SoftBank plans massive IPO for its Japanese telecoms business

Tech conglomerate SoftBank wants to raise a few trillion yen by offering some of its Japanese operator up for public consumption.

Around a third of SoftBank Japan’s shares will be served up in an initial public offering that is expected to raise around 2.4 trillion yen (21 billion bucks). If things go really well it could even challenge Alibaba for the biggest ever IPO, which would come in handy for a group that is especially exuberant in its spending.

“Through the listing of SB shares, SBG expects that the respective roles and valuations of the two companies will be clear,” said the announcement. “SBG is accelerating investments on a global scale, while SB is a core company to the Group’s telecommunications business. It is hoped that each of the two companies will be able to provide information regarding their businesses to the market with greater clarity and thereby better respond to the various needs of investors.

An alternative way of looking at it is that SoftBank Group is a bit short of cash and has decided that a sport of equity release from one of its subsidiary companies is the best way to get hold of the kind of cash it needs. As well as big acquisitions such as ARM, the group seems more concerned with general tech investment these days. This IPO seems to have been on the cards for a while, but it remains to be seen how much, if any, of the cash raised will be reinvested in SoftBank’s, Japanese network.

Softbank is now more of a VC than a telco group

Back in 2016 when Softbank CEO Masayoshi Son announced plans for the $100 billion Vision Fund it looks like a ludicrous plan, but with such incredible growth perhaps we should ask whether Son has been missing his calling for decades.

Looking at the financials for the first half of 2018, the most interesting story aspect is linked back to the Softbank Vision Fund (SVF) and Delta Fund (DF) investment bodies. Over the first six months, net sales for the Softbank Group came in at roughly $41 billion, with the team collecting an operating income of roughly $12.5 billion. The operating income attributable to the SVF and DF is $5.7 billion, roughly 45%.

45% might sound like a good number, but it becomes even more impressive when you consider how the funds are accelerating. In the first three months of 2018, the funds accounted for approximately 33% of operating income, but this ratio increases to 55% when you look at the second quarter alone. As you can see from the table below, the cash being generated by the funds is quickly racking up.

Q3 2017 Q4 2017 Q1 2018 Q2 2018
Gain on investments for SVF and DF $530 million $860 million 2.18 billion 3.55 billion
Realized gain on investments NA NA NA 1.29 billion
Unrealized gain on valuation of investments $490 million $830 million $2.24 billion $2.27 billion
Interest and dividend from investments $33 million $20 million $12 million $10 million

(Approximate values after currency conversion)

The fund itself, which has come under pressure recently due to involvement from Saudi Arabia, has consistently been consistently questioned by investors, though perhaps monstrous profit is a language which they will be more familiar with. Son has prioritised artificial intelligence in a portfolio which contains investments in Uber, Nvidia, Arm, GM Cruise, Doordash and Compass. The only one which doesn’t really fit into the family is WeWork, a shared office business which would be more comfortable inside a real-estate investment portfolio. That said, few will argue with the results.

Looking at the rest of the business, the story is pretty positive if less glamorous next to these monstrous profits. Total revenues and profits are up in the Softbank telco business, while the net gain on customer subscriptions is up approximately 1.2 million in comparison to the same period of 2017. Churn was also at a healthy 0.93% for the quarter and ARPU is flat. Not a bad return for the period. Sprint in another which is performing surprisingly well. Although subscription numbers are down sequentially, year-on-year Sprint managed to find 520,000 subscriptions from somewhere.

Son’s traditional stomping ground is looking very healthy, though with the acceleration of the VCs you really have to wonder whether the audacious businessman has been in the wrong industry all these years.

Boston Dynamics rehabs drunken robot into parkour expert

Boston Dynamics has released a new video of its humanoid robot, Atlas, and it is scarily impressive how quickly the technology is advancing.

Two years ago the firm released a video of one of its employees testing out Atlas by taking it for a walk through snowy woods, knocking items out of its hands and knocking the robot off balance with a hockey stick. You can see the video at the bottom of the article, we decided the dubbed version was a bit more entertaining, though the latest video show remarkable progress by Boston Dynamics.

As you can see below, Atlas has gone from a staggering buffoon to a potential Olympian.

Many through the industry, us included, might be surprised. Robotics is an area which does not get much attention nowadays, perhaps due to the perception it is an area is not progressing in the same way as other next-gen tech. Of course, there are incredibly advanced machines in various different factories, but the idea of a humanoid machine we’ve gotten used to through Hollywood is laughable. Not anymore.

Although life for Boston Dynamics began as a spin-off from MIT, it was acquired by Google for an unknown price in 2013. Shortly after acquiring the robotics business, Google was reportedly in the market looking to offload the firm, struggling to see profitability or how it would fit into the wider Google universe. The rumours proved to be true, and Softbank purchased Boston Dynamics in 2017.

Atlas might be the product getting the attention today, but it is not the only robot worth keeping an eye on. Spot and SpotMini are four-legged versions, which move in a similarly remarkable way to Atlas, while Handle is a robot with both legs and wheels.

The incredible thing about Atlas right now is the progress which has been made in terms of balance. If you compare the two videos, the Boston Dynamics team seem to have mastered the art of stability and shifting weight in real-time. In the latest video, you can see Atlas even manages to identify the steps are not straight and shifts direction to safely land on the boxes. Such movement suggests the robots are not far away from real-world applications.

Stereo vision, range sensing and other sensors give Atlas the ability to manipulate objects in its environment and to travel on rough terrain, while it keeps its balance when jostled or pushed and can get up if it tips over. One of the immediate use cases could be delivery. There of course a few hurdles to adoption right now, the payload is only 11kg while battery life would have to be considerable, though these are minor challenges in comparison to what has been achieved so far. On the darker side, there will be several governments around the world looking at these robots with more militaristic ambitions.

There are of course scary implications for every new technology, just look at how the US Government wants to use AI to improve the accuracy of drone strikes, but that should not take away from the genuinely amazing progress here.

And as promised, here is Atlas in his early days:

Softbank and Yahoo team up to crack mobile money in Japan

Softbank and Yahoo Japan have announced the formation of a new joint venture, PayPay, to launch a QR-based smartphone payment services in Japan by November.

The joint venture will lean on the experience of Paytm, India’s largest digital payment brand and a SoftBank Vision Fund portfolio company, for technology and expertise in mobile payments in the latest efforts to move Japan away from a cash-based society. As it stands, less than 20% of payments across the country are cashless, one of the lowest worldwide for a ‘developed’ economy.

“The Japanese government is taking measures to raise the cashless payment ratio to 40% by 2025, with a long-term goal of 80%, the highest level globally,” Softbank said in a statement. “To aid these efforts, SoftBank and Yahoo Japan established PayPay Corporation in June 2018 and will launch its user-oriented payments platform in the fall 2018.”

With the experience of Paytm, the brand has 300 million customers and 8 million merchants, combined with the presence of SoftBank and Yahoo Japan, the PayPay business certainly has a promising to start to disruption. The Yahoo! Wallet which has approximately 40 million accounts, will act as the foundation, with Softbank leading the sales strategy, while also developing a localised service leveraging Paytm’s technology. Once the new service has been launched, Yahoo Wallet will cease to exist, though a time-frame has not been laid out.

While the adoption of this technology is far from given, the venture does demonstrate the power of the Softbank ecosystem. While it might have looked like a side-project to keep billionaire CEO Masayoshi Son busy, the Softbank Vision Fund offers a wealth of technology expertise for family members to lean on and launch new services. Of course, Vision Fund employees will be looking to find investments which will make money in the long-run, but complementary businesses and technology to aid the progression of current new services would certainly play some role in the decision making.

Softbank kicks off domestic telco listing

Softbank has unveiled plans for an initial public offering for its Japanese telco business as CEO Masayoshi Son looks to draw a line between investments and telecommunications.

The plan is to have the business listed within a year, and should offer greater clarity and rewards for investors. Such a move will essentially provide breathing room between the telco business and the more entrepreneurial ambitions of Son, as his Softbank Vision Fund continues to invest in businesses such as Uber.

“Through the listing of SB shares, SBG and SB expect that the respective roles and valuations of SBG, the parent company that is accelerating investments on a global scale, and SB, a company core to the Group’s telecommunications business, will be clear, making it possible to communicate information regarding the Group’s businesses to the market with greater clarity and thereby better respond to the various needs of investors,” the company said in a statement.

