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If Dish is America's Rakuten, it might be in trouble – analysts

Dish Network is poised to become a new entrant in the US wireless networking industry – the first in decades. In doing so, it will join the likes of Iliad in France, Jio in India, Rakuten in Japan and, soon, China Broadcast Network (CBN) in China as an upstart challenger to a group of established mobile providers.

However, some financial analysts have expressed dismay at the relatively uninspiring entry of Rakuten into Japan's mobile industry, a situation that raises concerns about Dish given the fact that Rakuten is perhaps Dish's closest corporate cousin in 5G. After all, Rakuten is employing the same kind of open, virtualized 5G network technology that Dish is pursuing, and so Rakuten's journey helps to underscore the many obstacles that Dish faces on its own road to 5G.

"Quarterly losses from Rakuten's mobile network are proving much higher than we anticipated," wrote the financial analysts at New Street Research in an August report to investors. The operator's open, virtualized network "works and is providing network savings," but the analysts warned that other costs like retail operations and roaming are driving overall costs higher.

Further, they noted that Rakuten's entry has not yet caused Japan's incumbent providers to respond with new services or price cuts, potentially indicating they do not view the operator as a threat to their core business.

Others tend to agree. "Rakuten Mobile now faces the challenge of trying to grow their subscriber base, while simultaneously incurring non-network costs that suppress profitability, especially in areas where they don't have ubiquitous network coverage. As of the end of June, they had just over 1 million subscribers, or about 0.5% share of the Japanese market," wrote the financial analysts at MoffettNathanson in an Oct. 1 report to investors.

Like the New Street analysts, the MoffettNathanson analysts shared charts showing Rakuten's risky financial footing:

The MoffettNathanson analysts noted that Rakuten's cash burn eased in the second quarter, but the company's EBITDA [earnings before interest, taxes, depreciation, and amortization] losses continued to accelerate. Click here for a larger version of this image. (Source: MoffettNathanson)
The MoffettNathanson analysts noted that Rakuten's cash burn eased in the second quarter, but the company's EBITDA [earnings before interest, taxes, depreciation, and amortization] losses continued to accelerate. Click here for a larger version of this image.
(Source: MoffettNathanson)

The MoffettNathanson analysts continued: "Obviously, it is far too early to conclude whether Rakuten is a success or a failure (and it will require a long continuation of today's very accommodating credit markets for them to be given time to find out). But Rakuten Mobile clearly illustrates that nothing about this is easy."

Rakuten has helped to prove out the cost-savings involved in using virtualized, open RAN technology. For example, research and consulting firm Mobile Experts reported that open RAN technology can help save 34% in an operator's total cost of ownership when it comes to network coverage.

But those kinds of savings can only go so far.

"The many non-network costs associated with running a mobile business, such as supporting retail outlets – they [Rakuten] had built and operated 569 retail stores in Japan as of April – customer acquisition costs, and customer service, arguably matter more," wrote the MoffettNathanson analysts. "In Rakuten Mobile's case, these non-network costs seem to be rising and putting pressure on the bottom line."

The analysts noted that Dish faces many of the same issues as Rakuten, albeit on a much larger scale. For example, they pointed out that Japan's landmass is about 4% the size of the US. And Dish today counts roughly 5,000 Boost Mobile retail stores.

Bears and bulls

That said, there's still no clear consensus over Dish's 5G future. There are definitely both bears and bulls.

For example, the New Street analysts rate Dish Network's stock as a "buy," and they give it a price target of $88. The MoffettNathanson analysts, on the other hand, rate that same stock as a "sell" and give it a price target of just $15.

Dish appears to be plowing ahead into the 5G industry regardless, having lined up a number of key vendors for the effort this year. As the company's management has explained, the next 12 months will be critical for Dish as it begins to switch on 5G network operations in select markets.

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

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