Rakuten decides to become a cellco – good luck with that

The logo of Rakuten Mobile is seen at its branch in Tokyo, Japan December 14, 2017. REUTERS/Kim Kyung-Hoon

TOKYO (Reuters) – Japanese e-commerce firm Rakuten said it would apply for a 4G mobile license, aiming to become the country’s fourth major wireless carrier in a strategic shift that had analysts warning of an uphill battle to gain customers.

Rakuten, which operates one of Japan’s most popular shopping websites, said it hoped to gain a new engine of growth, adding that having a mobile license would complement its e-commerce, streaming and FinTech services such as online securities trading.

“There is no doubt that mobile devices are the most important user touchpoint for the expansion of existing services and new service development,” it said in a statement.

Rakuten said it aims to start offering mobile services in 2019. It also wants to secure at least 15 million subscribers although it didn’t specify a timeframe for that goal. By comparison, SoftBank Group, Japan’s No.3 carrier has about 39 million subscribers.

Rakuten‘s target would be a major jump up from the roughly 1.4 million customers it has through its mobile virtual network service where it rents network space from companies holding licenses.

The auction for 4G wireless spectrum is due to be held in January, with results expected by end-March.

Rakuten, worth some $13.9 billion by market value, said it was preparing to raise as much as 600 billion yen ($5.3 billion) by 2025 via interest-bearing debt such as bank borrowing to fund the move.

But several analysts were skeptical about its wireless prospects.

“I don’t like their chances – the market is pretty much fully penetrated,” said Dan Baker, an analyst at Morningstar in Hong Kong. “It would have to fund the network build-out and customer acquisition, and then its operating losses until it could get enough customers.”

Shares in Rakuten closed down 4.9%, their lowest since March, while those of Japan’s biggest carriers NTT DoCoMo Inc, KDDI Corp and SoftBank all lost more than 2% on the prospect of more competition.

The last serious attempt by a Japanese company to break into the ranks of wireless carriers was by eMobile, which entered the market in 2007. It gained four million subscribers before it was bought by SoftBank in 2013.

Rakuten, however, has much deeper pockets and some analysts were optimistic that its target of 15 million subscribers would be achievable over the long run.

Rakuten‘s diverse array of services and its marketing reach mean that it has an existing, easy-to-contact customer base who would be likely to sign up for its mobile business, said Gerhard Fasol of Eurotechnology Japan, a consultancy.

“They have a good chance to make a successful, profitable business, but it will be a long slog,” he said.

($1 = 112.6100 yen)

(Reporting by Thomas Wilson; Editing by Edwina Gibbs)

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