TOKYO -- Rakuten Group has agreed to export its low-cost virtual 5G telecommunications technology to German wireless carrier 1&1, the Japanese tech conglomerate said Wednesday, in a deal believed to be worth more than $2 billion.
1&1, a relative newcomer in the telecom industry, represents the first client to fully adopt Rakuten's virtual network tech, which will support 5G communication. Rakuten won contracts to design, maintain and operate the network.
Rakuten will receive between 250 billion yen and 300 billion yen ($2.29 billion and $2.74 billion) over the next 10 years through the deal, according to a source familiar with the matter.
Subsidiary Rakuten Mobile has been researching and developing virtualized network technology, which is expected to reduce maintenance and operation costs by approximately 40%. The carrier views the technology as its trump card for succeeding in the wireless business that launched last year.
Not only is Rakuten planning to adopt the technology in its domestic network, the group looks to provide the tech to overseas carriers.
1&1 is a mobile virtual network operator that borrows connectivity from infrastructure built by other providers. The company holds over 10 million contracts in Germany alone.
Moving forward, 1&1 plans to launch its own independent network and become the fourth-largest carrier in Germany behind leaders like Deutsche Telekom.
A virtualized network locates data processing in cloud software, as opposed to dedicated equipment. The diminished need for hardware lowers the costs of maintaining a network. In the U.S., Dish Network will roll out its own virtualized wireless network this year.
Rakuten's novel 5G tech was given an award at the MWC, or Mobile World Congress, in Barcelona this year. The group plans to expand its roster of clients and reap over 1 trillion yen in sales from providing the technology.
Rakuten's mainstay e-commerce business and its financial arm have been performing well. The mobile business remains in the red, however, due to capital expenditures toward network building and sales promotions.
The investments in the mobile business caused Rakuten as a group to record net losses in both 2019 and 2020. As it stands, the mobile segment faces difficulties boosting profits because monthly wireless fees are low, ranging from 2,980 yen to free of charge. Exporting telecommunications tech has become necessary for Rakuten to quickly turn a profit at its mobile business.