On Friday, Rakuten and German telco 1&1 introduced a mobile network relying upon Open radio access network infrastructure, as the Japanese corporation aims to increase its underperforming mobile division. While talking to CNBC, Hiroshi "Mickey" Mikitani conveyed that he believes mobile will be "one of the most lucrative businesses" for Rakuten. When asked if Rakuten can manage its swelling debts, Mikitani said: "Certainly, it will not be an issue."
Rakuten and 1&1, a German telco, formed a joint mobile network on Friday based on a new Open RAN architecture. This marks the first fully virtualized 5G network of its kind in Europe. 5G is the next-generation of mobile internet, promising faster speeds. Open RAN can streamline the network by decreasing the cost of hardware and running the system on cloud-based software. Rakuten will supply the technology, while 1&1 will be the operator. This marks the Japanese company's first major deployment of its mobile technology in Europe, in addition to Japan. In an interview aired Monday, Rakuten CEO Hiroshi 'Mickey' Mikitani shared that many telecom companies are now seriously considering the technology and that there will be "single digit" launches in 2024.
Rakuten is often compared to Amazon and has a notable e-commerce presence in Japan. In 2021, it launched Rakuten Symphony in order to diversify its business, yet the mobile segment has yet to turn a profit and company debts have been on the rise. During the third quarter, the mobile unit saw a 5% year-on-year growth of 88.7 billion Japanese yen ($615 million), though still recorded a loss of 81.2 billion, which is lower than the 117.6 billion loss for the same period in 2022. This has given the company hope that it is on the right track.Still, the mobile business has weakened Rakuten Group's overall performance, causing thirteen consecutive quarters of operating losses as of September. CEO Mikitani asserted that he considers the mobile sector will be one of the most profitable for Rakuten. He also mentioned that the number of net subscribers is rising by 200,000 every month. He believes that soon it will reach profitability, but did not give a timeline. He stated that the operating costs are significantly lower than their competitors, suggesting that they have an edge. Mikitani puts his estimate for success within five years, predicting that "everybody will say, 'oh my god, that was a genius decision.’”
Rakuten has bonds and borrowings associated with its non-financial operations in the amount of 1.7 trillion yen. According to Reuters, approximately 800 billion yen of these bonds are set to be repaid before 2025. As part of its debt repayment strategy, the Rakuten Group has been decreasing its holdings in several other businesses and issuing new shares to raise revenue. This week, Rakuten announced the sale of shares in Rakuten Bank, which yielded around 60.6 billion yen, decreasing Rakuten's stake in the bank from 63.34% to 49.27%. Earlier this year, the Group issued new shares for a total of 290 billion yen. When questioned about their ability to pay off the debt, Mikitani reassured, "Of course, no problem at all. Our business is really in good shape. We cut down the operational costs of Rakuten Mobile by 15 billion yen each month...Currently, all of our companies are showing positive growth, from top to bottom line, and we have a strong bond of trust with the banks. We are confident that we will find inventive ways to finance our debt and that there is nothing to worry about."
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