Why Are Rivals Unperturbed By Rakuten Strategy?


Japan’s new entrant Rakuten Mobile unveiled its long-awaited pricing plans ahead of a planned launch of 4G service on 8 April, and its aggressive strategy outlined during a virtual press conference raised as many questions as it answered, reports JOSEPH WARING.

The mobile arm of the e-commerce giant earmarked JPY600 billion (US$5.7 billion) to build a “fully virtualised” mobile network, with a target of signing up 15 million subscribers by 2028.

On the positive side, the newcomer is introducing a single unlimited data plan with free service over 12 months for the first 3 million customers, with chairman and CEO Mickey Mikitani noting it doesn’t plan to offer additional data tariffs in future. After the first year, and presumably for all subscribers after the first 3 million, a monthly package will cost JPY2,980 ($28.44), which is about half the rate charged for high-data packages by NTT Docomo, KDDI and SoftBank.

The introduction of a simple pricing structure is a good move for an industry notorious for convoluted and difficult-to-understand tariffs from incumbents.

What’s not so simple is Rakuten Mobile’s two-tier data allowance, offering subscribers unlimited data when using its own network and just 2GB a month when roaming on partner KDDI’s network. How will users know when they are approaching their monthly data limits and how will the company’s back-end systems keep track of usage which will certainly shift frequently from on-net to off?

Limited coverage

The operator’s major weakness is its network is limited to specific areas of just three cities: Tokyo, Nagoya and Osaka. The newcomer is scheduled to have 4,400 base stations deployed when service launches. It plans to nearly double the number by March 2021, which would still give it only a fraction of the sites the three incumbents have across the country. Outside those areas it must rely on KDDI’s network.

Fitch Ratings said in a recent report slow improvements in network coverage could likely impede uptake of services.

Marc Einstein, chief analyst at Japan-based research company ITR, believes the big winner in Japan having a fourth operator (which the government sought for years) will be KDDI, as it reportedly is making a killing on the roaming deal.

He told Mobile World Live success for Rakuten Mobile will really come down to quality of service, because everyone is going to be using some voice application to make calls and they’re going to be on 4G for a long time, as it won’t start commercial 5G service until 2021.

Incumbents are all planning to launch 5G this month.

“If they [Rakuten Mobile] have bad 4G coverage and word gets out about that, they’re in trouble. I think QoS is what’s going to make or break them.”

Einstein noted sources at rivals say they are not particularly worried as they wonder if the technology may be ahead of its time.

Minor threat

Atul Goyal, equity analyst at Jefferies, agreed, saying in a research note he doesn’t expect a material change in churn for market leader NTT Docomo. He pointed out new factors such as no additional pricing pressure from government, which instead is mulling tax breaks to speed 5G deployments, are positive for rivals and could hurt Rakuten Mobile.

He acknowledged, however, if the new player can manage a decent quality and a low-price offering, it may be seen as a risk to the incumbents.

From a business perspective, Einstein said if Rakuten Mobile sticks with one rate plan and ARPU remains around JPY3,000 a month, revenue is estimated to reach JPY540 billion in 2028. “Since they’re spending JPY600 billion to build the network, there’s going to be a very long payback period.”

Of course, the company is looking for other sources of revenue, with Mikitani highlighting at the press event the mobile unit is not a standalone business and is banking on generating additional revenue from its parent company’s growing list of services including online banking, mobile payments and messaging apps.

However, just like its ambitious network automation plans, using an end-to-end fully virtualised cloud-native mobile network which relies on new technologies is untested. No doubt, we’ll will soon find out if the technology and business model are ready.

  • Joseph Waring is the group editor for Telecom Asia at the GSMA.
  • Editor’s Note: The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

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