Friday, July 31, 2015

SoftBank Remains Committed to Sprint Turn Around; Will Take Time

SoftBank President Nikesh Arora says the company still is committed to turning around Sprint Corp. While it might be the case that a person in that position must say such things, Arora also seems to acknowledge it will take some time.

“Telecom business is a long-term business...It takes a while to shift the direction in the industry,” said Arora.

SoftBank bought Sprint in 2013 for about $22 billion. Today Sprint is worth about $13.7 billion, in terms of equity value. In other words, Sprint’s equity value has to climb $8 billion just to reach the original purchase price.

Do do that, Sprint will have to start making money. In the first quarter of 2015, Sprint still was losing money.

At least so far, Sprint has remained committed to competing as a full-service, national provider. Indeed, it is hard to see how a long-term turnaround could succeed with any other strategy. A retreat to some sort of niche role, at this point, likely would ensure that Sprint never would recover its full original value.

The reason is that a niche strategy would not supply the revenue scale Sprint needs. Today, Sprint is among the top four “full-line generalists” in the U.S. mobile market, competing across a full range of products and markets.

That strategy requires volume and market share, as financial performance tends to improver with additional scale. In that regard, Sprint presently has about 15 percent share, far above the level it might otherwise have as a niche provider, if it could uncover such a role.

Specialists tend to be margin-driven players, and their financial performance deteriorates as they increase their share of the broad market.

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