Prior to the terms of Sunday's deal by Softbank for Sprint, the biggest question was whether the Japanese telecom could provide the carrier with added financial support.
The $8 billion equity infusion unequivocally gives Sprint a revamped financial profile as it tries to succeed on large investments such as Network Vision, its partnership with
and its carriage of the iPhone.
The terms of the deal, which converts $8 billion in debt to equity at $5.25 a share, "[removes] any doubt of the company's ability to fund the business and compete aggressively," writes Mike McCormack, an analyst at Nomura Securities, in a note.
For telecom investors and consumers, a restart in the land grab for wireless supremacy marks a sudden and stark shift in the industry in a year's time.
Outside of sector-wide M&A, the biggest intrigue of telecom stocks was the near 5% dividend yields on AT&T and Verizon's shares. The stability of those yields seemed strong, given that few expected Sprint and T-Mobile would be able to stem subscriber losses over the long term, or complete national 4G networks as independent carriers. Moody's highlighted AT&T and Verizon as the only telecoms able to earn back their cost of capital, in a late 2011 analysis.
As investors weighed the dividend yields and stability of AT&T and Verizon, others watching the wireless market saw an industry moving into a duopoly state that would hit the pocketbooks of consumers.
That was the logic when antitrust officials at the
U.S. Department of Justice
challenged AT&T's proposed $39 billion deal for T-Mobile a year ago. The company eventually
the merger effort last December, paying a multi-billion dollar
For consumers the tension was palpable, and some braced for an era where carriers would hold the financial strings on smartphone data usage.
Prior to the DoJ's decision to block AT&T's takeout of T-Mobile, both carriers scrapped unlimited data plans. Last July, when Verizon pulled its unlimited data plan to match AT&T, subscribers rushed to stores in an effort to
grandfather into all-you-can-eat
Months later, in the wake of tiered data pricing on AT&T and Verizon contracts for Apple iPhone and
Android powered devices, Sprint outlined what could be seen as its last stand in wireless, joining AT&T and Verizon in offering the iPhone. Sprint's proposal - while not advertised on marketing billboards - was to offer iPhones with unlimited data plans that would be priced to reflect its weak national network.
The proposition to new subscribers would be a usable and cheap iPhone in the short-run and a promise to improve its network in coming years. Even with the $15 billion plan, few users jumped on. Investors also lacked confidence, pushing Sprint's shares to $2 to start the year, as bond investors priced in a 50% probability of bankruptcy.
Now, with bankruptcy off the table and Sprint's stock up to near $6, the telecom is all but assured of ending the year as the top
, after ending 2011 as the industry's worst performer. More importantly, the viability of unlimited smarthphone data plans and an unlimited iPhone now appear more viable in the wake of Sunday's deal.
For investors and consumers alike, the turnaround tells a similar story. Watch out doupolists and monopolists: the telecom sector is poised for a resurgence of competition.
For more on the wireless industry, see why AT&T is still
hungry for more spectrum
and how a tower deal
twists industry consolidation
-- Written by Antoine Gara in New York