Recently, the Wall Street Journal reported that the Japanese wireless carrier Softbank will acquire 70% of Sprint for $20.1 billion. Fans of the famous Japanese entrepreneur and CEO of Softbank, Masayoshi Son, celebrate his past success in turning around Japanese companies. Softbank raised Vodafone up from its number 3 spot in the Japanese telecommunications market, and it plans on doing the same for Sprint, which is currently the number 3 wireless provider in the US. The deal may allow Sprint to challenge the current duopoly of Verizon and AT&T in the US by using the cash infusion to develop a 4G network to better compete with these two giants. Sprint also announced that it offered to buy a stake in Clearwire, a struggling broadband company whose wireless spectrum could be used by Sprint to support its network.
The telecom industry could be headed for more consolidations like this deal, as synergies between Softbank and Sprint may be able to increase their profitability and allow them to negotiate better terms from Apple and other equipment vendors. Also, Sprint offers unlimited data plans to iPhone subscribers, and the deal could amplify this competitive advantage. If the duopoly of Verizon and AT&T is challenged successfully, customers will benefit by enjoying lower prices and more choices of available products and plans.
Yet some remain skeptical that the Softbank-Sprint merger will be effective, as Seeking Alpha reported that Verizon and AT&T hold 80% of the US market share, and many analysts remain convinced that the two giants will stay at the top of the US telecom industry. According to Reuters, Verizon had 108 million users and AT&T had 103 million users in 2011, while Softbank and Sprint combined only have 96 million users. With Sprint’s weak competitive position and brand value, Sprint and Softbank’s turnaround efforts may not have a great impact. The US telecom market is largely saturated, and it may be difficult for Sprint to steal customers, especially from Verizon and AT&T.
Do you think the Softbank-Sprint deal will change the telecommunications industry in the US? Will Sprint be better able to compete with Verizon and AT&T, or will Sprint remain dwarfed by these two telecom giants? Don’t be afraid to leave your predictions or thoughts in a comment!