SoftBank Corp. President Masayoshi Son is reframing his argument for consolidation in the U.S. mobile-phone market, heading to Washington this week to advocate for wireless broadband as an alternative to cable.
Addressing investors and technology policy makers at a lunch Tuesday, Son plans to outline the advantages of an advanced wireless network that could deliver ultra-fast Internet access across the country and improve education and mobile commerce, according to people with knowledge of the matter, who asked not to be identified because the plan is private.
Son is not planning to make a direct appeal for a merger of Overland Park-based Sprint Corp. and T-Mobile US Inc., the third- and fourth-largest U.S. mobile-phone carriers, these people said.
The billionaire, who is said to be considering an offer for T-Mobile after buying control of Sprint last year, has met resistance from regulators who are skeptical that shrinking the number of national wireless carriers to three would promote competition. He’s now trying to reframe the argument around the emergence of a new option for Internet in the home, said Jennifer Fritzsche, an analyst with Wells Fargo & Co. That would allow Son to focus on competing against landline Internet companies that currently have few or no rivals.
“In most markets you have one or two choices for broadband. SoftBank’s strategy is to convince the FCC and DOJ that a strengthened No. 3 player can compete with cable,” Fritzsche said, referring to the Federal Communications Commission and the Department of Justice. “The key to this will be finding a way to make it politically palatable so it doesn’t look like regulators are doing an about- face on the four-player market preference.”
By expanding the argument to broadband, Son is positioning a bigger wireless broadband provider as an alternative for consumers who today only have two major choices for Internet at home: their landline phone company, such as Verizon Communications Inc., or a cable-TV company, like Comcast Corp.
Comcast recently agreed to buy Time Warner Cable Inc. for $45.2 billion in stock in a deal that combines the two largest U.S. cable companies. That means Son’s argument for greater broadband competition comes at a time when regulators are likely analyzing the impact of cable consolidation on consumers’ choices for Internet and TV service in the future.
A representative for SoftBank declined to comment on the presentation or provide an advanced copy of the speech. The Tokyo-based company sent out an invitation last week to the event, saying Son will discuss “the state of America’s wireless communications industry and the competitive global landscape.”
The 56-year-old founder of Japan’s SoftBank argued during a January meeting with antitrust officials that merging T-Mobile with Sprint would allow for more aggressive competition against large carriers AT&T Inc. and Verizon.
Consolidation is “inevitable given the predatory duopoly structure here in the U.S.,” T-Mobile Chief Financial Officer Braxton Carter said at an investor conference last week. He reiterated that T-Mobile, which is 67 percent owned by Deutsche Telekom AG, is being run for the long term. T-Mobile had a market value of about $25 billion last week.
Deutsche Telekom Chief Executive Officer Timotheus Hoettges said last week that a recovering outlook in the U.S. means T- Mobile can go it alone, at least for now. He told a supervisory board meeting that regulatory hurdles in the U.S. could hurt the chances of a sale of T-Mobile, according to two people with direct knowledge of the matter.
Son’s argument for the bid is that the scale of Verizon and AT&T will stand in the way of a strong third competitor unless Sprint can acquire T-Mobile, said Neil Juggins, a Hong Kong- based analyst at JI Asia Research Ltd. Recently, consumers have benefited from new discount wireless plans sparked by T-Mobile’s aggressive prices.
“It’s going to be tough,” Juggins said. “It’s going to be very hard to persuade the FCC and the American consumer.”
In the past year, Bellevue, Washington-based T-Mobile became the first carrier to introduce quicker phone upgrades, payment financing, international data and text messaging at no extra charge and a $450 credit program for customers that switch service. The moves helped T-Mobile gain 2.1 million monthly customers in the past three quarters.
In response, each of the bigger rivals, including Sprint, have either altered data allotments and prices or introduced new plans in an effort to keep customers.
Instead of continuing to challenge regulators’ preference for four companies in the U.S. wireless market, Son will probably aim his argument at the far less competitive arena of home broadband, said Walt Piecyk, an analyst with BTIG LLC.
“They would like to position Sprint/T-Mobile, not just as a competitor to AT&T and Verizon, but as a new competitor to the broadband industry if they were allowed to merge,” Piecyk said. “SoftBank will try and show that it knows where the future is heading, and that with more scale, it can be the competition needed in the landline broadband industry.”
The U.S. has about 200 million mobile broadband users, the highest number of all countries, according to Chetan Sharma, an independent wireless analyst at Chetan Sharma Consulting. Last year average mobile data use almost doubled to 1.2 gigabytes from 690 megabytes, he said.
While landline broadband holds an inherent performance advantage, mobile broadband can offer a different model that could be cheaper and available in more places, Sharma said.
“The monopolies are more entrenched in the landline world, and there’s less incentive for reduction of pricing versus mobile, where the competition is more intense,” he said.
When Son took over SoftBank from Vodafone Group Plc in April 2006, he had a plan to reinvent Japan’s struggling third- ranked carrier. He changed pricing to revive growth and upgraded networks to send video and other data.
Within six months of completing the deal, he dropped the Vodafone brand in favor of the SoftBank label, a name then best- known in Japan as the nation’s second-largest Internet service provider.
Son also made SoftBank the first Japanese carrier to offer the iPhone. The company tapped Hollywood stars to promote its brand, hiring actors Cameron Diaz, Brad Pitt and Tommy Lee Jones to spearhead advertising campaigns.
Changing the image wasn’t enough to revive growth. Son worked to improve its network in response to rising demand from customers to send video and other data. SoftBank has increased its base stations for Japan services more than 10-fold since 2006, according to the company. That compares to a tripling for NTT Docomo Inc.
The moves helped. When Son bought the wireless business, it had about 15 percent of the market and 16 million subscribers. At the end of February, it had 25 percent of the market and 35 million users.
SoftBank outgrew both its rivals in new users every year from 2008 to 2013, and its market value has more than quadrupled to $93.4 billion since June 2008 when the company announced it would start offering the iPhone.
Now, Son will try to bring the culture of shopping on smartphones to the U.S., the same way he did in Japan, said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo.
“Son wants to introduce mobile Internet to the U.S.,” Yasuda said. “It worked well in Japan. Ten years ago, nobody believed we would buy goods with smartphones, but Son had a vision and he will try to do the same in the U.S.”