ANALYSIS: Is Softbank’s investment in Sprint enough to compete with the top two?

28 November 2012 |


Sprint must do all it can to fully acquire US operator Clearwire, and gain the spectrum it needs to realistically compete with AT&T and Verizon.

Analysts across the board have warned that, despite Softbank committing to investing over $8 billion in capital in Sprint, the $20.1 billion deal for a 70% stake will have no real effect on the landscape of US telecoms.

According to industry experts, Sprint must go that extra step and acquire a spectrum-rich operator, with Clearwire seen as the obvious choice considering Sprint has recently re-established a controlling stake in the company.

Formerly operating as a WiMAX player, Clearwire is seen as an attractive acquisition prospect considering its portfolio of 2.5GHz spectrum, which has yet to be fully exploited because of a lack of sufficient investment.

As an aggressive WiMAX adopter, the company had 11 million subscribers by the end of Q2 this year, but that was coupled with an operating loss of $311 million, as the major US players began to aggressively roll-out the industry-favoured standard of LTE.

A tie-up between Sprint and Clearwire would give the joint entity between 50-100Mbps internet speeds, and larger scale investments into developing TD LTE. Potentially, if the right moves are made, a deal could give Sprint/Clearwire control of spectrum in 100 of the largest wireless markets in the US.

“Softbank’s investment in Sprint does not change things significantly,” said Yankee Group senior analyst Richard Karpinski. “While the top two players, and to an extent T-Mobile [through its expected acquisition of MetroPCS], have been making strides in the US wireless market, big questions remain on the future of Sprint.”

Softbank’s investment in Sprint might be a statement of its financial strength, with much of the national press focussing on the fact that it was the largest investment any Japanese firm has spent on an overseas market, but it does not give Sprint a single additional subscriber. It also does not give Sprint any more spectrum or improve its network position.

Sprint has been injected with capital by a company that presently sits third in its domestic market, behind rivals KDDI and NTT. It has looked to address this, however, and has recently made a play to acquire smaller rival eAccess in Japan for $2.3 billion, which could have an adverse effect on its major international deal.

Sprint too is in the process of a network modernisation programme and gaining rights to the iPhone, making it difficult to envisage the company making a play to acquire Clearwire in the near future, even with Softbank’s backing.

“It is an audacious deal that could transform or hobble the companies depending on how it plays out,” said a US industry insider. “Softbank’s investment could certainly pay off by making Sprint significantly more competitive, but there is a big risk that it will not go to plan and weaken both companies at a critical time.”

Rumours have also persisted that Sprint could be in the market to make a late play for T-Mobile bound MetroPCS. It is thought Softbank owner, Masayoshi Son, is willing to do anything to gain a foothold in the US market and develop multi-mode FD and TD LTE networks. Debt ridden Clearwire may not be the best strategic option to do this.

“Considering the favourable economic climate, there is a possibility that Softbank will go on a Yen infused spending spree in the US,” said Chris Nicoll, principal analyst at Analysys Mason. “Softbank prides itself on being a mobile internet company, and it is certain they will be looking to complement the Sprint deal, with MetroPCS and Clearwire (as obvious targets).”

Sprint is positioned as a distant third operator in the US. The deal with Softbank is expected to see the operator leverage assets and gain ground on the dominance of AT&T and Verizon.

Luckily for Sprint, Karpinski says the two market leaders are so focussed on their own developments, that it is highly unlikely they will challenge the Japanese investment. “Verizon and AT&T will not be concerned by this,” says Karpinski. “Their roll-outs have proved so successful they do not see any other rivals in the market apart from each other.”

Softbank’s investment doesn’t change much, conclude analysts, but does leave Sprint with the opportunity to establish itself as the dominant third largest player in the market. “As with a lot of technology markets, we could only have three operating players in the face of consolidation,” says Karpinski.

With T-Mobile potentially revitalised if it does indeed acquire MetroPCS, Karpinski does not rule out a future tie-up between T-Mobile and Sprint. “A T-Mobile/Sprint partnership could be something we could see in the future as there is no clear cut path for either of them to be a fully fledged number three player.”

Stranger things have certainly happened, as Mr Masayoshi Son will tell you.