Rakuten Mobile, a Japanese wireless carrier that operates a network based on open radio access network (O-RAN) standards, has gotten a lot of attention in recent months, with many people touting the lower network construction costs that result from the Rakuten O-RAN strategy, even using terms like “revolutionary.” But one financial analyst firm specializing in telecom is skeptical.
In a research note this week, MoffettNathanson Research noted several concerns about Rakuten, including network performance. In addition, the researchers questioned how much overall savings the O-RAN approach actually offers.
It’s an important discussion at a time when the FCC has demonstrated enthusiasm for O-RAN as an opportunity for U.S. manufacturers and as a way of making wireless networks more secure by minimizing reliance on vendors from countries whose friendliness toward the U.S. has come into question.
U.S. network operators also are getting serious about O-RAN, particularly Dish, which sees the technology as a way of differentiating the 5G wireless network that the company is building from scratch.
Potential O-RAN Benefits
As MoffettNathanson explains, O-RAN “[i]s about being able to design and build the RAN around vendor-neutral hardware and software. This is done by disaggregating the various components of the RAN into ‘open’ interfaces, such that a RAN can be built in a modular fashion. This differs from a traditional RAN deployment, in which proprietary software is tied to the underlying proprietary hardware from the same vendor – this creates vendor lock-in scenarios, making network modifications costlier and more time consuming.”
As the researchers note, virtualization – defined as “the use of software to perform functions that are traditionally run by hardware” — is an important concept to O-RAN and is designed to “enable purpose-built proprietary hardware to be replaced by less expensive, interoperable and more scalable generic equipment that performs the same functions.”
“The cost advantages of an O-RAN network don’t end with lower priced equipment,” the authors write. “In theory, a virtualized O-RAN network can mean less equipment as well, with baseband units that support multiple cell sites and can more effectively allocate pooled resources.”
Rakuten O-RAN Concerns
According to the authors, building cellsites for the RAN traditionally has accounted for the majority of total network capex — as much as 70% to 80%. They note, however, that these capex figures include labor, which is often the single largest cost item in a network build. And they argue that “labor is required whether a network is software-defined or hardware-defined.”
I don’t totally buy that, as it would seem that installing less equipment would mean less labor.
But the authors raise some other issues that may be more concerning.
One is that download speeds on Rakuten Mobile’s network are just half that of the average incumbent Japanese operator – “the opposite of what one typically sees with a new and unloaded network,” the authors note.
The authors speculate that Rakuten’s network may be less dense than those of its competitors, requiring signals to travel greater distances. The authors argue that this may have occurred because the coverage calculations on which the network was built were too simplistic. (I would note here that the authors didn’t discuss which spectrum band Rakuten is using or how much spectrum they have, both of which are also important factors.)
Another concern is that across Japan, Rakuten mobile users spent only 45.3% of their time on-network and more time roaming on another carrier’s network. Rakuten has a goal to improve the on-network number to 70% by March 2021, but that still leaves the company dependent on the other carrier.
That’s important for a company like Dish because, although it has an MVNO agreement to use the T-Mobile network, that agreement is for a limited time period and T-Mobile may not want to renew, nor may its competitors be interested in establishing an equivalent agreement with Dish.
Finally, the authors note that network costs are only part of the story in operating a wireless carrier and that an O-RAN strategy does nothing to reduce non-network costs such as marketing.
The authors stop short of calling Rakuten O-RAN a failure – they say it’s too early to make a judgement one way or the other. But they do argue that the company’s experiences illustrate that starting up a wireless carrier in a major competitive market is difficult and that O-RAN isn’t a magic bullet – and, as they note, that’s true for Dish as well as Rakuten.