Rakuten Mobile saw operating costs rise higher in the first quarter as the carrier aims to cover 96% of Japan’s population with service by this summer.
April marked the one-year anniversary of Rakuten Mobile’s 4G LTE network launch, which touts a fully virtualized open RAN architecture and now covers 80% of the country’s population. As of May 11, the operator had 4.1 million applications for service, a slight uptick from the 3.9 million announced one month earlier.
Rakuten reported operating losses of $887 million, higher than Wall Street estimates and an increase from $662 million in the fourth quarter and $334 million in Q1 2020.
Revenue climbed 38.6% year over year to ¥68,631 million ($623 million).
During Rakuten’s earnings presentation, Yoshihisa Yamada, president of the mobile division, said base station related costs rose in Q1, as well as roaming costs, but both are expected to come down once coverage targets are hit this summer. Mobile business losses are expected to decline gradually starting next year, according to Yamada.
However, analysts at New Street Research are concerned that to cover accelerating costs, Rakuten Mobile needs to attract more customers than might be possible. One year in and the operator has a roughly 2% share of the market, even as it ran a campaign offering free mobile service for one year. As that offer came to an end, New Street noted subscriber growth appears to be slowing slightly.
“The required customer base is becoming implausibly high, given the pace of cost growth vs customer adds,” wrote New Street Research analyst Chris Hoare. The firm estimates Rakuten would need 20 million customers if each user were generating around $14.5 in average revenue.
Yamada noted Rakuten Mobile users’ average data traffic increased by 42% by the ninth month of service, saying it “sets the stage for our ability to drive increases in average revenue per user.”
The company isn’t sharing ARPU projections at this point.
“Rakuten’s mobile entry is looking increasingly challenged, with mobile trends deteriorating rapidly,” wrote Hoare, adding the firm thinks mobile losses are likely to continue to surprise to the upside.
Still, Rakuten remains confident on its mobile network ambitions, with more than 1,000 5G base stations deployed as of March.
With a rollout picking up speed, capital spending was also high, New Street said, at $812 million, though down from $881.5 million in Q4. As a result, “EBITDA-Capex in the mobile division was negative $1.5bn in the quarter, flat on Q4. Cumulative cash burn in the business is now ¥924bn,” according to the firm.
Rakuten aims to achieve break-even in its mobile business in fiscal year 2023, Yamada said.
Expanding 5G network, plans for post office presence
Rakuten plans to expand its 5G network and secured approval to deploy in the 1.7 GHz band from Japan’s Ministry of Internal Affairs and Communications (MIC) last month.
Limited 5G service was available in all 47 of Japan’s prefectures by the end of Q1 and plans call for a shift to standalone (SA) 5G in the second quarter.
As part of an alliance with the Japan Post Group, Rakuten already installed 400 base stations on the roof of post offices, aiming for more than 500 in total.
The operator also is going to leverage post office locations nationwide to attract sign-ups and handle offline customer queries. According to Yamada, Rakuten will set up application counters at event spaces in post office locations and use the delivery network to support marketing efforts.