Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

Rakuten has adjusted its pricing structure to flexibly include usage tiers for the first time. This allows it to keep its original pricing of ¥2,980/month for unlimited (on-network) usage but match recent offers from the incumbents with new price points. It is a good response from Rakuten which restores itself as the price leader (when its users are on-network) whilst the flexibility itself becomes a selling point. This will lower average ARPU and service revenue going forward but management says that lower churn and customer acquisition costs should help it keep the timeline to break-even from shifting very much. A “free” tier for &lt;1GB usage is interesting but as the “first 3mn users get free service” campaign shows, price alone is not always enough.

Rakuten has adjusted its pricing structure to flexibly include usage tiers for the first time. This allows it to keep its original pricing of ¥2,980/month for unlimited (on-network) usage but match recent offers from the incumbents with new price points. It is a good response from Rakuten which restores itself as the price leader (when its users are on-network) whilst the flexibility itself becomes a selling point. This will lower average ARPU and service revenue going forward but management says that lower churn and customer acquisition costs should help it keep the timeline to break-even from shifting very much. A “free” tier for &lt;1GB usage is interesting but as the “first 3mn users get free service” campaign shows, price alone is not always enough.    

Rakuten - Pricing Response Has a Few Surprises but Coverage Remains the Issue

Thematic (Sector/Industry)

KDDI will announce industry-low pricing tomorrow with a new plan for 20GB/month data at ¥2,480/month, which is ¥500 cheaper (-17%) than plans announced by NTT DoCoMo and Softbank last month (and who will likely tweak their plans to match). For the industry overall, this clearly means modestly steeper erosion for mobile service revenue in FY21 and beyond but the good news is KDDI’s announcement should draw a line under regulatory-driven pricing pressure. It is worse news for newcomer Rakuten which has gone from a disruptive price leader in April last year to behind the curve nine months later. News this morning that a Rakuten Mobile network employee has been arrested for trade secret theft does not help.

KDDI will announce industry-low pricing tomorrow with a new plan for 20GB/month data at ¥2,480/month, which is ¥500 cheaper (-17%) than plans announced by NTT DoCoMo and Softbank last month (and who will likely tweak their plans to match). For the industry overall, this clearly means modestly steeper erosion for mobile service revenue in FY21 and beyond but the good news is KDDI’s announcement should draw a line under regulatory-driven pricing pressure. It is worse news for newcomer Rakuten which has gone from a disruptive price leader in April last year to behind the curve nine months later. News this morning that a Rakuten Mobile network employee has been arrested for trade secret theft does not help.

Japan Telecom Sector - KDDI Response to DoCoMo Pricing Increases the Pressure on Rakuten

Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Japan's Open RAN 5G solution continues to gain traction.<ul>
<li>On December 16, NEC was selected by Telefonica as the system integrator for the first Open RAN pilot system in Germany.</li>
<li>Deutsche Telekom is working with NEC, Fujitsu, Dell, Nokia and others, targeting its first deployment of 4G and 5G Open RAN in 2021.</li>
<li>In late November, Malaysia's Communications and Multimedia Minister Gobind Singh Deo met with NEC, Fujitsu and Rakuten to discuss their 5G proposals.</li>
</ul>This follows the announcement of NEC's 5G Open RAN initiatives in the UK and India. <a href="https://www.smartkarma.com/insights/nec-6701-jp-open-ran-center-to-replace-huawei-5g-in-the-uk" target="_blank" data-smartkarma-citation="insights:45536" rel="noopener">NEC (6701 JP): Open RAN Center to Replace Huawei 5G in the UK</a> .As for NEC's current business, new orders began to recover in 2Q of FY Mar-21. Sales and profits should follow in 2H, led by the Public Infrastructure and Enterprise segments.Our profit forecast brings NEC's projected P/E ratio down to 14x in FY Mar-23, suggesting long-term upside potential of 40% or more.

Japan's Open RAN 5G solution continues to gain traction.
On December 16, NEC was selected by Telefonica as the system integrator for the first Open RAN pilot system in Germany.
Deutsche Telekom is working with NEC, Fujitsu, Dell, Nokia and others, targeting its first deployment of 4G and 5G Open RAN in 2021.
In late November, Malaysia's Communications and Multimedia Minister Gobind Singh Deo met with NEC, Fujitsu and Rakuten to discuss their 5G proposals.
This follows the announcement of NEC's 5G Open RAN initiatives in the UK and India. NEC (6701 JP): Open RAN Center to Replace Huawei 5G in the UK .As for NEC's current business, new orders began to recover in 2Q of FY Mar-21. Sales and profits should follow in 2H, led by the Public Infrastructure and Enterprise segments.Our profit forecast brings NEC's projected P/E ratio down to 14x in FY Mar-23, suggesting long-term upside potential of 40% or more. 

NEC (6701 JP): Japan's Open RAN a Growing Alternative to Huawei

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Japan may be one of the top three luxury markets in the world but luxury e-commerce is poorly evolved, with much of the focus still on flagships, boutiques and department stores.While Rakuten opened its own luxury section last month, a new dedicated luxury platform, Milleporte, which is backed by Goldman Sachs and Itochu Corp, has just launched with the promise to offer both merchants and customers a true luxury experience.In marked contrast to the busier online fashion pages of <a href="https://www.smartkarma.com/entities/zozo-inc" target="_blank" data-smartkarma-citation="entities:18379:1" rel="noopener">ZOZO Inc (3092 JP)</a> and <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten Inc (4755 JP)</a>’s new luxury store, where the focus remains on the platform-as-brand at the expense of the merchant, Milleporte strips away the store front to allow customers to focus on the luxury brands themselves.The site is a direct challenge to both Zozo and Rakuten.

