Blockbuster mergers and acquisitions in technology are often bad news for everyone except the investment bankers who reap huge commissions on even the stupidest deals. Workers lose jobs, consumers lose choice as a competitor disappears, and shareholders often get stuck holding the bag. Hewlett-Packard, for example, laid off more than 24,000 workers after it purchased EDS and later took a stupendous write-off.
But Softbank's $20 billion takeover of Sprint Nextel is different. That deal, along with the proposed buyout of T-Mobile by Metro PCS, could change the competitive landscape in the cellular market and give you real alternatives to the crummy service, flawed networks, and way-too-expensive cellular plans of the AT&T/Verizon duopoly.
Standing alone, Sprint simply doesn't have the resources to compete with its larger rivals; plus, it's still burdened by its disastrous acquisition of Nextel in 2004, whose resource-draining legacy Nextel network will finally be shut down in June 2013. T-Mobile, the fourth-largest U.S. carrier, has lived as an unloved stepchild in the house of Deutsche Telekom since regulators forced AT&T to drop plans to buy it -- T-Mobile doesn't even have the clout to strike a deal with Apple for the iPhone.
Tokyo-based Softbank is hardly a household name in the United States, but is known in Japan for aggressively cutting prices and introducing new products. If the deal goes through, Sprint and Softbank will have a combined customer base of about 90 million customers, says Mike Roberts, a principal analyst at Informa Telecoms & Media. Craig Moffett, a senior analyst at Bernstein Research says, "Softbank has been a vigorous competitor in Japan. It lowered rates and introduced the iPhone. I would expect the same thing here."
Softbank's innovative record gives hope for Sprint
In a conference call with analysts this week, Softbank CEO Masayoshi Son complained about slow network speeds in the United States, saying, "Every time I come to the U.S., I say, 'Oh my God, the mobile phone network is so slow.'" No kidding. The U.S. cellular network is much, much slower than those you'll find in many parts of Asia and Europe. Even the newest 4G LTE networks offer spotty coverage and disappointing download speeds in many cities, such as New York and San Francisco.
After Softbank purchased Vodafone's Japanese operations in 2006, it rolled out services like the White Plan, a voice-and-data plan with simplified pricing that offered service for the equivalent of about $13 a month. And like Sprint, Vodafone was then stuck in a distant third place behind larger rivals NTT DoCoMo and KDDI. Not being a traditional telco is the reason, Son said. "We are from the Internet world," he said during the analyst call. "We are different from the incumbent telephone companies."
With Softbank behind it, Sprint will have the muscle to expand and perhaps speed up its cellular network, which it can't currently afford to do. According to Sprint executives, Softbank will give Sprint $8 billion to accomplish just that.
Son is an interesting figure. I came across him 17 years ago when he purchased Ziff-Davis, then the largest technology publisher in the United States. I remember attending a meeting where the rather diminutive executive stood on a box so that he could be seen and talked about his "100-year plan." That acquisition did not work out well, but Son is an energetic entrepreneur with deep roots in the technology industry, and he's never been short of vision. Although the Ziff-Davis plan failed, Son has succeeded in most other efforts.