From a tech perspective, 1997 was prehistoric. It was an era of analog devices and flip phones, for which the internet was an afterthought. Sluggish 28.8kbps download speeds thrilled us, and the idea of modern smartphones as we know them seemed preposterous.
In this environment, we founded Rakuten on the prospect that, in the future, people would do much of their shopping over the internet. This was considered a bold — if not stupid — move.
We pushed skepticism aside and pushed it aside again when we decided to launch our credit card business, our baseball business and countless other ventures. We’re now making another bold move: We’re becoming a mobile carrier.
Mobile makes sense for Rakuten
Rakuten is no longer just an e-commerce company. With over a billion members using dozens of different Rakuten services across the globe, it’s clear that the real value lies in our ecosystem and the membership program that spans across these services, both online and offline, from e-commerce to fintech to communications and digital content.
As Rakuten has grown over the past 22 years, so has the ubiquity of mobile devices. The vast majority of our e-commerce revenue comes through smartphones — around 80% of visitors to the Rakuten Ichiba marketplace visit on their mobile device — and we have long been utilizing a “mobile first” approach for our services.
In late 2014, we launched Rakuten Mobile as a mobile virtual network operator (MVNO), leasing the infrastructure of others. The service has been a great success, and Rakuten has become the most popular MVNO in Japan in the space of just a few years.
But there are limitations to what we can do by leasing the network of others. Only by building our own infrastructure can we guarantee our freedom from the whims of other companies’ business strategies. With our own network, we can create new services that work together with the Rakuten ecosystem and boost cross-use of Rakuten services.
It’s time for disruption
While smartphone technology has evolved at breakneck speed, the mobile carrier industry has not kept up. Mobile operators all over the world are working off systems that have been around for two or even three generations. The numbers may change — 1G, 2G, 3G, 4G — but the basic telco business model has remained the same.
Innovation doesn’t happen in oligopolies like they exist today in Japan and elsewhere. Industry incumbents never come together and say, “It’s time for a change.” They have vested interests in keeping the status quo. Change represents a risk to revenue and market share. Innovation requires disruption and competition.
Rakuten’s entry into the telecommunications world has received a lot of pushback from prominent industry figures. That’s good. We are shaking up the industry and posing a threat to the status quo. Speaking from firsthand experience as a disruptive entrepreneur, I’d say this is a sign we’re doing things right.
Why Rakuten will succeed
Japan has some of the most expensive mobile phone plans on the planet, averaging about twice the price of plans in Europe and taking up about 7% of Japanese household budgets. They’re so expensive that even the Japanese government is stepping in to make mobile phone plans more affordable.
One reason behind this is the high cost involved in maintaining decades-old infrastructure. Since Rakuten is starting from scratch, this isn’t a problem we will face. Rakuten won’t need to support legacy systems such as 3G — we can build for 4G and 5G from the ground up, giving us more mobility to innovate than anyone else.
Before coming to Japan, Rakuten Mobile CTO Tareq Amin played a key role in building the revolutionary Indian MNO Reliance Jio. They leapfrogged the then widespread 2G and 3G systems, relying instead on 4G and voice-over-LTE calls. The service acquired around 100 million subscribers in its first 100 days of operation and is now the tenth largest mobile operator in the world with over 270 million users.
When I first met Amin, he told me that if we were going to build a new network from scratch, we might as well do it differently. That’s exactly what we’re doing.
We are building the world’s first cloud-native network that will be fully virtualized from radio access network (RAN) to Core, and which adopts an innovative 5G systems architecture from launch. The network is also significant as it will offer end-to-end automation for both network and services.
Rakuten as a company is already operating multiple businesses with a cloud-based architecture. By organizing our mobile carrier business in the same way, we will be able to control everything from the cloud. We believe this fully end-to-end virtualized network will help us to shift away from reliance on dedicated hardware and legacy infrastructure — this is a win for customers too. We will be able to reach new cloud-like operational efficiency, and that passes on cost-savings to our customers as well.
From our perspective, this is a race between telephone companies and internet companies. The legacy competitors in the market today are operators first, online service companies second. Many of them are turning now to start to build their membership programs. Rakuten is coming to mobile phones from the opposite direction. With an established ecosystem that offers a myriad of robust cloud-based services, our strengths differ from existing telcos.
We will be able to provide mobile networking services so competitive that it will force the industry itself to change. I’m calling it the democratization of the mobile network.
Japan will be in the spotlight
Japan’s mobile phone industry is unique in a number of ways, and many of the new technologies we are bringing to the arena will be Japan-firsts. But in the end, this isn’t just about Japan — it’s about the whole planet. We’re trying to do something that’s never been done anywhere.
Once our platform is up and running, it is inevitable that operators from overseas will want to learn from the Rakuten model. Major telcos from around the world have already approached us to hear more, and cross-border collaboration is on the horizon.
Japan is only the beginning of a mobile revolution.
Rakuten will be at MWC in Barcelona from Mon, Feb 25, 2019 – Thu, Feb 28, 2019, where company leaders will share their vision for the future of mobile. For more details, visit here.