Japan's Softbank said Monday it has reached a deal to acquire a 70 percent stake in U.S. mobile operator Sprint Nextel for $20 billion, forming one of the world's largest telecom operators.
The companies said the deal would allow aggressive Softbank to expand into the U.S. market and become a global force, with the new, combined entity becoming the third-largest operator in the world by revenue. The deal will also provide $8 billion in new capital to Sprint for its network and to shore up its finances.
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"It's going to open up opportunities for us both internally and externally that we haven't had since I have been here at Sprint," Sprint CEO Dan Hesse said at a news conference in Tokyo.
Hesse also made an initial pitch to regulators, who still must approve the deal: "This is pro-competition and pro-consumer, because it creates a stronger No. 3 to compete with the duopoly of AT&T and Verizon."
Sprint wants to emulate Softbank's ascent from a distant No. 3 in its home market. "It's something that we can learn from," he said.
Softbank CEO Masayoshi Son, speaking at the same conference, said, "When you take a challenge, you take various risks. This challenge in America is not going to be easy." But, he said, "We are confident."
One opportunity Son identified was Softbank's experience with faster network speeds in Japan. "In America, network speeds are slower, they are about half of what they are in Japan," he said. "This is an opportunity for us."
Hesse said Sprint can learn from Softbank's experience deploying technologies such as LTE.
Analysts say the deal may lead to a shakeup of the U.S. mobile market, which is currently dominated by two large operators, AT&T and Verizon Wireless. Softbank, which first became a mobile operator just six years ago, has doubled its subscriber base in Japan using aggressive pricing and creative contracts.
The deal will provide a cash injection for Sprint, which, like Softbank, is still building out its high-speed network. The new entity will also be able to select from a range of technologies used in Japan to introduce to the United States, such as touch-card payments and mobile TV, as well as reaping benefits from its new scale.
By acquiring Sprint, Softbank is likely to make some economies of scale, as the iPhone is the core handset at both companies and both use Ericsson infrastructure, said an analyst report from Citigroup issued before the deal's official news announcement.
Hesse said Sprint is still booking large up-front costs from selling iPhones, and those contracts will take several years turn profitable.
News reports in Japan have also said Softbank will use its position in Sprint to pursue a purchase of MetroPCS Wireless. That company is also being courted by T-Mobile.
Both the Softbank-Sprint deal and the T-Mobile-MetroPCS deal will be good for U.S. consumers since they will put more pressure on Verizon and AT&T, according to Kester Mann, lead analyst for operators at CCS Insight.
Softbank is relatively unknown outside of Japan but has a reputation as an aggressive Internet conglomerate at home, with a history of barging into new fields and undercutting its rivals with cheap prices, new services, and oddball advertising -- one of the company's spokesmen is a surly talking dog that has become a minor celebrity in the country.