Rakuten takes first step towards a hybrid operator/vendor telco

Rakuten and NEC will develop a containerized standalone (SA) 5G core network, which will become one of the first products available on the Rakuten Communications Platform (RCP).

Although any news or developments coming out of Tokyo are of interest to the world nowadays, there are two very distinct elements to this announcement. Firstly, the creation of a containerized SA 5G core network, and secondly, the emergence of a hybrid telco model, where Rakuten is an operator but also a vendor, selling products to other telcos who want to embrace the open revolution.

“We are very excited to collaborate with NEC on the development of our standalone 5G core network,” said Tareq Amin, CTO of Rakuten Mobile.

“Our partnership with NEC represents a joint collaboration to build an open, secure and highly scalable 4G and 5G cloud native converged core, that will also become a key feature of the highly competitive services we will offer to global customers through the Rakuten Communications Platform.”

The containerised SA 5G network core will be built on software source code developed by NEC, powering the standalone network launch in 2021 (theoretically). Although the product itself is not exactly revolutionary, the concept has been discussed for years, the selection of NEC is a notable one.

NEC software will be the brain of Rakuten’s network, one which is build on OpenRAN technology and virtualised components. This is a vote of confidence in the Japanese vendor, a mark of credibility in an ecosystem which is still in its embryonic days. The inclusion in one of the industry’s most ground-breaking projects certainly gives it an advantage over rivals, many of whom are attempting to justify their existence in the Open ecosystem.

The Rakuten overarching mission is one which has captured the imagination and interest from telcos around the world; an attempt to build a network entirely with ‘open’, non-proprietary technologies. Should it work, it could be a gamechanger when it comes to the telco supply chain.

The promise from Rakuten is to deploy a network cheaper than via traditional means, but also to slash operational costs. The executive team has already said it envisions a network operations team of hundreds, as opposed to thousands as per normal, which could result in saving millions each year. If these savings are transferred through to lower data tariffs, there could be a disruptive force on the horizon.

Should this gamble pay off for Rakuten, there will be considerable interest in the ‘open’ ecosystem, with NEC collecting much of the plaudits but the likes of Mavenir, Parallel Wireless, Altiostar, Red Hat, Cisco, Innoeye and Netcracker all benefitting. These companies are of course very interesting, but it is the Rakuten Communications Platform (RCP) which is a more dramatic shift.

Rakuten has not been shy about his intentions to sell its ideas. It is an interesting move, as few telcos would want to sell their family jewels, and this is what the Rakuten ‘open’ network would be. This is the secret recipe, a competitive edge over rivals, but Rakuten wants to monetise this.

With all the innovation taking place in Rakuten’s network deployment strategy, the opportunity to monetize these ideas by selling to potential rivals is certainly a new approach. Few other telcos would want to take this approach, but few other telcos can implement this strategy in earnest, perhaps explaining why it is open to selling the secret recipe.

Rakuten’s network is greenfield, while most others are brownfield. Rakuten can implement these new ideas everywhere, whereas rivals can only consider elements here and there. Rakuten will always have an advantage taking a wholesale approach, whereas others can only take the bit-part route.

This is a new dynamic, a new business model for the telcos, creating a blended operator/vendor hybrid company. Should this work, it will be interesting to see how many other telcos embrace such a collaborative mindset, one which is very counterintuitive to attitudes today.

Current crisis acts as convenient distraction for wider NTT failings

Like many other businesses, NTT Docomo has pointed to COVID-19 for poor financial results, but this is a business which was struggling long before the coronavirus hit Japan.

In what should be considered a standard screen play from the PR handbook, NTT Docomo has offered much more detail on the 5G roadmap than any would have expected. Why, some might ask, perhaps as a distraction from the negative news which has been unveiled during the year-end financial results.

“As for the guidance for FY2020, given the difficulty of making reasonable estimates on our financial results due to the impact of COVID-19 outbreak, we decided not to make any disclosures at this juncture,” said CEO Kazuhiro Yoshizawa.

