Rakuten’s mobile unit lost $887 million in first quarter

Rakuten Group Inc., the Japanese e-commerce giant that launched a mobile service last year, reported a wider first-quarter loss in the business after it invested in expanding its network and offered a free year of service to attract users from incumbents.

The division’s loss increased to a record 97.2 billion yen ($887 million) on 68.6 billion yen of sales in the three months ended March 31, Rakuten said in a statement on Thursday. The company’s total operating loss was 37.3 billion yen in the period.

The company launched its network a year ago to take on incumbents KDDI Corp., SoftBank Corp. and NTT Docomo Inc. with cheaper and more flexible service offerings. Rakuten operates a single monthly plan that simplifies what is usually an arcane structure of mobile fees and charges in the country. Last month, it announced plans to add 5G-compatible iPhone 12s and the iPhone SE to its lineup to garner users and market share from Japan’s big three carriers.

“Rakuten’s competitive push is going to be strong this year and investors are looking for more magnitude of their investments in the mobile business,” Kirk Boodry, an analyst at Redex Research in Tokyo, said ahead of the announcement. “It’s still some ways ahead, but there is the question of how many subscribers will churn off once the free offering ends.”

Profitability in the business will begin to improve from this quarter with the expiry of the free offering, said Yoshihisa Yamada, who heads the mobile operations at Rakuten. Losses will begin to narrow next year as greater coverage of its own network will reduce its roaming fees, Yamada said.

Rakuten’s 4G network now covers 80% of the country’s population and it plans to expand its reach to 96% this summer. The company, which doesn’t disclose exact subscriber numbers, said applications for its mobile service climbed to 4.1 million as of May. BloombergQuint