Transforming a global industry requires more than just game-changing technology, innovative business models, or visionary leadership. It requires significant efforts of discovery and change-management.
To successfully upend the status quo, a disruptor must be able to explain the benefits of its new approach – and take on the tough questions that result from doing things differently.
At Rakuten Symphony, we believe in our transformative vision, and we’re confident that through open communication and our trusted transparency “no more secrets” approach, the industry will continue to change its way of thinking as well.
Over the last three decades, I have had the opportunity to talk to mobile operators around the world. The top-of-mind questions for telco chiefs remain: What is my killer app? How can you help me better monetize my network? What services, applications and digital experiences are you seeing around the world that we can learn from?
All of these questions are valid and crucial for telco management to find answers. I must say that my answers to these questions have only changed slightly over the last three decades:
Mobile network operators (MNOs) are facing competitive and regulatory pressures that are impacting profitability. A McKinsey report details how core connectivity businesses are slowing and becoming commoditized. While there has been value creation around wireless networking, McKinsey notes this is being driven by “edge players” like handset manufacturers, app developers, infrastructure providers, streaming companies and other service providers.
Operators are pursuing new ventures with mixed results. McKinsey notes about half of the CxOs involved in new business pursuits reported a lack of profitability or profitability of less than 10%. I have personally observed the dwindling ARPUs of mobile operators around the world during my career. But, although ARPUs and top-line profitability continue to be challenged, operators should not despair. There remains strong opportunity to turn their business around.
MNOs have traditionally invested most capital into network infrastructure that has not proven flexible enough to deliver services beyond voice and data. Based on Rakuten Mobile’s early success in Japan, cloud-native network infrastructure could be key to successfully expanding services.
Rakuten Mobile did not do this out of spite to legacy vendors. Rather, it pursued this technically challenging path in 2018 because of a real need and strong conviction that it can be done. Building a network that does not use proprietary systems, large monolithic gear we call “boxes,” or vendor lock-in allowed Rakuten Mobile to end up with a very competitive network cost structure versus the incumbents. This was one of the main drivers for choosing a new breed of networks based on commoditized compute and storage. It is a network with a single unified cloud stack, consistently similar hardware, containerized cloud architecture, software-centric network functions and IT, and a relentless focus on automating everything and orchestrating across technology domains and operational silos.
"Based on Rakuten Mobile’s early success in Japan, cloud-native network infrastructure could be key to successfully expanding services."
Rakuten Symphony has been focused on helping operators around the world achieve the same results. Yes, even in brownfield scenarios or deployments where it’s not immediately obvious how operators that are not part of a broader internet ecosystem can pursue such opportunities.
Virtualization, Open RAN and cloud native movements have shown infrastructure investments can be reduced. They have already proven these technologies hold the potential for an even more agile and cost-effective infrastructure. We witnessed the benefits of cloud that enterprises and governments around the world are enjoying.
So how best to leverage the cost savings?
One perspective is that money saved from network investment can be reinvested in building value-add platforms above the network. MNOs should be investing in next-gen, highly differentiated services rather than repeating or making marginal improvements upon the ones that already exist. There must be an expansion beyond basic connectivity toward purpose-built offerings for large enterprises, like vertically-focused autonomous vehicles, video upload with AI-driven data pipelines and XR (otherwise known as the metaverse) solutions. But one thing we don’t usually discuss in the telco industry is how quickly and frequently operators have to introduce, change or replace users’ applications.
The notion of building the network, structuring the packages, posting online and waiting for your customers simply does not work anymore.
Successful operators realize that investing in their own R&D efforts, market and customer segment research, continuous introduction, upgrades of new services, and differentiated experiences have been key to fighting the OTT threat, ARPU reductions and overall network infrastructure costs. There are numerous examples of successful MNOs that have made the shift to a fully digital-experience service provider.
Rakuten Group has shown what can be achieved when connectivity is combined with other services. There are lessons that can be extended to any MNO. While the journey toward transforming to a software-centric industry was started by Rakuten Symphony and Rakuten Mobile, Vodafone and British Telecom are making similar software skills investments.
Rakuten Group has created an ecosystem of over 70 businesses that are linked via a common membership and loyalty program. In 2018, Rakuten Group began building its own 4G/5G mobile network across Japan, understanding the potential for mobile services to drive new customers to other Rakuten businesses. Rakuten Mobile has always regarded customers not as subscribers, but rather, members. It is a subtle but important difference in mindset. When I travel, I am not just an American Airlines passenger, I am a OneWorld member. Why is this important? Because membership changes behavior.
The results have been stunning:
Overall, Rakuten Mobile members spend 67% more in the ecosystem than non-members.
Rakuten Group has shown what can be achieved when connectivity is combined with other services.
Of course, most MNOs don’t have these additional business lines. But they could still achieve similar success by partnering with other digital providers and monetize the attribution value they create through partners. Rakuten can unlock its massive capabilities on this front to help MNOs get to a place where they can provide true value to a new ecosystem of partners based on attribution. This is in contrast to today’s approach where partnering is essentially old-style bundle deals. I am regularly talking to MNOs not only about a paradigm shift in network architecture and operations, but on many occasions about the monetization potential MNOs should be thinking about.
At the core of Rakuten Mobile’s success is its investment in a modern, agile, scalable and programmable network. Of course, it’s easier said than done, but with a software-centric network, all this and more can be achieved.
From the start, the Rakuten Mobile network was envisioned as a cloud-native, software-defined, virtualized network. Efficiency, programmability and cloud-native technology is what’s required for next-generation MNOs to add functionality for new revenue-generating services and achieve more efficient management.
This infrastructure changes the cost basis and reduces staffing needed to operate the network, making it the true definition of a hyperscale business.
Shifting to this network building mindset does not happen overnight. It can be challenging.
Here’s how we believe operators can start down the road:
Adopting a new network to add new services reinvents the value proposition for MNOs and customers.
In the 3G and 4G eras, MNOs have been on the leading edge of changing the way the world connects, works and entertains. Without the agile network infrastructure necessary to expand services, MNOs let a new crop of companies step in to take away a significant part of the value.
Now, with the ability to build out a new generation of hyperscale infrastructure, MNOs can redefine business models and customer value propositions to finally expand beyond connectivity.