“After carefully assessing the impact on our financial performance, we will make a prompt announcement once it becomes possible to make reasonable estimates.”

NTT Docomo will not offer any guidance while the current crisis plagues society, while it has been a poor year from the Japanese telco. COVID-19 will of course explain some of the declines, but it would appear to be only one contributing element.

NTT Docomo full-year financial results to March 31 (USD ($), millions – approximate)
  Actual Year-on-year
Operating revenues 43,579 -3.9%
Operating expenses 35,570 -0.8%
Operating profit 8,007 -15.7%
Profit before tax 8,132 -13.4%
Profit 5,572 -10.5%

It might be easy to attribute the decline to COVID-19, but as you can see from the table below, revenues have been down year-on-year across all quarterly reports.

Breakdown of full-year financial results by quarter (USD ($), millions – approximate)
  Operating Revenues Year-on-year
Q1 2019 10,864 -1.5%
Q2 2019 10,971 -3.5%
Q3 2019 11,114 -6.3%
Q4 2019 10,638 -4.4%
FY 2019 43,579 -3.9%

For some businesses it is perfectly fair to largely ignore revenue declines in the most recent financial results, COVID-19 is a very unique crisis, though you have to place it into context. At NTT Docomo, the financial decline has been in place long before the impact of the coronavirus pandemic. It could be viewed as a convenient distraction for the wider failings across the business.

Of course, there is a direct link to COVID-19 also. International roaming is significantly down, migration from 4G to 5G has decelerated, while sales for data packages and ‘Smart Life’ solutions are lower due to shop closures. The coronavirus pandemic is causing problems, but the financial decline at NTT Docomo seems to be much more.

One issue for NTT Docomo seems to be eroding ARPU, as mobile subscriptions have been increasing, as well as some very heavy discounts and promotions across the year. Competition has intensified in Japan, which has been hitting revenues, though it might only get more detrimental for NTT Docomo as Rakuten enters the market with incredibly disruptive pricing plans. Looking at statement Rakuten has already made, tariffs look to be roughly half the price what is being offered by rivals.

Alongside the financial results, the telco has also offered greater insight into the 5G deployment plans over the next 12 months, as well as targets through to 2023. These projects will certainly keep the team busy.

After launching its 5G commercial services, NTT Docomo has said it has deployed 500 base stations to date, attracting 14,000 subscribers. Over the next 12 months, the team will continue this rollout (aiming to have 10,000 5G base stations by June 2021) while also concentrating on integrating OpenRAN solutions and mmWave spectrum.

By this point next year, NTT Docomo should have launched 5G commercial services in 500 locations including all government-designated cities, while it aims to have 2.5 million 5G subscribers. There are currently seven ‘5G services’ available, which will be increased across music, gaming, video and sports, while there are also 22 partnerships in place for the co-creation of new 5G solutions.

The 5G plan offers much more detail than many other operators have offered to date, though a sceptic might suggest this is a distraction technique to draw eyes away from financial failings.

Softbank warns of $17bn blow to Vision Fund investments

COVID-19 is causing waves across the world, and now Japanese telco Softbank has warned the pandemic might well be the cause of ¥1.8 trillion ($17 billion) loss in the investment unit.

With the earning results for full year 2019 due on May 11, Softbank has released a statement to warn investors of some very dampened fortunes. Due to the impact of COVID-19, Softbank is forecasting an operating loss of roughly $12.5 billion, mostly due to the $17 billion blow dealt to the Vision Fund.

To make matters worse, Softbank is also warning of an additional ¥800 million (roughly $7.4 billion) loss to investments which are being held outside the Vision Fund, including WeWork and OneWeb.

Although it is hardly unusual for a company to make adjustments to financial forecasts due to current trading conditions, Twitter and Microsoft are two others who have made similar statements to investors, the impact might be compounded thanks to Softbank’s diversity and some questionable bets.

