Rakuten Mobile trebled growth rate in run-up to Christmas

For all the industry fuss about Rakuten's new-look mobile network in Japan, locals have been relatively apathetic. In a country of about 126 million people – where NTT Docomo, the biggest operator, has more than 80 million subscribers – Rakuten Mobile had signed up only 5.1 million customers by the end of September, about three-and-a-half years since launch, according to its last set of financials. That is hardly the definition of disruptive.

Given the huge expense of building and operating a mobile network, this sluggish growth has hindered group efforts to break even. Rakuten Mobile recorded a quarterly operating loss of about 77 billion Japanese yen (US$540 million) on sales of JPY56 billion ($390 million) for the third quarter of 2023. Parent company Rakuten's net losses since 2019 now total about $7.2 billion.

But an update between Christmas and New Year suggests Rakuten Mobile has turned an important corner. In a short release on December 28, the operator claimed to have been serving more than 6 million customers just two days earlier. That equates to an increase of roughly 900,000 in the final quarter. And it trebles the monthly rate of net growth from about 100,000 customer acquisitions the previous quarter to 300,000 between October and December.

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(Source: Rakuten)

The improvement looks even better over a longer period. Customer numbers fell from about 4.8 million in the second quarter of 2022 to 4.5 million in the third, after Rakuten Mobile started phasing out the free offers it had used to lure potential customers. This puts the monthly rate of growth between June 2022 and September 2023 at just 20,000 customers.

If Rakuten can sustain the rate achieved for the most recent quarter, it will end 2024 with around 9.6 million customers, easily beating its newish target of about 8 million by that date. After taking an ax to operating costs and revising down its capital expenditure forecasts, Rakuten last year estimated it needs between 8 million and 10 million customers to break even.

No limits

There are grounds for optimism. For a start, Rakuten attributed the increase of 300,000 customers it saw in the last third quarter largely to success in the smaller enterprise sector rather than the mainstream consumer market. The emphasis seemed to change in the final three months of the year when the company hailed an initiative dubbed Saikyo. Announced in June 2023, it scraps the former limits on high-speed data capacity when customers are "roaming" on the network of KDDI.

Rakuten has long relied on a wholesale deal with the rival operator to fill in the coverage blanks where its own network is unavailable. Previously, however, this agreement did not include access to the service based on KDDI's sub-1GHz spectrum, which provides a much better indoor experience than higher frequency bands. A revised deal signed last year allows Rakuten to use these airwaves as well. Including its network and KDDI's, Rakuten currently puts service availability at 99.9% of the population.

The recent uptick in customer numbers could also point to the appeal of other service changes. Starting last month, Saikyo customers receive more loyalty points to spend on other Rakuten Group services whenever they make a purchase. Customers also receive points if they persuade friends and family to join Rakuten Mobile. Around 150,000 people have participated in the initiative, said Rakuten.

Still, there is a big if about the sustainability of the recent customer growth rate. Interest in new offers might quickly fade. The small print also suggests coverage is not as good as the 99.9% headline figure makes it out to be. That number was calculated, said Rakuten, by dividing Japan into census zones and then determining if communication is possible "in more than 50% of the area covered."

5G lag

What's abundantly clear is an unacknowledged lag on the rollout of 5G, a technology that Rakuten barely mentioned in most of its 2023 updates. By September, it had deployed as many as 60,318 outdoor 4G basestations across Japan but only 10,560 units capable of supporting 5G services, all operating in the 3.7GHz band. When its 4G network was at a similar level, Rakuten claimed to cover about 70% of the population. But Rakuten has deployed 4G in the 1.7GHz band, much better for coverage. The availability figure for Rakuten's 5G service could feasibly be much lower.

Despite this, Rakuten made swingeing cuts to its capital expenditure projections last year. Originally, it had planned to spend about JPY570 billion ($4 billion) over the 2023 to 2025 period, but this figure was cut by JPY300 billion ($2.1 billion) in Rakuten's second-quarter report. And the rollout of 5G is not the only unfinished job. Having been awarded sub-1GHz licenses of its own, Rakuten needs to bring those airwaves into commercial use.

Its estimate, however, is that rolling out 700MHz equipment will cost as little as JPY54.4 billion ($380 million) over the next ten years. "What we're doing is we'll be using two RRH [remote radio heads] on the same antenna but the location, the pole, the CU [central unit], the DU [distributed unit] will be the same," said Sharad Sriwastawa, Rakuten Mobile's CEO, when asked by a Japanese reporter about this on the company's third-quarter earnings call. "From a capex perspective, it is very minimal and very easy to deploy."

Yet none of that answers the question about 5G. Rakuten has not held itself or been held to any firm targets for the rollout of the latest generation of mobile technology. It appears to have decided 5G is not a priority across parts of Japan. Today, from a customer perspective, there is certainly nothing 5G can do that 4G cannot. But the Japanese have a reputation for caring more about technology than customers do in most other countries. For a Rakuten that trails rivals on 5G availability, it risks making those customer acquisition targets much harder to realize.