TOKYO (Nikkei)--Softbank Corp. (9984.TO) is planning $16 billion in capital spending at Sprint Nextel Corp. over the next two years, President Masayoshi Son said in an interview, as his company seeks to make the U.S. mobile phone carrier a more serious challenge to top rivals, the Nikkei reported in its Monday morning edition.
Under Softbank, the pace of investment at Sprint will more than double. Most of the roughly Y1.6 trillion in spending will go toward base stations for Sprint's high-speed LTE network. Softbank is also adding base stations in Japan. It reckons its Sprint takeover, recently approved by the U.S. Federal Communications Commission, will lower costs through economies of scale, not only in network infrastructure but also in smartphone procurement.
Sprint, the third-biggest American mobile carrier, has lagged top-ranked Verizon Wireless and No. 2 player AT&T Inc. in expanding LTE coverage. As of March 31, Verizon's LTE network spanned 491 U.S. markets, compared with just 88 for Sprint. Like Japan, America is seeing a surge in data traffic as smartphone usage spreads.
If the network isn't good, customers are going to complain, Mr. Son said, adding that Sprint will seek to pull even with Verizon in high-speed coverage in about two years.
Plans call for $8 billion, or about Y800 billion, of capital spending this year and the same amount in 2014. After that, the pace is to slow to $6 billion.
Softbank's 21.6 billion dollar takeover of Sprint includes $5 billion of capital to bolster the U.S. firm's balance sheet. Sprint is supposed to pay for network investments out of its own earnings, requiring no additional funding from Softbank.
The two carriers will open a joint R&D center in California as early as this year. It will "give birth to new technology in Silicon Valley, the center of Internet technology," Mr. Son told the Nikkei.
With an initial staff of several hundred engineers drawn from both companies, the R&D lab will develop both hardware and software. It will also hire locally, eventually growing to a team of around 1,000, according to Mr. Son.
The new Sprint, to be 78% owned by a U.S. subsidiary of Softbank, will take over the old Sprint's business. Son will chair the new Sprint's board of directors, with Ronald Fisher, who now heads Softbank's U.S. operations, as deputy chairman. Four current Sprint directors, including Chief Executive Officer Dan Hesse, will stay on, joined by newcomers including Michael Mullen, a former chairman of the U.S. Joint Chiefs of Staff. Softbank and Sprint executives will meet once a month to set common business goals for both the U.S. and Japan.
Straightening out Sprint's finances will be crucial to funding network investments. "We've found that there is considerable possibility for cutting costs," Mr. Son said.
Softbank estimates $2-3 billion in annual savings to be had from such steps as combining purchases of smartphones and base stations.
Mr. Son declined to comment on future talks with fourth-ranked American carrier T-Mobile U.S. Inc., which emerged as a Plan B for Softbank should the Sprint deal fall through.
The Sprint takeover raises Softbank's groupwide interest-bearing liabilities to Y6 trillion. Mr. Son said it puts less of a strain on the balance sheet than past acquisitions did. But much depends on Sprint's ability to grow steadily. In Japan, Softbank rode its early monopoly on iPhone sales to higher earnings, but all of the big U.S. carriers already offer the popular Apple Inc. device. Innovation in services will be crucial to making Sprint more competitive.