Sprint investors need patience, possibly up to two years - SoftBank founder

Reuters News
Posted: Sep 30, 2013 7:04 PM
Sprint investors need patience, possibly up to two years - SoftBank founder

By Sinead Carew and Nobuhiro Kubo

NEW YORK/TOKYO (Reuters) - SoftBank Corp's bid to revive U.S. wireless operator Sprint Corp could take as long as two years, the Japanese telecoms group's founder said on Monday, dampening investor hopes of a quick turnaround.

SoftBank founder Masayoshi Son - famous for turning around Vodafone Group's Japanese mobile assets after he bought them - needs Sprint, ranked a distant third place in the U.S. market, to win customers from its rivals.

However, Son warned on Monday that Sprint, which has been losing subscribers for years, would not deliver any big improvements such as subscriber growth anytime soon.

"It took around a year after SoftBank bought Vodafone (before) we reached the No. 1 position of net gains in subscribers. It takes time to get devices ready and prepare services and the network," he told reporters at an event in Tokyo on Monday. "At the very least you need half a year or a year. And for anything substantial you need one or two years."

The comments follow a 14 percent drop in Sprint shares since early August even as SoftBank, which bought a majority stake in Sprint in July for $21.6 billion, raised its stake to 80 percent from 78 percent in August and September.

Since it completed its share purchases on September 16, the stock has weakened further as investors focus on the fundamentals of Sprint's business.

New Street analyst Jonathan Chaplin said earlier this month that after meeting with Sprint management, he now expects a Sprint network revamp to take longer and come with "significant" additional expenses.

Chaplin said in a research note issued September 22 that he now sees Sprint losing 1.2 million subscribers in 2014 compared with his previous expectation for 100,000 additions next year.

He cut his 2014 estimate for earnings before interest, tax, depreciation and amortization to $6.5 billion from $7.2 billion and cut his 2015 estimate to $7.7 billion from $9.2 billion.

Some investor concerns are linked to Sprint's July takeover of small U.S. wireless operator Clearwire, which gave Sprint full control of a vast expanse of wireless spectrum.

The airwaves could give Sprint much more network capacity than its rivals but investors worry that achieving this could be hugely expensive. Sprint is already spending billions of dollars on a network upgrade but has yet to disclose its Clearwire spectrum plans.

"If they want to get the truly national coverage that you get with one of the incumbent providers then I think they'll have to spend a lot more money," said Joe Pasqualichio, equity analyst at Eaton Vance, which has $268.8 billion assets under management including 140,000 Sprint shares.

While Son appears ready to bide his time for a turnaround, some investors worry that Sprint will take drastic measures to boost customer numbers while the network is being upgraded.

Di Zhou, equity analyst at Thornburg Investment Management, said investors are worried about a recent change in Sprint's compensation policy under which executive bonuses are now based on subscriber growth instead of revenue.

On the same day, it launched a $15 per month service discount for customers who opt for a new smartphone installment purchase plan.

"People worried that they're going to go after market share at the expense of the top line," said Zhou whose firm has about 770,000 Sprint shares in its portfolio, according to Reuters data.

Since Sprint trails AT&T Inc and Verizon Wireless in high-speed data, Eaton Vance's Pasqualichio said it has little choice but to offer discounts.

"To convince a consumer to come to your business, which has a lower quality network than the other guys, you have to give them something differentiated or you have to charge a lower price," he said. But he worries how effective it will be.

While Sprint may lure single subscribers with discounts, Pasqualichio said it needs to win over entire families because most AT&T and Verizon Wireless customers are locked into family plans that make it tricky to switch services.

"For a couple of quarters, as these individual users switch the numbers can look good but, then you kind of run out of those subscribers," Pasqualichio said.

Thornburg's Zhou said her firm, a long-time SoftBank shareholder, invested in Sprint due to SoftBank's involvement. She said she hopes it can show progress in the next year.

"I want to see progress in terms of the 4G network build out. I don't want to see a big delay," she said ... and "once they have a national network, I want to see lower churn and eventually gaining market share."

(Additional reporting by Nobuhiro Kubo and Mari Saito in Tokyo; Editing by Bernard Orr)