In 2018, Softbank founder and CEO Masayoshi Son attempted to add diversity to the business through the creation of an investment vehicle, the Vision Fund, though this is where the firm is exposed today. With the Dow Jones and FTSE 100 down 20% and 21% respectively since the beginning of the COVID-19 outbreak in the US and Europe, being an investor in the technology space is a tricky vocation today.

Some of Softbank’s investments are looking pretty positive, Slack for instance, but others are being hit hard by the outbreak. Cash which has been pumped into the real estate industry is not necessarily looking healthy, neither are bets into transportation and logistics. Uber, one of the companies in the portfolio, has seen share price decline by more than 30%.

Outside the impact of COVID-19, there are also other investments which are going sideways. WeWork has proven to be a flop, with the coronavirus covering up much deeper failings, while OneWeb recently filed for Chapter 11 Bankruptcy.

What is worth noting is that not all of the investments made by the Softbank Vision Fund are bad. Investors in such businesses usually have to accept the risk that not every gamble pays off, and while the coronavirus is negatively impacting the investments, it does not mean it will always be a loss maker. Over the last two years, investors have been enjoying the profits of Masayoshi Son’s VC ambitions, and we suspect it will be the same once COVID-19 stops wreaking havoc with society.

The question is what will happen in the interim period? Will investors understand this is only short-term pain, or will there be calls for actions to return to the traditional ways of telcos making money?

KDDI and Softbank join the network sharing craze as Rakuten risk rises

Japanese telcos KDDI and Softbank have inked a network sharing partnership to ease the commercial pressures of connectivity in the rural regions.

Network sharing agreements are becoming increasingly common, perhaps one of the more prominent trends of 2020, owing to the financial pressures being placed on the telcos. With 5G and full-fibre projects on the books for many telcos, deploying connectivity infrastructure in the more sparsely populated regions, were ROI is significantly lower, is a tricky spreadsheet to balance. Telcos are increasingly looking to network sharing partnerships, to ease the financial burdens of building the foundations of the digital economy.

The new company, which will be known as 5G Japan Co, will be managed by co-CEOs Noriaki Terao (seconded from KDDI) and Eiji Otaki (seconded from SoftBank). With each telco owning 50% of the company, the network will reach out into the rural regions to provide suitable densification of 5G base stations for the 28 GHz and 3.7 GHz airwaves.

While network sharing agreements to create a more attractive ROI are not uncommon, perhaps there is more demand in Japan than many other nations. These are telcos who may have to deal with a very significant disruption in the shape of Rakuten.

As the poster boy for the open movement, Rakuten is building a network as many telcos would love to; a greenfield project, completely disassociated from the concept of legacy technologies and systems. This sort of network deployment is a dream come true for any telco and has the potential to offer significant benefits.

Firstly, it has been claimed the network can be run with only 350 employees, a fraction of the workforce running competitors’ networks. Secondly, it could be significantly cheaper to construct, thanks to Rakuten’s embrace of the OpenRAN movement. And thirdly, due to the acceptance of openness, upgrades should be faster and cheaper. This is the sort of network which everyone would build if they could start from scratch tomorrow.

There is still plenty which could go wrong with Rakuten’s business. The network could fail, or it might not be as successful as hoped in teasing subscriptions away from rivals, but the threat is very real for the Japanese telco industry. With investments substantially reduced for network construction, maintenance and upgrades, the demands on ROI are lessened. Rakuten is suddenly afforded a lot more flexibility when it comes to pricing.

At the beginning of March, Rakuten unveiled its ‘UN-LIMIT’ 5G data tariff costing 2,980 Yen per month, roughly half of what rivals have been offering. What is worth noting is that when customers are out of range of a Rakuten owned base station, a 2 GB download limit will be introduced as well as data throttling. This will be a disadvantage for the telco as it is rolling out its network, though the risk of pricing disruption is very clear.

Reliance Jio in India has already demonstrated how a market can be turned upside-down if a disruptor is allowed to gather too much momentum. This is a lesson which the likes of KDDI, Softbank and NTT Docomo should be learning as Rakuten comes online; new initiatives will have to be introduced across operations to realise efficiencies.

