Softbank Gives Sprint a $20B Shot in the Arm

Softbank has agreed to pay US$20.1 billion to acquire a 70 percent stake in Sprint Nextel, the companies announced Monday. The deal will be the largest outbound acquisition by a Japan-based company since at least 2000, assuming it goes through.

The move is seen as a way for Softbank to grow overseas as its local market declines, and it could help Sprint, which has seen serious customer erosion, undergo a necessary turnaround.

“We believe the transaction will enable Sprint to be a stronger and more robust competitor in the U.S. market and believe competition will increase because Sprint will become an even stronger competitor than it is today,” said Sprint spokesperson Roni M. Singleton.

Softbank did not respond to our request for further details.

Power of Threes

Both Sprint and Softbank are the third-largest carriers in their respective markets — and this deal could create the world’s third-largest mobile phone services provider by revenue. More importantly, it could be the move both companies need to remain relevant, even if there are growing pains to overcome.

“At first glance, the deal appears to offer meaningful potential benefits for Sprint in terms of giving them an opportunity to remain relevant in an evolving 4G wireless market where Verizon and AT&T will have very strong positions,” said Jeffrey S. Silva, senior policy director for telecommunications, media and technology at Medley Global Advisors. “Whether Sprint will actually capitalize on the Softbank investment is the key question, and that unknown — along with other factors — seems to represent a risk for Softbank.

The merger certainly is something Sprint welcomes as it has fallen to a distant third behind Verizon and AT&T.

“The infusion helps them,” said Chris Silva, industry analyst at the Altimeter Group. “It helps them remain as a viable alternative to the big carriers.”

However, as T-Mobile looks to be the low-cost carrier, Sprint will have to be careful as how it proceeds, he added.

“This could be a costly gamble for Sprint as it repositions itself, and how the two companies operate is going to be the issue,” Chris Silva told the E-Commerce Times. “The Japanese market is very different, and there is a big dichotomy between the two.”

Acquisitions and Regulations

At $20 billion this isn’t a deal that Softbank is entering into lightly, but the price is actually far lower than the $39 billion that AT&T had offered to buy T-Mobile, a deal that was eventually struck down by regulators. The question here is who in this case who is getting the better deal?

“There are more advantages for Sprint than Softbank, as they are getting a strong investment for their LTE network, which should allow the carrier to compete going forward with Verizon and AT&T,” said Dexter Thillien, senior analyst at IHS iSuppli. “Sprint was probably undervalued, however, as AT&T looked to buy T-Mobile for $39 billion.”

Given that this isn’t one mobile giant in the United States swallowing another — unlike AT&T’s effort to acquire T-Mobile — this deal should move forward without complications.

“The transaction will be scrutinized mostly with respect to foreign ownership,” Jeffrey Silva told the E-Commerce Times, “but I do not regard that it will be an insurmountable obstacle for government clearance.”

Instead the deal would likely ensure better competition in the market.

“This doesn’t really change the dynamic of the United States market,” said Thillien.

Moreover, Softbank and Sprint, along with another potential team-up could ensure that American consumers have options in the mobile space.

“The Softbank-Sprint deal combined with a T-Mobile/MetroPCS tie-up would likely invigorate wireless competition with respect to pricing and service quality,” said Jeffrey Silva. “Scale, spectrum and capital are essential ingredients for competition in the 4G wireless space.”