Sprint playing crucial role in Softbank's 30-year grand plan

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By Tammy Parker

Softbank's planned $20.1 billion investment in Sprint Nextel (NYSE:S) caught many observers by surprise. But the investment is part of a broader plan to expand the Softbank name worldwide and provide a lasting legacy that extends far beyond Softbank's current circle of influence. Further, Softbank sees Sprint as a brother in arms that is battling an overly powerful mobile duopoly, much as Softbank has had to do for years in Japan.

The rise of Softbank has been driven by its visionary founder Masayoshi Son, who has repeatedly showed a penchant for fearless investing in companies that can contribute to his grand scheme of a broadband-connected world.

A brief history
Softbank was formed in 1981 as a wholesaler of PC software. Most U.S. IT professionals first became aware of it in 1995, when the company bought from The Interface Group the gigantic COMDEX trade show. The event, which was held annually in Las Vegas, was sold off by Softbank in 2001.

Source: Softbank

Softbank's goal has always been to harness the information revolution and bring "happiness for everyone," spokeswoman Mariko Osada told FierceBroadbandWireless during a briefing at Softbank's Tokyo headquarters.

The company's specific goals are to become the "No.1 mobile Internet company" as well as the "No.1 Asian Internet company," she said.

Softbank's investments run the gamut, and include business in the information industry, including mobile communications, broadband services, fixed-line telecommunications and social networking, with notable stake in Yahoo Japan, Alibaba Group, PayPal and UStream.

The Softbank Group has three telecommunication companies: Softbank Telecom, which offers fixed-line communications to businesses; Softbank Broadband, which includes a 42 percent stake in Yahoo Japan; and Softbank Mobile.

Source: Softbank

In 2006, Softbank entered the wireless communications business by acquiring the struggling Vodafone Japan for $15.1 billion. The renamed Softbank Mobile unveiled its aggressive discounted pricing in 2007 via its innovative White Plan, which offered a two-year contract for 980 yen ($12.50) per month and free calling to fellow Softbank subscribers, a novel idea at the time and one that caused Softbank's ARPU to plummet $13 during 2006-2008.

Softbank in its first year of mobile operations far outpaced the subscriber additions recorded by rivals NTT DoCoMo and KKDI. Since May 2007, the company has ranked first in monthly net additions of subscribers every month except for four. The company had 35 million subscribers as of October 2012.

Softbank's rivals were forced to begin competing on price, something the operator was well prepared for due to strict internal cost-monitoring, said Softbank spokesman Mitsuhiro Kurano.

Softbank also unleashed quirky advertising campaigns that helped make its brand one of the most recognizable and popular in Japan. Those pitching for the brand have included the likes of Hollywood actors Cameron Diaz, Brad Pitt and Tommy Lee Jones.

The operator's memorable mascot, a talking, white dog called Oto-san, is featured in TV advertisements and adorns much of Softbank's product literature. The dog, a Hokkaido, represents Softbank's cutting-edge White Plan. Curiously, the dog plays the father of a human family in Softbank's popular "Shirato Family" ad campaigns. The mother and sister are played by female Japanese actors while the son is played by African-American actor Dante Carver.

Softbank's wireless operations
Softbank gained 90 MHz of spectrum in the 900 MHz band (the "Platinum Band") from the Japanese government and began operating HSPA+ service on that spectrum in July 201. It expects to add FDD LTE in July 2014. Softbank also operates DC-HSDPA at 1500 MHz and HSDPA at 2100 MHz. In September, the company launched FDD LTE service in the 2100 MHz band as well.

Source: Softbank

In December 2010, Softbank acquired bankrupt Willcom, which operated a Personal Handyphone Service at 2.5 GHz. Softbank now operates as an MVNO of Wireless City Planning, offering Softbank 4G-branded AXGP (Advanced eXtended Global Platform) service, which has commonalities with TD-LTE, on that 2.5 GHz spectrum. That spectrum, also called Band 41, is the same spectrum used by Sprint partner Clearwire (NASDAQ:CLWR) for WiMAX and, starting next year, for TD-LTE.

Softbank unveiled Wi-Fi as an offload option at the same time it introduced the first iPhone to Japan. Thanks to its role as the first mobile operator to offer Wi-Fi offloading in Japan, Softbank now has the most hotspots of all Japanese carriers. In September 2012, the company counted more than 310,000 hotspots, while KDDI had 200,000 and DoCoMo had only 43,000, according to Softbank's figures.

