$20 Billion Secures Softbank-Sprint As One of the World's Largest Operators

Softbank of Japan announced yesterday that it had made a new deal to buy 70 percent of U.S. mobile operator Sprint Nextel for a price of $20 billion, creating the third-largest operator in the world by revenue.

Both Sprint and Softbank stated that this new deal will enable the latter to break out in the U.S. market becoming a competitive power, and the joining of the two companies will make it one of the world's largest telecom operators. $8 billion will be offered in capital to Sprint for building its high-speed network and to develop its finances.

The CEO of Sprint, Dan Hesse, in a statement said, “It's going to open up opportunities for us both internally and externally that we haven't had since I have been here at Sprint... This is pro-competition and pro-consumer, because it creates a stronger number three to compete with the duopoly of AT&T and Verizon.” The deal still needs to be approved by regulators and Sprint shareholders.

Following Softbank's success, Sprint also wants to achieve the same ascent; “It's something that we can learn from,” said Hesse. Providing a variety of technologies like LTE is something that Sprint can also do, to follow suit with Softbank.

Son Masayoshi, the CEO of Softbank stated, “When you take a challenge, you take various risks. This challenge in America is not going to be easy... [But] we are confident.” Softbank has previous experience in offering faster network speeds in Japan, and this is an example of something they could also do in the U.S. market: “In America, network speeds are slower, they are about half of what they are in Japan... This is an opportunity for us,” said Son.

The U.S. mobile market is presently controlled by two major operators, AT&T and Verizon Wireless, and the new deal between Softbank and Sprint, if approved, could shake up that order. Six years ago, Softbank established itself as a mobile operator in Japan by purchasing the troubled Japanese unit of Vodafone, and its subscriber base has doubled  to 30 million in Japan through a combined result of creative contracts and fierce pricing.

A variety of Japanese technologies may be introduced to the U.S., such as touch-card payments and mobile TV, and the Softbank-Sprint combination can look to benefit greatly. It is probable that Softbank will create some economies of scale; both companies use Ericsson infrastructure and the iPhone is the central handset.

Japanese news has also announced that Softbank will additionally seek to purchase MetroPCS Wireless, which is involved with T-Mobile. The Softbank-Sprint deal and the T-Mobile-MetroPCS deal will create more competition in the U.S. mobile market, pressurizing AT&T and Verizon.

In Japan, Softbank is the third-largest mobile carrier and a forceful internet conglomerate known for undercutting competition with low pricing, new and varied services, and notable advertising. It holds mobile and broadband subsidiaries, internet properties like Yahoo Japan, and has large global investments in companies such as Zynga, the U.S. game provider.

Earlier this year, Softbank acquired eAccess (a smaller domestic competitor), and suggested it could jump to number two in terms of subscriber contracts. Rumors of the new deal with Sprint have been up in the air for the last week since both companies stated they were in negotiations. It remains to be seen what impact Softbank-Sprint will make on the U.S. market, but given Softbank's history, it is certain they will rock the proverbial boat, favoring the consumer and adding greater variety to the market. (CY) Link