Sprint Nextel Corp. CEO Dan Hesse’s talks to align with Softbank Corp. have the potential to reshape the U.S. wireless landscape, creating a more viable competitor to Verizon Wireless and AT&T and sparking a new round of consolidation.
Sprint’s discussions involve Softbank, Japan’s third-largest wireless carrier, taking a stake of as much as 75 percent and providing capital for investments, according to two people familiar with the matter.
A deal between Softbank and Sprint would disrupt a wireless industry that has been increasingly dominated by Verizon and AT&T, a duopoly that has fueled government concern.
The transaction would give Sprint financial support to build a competitive wireless network with a chance to be first to offer the latest mobile devices, plus the means to buy control of Clearwire Corp. to get more capacity for data transmissions.
“This must be causing chills to run down the spines of AT&T and Verizon executives,” said Tero Kuittinen, an analyst at Alekstra Oy, a mobile diagnostics company. “They are ripe for an aggressive new challenger to attack.”
Verizon and AT&T together control 75 percent of the market for U.S. contract customers, according to Goldman Sachs Group Inc., giving them economies of scale and the first shot at the latest smartphones that draw customers. Overland Park, Kan.-based Sprint has 15 percent and T-Mobile USA Inc. 10 percent.
AT&T had exclusive rights to Apple Inc.’s iPhone for almost four years before Verizon and later Sprint were able to offer the device. Last year, AT&T had to drop its $39 billion acquisition of T-Mobile USA because of opposition by regulators.
A new investor could help Hesse, 58, speed up his $7 billion network-upgrade plan to catch his two bigger rivals, who have begun blanketing the U.S. with 4G wireless coverage. Sprint needs to improve its own technology to lure more users craving mobile video and faster download speeds, its ticket to growth as the wireless voice market has become saturated.
Sprint also could use financial strength from a Softbank deal to gobble up smaller wireless companies, adding more airwaves to increase its capacity as users demand more Internet services.
Softbank may help Sprint buy full control of Clearwire, a wholesale U.S. wireless carrier, though no decision on that step has yet been made, one of the people familiar with the matter said. Sprint already owns 48 percent of Clearwire, which has airwaves in the same frequency as Softbank and the same TDD LTE variant of network technology.
“Sprint is unprofitable, but the reason for that is spending to set up its LTE network, so we can expect it to turn around in the future,” Shinji Moriyuki, an analyst at SMBC Nikko Securities Inc. in Tokyo, said in a report Friday.
A Sprint-Softbank deal could also create an operator financially strong enough to eventually bid for the assets that Deutsche Telekom AG’s T-Mobile USA is trying to combine with Richardson, Texas-based wireless carrier MetroPCS Communications Inc., said a person familiar with Softbank’s plans, declining to be identified as the discussions are private.