What Softbank Sees In Sprint

The plight of Sprint, the third-largest wireless network operator in the U.S., has been a tough one to watch over the last few years. Things have been bad, or at least they haven't been good, ever since the merger with Nextel. Now, a savior has appeared in the form of Softbank, which is Japan's third-largest network operator. Can putting two second runners up together make for a winner?

Talk of the deal kicked off this morning when both Japan's Nikkei and The Wall Street Journal reported that acquisition talks are already well under way. The Journal called the talks "advanced," meaning they are close to being complete. If the reports are accurate, and the deal is announced, here's what Softbank might find appealing about Sprint.

Spectrum -- Sprint has vast spectrum holdings, including sections of the 800MHz, 1900MHz, and 2.5GHz bands. Right now, the 800MHz and 1900MHz blocks are being used by its iDEN, CDMA, and LTE networks. The 2.5GHz block is where Sprint's WiMax network, built in association with Clear, resides.

Network Vision -- Sprint is behind larger competitors AT&T and Verizon Wireless when it comes to deploying LTE. AT&T has more than 60 markets covered and Verizon has more than 400. Sprint has less than 20 covered so far. However, Sprint has done a good job of migrating its services and devices across its spectrum holdings. Most importantly, Sprint's core network overhaul is using multi-modal base station technology and runs on an entirely digital IMS platform. Once finished, it will be an advanced network.

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Handset Relationships -- Sprint has good relationships with HTC, Kyocera, LG, and Samsung. It also works with Motorola and RIM.

Customers -- Sprint has about 55 million customers, which puts it at about half the size of either AT&T or Verizon Wireless.

MVNOs -- Sprint is one of the most aggressive providers of Mobile Virtual Network Operator services. It allows other companies to resell access to its network under their own brands. Think Republic Wireless, Ting, PrepaYd, among others. This could lead to an opportunity for Softbank to offers its own branded services to U.S. consumers.

Synergies -- At least one analyst, AnalysysMason's Steve Hilton, sees plenty of positives. "Sprint's tremendous focus on customer satisfaction would fit well with Softbank's approach to the market," he said. "Traditionally Japanese companies have a very results-oriented approach to dealing with customers. Use of customer satisfaction statistics to drive improvement--long the hallmark of Sprint under CEO Dan Hesse--would fit well with Softbank's approach. Both companies have CDMA networks, possibly affording some cost savings from larger purchase volumes from network vendors."

These are all mostly positive factors, but there are plenty of items that could deep six the deal.

Debt -- Sprint has a lot of it. It's taken on billions in investor money to secure the capital it needs to update its network.

Clearwire -- Sprint owns 54% of its WiMax joint venture. This could lead to complicated entanglements. Would Softbank acquire Sprint and all of Clearwire, only the portion of Cleawire that Sprint already owns, or leave Clearwire off the table entirely? Sprint is depending on its WiMax parter (which is also converting to LTE) to provide additional 4G coverage down the road. The Clearwire situation needs to be handled with care.

Regulatory Approval -- This one is hard to call. For example, Verizon Wireless is a joint venture between Verizon Communications and the U.K.'s Vodafone. T-Mobile is a subsidiary of Deutsche Telekom. The U.S. may not want to hand Sprint over to a Japanese firm so easily, especially in light of the government's recent report on China's Huawei and ZTE.

Neither company has confirmed the acquisition talks, and it's not clear when they might announce such a deal.