Commerce and connectivity: A match made in heaven?

Will many other digital commerce and content companies follow Reliance and Rakuten into the consumer connectivity market?

Rakuten and Reliance: The exceptions or the rule?

Over the past decade, STL Partners has analysed how connectivity, commerce and content have become increasingly interdependent – as both shopping and entertainment go digital, telecoms networks have become key distribution channels for all kinds of consumer businesses. Equally, the growing availability of digital commerce and content are driving demand for connectivity both inside and outside the home.

To date, the top tier of consumer Internet players – Google, Apple, Amazon, Alibaba, Tencent and Facebook – have tended to focus on trying to dominate commerce and content, largely leaving the provision of connectivity to the conventional telecoms sector. But now some major players in the commerce market, such as Rakuten in Japan and Reliance in India, are pushing into connectivity, as well as content.

This report considers whether Rakuten’s and Reliance’s efforts to combine content, commerce and connectivity into a single package is a harbinger of things to come or the exceptions that will prove the longstanding rule that telecoms is a distinct activity with few synergies with adjacent sectors. The provision of connectivity has generally been regarded as a horizontal enabler for other forms of economic activity, rather than part of a vertically-integrated service stack.

This report also explores the extent to which new technologies, such as cloud-native networks and open radio access networks, and an increase in licence-exempt spectrum, are making it easier for companies in adjacent sectors to provide connectivity. Two chapters cover Google and Amazon’s connectivity strategies respectively, analysing the moves they have made to date and what they may do in future. The final section of this report draws some conclusions and then considers the implications for telcos.

This report builds on earlier STL Partners research, including:

• Consumer strategy: What should telcos do?
• RelianceJio: Learning from India’s problem solver
• Cloud gaming: New opportunities for telcos?
• How telcos can flex their physical strength
• New age, new control points?

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Mixing commerce and connectivity

Over the past decade, the smartphone has become an everyday shopping tool for billions of people, particularly in Asia. As a result, the smartphone display has become an important piece of real estate for the global players competing for supremacy in the digital commerce market. That real estate can be accessed via a number of avenues – through the handset’s operating system, a web browser, mobile app stores or through the connectivity layer itself.

As Google and Apple exercise a high degree of control over smartphone operating systems, popular web browsers and mobile app stores, other big digital commerce players, such as Amazon, Facebook and Walmart, risk being marginalised. One way to avoid that fate may be to play a bigger role in the provision of wireless connectivity as Reliance Industries is doing in India and Rakuten is doing in Japan.

For telcos, this is potentially a worrisome prospect. By rolling out its own greenfield mobile network, e-commerce, and financial services platform Rakuten has brought disruption and low prices to Japan’s mobile connectivity market, putting pressure on the incumbent operators. There is a clear danger that digital commerce platforms use the provision of mobile connectivity as a loss leader to drive to traffic to their other services.

Table of Contents

• Executive Summary
• Introduction
• Mixing connectivity and commerce
  • Why Rakuten became a mobile network operator
  • Will Rakuten succeed in connectivity?
  • Why hasn’t Rakuten Mobile broken through?
  • Borrowing from the Amazon playbook
  • How will the hyperscalers react?
• New technologies, new opportunities
  • Capacity expansion
  • Unlicensed and shared spectrum
  • Cloud-native networks and Open RAN attract new suppliers
  • Reprogrammable SIM cards
• Google: Knee deep in connectivity waters
  • Google Fiber and Fi maintain a holding pattern
  • Google ramps up and ramps down public Wi-Fi
  • Google moves closer to (some) telcos
  • Google Cloud targets telcos
  • Big commitment to submarine/long distance infrastructure
  • Key takeaways: Vertical optimisation not integration
• Amazon: A toe in the water
  • Amazon Sidewalk
  • Amazon and CBRS
  • Amazon’s long distance infrastructure
  • Takeaways: Control over connectivity has its attractions
• Conclusions and implications for telcos in digital commerce/content
• Index

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