SoftBank Corp. President Masayoshi Son is re framing his argument for consolidation in the U.S. mobile-phone market, moving to Washington this week to support the idea for wireless broadband as an option to cable.
Calling the attention of investors and technology policy makers at a lunch tomorrow, Son plans to discuss the benefits of an advanced wireless network that could provide ultra-fast Internet access across the country and further improve education and mobile commerce.
Son is not planning to make a straight appeal for a merger of T-Mobile US Inc. and Sprint Corp., the fourth- and-third largest U.S. mobile-phone carriers.
The billionaire, who is said to be considering a bid for T-Mobile after purchasing control of Sprint last year, has met resistance from regulators who are doubtful that shrinking the amount of national wireless carriers to three would bring in competition. He’s now attempting to reframe the argument around the emergence of a new alternative for Internet in the home, said Jennifer Fritzsche, an analyst with Wells Fargo & Co. That would grant Son to focus on competing versus landline Internet firms that currently have no or few rivals.
“In most markets you have one or two choices for broadband. SoftBank’s strategy is to convince the FCC and DOJ that a strengthened No. 3 player can compete with cable,” Fritzsche said in a phone interview, referring to the Federal Communications Commission and the Department of Justice. “The key to this will be finding a way to make it politically palatable so it doesn’t look like regulators are doing an about-face on the four-player market preference.”
Internet Substitute
SoftBank sagged down 0.8 percent to 7,973 yen in Tokyo, continuing its retreat of 13 percent so far this year. The Topix index also relinquished 0.8 percent today.
By expanding the argument to broadband, Son is positioning a larger wireless broadband provider as an option for consumers who today only have two major choices for Internet at home: their landline phone firm, such as Verizon Communications Inc., or a cable-TV firm, like Comcast Corp.
Comcast recently settled to purchase Time Warner Cable Inc. for $45.2 billion in stock in a transaction that mixes the two biggest U.S. cable firms. That means Son’s argument for greater broadband competition comes at a time when regulators are likely analyzing the effect of cable consolidation on consumers’ choices for Internet and TV service in the future.
‘Inevitable’ Consolidation
A delegate for SoftBank declined to comment on the presentation or give an advanced copy of the speech. The firm based in Tokyo sent out an invitation last week to the event, saying Son will talk about “the state of America’s wireless communications industry and the competitive global landscape.”
The 56-year-old founder of Japan’s SoftBank argued during a January assembly with antitrust officials that merging Sprint with T-Mobile would allow for more aggressive competition versus huge carriers AT&T Inc. and Verizon.
Consolidation is “inevitable given the predatory duopoly structure here in the U.S.,” T-Mobile Chief Financial Officer Braxton Carter said at an investor conference last week. He reiterated that T-Mobile, which is 67 percent possessed by Deutsche Telekom AG (DTE), is being manage for the long term. T-Mobile had a market worth of about $25 billion last week.
If T-Mobile stays independent and if U.S. regulators are committed to a four-company wireless market, there have to be policies about how new airwaves will be divvied up in an auction, Carter announced today at a separate conference. He used the auction as an example of where the two dominant firms-- AT&T and Verizon -- are able to exert their resources and size to secure more radio waves.
Tough Merchandise
Deutsche Telekom Chief Executive Officer Timotheus Hoettges declared last week that a recovering outlook in the U.S. pertains to T-Mobile can go it alone, at least for now. He told a supervisory board assembly that regulatory hurdles in the U.S. could hurt the possibilities of a sale of T-Mobile, according to two people with direct idea of the matter.
Deutsche Telekom shares slumped 0.9 percent to 11.44 euros at the close in Frankfurt.
T-Mobile rallied 0.6 percent to $30.97 at the close in New York time, while Sprint boosted 0.9 percent to $8.71.
Son’s argument for the bid is that the scale of Verizon and AT&T will be an obstacle in the way of a strong third competitor unless Sprint can obtain T-Mobile, said Neil Juggins, a Hong Kong-based analyst at JI Asia Research Ltd. Recently, consumers have benefited from new discount wireless plans sparked by T-Mobile’s aggressive financial values.
“It’s going to be tough,” Juggins said. “It’s going to be very hard to persuade the FCC and the American consumer.”
T-Mobile Surges
In the past year, Bellevue, Washington-based T-Mobile became the first carrier to introduce faster phone upgrades, payment financing, international information and text messaging at no extra charge and a $450 credit program for clients that switch service. The moves aided T-Mobile to acquire 2.1 million monthly clients in the past three quarters.
In response, each of the larger rivals, including Sprint, have either changed data allotments and financial values or introduced new plans in an effort to keep cients.
Instead of continuing to challenge regulators’ preference for four firms in the U.S. wireless market, Son will possibly target his argument at the far less competitive arena of home broadband, said Walt Piecyk, an analyst with BTIG LLC.
Competitor in Broadband
“They would like to position Sprint/T-Mobile, not just as a competitor to AT&T and Verizon, but as a new competitor to the broadband industry if they were allowed to merge,” Piecyk said. “SoftBank will try and show that it knows where the future is heading, and that with more scale, it can be the competition needed in the landline broadband industry.”
The U.S. has about 200 million mobile broadband users, the largest amount of all countries, according to Chetan Sharma, an independent wireless analyst at Chetan Sharma Consulting. Last year average mobile data use almost doubled to 1.2 gigabytes from 690 megabytes, he said.
While landline broadband possess an inherent performance advantage, mobile broadband can provide a different model that could be less expensive and accessible in more places, Sharma said.
“The monopolies are more entrenched in the landline world, and there’s less incentive for reduction of pricing versus mobile, where the competition is more intense,” he said.
When Son took over SoftBank from Vodafone Group Plc in April 2006, he had a plan to reinvent Japan’s struggling third-ranked carrier. He altered financial valuing pricing to revive development and upgraded networks to send video and other data.
SoftBank’s Development
Within six months of completing the transaction, he gave up the Vodafone brand in favor of the SoftBank entitlement, a name then best-known in Japan as the nation’s second-biggest Internet service provider.
Son also made SoftBank the first Japanese carrier to offer the iPhone. The firm tapped Hollywood stars to advertise its brand, hiring actors Cameron Diaz, Brad Pitt and Tommy Lee Jones to lead promotion campaigns.
Altering the image wasn’t enough to revive development. Son worked to improve its network in response to increasing demand from clients to send video and other data. SoftBank has bolstered its base stations for Japan services more than 10-fold since 2006, according to the firm. That compares to a tripling for NTT Docomo Inc.
The moves was successful. When Son purchased the wireless business, it had about 15 percent of the market and 16 million subscribers. At the end of February, it had 25 percent of the market and 35 million users.
Son’s Vision
SoftBank topped both its rivals in new users every year from 2008 to 2013, and its market worth has more than quadrupled to $93.4 billion since June 2008 when the firm declared it would begin offering the iPhone.
Now, Son will try to bring the culture of shopping on smartphones to the U.S., the similar way he did in Japan, said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo.
“Son wants to introduce mobile Internet to the U.S.,” Yasuda said. “It worked well in Japan. Ten years ago, nobody believed we would buy goods with smartphones, but Son had a vision and he will try to do the same in the U.S.”
