Softbank-Backed Sprint Is a Threat to T-Mobile, AT&T: Analyst

Sprint's Softbank deal could put pricing pressure on Verizon and AT&T, threaten T-Mobile's hope to be the "value" player, and stand between AT&T and more spectrum, says IHS iSuppli.

The two major telecom deals announced this month—Softbank's $20.1 billion acquisition of a 70 percent stake in Sprint and Deutsche Telekom's merger of its T-Mobile USA brand with No. 5 U.S. carrier MetroPCS—have essentially the same major goal. Both Sprint and T-Mobile want to shrink the distance between themselves and the nation's two largest carriers, Verizon Wireless and AT&T.

Sprint may be particularly well-suited for the task.

"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 duopoly," Dexter Thillien, an IHS iSuppli senior analyst, wrote in an Oct. 15 report.

According to IHS data, the standings of the three largest U.S. carriers were roughly equal in 2006. Verizon, AT&T and Sprint held 23, 24 and 21 percent shares of the market, respectively. By 2011, those shares had shifted to 30, 29 and 15 percent, respectively.

“By offering low-cost unlimited data plans with Long Term Evolution (LTE) service, Sprint could become a disruptive force in the U.S. wireless segment," wrote Thillien. "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 and Verizon’s wireless margins.”

A Softbank-backed Sprint could also challenge the goals of a merging T-Mobile and MetroPCS, which in an Oct. 3 statement announcing both boards' approval of the deal said they plan to be the "value leader in wireless."

Should the Sprint-Softbank deal go through, a combined 96 million mobile subscribers will make the new entity the third-largest wireless carrier in the world. Given the similarities in their wireless markets, wrote Thillien, they'll have tremendous economies of scale that will offer cost savings they can pass on to customers.

"Such a move could make Sprint a strong competitor in the U.S. value market," he added.

The New Sprint, the report also noted, could also be disruptive in the spectrum market.

AT&T's failed 2011 attempt to purchase T-Mobile was largely motivated by a need for spectrum. The deal was blocked by federal regulators, who feared that the deal would create too large a player that ultimately would hurt competition and result in higher prices for consumers. Since then, AT&T has been making smaller spectrum purchases that it knows won't attract the attentions or concerns of regulators.

In August, AT&T acquired NextWave Wireless, which holds spectrum licenses in two different bands, for $600 million in cash.

A stronger Sprint "could be a competitor not only to AT&T for future 700MHz sales but also to all carriers with broadcast incentive auctions," said the IHS report. "The carrier will likewise look to develop its enterprise business, taking advantage of Softbank's experience, especially in the machine-to-machine (M2M) market."

With all four major U.S. carriers in a race to cover their footprints with LTE technology, Sprint will also benefit from Softbank's experience. The carrier, currently Japan's third-largest, is also rolling out LTE in a similar band as Sprint partner Clearwire is using.

Unsaid by IHS, but noted by The Wall Street Journal, is that Softbank may also bring a bit of bravado to the Kansas-based Sprint, whose CEO Dan Hesse leads earnings calls with one of the calmest, kindest-sounding voices in the industry.

"I'm a man," Softbank CEO Masayoshi Son said during an Oct. 3 Webcast on the deal. "It's part of my male ego to strive to be No. 1."

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