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Rakuten gambling on becoming Japan's fourth major mobile carrier

In this October 2014 file photo, Rakuten Inc.'s Chairman and CEO Hiroshi Mikitani is seen in Tokyo's Chiyoda Ward during an announcement about the firm's new low-price smartphone service unit. (Mainichi)

Rakuten Inc.'s announcement on Dec. 14 that it aims to become Japan's fourth major mobile network operator, reflects a forecast that its growth will be limited if it continues as a mobile virtual network operator (MVNO) with its low-price smartphone service unit.

It is predicted that if Rakuten were to continue its MVNO status without its own frequency band or communication system, it would lose out to the three major players in Japan's mobile phone carrier market in service areas such as communication speed.

Japan's mobile phone market is essentially an oligopoly dominated by NTT Docomo Inc., KDDI Corp. and Softbank Group Corp. -- despite the spread of low-price smartphones. However, if e-commerce giant Rakuten were to launch its own network as well, then the increased competition in prices and services would likely create additional benefits for consumers.

In 2014, Rakuten unveiled a low-price smartphone service unit piggybacking on NTT Docomo's network -- with the aim of achieving a synergetic effect with its mainstay e-commerce enterprise. The unit, called "Rakuten Mobile," has since won about 1.4 million contracts.

However, in recent years, major mobile phone firms such as KDDI (au) have also developed low-cost smartphone services through their subsidiaries, and have gained a competitive edge on Rakuten in areas including price. And Rakuten has not been the only company to struggle. For example, the venture company Plus One Marketing Inc., which developed the "Freetel" brand, has failed as a business. In light of this business climate, Rakuten has decided to shift away from its position of a low-price smartphone service unit and take on the challenge of becoming Japan's "fourth mobile phone carrier."

The government is positive about Rakuten's proposed entry into the market, as it is keen to tackle high prices stemming from the current three-firm oligopoly. At a press conference on Dec. 14, Chief Cabinet Secretary Yoshihide Suga commented, "I hope that consumers will be able to receive greater benefits in terms of services and prices as a result of increased fair market competition."

A senior official at the Ministry of Internal Affairs and Communications -- which is pushing ahead with freeing up frequency bands controlled by the police and local governments -- stated, "Market entry by a new firm is something that should be welcomed. If Rakuten applies to enter, we will consider its application in a positive manner."

Installing one's own base stations and developing terminals is an expensive process, and is financially risky. Nevertheless, Rakuten plans to go ahead with the project, while borrowing from financial institutions, with associated costs possibly soaring as high as 600 billion yen by 2025.

Some observers have voiced concerns about Rakuten's ambitious project.

"The firm will be unable to avoid the worsening of its financial standing, and will probably have to delay its investment in other enterprises," one analyst commented.

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