Japanese telcos gear up for more infrastructure sharing

NTT’s recent sale of tower assets to JTower illustrates how a sharp decline in prices for consumer communications service is helping to reshape the Japanese telecoms market.

Japan’s largest telco will transfer ownership of 1,552 DOCOMO towers to JTOWER for JPY17 billion (USD114 million). It will subsequently lease back the towers with the goal of promoting infrastructure sharing. This follows an agreement in March 2022 between the two companies to transfer 6,002 towers to JTOWER.

The idea of sharing active and passive mobile infrastructure is not new to Japan. In 2021 KDDI and Softbank got together to deploy Ericsson’s Multi-Operator Radio Access Network to enable infrastructure sharing, notably in rural areas where the business case for building 5G networks is weak. And both KDDI and Rakuten Mobile have investments in JTower.

Nonetheless, Japanese operators have come much later to selling tower assets than telcos in other geographies. And they have done so under some duress, according to Marc Einstein, Chief Analyst, Telecommunications & Digital Services, ITR.

“Going back a few years the idea that anyone [in Japan] would share any infrastructure was just impossible. It was laughable. Because network was always seen as a core competency and a core strength and not something that would ever be shared or outsourced,” says Einstein.

Things changed in 2020 when Japan’s then new, and now former, Prime Minister, Yoshihide Suga, made the cost of consumer communication services a high-profile political issue. At the time Suga threatened to charge telcos for mobile spectrum, which Japan awards on a merit basis rather than through auction, if they didn’t reduce consumer prices. In addition, Rakuten Mobile entered the market with the offer of free services for a year to the first 3 million customers to sign up for a package of unlimited data use within Rakuten network areas and unlimited domestic calls with Rakuten Link.

Fast forward three years and the prices of consumer telecoms services in Japan have plummeted to “rock bottom”, according to Einstein. The problem for telcos is further compounded by a declining and ageing population, as well as a weak Yen.

“Telcos aren't making nearly as much as they thought they were going to with 5G. They've really been forced into doing things like sharing infrastructure,” explains Einstein, adding that “no one's going to be able to increase prices now.”

As telcos look to control costs, Einstein expects active and passive infrastructure sharing to extend beyond rural areas and into parts of major cities. But active infrastructure sharing raises the question of how and where telcos compete.

For now, one answer - common to telcos the world over - is to pursue new revenues from enterprise services.

Softbank’s recent B2B plans include marketing the flat-rate IoT services of Germany’s 1NCE in 19 Asian Pacific countries, having taken a stake in the company in 2022.

IoT services, and private networks are also on NTT’s list. Recent announcements include working with Qualcomm to “accelerate the development of the 5G device ecosystem to facilitate private 5G adoption.”

In addition to chasing the enterprise spend NTT is seeking to become “an Open RAN service provider for international telecom operators through its partnership in OREX, which is “promoting a multivendor, Open RAN-compliant 5G vRAN to the global operator community”. Part of OREX’s offer is software developed by NTT Corporation “to facilitate the efficient design, configuration and monitoring of wireless access networks, enabling autonomous and optimized device operation.”

At the same time Japanese operators are preparing for 6G, with the hope of gaining leadership, says Einstein.

Softbank Group is investing heavily in AI. NTT, meanwhile, is making a longer-term bet on the future of networking and computing in the form of Innovative Optical and Wireless Network (IOWN). It describes IOWN as being “built around photonic technology for ultra-high capacity, ultra-low latency and ultra-low power consumption.”

The idea is that an IOWN All-Photonics Network (APN) will connect devices such as sensors and smartphones at the edge of the network to infrastructure such as computers and data centers. NTT’s hope is to “expand the reach of networking, from data centers in space, to very powerful devices and sensors—with low power consumption and high processing power.” If IOWN delivers on its potential then it could result in telcos making very different alliances in the future, including with energy companies, believes Einstein.

“I think we're going to see some very, very big structural changes to this industry in the future” adds Einstein, “because we have to, because we've bottomed out, and there's just nowhere to grow anymore.”

Read our recent report Telco growth: Time for operators to place new bets