Open RAN pioneer Rakuten Mobile has fallen on hard times over the past two years, with user adoption stalled, network spending curtailed and profitability apparently still far off.

Since the start of the year, the Japanese operator outlined plans to close 20 per cent of its mobile retail outlets, committed to slashing capex by JPY300 billion ($2.1 billion) over the next three years as part of a wider cost-reduction programme and seen the departure of its open RAN champion and chief of the unit Tareq Amin.

Its user base finally edged past 5 million earlier this week, far short of a target of 7 million for 2023 it set more than two years ago.

The operator hit 4 million in May 2021, just over a year after launch, and 4.9 million in May 2022.

Since then, it managed to add only 100,000 subs.

During its last two earnings calls, chairman and CEO Mickey Mikitani surprisingly hasn’t mentioned the target date for breaking even, after earlier targeting 2023.

After receiving the green light to operate a 4G network on the 1.7GHz band in 2018, Rakuten Mobile launched service in April 2020 to much fanfare around its cloud-native infrastructure using open RAN equipment.

From the start, Mikitani insisted its fully virtualised network would reduce costs and, so, lower prices for customers.

Tariff cuts
Barely six months after launch, NTT Docomo joined Japanese rivals in reducing data tariffs, responding to pressure from the government to make mobile service more affordable, which kicked off a prolonged price war.

Marc Einstein, chief analyst at Japan-based research company ITR, told Mobile World Live (MWL) it is clear the three incumbents have a secure hold on the market: “Rakuten couldn’t even give its service away for free.”

If Rakuten Mobile had known a price war would happen, “there’s no way it would have entered”, Einstein said, suggesting it should have pulled the plug when battle commenced.

The company has every right to be angry with the government, as the industry-wide price cuts made its discounted offering far less attractive, he stated.

Bolder initiatives
Einstein argued Mikitani hasn’t been aggressive enough in marketing and bundling.

“To have a chance in the domestic market it needs to do something clever with e-commerce integration or in the enterprise space. Such as make mobile service free for customers spending JPY30,000 online per month and raise the e-commerce ARPU.”

The ongoing price cuts haven’t just hurt the new entrant.

Docomo CEO Motoyuki Ii stated in May it expected mobile revenue to stabilise and profitability to return to growth in the year to end-March 2024, while KDDI predicted a long-awaited recovery in revenue in its mobile business in the current quarter.

While Rakuten Mobile’s open RAN push hasn’t had a chance to prove the longer-term viability of the technology in a greenfield deployment, Einstein believes its software platform Rakuten Symphony “might be the only thing that can save it”, by creating a steady revenue stream outside of Japan, possibly subsidising the domestic business.

On its Q2 earnings call, Mikitani mentioned plans for a major marketing campaign around September, after its network is optimised and expanded coverage from a new roaming deal with KDDI is fully operational.

More of the same
Head of Asia telecoms research at HSBC Neale Anderson believes the push will be the real test of Rakuten Mobile’s appeal, as it begins marketing its mobile service more aggressively to customers of its other businesses.

“We believe the combination of lower mobile prices and additional points benefits should prove attractive. In the meantime, slow subscriber growth reflects the lack of active marketing, but churn due to complaints of network weakness is already coming down,” he told MWL.

But, with its attention on cutting costs and profitability, will a new marketing push be enough to move the needle?

Rakuten Mobile likely will chug along for a few quarters before a big decision has to be made by parent Rakuten Group about the future of its loss-making subsidiary.

It is up against incumbents with at least ten-times more mobile customers: Docomo closed June with 87.1 million, KDDI 65.1 million and SoftBank Corp 52.7 million.

Rakuten Mobile claimed 98.7 per cent population coverage at end-June, with 57,400 4G sites deployed, perhaps making the disruptive Japanese operator a target for a deep-pocketed enterprise looking to do something radical. Or it could go private.

The Rakuten Mobile story has certainly been entertaining to follow, as it emerged as one of the few fascinating mobile players to watch.

It is a great story: open RAN plan hit by government push for lower prices. Talk about bad timing…

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.