Without these initiatives, network sharing partnerships being one, the traditional Japanese telcos will not be able to sustainably compete with the Rakuten tariffs.

Softbank to offload $41bn assets for share buyback programme

In what could be interpreted as an attempt to protect the Japanese conglomerate from the impact of COVID-19, Softbank has announced it will sell assets to the value of JPY4.5 trillion ($41 billion).

Through open market transactions, privately negotiated transactions and tender offers the company plans to repurchase and retire a significant proportion of its shares. Combining this share buyback programme along with another which was announced on March 13, 45% of Softbank shares will be removed from the open market. This looks like a very attractive programme when you consider the performance of international markets amid the COVID-19 pandemic.

“This program will be the largest share buyback and will result in the largest increase in cash balance in the history of SBG, reflecting the firm and unwavering confidence we have in our business,” said Masayoshi Son, CEO of Softbank Group.

“This will allow us to strengthen our balance sheet while significantly reducing debt. Moreover, the monetization of assets represents less than 20 percent of the Company’s current asset value.”

Right now, the business has not said which assets will be divested, though it has its fingers dipped deep into plenty of pies around the world. Thanks to two multi-billion-dollar investment funds, CEO Masayoshi Son has been fuelling the growth of the digital economy for many years. However, the core business is of course telecommunications, and this would appear to be a sensible time to reinvest.

According to Softbank, shares in the telco are undervalued currently, trading at a 73% discount “to their intrinsic value”, the largest dip in the company’s history. Since this announcement, Softbank share price has risen 18.61% (at the time of writing).

What this small story does show is that those with money can benefit from any developments in society. Softbank is freeing up some assets to repurchase shares and wrestle back control of the organisation, as the fewer shares which are available for purchase, the more protected Softbank is from external influences, such as activist investors.

Nokia gets Rakuten Mobile optical transport gig

It’s all about the photonic mesh in the backhaul for Rakuten’s brand new mobile network, and Nokia’s switches are going to help make it work.

Rakuten Mobile is the talk of the telecoms town these days, not only because it’s disrupting the Japanese mobile market with some aggressive pricing, but because it has built its entire network from scratch, using the latest whizzy technologies. Everything is virtualized and cloud-native, just as we’ve been talking about for years, so Rakuten is essentially showing the world how it should be done.

It’s not much good having all that cloudy agility, however, if you’re still constrained by your physical backhaul network, which is where optical mesh networks come in. Now, we’re not going to pretend to be experts on the topic, but the underlying point of them seems to be to provide much more redundancy and flexibility than traditional fixed networks.

The word ‘photonic’ seems to be interchangeable with ‘optical’, at least in this context, and Rakuten has only gone an built its own photonic mesh mobile backhaul network, hasn’t it. Everyone knows you can’t just whack regular optical switches into such a cutting-edge thing, which is where Nokia comes in. Rakuten will use the Nokia 1830 Photonic Service Switch, which is a handy deal win considering it was competing with a bunch of US companies for whom switches are their main event.

“The introduction of 5G will require a network that can support dramatic increases in bandwidth in a dynamic fashion,” said Sam Bucci, Head of Optical Networking at Nokia. “Nokia is proud and excited to partner with Rakuten Mobile to build a fully reconfigurable photonic mesh network to meet the 5G networking challenge at the lowest total cost of ownership.”

“Rakuten Mobile is creating the world’s first end-to-end fully virtualized cloud-native mobile network, delivering unprecedented network agility and disruptive economics to end users,” said Tareq Amin, CTO, Rakuten Mobile. “Nokia’s Photonic Service Engine 3 coherent chipset and integrated ROADM technology enables us to achieve unprecedented levels of integration and performance building the mobile network for 4G and 5G.”

