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Deal worked out for Japan's SoftBank to purchase 70% stake in Sprint Nextel forming a "New Sprint"


S4GRU

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by Robert Herron
Sprint 4G Rollout Updates
Monday, October 15, 2012 - 2:39 AM MDT

Japanese mobile carrier SoftBank and Sprint Nextel formally announced a new venture called "New Sprint" that includes the foreign carrier taking a 70% stake in Sprint. The $20 Billion deal was revealed in the middle of the pre-dawn morning here in the United States as it was timed to be better for the business day where the event announcement was held in Tokyo. The stage was co-hosted by SoftBank CEO Masayoshi Son and Sprint CEO Dan Hesse.

Notably absent in remarks during the announcement or from the Press Releases is clarity for the outcome of Clearwire. There has been speculation about how Clearwire would shake out of this deal. Clearwire's fate is not yet, clear (sorry for the pun). Some believe that Sprint will take it's large cash infusion from SoftBank and purchase Clearwire outright to make their spectrum apart of the SoftBank/Sprint long term strategy. Formally in the Press Release, it says that Sprint is not required to take any action. But the door is left open that they indeed could do that with proceeds.

The boards of both SoftBank and Sprint have approved the transaction. The deal is anticipated to close in Mid 2013 and will be subject to regulatory and shareholder approvals. It seems to us that regulatory approval in the U.S. should be relatively easy. Japanese companies have not received the scrutiny that Chinese companies have in the past. Most often citing security concerns.

The New Sprint will stay headquartered in Overland Park, Kansas and Dan Hesse will stay on as the CEO of the new venture. Only three existing Sprint board members will be on the new 10 person New Sprint board.

S4GRU Members have been discussing this in our forums for the past week since the rumors first surfaced that SoftBank and Sprint were in talks.

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The Press Release with more details is below:

 

Sprint Nextel said:
Sprint Nextel Corporation has posted the following release to its Newsroom website:

SoftBank to Acquire 70% Stake in Sprint

TOKYO & OVERLAND PARK, Kan. (BUSINESS WIRE), October 15, 2012 - SOFTBANK CORP. (“SoftBank”) (TSE: 9984) and Sprint Nextel Corporation (“Sprint”) (NYSE: S) today announced that they have entered into a series of definitive agreements under which SoftBank will invest $20.1 billion in Sprint, consisting of $12.1 billion to be distributed to Sprint stockholders and $8.0 billion of new capital to strengthen Sprint’s balance sheet. Through this transaction, approximately 55% of current Sprint shares will be exchanged for $7.30 per share in cash, and the remaining shares will convert into shares of a new publicly traded entity, New Sprint. Following closing, SoftBank will own approximately 70% and Sprint equity holders will own approximately 30% of the shares of New Sprint on a fully-diluted basis.

SoftBank’s cash contribution, deep expertise in the deployment of next-generation wireless networks and track record of success in taking share in mature markets from larger telecommunications competitors are expected to create a stronger, more competitive New Sprint that will deliver significant benefits to U.S. consumers. The transaction has been approved by the Boards of Directors of both SoftBank and Sprint. Completion of the transaction is subject to Sprint stockholder approval, customary regulatory approvals and the satisfaction or waiver of other closing conditions. The companies expect the closing of the merger transaction to occur in mid-2013.

SoftBank Chairman and CEO, Masayoshi Son, said, “This transaction provides an excellent opportunity for SoftBank to leverage its expertise in smartphones and next-generation high speed networks, including LTE, to drive the mobile internet revolution in one of the world’s largest markets. As we have proven in Japan, we have achieved a v-shaped earnings recovery in the acquired mobile business and grown dramatically by introducing differentiated products to an incumbent-led market. Our track record of innovation, combined with Sprint’s strong brand and local leadership, provides a constructive beginning toward creating a more competitive American wireless market.”

The SoftBank transaction is expected to deliver the following benefits to Sprint and its stockholders:

  • Provides stockholders the ability to realize an attractive cash premium or to hold shares in a stronger, better capitalized Sprint
  • Provides Sprint with $8.0 billion of primary capital to enhance its mobile network and strengthen its balance sheet
  • Enables Sprint to benefit from SoftBank’s global leadership in LTE network development and deployment
  • Improves operating scale
  • Creates opportunities for collaborative innovation in consumer services and applications

Sprint CEO, Dan Hesse, said, “This is a transformative transaction for Sprint that creates immediate value for our stockholders, while providing an opportunity to participate in the future growth of a stronger, better capitalized Sprint going forward. Our management team is excited to work with SoftBank to learn from their successful deployment of LTE in Japan as we build out our advanced LTE network, improve the customer experience and continue the turnaround of our operations.”

