Introduction

Rakuten Mobile, a leading global technology company, recently made major announcements regarding their technology initiatives. In an exclusive interview, a spokesperson for Rakuten Mobile provided insights into their current and forthcoming business strategies. A notable highlight of the discussion was Rakuten’s comprehensive adoption by a German carrier. The company’s previous provision of technology components to clients, coupled with the recent full assimilation by the carrier, is anticipated to have a significant impact on Rakuten's bottom line. The strategic acquisition of Autostar and the development of a crowd native platform, including a radio access network, are central to Rakuten’s forward trajectory. These moves have poised the company as a front-runner in the field of 5G mobile network solutions, catering to a growing demand for cost-effective alternatives amidst the ongoing tensions between China and the U.S.

Details of the German Carrier Deal

Rakuten CEO, Mickey Mikitani, discusses the company's recent deal with a German carrier, 1&1, which involves the full adoption of their technology. It is suggested that the incremental cost in terms of software development would be limited due to the development of their crowd-native platform, including the radio access network, and the recent acquisition of Altiostar. Transparency is emphasized, with a clear procurement policy and no hidden costs. The deal is expected to significantly contribute to Rakuten's bottom line as they structure their business around the Symphony business, catering to the demand for new 5G network solutions. Mikitani asserts that the demand for such solutions is substantial, especially given the tension between China and the U.S., as existing approaches are deemed too expensive for most carriers.

Additionally, the global chip shortage has affected the rollout of Rakuten's network, prompting a three-month delay. However, partnerships with semiconductor companies like Intel and Qualcomm have been vital in mitigating the challenges. Rakuten's focus on building a profitable standalone mobile business in Japan, synergistic with e-commerce and financial services, has garnered positive feedback in the market, signaling potential growth avenues. While exploring opportunities in the Chinese market, Rakuten's business exposure in China is limited. Despite ongoing crackdowns in China across various sectors, Rakuten's approach remains cautious, with a focus on exporting Japanese content and products, leveraging partnerships for distribution.

Business Structure and Demand for Symphony Business

With regards to the business structure of the company, the recent developments are centered around the full adoption of the native platform, including the radio access network. The company has also made significant strides by acquiring autostar, which contributes to the overall offerings for clients. This move has allowed them to have a clear and transparent policy on hardware procurement, thereby ensuring trust and reliability in their business model.

In terms of demand for the symphony business, there is a notable increase driven by the tension between China and the US, thereby necessitating new 5G mobile network solutions. Current approaches are deemed too expensive for most carriers, creating a demand for more cost-effective options. Both greenfield mobile companies and large global telecom companies are increasingly seeking all-round solutions, presenting a significant market opportunity. As a front-runner in this field, there is a foreseen advantage of a couple of years, indicating a promising outlook for the company's symphony business.

Effects of Global Chip Shortage on Rakuten's Network

The global chip shortage has significantly impacted Rakuten's network rollout. The shortage has caused disruptions and delayed the deployment of Rakuten's mobile network by an estimated three months. While the shortage poses challenges for procurement, Rakuten remains optimistic about the situation. They highlight that the shortage primarily affects radio stations and not handsets. Despite the challenging environment for procuring semiconductors, Rakuten's partners such as Intel and Qualcomm have been cooperative and supportive of their endeavors. The company emphasizes that their partners recognize and value their contributions to the future, further boosting their confidence amid the supply chain constraints.

Outlook on Rakuten's Credit Market and Assessment

Rakuten's credit market outlook presents a positive trajectory with the mobile business expected to be a significant revenue driver. The company aims to achieve a threefold initiative in this project, focusing on ensuring a profitable standalone mobile business in Japan, leveraging synergies with existing e-commerce and financial services, and propelling the symphony business, which holds the potential to surpass its previous ventures. Despite the S&P's credit rating cut, Rakuten's strategic approach to diversify and integrate its various business portfolios exhibits a promising financial outlook, with e-commerce, fintech, and mobile offerings thriving.

Apart from the mobile venture, Rakuten's engagement in the credit market reflects resilience and strategic foresight. The symbiotic relationship between the mobile subscription and Rakuten's e-commerce and fintech services has emerged as a significant driver of the company's overall revenue generation. Furthermore, the company has demonstrated the capacity to navigate through challenges and adapt to dynamic market conditions, instilling confidence in the credit market about Rakuten's financial stability and growth potential.

