Rakuten Mobile in Japan has positioned itself as a low-cost upstart capable of challenging market heavyweights with fancy new technology, Internets-savvy marketing and speedy 5G services.

However, a growing number of financial analysts see instead fierce competition, wobbly network performances and rising costs that could eventually force Rakuten to make some difficult decisions – including potentially exiting the mobile market entirely.

"Rakuten is not gaining [mobile] customers quickly enough," wrote the financial analysts at New Street Research in a recent note to investors. They argued too that the company's expenses show no sign of leveling off, just as Japan's incumbents have begun to mount a significant response to Rakuten's incursions.

"If as we expect customer growth and losses continue to disappoint then a crunch point is coming," they argued. "Funding further mobile losses is becoming a real issue. The company has sold its stake in Lyft and is now looking at using customer deposits within the bank to fund mobile – if they do this then this could get very painful if the business ends up failing. The alternative is a straight capital increase at the parent or a stake sale. The latter seems highly unlikely to us. So we see negative catalysts going through this year, with potentially a decision at some point to scale back or exit mobile."

The New Street analysts are not alone in their concerns over Rakuten's future.

"Despite an aggressive [network] deployment schedule – Rakuten is accelerating deployment to reach 96% coverage by mid-2021 – and a relatively unloaded network, Rakuten's network performance has nevertheless deteriorated," wrote the financial analysts from MoffettNathanson in a recent note to investors. "Moreover, despite very aggressive promotions – they have famously offered their service for free to stimulate trials – they have nevertheless seen disappointing subscriber growth. As losses accumulate, 2021 will be the year Rakuten must prove that there is a compelling reason for users to come to and remain on its platform."

Concerns over Rakuten come amid competitive strikes against the company by its competitors. Although Rakuten stirred up interest in its service with prices that dramatically undercut those from DoCoMo, SoftBank and KDDI, all three of those companies have since responded with cheaper offerings of their own. That, according to analysts, comes at a dangerous time for Rakuten because the company's initial customers – those who signed up for a free year of service – will be coming off that promotion in April, and might start looking elsewhere for service.

"Given price cuts from the incumbents the customer proposition for the challenger looks weak at this stage, and we don't think their cost structure allows for their own price cuts to retain the price gap," wrote the New Street analysts of Rakuten. "With cash burn continuing at over $1 billion/quarter we think Rakuten may be pushed to change strategy (scale back/exit?) at some point during 2021."

Equally concerning, the analysts at MoffettNathanson cited data from network-monitoring company OpenSignal showing declines in the speeds available on Rakuten's network – a network built on cutting-edge open RAN technologies.

"Ominously, Rakuten's network performance has deteriorated over this period [between April and December 2020], despite aggressive network deployment and slower-than-expected user growth, and thus lower-than-expected network load," wrote the MoffettNathanson analysts.

Finally, Rakuten's spending has raised eyebrows as potentially unsustainable.

"Losses are far too high," argued the New Street analysts. "Cash burn last quarter was $1.25 billion, and we estimate $3-4 billion over the next year. We do not think the company can hit its target of EBIT [earnings before interest and tax] break-even by 2023 and in fact, forecast continued losses of $1.5 billion in that year. This implies the whole group remaining loss-making for much longer than the market generally anticipates."

How Rakuten handles these issues in the coming months will likely have a major impact on its ultimate trajectory. And while the travails of a single provider in one market won't have much of an impact on the world's overall shift to 5G, Rakuten is nonetheless closely watched because of its groundbreaking open RAN networking choices. If Rakuten Mobile is ultimately unable to mount a successful challenge to Japan's incumbents, the result could have significant implications for the overall open RAN trend as well as other companies employing a similar strategy, such as Dish Network.

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— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano