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What will an US$8 billion check from Softbank buy Sprint?

Stephen Lawson | Oct. 16, 2012
If US$8 billion shows up in Sprint Nextel's wallet as planned in Softbank's proposed takeover, the No. 3 U.S. mobile operator may pay off debt, speed up its rollout of LTE, or even buy its network partner, Clearwire.

If US$8 billion shows up in Sprint Nextel's wallet as planned in Softbank's proposed takeover, the No. 3 U.S. mobile operator may pay off debt, speed up its rollout of LTE, or even buy its network partner, Clearwire.

Softbank's $20.1 billion bid for 70 percent of Sprint includes a capital infusion of $8 billion, a healthy chunk of change that the carrier sorely needs as it battles both cellular giants AT&T and Verizon and an aggressively growing T-Mobile USA, industry analysts said on Monday. Announcing the deal, the companies said the money would go toward network enhancement, "strategic investment" and strengthening Sprint's balance sheet.

If regulators approve the deal, the cash will let Sprint service its debt and buy equipment for its emerging LTE network, Gartner analyst Phillip Redman said. "No one knew where it was going to get the money to do that," Redman said. Sprint has suffered years of losses and listed nearly $21 billion in long-term debt, financing and capital lease obligations at the end of the second quarter.

The sum equals about 18 months of capital spending by Sprint, which is hurriedly building out a new, flexible infrastructure called Network Vision that can host a variety of technologies and frequency bands. That buildout is key to Sprint's LTE network as well as enhancements to 3G, the phasing out of its aging iDEN network and future spectrum-hosting partnerships.

"It buys them the rest of Network Vision," said Roger Entner of Recon Analytics. That may mean Sprint can turn on LTE in new markets sooner, extend the reach of the network or ultimately boost its speed. "It gives Sprint a lot more flexibility," Entner said.

Sprint has just two paired blocks of 5MHz each for its LTE service, only half the spectrum that AT&T and Verizon have in most markets. "Five by five is a good start, but everybody knows this is just the nucleus of an LTE network." Entner said. Verizon already offers LTE in more than 400 markets and AT&T plans to reach 100 this year. T-Mobile won't turn on the new technology until next year but has a better spectrum position than Sprint and is looking to bulk up by merging with MetroPCS.

The key to more spectrum and higher speeds may be Clearwire, the WiMax carrier that has supplied Sprint's existing 4G network for years. Softbank and Sprint didn't say much about Clearwire on Monday, but analysts think they eventually will tap into that company's massive reserves of spectrum. Clearwire, which Sprint helped form through a joint venture in 2008, has well over 100MHz of frequencies in most markets. Some of those originally belonged to Sprint.

 

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