Is the U.S. mobile market about to be disrupted? Looking at the launch of the FreedomPop service and the coming Softbank purchase of Sprint, you might argue that a price disruption is coming.
Softbank will buy a 70 percent stake in Sprint Nextel Corp.for about $20 billion in the biggest-ever acquisition of a U.S. telecom firm by a Japanese firm. Softbank hopes it can replicate the success it has had in Japan in taking on dominant mobile service providers.
Some predict Softbank will launch a major price war to upend the U.S. market, as it did earlier in the Japanese market. That might lead some observers to speculate about whether the Softbank-owned Sprint will try to become the “Free Mobile” of the U.S. market.
In France, the Illiad-owned “Free Mobile” has disrupted the French mobile market. Already, FreedomPop is trying to disrupt mobile broadband pricing, as the Illiad Free Mobile effort already has done in the French mobile market.
In 2006, when Softbank decided to buy Vodafone KK assets, it likewise was criticized in some quarters for undertaking a risky gambit.
Some will argue Softbank is taking another huge risk by entering a country where iit has no previous operating experience, and by assuming a huge new debt load, after only recently shedding a similar debt load.
Softbank argues it is a reasonable risk, and that its prior experience taking on NTT Docomo and KDDI show it can compete in a market dominated by larger service providers.
Softbank, many believe, will use the same strategy it used in Japan, which some would describe as providing a large number of complementary features or services to create a “sticky” relationship with the end user.
Others will point to the pricing strategy. In Japan, Softbank’s 2006 acquisition of the Vodafoneunit was not universally considered wise. But in just one year, Softbank managed to boost its subscriber base from 700,000 in fiscal 2006 to 2.7 million.
By the beginning of 2008, Softbank had grabbed 44 percent of Japan’s new mobile subscribers, well ahead of KDDI’s 35 percent and NTT-DoCoMo’s 11 percent.
Some think Softbank will be willing to launch a price war. In Japan, Softbank was willing to sacrifice voice average revenue per unit to make market share gains.
Back in the 2006 to 2008 period, Softbank was willing to accept a $13 a month ARPU decline to build market share.
Softbank said it would acquire a majority stake in the U.S. carrier by buying $8 billion of shares directly from Sprint and then buying another $12.1 billion of shares in the market, completing the deal in 2013, assuming there are no regulatory snags.