SoftBank CEO defends ending Sprint talks, sees tough 3 years


TOKYO • For Masayoshi Son, it all came down to keeping a tight grip on Sprint Corp. In his first public comments since ending talks to merge with T-Mobile US Inc, the billionaire CEO of SoftBank Group Corp defended his decision to walk away from a deal that had the potential to transform his two telecommunications companies.

“Why did we stop merger negotiations? Basically, we didn’t think we should be agreeing to a deal that would result in our loss of control,” Son, 60, said at a briefing after announcing quarterly earnings yesterday. “There was just a line we couldn’t cross. And that’s how we arrived at the conclusion.”

A wireless telecommunications network will be critical to support investments that Son plans to make via the Vision Fund, a US$100 billion (RM424 billion) investment giant that he’s creating with the Saudis and other backers to speed up investments in technology startups abroad.

“Having US telecom infrastructure is essential and we need to keep control,” he said.

Ever the salesman, Son sought to assuage any concerns by investors that Sprint will be a drag on SoftBank’s finances. He has relied on a steady flow of cash from Japanese wireless and telecom operations to fund new endeavours, while Sprint has struggled to return to profit and stem subscriber losses.

About half of Sprint’s US$38 billion in debt and obligations is coming due over the next four years and the Overland Park, Kansas-based company is also facing potentially costly investments into next-generation wireless technology.

Sprint’s finances are improving, so therefore “it will be able to secure funding on its own,” he said. Son is, in fact, painting the latest development as an opportunity to double down, hinting that Sprint’s shares are undervalued.

“Even if the next three to four years will be a tough battle, five to 10 years later it will be clear that this is a strategically invaluable business,” Son said. “With that thinking, we increased our holdings of Sprint. Sprint shares may fall on this news, but that’s a chance to buy.”

Last Sunday, SoftBank said it intends to increase its stake in Sprint through share purchases on the open market.

The increased holding won’t top 85%, the company said.

Son has also been negotiating to buy a stake in Uber Technologies Inc, the ridehailing giant. On an investor call yesterday, he said the talks are ongoing and he still needs to reach agreements on price and terms. He said if he can’t cut a deal with Uber, he may instead buy a stake in rival Lyft Inc. “It is wholly possible,” he said. “We won’t know until the very end.”

A Sprint and T-Mobile merger would have united the third- and fourth-largest wireless operators in the US, combining their customer base and networks to create a bigger carrier that could take on larger rivals AT&T Inc and Verizon Communications Inc.

Sprint and T-Mobile jointly announced the decision to end talks last Saturday, after Son and Tim Hoettges, CEO of T-Mobile parent Deutsche Telekom AG, were unable to resolve their differences over control of a combined company during last Friday night in Tokyo, people familiar with the matter said.

A key question is whether Son will seek a longshot transaction with another partner to get Sprint back on solid ground — or dig into his own corporate pocketbook to pay for its liabilities, along with network investments that analysts project at about US$25 billion through 2021.

Yesterday, SoftBank reported quarterly operating profit of ¥396 billion (RM14.65 billion), topping analysts’ estimates, while revenue rose 3.7% to ¥2.23 trillion. SoftBank shares fell 2.6% in Tokyo trading yesterday, leaving them up 28% this year.

“At this point, maybe Son has to give up on strategic options and simply invest in the US to make Sprint’s network and brand competitive,” said Walt Piecyk, an analyst at BTIG LLC.

Son has already scraped up almost every penny from Sprint’s coffers. The company used its airwaves as collateral to refinance debt and turned to handset sale and leaseback transactions to fund customer acquisition. There’s little left to mortgage.

SoftBank’s investors have not anticipated providing the US company with financial support. Sprint’s debt is non-recourse to the parent, meaning the Japanese company will not owe anything to its US unit’s creditors. And SoftBank, which already carries one of the heaviest debt loads in Japan with ¥14.9 trillion in long-term debt, has shown little interest in offering financial support.

Ultimately, Son saw giving up full control of Sprint as antithetical to his view of technology’s future. He’s invested billions in the past two years on the idea that smartphones, cars, roads, appl iances and humans themselves will be connected through the Internet, generating invaluable data to be analysed with artificial intelligence and machine learning.

He sees a realisation of the singularity, where people live with technology integrated in their bodies, sooner than most people think. Wireless and satellite services are central to bringing that all together.

“Until now mobile was all about people communicating to other people, or people accessing the Internet,” Son said. “Next, it will be not just people, but things communicating with people and each other.”

The embodiment Son’s bet on that future is the Vision Fund, which has already raised more than US$93 billion in total commitments from the Public Investment Fund of Saudi Arabia, Apple Inc and other large institutional backers, while SoftBank itself is contributing US$28 billion. Even before the Vision Fund, Son used cash from broadband and telecom operations in Japan to fund investments in businesses

He was an early backer of Yahoo! Inc and Alibaba. He spent US$22 billion to acquire control of Sprint and last year bought chipmaker ARM Holdings plc for US$32 billion in the largest deal of his career.