Will Rakuten Mobile Fail?

Rakuten Mobile has been the interest of every single telco stakeholder globally after its announcement to deploy an open network in a saturated market in 2018. The parent company, Rakuten, Inc., is a global conglomerate with revenues on the order of US$ billions annually with operations in Japan and Europe, and investments in many different companies. Rakuten is dubbed the “Amazon of Japan” and operates a loyalty scheme, where its customers are rewarded with points when using the group services. Rakuten offers credit cards, cashless payment services, e-commerce, and most recently, mobile network services.

Rakuten has been established as a strong brand in Japan since the early 21st century, and its decision to launch a mobile network arm is a logical next step to control its user experience, while ensuring that subscribers remain within its “walled garden” and continue to accumulate loyalty points. Rakuten has implemented very aggressive price points that start from zero fees: their first subscribers would receive free service for a year, followed by very competitive prices. From a commercial point of view, deploying a mobile network in a saturated market like Japan would seem like a very aggressive strategy, but Rakuten claims its use of open technologies and innovation developed in-house is allowing it to operate a network at a fraction of the cost compared to NTT Docomo, KDDI, and SoftBank. Operating the last mile and controlling the user experience is a huge advantage compared to competing retailers, but how has Rakuten Mobile performed in the market since its launch? At the end of the day, the mobile network is a commercial entity and needs to return profit, especially when the actual network rollout will translate to hundreds of millions in upfront investment.

NTT Docomo, SoftBank, and KDDI have all answered Rakuten Mobile’s aggressive pricing plans with their own, trying to stop subscribers churning to Rakuten. The new entrant countered these offers by creating a new plan, dubbed UNLIMIT VII that will be available to its subscribers by April 2021 and lowers fees, especially for subscriptions in the lower tiers. Specifically, the new charges are:

• JPY¥2,980 (~US$28) for more than 20 gigabytes (GB)
• JPY¥1,980 (~US$19) for more than 3 GB to 20 GB
• JPY¥980 (~US$9) for more than 1 GB to 3 GB
• Nothing for 1 GB or less

The most striking aspect of this new plan is that the subscriber will be charged according to their traffic use, rather than paying an upfront fee for a data bundle. This is in stark contrast to incumbent operators in Japan, which have set packages.

In early 2021, Rakuten received some media criticism that it may not be able to complete against the incumbents and maintain these price points. The operator provided some commentary regarding criticism in a late-January call, and reiterated that its network and business have been built on creating cross-selling and up-selling opportunities for the broader Rakuten group, rather than connectivity revenues. Tareq Amin, the Rakuten Mobile CTO, also claimed that these value-added activities have already justified Rakuten Mobile’s mobile network rollout costs and will continue to add further value as its subscribers increase. However, it remains to be seen how Rakuten announces these KPIs and to what extent the mobile arm has created significant revenue uplift for the broader group. The CTO claimed that Rakuten Mobile will soon announce these figures.

Despite Rakuten Mobile’s CTO’s claims, any mobile operator, whether greenfield or brownfield, is subject to very high deployment costs for a new network. In the Rakuten Mobile case, OPEX is further increased by the national roaming agreements the new entrant must face, at the very least until it deploys nationwide. The question now becomes, can Rakuten Mobile sustain its nationwide build-out with these cross-selling and up-selling revenue streams alone? Its recent announcements indicate so, and its most recent pricing plans certainly validate its claims, but the market will be appeased only when the operator announces how much profit the network has generated for the broader Rakuten group.

Rakuten Mobile is arguably the industry’s brightest innovator and, from an outsider’s perspective, should not fail. There are several victims of operator shareholders and lack of willingness to invest strategically: Telefónica BlueVia and Digital and Vodafone Betavine are just two examples of when technology and strategy uncertainty caused operator leadership to decommission longer-term projects. On the other hand, Rakuten has made it explicitly clear that it is playing the long game in the mobile space. Rakuten Mobile has kick-started the open network ecosystem and created a new example for network deployment, and many operators are now learning from Rakuten’s successes and failures. Although it is operating in a highly competitive market, ABI Research hopes that Rakuten’s group leadership and shareholders understand the long-term strategy for the mobile arm and will be patient with it until it creates immense value, in both consumer and enterprise domains.