People in the writing business who attend Mobile World Congress (MWC) are often asked what they see as the show's big themes. This year, most had little to do with telecom news from the event. Face-mask enforcement was a major talking point, as was the conflict in Ukraine. The novelty of meeting in person, rather than via Zoom, was high on the list.

For telecom subject matter, there was also Rakuten. Despite not having a big stand this year, the Japanese ecommerce company seemed to be more visible than Ericsson, Huawei and Nokia, the holy trinity of mobile. Its pioneering deployment of a fourth mobile network in Japan, based on unproven cloud and software technologies, has consumed industry attention. Through its new Symphony business, it was pitching many of those same technologies to the operators attending MWC.

Figure 1: Rakuten Mobile's Tareq Amin (left) seated next to Rakuten CEO Hiroshi Mikitani at MWC.
(Photo by Iain Morris)

The key figure is Tareq Amin, a man who seems determined to overthrow the long-standing telecom regime and replace it with one more befitting the Internet age. Hired as chief technology officer of the Rakuten Mobile telecom unit in 2018, he will become its CEO later this month and has already taken charge of Symphony. Amin is perhaps the closest the networks business has to an Elon Musk or Steve Jobs, a comparison recently drawn by Hiroshi Mikitani, Rakuten's founder and CEO. An industry not accustomed to visionaries suddenly has one – however Eden-like or hellish his vision might appear to others.

But as he moves from a technology into a more commercial role, Amin will be under pressure to explain why Rakuten Mobile has yet to make an impact and how it can possibly stem operating losses that have hit nearly $1 billion a quarter. Technically, the new-look service appears to be working well, measuring up in third-party assessments against older rivals using traditional networks. Customer interest, though, has disappointed the financial community. And despite Amin's repeated insistence on the cost benefits of Rakuten's technologies, the outlay has been substantial.

Stepping on the pedal

New Street Research has recently warned that a $4.7 billion funding gap will need plugging to cover expenses between now and 2024. Rakuten would undoubtedly be in healthier shape if it had sparked a Hello Kitty-style boom among Japan's smartphone customers. Yet nearly two years since it launched its mobile service, just 4.5 million people were using the Rakuten network, with another 870,000 still at Rakuten's older MVNO business. It leaves Rakuten with about 2% of the market, less than new entrants in India, France and Italy had captured at a similar stage.

This will all change after July, said Amin, during an interview at MWC. Until now, his focus has been to blanket Japan with a 4G network as fast as possible. In tandem, he has also been trying to port traffic from KDDI, the roaming partner Rakuten has used during buildout, to his own network. The coverage level recently hit 96%. And if all goes to plan, 96% of customer traffic will be carried by Rakuten in the next few months, up from 90% now. Any serious marketing push in advance of that would be too risky, Amin fears.

Figure 2: (Source: New Street Research)
(Notes: Telkom SA operates in South Africa; Jio is Indian)

"This is the part that gets lost – an explanation of the challenges we faced and why we did not yet step on the pedal to accelerate customer acquisition," he told Light Reading. "Our worst nightmare is we start accelerating traffic onto our network and have a bad customer experience. In Japan, you have one chance to impress."

Costs have been high partly because Rakuten fast-tracked 4G rollout to hit the 96% coverage target four years ahead of the schedule agreed with Japan's regulator. Previously, it had been trailing badly. "A portion of the network was outsourced to Nokia for managed services, and it did not go well, to be frank," said Amin. "We moved over 1,000 people from our ecommerce business to Rakuten Mobile and went from a gap of three years behind to being four years ahead."

In its latest update, published on March 1 while MWC was in session, New Street Research reckoned on capital expenditure of 315 billion Japanese yen ($2.7 billion) this year, a figure that would exceed last year's revenues by JPY87.5 billion ($760 million). The analyst firm is counting on a similar level of capex in 2023, as well.

Investment will obviously be needed as Rakuten expands both 4G and 5G networks. At the end of 2021, it had a footprint of about 40,000 4G sites and just 4,000 5G ones. Another 10,000 of each are planned for 2022, but even this would leave Rakuten far behind rivals on 5G. KDDI and SoftBank are each targeting 50,000 sites by the end of March.

Peak spending

Amin, however, envisages a fall in capex starting next year. The 4G rollout is not far from completion, he points out, and 5G will cost only a fraction as much because it can piggyback on the same underlying network. "We have the largest IP [Internet Protocol] infrastructure in Japan," he said. "It is a superhighway that still has massive capacity to absorb and so there is a portion of the capex I don't have to worry about. Core and access and fiber and data centers – all that investment is done." Nor is funding a concern for Rakuten, he insists.

This also means Rakuten can start to accelerate its 5G rollout to catch up with rivals starting in July, according to Amin. Crucially, it has been given permission by Japanese authorities to expand 5G services into the 1.7GHz spectrum band. Amin foresees a big advantage over rivals focused on 3.7GHz. "There are colocation problems between 3.7GHz and satellite," he said. "It makes spectrum operate at half power – at 45dBm – and that is almost useless indoors."

To address the 3.7GHz problem, Rakuten is working with other operators on speeding up the relocation of ground earth stations for satellite. In the meantime, it will "light up" the 1.7GHz band for a chunk of Japan's population, says Amin. "We need to get to the last stages of 4G coverage by June or July and from then on we can focus on acceleration of 5G coverage."

Want to know more about 5G? Check out our dedicated 5G content channel here on Light Reading.

Dispensing with KDDI as a roaming partner should eventually save Rakuten between JPY120 billion ($1 billion) and JPY140 billion ($1.2 billion) each year in fees, according to New Street Research. It is a huge figure, equal to about 30% of Rakuten Mobile's operating loss for 2021. Perhaps more importantly, it could free Rakuten from its current marketing constraints.

"The experience [on KDDI] is not really that great and coming into our network the traffic uptake has been extremely positive," said Amin. "So far, we have been purposely shying away from using Rakuten's larger ecosystem. That will commence when we reach the June or July timeframe, and you will see fast-paced acceleration of the customer base."

It would, he explains, entail upselling to the 100 million or so customers who use other Rakuten services, a strategy Amazon has pursued to popularize its TV offers among grocery customers (and vice versa). Success might quickly improve Rakuten Mobile's financial situation, and it could make the earlier worries about weak consumer interest look premature.

In a market of around 200 million mobile subscriptions, Rakuten Mobile would seem to have ample poaching opportunities. It boasts unequaled automation and a small workforce, compared with rivals. But the lower prices it has passed on have not excited the Japanese, and Japan's older operators are not technological laggards. Currently about 40 million customers behind Softbank, its nearest competitor, Rakuten has a Mount Fuji to climb. Scale it and Amin's reputation will certainly be assured.

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— Iain Morris, International Editor, Light Reading