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October 15, 2012

Will a Softbank-owned Sprint be U.S. 'Free Mobile'?

By Gary Kim, Contributing Editor

We may soon get a wider test of mobile broadband pricing in the U.S. market, if a Softbank (News - Alert)-owned Sprint launches a price war, as some expect. To be sure, there are some growing pressures in that direction already.

FreedomPop recently has launched its public beta mobile broadband service, which aims to disrupt mobile broadband pricing.

Now, Softbank has announced an acquisition of Sprint Nextel (News - Alert), a move that some believe also will lead to the launching of a major price war, reminiscent to some of what Illiad’s Free Mobile has done in the French market.

It is not mean feat for a new competitor to muscle its way into a market dominated by three large providers, or to do so quickly. To the consternation of France’s leading mobile service providers, that is what Illiad’s “Free Mobile” service has done.

Now some believe a successful Softbank acquisition of Sprint would lead to a similar attempt to disrupt the U.S. market based on pricing.

In about six months, Free Mobile garnered about 3.6 million customers, and got 5.4 percent of France’s roughly 67 million mobile subscribers, in less than six months.

Others might say FreedomPop is also trying to disrupt pricing. But Sprint launching a price war would have the potential to be much more immediately disruptive.

Free Mobile now is the fourth-largest mobile service provider in the French market, after Orange, SFR and Bouygues Telecom. To be sure, Free Mobile still is about a third the size ofBouygues Telecom, which has 11 million subscribers.

Almost by definition, what Free Mobile has achieved qualifies as a market disruption: Free Mobile has, in six months, altered the market dynamics of a business that has been relatively stable for quite some time.

As often is the case, Free Mobile chose to attack the market using a “same service, lower price” model, offering service plans of €2 per month, or a plan with mobile data service at €20 per month, that set off a price war in the French mobile market, the Wall Street Journal reports.

Softbank will buy a 70 percent stake in Sprint Nextel Corp. for about $20 billion in the biggest-ever acquisition of a U.S. telecom firm by a Japanese firm. Softbank hopes it can replicate the success it has had in Japan in taking on dominant mobile service providers.

Some predict Softbank will launch a major price war to upend the U.S. market, as it did earlier in the Japanese market. That might lead some observers to speculate about whether the Softbank-owned Sprint will try to become the “Free Mobile” of the U.S. market.

In France, the Illiad-owned “Free Mobile” has disrupted the French mobile market. Already, FreedomPop is trying to disrupt mobile broadband pricing, as the Illiad Free Mobile effort already has done in the French mobile market.

In 2006, when Softbank decided to buy Vodafone (News - Alert) KK assets, it likewise was criticized in some quarters for undertaking a risky gambit.

Some will argue Softbank is taking another huge risk by entering a country where it has no previous operating experience, and by assuming a huge new debt load, after only recently shedding a similar debt load.

Softbank argues it is a reasonable risk, and that its prior experience taking on NTT Docomo and KDDI (News - Alert) show it can compete in a market dominated by larger service providers.

Softbank, many believe, will use the same strategy it used in Japan, which some would describe as providing a large number of complementary features or services to create a “sticky” relationship with the end user.

Others will point to the pricing strategy. In Japan, Softbank’s 2006 acquisition of the Vodafone unit was not universally considered wise. But in just one year, Softbank managed to boost its subscriber base from 700,000 in fiscal 2006 to 2.7 million.

By the beginning of 2008, Softbank had grabbed 44 percent of Japan’s new mobile subscribers, well ahead of KDDI’s 35 percent and NTT (News - Alert)-DoCoMo’s 11 percent. Some think Softbank will be willing to launch a price war.  In Japan, Softbank was willing to sacrifice voice average revenue per unit to make market share gains.

Back in the 2006 to 2008 period, Softbank was willing to accept a $13 a month ARPU decline to build market share.

Softbank said it would acquire a majority stake in the U.S. carrier by buying $8 billion of shares directly from Sprint and then buying another $12.1 billion of shares in the market, completing the deal in 2013, assuming there are no regulatory snags.

Edited by Brooke Neuman
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