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Business deals

SoftBank's Son loosens grip on Sprint as passion shifts to AI and robots

Removing US carrier slashes Japanese group's debt burden

The looming shift to 5G technology factored into SoftBank Chairman Masayoshi Son's decision to cede control of Sprint as it merges with T-Mobile. (Photo by Tomoki Mera)

TOKYO/NEW YORK -- Five years after buying U.S. telecommunications company Sprint and launching talks with T-Mobile parent Deutsche Telekom to combine the two subsidiaries, SoftBank Group Chairman Masayoshi Son has decided to relinquish control of the carrier he spent nearly $22 billion to acquire.

The decision comes as Son realizes that neither Sprint nor T-Mobile would be able to keep up with American market front-runners Verizon Communications and AT&T as they prepare to roll out 5G services, unless the weaker two contenders joined forces.

It also comes as the Japanese entrepreneur's passions shift from telecommunications to artificial intelligence, the "internet of things" and smart robotics.

Ever since the Japanese telecom bought Sprint in 2013, Son had been working to merge America's No. 4 mobile phone carrier with its third-ranked rival T-Mobile. Doing so would shift the duopoly of Verizon and AT&T to a "three-heavyweight fight," he said in a 2014 appearance on the Charlie Rose Show. Son noted that internet speeds in the U.S. are slow, blaming this on a lack of competition.

But Softbank's first set of talks with Deutsche Telekom collapsed in 2014, after the U.S. Federal Communications Commission said the deal would not be in consumers' best interest.

A second round of negotiations fell apart last November, amid conflicts over control of the merged unit's operations. Both Softbank and Deutsche Telekom insisted on a controlling stake.

This third round of talks took only a month. The launch of 5G technology, which is said to be 100 times faster than the current 4G and will be the basis for various next-generation services like autonomous driving and internet of things, will require tremendous amounts of investment for network infrastructure and data centers. Sprint and T-Mobile plan to spend $40 billion on 5G networks post-merger.

Son agreed to let go of Sprint's reins, recognizing the pressing issues at hand.

A successful merger would let SoftBank take Sprint off its consolidated balance sheet by the fiscal year ending March 2020. The unit carried $36.8 billion in debt at the end of 2017, accounting for nearly 30% of the group total. Annual interest payments in excess of $2 billion have put Sprint deep in the red.

By shedding this financial burden, SoftBank would be able to devote more attention to investments through its $100 billion Vision Fund, raising its profile in fields such as robotics and artificial intelligence. The company is shifting focus from wireless infrastructure to service offerings built on these next-generation technologies.

Son's waning interest in wireless infrastructure may have made him more willing to give up control. The chairman told reporters in New York on March 27 that the Vision Fund would work with Saudi Arabia on a $200 billion solar farm, calling the solar power project unprecedented in scale.

Son said when announcing April-December earnings in February that Softbank was considering a variety of options for Sprint, but has since spoken little about U.S. wireless operations. He appears more excited about the Vision Fund's prospects, saying he spends time "every day" to assess prospective investments.

"I can't help it -- it's so much fun," he said.

Sprint and T-Mobile must now convince U.S. regulators to accept the deal. John Legere, president of T-Mobile, argues that the convergence of wireless, broadband and streaming video markets pits carriers not only against each other, but also against cable television companies. "This isn't a case of going from four to three wireless companies -- there are now at least seven or eight big competitors," he said in a statement Sunday.

Legere also touted the merger's benefits for employment, saying the combination and resulting investment would create thousands of American jobs. But while this may endear the deal to President Donald Trump, who has pledged to bring jobs to rural areas, antitrust regulators may take a dimmer view. The two companies together control more than 50% of the prepaid cell phone market, and some believe their merger could drive up rates in that arena.

Sprint shares are down more than 15% Monday in the wake of the announcement. T-Mobile has fallen more than 7%.

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