Softbank Deal Revitalizes Sprint's 4G LTE Plans

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Analyst(s):

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Summary

Softbank’s $8 billion capital infusion will improve Sprint’s financial viability and could accelerate its 4G LTE network update. But it’s unclear whether Softbank will be able to replicate its Japanese mobile market success.

News Analysis

Event

On 15 October 2012, Softbank announced plans to provide an $8 billion capital infusion as part of its intended acquisition of a 70% controlling interest in Sprint Nextel. Sprint CEO Dan Hesse will remain head of the reconstituted U.S. carrier, the nation’s third-largest cellular service provider.

In Security and Exchange Commission documents dated 17 October 2012, Sprint agreed to acquire enough additional shares in Clearwire to secure its majority ownership with a 50.4% voting interest.

Analysis

Sprint and its clients will benefit if the company effectively uses its new capital to accelerate Network Vision, its two-pronged project to build a new, national fourth generation (4G) Long Term Evolution (LTE) network and to enhance coverage and capacity of the third generation (3G) code division multiple access (CDMA) network now used by most Sprint customers. Sprint has planned to complete the initial Network Vision buildout (covering about 250 million potential subscribers) by the end of 2013. At that stated pace, Sprint’s LTE coverage will continue to trail AT&T and Verizon Wireless by more than 100 million points of presence (POPs) each. Softbank’s financial support could close that gap and help Sprint maintain its edge over T-Mobile USA, the No. 4 U.S. carrier. Sprint took a related step in this area with its push for majority ownership of roaming partner Clearwire, which will give Softbank solid control of Clearwire's large LTE spectrum holdings.

In addition to accelerating the Network Vision project, Sprint must also ensure it can sustain customer satisfaction throughout the project's complex deployment. Sprint must manage new, legacy and reclaimed technologies, several new vendors and periodic service disruptions as it activates new cell clusters.

Softbank faces challenges in realizing immediate benefits from this deal, other than control of a potentially profitable Sprint. Although it uses complementary hardware vendors and technologies for networks and handsets, the scope of the economies of scale Softbank actually will realize in those areas is unclear.

Given Softbank's substantial debt load, Softbank and Sprint should first focus on integrating their strategic and tactical agendas. If Softbank were to instead replicate its Japanese strategy and pursue acquisitions of more U.S. operating companies, the resulting integration activities could distract Sprint from its daunting corporate and operational challenges.

Recommendations

All Sprint enterprise clients:

  • Base upcoming procurement or contract renewal decisions on your current experience with Sprint’s service. It will take one to two years for the impact of Softbank’s involvement to play out.

  • Given the disruption that often accompanies mergers and acquisitions, ensure your Sprint contracts include early exit clauses for poor network performance (in reliability and availability) or inadequate customer service and support.

  • Ask your Sprint account representative or channel partner if the company plans to adapt any of Softbank's innovative pricing structures to the U.S. enterprise market.

U.S. clients with significant Asia/Pacific business activity:

  • Ask if and when Sprint plans to exploit Softbank’s presence in the region for more favorable roaming rates.

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© 2012 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartners research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

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