying to retain its tenuous investment-grade rating.
Reliance's capital-raising spree has made it free of net debt. It's willing to run with Prime Minister Narendra Modi's buy-Indian agenda. Its grocery business would lift farmer incomes by direct purchasing. Jio's cheap cloud services for small businesses would help them digitise. By connecting to JioMart, a virtual store, neighbourhood shops could outgrow their limited shelf space, Mr Ambani said. JioMeet could become as a virtual classroom to the country. Reliance also wants to supply cleaner auto fuels to end Indian cities' crippling pollution problem.
As India has learned from China, economic policy that aligns itself with the expansion of a few large capitalists is more manageable - and produces faster results - than one that has to play referee to free and open competition. By the time that throws up a winner, Vietnam and Bangladesh might corner the export opportunity that India wants to claim.
Plenty left in US$10b kitty
India's competitive landscape would have been broadened had Google's Mr Pichai bought a stake in Jio's telecom competitor Vodafone Idea, a plan it was considering, according to a Financial Times report in May. Although that deal is probably now dead, Mr Pichai might still pitch his own tent separately from Mr Ambani's. So far, he's only decided on the handset partnership with Jio. There's still plenty left in the US$10 billion kitty he set aside for India this week.
There's also Amazon.com's Jeff Bezos. It will be surprising if, after committing US$5.5 billion to the country, he bows out. As for Mr Ambani, he still has to demonstrate that one company can be India's answer to everything, from Zoom and Tencent to Huawei and Xiaomi, while also being a large telco like Verizon Communications Inc. BLOOMBERG