Sprint investors need patience, possibly up to two years -SoftBank founder

Reuters

By Sinead Carew and Nobuhiro Kubo

NEW YORK/TOKYO, Sept 30 (Reuters) - SoftBank Corp's bid to revive U.S. wireless operator Sprint Corp couldtake as long as two years, the Japanese telecoms group's foundersaid on Monday, dampening investor hopes of a quick turnaround.

SoftBank founder Masayoshi Son - famous for turning aroundVodafone Group's Japanese mobile assets after he boughtthem - needs Sprint, ranked a distant third place in the U.S.market, to win customers from its rivals.

However, Son warned on Monday that Sprint, which has beenlosing subscribers for years, would not deliver any bigimprovements such as subscriber growth anytime soon.

"It took around a year after SoftBank bought Vodafone(before) we reached the No. 1 position of net gains insubscribers. It takes time to get devices ready and prepareservices and the network," he told reporters at an event inTokyo on Monday. "At the very least you need half a year or ayear. And for anything substantial you need one or two years."

The comments follow a 14 percent drop in Sprint shares sinceearly August even as SoftBank, which bought a majority stake inSprint in July for $21.6 billion, raised its stake to 80 percentfrom 78 percent in August and September.

Since it completed its share purchases on Sept. 16, thestock has weakened further as investors focus on thefundamentals of Sprint's business.

New Street analyst Jonathan Chaplin said earlier this monththat after meeting with Sprint management, he now expects aSprint network revamp to take longer and come with "significant"additional expenses.

Chaplin said in a research note issued Sept. 22 that he nowsees Sprint losing 1.2 million subscribers in 2014 compared withhis previous expectation for 100,000 additions next year.

He cut his 2014 estimate for earnings before interest, tax,depreciation and amortization to $6.5 billion from $7.2 billionand cut his 2015 estimate to $7.7 billion from $9.2 billion.

Some investor concerns are linked to Sprint's July takeoverof small U.S. wireless operator Clearwire, which gave Sprintfull control of a vast expanse of wireless spectrum.

The airwaves could give Sprint much more network capacitythan its rivals but investors worry that achieving this could behugely expensive. Sprint is already spending billions of dollarson a network upgrade but has yet to disclose its Clearwirespectrum plans.

"If they want to get the truly national coverage that youget with one of the incumbent providers then I think they'llhave to spend a lot more money," said Joe Pasqualichio, equityanalyst at Eaton Vance, which has $268.8 billion assets undermanagement including 140,000 Sprint shares.

While Son appears ready to bide his time for a turnaround,some investors worry that Sprint will take drastic measures toboost customer numbers while the network is being upgraded.

Di Zhou, equity analyst at Thornburg Investment Management,said investors are worried about a recent change in Sprint'scompensation policy under which executive bonuses are now basedon subscriber growth instead of revenue.

On the same day, it launched a $15 per month servicediscount for customers who opt for a new smartphone installmentpurchase plan.

"People worried that they're going to go after market shareat the expense of the top line," said Zhou whose firm has about770,000 Sprint shares in its portfolio, according to Reutersdata.

Since Sprint trails AT&T Inc and Verizon Wireless in high-speed data, Eaton Vance's Pasqualichiosaid it has little choice but to offer discounts.

"To convince a consumer to come to your business, which hasa lower quality network than the other guys, you have to givethem something differentiated or you have to charge a lowerprice," he said. But he worries how effective it will be.

While Sprint may lure single subscribers with discounts,Pasqualichio said it needs to win over entire families becausemost AT&T and Verizon Wireless customers are locked into familyplans that make it tricky to switch services.

"For a couple of quarters, as these individual users switchthe numbers can look good but, then you kind of run out of thosesubscribers," Pasqualichio said.

Thornburg's Zhou said her firm, a long-time SoftBankshareholder, invested in Sprint due to SoftBank's involvement.She said she hopes it can show progress in the next year.

"I want to see progress in terms of the 4G network buildout. I don't want to see a big delay," she said ... and "oncethey have a national network, I want to see lower churn andeventually gaining market share."

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