Japan may be one of the top three luxury markets in the world but luxury e-commerce is poorly evolved, with much of the focus still on flagships, boutiques and department stores.While Rakuten opened its own luxury section last month, a new dedicated luxury platform, Milleporte, which is backed by Goldman Sachs and Itochu Corp, has just launched with the promise to offer both merchants and customers a true luxury experience.In marked contrast to the busier online fashion pages of ZOZO Inc (3092 JP) and Rakuten Inc (4755 JP)’s new luxury store, where the focus remains on the platform-as-brand at the expense of the merchant, Milleporte strips away the store front to allow customers to focus on the luxury brands themselves.The site is a direct challenge to both Zozo and Rakuten.

Milleporte Counters Rakuten and Zozo on Luxury Platform

Event-Driven

Walmart’s 18-year attempt to build a business in Japan ended last month when the US retailer announced it would sell 85% of its stake in Seiyu to KKR and Rakuten.Seiyu has been transformed under Walmart’s leadership although it is much smaller than when Walmart arrived.Now, with <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a> and <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten Inc (4755 JP)</a> taking over, the hope is Seiyu could re-emerge as a leader in food e-commerce under Rakuten.The Seiyu chain could transform Rakuten’s logistics capability, allowing it to offer a comprehensive click &amp; collect service as well as use redundant store space for dark store fulfilment.What the new partners cannot afford to do is dither. Japan may well have room for more than one major online food retailer but just a couple of leaders will command the lion’s share.  <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a>’s partnership with <a href="https://www.smartkarma.com/entities/life-corp" target="_blank" data-smartkarma-citation="entities:1743:1" rel="noopener">Life Corp (8194 JP)</a>, <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>’s Lohaco, <a href="https://www.smartkarma.com/entities/oisix-ra-daichi-inc" target="_blank" data-smartkarma-citation="entities:10145:1" rel="noopener">Oisix ra daichi (3182 JP)</a>, and, at some point, <a href="https://www.smartkarma.com/entities/aeon-co-ltd" target="_blank" data-smartkarma-citation="entities:3:1" rel="noopener">Aeon Co Ltd (8267 JP)/</a><a href="https://www.smartkarma.com/entities/ocado-group-plc" target="_blank" data-smartkarma-citation="entities:22067:1" rel="noopener">Ocado Group PLC (OCDO LN)</a> are the ones to beat.Already the deal is causing a significant upset in supermarket and GMS retailing.

Walmart’s 18-year attempt to build a business in Japan ended last month when the US retailer announced it would sell 85% of its stake in Seiyu to KKR and Rakuten.Seiyu has been transformed under Walmart’s leadership although it is much smaller than when Walmart arrived.Now, with KKR &amp; Co Inc (KKR US) and Rakuten Inc (4755 JP) taking over, the hope is Seiyu could re-emerge as a leader in food e-commerce under Rakuten.The Seiyu chain could transform Rakuten’s logistics capability, allowing it to offer a comprehensive click &amp; collect service as well as use redundant store space for dark store fulfilment.What the new partners cannot afford to do is dither. Japan may well have room for more than one major online food retailer but just a couple of leaders will command the lion’s share.  Amazon.com Inc (AMZN US)’s partnership with Life Corp (8194 JP), Z Holdings (4689 JP)’s Lohaco, Oisix ra daichi (3182 JP), and, at some point, Aeon Co Ltd (8267 JP)/Ocado Group PLC (OCDO LN) are the ones to beat.Already the deal is causing a significant upset in supermarket and GMS retailing.

KKR & Rakuten Ignite Online Food Battle with Seiyu Purchase

Japan

Rakuten Group, Inc. provides Internet services. The Company offers Internet finance services which including "Rakuten Card" and "Rakuten Bank". Rakuten Group also provides digital content services including electronic book services.

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Rakuten (4755 JP)

Rakuten - Pricing Response Has a Few Surprises but Coverage Remains the Issue

Rakuten has responded to incumbents with new pricing that introduces variable pricing. The magnitude of change was largely expected however and...

Kirk Boodry

Japan Telecom Sector - KDDI Response to DoCoMo Pricing Increases the Pressure on Rakuten

New data pricing from KDDI undercuts NTT/Softbank, which is bad for FY21 sales but eases regulatory worries. It is definitely bad news for Rakuten...

Kirk Boodry

NEC (6701 JP): Japan's Open RAN a Growing Alternative to Huawei

New opportunities in Germany and Malaysia expand the potential for Japanese Open RAN telecom technology beyond Rakuten and the UK. NEC is likely to...

Scott Foster

Milleporte Counters Rakuten and Zozo on Luxury Platform

Japan is the 3rd biggest luxury market but has no dedicated luxury online platform. Until now. Rakuten launched last month a new mall just launched...

Michael Causton

KKR & Rakuten Ignite Online Food Battle with Seiyu Purchase

E-commerce has less than 3% share of Japanese food retailing. This will change dramatically in the next 3 years, led by Amazon but also by Rakuten...

Michael Causton

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