Separating the two business units will allow investors to reap the benefits of a profitable and stable telco business, while greater freedoms will be offered to Son as he continues to realise his deal-maker dreams. While there have been some big deals over the last couple of months, Son is no-where near hitting the limit of his $100 billion investment pot. Such a division could see the number, variety and risk-level of the deals increase.

Looking at the quarterly earnings of the group on the whole, operating profits fell short of analyst expectations, roughly $2.5 billion, though net sales did increase. Total sales came in at roughly $21.9 billion. Once again, the domestic Japanese business was the star of the show, though ARM contributed solidly as well.

Softbank has not yet stated how much of the business will be sold off, how much it expects to raise or what the money will explicitly be used for, but it might indicate Son is getting a bit bored of the slow-moving telco space. Son has repeatedly pointed towards the information revolution as a growth driver for the future, so it should come as little surprise the CEO is looking to spread his wings a bit further with investments.

What is clear is the Vision Fund is a money making machine. The fund has invested about $28 billion so far, but this does not include the Uber deal, and has contributed $2.1 billion to operating profit over the course of the last nine months. Son also has plans to IPO a couple of the businesses in the near future as well.

Son might be doing his best impression of a Japanese Del-Boy, but you have to hand it to him; the man knows how to make money.

Softbank might IPO its Japanese telecoms unit, then again it might not

In response to a report claiming it’s going to flog $18 billion of shares in its Japanese mobile units. Softbank has said it might, but no decision has been made yet.

The report was brought us by Japanese business title Nikkei, which chatted to someone who reckons SoftBank Group aims to list its Japanese mobile phone unit in Tokyo and overseas this year. The un-named source also reckons the amount of money raised by such an IPO is likely to be in the region of two trillion yen, which is about $18 billion.

Softbank felt moved to respond to this piece of rumour-mongering, issing the following statement: “With regard to today’s Nikkei report on the listing of SoftBank Corp., a subsidiary of SoftBank Group Corp., we are always studying various capital strategy options. The listing of SoftBank Corp. shares is one such option, but no decision has been made to officially proceed with this course.”

SoftBank is the third of three major Japanese MNOs with around 24% subscriber market share according to Ovum’s WCIS service. Narrowly ahead is KDDI and the market leader is NTT DoCoMo. But SoftBank Group also owns Sprint, ARM and a bunch of other stuff, as well as being hyperactive in the general tech VC space. So it’s perfectly plausible that it might want to raise a few extra yen, but right now nothing has been decided. You can read further analysis on Light Reading here.

Ain’t no party like a Softbank party

Not even the end of its relationship with Deutsche Telekom could dampen spirits at the Softbank party, as the team reported $3.46 billion in profit, up 21% year-on-year, for the last quarter.

It’s domestic telecom business was down slightly for the first half of this year, Sprint was actually up compared to the same six month period of 2016, the Yahoo assets were also up, there aren’t any year-on-year stats for ARM just yet and the Softbank Vision Fund also brought in a healthy amount of cash. Aside from a messy break up with Deutsche Telekom, you could say it has been a very satisfactory six months for Softbank.

Talking about the potential Sprint/T-Mobile US merger, lets address the elephant in the room before it starts to get uncomfortable. It’s officially over and there is no going back now.

Softbank and Deutsche Telekom could agree on a number of things, and it is now officially over. Whether it was a disagreement over the controlling voice in the boardroom, or a valuation of the business or maybe there was fear of regulatory resistance to the deal, its off. The rumours were there last week, as were whispers of Softbank dilly-dallying with Charter, but some might have assumed these were mind games by Softbank CEO Masayoshi Son in an effort to gain some sort of advantage in negotiations, but alas no.

What this means for the Sprint business moving forward we’re not too sure. Quite frankly, Sprint needed this deal more than T-Mobile US did. T-Mobile US is a business going stronger every day with a solid network, a good relationship with customers and an agile marketing team, while Sprint is losing market share consistently. Softbank has announced it will increase its stake in the US telco from 83% to 85%, though there needs to be a serious shake up at Sprint if it going to reverse fortunes.

