Rakuten Mobile reports losses, increases capex estimate

Rakuten Mobile reported that 2.5 million people have applied for its offer of one year of free mobile service. The company has extended this offer to up to 3 million people, but it seems to be having a hard time finding that many takers.

In its fourth quarter earnings released yesterday, Rakuten Mobile reported that its losses rose, reaching $686 million (¥72.5 billion) and annualizing at $2.76 billion (¥290 billion).

The company launched its 4G mobile service in April 2020, followed by 5G service in September 2020.

Rakuten Mobile has accelerated its network build by five years and says it will serve 96% of the population of Japan by mid-summer. It currently has about 11,000 base stations online, and by mid-summer it aims to have 27,000 base stations. 

The accelerated build-out is taking a lot of cash, obviously.

Mobile capex hit $920 million (¥96.6 billion) in the fourth quarter, from $765 million (¥80.3 billion) in the third quarter. 

Rakuten has been saying recently that its capex budget for its greenfield wireless network is $7.7 billion. But on its earnings, it said it was increasing the capex for its 4G network from $5.72 billion (¥600 billion) by 30%-40%. This is in addition to the $1.91 billion (¥200 billion) for the 5G network.

In its earnings announcement, the company said, “With the expansion of the Rakuten network area and an increase in subscribers, costs related to base station construction and domestic roaming outside the Rakuten network area have also increased.”

“Losses are likely to rise further therefore, as subscriber-driven costs increase and the network scales,” wrote the analysts at New Street Research.

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Speaking to reporters recently, Rakuten Mobile CTO Tareq Amin said, “Of course we’re spending. We could have taken a conservative approach and taken eight years, but we’re taking two years. We are front-loading all of our capital.”

In response to criticisms of its business model, the company has also begun a new communications tactic. It’s saying that wireless service is quickly becoming a commodity with low margins. However, Rakuten Mobile serves the much larger e-commerce business of Rakuten – where the real money comes from. And this is something that the other mobile carriers in Japan don’t have.