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Impacts of SoftBank Purchase of Control of Sprint

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The description/speculation/rumors of how the deal is structured looks intended to blunt opposition of a foreign company taking control of yet another US mobile/ICT operator. As the WSJ online article suggests, there can be expected to be opposition from some shareholders, network security concerns, and scrutiny from the FCC and DoJ.

 

Of these, the opposition from shareholders appears to be the subject to a wide degree of differences of opinion: Sprint management may well see that a group of investors mounts opposition to either have the deal thrown out or the price raised substantially above the supposed $6.50 level.

 

The DoJ and members of the US Congress are likely to require hearings that could prolong this matter well into 2013. DoJ probably will allow it because concerns about foreign ownership have partly been addressed by the structure of the deal which would give SB roughly 70% ownership rather than complete control. Besides, Sprint is in weak financial condition to face the mounting challenges of consolidated competition for mobile BB and the array of services that will roll out over the next few years. Sprint has just begun to see their fortunes change to almost generate profits. However, Verizon and AT&T are raising the bar on what it will take to compete in he 4G arena to require increased capex in video and cloud services support as well as broad deployments of LTE and stiff competition for available lower frequency spectrum where they already out-match Sprint. Realizing this, Sprint sees no likely way out except to gain a major infusion of capital. SoftBank brings capital but also helps provide a coincident goal of network development that can better leverage Clearwire's spectrum assets.

 

 

What will be the reaction from Verizon, AT&T, PCS/T-Mobile?
 
What will be the reaction from Verizon, AT&T, PCS/T-Mobile?
 
Outside of possible behind the scenes lobbying efforts to create FUD, I don't think there will be much grounds for legitimate objections: VZW and AT&T hold such marketshare that they are not in a position to object from an antitrust/DoJ perspective. DT/T-Mobile is a foreign owned entity that recently did a reverse acquisition of PCS. The new PCS will be a foreign owned operator.
 
The behind the scenes lobbying could be a different matter: the two juggernauts might push Congressmen to scrutinize he deal for potential foreign involvement in a security sensitive area of communications. The might put some pressure on DoJ and the FCC to not go lightly or quickly in looking over the deals despite having a weak set of arguments to get substantial changes. The 'change' they may see as advantageous is delay... delay can give, particularly Verizon, time to get 1-2 years out ahead of other operators in the roll out of mobile video services in combined MC LTE network deployments that include the AWS spectrum acquired from the cable companies.
 

 
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The Details Remain Speculative of Impacts on Clearwire
 

Only a matter of conditions.. nobody knows what the full details will be, how long it will take to consummate it, or how much direct control Softbank will press to have over Clearwire.. how much they will require in ownership and agreement between the parties about how they will proceed. SB acquisition of Sprint would give it working control over Clearwire because: 1) Clearwire and SB have closer alignment of goals and can benefit from mutual development. 2) Clearwire remains dependent on their partners, whoever they may be, for financial support and development of technology, devices and markets.

 

Clearwire's take out price would likely be well under $5... maybe around $3. The company is unable to survive on its own and will remain financially weak without outside investment beyond the time span for otherwise becoming self-funded.. which, given the tract record, would be never. The Clearwire V2.0 vision can conceivably reach a sustained business model... but it remains dependent on partners direct and indirect investments in the meantime. That puts Clearwire in the mainstream growth tract but with too little immediate leverage to dictate terms in such a way that is likely to net anything close to theoretical valuations for spectrum or more fully exploited spectrum asset revenues.

At the topside of expectations is a remote possibility that other players will get involved in somewhat of a bidding war. I say 'somewhat' because conceivable parties are a narrowed group with Verizon and AT&T being taken out of consideration due to antitrust and FCC scrutiny that would likely lead to rejection. That leaves potential bids from DISH, DTV, cable companies - who are now largely in bed with Verizon but supposedly still free agents for other deal making, DT/T-Mobile-PCS which has its hands full with merging the two companies already, and potential foreign interests, which might include other EU/Americas/International operators.. who? America Movil (NYSE:AMX)? Q2? There are others but each one has to be looked at for synergy and desire to do acquisitions in the US and how this would be considered by DoJ, security issues, and FCC.

However, what sometimes happens is complacency gives way to a round of M&A activity that feeds on itself. What works against that includes that the world economy is more likened to being on life support than in the mood of creating a feeding frenzy. Still, Clearwire has a largely untapped resource... a diamond in the rough, with TD-LTE being the newly advanced mining equipment that these competitive interests are pushing ahead to develop in their home countries.

 

 

This has become a big news item with several good articles in the media:

 

{tip Tooltip Title::Bloomberg Article}

http://www.bloomberg.com/news/2012-10-11/softbank-said-to-be-in-talks-to-buy-control-of-sprint.html{/tip}

 

{tip Tooltip Title::WSJ Online}

http://online.wsj.com/article/SB10000872396390444657804578052222650170536.html?mod=googlenews_wsj {/tip}