* Deal doesn’t alter market landscape dominated by Verizon,
AT&T;
* Sprint needs more than technology to boost distant No.3
ranking
* Many see main benefit for Sprint as short-term cash
infusion
By Nicola Leske and Edwin Chan
NEW YORK/SAN FRANCISCO, Oct 15 (Reuters) – It’s this year’s
biggest technology acquisition and the largest outbound deal in
Japan’s history. But game-changing, it is not.
Softbank Corp’s pricey $20 billion bid to buy
control of No. 3 U.S. telecoms company Sprint Nextel Corp
marks a bold move by billionaire CEO Masayoshi Son beyond his
flagging home market. Some analysts say it hands the U.S.
company much-needed firepower to buy peers and build out
high-speed networks.
But if Son succeeds, Sprint will still struggle to win
customers in a market dominated by the twin towers of the U.S.
mobile landscape – Verizon Communications Inc and AT&T;
Inc – while T-Mobile and MetroPCS Communications Inc
move to team up. That market dynamic will persist,
analysts say.
Son, an unusually aggressive risk-taker in a cautious
Japanese corporate culture who brought the iPhone to Japan, may
still have more surprises up his sleeve, but analysts do not
believe that the Sprint deal by itself can undermine the two
U.S. market leaders’ virtually unassailable position.
“Getting the technology out there is just getting you to the
table,” said Phillip Redman, analyst at research firm Gartner.
It will take more than the iPhone and a technology upgrade
to improve Sprint’s position, he said. Its brand value had
dropped despite good work-around plans and pricing, partly
because of its weak competitive position.
Under the agreement – which awaits regulatory and
shareholder approval – Softbank will buy about 70 percent of
Sprint Nextel for $20.1 billion.
Combined, the two will have 96 million users. But that
includes Japanese subscribers and lags the almost 108 million
subscribers Verizon had in 2011 and AT&T;’s more than 103
million, according to data from IHS iSuppli.
“It doesn’t change the landscape too much, in that this deal
doesn’t eliminate a competitor,” Todd Rethemeier at Hudson
Square said.
WHAT’S THE GAME?
Sprint is going through a $7 billion upgrade of one of its
networks, while closing its Nextel iDen network, which makes
Softbank’s capital especially useful.
The deal fuelled investor hopes for a further boost to
network construction: on Monday, shares in cellphone tower
equipment makers Crown Castle International Corp and
American Tower Corp gained about 4 percent on optimism
that a richer Sprint may spend more on fourth-generation gear.
But analysts say don’t count on a sustained windfall in
telecoms spending with infrastructure buildouts already in
progress and factored into stock prices.
In Sprint’s case, some analysts say Wall Street did not
doubt that the company could have bankrolled the project somehow
over the years it would take, even without a Softbank deal.
To be sure, many on Wall Street like the progress that
Sprint has made in a years-long turnaround effort, with some
pointing out novel data plans, for instance, that have helped to
stanch customer losses and kept them in the game.
“Right now it’s not clear to me why this is a fantastic
thing for Sprint shareholders,” said independent telecoms
consultant John Jackson of the Softbank announcement. “Getting
access to lots of money is not a strategy in itself.”
“It’s hard to see this having a significant impact on
Verizon and AT&T;,” he added. “It looks like Sprint finally has a
handle on their destiny. And then they go and do this.”
The primary gain for cash-strapped Sprint will be the
short-term infusion of funds as it struggles to whittle down
debt. CEO Dan Hesse acknowledged the financial challenges it has
faced – which the new capital could fix quickly.
“Aside from additional liquidity, however, from an
operational perspective little changes by virtue of having a new
controlling shareholder and less leverage,” Bernstein Research’s
Craig Moffet said in a note.
Other analysts say Sprint may employ its refilled coffers in
acquisitions, including of partner Clearwire Corp,
which owns wireless spectrum it needs.
But what’s harder to fix with cash is Sprint’s inherent
disadvantage vis-a-vis its two bigger rivals.
“You can’t throw money at the problem,” Rethemeier said.
An alliance with Softbank could give it more leverage when
dealing with Apple Inc, and negotiating the hefty
subsidies that have eroded its bottom line. But some analysts
say it’s hard to argue with AT&T;’s and Verizon’s numbers over
the longer term.
“The market is largely saturated. Growth is going to come
from stealing customers from AT&T; and Verizon,” said Forrester
analyst Charles Golvin. “If T-Mobile and MetroPCS happens, they
will be vying for customers from AT&T; and Verizon as well.”
(Editing by Edmund Klamann)