Expanding its territory
Son, Japan's second-richest man, laid out a vision in 2010 that he hopes will enable his company to prosper for 30 years and perhaps even 300 years, according to BusinessWeek. Among other things, he said he would invest in 5,000 companies by 2040. Further, Son wants Softbank to reach a market capitalization of 200 trillion yen in the next 30 years.

Softbank

Source: Softbank

Softbank's investment in Sprint is part of that plan and marks the largest-ever overseas acquisition from Japan, according to the Wall Street Journal. Sprint has lost more than $41 billion during the past five years, according to Forbes. Nonetheless, on Oct. 15 Softbank publicly committed to invest $20.1 billion for a 70 percent stake in the struggling U.S. operator. Under terms of the deal, $12.1 billion will be distributed to Sprint shareholders, and Softbank will pump $8 billion of new capital into Sprint.

The marriage of Softbank and Sprint is a natural one, said Kurano, noting Softbank and Sprint have long been third-place players fighting against duopolies. Softbank will move up a slot in Japan during 2013 once it closes on its acquisition of eAccess, which operates the eMobile service. Softbank's acquisition of eAccess will enable it to overtake KDDI and become Japan's second-largest mobile operator behind NTT DoCoMo.

Softbank and Sprint also have large postpaid businesses and sell many of the same or similar devices, such as the iPhone 5 and smartphones based on Google's (NASDAQ:GOOG) Android operating system. Further, both operators offer unlimited data plans for smartphones in their respective markets.

Softbank's Son has known Sprint CEO Dan Hesse for years, having invested in Terabeam Networks when Hesse headed the operation. Investment discussions with Sprint began in June 2012, and the timing is quite intentional, said Kurano.

"We could not champion this deal in two or three years" because AT&T and Verizon would have gotten even stronger while Sprint would have continued to labor with limited resources, said Kurano.

Now, however, Sprint is in an excellent position to benefit from Softbank's investment. "They are in turnaround mode," Kurano said of Sprint, noting that killing the Nextel brand and turning off the iDEN service next year will boost Sprint's entire operation. Further, now that Sprint has the iPhone, revenues are expected to rise, he said.

The current low interest rates are also helping make this deal come through, given that Softbank is borrowing heavily to make it happen, said Kurano.

Looking forward to new Sprint
Sprint could use a dose of Softbank's savvy when it comes to pricing, marketing as well as building up its device portfolio. Softbank was the exclusive Japanese carrier for Apple's (NASDAQ:AAPL) iPhone for more than three years until KDDI got the device last year. Softbank's coup in Japan was quite the opposite of Sprint's experience, as the U.S. operator did not get the iPhone until October 2011, years after AT&T (NYSE:T) and Verizon Wireless (NYSE:VZ) had begun carrying the device, which first hit the market in 2007.

Further, Softbank has a lucrative business selling cellular accessories and original branded products. Son has already stated that he wants to introduce a popular Japanese accessory, a digital picture frame that links to a wireless network, to the U.S. market.

Source: Softbank

Son and Softbank are known in Japan for their charitable efforts. A new company, SB Energy, is committed to introducing an updated business model for renewable energy industry in Japan, and Son founded the Japan Renewable Energy Foundation in the wake of the Fukushima Daiichi nuclear disaster.

Further, Softbank's Charity White service plan dedicates money to children affected by the Great East Japan Earthquake. Users who pay an additional 10 yen per month will have their contribution matched with an equal contribution from Softbank.

However, Son's generosity following Hurricane Sandy backfired on him and may have revealed a crucial misunderstanding of appropriate U.S. marketing tactics. Son tweeted that Softbank would donate $500,000 to the American Red Cross to help the victims of Hurricane Sandy, setting off complaints from critics who contended the act was a publicity stunt to herald Softbank's entry into the United States, according to Japan Today. After becoming the target of a barrage of insulting tweets, Son replied, "I'm just posting the various thoughts I have, but from now on I should probably refrain…"

Sprint no doubt hopes that particular misstep is not a harbinger of future stumbles because the perennially struggling operator needs everything to go just right if it is to reverse its fortunes. The massive cash infusion Sprint is getting from Softbank sets up the U.S. operator for potential success, but there is clearly still much work ahead before Sprint can pose a serious challenge to the dominant AT&T-Verizon duopoly.

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