Apparently this is also the first time ever a photonic mesh has been created for a mobile backhaul network. If even half of the boasts Rakuten is making about its network are true then NTT Docomo, Softbank and KDDI are in all sorts of bother. The theory is that all this extreme efficiency will make Rakuten’s opex much lower than its rivals, meaning they will either have to spend big on network modernization or kill their margins to compete.

Rakuten Mobile unveils disruptive tariff to shake up Japanese market

Ahead of a hard launch next month, new Japanese MNO Rakuten has announced an ‘unlimited’ tariff that massively undercuts the incumbents.

The ‘Rakuten UN-LIMIT’ tariff seems to borrow its marketing from T-Mobile US, but its core inspiration from Reliance Jio. Not only does it come in at 2,980 Yen per month, apparently less than half of what’s currently on offer, but Rakuten is also offering the first year of service for free to the first three million punters who sign up.

“For around two years, the Rakuten Group and Rakuten Mobile have been building a new network unlike anything the world has ever seen,” said Rakuten CEO Mickey Mikitani (pictured). “Everyone at Rakuten is working together to democratize the mobile industry. Rakuten will become the only major carrier in the world to offer a single pricing plan. Currently, we aren’t looking to launch any other plans.”

The unlimited side of things does come with a few caveats, however. You can see the full tariff table below, with its various qualifiers. A key thing for prospective Japanese punters to bear in mind is that as soon as they’re out of range of a Rakuten base station a 2 GB per month limit kicks in and data speeds are significantly throttled.

*1 Unlimited when connected to Rakuten Mobile’s base stations. Subscribers can confirm which area the data they are using is from via the My Rakuten Mobile home screen.
*2 If data usage in the partner area (domestic) exceeds the data allocation, data speeds in the partner area (domestic) will be limited to a maximum of 128kbps. Unused data will not be carried over to the next month.
*3 The partner area (overseas) refers to the 66 countries and regions where international roaming (data) can be used. If data usage in the partner area (overseas) exceeds the data allocation, data speeds in the partner area (overseas) will be limited to a maximum of 128kbps. Unused data will not be carried over to the next month. Usage from outside the 66 countries and regions will incur charges depending on the country/region.
*4 Additional data purchased can be used for 31 days. Additional data for partner areas in Japan and overseas must be purchased separately.
*5 Please check “2. Voice calling and SMS fees” below.
*6 From overseas, standard calls cannot be made or received, and standard SMS cannot be sent or received.

The party line is that Rakuten can offer all this lovely cheapness because its network, which it built from scratch, is just so damn efficient. “We are extremely delighted with what we have accomplished in Japan,” said Rakuten CTO Tareq Amin. “We have deployed the world’s first Open RAN platform, not because the phrase ‘Open RAN’ sounds like good technology, but because there are cost reductions that we feel an obligation to pass on to consumers in Japan.

“We are one of the only telecommunications networks that can claim to have standardized, 100% open interfaces, and full control of our software and network framework. This is something that we are so extremely proud of. Thank you to all of the employees and partners that made this vision.”

Right now Rakuten seems to only be covering a few major cities in Japan. While it has aggressive roll-out targets, subscribers outside of Tokyo, Nagoya and Osaka may be disappointed by how infrequently their connections are either free or unlimited. But this aggressive positioning is still bound to win over a lot of Japanese punters and put heavy price pressure on the incumbent MNOs.

Nokia and Ericsson compete for KDDI’s 5G core business

Within hours of each other Nordic kit vendors Nokia and Ericsson issued press releases announcing the completion of 5G core trials with Japanese operator KDDI.

Nokia is all about the standalone 5G core when it comes to KDDI and the trial it just completed involved its AirGile gear. Nokia likes to use the term ‘cloud-native’ a lot when taking up AirGile, as if the clever combination of ‘air’ and ‘agile’ into a neologism wasn’t enough. The 5G core is all about cloudy concepts such as agility and scalability, you see, and Nokia reckons it’s got all that stuff covered.

