Gadfly

Rakuten Is Low on the Crazy Scale

E-commerce, messaging, payments plus a telecoms firm. What's not to love?
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Photographer: Behrouz Mehri/Getty Images

If Jeff Bezos announced plans for Amazon.com Inc. to set up a telecom firm, you wouldn't imagine it to be a crazy idea.

Were Jack Ma to say that Alibaba Group Holding Ltd. is working to acquire wireless spectrum, you probably wouldn't think he was totally off his rocker, either.

But when Rakuten Inc., the Japanese e-commerce company, said Thursday it will apply for some mobile-phone frequency, observers and traders acted as though the board was out of its mind. The shares fell as much as 4.9 percent, the most in a month.

There is some logic behind the idea, though, best highlighted by the company itself, albeit in awkward PR-speak:

Mobile devices are the most important user touchpoint for the expansion of existing services and new service development.

Rakuten is already a telecom player with 1.4 million subscribers through its mobile virtual network operator business launched three years ago. It aims to grow that base to 15 million if it gets a full telecom license.

Running a mobile-phone operator profitably isn't easy -- just ask Masayoshi Son about Sprint Corp. But if you combine telecom services with e-commerce, instant messaging, payments, digital content and a loyalty program, then you have the potential to create a virtuous circle not unlike what Bezos built with Amazon.

There are many ways Rakuten could mess it up, especially given it's looking to invest 200 billion yen ($1.8 billion) to 600 billion yen in the project. But there's an old saying that if you don't take risks, you don't drink champagne.

With this announcement, Rakuten has just put some bubbly on ice.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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