Opportunities and Risks in the Chinese Market

Opportunities in the Chinese market continue to be tempered by ongoing crackdowns in various sectors of the economy. Despite this, there are still avenues for potential growth and collaboration. For instance, there is potential for exporting Japanese content and products to China as a means of leveraging partnerships with Chinese entities. The vast market in China presents an opportunity for expansion, especially in e-commerce and content distribution, through established networks. However, these opportunities come with associated risks, given the heightened scrutiny and regulations imposed on foreign businesses in the Chinese market.

While potential for expansion exists, the regulatory environment and political tensions between countries add layers of complexity and risk. Investing in China involves navigating stringent regulations and potential geopolitical tensions, which can impact the stability and growth of businesses operating in the region. Moreover, partnerships with Chinese companies may be subject to increased scrutiny and regulations from both the Chinese and international governments, necessitating a careful and strategic approach to mitigate potential risks.

Rakuten's Collaboration with Tencent

Rakuten's collaboration with Tencent represents a strategic partnership that allows both companies to leverage each other's strengths. While Rakuten benefits from Tencent's expansive network for content distribution and e-commerce, Tencent gains access to Japanese products and content to diversify its offerings. This collaboration provides Rakuten with the opportunity to tap into Tencent's extensive reach in the Chinese market, potentially enabling the distribution of Japanese products and content to a wider audience. Despite the minimal investment from Tencent and the clear separation of voting shares, the collaboration holds the potential for mutually beneficial outcomes. As Rakuten continues to expand its presence in the global market, the partnership with Tencent signifies a pivotal move in enhancing its reach and influence, especially in the burgeoning Chinese market.

Rakuten's Perspective on the Ongoing Olympics

As the ongoing Olympics in Japan continue, Rakuten's CEO, Mickey Mikitani, has expressed mixed sentiments regarding the event. While acknowledging the commendable performance of Japanese athletes, Mikitani has also raised concerns about the impact of the Olympics on the spread of COVID-19, particularly the Delta variant. He emphasized the need for continued vigilance, social distancing, and accelerated vaccination efforts to mitigate the rising cases. Furthermore, he acknowledged the challenges posed by the pandemic and emphasized the importance of patience in these times.

Rakuten's overall business has felt both positive and negative impacts due to the pandemic-induced situation. While certain sectors, such as e-commerce and fintech, have experienced significant growth, others, like travel, faced substantial setbacks in 2020. Looking ahead, the company remains focused on navigating these challenges and seizing opportunities within its diverse business portfolio. With a keen eye on market dynamics and consumer behaviors, it aims to adapt and evolve in response to the evolving landscape shaped by the ongoing global health crisis.

Impact of the State of Emergency on Rakuten's Business

The extended and expanded state of emergency in Japan has had mixed effects on Rakuten's diverse business portfolio. While some segments, such as e-commerce and fintech, continue to perform strongly, others like travel have suffered. With senior citizens now vaccinated and taking local trips, the travel sector is showing signs of recovery. Despite a significant downturn in 2020, there has been marked improvement this year. Additionally, with the rapid acceleration of vaccination, the outlook for travel businesses seems promising, given that a high proportion of elderly people are now taking local trips.

The e-commerce division of Rakuten has remained robust throughout the pandemic, benefitting from increased online purchases. Simultaneously, the fintech business has been outstanding, demonstrating resilience and adaptability. Moreover, the mobile subscription service is experiencing rapid growth, signaling positive momentum for Rakuten. The recent announcement of CP Symphony is anticipated to have a significant impact on the company and is expected to further bolster its position in the market. Rakuten's approach to viewing the mobile network as a component of its ecosystem rather than a standalone service indicates a strategic leveraging of synergies to optimize performance and customer value.

Update on Transition from Free Mobile Subscriptions

The transition from the free mobile subscriptions that were offered for one year back in April has been quite successful. The churn rate has been significantly smaller than anticipated, and the company is currently providing three months of free subscription as part of the transition. The substitution process is going well, and there is confidence in the ongoing transition.

