Troubled mobile carrier Sprint appears to have been offered a $12.8 billion lifeline from Japan's Softbank. The carrier certainly needs the money, but is selling off the majority of the company really the best path for Sprint? More importantly, is it a good thing for U.S. consumers?
Make no mistake: Sprint Nextel is in turmoil. The third-place carrier has made huge bets that have not panned out and has struggled to keep up with the behemoths of the U.S. cellular industry in AT&T and Verizon - while also fighting to beat back upstart competition from low-cost carriers like T-Mobile. The operator’s tenuous standing in the U.S. mobile industry makes the news that Japanese mobile carrier Softbank Corp. is looking to acquire near two-thirds of the operation such an intriguing proposition. From the perspective of the U.S. consumer, the question becomes: Is this a good thing?
To understand why Sprint would even consider selling part of itself to Softbank, one must understand the recent history of the carrier.
First, Sprint has been sluggish in building infrastructure in the U.S. Several high-profile partnerships that Sprint was counting on to change that have not panned out or have had to been completely rethought. First there was Clearwire, the WiMax cellular technology company of which Sprint owns a large percentage. There's no way to sugar-coat it: WiMax has proved to be a failure in the consumer market, forcing Sprint to rethink its relationship with the provider. Then there was LightSquared, which was attempting to provide 4G bandwidth using satellite connectivity, at least in part. LightSquared has run afoul of federal regulators over supposed interference with GPS interference and is on the verge on bankruptcy.
Sprint has had to forge ahead with its existing spectrum resources and liquid assets and build its own nationwide LTE network. That project will take time and billions of dollars to complete. Verizon (and AT&T, to a lesser extent) have large head starts. Part of Sprint’s problem is one of scale. Because it is smaller it simply can't build infrastructure as fast as Verizon and AT&T can.
The next most important factor in Sprint’s current business situation is the multi-billion dollar bet it placed on Apple’s iPhone. The subsidies that Sprint has to pay for each iPhone sold onto its network are putting a large dent in the carrier’s bottom line. The potential payoff (through signing consumers to long-term contracts) should outweigh the short term hit to Sprint’s cash flow. But Sprint, even more so than the other carriers, will literally live or die by the iPhone.
So, where does Softbank fit into this equation? The simplest answer is that the Japanese carrier can give Sprint an influx of cash that will stabilize its financial position and enable it to more aggressively build - or buy - LTE infrastructure in the United States. And some observers have speculated that Softbank may be interested in Clearwire's technology and spectrum.
Softbank money would also let Sprint make bigger bets on in-demand handsets the way it has with the iPhone. The carrier has been known to take large gambles on certain devices, like the original HTC Evo 4G (on WiMax) and some of those bets have paid off.
One of the bigger ironies of a partial Softbank takeover of Sprint, though, is that a foreign carrier will be taking over a U.S. national operator, even as another U.S. carrier starts to shed its own foreign origins. T-Mobile USA (owned by Germany's Deutsche Telekom) just struck a partnership with MetroPCS that will enable the parent company to begin selling off its ownership of T-Mobile on the U.S. stock market. (Just over a week ago, many observers thought that Sprint would try to buy MetroPCS.)
There will be regulatory concerns with the Sprint/Softbank deal, but what I have seen from the U.S. Justice Department and Federal Communications Commission over the last couple of years leads me to believe that a Sprint/Softbank deal should be able to overcome any opposition. The U.S. federal government wants competition in the U.S. mobile carrier landscape - that was one of the primary reasons it rejected AT&T's attempted takeover of T-Mobile in 2011. In theory, Softbank’s cash and partial ownership should help make Sprint a stronger, more viable competitor for the long run.
So, Is This A Good Thing?
Back to the original question: Is Softbank riding to Sprint's rescue a good thing for American mobile users?
Well, a stronger and more stable Sprint should be good for consumers - as long as Softbank does not make the carrier shed its best features for smartphone users, particularly its “unlimited everything” plans. That is not a foregone conclusion. In several years, Softbank might very well demand more return on its investment and put pressure on Sprint to do away with such plans. That's unlikely to happen right away, but it remains a long term concern.
So while there seem to be positive implications, it's impossible to know exactly how Sprint might be affected by getting in bed with Softbank.For one thing, many issues won't become clear until a deal is approved by regulators - and so far there isn't even an actual deal - just "advanced" discussions about a deal.
If the deal does go through, integration of the two companies will be closely monitored. But acquisitions seldom go completely as planned, and often lead to unpleasant surprises and rocky times for all parties involved. So there's room for optimism and caution.