Japan’s Rakuten vows to stay in mobile battle after record loss

Japanese e-commerce giant Rakuten’s Chairman and CEO Hiroshi Mikitani on Friday vowed to continue its battle in the mobile telecommunications market after heavy upfront investments pushed the company to a record loss.

Rakuten’s net loss of 114.20 billion yen ($1.1 billion) for the year ended December widened from the previous year’s 31.9 billion yen loss and was bigger than analysts’ forecast of 94.5 billion yen, according to S&P Capital IQ. Revenue grew 15% from the year before to a record 1.46 trillion yen, thanks to strong growth in its e-commerce and financial services units, which span credit cards and banking.

The mobile unit, which launched a national mobile network last April to take on the three incumbents, posted a $2.1 billion loss, which wiped out profits from Rakuten’s other units. The company said it expects mobile losses to widen in 2021 before decreasing next year.

“We have no intention to stay in the number four position,” Mikitani said during an online conference. “Rakuten has almost 22 million credit card users,” he said. “I want more [mobile subscribers] than cards.” Subscriptions for the mobile service hit 2.5 million applications as of Feb. 8.

The ambitious target is a sign of Mikitani’s commitment to create a new revenue stream with the mobile business. But questions over the network’s quality and its ability to shoulder the costs has so far shaken investor confidence. Rakuten’s stock price rose 36% in the past year, but its market capitalization of 1.7 trillion yen lags behind major global peers as well as Z Holdings, a local rival controlled by Japan’s SoftBank Corp.

On Friday, Rakuten said its initial plans to invest about 600 billion yen to build out its mobile network will be 30% to 40% higher because it will install more base stations.

To enable Rakuten to focus on investing in the mobile business, Mikitani indicated that Rakuten will allow its other subsidiaries to raise capital independently. To better reflect its position as a holding company, Rakuten is changing its name to Rakuten Group in April.

The foray into telecommunications is shaping up to be the biggest gamble yet for Mikitani, who founded Rakuten in 1997 shortly after Jeff Bezos established Amazon. Rakuten remains a formidable competitor to Amazon in Japan — transactions for its core online shopping services grew 20% to $42.9 billion last year. It has also built a lucrative credit card business that lures users by giving loyalty points that can be used to pay for future purchases.

Rakuten’s weapon in attracting customers to its mobile service is low pricing, powered by what it calls a “cloud-native” network that enables it to build out infrastructure more affordably.

But price competition has intensified after existing players — NTT Docomo, KDDI and SoftBank Corp. — all cut tariffs amid pressure from Prime Minister Yoshihide Suga.

Last month, Rakuten followed suit by revamping its pricing plan to waive fees for usage below one gigabyte of data per month. But Mikitani said the impact from rivals’ new offerings were “limited” and that Rakuten’s own revamp has accelerated the pace of user acquisition.

Before the launch of the new plan, Mikitani had said the mobile business would break even at around seven million subscribers, a target it expects to reach in 2023.

Becoming a serious competitor in the mobile market would not only help Rakuten establish a new cash cow, but also lure new customers into its suite of online services. Succeeding at home is also be key to reviving its global ambitions. The company has scaled back its e-commerce business from Asia in recent years amid intense competition.

Mikitani said the telecommunications infrastructure business, Rakuten Communication Platform, is attracting strong interest from overseas telecom companies as a potential alternative to existing providers Huawei, Nokia and Ericsson. “Rakuten will sell the platform built from the mobile business,” he said, drawing a comparison to Amazon’s cloud business. Nikkei Asia