Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

SoftBank Will Win Sprint Nextel Corporation (S)

Unlimited data matters to 37% of the respondents in the above survey from PiperJaffray, while 44% felt that having 4G LTE access is also important. Sprint owns a 14% market share, but this could improve if the quality of the network were to improve. Only 12% of mobile subscribers feel that Sprint has the best network overall, according to PiperJaffray. For the company’s position to change from being the third-best carrier within the United States, it would require heavy capital spending. Heavy capital spending would lead to network improvements, along with greater distribution capabilities through the opening of more retail locations, which could increase market share.

I believe that keeping unlimited data while improving network speeds could lead to it eventually having 20-35% of the mobile market share within the United States. If this were the case, then over time, SoftBank’s involvement in the United States could be extremely lucrative as it could double Sprint’s revenue just by offering its users a faster Internet connection and better retail support.

Competitive environment

Verizon Communications Inc. (NYSE:VZ) could be put under some significant pressure as the combined merger of SoftBank and Sprint would give both companies an equivalent economy of scale. Currently Sprint/SoftBank, if merged, will have 26.5 million handsets sold, according to Softbank. Verizon sells 28.8 million phones. Telecommunication is all about operating at greater economies of scale. Scale means higher profit margins, stronger pricing power, and better wireless networks.

Verizon Communications Inc. (NYSE:VZ) currently spends $9.9 billion on mobile capital expenditures. When Sprint/Softbank merges, the combined companies will spend $12 billion on capital expenditures. SoftBank will most likely expend less capital on Japanese telecom infrastructure and will instead re-appropriate that cash to Sprint’s 4G LTE network. SoftBank could instantaneously deploy $4.2 billion in borrowed cash on Sprint’s 4G LTE network, which would make Verizon’s strongest advantage of being the “best network” a diminishing advantage over time. Also, there’s virtually nothing Verizon Communications Inc. (NYSE:VZ) could do to counter SoftBank within Japan as SoftBank is the most dominant telecom provider in terms of users, speed, and profitability in Japan. Verizon will be put under a lot of pressure and may have to adopt a truly unlimited mobile package at a far lower price.

Conclusion

Verizon and AT&T could be in trouble as Sprint Nextel Corporation (NYSE:S) offers a compelling mobile package that provides unlimited Internet. What Sprint has needed is an able-bodied partner that could fully leverage Sprint’s product offering of an unlimited-data network. Survey data shows that Sprint is seen as a low-quality network, so if Sprint were able to provide unlimited Internet at high speeds, consumers may re-consider choosing Sprint as their network one more time.

The potential synergies between SoftBank and Sprint are too large for shareholders to pass up. Sprint and Dish Network when combined would be heavily burdened with debt. Shareholders would not be given added scale, and Dish Network has no real-world experience in the mobile space.

The merger between Sprint Nextel Corporation (NYSE:S) and Softbank is likely to happen, and if SoftBank offers a slightly higher bid, the board will unquestionably approve. Going with Dish Network is like trading dollars for pennies.

The article SoftBank Will Win Sprint originally appeared on Fool.com and is written by Alexander Cho.

Alexander Cho has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.