Rakuten’s aggressive pricing plan could inspire leaders in the US wireless market

Rakuten, the Japanese e-commerce giant and wireless newcomer, unveiled an aggressive pricing plan that could set the blueprint for disruptors in the US. With unlimited plans starting at 2,980 yen ($28), Rakuten will charge approximately half the rate of competitors’ plans, according to FierceWireless.

FILE PHOTO: A staff holds a smart phone which being tested for Rakuten's under-construction mobile network at its network facility in Tokyo, Japan, February 20, 2019. REUTERS/Kim Kyung-hoon/File Photo
A smart phone used to test Rakuten’s under-construction mobile network at its network facility in Tokyo.

It will also offer a year of free service to the first 3 million customers who sign up. Rakuten has been building a 4G LTE mobile network from scratch — the company will be the first to build a fully virtualized radio access network (vRAN), which it says will significantly reduce operating costs relative to its competitors. However, costs are also lower because Rakuten’s network will be concentrated in Japan’s major cities. Elsewhere in the country, consumers are limited to 2 GB per month on partner networks, which will throttle data speeds. 

Rakuten’s aggressive customer acquisition strategy is predicated on the expansive scope of its core business operations. So long as Rakuten maintains the roughly $11.8 billion in annual revenue from its core business, the company can comfortably treat the mobile business as a loss-leader until it gains favorable market positioning.

This underscores the company’s aggressive customer acquisition strategy, much in the same way as Reliance Jio — formed within the largest company in India — offered data plans twice as cheap as those offered by competitors, helping it become the largest network by subscribers in India just a few years after its inception. By contrast, traditional network operators can’t afford to lose money on their core business for a long period of time. Vodafone Idea, for instance, is said to be considering leaving the Indian market altogether. The network has faced intense price competition and lost over 300 million customers since Reliance Jio entered the market in 2016, according to the South China Morning Post. 

If Rakuten succeeds in Japan, it could inspire a newcomer to attempt the loss-leading strategy in the US market. Though Dish has positioned itself to become the 4th leading wireless carrier, following T-Mobile’s acquisition of Sprint, it is actually smaller than the big 4 US wireless carriers, and would therefore struggle to sustain a loss-leader strategy.

A larger company could instead prop up Dish through partnership or acquisition, as we speculated in our 2020 predictions. Alternatively, a tech giant could attempt to disrupt the US wireless space: Amazon and SpaceX, for instance, are both launching satellite networks and have demonstrated a propensity to take aggressive loss-leader strategies in other domains. Similarly, Google already operates an MVNO and has partnered with operators to streamline backend operations.

Given their cash reserves, Amazon and Google are best positioned to outlast the legacy players in offering significantly cheaper wireless plans. Antitrust concerns may be the biggest barrier facing a potential disruptor in the US. However, by implementing measures to make operations more efficient now, and by making debt loads more sustainable, US wireless incumbents stand a better chance of dissuading a new entrant altogether.

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