Sprint-SoftBank merger could give wireless world a jolt

10/16/2012 12:00 AM

05/16/2014 8:00 PM

Against entrenched competition, Softbank boss Masayoshi Son made dramatic inroads into the cellphone industry in tech-loving Japan — at a rate that left analysts’ jaws agape.

Now he wants to use the Japanese company’s deep pockets to shake the wireless status quo in the United States. In play are what you get from, and perhaps pay to, your wireless company.

To do that, Son engineered Tokyo-based SoftBank’s buyout of Overland Park-based Sprint Nextel Corp. The deal to acquire 70 percent of Sprint for $20.1 billion was confirmed Monday pending approval by shareholders and regulators.

The SoftBank buyout, which stands to muscle up the fragile and money-hungry No. 3 U.S. carrier into a bold contender, is no magic bullet.

“It’s not an easy path to go,” Son said at a Tokyo press conference Monday. “But without taking on a challenge, we may end up facing bigger risks.”

Son, when he lands in the United States, pointedly has complained about what he sees as molasses-speed wireless connections. In Japan, the newest and fastest cellular signals are nearly everywhere, and their capacity to channel huge vats of data means sluggish downloads are rare.

And consider that in Japan people who stick with a carrier actually see their bills

drop

.

SoftBank’s rise in Japan — despite the name, it’s primarily a wireless phone company — came from being the first to sell Apple’s iPhone there and from undercutting the competition on price. Already, Sprint generally sells the least-expensive wireless service and is the only major carrier to offer unlimited data plans for smartphones.

“If history is any guide,” wrote analyst Craig Moffett of Sanford C. Bernstein Co., “Sprint will be an aggressive pricer.”

Analysts say none of that is a promise to transform America’s wireless landscape, or even that Sprint will be able to markedly quicken its rollout of a better, faster network.

Still, Son has money and momentum. Should the deal go through, that cash and energy mean that Sprint won’t need to hunt for vendors or investors to underwrite an ambitious, just-begun plan to overhaul its antennas and infrastructure for expanding 4G service.

The deal might make enough cash handy for Sprint that it could buy Clearwire Corp. — which it now owns slightly less than half of — and see its share of radio frequency spectrum instantly grow from paltry to gaudy. Sprint CEO Dan Hesse said SoftBank’s flush cash sets the stage for a “significant consolidation opportunity.” A report from one analysis firm speculated Monday that could mean Sprint would look to buy Clearwire, Leap Wireless, MetroPCS or T-Mobile USA.

Sprint might then have the strength to challenge market leader Verizon Wireless and No. 2 AT Earlier this year, Sprint complained loudly that the ultimately doomed merger of AT and T-Mobile would solidify a duopoly in the U.S. wireless business.

Now within a year, said one analyst, we could see Sprint’s network expansion picking up pace and its stable of handsets growing. Finally landing the iPhone this year was a critical move for Sprint to keep existing customers and draw new ones, said Heavy Reading’s Berge Ayvazian. But paying for high-end devices drains cash in the short term.

Life with SoftBank could change those dynamics. Sprint would go from being the third-largest mobile company in the United States to being part of the third-largest wireless firm in the

world.

SoftBank said its and Sprint’s combined revenues from mobile operations reached $32 billion in the first half of this year, roughly equal to AT and just behind Verizon’s $37 billion and China Mobile’s $43 billion.

Counting subscribers, SoftBank and Sprint together count 96 million customers, which puts them in the same neighborhood as Verizon’s 111 million and AT’s 105 million.

This greater size would give them greater leverage when negotiating with handset makers such as Apple and Samsung, or when spending billions on the mostly invisible equipment that keeps the company’s communications network alive.

Sprint has already shown improvements in customer service, Ayvazian said, and SoftBank’s help could have it making up ground on high-speed wireless coverage through Long Term Evolution, or LTE, technology.

“The 4G wars are going to escalate, no doubt,” he said. “This deal improves Sprint’s position and pushes the competition.”

Analysts see the deal as an opportunity but not a guarantee that Sprint can overtake the competition. They talk about the “blocking and tackling” of the cellphone business — keeping customers happy, negotiating tough deals with phone makers and cell tower owners, and updating voice-and-information networks in the smartest way.

“With more money, Sprint will have more water under the keel,” said industry analyst Roger Entner of Recon Analytics. “But the steering still has to be right.”

Hesse will be a captain and Son the very interested admiral.

Son is 55, a mostly self-made success worth $7.3 billion that Forbes magazine says makes him the second-richest person in Japan. He came to the United States to study as a teenager. He returned to his homeland and ultimately founded SoftBank, where he is chief executive. His move to buy Vodfone Group’s Japanese mobile phone business in 2006 was a clear winner.

SoftBank is one of three major wireless players on the Asian island nation. And Son has emerged as a singular personality of unhidden confidence. He owns stakes in Yahoo Japan Corp., Alibaba Group Holding Ltd. and Zynga Inc.

In 2010 he laid out a 300-year plan that plays to capitalism’s appreciation for survival of the fittest and that figures to grow billions into trillions. He hopes to bring some of his Japanese success to the United States, perhaps the first step in building a truly global service.

For starters, he’s likely to push Sprint to make faster connections a priority.

“I am a speed maniac,” Son has said, adding he “cannot stand the slowness of the speed” in the United States.

Yet the Japanese use the same LTE, or long term evolution technology, that U.S. companies are rolling out. It’s just that the Japanese are ahead. It’s part of the reason consumers there don’t blink an eye about using their phones to get soda from vending machines, to board subways, to buy plane tickets or to watch television.

That’s a country slightly smaller than California. The United States has roughly 24 times the land mass, with the population less evenly distributed. So the difference between here and there is as much geography as technology.

It’s not clear whether the billionaire with big ambitions will turbocharge your handset.

Analysts differ on whether consumers will see much of a change. Network Vision, the term Sprint gives to the overhaul and upgrade of its cellular network, is already under way. By some estimates, it’s already too late. Verizon and, to a lesser degree, AT have already spread LTE across the country. Sprint has rolled out its new technology in Kansas City and a couple dozen other markets. Work is ongoing elsewhere.

Hesse has said throwing money at the project won’t necessarily fire the network up any more quickly. Industry analyst Donna Jaegers of D.A. Davidson Co. noted that much of the actual work falls to three large cell tower companies that might not be able to deploy more crews even if Sprint had the money to pay for it. Other work can get set back to allow for things such as the breeding seasons of endangered bird species that roost on or near towers.

“There are lots of tactical delays,” Jaegers said.

A year or two down the road, however, analysts see a faster-deploying network. Sprint, for instance, has gone to vendors to finance some of the work — a buy-now-pay-later approach — or looked to outside investors. With SoftBank’s money available, the work won’t be slowed for lack of financing.

“Over the longer term, they can move faster,” said Carrie MacGillivray, an industry analyst with IDC.

The added SoftBank money gives Sprint a chance to apply what analysts see as its disciplined management of recent years to building something that will draw more customers.

“The biggest thing plaguing Sprint was the perception about its service,” said Zack Shafran, a portfolio manager at Waddell Reed in Overland Park. “They’re slowly but surely getting better. … They need to keep making progress.”

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