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Telecommunication

Rakuten logs $590m half-year loss on heavy telecom spending

CEO Mikitani sees mobile business as crucial for pulling in new customers

Rakuten Group is investing heavily to develop its virtual communications network, the Rakuten Communications Platform. (Photo by Kosuke Imamura)

TOKYO -- Rakuten Group on Wednesday reported its second straight quarterly loss and a 65.4 billion yen ($590 million) deficit for the January to June fiscal first half, as capital costs piled up in the company's fledgling mobile segment, including the 40 billion yen acquisition of a U.S.-based mobile technology company.

The company, best known for its e-commerce business, posted 402 billion yen in revenue in the April to June quarter, up 8% year-on-year and its highest figure ever for a second quarter, helped by customer acquisitions in its main e-commerce and fintech businesses.

Selling its virtual telecommunications network, known as the Rakuten Communications Platform, to new and incumbent mobile service providers will be key to making the mobile segment profitable.

"We believe that our mobile business is able to hit three birds with one stone: the monetization of Rakuten Mobile as a stand-alone business in Japan, contribution to the Rakuten ecosystem and RCP," chairman and CEO Hiroshi Mikitani said Wednesday.

The week before the earnings announcement saw a slew of developments for Rakuten Mobile, including its first international deal with 1&1, a new entrant in Germany's telecoms industry. The 10-year contract, reported by Nikkei to be worth more than $2 billion, will allow Rakuten to design, build and maintain the first cloud-native mobile network in Europe. A new business called Rakuten Symphony was also launched to acquire more international customers for RCP.

Rakuten also announced the acquisition of Altiostar Networks, a U.S.-based company whose open radio access network solutions give telecoms providers more flexibility with hardware and software vendors.

Rakuten CEO Hiroshi Mikitani speaks during online news conference on Aug. 11. (Screenshot from Rakuten's website)

"Finding ways to automate and reduce the investment required for base stations is crucial to keeping overall costs down," said Mikitani. "It is very significant that we have acquired the only company that is currently able to realize this."

Rakuten's project with 1&1 will be key to determining whether its still-unprofitable telecoms business model can work.

For the past year Rakuten has sought to disrupt Japan's telecommunications sector with a cheap mobile data plan starting at 2,980 yen per month, forcing NTT Docomo and SoftBank to match its rates. Japanese telecom companies receive significant government subsidies to build base stations and networks, with 70 billion yen granted last year to help them catch up with China's 5G rollout.

In contrast to mobile, Rakuten's fintech segment delivered an operating profit of 22.5 billion yen, an increase of 6.0% versus the previous year. Rakuten Bank last month reached its target of 11 million accounts and the number of issued credit cards surpassed 23 million in June. The securities segment has also reached 6.24 million brokerage accounts.

But Mikitani said mobile remained a significant entry point for new customers into other Rakuten services. Over 60% of its mobile subscribers use Rakuten Ichiba, the company said, compared with 26.7% of SoftBank subscribers who use its Yahoo! Shopping service.

Rakuten Mobile had 4.42 million subscribers as of June, losing some customers who took advantage of the promotional free yearlong subscription but left when it ended in April. The company declined to say how many of those customers stayed on, saying only that "churn is lower than expected."

"Rakuten Mobile has become one of the most important customer-acquisition venues for the Rakuten ecosystem," Mikitani said.

"In five to 10 years, it is possible that we will see RCP's revenue and profit outpace our other businesses," he added.

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