A small but influential group of mobile operators are introducing radical new approaches to network build-out, to disruptive effect, in some key world markets. Free Mobile’s skillful harnessing of its existing fiber and WiFi assets to reduce cellular costs and undercut its rivals’ pricing has shaken up the French market in recent years, and parent Iliad hopes to do the same in Italy now. A similar approach might be taken by Germany’s new mobile entrant, 1&1 Drillisch, if it buys 5G spectrum. Reliance Jio has rewritten all the rules in India, and now ecommerce giant Rakuten plans to do the same in the entrenched market of Japan.
Superficially, what the first three have in common is an aggressive stance on pricing, which has led to rapid market share gains. But the keen pricing has been enabled by an innovative approach to how networks are deployed. So, all four operators have relied heavily on unlicensed spectrum; investment in digital services; and modern automated, virtualized networks. For instance, RJio refers to itself as a digital provider, not a telco, and has a range of applications spanning content, smart home, automotive and banking, among others. These, it hopes, will increase customer loyalty and supplement the cheap connectivity fees. The telco has also had the luxury of building its 4G-only network from scratch with the most modern approaches, designed to maximize cost efficiencies and support new services flexibly. It even designed its own self-optimizing network (SON) system to achieve the degree of automation and optimization it required to meet its business objectives.
Rakuten is taking a similar line and has the advantage of a huge base in digital services, especially shopping and banking, to leverage. It is also aiming to maximize its ability to harness those assets by building a software-driven, cloud-native mobile network with maximum ability to support digital services and telco cloud applications.
It will switch on its commercial 4G networks this year and is currently putting the final touches to its platform. It announced last month that it was working with mobile network testing, validation and assurance provider, Viavi, to finalize what it claims is the “world’s first end-to-end cloud-native mobile network.”
It will use Viavi’s TM500 system to validate its cloud-based architecture. This will support user equipment (UE) simulation to stress-test the network from end to end. The TM500 was recently updated to cover some important features of 4G expansion and 5G base station deployment, such as uplink MIMO on two layers; downlink 8×8 MIMO; 4×4 MIMO; two-downlink carrier aggregation at 120 kHz and 240 kHz; millimeter wave; and support for multiple UEs on 5G.
“Consumers across Japan trust Rakuten for services throughout their daily lives, from e-commerce to fintech to digital content, and we are immensely excited to prepare to deliver a new mobile network service to them this year,” said Tareq Amin, CTO at Rakuten Mobile Network. “As we aim to realize our vision for the world’s first end-to-end cloud-native, nationwide mobile network, Viavi’s knowhow and expertise in network testing will be key to building a high-quality, highly resilient network for our customers.”
Rakuten, which already operates a low cost MVNO service in Japan, announced in December 2017 that it would enter the market as a full MNO. It claimed this would enable it to deliver higher value, more profitable services and seize more market share, while also having control over the quality and behavior of its network. The company’s president Mikitani Hiroshi said at the time, “We will develop our MNO business into a driving force like our credit card business.”
In April, the company was allocated 2×20 MHz of 1.7 GHz spectrum plus unpaired airwaves in 3.4 GHz, with the Japanese Ministry of Internal Affairs and Communications saying it wanted to stimulate more competition, and lower prices, in a market dominated by the three big players – NTT Docomo, KDDI and Softbank. Rakuten aims to reach 96% of the population within six years, and to sign up 10 million subscribers by the end of fiscal year 2028. Its plan is to invest about ¥526 billion ($4.7 billion) in that roll-out, over five years, a figure it has already reduced from an initial estimate of ¥600 billion ($5.4 billion).
By contrast, NTT Docomo said in its most recent financial results announcement that it would spend ¥200 billion ($1.8 billion) a year for the next five years on 5G alone. The telco’s total capex spend in the 2018 fiscal year (to March 31) was ¥576.4 billion ($5.1 billion). This shows how a new entrant can (and must) deploy with a far lower cost base.
A senior official of the Ministry of Internal Affairs and Communications, in a recent interview with Japanese newspapers, said a fourth MNO is necessary to launch the “cooperative oligopoly” of the other three, and hinted that there might even be grants or subsidies to help that happen.
And Rakuten has formed highly strategic alliances with utilities in Japan. It will use their power transmission towers and power distribution pillars, and other sites, plus some of their fiber, to support its deployment, along with conventional cell towers and rooftops. Its partners include Hokuriku Electric Power Company, Kansai Electric Power, Chubu Electric and TEPCO Group, and it may seek other local utility deals. This is not a conventional asset leasing agreement – instead, the power companies get priority, and subsidized, access to Rakuten’s future 4G and 5G networks to support their smart grid and other connected activities.
In another strategic pact, it is actually working with one of its future competitors, KDDI. Rakuten will help the second Japanese MNO launch a mobile payments service, in return for the use of KDDI’s 4G network to extend coverage via roaming. NTT Docomo has been a trailblazer in mobile payments for a decade but Rakuten’s successful experience with its own financial services unit could help KDDI narrow the gap.
KDDI will “provide roaming services to Rakuten for its 4G mobile network”, the companies said in a joint statement, enabling the newcomer “to offer a nationwide LTE service from launch.” The services will be provided until March 2026 which will give the ecommerce giant time to build out its own network. Meanwhile KDDI will use Rakuten’s payment platform and network of around 1.2 million affiliated stores in Japan to launch its own barcode and QR payment service, called au PAY, in April 2019.
“By promoting the mutual use of both companies’ payment services, the companies aim to improve customer convenience and accelerate their vision of a cashless society,” Rakuten added. Rakuten will also provide its logistics services to KDDI’s Wowma online shopping channel from April 2019.
Rakuten will also look to expand its overall customer base by offering new services, and then add to its rich store of customer data, one of its most valuable assets. The Rakuten Mobile MVNO already runs a loyalty points scheme which it said contributes valuable insights into consumer behavior, which can be sold to marketeers and advertisers.
Another physical asset which will help its launch marketing is the national network of 218 stores which support its existing Rakuten Mobile MVNO services – that not only gives it a retail presence, but an established brand, although one challenge will be to change consumers’ perception of that low cost brand as it moves into higher value services.
Finally, Rakuten Mobile has signed a memorandum of understanding with Indian integrator Tech Mahindra, which is very active in some of the 5G-focused open network initiatives like Facebook’s Telecom Infra Project and the Open Networking Foundation’s CORD. The partners will cooperate in building 4G and 5G labs in Tokyo and Bengaluru, India, and pledged to create “a 5G-ready network lab which will be one of its kind in the industry”. In June, Rakuten announced its first 5G trials, conducting over-the-air tests in the 28 GHz band with Nokia and Intel.