Rakuten and Dish – 2022 Will Be A Critical Year For Greenfield Networks

Rakuten and Dish are pioneering the development of open, cloud-native 5G multi-vendor networks and operate in highly competitive and mature markets. Although with very different backgrounds, both are broadly similarly sized companies with established businesses. Both initially joined the mobile market as MVNOs and are at varying stages of deploying their own network infrastructure. However, there are also many important differences between the two companies, particularly with respect to their network architectures and vendor ecosystems.

Rakuten vs Dish

Rakuten has deployed a 4G network and ultimately intends to migrate all customers to a cloud-native 5G SA network. Dish will deploy a 5G SA core-based network from day 1. Rakuten has developed its own telco cloud with all network functions deployed at its own data centres located at various Rakuten premises. In contrast, Dish is adopting an “off-prem” model with the whole network running on AWS data centres, at least initially.

Rakuten relies mostly on single vendors with a heavy emphasis on its own in-house developed technologies and acquisitions. It also has ambitions to become a telco platform provider generating revenues from its software and technology expertise. Dish has generally adopted a dual-vendor strategy to avoid reliance on a single supplier. Although early days, Dish could conceivably follow Rakuten’s lead in time and similarly launch its own services platform.

Rakuten: Subscribers and Network Coverage

At the end of September, Rakuten Mobile had 5.1 million subscribers, having added just 2 million subscribers during the past 12 months, despite the recent expansion of its 4G network. In a country with a population of over 125 million, this is hardly a huge amount. In contrast, market leader NTT DoCoMo has more than 83 million subscribers.

Management still maintains – probably to alleviate investor concerns – that Rakuten will break even by 2023. It thus has a 12 to 18-month window to dramatically increase subscriber acquisitions. Offering much cheaper tariffs, the company is banking on consumers switching en-masse from bigger rivals, as well as finally being able to hit its 96% network coverage target in early 2022. However, in a largely cost insensitive market and with notoriously fickle consumers, will this be enough to attract sufficient new subscribers? Although the break-even target now apparently includes revenues from its telco software platform Symphony – perhaps a saving grace – management expects losses to be at their worst in the first quarter of 2022 but to improve from Q2 onwards.

In the likely event that Rakuten deviates from its planned 2023 break-even path, it is vital that the company can nevertheless show a substantial ramp up in subscriber acquisition over the next six months to demonstrate that its aggressive loss-leading pricing strategy can work in Japan. Otherwise, there is a danger that investors will start to lose confidence in the company, which may also extend to telco customers at its Symphony business.

                                     © Counterpoint Research, Data Source: Rakuten Group

Exhibit 1:  Rakuten Subscriber Growth

Dish: Network and Service Launch Plans

Against a backdrop of falling pay TV and MVNO subscribers, Dish faces challenges in both its established and new businesses. At its 3Q earnings call, the company reported 10,98 million pay TV subscribers, down 13,000 YoY and 8.77 million mobile subscribers, down 121,000 YoY. Up until now, Dish has been able to blunt the impact of its pay TV subscriber losses with higher prices. However, pricing power cannot last forever.

Dish claims that it will be able to build a fourth nationwide 5G network for $10 billion and plans to launch in its first market – Las Vegas – in early 2022. With regulatory deadlines to provide 70% population coverage by the end of 2023, it is now in a race against time to deploy its 5G network and make the business a success. As with Rakuten, network roll-out will be its biggest challenge initially. While using AWS for its core network may yield cost advantages, putting the entire 5G network in the public cloud is a risky bet, as the recent outages at AWS demonstrate.

Unlike Rakuten, Dish plans initially to target the wholesale and enterprise markets rather than focusing exclusively on the consumer market, where it lacks its rivals’ brand recognition. With its considerable spectrum assets, targeting the wholesale market looks like a no brainer. However, with limited network coverage initially, selling to enterprises will not be easy, plus Dish has no experience of working with enterprises.  Despite its recent ties with AWS, it will be challenging to generate revenues from the enterprise market.

The Endgame – Big Tech Takeover?

Building a commercially successful network from scratch with new, innovative technologies that promise significant cost benefits is easier said than done. Rakuten’s progress to date has revealed a lot of issues and there are lessons here for other aspiring greenfield networks. While the contract award with 1&1 Drillisch demonstrates that there is demand for its technology, this is a business where scale and mindshare are required to be successful. With continued high cash burn and a high credit risk rating, any disappointment on the subscriber front over the next six months could hit investor sentiment as well as impact its ability to expand its Symphony business.

