Report: Japan’s SoftBank in Talks With Sprint for Possible Purchase, Sprint Responds (Updated)

This morning’s biggest story following the landmark T-Mobile USA-MetroPCS reverse merger announcement last week is the news from the Wall Street Journal that Japan’s SoftBank conglomerate is in advanced talks with Sprint concerning an outright purchase of the carrier.

Such a purchase would not be completely out of the realm of possibility as the former AT&T Wireless was previously backed by Japan’s largest carrier in NTT DoCoMo in 2004 before being outbid and purchased by Cingular Wireless to form the current AT&T Mobility in 2007.

The purchase would make sense for SoftBank on two fronts:

First, the current CEO in Masayoshi Son is very much like an American CEO in terms of management style, and frequently adopts a “play to win” attitude uncommon to Japanese CEOs, whereas the common attitude is to maintain the status quo and do as little as possible to upset the balance of the marketplace.

While this works for NTT DoCoMo and KDDI, SoftBank’s persistence to drive new subscribers led the company to land the previous exclusive on the iPhone in Japan and has enjoyed success because of the popularity of the device. However, the third-place carrier does frequently deal with a less developed network compared to its rivals due to its history as the former Vodafone Japan subsidiary, which did very little to build out its network before the subsidiary was sold to the current owner.

Second, SoftBank, like other Japanese carriers are faced with complete saturation of the local marketplace, which has led to declining profits and slower growth. To remedy this, the carrier has purchased a local MVNO in eAccess and is planning to roll out LTE, coincidentally on the same band that Clearwire is planned to roll out its LTE service on in the US. The purchase and acquisition would give it a leg up on LTE both here and in its home market, while investing further to drive more customers to the new company.

However, it should be noted that while Sprint uses CDMA, SoftBank uses W-CDMA UMTS compatible equipment, meaning that the purchase would require a network conversion in order to take advantage of any cost savings in terms of handset purchases and development between both countries.

With Sprint facing a crossroads due to its ongoing Network Vision network reconfiguration project and stagnant stock price currently hovering around $6/share and Clearwire at $2/share, the carrier is scrambling to find a badly needed cash infusion and is still mulling over whether to make an attempt to purchase MetroPCS after canceling the purchase at the last minute last February. For its part, Sprint has officially responded to the initial reports, and is downplaying the nature of the talks as nothing more than discussions on a possible  “substantial investment” and nothing more.

Should the estimated $12 billion purchase be approved by both sides, it would once again give current CEO Dan Hesse the same easy out he enjoyed after facilitating the former AT&T Wireless merger with Cingular, although the aftermath of this possible purchase would still be left up to further scrutiny, due to its timing and the progress of ongoing projects, with no immediate way to see what the changes will consist of.

However, as SoftBank frequently analyzes its customer satisfaction data to shore up any of its service deficiencies, the purchase would also renew focus on customer satisfaction, something that Sprint has been improving substantially within the last couple of years.

Update: Sprint CEO Dan Hesse has commented on the talks in an internal company-wide email found below

Dear Sprint teammates,
A few minutes ago we put out a statement indicating that Sprint is in discussions with Softbank regarding a potential transaction. The transaction could include a substantial financial investment by Softbank in Sprint and could include a change in control of the company. This transaction may or may not occur. I wanted to let you know about the possibility. We will keep you updated. Most importantly, please stay focused on delivering strong fourth quarter results.
Thanks for all you do for Sprint,
Dan