Sprint-SoftBank Deal 'Audacious,' Could Make or Break Both Companies
Copyright 2014 by Virgo Publishing.
By: Kelly Teal, Senior Editor
Posted on: 10/15/2012



 

**Editor's Note: Please click here for a recap of the biggest channel-impacting mergers in Q3 2012.**

Sprint Nextel is gearing up to compete more squarely against A&T and Verizon, with advanced LTE technology and possible acquisitions, thanks to the $20.1 billion backing of Japan-based SoftBank.

"There could not be a better time for us to have this infusion of capital," Dan Hesse, Sprint CEO, said at a press conference in Tokyo on Monday.

That's because Sprint is in the second phase of its years-long turnaround plan. The provider still is struggling to catch up to U.S. rivals after the ill-fated Nextel acquisition, and after facing other problems including years of customer service troubles and quarterly earnings losses.

Now, to execute on its turnaround strategy – and create better returns for investors – it needs money. Thus, Sprint aims to use $8 billion of debt and equity from the SoftBank deal to finish modernizing its network, and possibly to pay off debt and buy other operators. When pressed by reporters on those last two points, Hesse would not confirm plans.

Analysts, however, are placing their bets.

"Sprint could ... use its new financial strength to move for MetroPCS, which it wanted to buy earlier this year, and which T-Mobile USA has recently announced plans to acquire," said Mike Roberts, principal analyst at Informa Telecoms & Media.

Observers at research firm Analysys Mason agreed, although they also think SoftBank now has Clearwire – the WiMAX operator of which Sprint owns 48 percent – in its sights.

"Funding has been a problem for Clearwire and this is a perfect fit for Softbank’s larger corporate strategy," principal analysts Chris Nicoll and Steve Hilton wrote in a client memo.

At the Tokyo event, Hesse said the $20.1 billion investment from SoftBank does not include Clearwire. So, it stands to reason that SoftBank could pursue a separate transaction for the WiMAX operator, which is moving to LTE because the WiMAX 4G protocol did not take off in the market as expected.

Sprint's future has analysts talking. So does SoftBank's new global position – it's now the third-largest mobile operator behind China Mobile and Verizon. Indeed, SoftBank's new majority ownership could "transform or hobble" both it and Sprint, depending on how everything plays out, Roberts said.

"This is an audacious deal."

For one thing, SoftBank's investment in an American company could prove risky.

"Earlier this month, SoftBank announced plans to acquire rival eAccess for $2.3 billion in a bid to become the second-largest mobile operator in Japan, and adding a huge international deal on top of that increases the risk that management will be so stretched that neither deal will go to plan," Roberts said.

At the same time, Sprint must finish implementing Network Vision, its deployment of a new 3G network and rollout of advanced LTE, in the form of TD- and FD-LTE, nationwide. For the Analysys Mason analysts, Sprint couldn't have gotten backing at a better time. The $8 billion Sprint will be receiving should help it keep up with AT&T and Verizon, "and try and get ahead of T-Mobile," they said. Still, even with SoftBank's help, Sprint remains a "distant No. 3" in the United States, "with an aggressive T-Mobile close behind," said Nicoll and Hilton. Nonetheless, they remain cautiously positive on SoftBank-Sprint, they said.

What all of this means for the indirect channel remains unknown. A Sprint spokeswoman told Channel Partners on Monday it's too soon to discuss particulars.

Even with SoftBank in control, Sprint continues to trade on the New York Stock Exchange. Its shares closed down 4 cents on Monday, at $5.69.