SoftBank Corp., Japan's third-largest mobile phone carrier, is purchasing a 70% stake in leading US carrier Sprint Nextel for over $20 billion. The deal will be mutually beneficial for both companies, allowing them to better compete in the lucrative US market.
In Japan, handset shipments have fallen 27% to 38 million units over the past five years; during the same time US shipments grew, reaching 191 million units in 2011.
Sprint has been struggling financially since it purchased Nextel for $36 billion in 2005. About 7.7 million contracted customers left, and Sprint was forced to write off 80% of the purchase.
The deal with SoftBank will provide Sprint Nextel with much needed funds to pay down debt and purchase equipment.
It will also be able to expand its Long Term Evolution, or LTE, network. This summer, Sprint began offering LTE service in 24 cities, and expects to have the service available in 100 more by the end of the year.
Industry analysts say customers will not notice much difference in service because it will take Sprint some time to be on the same level as competitors.
The deal is expected to close by mid-2013, but must first be approved by regulatory officials, shareholders and the boards of both companies. If shareholders reject the deal, Sprint must pay up to $75 million in Softbank expenses. Should the company accept another offer, it will be required to pay a $600 million termination fee.
Once approved, the combined company will be world’s third-largest mobile phone carrier by revenue.
US Mobile Market
At the start of October, Deutsche Telekom AG, owners of T-Mobile, agreed to merge with MetroPCS. The deal came after a $39 billion agreement to merge with AT&T Inc. failed to gain regulatory approval in 2011.
Once the SoftBank-Sprint deal is finalized, three of the four national mobile carriers in the US will have a large portion of their businesses owned by foreign companies.
Despite having began LTE upgrades a year earlier than Verizon Wireless, Sprint trails its competitor in the number of markets it serves. Verizon services 340 markets.
Key Statistics - Global Wireless Telecommunications Industry (source: MarketLine)
- Between 2007 and 2011, the wireless telecommunication services market had a compound annual growth rate (CAGR) of over 8%. In 2011, the market had revenue totaling $1.2 trillion globally.
- From 2007 to 2011, wireless telecommunication service industry consumption volumes increased at a CAGR of over 14.5%. In 2011, it reached 4.6 billion subscribers.
- For the five-year period 2011-2016, market performance is predicted to decelerate, with a CAGR of nearly 4%. By the end of 2016, the market is forecast to be valued at $1.3 trillion.