Here’s what the announcement had to say about the trial. “Nokia applied a service-based architecture to the 5G control plane, moving control functions completely into a cloud-based environment which provides operators with improved scalability, velocity and flexibility. The trial allows KDDI to highlight how a 5G control plane can utilize the communication model of today’s web services to create multiple software instances in a cloud environment.” If you want more than that you’ll have to go to the source.

“For Nokia, 5G is much more than radio,” said John Harrington, Head of Nokia Japan. “It’s an end-to-end network transformation. We are pleased to have successfully completed this 5G core SA network trial together with KDDI, as it marks a crucial milestone for KDDI’s 5G SA deployment as well as for Japan’s 5G. Nokia will continue to contribute to  the best of 5G and the cloud to enhance business processes and bring new applications and benefits to more markets and consumers.”

Hot on Nokia’s heels came Ericsson, which claimed a 5G cloud-native CI/CD software pipeline breakthrough, no less. For those telecoms dunces at the back, that stands for Continuous Integration/Continuous Delivery, which is presumably preferable to sporadic or whimsical. “The container-based technology enables automatic deployment of new software and functionalities, while maintaining the high quality and availability of the 5G Core network,” we’re told.

“Our market-leading 5G core and unique CI/CD capabilities mean faster time-to-market, higher performance and cost efficiency,” said Jan Karlsson, Head of Business Area Digital Services at Ericsson. “Agile delivery of services while maintaining high quality and availability is a must in 5G Core networks. Our CI/CD end-to-end software pipeline achieves this. We are happy to continue to work with KDDI to automate their network operation.”

Based on our extremely limited understanding of these matters, the Nokia announcement feels like the more significant one, especially since the Ericsson one is represented by is digital services rather than networks unit. Since Japan has gone cold on Huawei, much of the business of its operators will be a straight fight between these two vendors. When it comes to KDDI’s 5G core, Nokia seems to be ahead right now.

NTT kicks-off 5G foray at Rugby World Cup

There might be more attention given to the rugby than mobile networks in Tokyo right now, but the World Cup is giving NTT Docomo a pleasant opportunity to test out its 5G smarts.

Last Friday, the Rugby World Cup kick-off in Japan and NTT said it was also offering a trial 5G service ahead of a full-commercial launch in Spring 2020. According to local press, 5G devices will be set-up in local stores to allow for a more in-depth experience of the games, while the telco has also announced it will step-up deployment plans.

“We are marking Friday as the day we begin our full-fledged 5G services,” said NTT Docomo President Kazuhiro Yoshizawa.

Although this is progress, what is worth noting is this is little more than a dress-rehearsal for the telco. As one of the official partners of the Rugby World Cup, NTT has an excellent opportunity to test out how the network will perform under strain. Lessons learned here will be passed onto the next big-ticket event, the Tokyo 2020 Olympics.

This is an event which will give NTT the opportunity to show-off what it can do and put itself in a leading-position in the 5G race. The world will be watching the Olympics, huge numbers of fans will flood into the country and connectivity will be tested to the extreme.

Alongside the announcement of the 5G trial, NTT has also said it will speed-up 5G deployment plans over the next couple of months. Given one of its rivals, Softbank, said that was shifting up a gear last week, it was only going to be a matter of time before NTT followed suit.

By next June, NTT has suggested it will be ready to launch the 5G connectivity onto the waiting masses, with plans to have 10,000 base stations in action by the spring of 2021. The team also wants 60% population coverage by 2023, a reasonable objective and certainly not one of the most aggressive we have seen around the world.

While Japan was arguably one of the leading voices in the 5G arena during the early years, it has maybe fallen into the shadows. This is nothing to do with the continued progress of the Japanese telcos, but perhaps due to the fact others around the world have been much more vocal and bullish. Realistically, it doesn’t matter a huge amount whether the 5G networks are switched-on or not right now, the big difference will be how quickly the telcos can scale the coverage footprint.

This is a challenge which will be faced by every nation around the world, though with the Rugby World Cup and the Summer Olympics next year, Japan has an excellent opportunity to stake a claim for global leadership.