In terms of the financials, Sprint actually had a positive six months if you take it at face value. Sales were up for the six month period, though this is primarily down to a solid first quarter. The company hasn’t had a profitable year in more than a decade, and fortunes are not particularly appealing. Son has a knack of making money so we wouldn’t rule a turnaround out completely, but it will be tough going against the top three who are all heading in the right direction.

And while the consolidation ambitions of the business are not exactly teeming with success for the moment, another difficult issue is starting to appear on the horizon; debt. Roughly half of Sprint’s $38 billion in debt is coming due over the next four years. While a Softbank influenced Sprint might have slowed the mass exodus of customers, investments in the network are badly needed. Add the debt onto network investments, and Softbank might find itself forking out quite a bit of cash to turn this business around.

Looking at other areas, Softbank’s domestic Japanese telco business took a big of pinch on sales, though subscriber numbers are on the increase, for both mobile and broadband, and the churn rate is also heading in the right direction. Discounts for the mobile business have been on the increase over the last six months, which has led to a decrease in both telecom and service ARPUs, explaining the slight difference in revenues.

On a positive note, things seem to be going well at ARM, though comparable statistics from 12 months ago are not available. Next quarter will give a better idea of how the Japanese influence has been received by the chip-maker. Another bright spot is the Softbank Vision Fund, which made gains of roughly $1.7 billion on its investments over the first six months of the year. Makes up for the messy break up we suppose.

Softbank falls into the arms of another after DT issues

After reports of a breakdown in talks between Softbank and Deutsche Telekom over the Sprint/T-Mobile US merger, it didn’t take long for the Japanese telco to find someone else to party with.

When we first heard about the breakup rumours we speculated one would be out partying and one would be crying into ice cream in typical Bridget Jones style. According to the New York Post, DT is binging on Ben and Jerry’s while Softbank in flirting with Charter.

Sources have said the Japanese telco is ‘definitely’ in talks with Charter Communications for a new tie up. This would appear to be a rekindling with an old flame, as the rumour mill has already circulated such rumours in recent months. That said, it wouldn’t surprise many people as something certainly needs to change at Sprint.

Having surrendered its number three position in the US telco space to T-Mobile US, Sprint has continued its downward spiral. It is a telco which has never really been in a position to challenge Verizon and AT&T at the top of the table, and in recent months it really look capable of tackling John Legere and his T-Mobile cronies either. As mentioned before, something needs to change and a tie-up with Charter would certainly shake things up a bit.

The rumours certainly shine a light on Charter’s promiscuous side, though to date there has been little more than whispers about any consolidation. Sources have previously claimed Charter was given the option to acquire Sprint, a claim which is denied by Softbank CEO Masayoshi Son, and on the flipside, Verizon bid $350 to $400 a share for Charter.

While these are nothing more than rumours at the moment, the murmurs might help get the DT talks back on track. DT is certainly in the position of power in the negotiations with Softbank, Sprint needs change more than T-Mobile US does, however this might give the Germans a bit of a reality check.

Perhaps the fear of missing out on such a deal will soften the demands of DT who are after a controlling share in any merged Sprint/T-Mobile entity. Softbank found issue with these demands, which is apparently the reason for the breakdown.

Now we are not suggesting the rumours originated in any particular office, and we certainly wouldn’t suggest they come from offices in Tokyo, but such whispers might have a way of working out for Softbank in the strategic acquisition game.

A new consortium appears to lay another massive cable

A horde of big names has come together to build a high-capacity cable system that will connect Maruyama and Shima in Japan with Los Angeles in the USA and Daet in the Philippines.

So who is in the consortium; PCCW Global, Amazon, Facebook, NTT Communications, PLDT and SoftBank. Scheduled to be ready for service by early 2020, the Jupiter Cable will be approximately 14,000 km in length and has a design capacity of more than 60 Tbps.

“The demand for bandwidth in the Pacific region continues to grow at a remarkable rate, and is accompanied by the rise of capacity-dependent applications like live video, augmented and virtual reality, and 4k/8k video,” said Koji Ishii of SoftBank, co-chairperson of Jupiter consortium.

“Jupiter will provide the necessary diversity of connections and the highest capacity available to meet the needs of the evolving marketplace. TE SubCom has a proven record of success in the design and implementation of innovative, scalable and robust transoceanic cable systems, making the company the most reliable choice for the Jupiter supply partner.”

