Recall the famous vapor deals of yesteryear, the celebrated mergers that didn't happen: The Disney-Comcast combo of 2004. The nonpurchase by broadcasting giant News Corp. (later to buy this newspaper) of General Motors in early 2000.
This week's $20 billion plan of Japan's Softbank to acquire a controlling stake in Spring, the No. 3 U.S. wireless carrier, would seem ripe to be consigned to the same category, and still might be. At least Comcast-Disney was explicable: eventually Comcast would succeed in merging distribution and programming by buying NBC. And Rupert Murdoch was said to be interested in GM for its then-ownership of the Hughes satellite TV business.
What's missing from Softbank-Sprint is any benefit so compelling that an outsider can actually discern it. Masayoshi Son's history as a wireless disrupter in Japan says less about his potential to do the same in the U.S. than about how thoroughly Apple transformed the mobile business globally. Mr. Son is undoubtedly a great entrepreneur, but his carrier cleaned up because it was first to bring the iPhone to Japan.
Why Sprint wants and needs a white knight isn't a mystery. Sprint has made its own bed in so many ways, including its ferocious lobbying against the now-thwarted merger of AT&T and T-Mobile, which probably ended any hope of Sprint selling itself to AT&T or Verizon.
Associated Press/Koji Sasahara
Softbank boss Masayoshi Son announces a deal to acquire Sprint, Oct. 15.
This will infuriate some, who see AT&T or Verizon as abusive duopolists, and who even now are cheering Mr. Son as the savior who will bring competition where it's supposedly lacking. According to his press conference, Mr. Son will inject "war funds" to help Sprint upgrade its network and share in the rich pickings presumably enjoyed by Verizon and AT&T.
But if Verizon and AT&T were abusive duopolists, charging high prices for lousy service, Sprint would already be doing better than it is.
The Justice Department and the Federal Communications Commission, in shooting down the AT&T and T-Mobile deal, hinted that the industry's economics should be able to support four national players of the scale of AT&T and Verizon. Even with the help of public policy, Sprint's inability to turn itself into such a player may mean the smart money believes the government simply is wrong.
Sprint's many miscues are well documented: the disastrous Nextel merger, the bad bets on WiMax and LightSquared; its profusion of conflicting network standards. But even without the miscues, it's far from clear the market needs or wants another top-tier giant.
Sprint's big innovation, recall, has been to promote itself as a white-label carrier, letting others resell access to its network under their own brands. The FCC staff insisted it was just the kind of thing the market-dominant players would never do.
Wrong. In short order came the Verizon deal with several cable companies, which includes a provision letting the cable guys resell Verizon's wireless service under their own names. In a competitive infrastructure business Verizon, no less than Sprint, is under pressure to hunt up every possible way to generate throughput.
But something else is also at work—the coalescence of the fixed and mobile networks. Undermining Mr. Son's hope of a cozy trioply is the growing reality that mobile networks no longer compete just with each other.
The cable guys, homeowners, employers and others have been seeding the U.S. with Wi-Fi hotspots much cheaper to develop than any 4G network. One-third of the data going to the smartphones that carriers put in their customers' hands never even touches the carriers' own networks. It travels over somebody's Wi-Fi network.
One survey of customers in the U.S. and Europe found that 18% of smartphone owners don't even pay for a data plan—they rely on Wi-Fi exclusively. A smartphone is truly a subversive device, especially of the business model of the carriers that have promoted it. Nearly half of respondents in another survey say they use over-the-top apps to bypass their carrier's voice or messaging rates.
The ease with which handsets can switch between the mobile and fixed networks, the fact that most handset users most of the time are within range of a Wi-Fi hotspot even if they aren't using it—these factors ought to give pause to any certainty about the size of 4G's long-term share of the user connectivity dollar.
To be sure, Verizon, AT&T and Sprint will have every incentive to attract people to put data through their expensively built networks. They're already pushing "tethering" to capture laptop, netbook, e-reader and even game console and TV traffic into the cellular network. The question is what will they be able to charge for it.
One might also ask why, with U.S. companies and investors sitting on trillions in cash, it took Mr. Son and Japan's nonpercipient big banks (which are providing the financing) to detect the hidden value in Sprint. Mr. Son may well have reason for wanting to be in business somewhere, anywhere, rather than Japan, which faces massive demographic and fiscal challenges. But any natural business logic for a Softbank-Sprint tie-up is hard to find.
Very lengthy but interesting points.
I will be short in my response, Softbank needs Sprint to expand their footprint globally and will accomplish just that with completion of the deal. With potential future acquisition they can move into 2nd place behind Verizon.