What Would Softbank Do With Sprint Wireline?

October 12th, 2012 by · 16 Comments

Yesterday’s news that Sprint is talking to Softbank about selling a majority (70%) stake seems to have teeth. At least Japanese investors think so, else Softbank’s stock wouldn’t have dropped 17% on the news. It’s risky of course, but bold if they can pull it off. But as a reader asked here yesterday, what happens to the non-mobile side of Sprint?

Sprint has continued to manage its wireline division for cash, as revenues churn off and EBITDA margins erode. There has long been speculation that they might sell off the division or contribute it to some kind of joint venture with another network operator. But nothing has ever come out of it, largely due to mismatches on perceived value.

But with a new majority owner in the picture, things might change rapidly. Softbank would have its hands full turning Sprint Wireline, Clearwire, and even perhaps MetroPCS into a unified whole capable of taking on Verizon and AT&T. Selling off Sprint Wireline might be a welcome simplification, one that could be used to cement an alliance with a US operator who would handle Softbank’s non-wireless needs.

Who would that be? I know, you think I’m going to say Level 3, as they’ve frequently been talked of as a Sprint Wireline suitor. That’s still possible, of course, but I think perhaps the more likely partner is CenturyLink. The #3 ILEC with cloud ambitions but no wireless play would be a natural ally for a Softbank entry into the US market.

A CenturyLink/Sprint-wirelines combination would have many synergies, moving Sprint’s traffic off of its aging backbone and onto that built off of the Qwest infrastructure. It would have extensive backhaul throughout the ILEC footprint, giving a Softbank/Centurylink alliance an infrastructure that could go toe to toe with either of the top two. Not a guarantee of victory, but definitely a path to a greater level of competition than we have seen from the #3 slot in a long time.

Throw in a purchase of tw telecom as well, and the game has changed beyond recognition.  You’d be talking about nothing less than a new axis of power in the US telecom market.

Level 3 could work well in that role too of course, but I still think they have better inorganic opportunities in Europe and elsewhere that wouldn’t be as messy to integrate as Sprint Wireline.  Because they’d care less about having a consumer wireless partner to team up with and resell, I think they’d be less likely to pay Sprint’s price for the wireline business.

For Softbank’s motivation, you have to think that taking on the wireless giants would be enough of a job.  Taking on the wireline side of things via a vehicle as far gone as Sprint’s is wouldn’t make any sense.  It would require too much investment.  So why not use it to shape things the way you want them to be instead?  Ah well, it’s all a moot point unless Sprint and Softbank come to terms, so we’ll just have to wait and see.

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Categories: Internet Backbones · Mergers and Acquisitions · Wireless

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16 Comments So Far

  • schmuckinsurance says:

    Thanks Rob, I agree with most of your points though unsure what the terms of the Centurylink deal with Verizon Wireless were when they sounded like they signed a wireless resell for tower hookup relationship.

    I think strategically not fighting the wireline battle would be a good move for Softbank but do you think the Feds would even Softbank to retain ownership?

    • As Japan is so tightly allied, I suspect this might actually work out if Softbank cared to force the issue. But instead what would probably happen is that they’d use it as currency to get the deal through faster, giving in on a divestment that makes sense for them strategically anyway.

  • CarlK says:

    The exciting part of this potentially imminent deal is structured within CLWR itself. Good to see them cancelling their Deutsche Bank “highly leveraged” debt conference yesterday. NO CONVERTS for you!

    Has any Wrong Streeter’s dwelling here put a pencil to the numbers that Hope Cochran, a very gifted CFO, outlined for them about her “SPECTRUM VALUE” recently?

    If you go mid range for this 2.6 highly coveted spectrum on a global standard basis that is being tested directly by China Mobile along with Softbank, Clwr partners, the numbers remains mind boggling assuming that McCaw’s CLEARWIRE had all of its spectrum sold to the highest bidder.

    It should be a long weekend for shorts in that name. IMO

    • Anonymous says:

      As a CLWR shareholder, I would disagree with you on one point, Cochran is not gifted… converting debt which matures in 10+ years for equity at $2.20ish/share is not smart…. doing controlled equity offering when your stock is south of $1.5 is not smart… Operationally, I would give her an A+, but she missedor failed the classes on Financial Engineering…

  • en_ron_hubbard says:


    My mind boggled simply trying to figure out what exactly you were attempting to convey. Eventually I gave up.

    • Anonymous says:

      What’s your take on the CLWR deal? How do you see this one playing out?

      • en_ron_hubbard says:


        In short, I have no great insight on the impact that potential deal for Sprint might have on CLWR– it’s a second level issue. One thing is clear– if Softbank does a 1/3, 2/3 deal with Sprint (1/3 primary purchase of shares from S at market and a tender offer for 2/3 of their position from existing shareholders for the remaining shares) then Sprint will have the capital to fund CLWR’s funding hole which is estimated at $2 Billion. They could also buy the 52% they don’t own. It would be Softbank’s decision and it’s not clear what their agenda is. I have read estimates of CLWR’s value– spectrum alone– in the $4 range.

        If the end game is for a S/CLWR/PCS roll-up then we will be left with a 4 player domestic industry because spectrum/antitrust considerations probably don’t allow T-Mobile to be rolled in to that entity. But what do I know?

        • CarlK says:

          One hundred ten million shares crossed the “CLEAR WIRE” ticker tape today……..

          Enron seems to have missed The Goldman Conference a week or two ago where one of his fellow, lazy, demanding analysts–these believers who think they rule the world with the world owing them their living– begged Hope for the answer surrounding her assessment of Clearwire’s SPECTRUM VALUE.

