It is always the case that, as long as exciting new technologies remain pre-commercial, their pioneers enjoy a day in the sun. It is when operators or vendors come close to commercial realities that investors and market watchers become more nervous and skeptical.
So it has been this year for Rakuten Mobile in Japan and Dish Network in the USA – the two largest greenfield poster children for Open RAN, and both pioneering in their choices of architectures, suppliers and cost models. However, both increasingly have to justify their networks to naysayers, less on technical grounds but in terms of the impact of open networks on real world costs and commercial KPIs.
Dish has not gone live with its planned 5G network yet, but has been very public in sharing details of its architecture and its growing list of suppliers and partners. But that transparency has not addressed the doubts of some Wall Street watchers, which have questioned the company’s capex targets as being unrealistic, while raising concerns about the business model.
The latter was at the heart of last week’s downgrading of Dish’s stock by Wall Street firm JP Morgan, whose analysts cut their rating from ‘neutral’ to ‘underweight’, prompting a fall in the company’s market value of 5%, to around $40.
The analysts are concerned that, at a time when Dish’s core pay-TV business is in decline, it is taking on a very challenging business model in cellular. Unlike some analyst firms, they do not question the scale of the cost savings that Dish will make by adopting an open, disaggregated RAN architecture running in AWS’s public cloud. But they do question whether this will be sufficient advantage to enable Dish to challenge the huge incumbents, AT&T, Verizon and T-Mobile USA.
“We agree that working with AWS for its core network gives Dish a tremendous cost advantage over a similar new company building a traditional new network and that O-RAN will help Dish’s speed to market, but we are skeptical that it will convey an advantage over AT&T, Verizon, or even T-Mobile,” wrote the analysts in a client note.
They argued: “Our first issue there is that the Dish network is unlikely to have as high a quality as the incumbents, which spend 5-10x more in capital per year, so will have to take a substantial discount per-bit to draw customers away from their current provider. T-Mobile and Sprint had that problem for decades (no joke – decades), and Dish is just getting started – getting anything like a proportionate share of industry traffic could take 5-8 years, and with lower quality, it will receive lower prices as well.”
Based on those assumptions, they estimated that Dish would only reach 9% of the US 5G market by revenue by 2030, or about $21bn in 5G service revenue.
The ambitious element of Dish’s plan, commercially speaking, is to build a wholesale-only proposition, with even its own operators, such as Boost Mobile, acting as MVNO customers of that network. Its aim is to leverage the fact that it will deploy 5G Standalone with the 5G core from day one, in order to develop advanced network slicing and network-as-a-service offerings ahead of the competition, and so target untapped opportunities in the enterprise space.
This would certainly fill a real gap in the US market. Previous players, such as Clearwire and LightSquared (now Ligado), and even Sprint, discussed a wholesale-centric model that would provide more flexible on-demand services to support advanced enterprise services. The time might well be right now, though Verizon and AT&T have snapped up a lot of the early mover business in major 5G-focused industries such as automotive. But for many industries that have been less early into the 5G game, as well as medium-sized companies, there could be significant value in accessing networks tailored to their requirements, without the cost of installing a private network, nor the compromises of using the public network alone.
However, JP Morgan pointed out the obvious risks in the plan, writing: “Selling to enterprises is very difficult, and we don’t know why anyone would work with Dish, which has no experience in building networks or working with enterprises.” And they pointed to the immature state of the IoT business, adding: “We have a hard time getting excited about IoT because we haven’t seen many exciting applications that will drive a lot of new revenue – for Dish or anyone else.”
Meanwhile, Rakuten has suffered, since it switched on its 4G cloud-native networks, from disappointment about the gap between the radical nature of the architecture, and the unexciting commercial and performance results that have so far been seen. In particular, the new mobile business has made little impact on financial results, except to introduce huge costs and an unexpected share issue to fund some of the 5G costs. And a study, early this year, by OpenSignal said that Rakuten’s 4G network was inferior in performance to those of the other Japanese operators (Rakuten blamed a smaller spectrum allocation).
A more upbeat assessment has been published by German performance benchmarking firm umlaut, which measured Rakuten’s 4G network in Tokyo against the best networks run by leading operators in 13 other cities round the world. In scores out of 1,000, the average across the 14 locations was 912, but Rakuten scored 920. The criteria were availability/coverage, connection speeds and latency, and Rakuten did very well on the first two, though lagged behind its peer operators on latency.
Rakuten took the opportunity of the USA’s recent consultation about Open RAN supply chains to reiterate its defence of its network, writing in an FCC filing: “As Rakuten Mobile has previously explained, it has seen real world performance that is highly competitive with legacy networks, with high network availability and competitive download and upload speeds, while holding a mere fraction of its competitors’ spectrum holdings.”
But some Wall Street analysts remain unconvinced, as they assess the potential impact of open architectures for the USA’s own operators. New Street Research has said that Rakuten’s 4G launch has “not been commercially successful” – since its launch in April 2020, it has won only 2% market share, estimates analyst Chris Hoare, and he says Rakuten’s capital situation is “precarious”.
“The recent deal with Japan Post raised funds to pay the current cash burn for around six months, but the company faces several years of multibillion dollar losses in mobile in our view and no obvious route to fund this,” he wrote in a research note. “Short of a Hail Mary deal to sell a stake in the mobile business to a deep-pocketed international partner it is hard to see how Rakuten turns this around in the next two to three years.”