Furthermore, Rakuten is not just rebuilding the mobile network service as a standalone offering; it is now being integrated into the company's ecosystem. The synergy between mobile subscriptions and the e-commerce and fintech services within the Rakuten ecosystem has been found to be highly significant. This integration and interconnectedness are contributing to the success of the transition from the initial free subscriptions to the new subscription model.

Highlight

The CEO of a tech company provided insights into their recent deal with a German carrier and its impact on their business. The company has been developing a crowd-native platform, including radio access networks, and recently acquired autostar. The deal is expected to contribute significantly to their bottom line, with the business focused on providing solutions for 5G mobile networks due to the demand for new, more cost-effective options.

Acknowledging the global chip shortage and its impact on the rollout of the rakuten network, the CEO expressed confidence, citing the cooperation of partners like Intel and Qualcomm. Addressing concerns about the company's credit rating, the CEO emphasized the potential profitability of the mobile business in Japan and its synergy with existing e-commerce and financial services, providing a positive outlook for investors.

Discussing the Chinese market, the CEO highlighted minimal exposure to China, stating that the company's focus is on exporting Japanese products and content, rather than engaging in business operations in China. Regarding a minor investment from Tencent, the CEO assured that it is purely financial in nature and discussed the potential for collaboration in content distribution and e-commerce.

On the topic of the Tokyo Olympics, the CEO highlighted concerns about rising COVID-19 cases and the need for patience and caution. The impact of the state of emergency on the company's business was discussed, with a mixed effect on various business portfolios.

Finally, the CEO provided an update on the free mobile subscriptions offered, expressing confidence in the continuation of the service and the significant synergy observed between mobile subscriptions and other services within their business ecosystem.

FAQ

Q: Can you provide some insights on the recent deal with the German carrier one-on-one?

A: We have developed a crowd-native platform, including a radio access network, and acquired autostar. The incremental cost for us in terms of software development is limited, and we have a clear policy of transparency in procurement.

Q: How do you perceive the demand for your technologies in the current market, and who are you targeting?

A: The demand for new solutions for 5G mobile networks is significant, especially due to the tension between China and the US. We are targeting a wide range of carriers, including greenfield new mobile companies and large global telecom companies.

Q: There's been mention of the global chip shortage impacting the rollout of the Rakuten network. Can you provide more details on this?

A: Although there are challenges in semiconductor procurement, our partners, including Intel and Qualcomm, are cooperative. Despite the challenging environment, the expectation for our success is significant, and the shortages are being managed effectively.

Q: Given the current credit rating for Rakuten, what is your outlook and assessment of the credit markets?

A: The mobile business is set to be a significant contributor to overall operations. We aim to achieve a profitable standalone mobile business in Japan, positive synergy with existing e-commerce and financial services, and substantial growth in the symphony business.

Q: What is your standpoint on exploring opportunities and partnerships in the Chinese market?

A: Our exposure to Chinese business is very limited, and we are not actively seeking further investments or business engagements in China at this moment. However, we are open to partnerships for distributing Japanese content and products through Chinese networks.

Q: How have the ongoing Olympics in Japan and the extended state of emergency impacted Rakuten's business operations?

A: Various business portfolios have been affected differently. Overall, there has been a positive impact on e-commerce, with the return of travel and accelerating vaccinations. The mobile subscription is growing rapidly, and the Rakuten Symphony announcement is expected to be significant for the company.

Q: Can you provide an update on the transition from the initial free mobile subscriptions offered in April?

A: The churn rate has been smaller than anticipated, and the transition to providing three months free subscriptions is progressing well. Additionally, we are monitoring the synergy between mobile subscriptions, e-commerce, and fintech services, which is proving to be significant.

Conclusion

In conclusion, Rakuten's CEO provided insights into the company's business strategies, technological advancements, and market outlook. The discussion shed light on Rakuten's efforts to capitalize on the growing demand for 5G solutions, navigating challenges such as the global chip shortage, and diversifying its business portfolio to leverage synergies across different sectors. Additionally, the update on Rakuten's free mobile subscriptions and their integration within the company's ecosystem indicates a strategic approach to drive sustained growth and value creation.