Sprint Corp., which is majority owned by Japan’s mobile provider Softbank, dropped its bid to acquire T-Mobile U.S. on Wednesday. The news caused shares in all three companies to drop, as Softbank had planned the tie up between America’s third and fourth largest mobile carriers in order to compete with the country’s much larger rivals Verizon Communications Inc. and AT&T Inc. While the failed merger is a setback for Softbank and its acquisition hungry founder Masayoshi Son, there is speculation that news of a new Softbank deal may be forthcoming.
Although there was skepticism that a deal between Sprint and T-Mobile would be able to surmount regulatory and antitrust obstacles, the two were intent on pursuing the deal because of the economies of scale combining their networks would entail. With investment costs for expanding wireless networks quite absorbent, all parties involved saw it as a good way to quickly reach greater parity with the number one and number two carriers in the U.S. Softbank’s purchase of a majority stake in Sprint last year for $21.6 billion made it the world’s largest mobile provider, yet the company still wanted a greater share of the American market.
While Sprint and T-Mobile finally announced that they could not agree on how to equitably share the risk of the deal falling through during the lengthy regulatory approval process, which could have taken a year or two, Softbank in all likelihood will not be deterred by the setback. Son, the company’s CEO, is not expected to wait long before announcing a new investment plan, as he personally championed the acquisition of many of the more than 1,300 companies Softbank owns a stake in.
An analyst at SMBC Nikko, Satoru Kikuchi, says that “Softbank may already have another acquisition target,” and he expects Son to announce another deal this year, or maybe as soon as the end of this month. Son may even indicate his possible strategy while briefing investors during a quarterly earnings meeting this Friday. There is speculation that instead of trying to purchase another mobile provider, Softbank may try to expand its content, for instance its large mobile game presence, or grow into other media. Macquarie Securities analyst Nathan Ramler also expects that “SoftBank/Sprint have other ideas on how to gain the scale and momentum they want in the U.S. market.” Others speculate that Son will look to Europe, where “acquiring an operator in a high-ARPU [average revenue per user] Western European market could be next on the list,” according to Counterpoint analyst Neil Shah.
In fact, there is little to keep Son from looking abroad to expand Softbank’s reach. The Japanese mobile market is already saturated, and the company will find it difficult to take market share from its much bigger domestic rival NTT Docomo. As the Japanese mobile market eventually shrinks along with the population, Softbank in all likelihood will go the way of other Japanese corporate giants (specifically the auto industry), and expand its presence abroad in order to sustain its growth. This strategy has been show to allow Japanese companies to continue to grow and remain profitable. The downside for Japan is that this new international growth does little to contribute to the country’s perennially struggling economy.