Rakuten Mobile’s got a math problem: Editor’s Corner

Linda Hardesty editor's corner

I’m a reporter, so by definition, I’m terrible at math. (I wasn’t always bad at math, but once I became a reporter and surrounded myself with people all saying that reporters are bad at math, I joined in that self-fulfilling prophecy).

In any event, Rakuten Mobile, a wireless provider in Japan, is staffed with engineers and math geniuses, and yet it seems to have a math problem, too.

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 plans to have 27,000 base stations online by then. Last week at a press conference, Rakuten’s CEO Mickey Mikitani showed a slide that indicated the company’s ultimate goal is to serve 100% of the Japanese population with wireless service, and that will take 45,000 base stations. If my math is correct, that means that the last 4% of the population will require 18,000 base stations.

Is 4% of the population worth 40% of the base stations?

In an email to Fierce, a Rakuten Mobile spokesperson said, “The 45,000 base station number represents an internal milestone for the future that would deliver improved quality coverage to our customers, but we do not have a timeline for when that can be achieved.”

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

Rakuten is already spending big on capex to build out its greenfield wireless network and hit the 27,000-base station milestone. It currently counts about 11,000 base stations, and its stated cost for its nationwide network construction is $7.7 billion. But analysts are starting to give Rakuten low marks for its business model.

In a note this week, New Street Research analyst Chris Hoare wrote, “Our view is that Rakuten is making a strategic error through allocating so much capital to mobile. Losses are likely to be wider than the street expects and for longer.”

Speaking to reporters last night, 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.

Amin cited several of the other businesses that Rakuten is in, including banking, travel, content delivery, insurance and retail. “Rakuten is powered by membership-first, loyalty, points and rewards,” said Amin. “Rakuten is not a telecom company. If Microsoft built a telecom network, would you judge them as a mobile network?”

He said Rakuten Mobile will power connectivity for the other, more lucrative parts of the larger company. “We need to explain the value between one group of the company and another,” said Amin. "Of course, we’ll report mobile separately, but in time we will be perceived as a company that has a larger ecosystem, and connectivity is cross-selling value. I believe that connectivity, whether we like it or not, is going to get commoditized. People that win at the end of the day are ones who bring the best value to consumers.”

Other math problems

According to some September data collected by Opensignal, Rakuten Mobile’s network achieved an average download speed of just 21.6 Mbps compared to 46.9 Mbps for the average of the other three Japanese wireless carriers. “This is not simply a function of slow roaming speeds, but slowing speeds even for on-net traffic,” wrote the analysts at Moffett Nathanson. “Indeed, even Rakuten’s on-net speeds were lower in September than they had been in May, and they were lower than speeds for the much more heavily loaded networks of NTT Docomo, KDDI and SoftBank.”

Asked about this, Amin attributed it to the fact that Rakuten is in the process of working with the Japanese government to reallocate spectrum.

He said the 4G spectrum allocated to Rakuten Mobile in April 2018 was just 20% of the spectrum held by the incumbent telco operators. While Rakuten Mobile was allocated 20 MHz of 4G spectrum, rollout in many of the regional centers was initially limited to just 5 MHz due to the government reallocation process.

“The company is currently working with the government for clearance to use the full 20 MHz in these areas,” said Rakuten in a blog. “As more areas switch from 5 MHz to 20 MHz, the carrier will see its average speeds increase significantly. With less than 20% of spectrum assets compared to our competitors, we are doing great,” said Amin.

Satellite to the rescue?

Allow me to circle back to the beginning of this story, where Rakuten is faced with building 18,000 more base stations to serve just 4% of the Japanese population.

It appears that the company has a problem endemic to all carriers around the world: closing the digital divide.

It’s promised to cover 100% of the Japanese population with its own wireless network. But now, it’s seeing that the numbers don’t add up. So, it’s working with a satellite company out of Texas – AST SpaceMobile.

Both Rakuten and Vodafone have invested in AST.

Amin said, “The strategy we have is that terrestrial plus direct satellite will get us to 100% geographical coverage in the later end of 2023.”

RELATED: With SpaceX winning RDOF funds, 2021 could be the year satellite broadband lifts off

AST Rakuten photo
Rakuten CEO Mickey Mikitani and Abel Avellan, AST CEO
meet in Midland, Texas.

He said that AST is “thinking of building satellites on a completely commoditized architecture,” and the “the software of Altiostar could play a role in powering up communication between the earth station and the satellite.”

Rakuten Mobile is aiming to launch an initial pilot satellite with AST, possibly by August of this year.

As a reporter, I’ve always enjoyed covering this company because it “goes where no man has gone before.” It should be interesting to keep watching.