Rakuten Mobile has consistently claimed that its greenfield wireless network saves significant costs on a per site basis because of the efficient way it builds and installs its base stations. And yet, the company has struggled to attain profitability.
The analysts at New Street Research commissioned some detailed technical modeling from industry consultant BlueNote, which found that Rakuten has an advantage compared to incumbents of around 40% capex and 30% opex on a per site basis. Capex savings come from lower infrastructure, equipment and civil works costs. And opex savings derive from lower real estate costs and much lower maintenance costs on a per site basis.
This jibes with what Rakuten Mobile has been saying.
Rakuten Mobile’s CTO Tareq Amin has said the company’s innovative vRAN network saves money through technical efficiencies in the radios and the antennas. And it also saves a lot of money in the automated fashion that it deploys base stations, which are practically plug and play, according to Amin.
In November 2020 he said the company's innovations in radio were saving it money because typically radio spend is anywhere between 60-70% of the total capex for a wireless operator. “For us, 60% of the savings comes from radio,” he said.
Why no profitability?
With all the cost savings in its network, Rakuten Mobile has disappointed investors. The New Street analysts have determined that the problem is the company’s poor spectrum allocation and its slow rollout of 5G.
BlueNote’s modeling showed that Rakuten’s medium term network cost per GB is 1.5 – 2x higher than the Japanese incumbents — NTT Docomo, KDDI and SoftBank — based on the incumbents’ better spectrum allocation and more rapid 5G deployment.
The New Street analysts said that up to this point, Rakuten has largely deployed a 4G network, which isn’t complementary with its spectrum portfolio. And the incumbents have much more 4G spectrum.
“Once poorer spectrum, and Rakuten’s 4G focus are taken into account, on a per GB basis, Rakuten’s network cost is 1.5-2x higher than incumbents in the medium term despite the challenger’s per site cost advantage,” stated New Street.
Asked for comment, Rakuten Mobile only stated that it has been allocated three types of spectrum from the government: Sub-6, mmWave and 1.7 GHz (the 1.7 GHz excludes Tokyo, Nagoya and Osaka).
Last year, Amin said Rakuten was allocated just 20% of the 4G spectrum held by the incumbent telco operators (20 MHz in the 1.7 GHz band.) And even that was initially limited to 5 MHz due to the government reallocation process.
“The company is currently working with the government for clearance to use the full 20 MHz,” wrote Amin in a blog. “With less than 20% of spectrum assets compared to our competitors, we are doing great.”
Today, a spokesperson for Rakuten Mobile said the company is aiming to achieve break-even on a monthly basis during 2023.
However, the New Street analysts think it will take much longer than that.