Maravedis Analyst Briefs
Softbank's Folly? Or Is This Just the First Step in a Long Distance Race?
Investors have witnessed telecommunications companies enter into a new stage of industry consolidtion spurred by the growing appetite for LTE data centric mobile network carriers to devoir companies in satellite and media segments of the emploding formation of the ICT, Information and Communications Technology, industry.
AT&T is likely to get the go ahead from the DOJ and FCC regulators to acquire DTV, Direct TV, the largest US based satellite service provider. Upon Comcasts failed attempt to acquire Time Warner, Charter is likely to gain approval to acquire TW plus Brighthouse, forming the second largest US cable company. Meanwhile, Charlie Ergen's DISH Networks has proceeded further in talks to acquire T-Mobile than has been seen in past attempts to enter the mobile space: in this go, DISH and T-Mobile US are said to have negotiated who will head up the joint company, with Ergen becoming the COB and strategic director while T-Mobile's Legere is to become the CEO of the merged company. However, parent company, Deutshe Telekom has reacted with a fishing expedition of its own... tolling for bidders and also indicating the parent can stay put during this period of TMUS's ascension in the competitive ranks.
How do you propose Sprint is going to acquire any company that has hopes to change their competitive position? Sprint is financially leveraged past the point that it can make major acquisitions of spectrum or companies or pursue a game changing built of networks.
Sprint has been heading towards this current destination of insolvency for over six years. If not for mother Softbank, Sprint would likely have been heading for insolvency already.
Basic problems have festered starting with over paying for mis-matched spectrum and networks that has resulted in a non-competitive cost structure and unsatisfactory service. One must trace the roots of Sprint's problems to fully understand the depth of the predicament the company now finds itself. The only way to remedy that was to have built the network from the bottom up: using smallcells in a different approach in which users took part in building the most diverse and costly layer using multiple mode units.
This has been discussed many years ago as the industry advanced from 3G data and multiple service capabilities into LTE and wider band spectrum deployments. It is late to start the approach we had advocated now because the competitive field has wide band spectrum in mid and low frequency bands that places Sprint at an inequitable foundation from which to mount a rise from the ashes.
The first mover advantage of pushing user deployed higher frequency layer to ICT was ignored even while WiFi has trimphed in a similar capability. Sprint left it first for competitors to capitalize on nearby 2.4GHz even though deploying. 2.5GHz should have logically is very similar to WiFi in frequency bounds. WiFi First is now moving forward while Sprint sits on spoiled investments in 2.5GHz spectrum.
What makes WiFi the biggest sponge to soak up the meteoric rize in demand of mobile users for bandwidth? How must operators ride the tide of video and wired broadband replacement? Because Sprint has owned 2.5-2.6GHz license rights, the only solution has been to capitalize on user deployments as a first layer of the bottom up deployment strategy. While WiFi 802/11ac/ax has adopted closer synegy with LTE/managed mobile networks, the mobile network has developed the means to push local to wider area coverage, a course of development that will explode in coming years. Sprint and Softbank's folly is that Sprint should have long ago been the instigator of this shift in architectural approaches. Instead, Sprint doggedly pursued a macrocell build strategy until competitors forced recognitions of their past mistakes.
This is not rocket science: People 'like us' deploy WiFi for free or low cost. Sprint still can't manage to engineer that into their business equation... cannot think out of the box. That leaves the costs of using 2.5GHz surplus spectrum 3X higher than low band and 1.5-2X higher than mid band spectrum. T-Mo provides users with WiFi units that do 3G/4G to WiFi handoffs of calls to enhance local coverage.. now that competitors are doing it, Sprint decided to join them. Too late to grow that me-too capability into market momentum? Sprint cannot seem to go beyond the thunk on the head obvious to something that takes creativity. The net result is that Sprint deploys at higher cost, driving up losses for a network that fails to greatly impress the market, resulting in stagnation of subscribers while their rival marches on defiantly.. and their CEO Legere rubs Clare's nose into Sprint's mess.
Stark questions will remain for Sprint long side investors: What are the details of Sprint's Next Generation Network plans?
What is the scope of NGN, Next Generation Network. How much will it cost? How is this being recognized by the company? What is the ROI? How many and when will subscriber growth be projected to occur? Since Sprint is a come-from-behind investment, the company should be laying out more details. Sprint has a long history of naming its moves: Network Vision, Spark, and now NGN. , investors should be let in on the details to determine in good faith if the dog is still chasing its own tail.
Softbank may be in the US mobile carrier market for the long term but how will necessary restructuring of Sprint impact current investors?
Debt holders appear safe for the foreeable future, having the deep pockets of the parent company as a backstop. However, stock holders are in a more immediately jeopardized position than the market now accounts for: Softbank may well reach a point in which what COB Masa Son has asked of the sibbling, that it show the parent a worthwhile ROI, may not be forthcoming in time to keep Sprint from sinking to new lows. Softbank may not be as willing to bail out Sprint as seen in the past, instead waiting for its foretold destiny to play out, that Sprint will not be competitive unless allowed by regulators to merge with rival T-Mobile.
Meanwhile, T-Mobile's parent, Deutsche Telekom, is in a psoition to let the chips ride on the US majority owned company... while letting Sprint stew in its own juices. Why bail out Sprint's sagging fortunes? Why sell cheaper than the market position and momentum and healthier balance sheet dictate?