Like Rakuten in Japan, Dish is smaller than its main rivals and may also struggle financially, particularly as it will need to offer substantial discounts to attract customers. Counterpoint Research believes that an eventual takeover by a big tech company such as AWS, Google, Microsoft or even Apple looks the most likely outcome for Dish, while over in Japan, open RAN ambitions by domestic vendors, coupled with national pride, will probably ensure that Rakuten Mobile will survive in some form or other.


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Rakuten's Future – Operator, Vendor or Something Else?

August was a busy month for Rakuten. The Japanese company announced its first major vendor contract with German Internet company 1&1 Drillisch, launched its new Symphony telco platform, acquired the remaining shareholding in open RAN software vendor Altiostar and published its latest financial results.

Rakuten Symphony

In October 2020, Rakuten launched the Rakuten Communications Platform (RCP), a cloud native communications platform consisting of a private cloud platform, RAN, core and edge VNFs plus various AI and OSS-based automations solutions. With the launch of Symphony, Rakuten adds a further two layers, a BSS layer and a layer comprising a range of digital services from parent Rakuten Group (Exhibit 1). By combining all of its telco products, services and solutions under a single global banner, Rakuten is now able to offer 4G and 5G solutions to customers worldwide.

A lot of the technologies offered by the Symphony platform is derived from Rakuten itself, either directly or via its recent acquisitions. For example, Rakuten provides the horizontal cloud infrastructure platform, the systems integration skills and R&D expertise while the vRAN and OSS solutions come from Altiostar and Innoye respectively. Other technology comes from key partners such as NEC (mMIMO radios, 5G converged core), Nokia, (IMS), Mavenir (RCS), Red Hat (cloud) and Intel (FlexRAN architecture) while smaller companies such as radio vendors Airspan and Sercomm round up the vendor line-up.

Exhibit 1 Rakuten’s Symphony Telco Store

                  © Rakuten Group

One of the supposedly attractive features of Symphony is that an MNO can mix and match software and hardware components from any vendor in the Symphony portfolio. While Symphony is definitely multi-vendor, it does not seem to be very vendor neutral, although that may change with time. For example, MNOs crave a wide choice of radios. However, Symphony currently only offers one mid-band mMIMO radio vendor (NEC), one mmWave small cell vendor (Airspan) while Sercomm is the only indoor radio vendor. Nokia and KMW, the other radio vendors, only offer 4G radios.

Target Markets

As demonstrated by the recent contract award from 1&1 Drillisch, the most likely candidates for Rakuten’s Symphony telco store concept will be new entrants, particularly those companies that have little or no experience in the mobile telecoms industry such as ISPs, cable companies as well as enterprises who wish to build their own networks.

However, Counterpoint Research believes that the number of new entrants such as 1&1 Drillisch will be limited while the enterprise market will be extremely competitive with a plethora of new open RAN vendors, public cloud providers as well as incumbents such as Nokia and Ericsson battling for market share. Nevertheless, Rakuten may not need many major contracts to generate a lucrative new revenue stream.

Rakuten’s Future Role

Rakuten plans to be a major player in the global telecoms vendor market, and as mobile networks become virtualized, it has the potential to become a disruptor. With Symphony, Rakuten becomes a technology vendor, systems integrator, digital services provider as well as an MNO and mobile service provider. But where does its future lie?

Chairman Mickey Mikitani claims that revenues from the telco platform could ultimately surpass the company’s core e-commerce and financial services businesses.  Clearly, the contract award with 1&1 Drillisch is a major financial and psychological boost for Rakuten at a time when the company is haemorrhaging cash and struggling to finish deploying its 4G network while its Japanese rivals are rolling out their 5G networks.

However, Counterpoint Research doubts that Rakuten will have the product range, economies of scale as well as mind share to seriously compete against the big RAN and cloud incumbents.  Instead, it probably sees its role as a “facilitator” or platform provider (along the lines of its core e-commerce business), initially selling its own solutions plus knowledge and expertise alongside that of its core partners. The company may have a 1-2 year head start on rivals, but success will ultimately depend on what the company offers on Symphony, the cost and quality of its solutions and the business relationships it manages to strike with other vendors. Ideally, Symphony needs to offer a choice of “best-of-breed” solutions from multiple vendors. Inevitably, this will be its biggest challenge.

Although many Tier 1 MNOs will no doubt develop their own solutions, Symphony’s packaged offerings – and above all, Rakuten’s experience of running virtualized networks – may be attractive to some Tier 2/3 MNOs, ISPs, cable companies as well as some enterprises. However, Counterpoint Research expects that it will take a few years before the telco store business model establishes itself as a concept or not, and if it does, there will be no shortage of competing platforms. In the meantime, Rakuten must deliver in Germany as well as overcome the considerable commercial challenges facing its own mobile network business back home in Japan.


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