SoftBank & Sprint: analyst's nightmare

"I wanted to write down the assets; the accountants wouldn't let me." Coming from most executives it would sound rich. Masayoshi Son, Softbank's boss, tends not to fiddle around with rhetoric, however. And the explanation makes some sense. Sprint, majority owned by the Japanese telecoms group and consolidated into its accounts, took a $2.1bn impairment charge in its most recent quarter, mostly because of wireless customer losses. SoftBank didn't recognise the loss in its most recent quarter, reported on Tuesday. Sprint uses US GAAP, which allows impairment of individual assets, while SoftBank uses IFRS accounting which requires Sprint be treated as one entity. So SoftBank did a discounted cash flow analysis on Sprint, and determined no writedown was needed.

Fair enough. But how, exactly, does an analyst do a DCF analysis of Sprint? There is a question mark in the middle of the spreadsheet. Will US antitrust authorities ever let the company merge with T-Mobile US? Not under this administration, but things change. If the answer is yes, Sprint may be worth much more than its enterprise value of $48bn. But would a combined Sprint/T-Mobile undercut the current wireless oligopoly of AT&T and Verizon - or join it in an act of "co-opetition"? This would have a huge effect on its pattern of future cash flows - and is the very question regulators will ask themselves before approving a merger.

Next, the analyst (busy up until this point assigning probabilities to events that do not admit of quantification) will have to solve the problem of how bad Sprint's economics will get in the meantime. Mr Son took pains to point out that losses of contract customers at Sprint are declining - the company lost just 19,000 contract customers in the quarter, compared with 336,000 the quarter before. Yet it managed this, it appears, by buying customers. Revenue per user fell 8 per cent from the same period a year before.

Most important, Sprint keeps burning cash: $1.9bn in the quarter. So the analyst has to model in the possibility that the company will have to raise equity. On Tuesday, Mr Son raised the possibility that the company could sell spectrum instead. How much would a chunk of Sprint's large high-frequency (that is, low-quality) spectrum portfolio be worth? More guesswork. And maybe when the Sprint job is polished off, the analyst can get busy with Softbank's portfolio of start-ups.

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