Transaction Terms

  • SoftBank will form a new U.S. subsidiary, New Sprint, which will invest $3.1 billion in a newly?issued Sprint convertible senior bond following this announcement. The convertible bond will have a 7-year term and 1.0% coupon rate, and will be convertible, subject to regulatory approval, into Sprint common stock at $5.25 per share. Immediately prior to the merger, the bond will be converted into shares of Sprint, which will become a wholly-owned subsidiary of New Sprint.
  • Following Sprint stockholder and regulatory approval, and the satisfaction or waiver of the other closing conditions to the merger transaction, SoftBank will further capitalize New Sprint with an additional $17 billion and effect a merger transaction in which New Sprint will become a publicly-traded company and Sprint will survive as its wholly-owned subsidiary. Of the $17 billion, $4.9 billion will be used to purchase newly issued common shares of New Sprint at $5.25 per share. The remaining $12.1 billion will be distributed to Sprint stockholders in exchange for approximately 55% of currently outstanding shares. The other 45% of currently outstanding shares will convert into shares of New Sprint. SoftBank will also receive a warrant to purchase 55 million additional Sprint shares at an exercise price of $5.25 per share.
  • Pursuant to the merger, holders of outstanding shares of Sprint common stock will have the right to elect between receiving $7.30 per Sprint share or one share of New Sprint stock per Sprint share, subject to proration. Holders of Sprint equity awards will receive equity awards in New Sprint.
  • Post-transaction, SoftBank will own approximately 70% and Sprint equity holders will own approximately 30% of New Sprint shares on a fully-diluted basis.
  • SoftBank is financing the transaction through a combination of cash on hand and a syndicated financing facility.
  • The transaction does not require Sprint to take any actions involving Clearwire Corporation other than those set forth in agreements Sprint has previously entered into with Clearwire and certain of its shareholders.

After closing, Sprint’s headquarters will continue to be in Overland Park, Kansas. New Sprint will have a 10-member board of directors, including at least three members of Sprint’s board of directors. Mr. Hesse will continue as CEO of New Sprint and as a board member.

The Raine Group LLC and Mizuho Securities Co., Ltd. acted as lead financial advisors to SoftBank. Mizuho Corporate Bank, Ltd., Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi UFJ, Ltd. and Deutsche Bank AG, Tokyo Branch acted as mandated lead arrangers to SoftBank. Deutsche Bank also provided financial advice to SoftBank in connection with this transaction. SoftBank’s legal advisors included Morrison & Foerster LLP as lead counsel, Mori Hamada & Matsumoto as Japanese counsel, Dow Lohnes PLLC as regulatory counsel, Potter Anderson Corroon LLP as Delaware counsel, and Foulston & Siefkin LLP as Kansas counsel.

Citigroup Global Markets Inc., Rothschild Inc. and UBS Investment Bank acted as co-lead financial advisors. Skadden, Arps, Slate, Meagher and Flom, LLP acted as lead counsel to Sprint. Lawler, Metzger, Keeney and Logan served as regulatory counsel, and Polsinelli Shughart PC served as Kansas counsel.

About SoftBank

SoftBank was established in 1983 by its current Chairman & CEO Masayoshi Son and has based its business growth on the Internet. It is currently engaged in various businesses in the information industry, including mobile communications, broadband services, fixed-line telecommunications, and portal services. In terms of consolidated results for fiscal 2011, net sales increased 6.6% year on year to ¥3.2 trillion, operating income increased 7.3% to ¥675.2 billion, and net income rose 65.4% to ¥313.7 billion.

About Sprint Nextel

Sprint Nextel offers a comprehensive range of wireless and wireline communications services bringing the freedom of mobility to consumers, businesses and government users. Sprint Nextel served more than 56 million customers at the end of the second quarter of 2012 and is widely recognized for developing, engineering and deploying innovative technologies, including the first wireless 4G service from a national carrier in the United States; offering industry-leading mobile data services, leading prepaid brands including Virgin Mobile USA, Boost Mobile, and Assurance Wireless; instant national and international push-to-talk capabilities; and a global Tier 1 Internet backbone. The American Customer Satisfaction Index rated Sprint No. 1 among all national carriers in customer satisfaction and most improved, across all 47 industries, during the last four years. Newsweek ranked Sprint No. 3 in its 2011 Green Rankings, listing it as one of the nation’s greenest companies, the highest of any telecommunications company. You can learn more and visit Sprint at www.sprint.com or www.facebook.com/sprint and www.twitter.com/sprint.

Cautionary Statement Regarding Forward Looking Statements

This document includes “forward-looking statements” within the meaning of the securities laws. The words “may,” “could,” “should,” “estimate,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “target,” “plan,” “providing guidance” and similar expressions are intended to identify information that is not historical in nature.

This document contains forward-looking statements relating to the proposed transaction between Sprint Nextel Corporation (“Sprint”) and SOFTBANK CORP. (“SoftBank”) and its group companies, including Starburst II, Inc. (“Starburst II”) pursuant to a merger agreement and bond purchase agreement. All statements, other than historical facts, including statements regarding the expected timing of the closing of the transaction; the ability of the parties to complete the transaction considering the various closing conditions; the expected benefits of the transaction such as improved operations, enhanced revenues and cash flow, growth potential, market profile and financial strength; the competitive ability and position of SoftBank or Sprint; and any assumptions underlying any of the foregoing, are forward-looking statements. Such statements are based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions. The inclusion of such statements should not be regarded as a representation that such plans, estimates or expectations will be achieved. You should not place undue reliance on such statements. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others, that (1) one or more closing conditions to the transaction may not be satisfied or waived, on a timely basis or otherwise, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction or that the required approval by Sprint’s stockholders may not be obtained; (2) there may be a material adverse change of SoftBank or Sprint or the respective businesses of SoftBank or Sprint may suffer as a result of uncertainty surrounding the transaction; (3) the transaction may involve unexpected costs, liabilities or delays; (4) legal proceedings may be initiated related to the transaction; and (5) other risk factors as detailed from time to time in Sprint’s and Starburst II’s reports filed with the Securities and Exchange Commission (“SEC”), including Sprint’s Annual Report on Form 10-K for the year ended December 31, 2011 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 and the proxy statement/prospectus to be contained in Starburst II’s Registration Statement on Form S-4, which are (or will be, when filed) available on the SEC’s web site (www.sec.gov). There can be no assurance that the merger will be completed, or if it is completed, that it will close within the anticipated time period or that the expected benefits of the merger will be realized.

None of Sprint, SoftBank or Starburst II undertakes any obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. Readers are cautioned not to place undue reliance on any of these forward-looking statements.

Additional Information and Where to Find It

In connection with the proposed strategic combination, Starburst II plans to file with the SEC a Registration Statement on Form S-4 that will include a proxy statement of Sprint, and that also will constitute a prospectus of Starburst II. Sprint will mail the proxy statement/prospectus to its stockholders. INVESTORS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. The proxy statement/prospectus, as well as other filings containing information about Sprint, SoftBank and Starburst II, will be available, free of charge, from the SEC’s web site (www.sec.gov). Sprint’s SEC filings in connection with the transaction also may be obtained, free of charge, from Sprint’s web site (www.sprint.com) under the tab “About Us – Investors” and then under the heading “Documents and Filings – SEC Filings,” or by directing a request to Sprint, 6200 Sprint Parkway, Overland Park, Kansas 66251, Attention: Shareholder Relations or (913) 794-1091. Starburst II’s SEC filings in connection with the transaction (when filed) also may be obtained, free of charge, by directing a request to SoftBank, 1-9-1 Higashi-Shimbashi, Minato-ku, Tokyo 105-7303, Japan; telephone: +81.3.6889.2290; e-mail: ir@softbank.co.jp.

Participants in the Merger Solicitation

The respective directors, executive officers and employees of Sprint, SoftBank, Starburst II and other persons may be deemed to be participants in the solicitation of proxies in respect of the transaction. Information regarding Sprint’s directors and executive officers is available in its Annual Report on Form 10-K for the year ended December 31, 2011. Other information regarding the interests of such individuals as well as information regarding SoftBank’s and Starburst II’s directors and executive officers will be available in the proxy statement/prospectus when it becomes available. These documents can be obtained free of charge from the sources indicated above. This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

 

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I still think this is a bad idea. I'm not so sure of what will happen to Sprint after this. You could say Sprint will get more money for NV and they won't remove Unlimited Data, but I'm gonna go for the worst here and say that they will raise prices and remove Unlimited Data shortly after. All in all, I'm a bit upset they sold out.

 

After the debockle that was the start of this transition to LTE and the number of customers they lost in Chicago alone. This deal makes a lot of sense financially and will be great for us as consumers.

 

Yes, the fear of change and more outrageous rates and data caps is there, however, if you look at the data usage in Japan and their business model there, I would suspect the "New Sprint" would be a combination of both ideals. and hopefully that does not entail the AT&T & Verizon 2gig data limit which is ridiculous to consumers & the industry as a whole.

