“I think we have some opinions about where we feel the industry could do better,” Geoff Hollingworth began. The Chief Marketing Officer of Rakuten Symphony is quiet-spoken, though that may be an outcome of juggling calls and travel across time zones 12 hours apart.
In the course of the following 90 minutes, Hollingworth will go on to spell out some key opinions on how he sees telecoms’ commercial and operational models need to change.
Changing the Mindset
“The second thing we have to reinvent is the actual customer promise and value of telecom to people, society, and businesses,” Hollingworth notes. However, that depends on the first thing to reinvent: “You can only do that when you have a fit operating model underneath.”
Not surprisingly, given his role, Hollingworth is enthusiastic about the opportunities inherent in the telecoms business
“I’ve always said that as an industry, there’s nothing better than selling a product that’s in demand. If you cannot make money out of a product where there’s exponential demand, something’s very weird.” In which case, there is a good deal of weirdness in the telecoms industry. How does he explain that?
“The question is: How do you take part in helping the demand be valuable, not only to the receiver but to yourself? That’s when you have to start to rethink business relationships, customer experience and business model.”
Arguably Rakuten as a group has some advantages to rethinking a business relationship, as it comes from an online retailing background. On this front, Rakuten Mobile has recently changed its pricing approach from a relatively low-cost but simple model.
“They’ve restructured their plans now, and the big difference they’ve introduced is the inclusion of loyalty rewards,” Hollingworth explained.
“It’s their core business. If you’re a Rakuten Mobile customer you’re not a subscriber, you’re a member. Just like American Airlines are a member of the OneWorld Alliance, so Mobile with the Rakuten Group.”
This, as it turns out, is more than just window dressing or a nice-to-have. “If you are a Rakuten Mobile subscriber you spend 67% more money in the ecosystem than if you’re not,” Hollingworth explains.
This revenue comes from payments services, credit cards as well as other purchases. All well and good for a group like Rakuten, some may say. How does it apply to “pure” telcos?
“The internet works a lot on attribution models. So even if you don’t own the properties like [Rakuten], then you can choose how to use the attribution value that you can create and partner with different outlets… but you can only do that if you offer access to the actual knowledge and the data and can release it in equitable, private way.”
The First Thing
While innovation in business models and revenue generation are appealing, Hollingworth is keen to stress that these both depend on the kinds of operating model underpinning a company. Changing this is “the hard part” in his view. However, changing the cost bases and operational processes from a traditional telco model opens up radically different kinds of opportunities which are impossible in a legacy environment.
He points to Rakuten Mobile as an example of this in action, a company which was forced to innovate because it didn’t have the funds to deploy in a traditional way. As a result, they had to develop a software-based network and support systems, which has begun to be sold to third parties through Rakuten Symphony. Recently, Rakuten Mobile’s quarterly earnings contained a striking metric.
“There are now 270,000 live cells [in Rakuten Mobile’s network]. But the operational headcount is 250 people, and that will never increase. Tariq has put a hiring freeze in the organization to make sure that the organization never thinks of getting bloated,” Hollingworth emphasises.
“That economic model is the definition of hyperscale, where you have fixed costs but exponential growth.”
Fundamentally, this reflects the perspective of a software-based, IT-oriented company. In many ways, Rakuten seems to be an IT company that happens to have a network. The perspective is very different as an industry. As a veteran of companies including Ericsson and MobiledgeX, Hollingworth has seen the outcome of differences in thinking
“The real secret of public cloud is that you standardise and simplify all the time. They took things out, they didn’t put things in; and the disease of telecom is “You want to do something else? I’ll sell you another box,” for example the RIC. That box is always three years away, never turns up or doesn’t do what you want it to.”
“The telecoms industry seems to have got stuck on a ten-year cycle of generational economic change. So we improve unit economics once every 10 years. Whereas any of the technology leaders are continuously working to simplify and standardise, continuously driving cost down and down and down.”
Rakuten, of course, is busy emulating the technology leaders in terms of process. However, there are many who would object that “we have SDN and NFV”, but who haven’t seen these kinds of outcome. Hollingworth offers an explanation, and then also an intriguing possibility.
