Sprint-Softbank deal big on size, small on change

NEW YORK/SAN FRANCISCO Tue Oct 16, 2012 10:10am IST

1 of 2. A man walks past a Softbank advertisement board at its shop in Tokyo October 16, 2012.

Credit: Reuters/Kim Kyung-Hoon/Files

Related Topics

Stocks

   

NEW YORK/SAN FRANCISCO (Reuters) - It's this year's biggest technology acquisition and the largest outbound deal in Japan's history. But game-changing, it is not.

Softbank Corp's (9984.T) pricey $20 billion bid to buy control of No. 3 U.S. telecoms company Sprint Nextel Corp (S.N) marks a bold move by billionaire CEO Masayoshi Son beyond his flagging home market. Some analysts say it hands the U.S. company much-needed firepower to buy peers and build out high-speed networks.

But if Son succeeds, Sprint will still struggle to win customers in a market dominated by the twin towers of the U.S. mobile landscape - Verizon Communications Inc (VZ.N) and AT&T Inc (T.N) - while T-Mobile and MetroPCS Communications Inc PCS.N move to team up. That market dynamic will persist, analysts say.

Son, an unusually aggressive risk-taker in a cautious Japanese corporate culture who brought the iPhone to Japan, may still have more surprises up his sleeve, but analysts do not believe that the Sprint deal by itself can undermine the two U.S. market leaders' virtually unassailable position.

"Getting the technology out there is just getting you to the table," said Phillip Redman, analyst at research firm Gartner.

It will take more than the iPhone and a technology upgrade to improve Sprint's position, he said. Its brand value had dropped despite good work-around plans and pricing, partly because of its weak competitive position.

Under the agreement - which awaits regulatory and shareholder approval - Softbank will buy about 70 percent of Sprint Nextel for $20.1 billion.

Combined, the two will have 96 million users. But that includes Japanese subscribers and lags the almost 108 million subscribers Verizon had in 2011 and AT&T's more than 103 million, according to data from IHS iSuppli.

"It doesn't change the landscape too much, in that this deal doesn't eliminate a competitor," Todd Rethemeier at Hudson Square said.

WHAT'S THE GAME?

Sprint is going through a $7 billion upgrade of one of its networks, while closing its Nextel iDen network, which makes Softbank's capital especially useful.

The deal fuelled investor hopes for a further boost to network construction: on Monday, shares in cellphone tower equipment makers Crown Castle International Corp (CCI.N) and American Tower Corp (AMT.N) gained about 4 percent on optimism that a richer Sprint may spend more on fourth-generation gear.

But analysts say don't count on a sustained windfall in telecoms spending with infrastructure buildouts already in progress and factored into stock prices.

In Sprint's case, some analysts say Wall Street did not doubt that the company could have bankrolled the project somehow over the years it would take, even without a Softbank deal.

To be sure, many on Wall Street like the progress that Sprint has made in a years-long turnaround effort, with some pointing out novel data plans, for instance, that have helped to stanch customer losses and kept them in the game.

"Right now it's not clear to me why this is a fantastic thing for Sprint shareholders," said independent telecoms consultant John Jackson of the Softbank announcement. "Getting access to lots of money is not a strategy in itself."

"It's hard to see this having a significant impact on Verizon and AT&T," he added. "It looks like Sprint finally has a handle on their destiny. And then they go and do this."

The primary gain for cash-strapped Sprint will be the short-term infusion of funds as it struggles to whittle down debt. CEO Dan Hesse acknowledged the financial challenges it has faced - which the new capital could fix quickly.

"Aside from additional liquidity, however, from an operational perspective little changes by virtue of having a new controlling shareholder and less leverage," Bernstein Research's Craig Moffet said in a note.

Other analysts say Sprint may employ its refilled coffers in acquisitions, including of partner Clearwire Corp CLWR.O, which owns wireless spectrum it needs.

But what's harder to fix with cash is Sprint's inherent disadvantage vis-a-vis its two bigger rivals.

"You can't throw money at the problem," Rethemeier said.

An alliance with Softbank could give it more leverage when dealing with Apple Inc (AAPL.O), and negotiating the hefty subsidies that have eroded its bottom line. But some analysts say it's hard to argue with AT&T's and Verizon's numbers over the longer term.

"The market is largely saturated. Growth is going to come from stealing customers from AT&T and Verizon," said Forrester analyst Charles Golvin. "If T-Mobile and MetroPCS happens, they will be vying for customers from AT&T and Verizon as well." (Editing by Edmund Klamann)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Pharma

REUTERS SHOWCASE

Jan Dhan Yojna

Jan Dhan Yojna

Modi: Banking for all to end "financial untouchability".  Full Article 

Power Outage

Power Outage

India may face blackouts as coal shortage cuts power output  Full Article 

Moody's on Inflation

Moody's on Inflation

Persistent inflation hurting India's sovereign ratings - Moody's  Full Article 

Tracking Monsoon

Tracking Monsoon

Monsoon forecast to be better for crops next week  Full Article 

Carmichael Project

Carmichael Project

Adani buys Australia coal mine royalty rights from Linc for $145 million  Full Article 

GDP Preview

GDP Preview

Economy likely grew faster in June quarter: Reuters poll.  Full Article 

India-Japan Meet

India-Japan Meet

Modi eyes breakthrough nuclear pact on Japan trip   Full Article 

Monetary Policy

Monetary Policy

BofA says RBI may cut rates by 75-100 bps starting early 2015  Full Article 

Rare Earth Output

Rare Earth Output

India to chip in with 5 pct of global rare earth output  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage