It's a marathon

Sprint to face challenges after SoftBank deal

SoftBank's new ARM may tie one of Sprint's behind its back. The Japanese tech and telecom titan is spending $32 billion on the UK chipmaker because it's feeling good about its US wireless carrier. The confidence expressed by SoftBank and its idiosyncratic founder Masayoshi Son, however, is confounding. Sprint is fourth of four in a maturing market engaged in a costly price war.

Sprint has been a financial laggard for a while. That was unpleasant enough when the industry was expanding. AT&T and Verizon, worth nearly $500 billion combined, could outspend Sprint on marketing, strike better deals with phone manufacturers and improve their networks. It's a far more dangerous position now that smartphones are ubiquitous. Operators are mainly trying to grow by poaching customers from rivals with better rates and deals.

That leaves the $19-billion Sprint in a tough spot. It's burning through money to keep pace and is heavily leveraged with more than $30 billion of debt. Cost cuts, conservative spending on new projects and some welcome customer additions -as well as creative financing -have soothed fears among investors that the company could face a cash crunch. Such small relief is hardly a sign of health, though.

Complex on- and off-balance-sheet deals over the past year make it difficult to ascertain the degree of Sprint's strain. Consider, however, the simple measure of how much it is investing in its network. Sprint plans to spend only about $3 billion on capital expenditures this year. Verizon has teed up about six times as much and AT&T about seven times.

It's possible that more targeted spending and Sprint's smaller network mean the comparative levels will be enough. Sprint has run into trouble in the past by economising, however. And having a perceived second-rate system won't help against rivals who are marketing aggressively.

Combining Sprint with third-ranked T-Mobile might have solved some problems. It was precisely what Son wanted to do before US regulators scotched major consolidation in the sector. A new administration come next January might be more sympathetic, but that's probably a long shot given how consumers are benefiting from price competition. With SoftBank's attention and capital elsewhere, it may leave Sprint fighting at a great disadvantage.