Rakuten Mobile launches assault on global telecom market

The world's most exciting network operator wants service providers in other markets to buy its cloud.

Iain Morris, International Editor

May 13, 2020

7 Min Read
Rakuten Mobile launches assault on global telecom market

Not satisfied with disrupting Japan, Tareq Amin, the rock-star-cum-revolutionary of the telecom sector, has now embarked on a world tour.

Hired by Japanese e-commerce giant Rakuten to build the country's just-launched fourth mobile network, Amin had briefed Light Reading on his global ambitions back in March. Today they crystallized with news that Rakuten Mobile, the telco arm of the business, will start selling the cloud platform it has built in Japan to service providers in other countries. "We have enough evidence now that going to global markets with our platform is an amazing opportunity to create a new market segment for telco cloud," said Amin, Rakuten Mobile's chief technology officer, during a briefing earlier today.

The daring move could pit Rakuten against some of the world's biggest cloud companies, network product vendors and software specialists. Names like Nokia, Google and IBM show up in Rakuten's graphic on "strategic positioning." But the company's own market research suggests there is an appetite for an offer that does not come from the traditional vendor community. "Rakuten is built for the telco industry," said Amin. "We understand how to build a platform optimized for real time. It is open source and collaborative and puts us in a unique position."

Figure 1: Tareq Amin, Rakuten Mobile's chief technology officer, is the poster boy for open RAN. Tareq Amin, Rakuten Mobile's chief technology officer, is the poster boy for open RAN.

It is still very much a work in progress, though. To fortify the offer, and burnish its software credentials, Rakuten has signaled its interest in targeted acquisitions. It has already pounced on Innoeye, a US developer of operational support systems that complement the business support systems provided by Netcracker for Rakuten's own network. Externally, Amin evidently believes this "back-office" part of the business needs a dose of innovation that his newly acquisitive employer can administer.

Buying the companies that contribute to its Japanese network is not a complete departure from Rakuten's previous approach. Before today's announcement, it had taken a major stake in Altiostar, another US firm whose software powers radios built by Airspan, NEC (Netcracker's owner) and Nokia. When Altiostar does deals with other service providers, Rakuten indirectly benefits as one of the US company's main investors.

Clearly, though, Rakuten is not out to purchase all the companies that have contributed to its network. These range from industry giants like Cisco and Nokia to much smaller software specialists such as Altiostar and Innoeye. The overarching plan is to bundle the applications and software developed internally, through acquisition and with external partners into what Rakuten calls the Rakuten Communications Platform (RCP). This will then be made available to customers through an app store interface, allowing other service providers to customize their own platforms. If all goes to plan, it will be launched at the end of this year, said Amin.

When it does, it will have four big building blocks. On the infrastructure and networking side, Amin is developing a fully "containerized" system, built on the Kubernetes model, that he calls RCP Cluster. The idea here is to move beyond basic virtualization and break network software into much smaller components that can be reconfigured more efficiently. "When we go into containerization, we can run networks with significant cost reduction and efficiencies that don't exist today," said Amin.

On top of that comes what Rakuten is billing RCP Functions, where it is partnering with other companies on applications covering radio access network (RAN) virtualization, the 5G core and future business and operational support systems. Then there is the RCP Automator, a pre-packaged set of tools for what Amin calls "intelligent operations," making use of artificial intelligence and machine learning. The final major component is the RCP Marketplace, the storefront where customers can buy their goodies. "It should be as simple as going to an app store, and then it is click, purchase and deploy for the various workloads," said Amin.

Analysts will be keen to know if this global expansion is a significant revenue opportunity for Rakuten, especially if it is dividing sales with industry partners. On that issue, the Japanese company had little to offer today. Another concern for investors is whether the heavy emphasis on open source and white box technology means Rakuten's efforts are easily replicable.

"Absolutely not," said Amin. "My belief is that to do what we have done requires a specific skillset and culture that is not easy to replicate. You give people enough time and money and it could be done, but we have a significant time to market advantage." He remains confident, he said, that Rakuten can protect its own intellectual property and disrupt traditional workloads, especially in the "focus areas" of B/OSS and orchestration.

Skepticism still abounds
Despite Amin's confidence, parts of the industry remain skeptical that Rakuten's reliance on largely unproven, cloud-based technologies will succeed in the Japanese market. Among other things, the operator has become a litmus test for open RAN technology, which promises to bring interoperability and lower-cost equipment into a mobile market currently dominated by the giants of Ericsson, Huawei and Nokia. Detractors say the use of general-purpose processors will backfire, arguing this equipment cannot match customized products on performance.

The success of the Japanese rollout would silence opponents and undoubtedly spur interest in Rakuten's model. Services on the 4G network were launched as recently as April 8, and CEO Hiroshi Mikitani is unwilling to disclose details of customer takeup so far, insisting that growth is proceeding "in line with expectations." The target is 3 million customers by the end of the year.

Want to know more about 5G? Check out our dedicated 5G content channel here on Light Reading.

More encouragingly, executives insist the network is coping with far higher levels of data traffic than its competitors see. On a per-subscriber basis, "this 30-day old network is consuming 2.5 times more traffic than any other network," said Amin. "This is exactly what we desired." Buildout is also progressing fairly well. Rakuten's earlier plan was to have 3,432 4G basestations deployed by the end of March. It is now at 4,738 and has signed contracts for another 4,555. Reliant on a wholesale deal with rival KDDI in areas where it lacks infrastructure, Rakuten is now targeting 70% population coverage by March next year.

Even so, the project is proving costly. When Rakuten reported 331.4 billion Japanese yen ($3.1 billion) in first-quarter revenues today, it blamed its operating loss of JPY18.1 billion Japanese yen ($170 million) on mobile expenses. A detailed breakdown shows that mobile revenues – generated mainly through its activities as a mobile virtual network operator – rose 54.7% year-on-year, to JPY39.2 billion ($370 million), and yet Rakuten Mobile's operating loss ballooned to JPY31.8 billion ($300 million), from about JPY6.7 billion ($63 million) a year earlier.

Figure 2: Rakuten Mobile quarterly sales and operating losses (JPY millions) Source: Rakuten. Source: Rakuten.

The financial situation may be compounded by Rakuten's decision to undercut rivals. Priced at just 2,980 yen a month (less than $30), its service costs about half as much as a traditional offer. And its network rollout has a long way to go. When finished, it is expected to comprise about 45,000 4G and 35,000 5G basestations, along with some 4,000 edge data centers. Today, there are just 330.

Regardless of the technology, no one expected the construction of a new mobile network to be dirt cheap, and Amin continues to estimate it will cost 40% less than a traditional one. The new 5G gear Rakuten is buying from NEC and Intel costs just half as much as typical products, he said today. Despite months of criticism from financial analysts, the network revolutionary has remained steadfast and unfazed. The open RAN community must pray that his composure does not change.

UPDATE: This story has been changed since it was first published after Light Reading received clarification that Innoeye and Netcracker are addressing different needs in Rakuten's network.

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— Iain Morris, International Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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