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Business

Where did Son go wrong in Sprint business?

SoftBank CEO Masayoshi Son announces his renewed resolve to see significant improvement in Sprint's business at a SoftBank Group business results meeting.

TOKYO --  U.S.-based telecom carrier Sprint, a recent addition to the portfolio of Japanese powerhouse SoftBank, suffered a setback in total-user rankings as of the end of June, dropping to fourth place behind T-Mobile US.

     In a bid to shore Sprint up, SoftBank CEO Masayoshi Son has publicly pledged that he will personally work on rebuilding the company he bought two years ago.

     However, despite his stated resolution, it remains unclear whether he will be able to put back the business back on track, after it has been hobble by a series of missteps.

     At the meeting to report business results of the SoftBank Group on Aug. 6, the focus of attention of reporters and analysts was what kind of plan Son would unveil to turn Sprint around.

     Son, who understands well where the spotlight shines, had an unusual guest take over part of his presentation on the Japanese telecom giant's first quarter performance: Pepper, SoftBank's humanoid robot that recently went on sale in Japan.

     About the strategy for Sprint, however, he enthusiastically stated that he was not leaving the job to a robot but was personally working on the biggest concern for the group -- how to put the struggling company back on its feet.

Replicating success

Son's plan is to rebuild Sprint by adopting the same business model that has been so successful in Japan.

     Specifically, Son said he was aiming at a large reduction in operating expenses as well as improvement of the efficiency of capital expenditures. Son has a track record of successfully improving the bottom line of the mobile phone business he bought from U.K.-based Vodafone by building the No. 1 network at minimal cost.

A Verizon carrier coverage map shows the largest coverage area in Hawaii.

     In Sprint's case, network quality will be another key to regaining lost customers, because Sprint is one of the least extensive networks in the U.S.

     When I used Verizon Wireless network, KDDI's roaming service provided by the second-ranked AT&T Mobility and SoftBank's roaming service provided by Sprint in the U.S., Sprint's coverage was the poorest. The network was often unavailable not only in crowded indoor facilities such as shopping malls but also on lightly-traveled roads on the island of Hawaii.

     In the U.S. where spaces are vast, mobile phone users prefer No. 1 Verizon, as the carrier boasts the largest coverage area. Sprint, whose coverage area is much smaller than some of its rivals, is often a less preferable option.

     SoftBank, therefore, seems to think that network improvement is imperative to attract more users to Sprint. Son said that he is personally spearheading a recovery plan of Sprint as chief network officer -- the executive responsible for mobile networks -- and engages in video conference calls with Sprint for hours every night. "I am confident that Sprint's next-generation network will be designed far better than its rivals'."

     Reportedly, Sprint engineers had another plan for a next-generation network. However, Son did not approve the plan and personally presented an alternative. "It was obvious even before implementation that Sprint's original plan would fail, because it would have taken five years to complete and the design did not have enough advantage over competitors to justify an enormous amount of capital investment," he said.

     According to Son, his alternative plan, in which he seems to have a lot of confidence, is scheduled to be complete in roughly two years. "In addition to reducing the time required for network improvement by more than half, we will be able to significantly cut back on capital investment. Sprint engineers were originally against the plan, but we persuaded them." 

Son is confident that he will successfully turn Sprint around.

Delayed start

However, one cannot help wondering why Sprint did not begin the effort much earlier.

     Son has been publicly stating since 2012, when SoftBank announced the deal to acquire Sprint, that he would get the company back into shape by improving the network. His plan already included an idea to feature the 2.5 GHz spectrum in the next-generation network plan, just like the latest one. The deal was completed in July 2013.

     If the plan had been launched back then, it would have been completed by 2014 and Sprint might have already started winning back subscribers from rival carriers.

     However, the network improvement plan was set in motion only recently. The Japanese billionaire said he had been working on the plan for the last three months.

     Asked the reason for the delayed launch, Son said he had miscalculated -- the U.S. authorities did not allow the planned merger between Sprint and T-Mobile US. "We thought we should not reshuffle the management until the expected merger with T-Mobile US went through," he said. The merger plan fell through and it took SoftBank another year to rework the plan. "It was a pity, but we couldn't help it."

     Since the appointment of Marcelo Claure as the new Sprint CEO, the company seems to be more open to Son's suggestions, but he is still cautious. "I dragged my feet for a year, because I was reluctant to unnecessarily meddle in details of business. I wanted to have engineers in the U.S. take the initiative in improving the network."

     Son was not at all diffident, but was aggressive when SoftBank purchased Vodafone's mobile phone business in Japan. He started a price war with rivals right off the bat and immediately followed with an ace up his sleeve -- exclusive rights to distribute Apple's iPhone.

     However, in the American market SoftBank seems to have stayed one step behind with no notable success so far. In addition to the aborted merger with T-Mobile US the bulk of SoftBank development engineers withdrew from the Silicon Valley office in less than a year.

     Son still claims that Sprint's performance has improved, but the prospects for the American carrier do not look rosy. The company's sales have increased from a year ago, but that is only in terms of yen, which has weakened against the dollar. Sales have slid in dollar terms.

     As for the widely expected disposal of Sprint, Son said that although he had not received any offer for the company, he had no intention of selling it. Unfortunately, however, he will not need to worry about selling the company in the near future, as there would be no prospective buyers for a company in such a miserable state.

     SoftBank's performance is also not robust enough to realize Son's original plan to shore up Sprint with profits earned in Japan. Subscribers in the past quarter decreased by 470,000, although SoftBank once boasted the largest net growth in users.

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