Rakuten's Telecom Foray in Japan

E-Commerce Company to Build Its Own LTE Network

Rakuten_logoJapan's biggest e-commerce company, Rakuten, has won government approval to launch its own LTE network, making it the fourth mobile network operator in the country. It plans to build the network using the 1.7 GHz frequency band. Rakuten announced its intention of entering the mobile market in December 2017.

Rakuten was founded 20 years ago as an Internet shopping site. Subsequently, through a keen programme of mergers and acquisitions, the company expanded its operations to include such financial services as securities, banking, credit cards, and a broad Internet business including travel reservations. It also owns messaging app Viber, and announced an alliance with Walmart in January 2018 for a grocery delivery service in Japan. Rakuten is also working to establish its brand name internationally by sponsoring top sports teams.

The wireless service market in Japan is controlled by three players: KDDI with a 40 percent share, NTT DoCoMo with 39 percent and SoftBank with a 21 percent share. The market is so static that it's sometimes criticised as being a "coordinated oligopoly". However, the government is currently reviewing the industry, with the aim of ensuring fair and open competition, and it's actively welcoming new market entrants.

Rakuten has been providing mobile virtual network operator services under the Rakuten Mobile brand since October 2014, running on top of DoCoMo's mobile network. Rakuten Mobile has about 1.5 million customers.

As a new subsidiary, Rakuten Mobile Network plans to raise up to $5.6 billion to pursue its mobile operator business. There's no doubt that Rakuten's plans are highly ambitious and will require huge investment and assertive tactics to make the slightest dent into the market. To build a mobile network from the ground up, the company must develop a strategy to optimise its mobile infrastructure, securing sites for base stations across the country. It has signed agreements with Chubu Electric Power, TEPCO and Kansai Electric Power to use their telecom and transmission towers and other infrastructure for the planned deployment of 4G services.

When announcing its intention to enter the mobile market, Rakuten pointed out that costs for telecom services in Japan have been rising in recent years, forcing households to increase their spending. Finding ways to reduce these costs is now a major social challenge in Japan.

Rakuten is targeting at least 15 million subscribers with its mobile operations, which compares with KDDI's 79 million customers. There are about 200 million subscriptions in the country, meaning that Rakuten is aiming for a share of about 7 percent.

Rakuten has many obstacles ahead and the track record for such challenger moves doesn't bode well for the company: in 2012 the Japanese government allocated frequencies to a smaller telecom provider called eAccess. It became the country's fourth mobile network operator, but quickly sold its business to SoftBank as it was unable to raise sufficient funds to build and maintain its own network. Rakuten is better funded, but faces a mature market with well-entrenched competition.

Even if it reaches its goal of capturing 15 million customers, Rakuten will be dwarfed by Japan's big three mobile operators. To truly disrupt the scene, we believe it should observe the Indian market, where Reliance Jio caused a shake-up by signing up 175 million subscribers within two years of starting services. Rakuten must be prepared to accept losses, but with a sound roll-out strategy and government encouragement, it could win its race against time.

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This entry was posted on April 16th, 2018 and is filed under Services. You can follow any responses to this entry through the RSS 2.0 feed or you can leave a response.

Posted By Raghu Gopal On April 16th, 2018

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