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Softbank to bite a chunk out of Apple's and Samsung's profits?

Oct 21, 2013

Early last week it paid $1.5 billion to buy a 51 per cent stake in Finnish mobile game maker Supercell, whose game hits include Clash of Clans and Hay Day. Packaging and selling applications as well as services will clearly be key in the US, as they are in Japan.

Then Softbank announced that it was buying a majority stake in Brightstar Corp., stumping up $1.26 billion for a 57 per cent stake in what is a major cellphone, tablet and accessories distributor, servicing retail outlets and big carriers.

What is SoftBank's founder, Masayoshi Son, up to?

Clearly the move on Brightstar is an attempt by Son to build a more powerful bargaining position with handset vendors. In fact, Son's broad strategy in buying into Sprint in the first place was to build global scale, in large part to hook discounts from the large handset vendors, particularly Samsung and Apple.

If carriers have a strategic revenue 'problem' today it is not so much from the rise of so-called 'OTT players' as due to the fact that the perceived value in the cellular contract package, from the user's point of view, is nearly all in the handset.

It is the handset, not the specific carrier service, that users are buying first and that has been increasingly the case since GSM came to dominate the global market in the late 1990s, forcing CDMA networks in much of the world to switch to GSM just to get access to the best/lightest/smallest phones.

With the launch of the iPhone and then Samsung's rise, the handset was put in an even stronger position with the two smartphone giants in particular able to 'hoover' up a large proportion of smartphone profits as the carriers fought it out on price and paid large smartphone 'subsidies' to reel in their users.

But now, as the smartphone market matures, the bulk buyer will at last have some negotiating power and with Sprint (number 3 in the US market), Softbank in Japan and some of Softbank's 'affiliates' exclusive to Brightstar, Son hopes to use his new distribution arm to take full command of his own supply chain and kick off the negotiations.

What worries observers is how Son hopes to do this while still holding on to major Brightstar customers such as, ahem, Verizon and AT&T. Why should they help Softbank carve a bulk-buy advantage in the US market? Probably all will soon become clear.

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