Sunday, October 14, 2012

Moshi Moshi!: Softbank Calling

More head scratching news from the U.S. cellular industry: Japan's Softbank is apparently close to a $20 billion deal for Sprint.  Despite the Sprint CEO's valiant attempts to make the company more relevant as a major player, Sprint's leadership, if you can call it that, is in the lower margin, prepaid customer base.

In the meantime, it seems that it is holding on to existing post pay customers by giving away unlimited data and calling plans.  It doesn't seem like a good business model for the long term. Softbank's acquisition seems to solve Sprint's problem of how to finance its 4G network build out  which analysts say will require $8 billion.

U.S. regulators, in the short term, should be pleased because nominally, the U.S. industry doesn't become anti-competitive, as Sprint gets life support.  The Wall Street Journal suggests that the end game for Sofbank/Sprint would be a consolidation of T Mobile.  This would seem to be anathema for regulators and seems unlikely.

Perhaps because of our legacy with wired telecom, our wireless industry business model has not delivered a world class service to consumers.  Sprint and T Mobile are devolving into low end players.  Verizon seems to be on the way to becoming like the old ATT, while ATT seems to be looking like the old MCI.

No carrier has spotless national, or even major metro signal coverage.  We pay too little for our phones, and too much for our monthly service.  Ordinary phone customers are subsidizing the "eat all you can" data plan customers.  Phone only consumers are being forced to upgrade to smart phones, with a minimum commitment to a $10 data plan, even if the consumer wants a new phone and no data plan. What happened to consumer choice?  What about listening to your customers?

Sprint's $8 billion investment is being made for the benefit of a relatively small number of users who aren't paying their freight.  It's hard to understand Softbank's motives for making this transaction  unless they are going to tear up Sprint's business model.  This, however, would not be the traditional Japanese style.  I would guess that Softbank analysts downgrade their ratings if this deal goes through.

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