SoftBank’s Masayoshi Son backs Sprint overhaul
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Masayoshi Son, the Japanese telecoms billionaire, reaffirmed his commitment to Sprint, his struggling US wireless carrier, by announcing the creation of two new equipment leasing companies that will free up cash for a big overhaul of the network.
Mr Son acquired a controlling stake in Sprint in 2013 with the intention of merging the group with T-Mobile US, but his plan was thwarted by US regulators, leaving the company with the daunting task of reviving its fortunes as a standalone group.
Making a rare appearance on Sprint’s earnings call on Tuesday, Mr Son admitted that he had at times lost faith in his recent acquisition, but insisted he was now firmly behind the group.
“I had a plan to have consolidation, but that is no longer the case. I lost confidence for some time,” he said. “However, over the last few months I have been totally focused on helping with the historic turnround of the company.”
“Now we have a plan to have a big turnround. I am extremely excited and I don’t want to sell. It will be a very good company of which I will be proud,” Mr Son said.
Some analysts and investors had fretted that Mr Son would exit the US market by selling out of Sprint, which has become a drag on the financial performance of SoftBank, his Japanese telecoms empire.
Under Marcelo Claure, who was parachuted in as chief executive last year, Sprint has made steady progress in stopping customers leaving its network, after a botched upgrade by previous management led to a spike in dropped calls and years of subscriber defections.
However, the company has had to wage a brutal price war to win new subscribers, prompting investors to ask how it could fund much-needed improvements to its network without raising new equity or debt, or without resorting to selling chunks of its big pile of “spectrum” — the airwaves used to deliver wireless services.
Mr Claure described Mr Son’s renewed backing as “hugely important”.
He said: “It’s great to run a company where the 80 per cent shareholder says it is not for sale. It allows you to create long-term value without running the group for quarterly results — he’s not interested in short-term share price performance.”
Shares in Sprint, which have lost more than half their value in the past 12 months, added 6 per cent in morning trading in New York.
Sprint plans to free up cash to fund improvements to its network by setting up two standalone equipment leasing companies — one for customer handsets and another for network equipment.
That will allow Sprint to remove the significant costs of procuring equipment from its own balance sheet. Sprint spent $544m on equipment in the most recent quarter, a figure that would have risen as it added new customers and purchased equipment for its network upgrade.
SoftBank said it would make a minority equity investment in the handset leasing business along with several unnamed parties, but did not disclose how much it expected to contribute. Details of the network equipment leasing company are still being hammered out.
Michael Rollins, an analyst at Citi, said: “We believe Sprint is likely to continue to retain an aggressive posture to take share, but that is continuing to take a toll on free cash flow and available liquidity.
“Sprint is looking to set up a leasing company to finance its leased devices to customers, which could relate to its choice of incoming executives,” added Mr Rollins, noting that the company’s new chief financial officer, Tarek Robbiati, was most recently the chief executive of FlexiGroup, an Australian consumer finance company.
However, Craig Moffett, an analyst at MoffettNathanson, said: “Off balance sheet debt through new funding vehicles is still, well, debt. You can’t manufacture equity out of incremental borrowing, regardless of whether it is on or off the balance sheet.”
Mr Son’s backing came as Sprint reported earnings for its fiscal first quarter, during which it dramatically slowed the rate at which it lost the most lucrative mobile phone carriers.
The company lost 12,000 so-called postpaid customers, who are billed for their service on a recurring monthly basis — a big improvement on the last quarter, when it lost 201,000 and the same period of last year, when it haemorrhaged 620,000 of these subscribers.
The rate at which postpaid customers are leaving the company, or “churn”, fell to a record low of 1.56 per cent.
However, the company burnt through $2.2bn of cash in the quarter, taking its net debt to $31.9bn, more than double its market capitalisation of roughly $13.4bn.
The company reported a loss per share of 1 cent, compared to the 7 cent loss that analysts were typically expecting, while revenues of $8bn were about $300m shy of Wall Street expectations. It increased its forecast for consolidated adjusted ebitda from a range of $6.5bn to $6.9bn to a range of $7.2bn to $7.6bn.
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