Friday, March 7, 2014

Softbank CEO's merger plans for Sprint, T-Mobile face long odds

Credit: Reuters/Issei Kato

Softbank Corp President Masayoshi Son speaks during a news conference in Tokyo July 30, 2013.

It is no secret that Son, known to have threatened self-immolation to get his way in the past, wants to combine sprint plans Corp (S.N), which Softbank acquired last year, with T-Mobile US Inc (TMUS.N) as part of his vision to create a global industry leader.

Son plans to lay out his broader vision for the U.S. wireless communications industry at the Chamber of Commerce in Washington, D.C. next Tuesday. Speculation is rife that he will talk about a bid for T-Mobile, although a person familiar with the matter said on Wednesday that was not the plan.

Anticipation about a merger has already pushed up shares of Sprint and T-Mobile 15.6 percent and 18.3 percent, respectively, since December 13, when media reports first emerged about Softbank's interest in pursuing a deal as soon as the first half of 2014.

Three sources familiar with the undertakings of the companies involved spoke on condition of anonymity for this article because they are not authorized to speak publicly about them.

Son's advisors are telling him to cool his heels for the time being, given the low odds of gaining antitrust approval, after they met lawmakers and regulators over the past several weeks in Washington and consulted with T-Mobile's parent company, Deutsche Telekom (DTEGn.DE).

Son, who has eyed T-Mobile for years, would rather move sooner than later, before T-Mobile gets stronger and more expensive. He reiterated his interest in a deal just last week at the Mobile World Congress in Barcelona, according to the people familiar with the matter.

"Everyone wants to do this deal; Sprint does, DT does, Softbank does, the investors want it, the customers want it; only the regulators don't want it," one of the sources said.

Whether customers actually want or would benefit from a merger is debatable. Some consumer advocacy groups have warned it could result in higher prices, job losses and fewer choices for consumers.

Federal Communications Commission Chairman Tom Wheeler also expressed his skepticism about a potential merger in meetings with Son and Sprint Chief Executive Dan Hesse on February 3, according to an FCC official briefed on the matter.

His viewpoint echoed earlier comments from William Baer, assistant attorney general for the antitrust division of the U.S. Department of Justice. Baer, at a meeting of the New York State Bar Association on January 30, gave long odds to a regulatory approval of mergers between any two of the top four wireless phone companies.

U.S. regulators previously rejected AT&T Inc's (T.N) $39 billion takeover bid for T-Mobile US in 2011. They have since argued that T-Mobile US has grown stronger, proving that the market can sustain four companies.

Additionally, the FCC is under pressure to maximize revenue from a spectrum auction scheduled for mid-2015. Proceeds from the auction will be used to compensate broadcasters and to contribute toward the building of a $7 billion national public safety communications network.

For the auction, TV stations will voluntarily relinquish their low-frequency airwaves but their willingness to sell depends on the prices they can get, a reason for regulators to seek as many bidders as possible.

Such airwaves can cover greater distances and penetrate walls and buildings more easily than high frequency spectrum, which makes them highly coveted, especially by wireless carriers Sprint and T-Mobile, which have less low-frequency spectrum than AT&T and Verizon Communications Inc (VZ.N).

Deutsche Telekom would like to sell T-Mobile because it sees its fourth position in the United States, behind Verizon, AT&T and Sprint, as limiting long-term profitability. It does not want a repeat performance of its failed attempt to sell the unit to AT&T.

Deutsche Telekom's new CEO Timotheus Hoettges was a key negotiator in that deal and knows the risks and costs involved in a failure better than anyone. He negotiated a breakup fee of cash and spectrum that amounted to $6 billion, but the company had to contend with an exodus of customers amid the uncertainty of waiting for regulatory approval that in the end never came.


To be sure, Son, who once threatened to set himself on fire as he pushed Japanese regulators to let him set up a high speed Internet service, has shown he does not give up easily. That is why people close to Son still have not ruled out the possibility he will try a merger anyway this year.

One of the sources, who has worked with Son, said he is learning how U.S. politics work and is still working on making his case despite the odds.

"He's learning to deal with politics," the person said. "His English is good but it's not nuanced so he says exactly what he thinks and that can be challenging in D.C. politics," the person added.

Softbank's arguments are that a combination of the third and fourth mobile operators would create a strong competitor to AT&T and Verizon, the industry leaders.

Looking outside the United States, Son can point to Britain and Australia as well as his home turf of Japan where regulators approved mergers between third- and fourth-ranking mobile players.

Son has also argued that to build the super-fast network he envisions for the United States, it would only be economically viable were it to serve a larger subscriber base.

Representatives for Softbank and Sprint have declined to comment on any potential deal with T-Mobile.

(Reporting by Nicola Leske in New York; Editing by Richard Chang)

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