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October 19, 2012

Softbank Acquires Majority Stake in Sprint Nextel

By David Delony, Contributing Writer

Japanese telecommunications company Softbank (News - Alert) has announced it has acquired 70 percent of Sprint Nextel.

The move will create a company with a total of 96 million subscribers, with yearly revenues of $32 billion.

“The Softbank/Sprint deal represents the second major transaction announced this month in the U.S. wireless market, following the agreement between T-Mobile (News - Alert) and MetroPCS,” Dexter Thillien a senior analyst of mobile communications at IHS, said. “Both of these agreements are intended to bolster the competitive positioning of relatively small wireless carriers in the North American wireless market, which increasingly is being dominated by the AT&T/Verizon (News - Alert) duopoly.”

According to Thillien, the company could be poised to shake up the wireless industry in the U.S.

“By offering low-cost unlimited data plans with long term evolution (LTE (News - Alert)) service, Sprint could become a disruptive force in the U.S. wireless segment,” he said. “AT&T and Verizon have followed a premium-pricing strategy when it comes to data services, leveraging their superior networks. However, a resurgent Sprint with a strong network and low-cost unlimited data plans could put pressure on AT&T (News - Alert) and Verizon’s wireless margins.”

Thillien believes the two companies will be able to cut cost to consumers for phones and plans by employing economies of scale. Sprint was the third largest mobile provider in the U.S. in 2011 with 15 percent market share, followed by AT&T at 28.6 percent and Verizon and 29.9 percent. The majority share purchase by Softbank should help Sprint a great deal.

“Sprint has improved its performance in terms of revenue, average revenue per user and post-paid growth,” Thillien said. “The extra cash injection will help the carrier to develop its new LTE network more quickly, allowing Sprint to compete better with AT&T and Verizon.”

On the other hand, both companies have accrued debts of more than $25 billion

Sprint is already building out its LTE network, spending $8 billion to do so, while shutting down its iDEN network in 2013, saving an estimated $1.5 billion.

The move by Softbank could strengthen the position of both carriers in enterprise, especially in M2M communications.

Sprint has also increased its stake in Clearwire to over 50 percent.

Edited by Rich Steeves
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