SoftBank’s Son doubling down on Sprint, will triple capex to $6B in ‘medium term’

SoftBank Masayoshi Son at Mobile World Congress 2017
SoftBank Masayoshi Son spoke at the MWC trade show earlier this year.

Following his failure to ink a merger agreement between Sprint and T-Mobile, SoftBank’s chief executive Masayoshi Son appears to be doubling down on his investment into Sprint. Specifically, he said he will increase SoftBank’s stake in Sprint from 83% to up to 85%, and will roughly triple Sprint’s capex to $5-6 billion.

Son’s renewed focus on Sprint appears to stem from his belief that wireless connectivity is central to major businesses of the future, including robots and other devices. Indeed, Son laid out an elaborate vision of the future at the MWC trade show earlier this year, predicting that in the next 30 years superintelligent robots will dramatically change society and potentially prevent disasters like nuclear war.

It’s that vision that also appeared to drive Son’s decision to reject a merger between Sprint and T-Mobile, according to a detailed report in the Wall Street Journal yesterday. According to that report, Son couldn’t stomach a merger where he would lose control over the merged entity—a situation that T-Mobile parent Deutsche Telekom also couldn’t agree to. The WSJ reported on a last-ditch meeting at Son’s home in Tokyo that included Son, Sprint’s Marcelo Claure, T-Mobile’s John Legere and DT’s Tim Höttges.

“Mr. Son couldn’t be swayed” to agree to a merger, wrote WSJ reporters Ryan Knutson, Drew FitzGerald and Dana Mattioli. “Within hours, the executives were on planes, headed home.”

And early this morning, Son made clear that he plans to increase his interest in Sprint. During his quarterly earnings call for SoftBank, Son confirmed that he plans to boost Sprint’s annual network spending to between $5 billion to $6 billion.

Sprint’s own CFO this morning acknowledged those comments, but he noted that the capex increase will happen in the “medium term.”

“Let me remind everyone here on the call that our capex for fiscal year 2017 remains unchanged at $3.5 to $4 billion,” Sprint CFO Tarek Robbiati said this morning during a conference call to discuss the company’s new MVNO agreement with cable operator Altice. “Our chairman has guided you this morning to a spend of about $5 to $6 billion per year for the medium term. That’s what we intend to achieve.”

Those figures represent a substantial increase from Sprint’s recent capex spending. In May of 2016, Sprint reduced its 2016 capex figure from $4.5 billion to $3 billion, and then again in October 2016 it lowered it from $3 billion to “less than $3 billion.” Earlier this year, the company cut it again from less than $3 billion to $2 billion to $2.3 billion.

That cutback on network spending helped Sprint slash $1.6 billion from its budget this fiscal year as it works to regain its financial footing.

If Sprint does increase its capex to $5 billion to $6 billion, that would put the company roughly in line with T-Mobile’s capex, as noted by BTIG analyst Walt Piecyk. Still, though, the two carriers remain well below the spending of market heavyweights AT&T and Verizon.

Son’s promised increase to Sprint’s capex coincides with his promise to raise SoftBank’s stake in the carrier. As noted by Japan’s Nikkei, SoftBank will increase its ownership of Sprint “subject to favorable market conditions,” but the figure won’t rise above 85%. As the publication noted, SoftBank owned 83% of Sprint in March.

“Even if it is tough for the next three or four years, on a five or ten year timescale scale it [Sprint] is a strategically indispensable company,” Son told reporters at SoftBank’s earnings briefing early today, according to Reuters. “U.S. telecoms is indispensable infrastructure and as an investing company SoftBank should have the ability to control such infrastructure.”

Not surprisingly, Sprint’s executives appear pleased with Son’s renewed interest in the operator: Sprint’s Claure thanked Son on Twitter for the investment.

Son, for his part, remains busy. SoftBank in May raised a whopping $93 billion for its Vision Fund, the world’s largest private equity fund, with backers including Apple and Foxconn. Son today said he’s going to use some of those funds to purchase a stake in Uber.