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Summary

Cloud native and open source have become synonymous with greenfield digital service providers that are disrupting Asian markets. The trendsetter, Reliance Jio, now has many following its go-to-market strategy in the region. Japan’s Rakuten commercially launched LTE services on its end-to-end cloud-native mobile network offering services at half the costs charged by incumbents. The pressure to make quick inroads into incumbent-dominated and fairly saturated mobile markets is persuading the newcomers to try innovation in both networks and go-to-market strategy.

Greenfield operators see benefits in going open source

The single biggest challenge faced by service providers globally hinges on one core problem that came with verticalization in the vendor community. The hardware coupled with software comes from the same vendor with proprietary protocols and interfaces that few have the knowhow to alter. Network rollouts are costlier, and every technology upgrade requires service providers to commit significant capex. According to Omdia’s research, service providers across the world have invested $3,132bn in mobile and fixed networks since 2010, an average $313bn each year. This represents a significant percentage – about 17%, of service providers’ total revenue. Large internet and technology firms such as Alphabet, Facebook, Microsoft, and Amazon, which collectively spent $264bn in capex between 2010 and 2019 and $373.6bn in research and development, provided the much-needed answer to service providers’ quest for capex optimization. Some greenfield operators are therefore looking to these technology firms for inspiration. Reviewing operator announcements from 2019 indicates that many global and regional operators are now willing to shift to open source. However, incumbents still have not fully committed themselves to the idea, and rightly so, as they have to deal with established networks with legacy equipment and architecture.

Among the greenfield operators, Japan’s Rakuten is leading the race with its fully virtualized, automated, and software-centric LTE network launched in April 2020. The operator’s radio access network (RAN) is completely virtualized, where each mobile site is just a remote radio head from Nokia, while all other components are implemented as virtualized machines running in 4,000 edge data centers. Now Rakuten plans to take the same approach to 5G. According to Rakuten, the level of virtualization that it has achieved means its cost to deploy 5G is about 50% less compared to traditional telecoms operators. In a market such as Japan, this represents a significant opportunity as Rakuten will be able to leverage its low costs to offer aggressively priced service plans. It is not an unproven business model. Reliance Jio in India used a similar approach while building its pan-Indian greenfield LTE network, which is fully automated, software driven, and distributed. For both Rakuten and Reliance Jio, vendors Nokia and Samsung opened the proprietary interfaces to AltioStar and Radisys as they benefited from open source.

In-house software development capability is critical

Unlike the traditional approach where operators have relied on one or two key vendors, a software-centric disaggregated network may require operators to manage multiple vendors, which increases the complexity of operations. Rakuten and Reliance Jio emphasize the importance of building strong capabilities in software and systems integration to fully manage multivendor rollouts involving traditional and new suppliers integrated through open interfaces. In addition to custom-built services from Nokia, Rakuten has worked with many suppliers, including AltioStar, Cisco, Intel, Red Hat, OKI, Fujitsu, Ciena, Netcracker, Qualcomm, Mavenir, Quanta, Sercomm, Allot, Innoeye, and Viavi. Where Radisys was acquired by Reliance Industries, Rakuten bought stakes in one of its many and important supplier AltioStar. The vRAN is supplied by AltioStar and makes a high layer functional split between virtualized baseband functions and those at the cell site. The baseband units are procured from Quanta Computing Technology (QCT) in Taiwan.

It is imperative for service providers to own these critical software development capabilities if they wish to shift the value chain. Reliance Jio has this in its blueprint. In 2014, Reliance Industries merged one of its technology subsidiaries, Rancore Technologies, with Reliance Jio to spur research and development in 4G delivery platforms using open source technologies. Early in 2013, Rancore developed a convergent rating and charging solution for service providers providing ready-to-use rich APIs and standard interfaces to integrate with OSS and BSS systems from third-party vendors. It was no surprise when Reliance Jio selected SAP for BSS (online/offline charging, CRM, billing, and invoicing) as SAP adapted the solution to the operator’s requirements. To further enhance its software stack, Reliance Jio joined the Linux Foundation’s ONAP project in 2018. The move is aimed at co-developing OSS and BSS systems that can scale easily as the operator extends its IoT capabilities. Additionally, the parent company, Reliance Industries, announced the acquisition of network systems vendor Radisys to accelerate RJio’s inhouse capabilities in areas including 5G, IoT, and open source architecture.

Service providers must weigh strategic and business cases with 5G

In most markets where 5G is deployed and in progression, 5G business models have only just started emerging, and it could be some years before they generate considerable revenue. But 5G is still important for service providers to maintain market position. In emerging Asian markets such as India service pricing is key to reaching meaningful adoption levels. Operators have learnt from their 4G experience. Although 4G services were introduced in India as early as 2012, reaching 45% subscription penetration took eight years. This compares to an average of four years in developed Asian markets. Lowering network rollout costs will remain important as service providers look to preserve margins. While Rakuten’s launch is an important milestone, how well the model is working will only be answered with time. One impact that service providers should ascertain though is the overall cost of the network during its lifetime in addition to the upfront network rollout costs.

Appendix

Further reading

Vendors Face Choice Between Open RAN or Protecting the Status Quo, SPT002-000232 (July 2019)

Communications Provider Revenue & Capex Forecast: 2019–24, GLB007-000267 (July 2019)

Author

Inderpreet Kaur, Senior Analyst, Asia Pacific

[email protected]

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