I saw Softbank’s Masayoshi Son speak at Mobile World Congress 2011. CEO presentations are often pedestrian affairs delivered by identical-looking middle-aged men in suits – but Mr Son’s 15 minutes or so felt like an electrifying piece of theatre by comparison.
He began by describing himself as “a crazy guy who makes crazy bets.” Not the usual position for a man in charge of a firm worth upwards of US$40 billion, but this has been very much Son’s modus operandi throughout his career. While he may be famous for being the man who has lost the most money in history (losing US$70 billion down the back of the sofa during the dotcom crash, according to his Wikipedia page), his “crazy bets” also have a habit of paying off.
Indeed, Softbank’s high-risk 2006 acquisition of Vodafone Japan has plenty of parallels with this week’s landmark tie-up between Softbank and US operator Sprint.
According to Son, the earlier US$15 billion acquisition – all cash and most of it debt – came at a time when Softbank was losing US$1 billion a year and still reeling from its dotcom losses. Vodafone Japan wasn’t in rude health either: the third-placed Japanese operator was haemorrhaging market share to larger rivals Docomo and KDDI and the feeling was that if Vodafone couldn’t turn the business around – with all its deep resources and international expertise – then what chance had anyone else?
Three years later, thanks to some fierce discounting and a deal with Apple to be the first in Japan to offer the iPhone, the re-named Softbank Mobile was back in the game. It wasn’t just one to watch on the domestic front either; Son claimed in his MWC2011 keynote that Softbank had become the world’s most advanced mobile data player and the first to generate over half of its ARPU from data services. Moreover, Softbank’s ARPU has remained stable over the last few years, bucking the downward trend seen elsewhere in the world and particularly in Japan.
At the beginning of this month, Son raised the stakes again, striking a deal to acquire eAccess, owner of Japan’s fourth-placed (and smallest) operator EMOBILE. The hefty premium being paid (over three times eAccess’ last traded price) reflects the fact that the deal is as much about acquiring additional LTE spectrum as building market share – but it will nevertheless allow the combined entity to leapfrog KDDI to become the strongest challenger to market-leader Docomo. When Son acquired Vodafone Japan six years ago, he declared that the business would become Japan’s largest telco within a decade. That was once headline-chasing chutzpah; it now looks like serious guidance.
He may be a phenomenon in Japan, but it’s unlikely many in the US Midwest – Sprint Nextel’s heartland – were aware of Masayoshi Son until very recently, though they will be now. Softbank’s proposed US$20.1 billion deal to acquire a 70 percent stake in the US number-three operator looks like Son’s biggest gamble to date, not to mention the largest ever foreign acquisition attempted by a Japanese company.
Just as they did in the aftermath of the Vodafone Japan takeover, investors have baulked at the amount of debt inherent in the Sprint deal, wiping a reported US$9 billion off of Softbank’s value since the news was confirmed yesterday morning. Sprint shareholders may also take some convincing, even though Softbank’s offer currently represents a premium on Sprint’s share price.
The timing of the deal is also hugely significant. T-Mobile USA’s merger with MetroPCS earlier this month was widely seen as bad news for Sprint, creating a stronger national rival and closing off an obvious M&A option for Sprint itself. Whether this expedited existing discussions between Sprint-Softbank or prompted a shotgun marriage between the pair we shall perhaps never know. It's possible Son simply identified an opportunity and moved quickly.
One thing for sure is that the US market is now in a state of serious flux; will ‘New Sprint’ proceed to acquire Clearwire? Or gazump T-Mobile and acquire MetroPCS? Or will it wait until the ‘T-Metro’ deal is done and then buy both firms in one swoop?
Son is likely to be enjoying his disruptive influence on such a large stage. He has made much of the supposed similarities between the US and Japanese markets, implying that the aggressive challenger model deployed by Softbank at home can be replicated by Sprint in the US, allowing it to take on the might of the Verizon Wireless and AT&T duopoly.
There are differences too: smartphone penetration in the US is lower and mobile networks are not nearly as advanced – at least outside of the key metro areas. Regulatory and financial constraints may also hamper Sprint’s aspirations. But Son has an admirable record for taking firms out of the doldrums and turning them into world beaters.
You wouldn't bet against him doing the same again.
The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members