The Cloud Native Pole Vault – The contrasting fates of Rakuten Mobile and Jio
Oh no, this is not about the incredible exploits of the unbelievable “Mondo” Duplantis at Paris last week! He is on a different planet altogether.
If you recall, cloud native networks and network functions has been a longstanding area of focus for Insight Research.
How much of it does really translate into tangible gains for telcos? The reason for thinking aloud is the recent announcement regarding network sale and leaseback involving Rakuten Mobile.
Really, has it come down to this for Rakuten Mobile, the trailblazer of cloud native networks?
Talking about cloud native networks trailblazers, another name comes to the mind – Jio.
Rakuten Mobile and Jio have boldly attempted to redefine network and network function reengineering. The financial performance of these operators however could not be more different.
One must question – why is Jio rolling in profits, while Rakuten continues to struggle to push itself out of the red?
Why should that be the case? After all there are certain striking similarities between the two.
Firstly, both the operators have committed themselves to the promise of cloud native network and network functions. This approach is a major departure not just from the methodology adopted by their more established competitors in their respective country markets, but also from the modus operandi of a majority of the telcos worldwide.
Both telcos have developed what are essentially green field networks. Some may say that being free from the encumbrance of legacy has allowed these telcos chat the revolutionary path of cloud native network functions. Be what may, the similarity is striking.
What makes their fate increasingly intertwined is that the top management of both telcos had the same team at some point in time.
It is as if Jio and Rakuten were siblings - divided by distance but united by technology and management philosophies!
Which brings us back to the question – Why are their trajectories so different?
Let us look at some possible reasons.
The head start
Jio commenced operations in 2016, a good four years before Rakuten got into the fray in Japan. Given the long gestation periods in highly competitive markets like India and Japan, the four year head start should be a critical determinant.
This is however only a part of the story. Jio turned profitable in Q3 of 2017-2018, less than two years after full-fledged launch. Rakuten Mobile has been unable to cross that milestone in spite of being operational for more than twice the duration.
The competition
This is undoubtedly a very critical influencer of the fates of the respective telcos. Let us take the case of Jio first. It entered the market dominated by the state-owned BSNL and the privately owned Airtel, Vodafone and Idea (the latter two merged to form Vi in early 2018). During 2016, each of these telcos had subscriber bases exceeding 100 million individually. Vi, upon its inception 2018 had a staggeringly huge subscriber base of 375 million.
The way Jio carved a niche for itself in this market is a story by itself. By offering everything ranging from free calls, rock-bottom data rates and higher order data services, Jio rapidly ate into the subscriber bases of its competitors apart from building its own band of followers. Jio is today perceived as a technology leader today. It is on the verge of acquiring 500 million subscribers – a phenomenal achievement by any yardstick.
This achievement was also aided by the less than impressive contest between incumbent telcos and Jio. BSNL, being a government outfit, was never in the reckoning for the top spot. Vodafone and Idea (presently Vi) got bogged down by several issues – financial and regulatory, which has affected its network roll-out.
Barring Airtel, none of the competition really showed the appetite to put up a fight.
The scenario in Japan could not have been more different.
Firstly, the incumbents - NTT DoCoMo, KDDI (Au) and Softbank – were not caught off-guard by Rakuten Mobile’s entry. Incumbent operators have been able to match Rakuten on the technology aspects such a speed and call quality very effectively. NTT DoCoMo, the leading Japanese telco, has also been perceived as a technology leader.
One significant area where Rakuten lags is coverage and reach. It is noteworthy that Rakuten has a roaming agreement with KDDI to tide over this issue, but that has addressed the matter only partially. Rakuten has been unable to translate its pathbreaking cloud-native infrastructure into tangible gains for its subscribers on technology and pricing fronts. Consequently, Rakuten has scarcely been able to make a dent in market share of incumbents. Its own share stands at about 5% of the overall market.
Market profile
India is a price-conscious market. Launching free voice calls and jaw droppingly inexpensive data rates convinced subscribers that Jio meant business. Japan, on the other hand, routinely records the highest ARPU in the Asia-Pacific region. Even in that context, the ARPU of Rakuten is substantially lower than its peers. It is thus clear that pricing alone will not win the day for Rakuten.
What do we conclude from the journeys of the telcos so far?
Cloud native technology is only a means to the end – which is ultimately providing superior services at competitive prices. If that objective is achieved, then even a price-conscious market will not hesitate to embrace cutting-edge cloud native networks and network functions.
What are your thoughts?
Published on: August 12, 2024
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