What SoftBank's takeover of Sprint means for you (FAQ)

Sprint has agreed to be purchased by Japanese wireless provider SoftBank. CNET takes you through the deal and how it may affect consumers.

Sprint's lounge at the CTIA Wireless conference last year. Roger Cheng/CNET

Japanese wireless provider SoftBank made a huge bet on the U.S. market after it agreed to take control of Sprint Nextel for $20.1 billion.

After days of speculation and reports, the two companies confirmed the deal this morning . SoftBank gets a large foothold in the U.S. market, which it believes still has the opportunity for growth. Sprint, meanwhile, gets a new lease on life and more support as it continues its turnaround.

But what does this mean for the average customer? Will the deal have any affect on Sprint's day-to-day service? CNET has put together this FAQ to answer your questions.

Okay, so what's going on again?
SoftBank, which provides wireless and wireline service in Japan and owns a number of mobile and Internet businesses, agreed to take a controlling stake in Sprint. Under the deal, SoftBank will pay shareholders $12.1 billion and will inject the company with $8 billion in cash for network upgrades and other improvements.

As a result of the deal, a new version of Sprint will be formed that will continue to be publicly traded. The deal is a bit complicated. The $12.1 billion that SoftBank is putting up will pay for 55 percent of Sprint's outstanding shares, valuing them at $7.30 per share. SoftBank's additional cash infusion, via a complex set of transactions, will convert the remaining 45 percent of Sprint stock into a 30 percent stake in the new company. SoftBank will own the rest.

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For investors, it's a decision between taking cash now at a 30 percent premium over the current trading price of $5.75, or banking on the combined company showing more growth than Sprint alone.

The new company will act as a standalone unit and will still be based in Overland Park, Kan., where Sprint is headquartered now. Sprint CEO Dan Hesse and his leadership team will remain onboard.

Who is SoftBank?
Despite its name, SoftBank isn't a financial institution -- it's a Japanese provider of telecommunications and Internet services. In Japan, it's the third-largest mobile services provider, similar to Sprint's ranking in the U.S. But in Japan, it's an aggressive competitor and for several years made a name for itself as the exclusive provider of the iPhone. (Its larger rival KDDI finally got the iPhone last year when the iPhone 4S launched).

CEO Masayoshi Son said he likes to view SoftBank as a mobile Internet company with a different perspective than the typical telecommunications provider. The company claims to own stakes in 960 mobile Internet companies around the world, primarily in Asia.

Like Sprint, SoftBank has experiencing challenging larger rivals. Son said he has spent his career fighting duopolies, and will continue to do so as Sprint faces off against larger AT&T and Verizon Wireless.

Sprint's a big company, right? Why did it need this deal?
Sprint is indeed a large company, but it's also one under extreme financial duress. While the company boasted 56 million customers as of the end of the second quarter, it also lost $1.37 billion, and expects more losses coming for the third quarter.

The company is in the middle of a pricey multi-billion-dollar network upgrade program designed to make it more competitive with its rivals. At the same time, it has committed to a large number of iPhones from Apple, which has resulted in high costs every time iPhone sales spike. The quarters following the launch of the iPhone 5, for instance, are expected to be poor because Sprint has to pay a hefty subsidy for each device sold (the same issue faces all carriers that sell the iPhone). Piling on to the financial woes is a large amount of debt, some of which is expected to mature in the coming months.

In the wireless business, the bigger you are, the better off you are. That's why Verizon Wireless and AT&T spent years gobbling up smaller businesses, and why AT&T attempted (and failed) to buy T-Mobile USA last year. T-Mobile, meanwhile, has agreed to merge with MetroPCS , leaving Sprint without a natural dance partner in the U.S.

Sprint is also behind AT&T and Verizon when it comes to its 4G LTE deployment . The $8 billion cash infusion should ensure Sprint gets moving on its own network improvements.

Sprint CEO Dan Hesse and his team needed help. Roger Cheng/CNET

How will this affect my service? Is Sprint going away?
Over the next few months, Sprint's service will definitely remain unchanged. That's because the deal isn't expected to close until the middle of next year, and still requires regulatory approval. Until the deal closes, Sprint has to act as its own independent company.

