Rakuten to expose what open RAN kit makers charge
Rakuten's Tareq Amin, telecom's best-known revolutionary, wants to bare all.
After building an unorthodox mobile network his critics said would never work, the chief technology officer of Rakuten Mobile now plans to expose the industry's pricing secrets.
Through a new campaign, literally called "no more secrets," he intends to show the world just how much component makers are charging for their kit.
"We want to expose all the costs that Rakuten has," he told reporters and analysts on a call this week. "What would happen if the cost of a remote radio head is known, how much it costs to buy components and manufacture and deliver?"
Pricing information is closely guarded in the telecom industry, leading to accusations that vendors overcharge for their products.
One the goals of open RAN – the network movement Amin has joined – is to spur competition and lower costs. No more secrets, then, seems designed to exert pricing pressure on the equipment sector and prevent any margin stacking. For that reason, it is unlikely to be universally popular.
But Amin can make a strong case for revealing all. For one thing, he has experience with a vendor, having previously worked for China's Huawei.
More importantly, his efforts to build a greenfield network in Japan, using general-purpose and server-based equipment, mean he has taken a much keener interest than most of his peers in the plumbing of the network.
"Why many companies don't like to work with Rakuten, why many vendors have hesitation about working with us, is that I know the exact pricing to plus or minus 5% of manufacturing a remote radio head."
He does not plan to stop at exposure, either. The full idea is to create an open book for component-level pricing. Other service providers would be able to order validated and certified products directly through Rakuten, or identify the factories that make components if they do not want Rakuten involved.
"When someone says I want to buy a remote radio head and here are the bands I need to support and specifications, I will expose the line item material costs and NRE [non-recurring engineering] fee and tell them here are the margins Rakuten needs to front the purchase."
Opportunity knocks for Rakuten
Evidently, there is a commercial opportunity in all this for Rakuten, then. Besides collecting some kind of commission, it could also bundle its own software with the equipment provided.
It already owns a majority stake in Altiostar, a US developer of open RAN software, and appears to be working with hardware partners on a new distributed unit, used for baseband processing in the radio access network. Another service provider could either buy the hardware outright or take the distributed unit "as a service," says Amin.
"Rakuten would guarantee the lifecycle of hardware, including all refreshes, but everyone will know what we want for the software inside this distributed unit and you will know the fee structure," he explained.
"If we use Red Hat [a software company], I will also show how much we pay Red Hat for software and how much overhead is required for Rakuten on software to run this."
It is undoubtedly an audacious move, says Gabriel Brown, a principal analyst with Heavy Reading. The challenge, he thinks, will be convincing merchants to sign up.
"If you are a big brand, why do it?" he says. "It is probably more for challenger vendors and contract makers doing radio units and distributed units in the first instance."
Amin insists "quite a few" companies have already expressed interest in the scheme.
"One motivation for Rakuten could be to drive more volume through its supply chain," adds Brown.
"As an individual operator specifying its own equipment, it has limited volume and pushing more business through this channel will help it, and its suppliers, sustain this open networking model."
Another issue is that transparency about product costs will only go so far. Separating out and explaining all the relevant hardware cost items would be a complicated-enough task as it is, and Amin has no intention for now of revealing his own software costs.
"We are investing quite a bit into intellectual property and acquisition and at this stage I don't want to open up about what the cost of a developer in Rakuten is," he freely admits.
"In future, we can see about doing something disruptive in software, but I want to keep the uniqueness of that and not necessarily be open about software costs."
This would not be the first attempt to shine light on equipment costs. In April, the US Federal Communications Commission (FCC) published prices for hundreds of wireless network products.
The comprehensive list, paid for by the US taxpayer, was assembled by Widelity, the consulting firm that is running the FCC's "rip and replace" program aimed at clearing Chinese vendors out of the US market.
Nor is Amin's latest initiative the first time he has put a squeeze on hardware makers. He has a close relationship with NEC, a Japanese manufacturer, on the production of radio units for his own network.
That has involved having complete oversight of the bill of materials (BOM) for equipment, and even agreeing with NEC on the profit margin it should be able to achieve.
To outsiders, this cozy Japanese tie-up must seem like the orchestrated nurturing of a local industry with big international ambitions. Many would be interested to know if NEC's latest deal with Vodafone UK is more profitable than its older contract with Rakuten.
Difficult questions for the big three
None of this sounds very welcome to Ericsson, Huawei and Nokia, the world's largest vendors of radio access network equipment.
A charge levelled at them by the open RAN community is that they have been able to "lock in" their customers, using semi-proprietary technologies, and charge high fees. Published price lists for other hardware makers could prompt some awkward questions.
"Undoubtedly, there are product segments where the big vendors are margin stacking, but there are other areas where they're taking a hit or investing in R&D," says Brown.
"Operators stay very close to their vendors for the very reason that even before a contract is signed suppliers are intimately involved in detailed network architecture and roadmap planning."
"There's a lot to consider and it's too reductive to look at BOM costs and margin on a single product SKU [stock-keeping unit] in isolation," he adds.
"But this is a good initiative by Rakuten that will be closely watched. Open book pricing is used in other industries and could drive efficiencies in telecom equipment purchasing. If off-the-shelf products have a big cost advantage, it will force operators to focus on what they really want and question if their custom configurations and enhancements are really necessary."
Recently, the big vendors have been less profitable than some of the operators they serve. Deutsche Telekom, Europe's biggest operator, made an operating margin of nearly 13% last year, and France's Orange managed the same.
Ericsson's operating margin for 2020 was about 12%, while Nokia, in its filing with the US Securities and Exchange Commission, recorded one of just 4%.
Profitability is on an upward trajectory at both Nordic firms, however, as R&D investments and cost-saving measures start to pay off. With Ericsson's operating margin now at its highest level since 2007, operators may again be wondering if they are simply paying too much.
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— Iain Morris, International Editor, Light Reading