In today’s time when competition turns fiercer day by day, one way that big companies are trying to deal with this situation is by buying other smaller players to strengthen their market positions and to take advantage of their competitive edges. Recently, after being partially acquired by SoftBank, Sprint Nextel Corporation (NYSE:S) took one step further by acquiring Clearwire Corporation (NASDAQ:CLWR).
Sprint – its core business
Sprint offers a range of wireless and wire line communications products and services to individual consumers, businesses, government subscribers in the United States. The company is currently implementing a multi-year plan, Network Vision, to improve its existing wireless communication network, incorporating the decommissioning of Nextel platform.
Sprint Nextel Corporation (NYSE:S) closed down its Nextel iDEN network on June 30, 2013. The existing users were transferred to Sprint’s Direct Connect service, which is claimed to provide three times faster push-to-talk coverage of iDEN.
SoftBank’s acquisition of 70% stake in Sprint
SoftBank, a Japanese wireless communication company, is now a controlling shareholder of Sprint. Operating in the same business, the two companies’ together are forecasted to benefit from potential synergies resulting from this combination. As a result, their subscriber base will now be one of the highest among the worldwide operators, and the third highest mobile service revenue generating company worldwide. Sprint’s market position is also quite strong in terms of highest average revenue per customer (ARPU) growth.
The acquisition may prove revolutionary for Sprint as the company can now leverage on the successful deployment of LTE in Japan in order to develop an advanced LTE network, improve the customer experience and continue to increase the efficiency of its operations.
Sprint benefited from the $8 billion equity financing, which can be used to develop its 4G LTE network and improve the balance sheet, which is heavily loaded with debt. The deal was a major push for Sprint Nextel Corporation (NYSE:S) as the company was facing financial constraints to upgrade its networks. Additionally, the equity financing decreased the company’s debt-to-equity ratio which is now in line with the major players in the wireless market, AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ). This will result in Sprint reporting a more solid balance sheet.
Acquisition of Clearwire was the second move affecting Sprint’s shareholders. This acquisition was part of the requirements laid out by SoftBank at the time of the Sprint acquisition. Clearwire, the pioneer of the 4G network, has been one of the fastest growing companies in the wireless. Its mobile broadband network serves 11 million 4G customers.
Earlier this year, Clearwire established a platform to base its global LTE roaming. Developing this framework along with the TD-LTE and Band 41 configuration increased the development cycle which will provide operators substantial benefits as the shift towards LTE escalates. Clearwire had a leading role in the development of a unified global LTE market.
According to projections, the global mobile data traffic is expected to increase exponentially in the next 3-4 years. Clearwire is expected to experience a speedy growth in its profits as the LTE market is currently in its high growth phase. The acquisition is likely to provide major benefits to Sprint Nextel Corporation (NYSE:S) as Clearwire is working on employing the first wide-channel TDD-LTE 4G network in the U.S. – a network which is anticipated to provide the speed and capacity to outperform all else available in the market. This will provide Clearwire with the first mover advantage which is the highest in the IT industry.