Who's Afraid of SoftBank-Sprint?


In 2011 it was the very real threat of AT&T taking over T-Mobile USA that had protestations of anti-competitive doom ringing from the cell phone towers. How could anyone, wireless operators and consumer groups cried, compete against the two mobile communications giants? Together, they said, AT&T and Verizon would have a veritable stranglehold on the nation's wireless industry.

But worries of such a mobile phone duopoly were assuaged by the Federal Communications Commission and the Department of Justice making it clear AT&T's plans wouldn't be approved.

Now, however, there is a new perceived threat to the wireless pecking order. The country's No. 3 wireless carrier, Sprint Nextel , the perennial also-ran, has bulked up and is starting to flex its newfound muscle.

Sprint's potential turnaround comes courtesy of the not-yet-approved deal it made in October with Japan's No. 3 mobile operator SoftBank. For $20 billion, $8 billion of it up front, SoftBank proposes buying 70% of Sprint.

Cash-starved and in debt because of its network improvement program, and the $15.5 billion deal it made with Apple to get the iPhone rights, Sprint now had the wherewithal to make a very important purchase. For $2.2 billion it signed an agreement with Clearwire to buy total control of its former 4G WiMAX network provider.

The clout Sprint would get from buying out Clearwire comes from the vast amount of spectrum it would then control. The combined spectrum licenses of the two companies adds up to one-third of the useable broadband wireless frequencies in the U.S., more than that of AT&T and Verizon combined.

One company not happy at all about Sprint gaining control of Clearwire is satellite TV provider DISHNetwork .

DISH had just received permission from the FCC to go ahead with its own wireless network building plans. That network would be a hybrid system using its satellite frequencies combined with a ground network. DISH wanted to be able to partner with an existing mobile network, and past speculation had paired DISH up with either Sprint or Clearwire. The recent Sprint-Clearwire deal would squash those possibilities.

So DISH would like to undercut the Sprint-Clearwire deal, and one way to do that would be to kill the SoftBank-Sprint arrangement. Taking that upfront money away from Sprint would make buying control of Clearwire now highly unlikely.

The FCC has scheduled a Jan. 4 deadline for receiving any petitions regarding the SoftBank-Sprint deal, but DISH, wanting to put as much weight as possible behind its petition to deny, has requested a three-week postponement of that deadline.

In its request for extension, DISH wrote that Sprint's plan "raises a number of issues deserving of careful consideration." Those include:

  • "Is it in the public interest for a foreign company to control more spectrum below 3 GHz than any one other company in the United States?"

  • "Should the Commission reevaluate the competitive effects of an aggregation of Sprint's and Clearwire's licenses ... ?"

There is also some bad blood between DISH and Sprint. During the FCC's review of DISH's wireless network plans, Sprint, which coveted the spectrum DISH wanted for its own 4G LTE network, called DISH's proposal "vague and ambiguous."

If the FCC does approve the SoftBank-Sprint deal, DISH could still get its wish and see the Sprint-Clearwire merger fail. Even though that deal has been unanimously approved by both Sprint's and Clearwire's boards of directors, there are some investors who think the Clearwire shares are vastly undervalued. If they could persuade enough shareholders that Clearwire's spectrum is more valuable being sold off piecemeal than by giving Sprint a bargain, then the deal, as now structured, would fail.

We'll just have to see what the new year brings.

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The article Who's Afraid of SoftBank-Sprint? originally appeared on Fool.com.

Fool contributor Dan Radovsky owns shares of AT&T. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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