Brewing Japanese price war could spell trouble for AT&T, Verizon | Light Reading

Brewing Japanese price war could spell trouble for AT&T, Verizon | Light Reading

There are growing indications that Japanese wireless network operators are in the early stages of a potentially massive pricing war, one that could significantly reduce costs for customers while at the same time cutting into operators’ revenues.

And there’s a good chance top executives at AT&T and Verizon are watching the situation with growing dismay.

How might market minutia 6,000 miles away affect the fortunes of two of the biggest wireless network operators in the US? Both developed markets are pivoting to 5G and both potentially will feature the exact same structure: Three incumbents challenged by an upstart using fancy new networking technology to offer cheaper services.

Of course, there are plenty of puzzle pieces that will need to fall into place before US operators might face the kinds of situations that Japanese operators are now dealing with and there’s no assurance those puzzle pieces will actually materialize. Indeed, there’s no way of knowing whether these initial pricing skirmishes in Japan will even blossom into an all-out war.

Nonetheless, the situation is certainly worth watching.

A Japanese Amazon

The current situation in the East traces its origins to Rakuten, an ecommerce startup (think Japan’s Amazon) that, in 2018, decided to enter the country’s mobile market. To do so, the company embraced cutting-edge, virtualized and open radio access network (RAN) technology that leverages data center designs supporting cheap hardware powered by very complex software. Virtualized open RAN technology allows Rakuten to cut roughly 40% out of its capital expenses and 30% out of its operating expenses, the operator said, allowing it to charge just $30 a month for its 5G service about 70% less than its rivals.

That rock-bottom offer appears to have pushed at least one of Rakuten’s rivals to respond. NTT Docomo this week announced it will sell 20GB of 5G data for around $29 per month, around half of what its fellow incumbents SoftBank and KDDI charge. The move follows calls by the country’s prime minister for operators to lower their fees amid a pandemic that has forced just about everyone inside and online.

“It is an aggressive plan which will require the other incumbents to respond, and therefore likely lead to a period of negative consumer mobile communication revenue growth,” financial analysts at New Street Research wrote in a note to investors this week of Docomo’s price cut.

America’s Rakuten

The reason Verizon and AT&T might be closely watching the goings on in Japan is because they may soon face a similar situation sparked by a similar upstart: Dish Network. Thanks to a 2019 agreement among Dish, T-Mobile and the US government, Dish is today offering mobile services as an MVNO (just as Rakuten did initially) and plans to build a nationwide 5G network (just as Rakuten is doing now).

And Dish has loudly touted the fact that it plans to use the same open RAN technology that forms the basis of Rakuten’s network.

Those factors, alongside Dish’s massive trove of spectrum, are giving some analysts a positive outlook on Dish.

“We believe Dish presents an attractive option on the 5G future,” the financial analysts at Raymond James wrote in a note to investors last month.

If Dish does follow through on its 5G plans, the company is expected to use its shiny new network one unburdened with existing customers and legacy network technologies to dramatically undercut existing offerings by the likes of Verizon, AT&T and T-Mobile.

However, Dish will undoubtedly be hampered by the scope of its 5G ambitions. For example, Japan is about 4% the size of the US, meaning that operators there have much less geographic territory to cover. Nationwide mobile coverage is a typical prerequisite for most US consumers. Dish has said it can cover wide swaths of US territory for roughly $10 billion, but whether it can do so and offer speedy, cheap services afterward remains to be seen.

Nonetheless, the unfolding situation in Japan certainly has implications for the US market. After all, whatever Japanese missteps Rakuten may make will only inform Dish’s US strategy.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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