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Sprint in talks to buy wireless startup FreedomPop

John Shinal
Special for USA TODAY

SAN FRANCISCO — Sprint Corp., the struggling No. 3 U.S. wireless player now owned by Japan's Softbank, is in talks with a Los Angeles-based wireless startup about a possible acquisition that could boost Sprint's revenue growth and lower its subscriber-acquisition costs, said two sources familiar with the talks.

The talks are fluid, meaning they could lead to an investment, an acquisition or no deal between the companies. Other suitors have emerged for FreedomPop, among them a large U.S. technology company and a smaller wireless carrier, according to the sources who are not authorized to speak publicly about the matter.

An acquisition would likely value all of FreedomPop in a range between $250 million and $450 million, while an investment would value it closer to $200 million.

A Sprint sign hangs from the company's story in Manhattan in 2008.

A Sprint spokesman declined comment, as did a FreedomPop spokeswoman.

The talks are part of a broader effort by new Sprint CEO Marcelo Claure to remake the company's growth and investment strategy, after U.S. regulators effectively nixed a merger with T-Mobile earlier this year

The Federal Trade Commission vetoed the rivals' plan to buy combined wireless spectrum, making it harder to catch giant rivals Verizon (VZ) and AT&T (T) and prompting the exit of former CEO Dan Hesse.

During a conference call with investors and Wall Street analysts two weeks ago, Claure laid out the tough competitive landscape he inherited in August.

"The company was in the weakest condition it has ever seen," in terms of market share and subscriber losses, said Claure, whom Softbank CEO Masayoshi Son hand-picked to boost growth at the Kansas-based company.

"The Sprint brand was weak," said Claure of a company that's on track to lose 2 million of its customers this year.

During the nine months ended in September, Sprint lost 4% of its high-end users to rivals, as its churn rate worsened for both pre-paid and postpaid subscribers.

Claure is a Bolivian immigrant who built a mobile-phone refurbishing empire.

Entering a price war begun by T-Mobile, he cut Sprint's pricing on a standard wireless plan to $60 a month, then rolled out a $50 plan that gave iPhone 6 users unlimited data.

The aggressive pricing moves spurred Sprint to year-over-year revenue growth of 9.5%.

Yet it also pushed the company's bottom line into the red, and Sprint's faltering shares dropped again.

The stock S has lost half its value this year, and Softbank's $21.6 billion Sprint investment in the summer of 2013 is down by just over 10%.

Sprint's stock has slid as investors react to aggressive pricing plans.

"Our goal next will be to get to postpaid phone net additions," which are the path to profitability for Sprint, Claure said on the conference call.

FreedomPop has been acquiring post-paid wireless subscribers on the cheap, then has held onto them thanks to plans that begin at $5 a month and a peer-to-peer platform for trading minutes.

The startup, which began life as a wireless hotspot provider, acquires 95% of its subscribers online, making its customer-acquisition costs of $4 per user a tiny fraction of Sprint's.

FreedomPop is converting 50% of consumers who try its free service into paying customers, company officials told me in an interview earlier this year.

The two companies have had a partnership for more than a year, with Sprint adding thousands of the startups users onto its wholesale wireless network.

FreedomPop earlier this year hired the Raine Group as strategic advisers, according to the company.

FreedomPop on Wednesday will unveil a plan to provide 100 hours of free international calling — meaning no global roaming fees — to more than 30 countries, part of a new push with overseas carriers.

John Shinal has covered tech and financial markets for more than 15 years at Bloomberg, BusinessWeek,The San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others. Follow him on Twitter: @johnshinal.

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