Rakuten Mobile ratchets up wireless price war

Rakuten Mobile has been offering its new wireless service in Japan for nearly a year – for free to the first 3 million subscribers. And yet, it’s having a hard time even giving away its service. The carrier currently counts only 2.2 million subscribers, so it’s still trying to find 800,000 more takers. Now, the company is taking some drastic steps with its pricing.

After the first year of free service, the company had originally planned to charge a flat rate of 2,980 Yen ($28) per month. This was about half the cost of comparable plans from Japan’s other three carriers before Rakuten’s entry.

But even the $28 price isn’t resonating with enough people. So what to do? Yesterday, Rakuten announced it was doubling down on its efforts to entice subs by creating a new, four-tier pricing plan based on data usage.

While most carriers around the world charge premiums to their high-end data users, Rakuten has counter-intuitively bragged that it likes high-data users. But perhaps it’s learning that doesn’t pencil out in the business model. Some of its heavy users are consuming as much as 50 GB per month just playing a single game on Playstation, according to the company's CEO Mickey Mikitani, speaking on a call with media yesterday.

The analysts at Moffett Nathanson recently wrote that “Rakuten has proudly marketed that its users use two to three times as much data as other mobile carriers, and CTO Tareq Amin recently confirmed that its 4G users are consuming about 15 GBs per month, and further presented that its 5G users consume 11.5 GB per day!”

Rakuten Mobile’s new pricing scheme

Starting April 1, those people who use less than 1 GB per month will continue to receive the service for free, indefinitely, which looks like a goodwill strategy to serve senior citizens. The analysts at New Street Research led by Chris Hoare wrote today, “It is clear Rakuten does not expect many customers to regularly use less than 1GB, and therefore be ‘free.’”

Customers who use 1-3 GB per month will pay 980 Yen ($9.30). Customers who use 3-20 GB per month will pay 1,980 Yen ($18.90). Only those heavy-using customers who consume more than 20 GB per month will pay the original 2,980 Yen ($28).

Rakuten graph

While it may seem counterintuitive to lower prices when the company is under intense pressure to pay for the costs of building out its new greenfield network, apparently Rakuten Mobile has determined that garnering more subs is the top priority.

RELATED: Rakuten Mobile speeds up its network deployment by 5 years

Mikitani declined to answer a question about how many subscribers the mobile business would need to break even. But he did indicate that Rakuten Mobile had an advantage because it’s associated with Rakuten’s gigantic online retail business.

“I find Rakuten Mobile subscribers tend to use more, other Rakuten services,” said Mikitani. “Mobile service in itself is not so lucrative, other carriers have discovered. But we already have peripheral services. This is one reason we can provide such aggressive prices.”

The other providers in Japan – NTT Docomo, SoftBank and KDDI – are also under pressure to decrease prices, not only to try and prevent Rakuten from getting their subscribers, but also because the government under new Japanese Prime Minister Roshihide Suga wants lower prices.

“The expectation of an umbrella effect, in which players with higher market share have more to lose when engaging in a price war, and will therefore allow a small competitor to underprice for market share without penalty, might have been Rakuten’s hope when it introduced unlimited data plans at yen 2,980, but it hasn’t worked out as planned,” wrote the Moffett Nathanson analysts. “The industry quickly responded to the aggressive approach with its own aggressive price cuts.”