Who's Afraid of SoftBank-Sprint?

In 2011 it was the very real threat of AT&T (NYSE: 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 (NYSE: VZ  ) 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 (NYSE: S  ) , 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 (NASDAQ: AAPL  ) 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 (UNKNOWN: CLWR.DL  ) 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 DISH Network (NASDAQ: DISH  ) .

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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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 27, 2012, at 9:02 PM, jopow wrote:

    The end result is that Dish joins up with Sprint/Cleawire as their best chance to compete against the duoploy T & VZ. T-Mobile, owned by Germany DT, will join up with the Sprint Family sooner or later.

    The FCC knows that there needs to be a profitable and winner #3 carrier to compete with the duopoly to protect the American consumers and businesses from rip off telephone charges. That is the bottom line for the FCC in how it decides, as that was the case with T-Mobile, bad for consumers.

  • Report this Comment On December 31, 2012, at 3:17 PM, spokanimal wrote:

    For the past 2 years, Sprint has been hammering away at Clearwire's stock price... driving it down to levels well below book value and ridiculously below net "liquidating" value for the purpose of doing what it's doing right now... buying out clearwire for Softbank for a price that makes a complete mockery of the term "fiduciary".

    For those of you who havn't yet put 2 and 2 together... the whole REASON why sprint got so much money for softbank's 70% stake in sprint was because of sprint's immense control over clearwire and sprint's ability to make such a ridiculous $2.97 offer for clearwire actually happen. In fact, softbank's primary financier for the sprint deal flatly stated that unless sprint controlled more than 50% of clearwire, then there was "no deal" for softbank to purchase sprint.

    Sprint was able to force clearwire's board to abandon it's fiduciary responsiblity to it's minority shareholders and accept the low offer because of Sprint's operational control over clearwire. For more than 2 years, sprint has been both exploiting clearwire and hammering away at it's stock price by lowering expectations via exploitive wholesale contracts (sprint was guaranteed a lower wholesale rate than any other potential wholesale partner), intimidation of spectrum purchasers, and intimidation of clearwire's viability as a going concern with threats to abandon clearwire for the likes of companies like Lightsquared or any other potential replacement partner Dan Hesse might conjure up to drive clearwire's stock continually lower.

    The $2.97 offer for clearwire is the culmination of years of preparation. It's clear that Hesse has wanted to use that effort to enrich sprint...

    ... and Softbank's rich bid for sprint is indeed... a big "premium" being paid for the right to buy clearwire ultra-cheap and essentially redefine the term "fiduciary" as it might have ever been applied to the way clearwire's minority shareholders have been manipulated and screwed throughout the entire 2-year process.

    Spokanimal

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