The cable itself has been configured as a trunk and branch system with submersible ROADM (reconfigurable optical add/drop multiplexer) using WSS (wavelength selective switch) for a gridless and flexible bandwidth configuration. The team claim the ROADM nodes in the design are the most advanced form of this technology to date, providing bandwidth reconfiguration flexibility in an undersea network.

Bandwidth demand over the trans-Pacific route has more than tripled in just four years, though this is only going to increase as new, bandwidth-intensive technologies including Virtual Reality (VR), social media applications, video streaming, and gaming content start to gain traction in the mass market.

“Consumers and enterprises continue to require significantly increasing amounts of bandwidth whether for their own applications, or for their interface with content providers, hosting companies and cloud services,” said Marc Halbfinger, CEO of PCCW Global. “The Jupiter network will play a crucial role in serving this increased demand across the key trans-Pacific artery.”

This is of course not the only cable which is being laid to deal with the rising demand of cat videos. Others include the Trident Subsea Cable, the Hawaiki cable and the FASTER cable. These are only three other examples, but the bottom of the ocean might start looking like the back of your PC before too long.

JUPITER Cable Map

Softbank set to pull the plug on Sprint T-Mobile merger, or is it?

In the absence of any recent romcoms coming out of Hollywood, Sprint and T-Mobile US are doing their best impression of a will-they/won’t they drama.

The latest chapter of the saga is a trough. According to Nikkei, it’s over, they’ve gone their separate ways. At this point in the movie, one would be out in a bar, sozzled and throwing crazy shapes to Taylor Swift, trying to find another partner, while the other would be crying into a tub of ice cream watching the Notebook.

The currently unconfirmed reports claim Softbank is the one which is ready to walk away, though this might be confirmed in the near future. Softbank executives plan to inform counterparts at T-Mobile US today (Tuesday), and the market not happy about the rumours. Over the course of the day, shares in the Japanese telco have dropped almost 5%, though the same cannot be said about Deutsche Telekom, where the price has remained steady.

Who knows whether this is a genuine breakup or if it is just a negotiating tactic, but investors seemed to have picked up on what we already knew in the telco space; Sprint needs this merger more than T-Mobile US does. Perhaps someone should tell the Softbank execs they do not have the upper hand in this negotiation.

The reported reasoning behind the split is down to control. Deutsche Telekom wanted to negotiate a controlling stake in the newly merged entity, which was apparently accepted to start with, though the Japanese still wanted to exercise some influence over decision making. Now it seems executives at Softbank aren’t happy at relinquishing control, and are prepared to ditch any deal which would see the Germans gain the upper hand.

What Softbank doesn’t seem to realize is that T-Mobile US doesn’t explicitly need this deal. It would be a nice to have, the customer base would immediately increase, coverage would be cemented and more efficient network investments could be realized, but this is a telco which is growing at a very attractive rate already. This deal would be to capitalize on momentum, not reverse ill fortunes.

Sprint used to be number three in the states, and now it is number four. But even these numbers are flattering. Sprint was never in a position to challenge the duopoly at the top of the US table. We’re not just talking about a different ballpark, we’re talking a different sport. Irrelevant of what metrics you look at, Sprint has been going downwards for some time, and this was only reinforced by the latest earnings call.

Back in Q2, Sprint recorded a profit of $206 million, but this now seems little more than a false dawn as the telco returned to the norm in Q3, with a loss of $48 million. On the flip side, T-Mobile US brought in $10 billion in total revenues, up 8% y-o-y, net income of $550 million, up 50% y-o-y. In terms of customers, the team is claiming 1.3 million total net additions for the quarter, the 18th straight quarters of adding more than 1 million.

T-Mobile US is growing healthily, and providing a genuine alternative to customers, something Sprint was not able to do during its long tenure in the number three spot. Why Softbank feels it can play hardball is beyond us. T-Mobile US doesn’t explicitly need this merger, things are already on track, Sprint does however.

And just like every good will they/won’t they story, this is unlikely to be the final chapter. Softbank CEO and Founder Masayoshi Son is an incredibly rich man, and with success usually comes a sense of arrogance. Why would he want to take a backseat at a company which could have the potential to challenge the US duopoly? Perhaps the message here is the Son-way or no-way. It wouldn’t surprise us, so there might just be another development before too long.