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I still think this is a bad idea. I'm not so sure of what will happen to Sprint after this. You could say Sprint will get more money for NV and they won't remove Unlimited Data, but I'm gonna go for the worst here and say that they will raise prices and remove Unlimited Data shortly after. All in all, I'm a bit upset they sold out.

 

If SoftBank requires unlimited to be dropped, it will be because it is seen as a necessity. SoftBank offers unlimited in Japan, so they are obviously not adverse to it.

 

Raising prices is also not an option anytime soon. Sprint, or even the New Sprint, is not in the position to charge as much or more than VZW and AT&T. In fact, SoftBank wants to significantly increase their market share in the U.S. They are not going to be increasing market share by raising prices.

 

SoftBank is not stupid. They want to come in and attempt to dominate the market. They will not be careless and will make very intelligent and shrewd decisions. Any moves that they make will be very calculated and not rash. None of us are going to get whiplash from the changes.

 

If anything, I think there is more chance of lower prices, than raising them. SoftBank wants to increase market share, not profits. I hate to use a stereotype, but Japanese investors are much long term focused than their American counterparts. They will not make rash decisions for short term gains.

 

Robert

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If SoftBank requires unlimited to be dropped, it will be because it is seen as a necessity. SoftBank offers unlimited in Japan, so they are obviously not adverse to it.Raising prices is also not an option anytime soon. Sprint, or even the New Sprint, is not in the position to charge as much or more than VZW and AT&T. In fact, SoftBank wants to significantly increase their market share in the U.S. They are not going to be increasing market share by raising prices.SoftBank is not stupid. They want to come in and attempt to dominate the market. They will not be careless and will make very intelligent and shrewd decisions. Any moves that they make will be very calculated and not rash. None of us are going to get whiplash from the changes.If anything, I think there is more chance of lower prices, than raising them. SoftBank wants to increase market share, not profits. I hate to use a stereotype, but Japanese investors are much long term focused than their American counterparts. They will not make rash decisions for short term gains.Robert

 

I totally agree Robert, I think that one of the biggest thing that people don't take into account are the cost savings that the Network Vision project entails. People keep saying that not long after its done that Sprint will remove unlimited data, but if Sprint can keep unlimited data while they are losing money quarterly for several years, why would they remove unlimited data when they will actually be saving over $1 billion per year?

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I hope that we get the option of no contract plans like overseas for a decent price. If you bring your own phone, most US carriers discount only $10 a month off $100 plan, which is pretty much not a savings at all after you buy the phone. I hope 2 year contract plans get cheaper too. But to have the ability to go no contact, bring my own phone, and pay a reasonable amount a month; oddly enough I would be more loyal to Sprint than I already am (more loyalty without the contract, see how that works there).

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Are you even in an active NV deployment area?

Yes according to the maps I am. Alcatel-Lucent and/or the backhaul vendor seems to be falling far behind.

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Isnt this like T-mobile own by some European company also?

 

Any profit that Sprint make will go to Japan?

 

I think Sprint got a great future when their LTE is full implemented with no data limit(I hope).

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Isnt this like T-mobile own by some European company also?Any profit that Sprint make will go to Japan?I think Sprint got a great future when their LTE is full implemented with no data limit(I hope).

 

Profit dividends will go to shareholders. Wherever in the world they may be. But Sprint needs to earn a profit first. :)

 

Robert

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Bad Deal for Sprint :( soldout too cheap!!

 

They had to.

 

Credit agencies were downgrading their credit and probably were going to again. Sprint was between a rock and a hard place, with an aging network, previously betting the farm on Nextel and Clearwire, and now Network Vision costing billions upon billions to right the ship.

 

Chances are, they would've eventually gone bankrupt if they continued the course. Or only half-finish Network Vision and their customers leave in droves.

 

 

Sprint hasn't been at $5 per share in 4 years. Softbank is paying a 50% premium over the 4-year high.

 

 

I expect this acquisition to go off seamlessly without any lawsuits.

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I hope that we get the option of no contract plans like overseas for a decent price. If you bring your own phone, most US carriers discount only $10 a month off $100 plan, which is pretty much not a savings at all after you buy the phone. I hope 2 year contract plans get cheaper too. But to have the ability to go no contact, bring my own phone, and pay a reasonable amount a month; oddly enough I would be more loyal to Sprint than I already am (more loyalty without the contract, see how that works there).

 

Good luck... until Sprint allows sims to be utilized on their phones. They will continue to control the phones on their network and bringing outside phones will continue to be discouraged. However they still offer the best rates for a 2 year contract vs any other career.

