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.