Thursday, August 13, 2015

Which Way for Sprint?

Was SoftBank’s acquisition of Sprint a mistake? Some, possibly even including SoftBank CEO Masayoshi Son, might agree with that assessment. The growing view is that SoftBank believed it could swiftly merge Sprint with T-Mobile US, creating a more-hefty competitor in the U.S. mobile market.

Perhaps that, more than any ability to replicate in the U.S. market what SoftBank had done in the Japanese market, was key to the strategy.

If so, a misreading of U.S. telecom policy doomed the initial strategy. Some believe, based on Son’s own statements, that SoftBank would have sold Sprint, if were there any bidders. It appears there have not been any such potential buyers.

Some believe Sprint might get another shot at a merger with T-Mobile US after the U.S. presidential elections. Others believe a buyer or partner could yet emerge. But many think the size of Sprint’s debt and it’s on-going financial losses will be a big barrier.

Sprint recently has generated some $8 billion in quarterly revenue, but lost $2 billion on those sales. It has cumulative losses of $50 billion since about 2007.

What will Sprint (or SoftBank) do next, in its effort to regain financial value? Options appear to be more limited than when Sprint first was acquired by SoftBank.

Sprint cannot grow through acquisition, and likely cannot be sold, at the moment. That leaves mostly the difficult task of turning the business around, on an operating basis. As has been the case for years, reversing Sprint’s sales subscriber growth and profit picture is a fundamental requirement for any other positive outcome: acquisition, sale, merger or organic growth as an independent company.

Rival T-Mobile US, in fact, points the way. Having achieved robust organic growth, T-Mobile US arguably has become a more attractive acquisition.

At this point, a merger between Sprint and T-Mobile US, as logical as that might seem to many, is a less likely outcome than the acquisition of both firms by other entities. Dish Network and Comcast are the names most often raised in that regard.

Most of Dish Network's value now resides in its spectrum licenses, not its operating business. And Dish will forfeit that value if it does not somehow create an operating network using those frequencies, or sell them.

Comcast, for its part, will move deliberately. It is unlikely to buy a troubled asset, and even less likely to want to enter the mobile business without some clear sense of differentiation.

For the  moment, that likely means Sprint will have to work on organically reshaping its business, for any eventual sale. .

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