“One of the challenges that traditional existing telecom operations have is that, if you start to bring in true cloud-based, software-defined connectivity, then the dynamics of the network happen in real time,” he said.
“You can’t have a static inventory of operational nodes, because the nodes keep going down and reappear and the patterns change; so you start to control traffic management in the moment. I think so far you’ve seen a roll-out overlaid onto a static operation, so then it’s not surprising there’s no difference in what’s possible.
“But the moment you can disaggregate the hardware from the software, how you can manage the traffic and what the roaming looks like changes. For the first time, what’s to say the UPF of the mobile operator isn’t lighting up in the public cloud in another country? It is actually a global network from a software point of view, because your physical presence is no longer important. You don’t have to build things anymore and literally deploy your software dynamically.”
This is not just theory. Hollingworth goes on to demonstrate using his phone.
“If I get my Rakuten Mobile phone out now and click in, it should instantiate a UPF as a local breakout in Google Cloud, and it lets me participate here. I’m still under the direct control of Rakuten in Japan, it’s just the traffic’s changed.”
As a Texas-based Rakuten employee visiting the UK, it is a useful visual example of what a model built in software can achieve.
“The opportunity, once understood, is to take part in very different kinds of software configurations and business models. You can really choose. I think it depends what you want to do for the business model and outcomes you want.”
One other example of this?
“It also allows them to start offering fixed broadband. They’re going to start off in fixed wireless access because it’s all just adjacencies now, and the integration is just very simple software integrations with existing systems.”
“They’ve moved the centre of gravity from hardware to software. When you do that, you get the effects of a software company rather than hardware, and that’s a very nice place to be.”
Hollingworth outlines how he sees the opportunity for telecoms to reinvent itself, which requires a change of outlook.
“I do not understand why telecom thinks technology is a value of that people want, because clearly it’s not. What they want is some kind of reward, participation, benefit – human value, not technology value.
“Do you remember when the iPhone first came out? The whole industry was caught up in this cycle of ‘We need the latest technology, the latest chip, the most memory!’ Then the iPhone came out on 2G and everyone loved it. Then it came out on 3G and their components were so last generation! But it didn’t matter because that wasn’t the value.”
In the same way, telecoms providers have an opportunity to define what they want their value – and the revenue derived from that – to be. There is a long legacy of emphasising connectivity, of course, and offering good connections is a basis to build on. However, that should be far from the end-game for telecoms providers, in Hollingworth’s view.
“I think it’s like three stages of a rocket. The first stage, which is the hardest one for telecom, is to drive a real network transformation, with the result that you have access to data to continuously improve your own operations.
“The second stage is how do you change the experience?” Hollingworth gave an example from Rakuten Mobile, where they incorporate data feeds from social media and users’ devices into network management systems to understand where they have coverage holes and what effect they have on the users. After all, he observed, it doesn’t matter how the network thinks it’s performing, it’s about what the users think.
“Finally you go up to a level where you can start to play with membership. And the moment you go into membership, you start to change a customer’s behaviour based on rewards that that you can play with.”
The value that can be gained by understanding and modifying user behaviour is considerable – after all, this is the basis for the hyperscalers’ success. While 6GWorld is not advocating for telecoms providers to follow that path indiscriminately, there is no arguing with the potential for finding upsides.
Hollingworth agrees and sees this as a path for the regeneration of telecoms as a business.
“We know that if we can change the ecosystem, we can be an industry of abundance rather than being the industry of attrition.”
Alex Lawrence is Managing Editor at 6GWorld. His mission is to bring together stakeholders from across industries, countries and disciplines to make sure that, as technology evolves in the coming decade, it’s meeting the changing demands of society, government and business.
He has been involved as a professional nosy person in the telecoms sphere since 2004, with short detours through industrial O&M and marketing.
If you’d like to talk to Alex about your ideas or projects he’d love to hear from you. @animalawrence or firstname.lastname@example.org.