          Depending how Mr. Son of The Rising Sun offers to structure this Sprint equity deal, I guess Enron will be surprised if Clearwire comes out ahead of his four dollar price which doesn’t come close to the content contained at the conference from the people he is a STOOGE, I mean a HAWK for.

          Next week should continue to be interesting as well as more favorable for CLWR owners.

          Up until this news, I had been expecting a dilutive convertible stock offering from Hope Cochran after presenting at what became an abruptly cancelled Deutsche Bank highly levered debt conference yesterday.

          A 1:1 S/Clwr exchange–with upside for clwr still in tact–is more palatable considering the “treasure cove” of extremely valuable, unencumbered “spectrum” residing inside of CLWR. I guess after that some sort of “bidding war” might even ensue! IMO

        • en_ron_hubbard says:


          Below are excerpts from two separate reports on the potential deal which should give you a better feel for the dynamics for CLWR:

          Sprint could benefit from a stronger Clearwire
          Another area where Sprint could potentially benefit from is Softbank’s interest in Clearwire, in which Sprint is the largest shareholder. Clearwire has a massive spectrum position in the 2.5 GHz frequency band – a frequency in which Softbank also owns a swath of spectrum – which it is using to deploy a new 4G network. Clearwire’s 4G network will utilize a type of LTE called TDD-LTE, which has gained little traction in the U.S. but is currently being used by Softbank in Japan.

          Getting its hands on Clearwire’s spectrum for its U.S. subsidiary is therefore important for Softbank since its networks will be compatible and should also help it secure more favorable bulk deals from network equipment suppliers and handset manufacturers. However, Clearwire’s financial position is not strong and the carrier could run into hurdles in expanding its LTE network. A deal with Softbank would allow debt-strapped Clearwire to roll out its LTE network more rapidly, which Sprint can then use to boost its 4G coverage and capacity (though the two networks are currently incompatible). With Sprint lagging far behind AT&T (NYSE:T) and especially Verizon (NYSE:VZ) in terms of LTE coverage, this would be a huge positive development for the company
          Clearwire-CL A (CLWR)
          Our $4 price objective is based on spectrum value. We apply a range of $0.15 to
          $0.30 to Clearwire’s spectrum holdings of 46.6bn MHz-POPs. The low end of our
          range is in line with spectrum warehouse NextWave Wireless and reflects longerterm
          financing risk. The high end of our range is a premium to Clearwire’s
          purchase of 2.5GHz spectrum from AT&T and Dish’s DBSD and Terrestar
          transactions. We have adjusted the value of leased spectrum for the present
          value of spectrum lease payments, which we estimate at $1.4bn. Our price
          objective of $4 represents the statistical average of our valuation range.
          Investment risks are: 1) finding qualified technicians to complete the network
          upgrade, 2) LightSquared gaining approval to use its spectrum, 3) Verizon or
          another national carrier announcing wholesale 4G, 4) Clearwire’s business is not
          fully funded and we expect further dilution. We estimate a $2bn funding gap to get
          Clearwire to fully funded status, and 5) progress with regard to FCC spectrum
          auctions could shift the balance on perceived spectrum scarcity.

  • CarlK says:

    And the beat goes on with a U.S. ally readying to seize a mega control stake in U.S. domiciled Sprint………………………..

    Softbank is in talks with Japan’s leading banks – Mizuho Financial Group Inc, Sumitomo Mitsui Financial Group and Mitsubishi UFJ Financial Group – to borrow up to $23 billion for a deal, people familiar with the matter told Reuters on Friday.
    The banks involved in the syndicated loan could provide a commitment letter as soon as this week, the sources said.
    A deal for Sprint at around the levels mentioned by sources – and including a follow-on deal for MetroPCS – would lift the tally of outbound deals by Japanese firms to a record $80 billion this year, Thomson Reuters data shows, underscoring a strong appetite for overseas assets seemingly unaffected by signs of slowing global growth.
    With Sprint in hand, Softbank may also look to acquire smaller U.S. carrier MetroPCS Communications, Japanese media have reported. Sprint has had a long interest in MetroPCS, which earlier this month agreed to merge with T-Mobile USA, part of Deutsche Telekom AG.


  • Walter Scott says:

    With Softbank now owning 70% of Sprint, it is time for Level 3 and Softbank to talk about the wire line network.

  • CarlK says:

    According to my calculations, while considering other bidders who must respond by showing up for clwr’s valuable spectrum–an unencumbered treasure cove that is fast becoming the global standard–eight to ten pps for clwr stand alone($12-$15B all in) is not impossible even if Sprint tries to steal that asset for .80 of $7.31 by swallowing THE WHOLE. Considering how that numb skull, Hesse, attempted throwing clwr under the bus with Light Squared, an absolute affront to U.S. citizens as well as their military complex, I hope clwr looks for better pricing than this deal from Japan might imply. IMO


  • CarlK says:

    If clwr owners lay down for Hesse the Huckster paying them $3.85 pps, Craig McCaw isn’t the trail blazing pioneer he once was.


    The equity being purchased directly by Softbank includes a $3 billion convertible bond purchase that is exercisable at $5.25 and will be sold well before the deal closes, in order to provide funds for Sprint as it moves towards purchasing the roughly 52 percent of Clearwire it does not already own.

  • Walter Scott says:

    The world needs an IP backbone that connects us all and Softbank is thinking 300 years ahead of Level 3, to partner with a backbone you can rely on. The new Sprint will unleash the flow of unlimited bandwidth delivered via Level 3’s huge pipes. Showing AT&T and Verizon how it is done!

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