Consolidation Continues in US Mobile Market
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The consolidation trend in the U.S. mobile market is firmly in place. Following on the heels of the bid for MetroPCS by T-Mobile, there was a real shocker in the marketplace. Japan's Softbank made a $20.1 billion bid for 70% of SprintNextel (NYSE: S). This deal has the potential to shake up the U.S. mobile market entirely. The question is, will it?
The Softbank-Sprint deal is no doubt a big one. It is the largest technology deal in 2012 to date. It is also the biggest foreign acquisition by a Japanese company in many years. It also creates the world's third largest mobile phone carrier, as measured by revenues.
Softbank's Capital Helps Sprint
And it no doubt supplies Sprint with about $8 billion in much-needed capital as it tries to compete against the two giants in the U.S. mobile telecommunications space, AT&T (NYSE: T) and Verizon Communications (NYSE: VZ). AT&T and Verizon have 30% and 32%, respectively, of the U.S. wireless market while Sprint has 16%. The capital injection from Softbank will allow Sprint to accelerate the deployment of its $7 billion network upgrade program (Project Vision) while possibly also eliminating some of its heavy debt burden.
But it is doubtful that Sprint's management will pay down Sprint's debt. What is more likely, in the not too distant future, is Sprint launching a takeover bid for Clearwire (NASDAQ: CLWR), of which Sprint already owns 49%. Clearwire has airwaves in the same frequency as Softbank and the same TDD LTE variation of network technology. Sprint has denied this, but do not be surprised if it happens. Such a deal would give it more wireless spectrum capacity for data transmissions.
Softbank will greatly aid Sprint with its expertise in building very high speed networks. The United States may be the biggest market for smartphones, but the speed of its networks is about half that in Japan.
Sprint's Future With Softbank
Whether Sprint and Softbank do acquire Clearwire or not, one thing is certain. AT&T & Verizon will face a very aggressive challenger in the newly revitalized Sprint. This is based on the history in Japan of Softbank's leader, Masayoshi Son, who built Softbank Mobile from nothing into a leading mobile operator in Japan. He also brought the iPhone to Japan. His company's mobile earnings in Japan have grown by more than sevenfold just in the past four years. His history has long been defying the skeptics, of which there are many on this deal.
So look for Sprint to become even more aggressive in its pricing plans in an effort to gain market share. That is Sprint's only hope if it wants to challenge AT&T and Verizon. It has to somehow make its services so appealing that it can woo customers away from its larger competitors.
If that fails, look for Son-san to attempt to grow even bigger in order to compete better with the two giants of the industry. The newly-combined T-Mobile/MetroPCS may be fair game as an acquisition in the not too distant future. The managements at Verizon and AT&T had better careful and not underestimate this aggressive new competitor.
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