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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