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Rakuten's telecom plans are now real, but so are the costs

Japanese e-commerce group Rakuten Inc got the go-ahead to build its own telecom outfit late Friday.

[TAIPEI] Japanese e-commerce group Rakuten Inc got the go-ahead to build its own telecom outfit late Friday.

The Tokyo-based company was already operating a successful mobile virtual network operator (MVNO) business - where spectrum capacity is rented from other players - when it announced plans late last year to apply for its own bandwidth. Japanese regulators are set to provide Rakuten a slice of the 1.7Ghz band, with some conditions.

According to Japanese media, including Mag2News, Mobile Watch and noted industry outlet Tsutsumu's SmartPhone Times, the panel reviewing the application was adamant Rakuten stand by itself. That means building out its own network, and developing the technical capabilities to maintain a fully functioning telecom operation.

In other words, Rakuten won't be able to piggyback off other firms. To what extent the company was actually planning on developing its own infrastructure is up for debate.

Market voices on:

"Rakuten plans to save investment costs by leasing Tepco's infrastructure, such as transmission towers and utility poles," Bloomberg Intelligence senior analyst Anthea Lai wrote last month, referring to Tokyo Electric Power Co. Leasing a pole to hang a transmitter on is one thing, digging up roads to lay cable is another. Rakuten will probably still sign roaming deals with incumbents, but there isn't much incentive for existing players to help a competitor.

Rakuten itself has said it will invest 200 billion yen (S$2.5 billion) in 2019, the first year of service, rising to 600 billion yen by 2025. That's barely a drop versus what NTT Docomo Inc, KDDI Corp and SoftBank Group Corp spend per year on capex, Bloomberg Intelligence data shows. Docomo, for example, spends in 12 months what Rakuten plans over seven years.

Admittedly, Rakuten's goal of 15 million subscribers is modest compared to the 75.7 million Docomo had at the end of December, but capital expenditure isn't linearly correlated to customer numbers.

I wrote back in December that Rakuten's plan isn't too crazy. If Inc decided to start a telecom firm, it wouldn't sound weird. But with regulators now being very clear on what they expect from Rakuten, the pressure's on to spend up.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.