There shouldn't be any dramatic changes even after the deal is completed, as SoftBank has indicated that it would want Sprint to continue executing on its plans to compete in the U.S. marketplace. Customers won't have to change phones or plans.

And no, Sprint won't be going away as a result of this deal. As previously mentioned, Sprint will continue to operate under its current management team.

Down the line, Sprint customers may actually start to see some perks from the deal.

What kind of perks?
SoftBank's Son has been critical of wireless speeds in the U.S., and could call for a jump start in Sprint's network deployment . That could only be good news for Sprint customers, who have seen customers at rivals Verizon and AT&T get more comprehensive 4G LTE service in the bigger cities.

Softbank Chairman and CEO Masayoshi Son Dan Farber

Sprint only has 4G LTE in 24 markets, many of them smaller ones. The carrier hasn't gotten to big cities such as New York and San Francisco, only committing to rolling out service in the coming months. That's a paltry build out relative to Verizon, which will exceed 400 markets this week.

That means most Sprint customers with newer 4G smartphones such as the iPhone 5 or Galaxy S III still run on its slower 3G network, since the carrier has largely abandoned WiMax as a 4G standard for its newer devices.

The cash infusion should help Sprint accelerate its network improvements and further expand and improve its coverage. The company's Network Vision plan was designed to improve both 3G and 4G service, which should result in better overall service.

SoftBank, meanwhile, could bring an array of Japanese mobile devices to the U.S., and Sprint customers could see a wider selection of options when it comes to smartphones and tablets.

Of course, all of this will take a while to shake out. Even if the deal is approved and closes next year, it will take several months -- at least -- for some of the benefits to shake out.

What happens to my unlimited plan?
Sprint's unlimited data plan appears to be safe. The network improvements and cash should help to alleviate any potential bandwidth or financial pressure, allowing the company to maintain the option.

Competitively, it would be suicide not to keep it going. T-Mobile and MetroPCS both now offer a no-strings unlimited data option as well, so Sprint isn't even all that unique in that respect anymore.

But no other carrier offers the combination of the iPhone and the unlimited plan, since neither T-Mobile nor MetroPCS sell Apple's device. AT&T and Verizon Wireless all cap their data plans for new customers, while other regional and prepaid carriers either limit or throttle the service by slowing a customer's connection is severely slowed if a certain data limit is reached.

Unlimited has been a key differentiator for Sprint against its larger rivals, so if anything SoftBank will try to push that feature even harder.

How does Clearwire figure into the mix?
Clearwire's name got bandied about a lot in the last few days because of the complicated relationship Sprint has with the upstart 4G service provider. (Clearwire provides wireless service to other carriers and direct to consumers in some locations.) Sprint is Clearwire's largest shareholder and customer, but doesn't control the company.

A few reports suggested that Sprint had to buy Clearwire before SoftBank would strike a deal, but that wasn't the case. Sprint and SoftBank explicitly called out Clearwire in their announcement, saying Sprint wouldn't have to take any action beyond its current deal with Clearwire. Son, however, hinted that he would like to do more with Clearwire down the line.

SoftBank is likely interested in Clearwire because they are both investing in the same flavor of LTE, known as TD-LTE, which is different than what Sprint, AT&T, or Verizon are using for their networks. Having Sprint and Clearwire under one business would certainly simplify things and give SoftBank control of a lot more spectrum in the U.S.

Sprint has committed to using Clearwire's upcoming TD-LTE network to help alleviate the strains on its own network. This deal doesn't change that arrangement.

What does the combined company look like?
SoftBank's operations and Sprint combined vaults both into the upper echelon of global service providers.

Together, the companies would have generated $32 billion in mobile revenue between January and June, with Sprint chipping in more than half the total. That's good enough to rank third behind Verizon and China Mobile, roughly equal to AT&T, and ahead of Vodafone and NTT Docomo.

On a subscriber basis, the combined company will have 96 million customers, still behind Verizon and AT&T in the U.S.

The larger size will mean more bargaining power when ordering telecom equipment or smartphones, which could lead to lower costs down the line.

Last year's deal between AT&T and T-Mobile fell apart because regulators were concerned that the merger would eliminate competition in the wireless industry. The SoftBank-Sprint deal shouldn't have the same issues since it actually strengthens a weaker player and will likely enhance the competitive environment.

 

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