It was less than a week ago that I pondered Sprint’s relative inaction in the wireless market, posing questions related to the company’s inability to grow its brand amidst stiff competition from companies both ahead of it and behind it in the market. While my conclusions was that it was time for Sprint to change its approach, perhaps what the company really needed was a saviour, one with enough capital to make the wireless carrier competitive again…and it looks to have found just such a messiah in Japanese mobile operator Softbank Corp.
The Japanese company Softbank announced yesterday that it is purchasing a 70 percent stake in Sprint Nextel for $20.1 billion, giving the company a long sought after purchase in the growing American market, while giving Sprint the influx of capital it needs to develop its network and possibly look at other acquisition options. With foreign investment in the American wireless market front and centre right now, it’ll be interesting to see how investors react to this deal.
That said, there’s no question that in order for the lesser lights of the wireless industry to ever compete against the AT&T/Verizon duopoly that some consolidation is necessary, but no one expected such a move to come from Japan, and it has many wondering if Softbank might have bit off more than it can chew.
Looking to break out of the stagnant Japanese wireless market, it’s clear that Softbank desired greatly to find a toehold in the still growing American market. It’s the reason Softbank so actively pursued Sprint, and why the Japanese mobile operator invested over $20 billion in the cause.
But analysts are clearly torn over this deal, positive that such consolidation is necessary for the American wireless market to remain competitive, but unsure whether Softbank is ready for the challenge a new market in a new country poses.
For his part, Softbank’s billionaire founder and Chief Masayoshi Son acknowledged the challenge. “It could be safe if you do nothing, and our challenge in theU.S.is not going to be easy at all. We must enter a new market, one with a different culture, and we must start again from zero after all we have built,” but then stating that, “not taking this challenge will be a bigger risk.”
The deal itself is quite complicated, involving the creation of a new company (called New Sprint) which will then purchase a majority stake in what will now be called ‘Old Sprint,’ with Softbank spending billions on purchasing shares in both entities. Son has always announced that some $8 billion in capital will be given to Sprint to help develop its 4G LTE network and perhaps serve as seed money for future acquisitions.
As with any acquisition, Sprint employees and investors have been on edge, unsure of what such a takeover will mean for their livelihoods and investments. Sprint CEO Dan Hesse encouraged his employees and investors to see the positives in this deal, as while ownership ofAmerica’s third largest wireless carrier is now in foreign hands; such a move is needed to stay competitive. Further, beyond selling the positives Sprint directors have also starting encouraging their respective divisions to start thinking about the future, and how this new influx of capital could best be used (like Christmas for a wireless carrier I suppose).
In the end, while I’m sure some will decry yet another loss of an American brand to a foreign investor, the truth of the matter is that Sprint was going nowhere anyways, and without the Softbank investment would likely have been obsolete in a few years. In my mind, I think such a move will be a boon for the American wireless market, if for no other reason than that it gives Sprint the firepower it needs to finally compete with AT&T and Verizon…and that’s something that’s good for everyone.