Wireless carriers seem to be in an “eat or be eaten” state of mind as a wave of industry consolidation has again gripped the domestic market. The latest to fall under the spell is Sprint Nextel, with published reports this morning indicating that Japan’s Softbank was looking at acquiring the nation’s No. 3 operator for nearly $13 billion. Sprint Nextel confirmed that it was indeed in talks with Softbank concerning an investment.
“Sprint today confirmed that it is currently engaged in discussions with Softbank regarding a potential substantial investment by Softbank in Sprint,” the company noted in a statement. “Although there can be no assurances that these discussions will result in any transaction or on what terms any transaction may occur, such a transaction could involve a change of control of Sprint. Sprint does not intend to comment further unless and until an agreement is reached.”
The potential deal would follow T-Mobile USA’s recent bid for MetroPCS that many expected to be countered by a rival offer from Sprint Nextel.
According to reports, Softbank would be looking to acquire at least a 75% stake in Sprint Nextel, providing the Japanese carrier with a strong foothold in the U.S. market. Analysts noted that while there are some technological differences between the two operators’ services, both rely on CDMA-based services for their legacy offerings and are both looking to use 2.5 GHz spectrum to launch LTE services.
“Both companies have CDMA networks, possibly affording some cost savings from larger purchase volumes from network vendors,” noted Steve Hilton, principal analyst at Analysys Mason, in a research note.
The 2.5 GHz link would bring into play Sprint Nextel’s ownership stake in Clearwire, which is in the midst of rolling out a TDD-LTE network using its vast spectrum holdings in that band. Sprint Nextel plans to tap into that network capacity to help bolster its own LTE network plans.
“We note Softbank is one of the few global carriers that has an active 2.5 GHz TDD/LTE network,” explained Wells Fargo Securities senior analyst Jennifer Fritzsche in a research note. “While we do not know the details or expected synergies, we would guess that Softbank likely is also attracted to Sprint given the relationship and ownership stake in [Clearwire] (which holds an average of 130 megahertz of 2.5 GHz spectrum per market).”
Others noted the deal could be a financial savior for Sprint Nextel, which is in the midst of an expensive network upgrade program while at the same time battling to maintain market share against larger rivals Verizon Wireless and AT&T Mobility.
The move would also further encase foreign ownership of the domestic wireless market. Verizon Wireless is 45% owned by U.K.-based Vodafone Group, while T-Mobile USA is still 100% controlled by German telecom giant Deutsche Telekom. However, T-Mobile USA’s pending acquisition of MetroPCS would cut DT’s ownership stake to 74%.
This is also not the first time an Asian-based operator has been linked to Sprint Nextel as Korea’s SK Telecom in 2008 was linked to an investment in Sprint Nextel.
If nothing else, Softbank’s reported interest in Sprint Nextel was good the carrier’s stock (S), which surged more than 17% in early Thursday trading to $5.90 per share. In contrast, the news sent MetroPCS’ stock (PCS) down more than 6% as investors expect an acquisition of Sprint Nextel would likely curtail a bid by the carrier for MetroPCS.
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