Softbank’s Sprint Acquisition: Making Wireline and Dot-Com Sense of the Deal

Brian Washburn
Brian Washburn

Summary Bullets:

  • Softbank is not just a telecom company; it is a major dot-com investor.  It may be able to use Sprint’s base as an audience to promote other holdings.
  • In-country holdings in Japan and the U.S. could attract new enterprise business.  However, the U.S. government may have wireline contract concerns over Sprint’s foreign ownership.

On October 15, 2012, Softbank announced its intent to acquire a majority stake in Sprint.  Softbank’s focus for the acquisition is of course mobility, just as Sprint itself has mobile at the forefront of its service portfolio.  Softbank operates both wireline and wireless networks in Japan, inherited through acquisitions of Japan Telecom, Vodafone, Willcom, and eAccess.  In the U.S., some people will better remember Softbank as a major investor in speculative Internet ventures, particularly cutting-edge digital properties that led the dot-com explosion of the late 1990s, and the following bust.  Today, Softbank remains a big speculative dot-com investor, and it has stakes in many dozens of companies.  Some names include Internet/TV company Boxee, social gaming developer Zynga, personalized gaming application GameGround, virtual desktop hosting company Desktone, and the AOL-acquired news site Huffington Post.  In its acquisition of Sprint, Softbank contributes a broad investment portfolio of dot-com properties that could use Sprint’s customer base as a target audience to promote its mobile games, apps, and content.

It is natural for the Softbank acquisition to spotlight the two companies’ mobile services.  However, once again, less attention is being paid to Sprint’s key wireline networks: the global SprintLink IP/MPLS network and domestic secure Peerless IP network.  Sprint has its own presence in 41 countries, which includes offices in dozens of countries and capacity across many submarine cables.  The carrier already connects the two countries via Japan-U.S., Tata Communications, and Pacific Crossing cables; it reaches a total of 165 countries and territories through partners.  Softbank has the opportunity to move international data and voice traffic, particularly between Japan and the U.S., onto Sprint’s backbone.  Softbank already offers business services in Japan, including IP VPNs, Ethernet, voice, converged services, and security services.  Combined with Sprint’s global network, enterprises with primary offices in Japan and the U.S. might consider the Softbank/Sprint combination a better-armed competitor than Sprint was alone, for providing doorstep-to-doorstep business services against NTT, AT&T, or Verizon.

One potential trouble spot for Softbank’s vision is Sprint’s U.S. government business.  Sprint built its Peerless IP network as a physically separate infrastructure from the public Internet.  It was designed specifically to serve the most security-sensitive government agencies.  Sprint did not win top billing in the latest round of U.S. government services (Networx Universal status, issued in 2007).  Nevertheless, Sprint does participate in the related Networx Enterprise government contracting vehicle.  The U.S. government has shown itself reluctant to let carriers owned by foreign entities take over sensitive traffic, though it is not unthinkable.  An example was Global Crossing’s acquisition by Singapore Technologies.  Before it could be closed, prospective co-investor Hutchison Whampoa left, and Global Crossing had to attain a special security certification.  In that case, as may be possible for Sprint-Softbank, the hurdles were surmountable, which made the deal possible.

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