Japanese internet group Rakuten Inc. announced on Thursday its plan to build its own network as it aims to become the country’s fourth largest mobile carrier.
The Tokyo-based e-commerce company confirmed that it was considering participating in Japan’s mobile phone operator business, at which 90 percent is dominated by NTT DoCoMo Inc., along with telecom businesses, SoftBank Group Corp. and KDDI Corp.
Rakuten said that it is apparent that mobile devices are the most important user touchpoint for the expansion of existing services and new service development.
Rakuten, which already runs a mobile service by renting network space from NTT DoCoMo, might file as early as next month for an allocation of 4G wireless spectrum with the Ministry of Internal Affairs and Communications.
The upcoming government auction is expected to be held in January, with results due for announcement by the end of March.
Japan’s major shopping site also plans to invest as much as ¥600 billion ($5.3 billion) by 2025 through interest-bearing debt, in order to fund the mobile network infrastructure and garner at least 15 million subscribers after its launch in 2019.
That would be a big leap from its roughly 1.4 million customers it has through its mobile service where it leases network capacity from businesses owning licenses.
Skepticism Lingers on Rakuten’s Plan
However, analysts saw some problems with Rakuten’s plans. Analyst Dan Baker said that the company’s odds are not that good since the cellular market is almost fully penetrated, and it would have to finance the network build-out, customer acquisition, and operating losses until it gets enough customers.
Baker added that the prospect would not be positive, with SoftBank likely to be badly affected. As the newest player, its customers are likely to switch over.
Rakuten on the other hand, believes the move will increase the market’s competitiveness and bring improvements in efficiency. It also stated that it was perfectly positioned to offer affordable and easy-to-use mobile communications services.
Head of Japan equity sales Amir Anvarzadeh said that competition in the country’s wireless market is just going to get more intense as it has in the US, adding that Rakuten’s entry was like heaven sent as the Japanese government was already urging existing operators to lower tariffs.
Prime Minister Shinzo Abe ordered in 2015 to slash prices on mobile phone contracts as they were too expensive. Since then, contracts have declined for 25 consecutive months.
The government created a task force intended to welcome new participants as they can fuel competition. The ministry is expected to look into applicants on January after receiving formal requests for spectrum use.
Still, Rakuten’s margins seems to be not high right now, given the internet group makes relatively modest income per contract and pays connection costs to NTT DoCoMo.
Planning to have its own network could add more weight to its investment burden, but it would be easier to allot management resources on service improvement.
Rakuten aims to establish its mobile network infrastructure bit by bit and expand throughout Japan, mainly in urban areas. It will also discuss with NTT DoCoMo about its network use.
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