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17 May 2022

Rakuten Mobile slowly starts to stand in its own financial feet 

 Rakuten Mobile may have created an enormous splash with its cloud-native 5G network deployment, and has now built a new business, Symphony, to commercialize that. But as a challenger MNO in Japan, its commercial impact has been very muted compared to some other new entrant MNOs, which managed to disrupt established players very effectively with far less innovative architectures than Rakuten’s.  


Free Mobile in France and Reliance Jio in India are just two examples, and by contrast, Rakuten has created barely a single sleepless night for Japan’s existing MNOs – NTT Docomo, KDDI and Softbank. Indeed, one reason for its limited success in gaining market share has been the pre-emptive price cuts that Docomo, in particular, introduced when Rakuten was close to launch. While those may have eaten into the market leader’s ARPU, they have so far protected it well from the challenger. 


However, in Rakuten’s earnings call for its first quarter, group chairman and CEO Mickey Mikitani was cautiously optimistic, claiming that costs had peaked in the quarter. The MNO now aims to reduce its roaming and MVNO charges, as it builds out its own 4G and 5G coverage, and is targeting conversion of customers, who signed up under a free introductory offer, to become paying subscribers. 


Fewer than half of customers were chargeable at the end of 2021 but that figure is now declining. Mikitani also highlighted new pricing plans under the Un-limit VII brand, with unlimited data for ¥2,980 a month and an entry level tariff that offers 3GB a month for ¥980. 


The CEO also said that roaming on KDDI’s network fell to 10% of traffic in the first quarter of this year, from 30% a year earlier, and this will help boost profitability in the current Q2.  


It will be a slow process to achieve the KPIs of a normal functioning MNO, however. Rakuten Mobile’s net loss rose to ¥135bn ($1bn ) in Q1, up from ¥97.6bn in the year-earlier quarter, though revenue did increase by 44% year-on-year to ¥80.4bn. 


Mobile subscribers using Rakuten’s own network increased by 2.1m to 4.9m while MVNO users fell from 1.5m to 77,000. 4G population coverage reached 97%, based on 44,000 base stations, though of course, in a market like Japan, it is 5G availability that really counts towards improving market share and ARPU.  


However, conventional MNO KPIs such as subscriber numbers and ARPU are rather misleading when it comes to Rakuten Mobile, which – like Reliance Jio in India – is part of a large non-telco group with deep pockets, and so does not aim to function as an MNO in the usual sense. It may be argued that Rakuten Mobile delivers value for its parent primarily by being a giant proof point for the Symphony platform business, and a lab for all its partners. But even as a service provider, the aim is to offer connectivity as part of the Rakuten group’s portfolio of cloud, content and ecommerce services, not to succeed as a standalone 5G networking supplier in direct competition with the well-established MNOs. 


In a briefing held after the financial results were announced, Rakuten Symphony’s CEO Tareq Amin, who is also Rakuten Mobile’s CTO, said: “What differentiates Rakuten Mobile is that we entered this business largely to drive ecosystem synergy” within the Rakuten Group and all its digital services, such as payments and banking, streaming video and shopping. “Our hypothesis was that when we launched the mobile business in Japan, the synergy and the impact between a mobile user and the larger ecosystem was going to be substantial.”  


Amin shared one proof point of the hypothesis – the average yearly gross merchandise sales (GMS) per user at Rakuten Ichiba, the group’s e-commerce platform, grew by 67% year-on-year in the quarter, among people who had signed up for the Rakuten Mobile service. Among non-users of the mobile service the growth was only 20%. “Cross-synergy between mobile and the broader ecosystem is very, very large,” concluded Amin. 


And among people who signed up for Rakuten Mobile, but did not use any other Rakuten services, there was also cross-adoption – 35% of mobile subscribers who had not previously used Ichiba did use the shopping service within a year; for the Rakuten Bank it was 10% and Rakuten Pay, 12%. In an Amazon-style approach, the company will offer loyalty cards and subscriptions that apply to all its services. 


As for the network itself, Amin said: “What remains to be done is not as costly or expensive as what we have done before. We purposely didn’t want to put any electronics at the site but have everything sitting at these far-edge data centers. From capital build-out, I don’t see what really remains. 5G Standalone is already launched and my network capacity today supports 25m customers, so I have huge uproom to grow. My fiber is built out, my DWDM [dense wave division multiplexing] is built out, my IP is built out. The amount of investment that remains is no longer something that is substantial.” 


Indeed, the decision to get the big network investments over with quickly intensified the losses in the first quarter, because 5G was accelerated – something that was proving increasingly essential to make any real impact on Docomo. At the end of last year, there were 4,000 5G base stations in place, and the company said it would add another 10,000 in 2022. However, there were actually 12,544 5G base stations in commercial service at the end of Q1, which shows Rakuten on its way to catching up with Docomo’s 20,000.