Scheduled to launch its mobile service next month, Rakuten’s aggressive pricing strategy could put the Japanese telecoms market in turmoil
Rakuten is set to make a serious splash in April with the launch of its first mobile network. It was to be expected that the company would launch with competitive prices, but on Tuesday the company revealed the true extent of its disruptive plans.
To call its pricing scheme aggressive would be an understatement. Rakuten will reportedly launch unlimited data plans for just under 3,000 yen (around $28) per month, roughly half of what customers of competitors like NTT DoCoMo, KDDI, or SoftBank are currently paying.
Not only that, they are also removing charges entirely for a year for the first three million subscribers to join the network. Yes, that is indeed three million free unlimited data plans soon to be on offer in April.
The strategy bears uncanny resemblance to Reliance Jio’s entrance to the Indian market in 2016, where its unprecedented low prices have left direct competitors Bharti Airtel and Vodafone Idea struggling to keep their heads above water.
It should be noted that Rakuten’s offer is limited to the areas where its own network is currently available: Tokyo, Osaka, and Nagoya. The company’s broader coverage instead comes via an MVNO arrangement with KDDI, and customers piggybacking on this network will not have access to unlimited data.
Nonetheless, rivals should be no less worried, as Rakuten is building out its network at a steady pace. Last month the company said it had deployed around 3,300 of its own base stations, aiming for around 8,000 in total by March 2021.
Part of Rakuten’s new strategy is a complete commitment to Open RAN (O-RAN) technology, which it claims will allow them to build out and operate their network more cheaply than with standard RAN equipment.
"It [O-RAN] is 40% cheaper than traditional telecom infrastructure, and I think opex will be even better in how you run and manage this network," said Tareq Amin, Rakuten Mobile’s chief technology officer.
As part of this O-RAN strategy, Rakuten could even be dropping Nokia for its upcoming 5G network, announcing in June that local Japanese vendor NEC would instead be its main partner.
It is arguably the savings accrued by this O-RAN approach that will allow them to launch with such audacious prices. Nonetheless, Rakuten is well aware that this aggressive strategy is not expected to make a profit right away, with the company’s CFO, Kenji Hirose, suggesting that they expect to turn a profit in three years.
It will be very interesting to see how the Japanese incumbents react to this unprecedented pricing assault. If it ultimately proves successful, some operators could view this as flagship success for an aggressive O-RAN approach and adopt plans to do the same in their own domestic markets.
Rakuten itself already has big plans beyond the land of the rising sun, eying the US as its first network foray into foreign territory.
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