Japan's Softbank said Monday it has reached a deal to acquire a 70% 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.
"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 number three to compete with the duopoly of AT&T and Verizon."
Sprint wants to emulate Softbank's ascent from a distant number three in its home market. "It's something that we can learn from," he said.
Softbank CEO Son Masayoshi, 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 U.S., such as touch-card payments and mobile TV, as well as reaping benefits from its new scale.
By acquiring Sprint, Softbank is likely making 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 upfront costs from selling iPhones, and those contracts will take several years to become 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.
Its broad holdings include large mobile and broadband subsidiaries, Internet properties such as Yahoo Japan and the Japanese UStream, and big investments in foreign companies such as U.S. social game provider Zynga and China's Alibaba Group. Softbank was founded in 1981 by its current CEO Masayoshi Son, a charismatic entrepreneur who had repeatedly made, and won, multibillion dollar bets with his company in the past.
Softbank's history as a mobile operator only dates to 2006, when it purchased the struggling Japanese unit of Vodafone. Softbank immediately unleashed a barrage of advertising that included international superstars such as Brad Pitt, as well as offbeat commercials featuring talking cats and aggressive contract plans that set off a price war.
It was also the first of Japan's big three operators to embrace smartphones, and made another successful gamble in agreeing to Apple's strict purchasing and profit-sharing requirements to become Japan's exclusive iPhone provider until last year. Since entering the mobile business in April of 2006, Softbank has more than doubled its subscriber base to 30 million, a period in which the Japan's overall number of subscribers has increased only 40%.
Softbank remains Japan's third-largest mobile carrier, but earlier this month announced it had agreed to acquire smaller domestic rival eAccess, which could vault it to number two in terms of subscriber contracts.
Rumors of a deal have been swirling since last week, when the companies said they were in negotiations after a host of news reports said Softbank would soon take a significant share of Sprint.