 

I am a sprint loyalist.. but not an apologist. I hope that the Japanese ideals come with this merger. its needed in America we get so abused here as cell phone users.

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Isnt this like T-mobile own by some European company also?Any profit that Sprint make will go to Japan?I think Sprint got a great future when their LTE is full implemented with no data limit(I hope).

 

http://www.zdnet.com/softbank-as-sprints-savior-what-20-1-billion-does-doesnt-do-7000005765/

&

http://www.pcmag.com/article2/0,2817,2410969,00.asp

 

Both these articles were mentioned earlier, both together give a great perspective on all of this.

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Why didn't they go to Warren Buffet ? It could of stayed americian plus, He has the money for ALL THE TOWERS !!!

 

 

Money only solves some of the problems typically…

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Man, Dan Hesse does not look happy in that second picture. You'd also think that as the CEO of a cell phone company that they could rig up a bluetooth headset or something a little less obtrusive than that white earpiece.

 

I've decided that that white earpiece is some kind of conference world status symbol used specifically to show you have a simultaneous interpreter or something: I see it at the UN, at big conferences... I study translation and interpretation and it's pretty ubiquitous! Soon I hope to find out why!

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Guest 503ducati

Posted

That is noteworthy. Excellent catch!Robert

Also,

 

“We have a very strong strategy and very strong plan to make that happen and we have the capital, we have the know-how, we have the experience,” said Son. “So just wait and see, I’m going to prove how strong that is, but I cannot tell any detail of our next move.”

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Since his company in Japan is using WCDMA/HSPA & LTE, he was probably roaming on AT&T. Unless he was using one of his competitors (KDDI) phones to roam on Sprint.

Its amazing that anybody who is a member of this site and aware of Network Vision, would call NV a huge joke.

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Was anyone else surprised by the low breakup fee? Only $75M if Sprint backs out. Apple, Google are you out there? I would say Berkshire as well but Mr. Buffett only buys businesses he understands and as he stated he does not understand wireless. Hesse has the plan to return to profitability but he does not have the money to get there. Any other USA players out there want to step up?

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I found a Japanese blog that snarkily claims to 'introduce' foreigners to SoftBank behavior.

 

http://www.japanmobiletech.com/2012/10/softbank-introduction-to-those.html

 

Sounds like a rinki-dink operation- over subscribing the spectrum and then excluding 1/4th of your capacity to launch LTE, knowing you're hurting your subs. Same for the tethering/not- for their iphone.

 

Although an unlimited? phone service with a 7 gig cap on LTE tethering with your basic 75$/mo. fee sounds pretty dang good.

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Was anyone else surprised by the low breakup fee? Only $75M if Sprint backs out. Apple, Google are you out there? I would say Berkshire as well but Mr. Buffett only buys businesses he understands and as he stated he does not understand wireless. Hesse has the plan to return to profitability but he does not have the money to get there. Any other USA players out there want to step up?

 

 

the breakup fee is actually 600 million, 600 M if Sprint gets a better offer or 600 M if Softbank fails to get financing for the deal. its only 75 Million if Sprint shareholders do not vote to approve the deal.

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Thanks for the post . recently . I was watching a news magazine which pretty much stated that national security asked Sprint to pull out of the deal they were going to sign up with. those making the new network i believe. which is super fast . but could completely compromise our national security , or have too much control of our telecommunications.

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Thanks for the post . recently . I was watching a news magazine which pretty much stated that national security asked Sprint to pull out of the deal they were going to sign up with. those making the new network i believe. which is super fast . but could completely compromise our national security , or have too much control of our telecommunications.

 

Yea I saw that on 60 Minutes, but it was a Chinese tech company who Cisco was suing over some major copyright infringements they stole (even manuals were copied word for word, even with mistakes and typos etc.) and there was a lot of worries over their company and their Chinese CEO being controlled by the communist government. I forgot their name though. Sprint was slated to join up with them to build out the 4G network here because they'd be capable of some super fast speeds because of their tech but the US Govt asked Sprint to not do the deal because the Chinese government also controls a lot of their business practices etc.

 

However, this Japanese company is completely different and I'm glad for this Softbank Mobile deal and also the Clearwire deal... looking good for Sprint's future which is why I'm most likely switching over from AT&T soon :]

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If the U.S. insists that SoftBank poses a National Security risk owning a major stake in Sprint, then what do they think of Deutsche Telekom owning a major stake in T-Mobile? Or Vodafone in Verizon? Japan is as close of an ally as Germany and the UK. Chinese firms are a different deal because they are state owned and/or controlled/manipulated.

 

Robert

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