Rakuten’s Bold Foray into the Telecom Market

The Japanese e-commerce giant looks to mimic Reliance Jio

Earlier this month, Rakuten Mobile, the wireless arm of Japan’s massive e-commerce company, announced that it will launch its mobile service on 8 April 2020 using its own LTE network infrastructure. The move shows that the company is evolving from being a mobile virtual network operator (MVNO) to a sovereign mobile network operator.

Rakuten will charge $28 per month for an unlimited data plan that it calls Rakuten Un-Limit. Voice communications will be enabled by its Rakuten Link app, based on Rich Communication Services. As Rakuten’s network is currently limited to major cities such as Tokyo, data consumption is capped at 2GB per month when roaming on partner KDDI’s network. Rakuten had already been a client to KDDI, leasing the latter’s network for its MVNO service.

There’s no doubt that Rakuten’s pricing is extremely competitive: its unlimited plan is less than half the comparable tariffs from rivals SoftBank, KDDI and NTT DoCoMo. Furthermore, the company will be providing the service for free for a year to the first 3 million customers to sign up.

The Japanese government has openly welcomed the new competition from Rakuten as it believes that current wireless pricing in the country is too high. Japan’s wireless operators enjoy some of the highest average revenue per user in the world, which has allowed them to build out new-generation services quickly.

Rakuten first entered the Japanese domestic mobile market in October 2014 as an MVNO, and several years later announced its intention of launching its own network (see Rakuten’s Telecom Foray in Japan). Its claim that it has radically cut the cost of building out a mobile network by using cloud-based software and commoditized hardware instead of proprietary equipment has drawn a lot of attention from operators worldwide, wondering how its virtualized method could be repeated.

Rakuten is sometimes referred to as “the Amazon of Japan”, as it provides a wide range of digital services to consumers and businesses in its home country. In addition to online retail, Rakuten offers digital content, Internet banking and credit card services. Now, with its new mobile offering, the company is hoping to exploit the synergies in the expansive Rakuten ecosystem and Rakuten points loyalty programme, pulling in customers that it already has in other areas.

For now, Japan’s three main operators, NTT DoCoMo, KDDI and SoftBank, appear to be watching this development patiently from the sidelines, keeping an eye on Rakuten’s customer gains before making any radical pricing moves. Although Rakuten hopes to quickly win 3 million subscribers through what’s essentially a service giveaway, the big three each boast more than 40 million customers with well-tested nationwide networks. Nonetheless, logic would imply that these established operators will need to lower their pricing plans to avoid losing a significant number of customers to Rakuten. In fact, already in 2019 NTT DoCoMo and KDDI introduced lower-priced tariffs.

There’s no doubt that rivals should be concerned, as the strategy of launching a very keenly-priced LTE-only mobile service starting in large cities with a hugely attractive free introductory offer sounds identical to that of Reliance Jio. The Indian operator provided free data service and wireless calls to build a massive customer total. In short order, it became India’s largest mobile service provider, disrupting the Indian telecom market, leading competitors to scramble for survival. And like Reliance Jio, Rakuten has a cash flow from other business lines, allowing it to subsidize service early on.

But unlike Reliance Jio’s rivals in India, Rakuten’s rivals in the Japanese operator market are financially secure with liquidity and high margins, and in a much better position to compete with a disruptor than India’s operators were. And it’s possible that Rakuten’s ambitions of expanding to other markets could prove a distraction for the company. It announced this month that it’s currently exploring opportunities in the US wireless market and has hired a former Nokia executive to start operations there.

To its credit, Rakuten does have a track record of making a name for itself in many markets, taking on established companies with new implementations. Growing from an online marketplace in 1997, its reach spreads to many businesses and countries. In a few years, Rakuten could be known as “the Reliance Jio of Japan”.

Stay tuned for our full analysis of Rakuten’s move in an upcoming Insight Report, to be published to CCS Insight clients.