Being a pioneer in technology does not always translate into commercial disruption. After all the attention paid to Rakuten’s genuinely innovative deployment of a virtualized, multivendor network – which will progress to an end-to-end, cloud-native 5G one quite quickly – the commercial 5G launch has been less inspiring.
“Quarterly losses from Rakuten’s mobile network are proving much higher than we anticipated,” wrote New Street Research in an August client note (before the 5G launch earlier this month). It made the point that, while virtualized networks – at least when they are built greenfield, with no legacy technology to migrate or support – can be cost-effective to run, a new entrant in a competitive market will always face very high marketing costs, while Rakuten also relies heavily on its roaming deal with KDDI, which incurs additional cost.
So far, the newcomer has not forced the three incumbent MNOs to respond aggressively with significant changes in services or pricing, by contrast with the entry of previous disruptive operators, such as Free Mobile in France or Reliance Jio in India.
“Rakuten Mobile now faces the challenge of trying to grow their subscriber base, while simultaneously incurring non-network costs that suppress profitability, especially in areas where they don’t have ubiquitous network coverage. As of the end of June, they had just over 1m subscribers, or about 0.5% share of the Japanese market,” wrote Wall Street analysts at MoffettNathanson on October 1.
They added: “Obviously, it is far too early to conclude whether Rakuten is a success or a failure (and it will require a long continuation of today’s very accommodating credit markets for them to be given time to find out). But Rakuten Mobile clearly illustrates that nothing about this is easy.”
Of course, it is very early days and it is important to remember that Rakuten Mobile’s parent is an ecommerce and cloud content giant, which does not necessarily want or need to build a connectivity business per se. Even if 4G/5G is a loss-leader for a while, that could be justifiable if it stimulates additional usage and spending on the core services, and allows these to be delivered to a wider range of devices with full QoS control.