Can Japan's Softbank reinvigorate Sprint?

Sue Marek

Last week's news of Deutsche Telekom's plans to merge its T-Mobile USA operations with flat-rate player MetroPCS (NYSE:PCS) caused many in the wireless industry to ponder how this latest wireless industry maneuver would impact Sprint Nextel (NYSE:S), which counts around 56 million customers and is the nation's third largest wireless carrier.

Today it appears that Sprint is in the midst of its own transformation. The company confirmed that Japanese operator Softbank is considering buying a majority stake in Sprint in a deal that is valued somewhere between $12.8 billion and $19 billion, according to multiple reports.

Most of the industry insiders I've talked to think Softbank could be the white knight that Sprint needs to get back on equal footing with rivals AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE:VZ). "Softbank sees that Sprint has a potentially compelling turnaround story," said Mark Lowenstein, analyst and founder of mobile consultancy Mobile Ecosystem. "This would give them [Sprint] more capital to invest in or acquire Clearwire."

Foreign operators owning a stake in U.S. operators is not all that uncommon. After all, Vodafone Group is part of a joint venture with Verizon Communications and holds 45 percent ownership of Verizon Wireless. And Germany's Deutsche Telekom owns T-Mobile USA, though DT said it could exit the U.S. market.

Japanese operators even have a history of investing in U.S. operators, although the results have not always been positive. Back in 2000, Japan's NTT DoCoMo formed a joint venture with AT&T Wireless and invested $9.8 billion in the company. AT&T created a subsidiary that was focused on multimedia applications and both companies were to share technical expertise and staffing. In addition, AT&T licensed NTT DoCoMo' imode platform.

At the time of this deal, Japan was the global leader in wireless data usage and its data applications were much more advanced that those found in the U.S. market. AT&T clearly was hoping to leverage that expertise and bring it to its customers. AT&T launched its own version of imode, calling it mMode. The platform delivered multimedia content to WAP-enabled phones and served as a successor to AT&T's PocketNet service. mMode had marginal reception from subscribers and was discontinued after Cingular purchased AT&T Wireless in 2004.

Lowenstein noted that in 2000 Japan was known for being much more advanced in wireless technology and today that isn't necessary true. While Japan is still innovating, Lowenstein said that there is no longer a gap between the two countries. "The innovation gap no longer exists," he said. "I don't think the U.S. has to look to Japan as a source of innovation anymore."

Indeed, technical savvy and innovation may not be the draw. But Softbank's deep pockets are certainly appealing to a cash-hungry company like Sprint. --Sue