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3 June 2019

Price wars loom even in Japan as 5G and new competition come closer

Japan is gearing up for large-scale 5G launches in time for the Tokyo Summer Olympics next year, with newcomer Rakuten a wild card in the competitive landscape.

Softbank, which until Rakuten came along was regarded as a disruptive challenger, has selected Nokia and Ericsson to supply its 5G systems, adding fuel to speculation that Chinese vendors have been effectively, if not officially, squeezed out of Japan’s 5G plans (Softbank carried out extensive 5G and Massive MIMO trials with Huawei and ZTE).

Ericsson will supply Softbank with RAN equipment for midband and high frequency spectrum (the Japanese MNOs were recently allocated spectrum in the 3.9-4.0 GHz and 29.1-29.5 GHz bands), as well as for LTE expansion.

Nokia will supply its 5G AirScale radio platform to support distributed and centralized RAN configurations including virtualized systems. John Harrington, head of Nokia Japan, said: “We are delighted to continue our long term relationship with Softbank and to be working with them as a trusted end-to-end partner at such an important milestone in the transformation to 5G.”

The progress towards deploying a virtualized RAN (vRAN), an extremely demanding use case for cloud-based telecoms, may be accelerated as Japan’s established MNOs – NTT Docomo, KDDI and Softbank – come under pressure from new entrant Rakuten Mobile. As a greenfield deployer, and subsidiary of a huge cloud and ecommerce provider, the challenger has the economies of scale and the readymade service portfolio to be highly disruptive. It will not only have the luxury of building its 4G and future 5G network from scratch, harnessing modern technologies like the cloud-native 5G core from day one, but as a webscale firm, it has the cloud platforms and tools in place and well understood, unlike most telcos.

CTO Tareq Amin, who previously had the same role at India’s Reliance Jio, told a recent conference that virtualizing the RAN in the cloud was essential to the economics of 5G because the RAN accounts for about 60% of all capex. Rakuten detailed its network plans at Mobile World Congress in February, showing off a cloud-native architecture from end to end, including a vRAN in which it is using stripped-down radio heads (from Nokia, with Altiostar software), which can be installed in 15 minutes. Nearly all the network capabilities are run in software in a series of data centers. User plane workloads run in about 4,000 edge data centers which require no staff, while the separate control plane is hosted in two centralized data centers.

Amin claimed: “Our cost for 5G is 50-60% cheaper than traditional telecom networks”, and that in a scenario where a traditional MNO would invest $8.8bn in 5G, Rakuten would spend just $2.8bn. This was clearly meant to respond to scepticism, voiced by the incumbent rivals, about Rakuten’s cost efficiency claims; while also offering an implicit threat that the new entrant would be able to undercut its competitors on price while still remaining profitable.

Rakuten’s detailed descriptions of its architectures also show how quickly cloud providers can move, in the environment with which they are familiar. Japan’s MNOs, especially NTT Docomo, have been in the forefront of R&D in 5G and vRAN for years but before they can deploy these new technologies at real scale, they have a huge migration process to go through, not just in equipment but skills, processes and service delivery.

And the network vendors have not always innovated quickly enough, something that affects Rakuten too. Amin said: “The easy thing would have been to go the traditional way. This journey has not been simple because our industry is not disrupting fast enough.” One way to speed up the process is to rely more on open and open source initiatives, as AT&T and others have been driving. At Reliance Jio, Amin was keen on developing software inhouse and then placing it into open source at the right stage – that was done with SON (self-optimizing network) software for instance. At Rakuten, he is considering releasing a new, highly automated network operating system, which will be the brains of the virtualized, white box network, into open source. “The level of automation we have done is something the industry has not seen,” he said.

In an early sign of the Japanese industry responding to the threat of Rakuten’s 4G service launches later this year, NTT Docomo has announced significant price reductions in some tariff plans. At the end of 2018, it pledged to reduce prices by 20% to 40% in response to government pressure to boost competition and lower consumer costs, but is also likely to be strengthening its position ahead of new competition and 5G launches.

It is offering new tariffs for its Gigaho and Gigalite brands, for heavy and light data users respectively, and new lower cost family plans. CEO Kazuhiro Yoshizawa told local reporters that the changes will reduce the telco’s annual income by as much as ¥400bn ($3.6bn). It is not clear how much reaction there will be from KDDI and Softbank, since both already offer budget plans, unlike Docomo.