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What you need to know for 10/19/2017

World's top tech investor is betting big on Trump

World's top tech investor is betting big on Trump

The Japanese entrepreneur promised Trump 50,000 new U.S. jobs through a $100 billion technology fund
World's top tech investor is betting big on Trump
Photographer: Shutterstock

The world’s largest technology investor is preparing to ramp up his bet on the Trump economy.

Masayoshi Son, the billionaire technology entrepreneur from Japan, promised President Donald Trump late last year that he would create 50,000 new jobs in the United States through a $100 billion technology fund.

Now, Son and his financial advisers are weighing several major possible deals for Sprint, the struggling U.S. wireless operator controlled by Son’s SoftBank.

Be it a tie-up with T-Mobile U.S., Sprint’s closest competitor, or a more ambitious marriage with cable colossus Comcast, a transaction would allow Son to fulfill a long-held ambition to invest aggressively in U.S. wireless networks and enable next-generation mobile technology.

Last month, several executives from SoftBank spent a day in Washington talking to senior members of Trump’s economic team, according to bankers briefed on these meetings.

The talks and the rush to assess potential deals for Sprint, the country’s fourth-largest mobile operator, highlight how the Trump administration’s push for lighter regulation and lower taxes has been a powerful lure for cash-rich investors the world over.

In their presentations, the SoftBank executives said that because of a lack of advanced digital investments, the competitiveness of the U.S. economy was at risk. And the executives made the case, quite strongly, that Son was committed to playing a major role in addressing this issue through a spate of job-creating investments.

The discussions were purposely broad in nature, according to investment bankers who were briefed on the discussions. Until the latest government-sponsored auction for spectrum bands finishes in late April, wireless companies are prohibited, owing to concerns about collusion, from pursuing various tie-ups.

A Sprint hookup with T-Mobile U.S., Comcast, or any large wireless or cable operator is no slam dunk. For years, federal regulators have opposed such transactions for fear of hurting consumers.

Nevertheless, SoftBank seems to be seizing the opportunity of the moment — one highlighted by numerous analyst reports arguing for Sprint and T-Mobile U.S. to come together.

Through a spokesman, SoftBank declined to comment on its plans for Sprint.

A move this week by the SoftBank-controlled OneWeb, the satellite internet access provider, to merge with Intelsat, the indebted satellite company, is the latest evidence of Son’s ambition, bankers and analysts say.

This emphasis on big technology investments as a selling point for the merger rides in part on a wave of hope that the Trump administration will push for a sharp increase in infrastructure investing as a way to kick-start higher levels of U.S. growth.

Analysts, however, note that in the past six years when Washington frowned upon wireless mergers — first between AT&T and T-Mobile U.S., and then Sprint and T-Mobile U.S. — consumers benefited from the ruthless price war among the four major carriers.

Moreover, this cutthroat environment has forced the two smaller players, Sprint and T-Mobile U.S., to become more innovative and efficient.

“The Federal Communications Commission looks very smart for blocking the AT&T T-Mobile deal,” said Philip Cusick, a telecommunications expert with JPMorgan Chase. “Five years ago, Sprint and T-Mobile were irrelevant. Now we are seeing them drive down prices. Why would you want to change that?”

While this four-way price-slashing frenzy has led to lower phone bills, a view is also taking hold that the time has come to focus less on the next great plan for unlimited minutes and more on upgrading U.S. digital infrastructure.

That would mean pushing the companies to invest aggressively in the type of fiber technology that will support the next generation of wireless investments before it is too late.

“You want these companies to invest and compete,” said Jonathan Chaplin, a telecommunications expert at New Street Research who has argued in recent research reports for a Sprint merger with T-Mobile U.S. “This infrastructure will underlie the entire digital economy, and if it remains weak, compared to Japan and China, then the competitiveness of our economy is at risk.”

This sums up the view of Son and his top SoftBank executives. And while for regulatory reasons they have been extremely careful to not — publicly or privately — advocate for a merger, they have not been shy in warning about what might happen to the U.S. economy if it continues to fall behind in the race for global digital supremacy.

Those in favor of a Sprint deal have also pointed out that the two giants, AT&T and Verizon Communications, while making their own digital investment bets, have been diversifying by pursuing media deals, like Verizon’s acquisition of Yahoo and AT&T’s purchase of DirectTV.

So, the argument goes, with the two leading players focused on their media ambitions and with T-Mobile U.S. and Sprint not generating enough cash to invest at the needed scale, a Sprint hookup with its slightly larger peer has never been more critical.

Of course, a deal could happen only if Deutsche Telekom, which owns T-Mobile U.S., agreed to merge. Bankers also do not discount the possibility of a cable deal titan like John C. Malone swooping in to buy T-Mobile U.S.

At a bit over $70 billion in combined revenue, a merged company would still trail far behind Verizon and AT&T, which generate about $125 billion and $163 billion in sales respectively.

Yet a larger third operator could immediately increase investments from the current $5 billion (for the two smaller companies combined) as Son pulls out the stops to make his network the class of the competition, as he has done in Japan.

Bankers who have spoken to SoftBank executives say a merged company could easily double its annual outlay to more than $10 billion.

While SoftBank and Son have pitched a merger as a boon for investment-starved digital America, it is also true that Sprint, as the smallest, most financially challenged of the four companies, needs to do some kind of deal to stay relevant.

Thanks to the financial engineering talents of Rajeev Misra, the former Deutsche Bank executive who has emerged as one of Son’s more influential advisers, Sprint has been able to reduce punitive financing by issuing cheaper bonds secured by the company’s access to spectrum airwaves.

These types of flashy innovations are not a long-term strategy, however. And as the company continues its policy of slashing prices to keep pressure on its larger competitors, its financial position will remain precarious, with a debt pile of $33 billion.

Sprint, under Son, has become more profitable, and the quality of its network has improved sharply. But analysts and investors remain divided as to how long Sprint can remain a stand-alone company.

“It is completely binary,” said Chaplin, the analyst from New Street. “There are those who believe in Masa’s vision and those who believe the company is a house of cards.”

What is more, with phone prices still falling, regulators need not be in a hurry to sign off on a merger.

“For Sprint,” Chaplin said, “the waiting is more complicated.”

This article originally appeared in The New York Times.

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