Rakuten ready to introduce more reasonable tariffs from the MNO Japanese market

Japan’s leading e-commerce company, Rakuten, has received government approval to launch its own LTE network. This was confirmed by Hiroshi Mikitani (founder, Chairman and CEO of Rakuten) to CNN last week.

Rakuten sid it aims to become the fourth major mobile network operator (MNO) in the Asian country. It plans to build a 4G network using the 1.7 GHz frequency band. Rakuten announced its intention of entering the mobile market in December 2017 and announced plans to start off the service by 2019.

In 2017 Rakuten pointed out that costs for telecom services in Japan have been rising in recent years, forcing consumers to increase their spending. Finding ways to reduce these costs is now a major social challenge in Japan and the Government is taking measures to make it easier to the market for new competitors.

Rakuten is targeting over 15 million mobile subscribers a small amount compared to KDDI’s 79 million customers. There are about 200 million mobile subscriptions in the country, so that Rakuten targets a share of about the 7%. Nothing to do with a big player but perhaps with a little rising star of hope.

Not an easy task grabbing a seat among MNOs (mobile network operators) in Japan, but the enter of Rakuten brings at least a bit of disruption letting a breath of open air for customers paying higher and higher tarifs in a market often blamed as oligopolistic.

Surely Rakuten is not pointing to become the top MNO in Japan in terms of speed as the Group has not unveiled any plans for Rakuten Mobile Network (its MNO subsidiary) to enter the “5G league”, but it serves The Government’s plans to provide more and clearer competition ground in the market and there’s a lot of room for competition in the price for value segment.

Three main players controlling the market

Three giants, KDDI with a 40% share, NTT DoCoMo 39% and SoftBank 21%, controll the wireless market in Japan.

However, the Government is currently interested in ensuring a fair and open competition situation in the market and actively welcoming new entrants.

Rakuten has been providing mobile virtual network operator services under the Rakuten Mobile brand since October 2014. On top of DoCoMo’s mobile network, Rakuten Mobile served as of November 2017 about 1.5 million customers, roughly ten times the figure from two years earlier.

Rakuten Mobile stores. © Rakuten.

The service earned significant attention from the media recently after releasing data about its performance following its acquisition of competitor Freetel, a move that expanded Rakuten Mobile’s MVNO market share to 25.9%. According to the data, not only has Rakuten Mobile’s revenue increased by a factor of 5.6 in the past two years (at a +136% average growth rate) but younger generations are becoming increasingly enthusiastic about the service, with over half of Rakuten Mobile users now in their 20s or 30s.

After Mikitani announced the service by boldly declaring that Rakuten would slash the cost of Japanese phone bills by two thirds the brand reached top awareness among consumers, despite competing providers were releasing up to 14 times as many ads.

The Rakuten Ecosystem also played a significant role in the service’s success, enabling Rakuten Mobile to offer heavily discounted plans to Rakuten’s 90 million members in Japan, while at the same time offering unbeatable deals on popular devices during major Rakuten sales. The popular Rakuten Super Points program provided users with even more incentives: Rakuten Mobile customers could not only earn more points than usual when shopping on Rakuten Ichiba, but could also use those points in place of cash to pay their phone bills – something nearly a quarter of customers are doing. All these without leaving aside the fact that Rakuten Mobile expanded as well its presence in brick and mortar stores.

Rakuten Mobile 1st store in Kyusu Region (Japan). © Rakuten.

Not only has Rakuten Mobile’s revenue increased by a factor of 5.6 in the past two years (at a +136% average growth rate, following the information oporovided by the company) but younger generations are becoming increasingly enthusiastic about the service, with over half of Rakuten Mobile users now in their 20s or 30s. Rakuten Mobile Networks may well profit from this success among mobile subscribers.

At least a 5.6Bn investment needed for clearance

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.

Rakuten Mobile Network has already 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.

The new subsidiary, Rakuten Mobile Network needs raising $5.6Bn to pursue its mobile operator business. Obtaining the needed financing for the project is one of the conditions to receive the clearance from the Japanese Ministry of Internal Affairs and Communications.

Image over the headline.- Hiroshi Mikitani (founder, chairman and CEO of Rakuten). © Rakuten.

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