In the past, at least when it came to our digital lives, Indians could use a wide variety of companies for their different needs. Even now, you might be using Tata Sky for watching TV, BSNL for broadband, Airtel for cellular services, Samsung for your smartphone, and so on. Similarly, when it comes to buying online, you might be using Flipkart and when it comes to booking a cab, you might be using Uber. There are not any instances where one company manages to serve all your needs and the instances of overlap are few and far between. But this could change in the coming days.
Building digital monopolies?
Recent news reports paint a picture where a few companies seem to be attempting to gain all our digital expenditure and time. If that sounds a little extreme, consider the news of the Foreign Investment Promotion Board (FIPB) approving Vodafone’s acquisition of You broadband. Consolidation has been sweeping the telecom industry. Vodafone and Idea are speeding ahead with their plans to merge with each other and Airtel has already confirmed its acquisition of Telenor. It is becoming crystal clear that going forward, only 4-5 telecom companies would survive in India. It also seems to be appearing is that we might have broadband, cellular as well TV provided as a single package by a few companies. This process is called quad-play and has already gained a lot of traction in European countries.
Jio has already indicated its intention to provide fiber broadband in various areas and will go on to couple that with an NVIDIA Shield box for providing IPTV thereby becoming a company that provides cellular services, TV and broadband all under the same roof. There have been reports that Airtel is also set to unveil a next-generation set top box to better compete with Jio, and yes, Airtel already has its own broadband and cellular services as well. I fully expect the merged Voda-Idea company to use You broadband and enter home broadband while figuring out a way to provide TV services as well.
The theme over here is that just like Europe, expect a few Indian companies to enter into the quad play arena as well. But it does not stop at quad play. There are now signs that tech companies might be looking to have a bite at telecom and vice versa. Consider the recent news of Softbank looking to buy a 25-30 percent stake in the Voda-Idea merger. At first glance, it makes no sense for Softbank to buy a stake in the merger. After all, Softbank has primarily invested in high growth startups in India. Why would such a company then look at investing in slow growth telecom companies in a market such as India which is already saturated, in terms of subscribers?
The Softbank vs Jio duel
A closer look at what’s currently happening in India provides the answer. In my opinion, more than Flipkart or some other startup, Softbank is actually eyeing Reliance as the biggest possible threat to it in India. Although Jio is a telecom company at its core, it has several content and other services to offer as well. And some of Jio’s services will directly compete with Softbank’s investments in India. For example, even though Snapdeal has been constantly losing market share in the e-commerce segment, Reliance’s ajio.com is no doubt a competitor to it. Similarly, Jio Wallet is probably a competitor to Freecharge, which by virtue of being owned by Snapdeal, again becomes a threat to Softbank. Perhaps the biggest threat to Softbank might end up being Jio Cabs which would be a competitor to Ola Cabs, Softbank’s most valuable investment in India.
I know some people might be feeling that I am exaggerating Jio’s threat to Softbank and to be fair, they might have a point. The e-commerce market in India is now a two- horse race between Flipkart and Amazon, no doubt, so any concern about ajio.com competing with Snapdeal seems overblown. Also, when it comes to mobile wallets, PayTM has cornered the market, and any new entrant facing an uphill battle in challenging its network. However, if there is one market where I feel Jio has a genuine chance of making it big, it is the cab hailing/sharing market and this market is the one where Softbank’s most valuable Indian investment Ola operates.
There is a good reason why I feel Jio can make it big with Jio Cabs. All over the world, Uber’s expansion has been stumped only by one thing and one thing alone: restrictive policies. A number of European markets where Uber is facing or has faced problems are because of Government policies that were created to safeguard the local taxi companies. And when it comes to India, there is hardly any other company that has the power to cull favor and change policies like the one possessed by Reliance.
In its telecom venture itself, Reliance seems to have managed to twist/bend a lot of rules. Its initial license was that of an ISP when it acquired Infotel broadband in 2010. Having an ISP license meant that Jio should have theoretically been limited to Internet alone but the company convinced the Department of Telecom (DoT) to change its ISP license into an UASL license which would then enable it to provide full fledge telephony services. Similarly, the move to reduce termination charges from 14 paise/second to 0 paise/second is largely being viewed as something that favors Jio alone. Even if we are to remove Jio from the equation, Reliance’s history of getting policies changed is rather well documented.
When a company which has such influence over regulatory issues, enters the ride hailing/sharing segment, it is not difficult to see Uber/Ola being beaten to the punch. Apart from the regulatory aspect, Reliance has a money printing oil refining business, so if the Jio Cabs venture shows traction, then rest assured that Jio has the balance sheet to give deep discounts in order to gain market share until it has a monopoly.
Even if we are to keep the Jio angle aside, it still makes a lot of sense for Softbank to try and buy into the Voda-Idea merger. Softbank is no stranger to telecom. The company’s history of buying Vodafone Japan and turning it around by partnering up with Apple to sell iPhones is well-documented. Apart from Japan, Softbank bought Sprint in the US to try and turn it around but failed. However, with the upcoming Trump administration likely to take a light approach over mergers and acquisitions, there is a good chance that Softbank might buy T-mobile and try and merge it with Sprint, thereby creating a formidable No. 3 carrier in the US.
Vodafone has already indicated its intent to leave India which is why the Voda-Idea merger is taking place – else, Vodafone had an IPO planned for its Indian unit. I am pretty sure that if given a decent price, Vodafone would not hesitate to sell its stake in the Voda-Idea merger to a third party, just like how Vodafone sold its stake in Verizon. Also, given Softbank’s past acquisitions in telecom and other sectors, buying up Vodafone’s stake in the Voda-Idea merger would be no big deal for the company. I am almost certain that Softbank is going to enter the Indian telecom sector in a big way some way down the road.
Next in line, one can also consider Alibaba which is slowly but surely establishing its iron triangle strategy in India. Alibaba’s Iron Triangle strategy includes control of e-commerce, logistics and distribution. Alibaba has already invested in PayTM which will take care of the payments part and has also decided to invest USD 200 million in PayTM’s spun off e-commerce division. There have been reports of Alibaba trying to invest in Delhivery but apart from that by virtue of owning UC Browser, Alibaba already has a pretty big platform in India considering the millions of Indians that use the browser.
Slowly but surely, it is emerging that India might end up following a China-like model where our digital lives revolve around a select few companies. At least in China, the telecom part is still state controlled for the most part, and companies like Baidu, Tencent and Alibaba control the tech part. In India, however, I feel we might go a step forward and be heading towards a future where certain multi-billion dollar giants control all our digital activities end-to-end. In fact, that’s what Jio is already billing itself as.