Like a Spaghetti Western transplanted to the skyscraper canyons of Tokyo (a Spaghetti Eastern?), Rakuten's latest update is a mix of the good, the bad and the ugly.
At the end of that movie, the villain is mercilessly dispatched while Clint Eastwood rides off with gold in his pockets and the ugly left behind. The Japanese company plots a similar denouement, but sections of its report will currently look grisly to many investors.
What's good is that operating losses on its expensive rollout of a new mobile network appeared to bottom out during the January-to-March quarter at about 135 billion Japanese yen (US$1 billion).
Losses at Rakuten Mobile were shown to have fallen by JPY11 billion ($82.7 million) sequentially for the just-ended second quarter, to about JPY124 billion ($930 million).
The year-on-year comparison is not quite so good: although sales rose 64.5%, to JPY84.6 billion ($640 million), the operating loss has widened by nearly a quarter.
The bad is Rakuten's failure to attract many subscribers. Indeed, after finishing April with about 5.8 million customers, Rakuten seemed to have lost a few hundred thousand by the end of June as it began phasing out some of the free offers it used to lure interest.
A sizeable chunk of the customer base was apparently unprepared to spend anything on a Rakuten Mobile service. Customer numbers had dropped to 5.46 million by the end of June.
This was always a likely consequence of scrapping generous promotions. On the plus side, it has led Rakuten to project a 50% increase in average revenues per user for the current third quarter, as the freeloaders disappear. But executives seem to have lowered some of their earlier expectations.
Hiroshi Mikitani, the Rakuten Group CEO, previously aired 20 million as a subscriber target. On today's earnings call, most of the talk was about reaching 12 million. Nor was there any guidance on when.
"Twelve or even 15 million is what we are planning on or would like to reach but we have not announced the exact schedule for that," he said, answering questions.
Rakuten makes a big deal of being able to attract users through and to its larger ecosystem of ecommerce-like services. It is putting more effort into regional marketing activities, too.
Yet executives continue to blame Rakuten Mobile's reliance on KDDI for some of its difficulties. The cost of a roaming agreement with the rival network is partly to blame for the hefty losses.
And in areas where customers are using KDDI's network, there is no unlimited data service – a big part of Rakuten's pitch. Data is capped at just 5 gigabytes a month on KDDI.
What's odd and unexplained is why this has remained so problematic and costly as Rakuten's network has grown. It reached 97.6% of the Japanese population by the end of June, and only 6% of data traffic is now carried on KDDI's network.
The natural assumption would be that KDDI's usage caps affect a shrinking number of customers – that Rakuten's roaming costs are falling as its own infrastructure expands.
Nevertheless, to address the issue, Rakuten today announced that it would increase the number of 4G basestations deployed to more than 60,000 by December 2023, from exactly 47,556 today.
This, it says, will boost network coverage to as much as 99% of Japan's population, helping it to attract customers and dispense entirely with KDDI as a roaming partner. It expects its operating loss to continue shrinking as the user base grows and roaming expenses drop.
Rakuten Mobile's capital expenditure bill accordingly remains high. Excluding right-of-use assets and some basestation capitalization costs, it came to about JPY315 billion ($2.4 billion) last year, exceeding the telecom unit's revenues by JPY87.5 billion ($660 million) and equalling about 19% of total group sales.
As with its operating losses, however, Rakuten believes it is over the worst of the pain. This year it expects to invest JPY300 billion ($2.3 billion) altogether. In 2023, it is guiding for a bigger reduction.
A 5G shocker
That's despite the need to roll out 5G basestations as well. Only 12,000 of these have been deployed so far.
And while that marks a substantial increase on the 4,000 Rakuten claimed to have installed in February, it would seem to put the company a long way behind rivals including NTT Docomo, KDDI and SoftBank.
The difference with those operators as well as other telcos around the world is that Rakuten owns much of its own technology, noted Tareq Amin, Rakuten Mobile's CEO, on a call today with reporters and analysts.
"Our cost structure is dramatically lower than you'd see if you had to purchase this product through a traditional vendor," he said.
"Most of the capex is not necessarily being driven by 5G deployment."
"Unlike any other mobile operator, the software of Rakuten is owned by Rakuten Symphony, meaning the radio software," Amin continued, referring to the vendor unit of Rakuten Group.
"The cloud is owned by Rakuten Symphony, the orchestration is owned by Rakuten Symphony, so the only capex we have to spend is on hardware, meaning the massive MIMO hardware. For everything else, we own the platforms."
Rollout of 5G would have been quicker, he also insisted, were it not for restrictions on output power in the sub-6GHz band, where Rakuten is forced to manage interference with satellite earth stations until those are shifted off this spectrum next year.
It is not an issue unique to Rakuten but one that affects other 5G operators, implying they may have gained little commercial advantage from racing to build out 5G.
"We are going to push faster at the latter end of the year," said Amin, revealing that new 5G radio units co-designed with US chipmaker Qualcomm are in the pipeline. Based on both 32T32R and 64T64R configurations (meaning the number of transmitters and receivers in each unit), these will be a "shocker" for the industry, he promised.
Only the most churlish critic would deny that Rakuten's technical achievement is remarkable. In just a few years, it has seized hold of new cloud and software tools and used them to nearly blanket Japan with an advanced mobile network, defying naysayers who thought the technology would crash. Independent monitors rate that system highly on the usual performance criteria.
But an advanced mobile network without customers is an empty high-speed train built on expensive tracks.
For all Rakuten's talk of the cost savings it has been able to realize compared with a traditional operator, the domestic effort will have been largely futile unless Rakuten can persuade Japanese consumers to switch from its older rivals.
Its mobile subscriber shortage is by far Rakuten's ugliest feature and a thing it is under growing pressure to fix.
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— Iain Morris, International Editor, Light Reading