Was put on bloomberg television. Im Erik Schatzker. It, awill get right into big morning. Excited about our guest host, lets get started. President and ceo of sprint. You were the man responsible last year for getting a deal with softbank come how is it going . It is going well. The week ago we announced results and stock was up 11 on the day and 18 over the last week. We had our best Net Operating Income number in the last seven years. 11 quarters in a row of beating on ebitda. Our subscriber numbers could be better, we are reengineering our network. What has the softbank do thatp allowed you to you could not have done before. What is it going to enable you to do in the future that you were not able to do . Longterm. Re on the this big network, sprint spark, it will take time and money to do it right. We can take a longerterm perspective. You have an 80 investor who was talking about a 300 year plan 300. Whenever going to get sprint spark in your . In new york . You have it now. It is taking three frequencies, Different Networks used in different frequencies and basically we had to rip out everything. This is why our subscriber numbers have not been as strong. Remove the old equipment there have been service disruptions, that has affected churn. It is going to be a phenomenal network. Is that there get is a palpable frustration it has taken this long to get the Spark Networks worhere it is. You see it with the churn. I perceive in the investment community, do you share that question mark it is never fast enough. No company has ever had to build something this large. The nextel network, the sprint network, the clearwire network, you have a great spectrum resource you are buying from clearwire, it is a large project and it is taking longer. Our investors, that is why it hasin the stock performed well, they are taking a longerterm view. , youre talking about speeds of 150 megabits per second to the phone. Does that mean that sprint spark is going to be considered for the customer, by the regulator, by the investor, a viable alternative to landbased broadband . It depends upon your applications with landmine. With landline. For High Definition television, people will still want landlinebased service. When you are talking about speeds for a large segment of the market it will be an alternative. We should not look at sprint as a competitor to comcast, for example, in the delivery of 4k video, which we are starting to get. The kind of data that is required for 4k video, landline will be the preferable way to get there. For youtube and video applications and surfing and what have you, for a large segment of the market who is not going to 4k, it will be you do not see Cable Operators becoming competitors to you as they get bigger . Or even partners. They could be either or both. Competitors or partners. Number three and four, what could have combined. What could sprint and tmobile look like . How much could they infringe on number one and number two . The issue you have in the u. S. Wireless industry is it is a duopoly, 84 of the ebitda and basically 100 of Free Cash Flow out of to large companies. The industry would have healthier competition with a stronger number three. I cannot comment specifically on speculation with respect to m a, i think a stronger number three would be better for consumers. There might be some consumers who want to believe that or who believe that already. How do you get regulars to believe that . We will have to see. Papers and what have you, there are a lot of regulars who are skeptical. If a transaction or to occur, we would have convincing to do. It feels great to be a consumer, mobile price wars are a win for me. How do you, that . How do you combat that . There are a lot of emotions that consumers see as positive, but how sustainable is that . Looking at the profit performance of the big four. How sustainable is it . You had to cut prices on prepaid last night. That is a question. Particularly in the ability to invest in networks. Tmobile and sprint have to invest more per customer and their networks. Think of a nationwide network, it largely affects costs. It is like a jumbo jet. At t and verizon, because of their size, can put more customers on that, can divide it among more customers and can spend more money in advertising. What happens lets entertain some hypotheticals for a moment. Lets say you do not think you can make a persuasive case to regulators that consolidation is in everybodys best interest. If tmobile continues with this race to the bottom on pricing, what happens to sprint . Were going to have to compete in the market. Sprint spark is going to give us a good foundation. It is why you see other rate plans that are wellsuited to the market. How much less viable do you a Profit Center forget about profits, on a net income basis, you are not even there yet. How much less viable do you become financially . Forhe real issue is consumers. A strong number three will get one and two to react more aggressively so everybody benefits. If you are smaller, the big to do not react as aggressively. That is the benefit. Is john legere your peer . Or Worst Nightmare . John used to work for me. He is doing a fine job. I just want to look at the most recent tweet. sprint, what else do you need tmobile to launch so you can copy it . Do you feel like he is taking you on, the media loves it. I dont think john is ever going to stop egging me on. [laughter] moment, onek for a could say he is a walking advertisement for tmobile. The ad spend mobile operators have right now is huge. Are you ever looking at this and saying we are spending too much on advertising, doesnt really affect who is signing on . Is like an arms race, if your competitors spend more you need to. You cannot afford to go silent relative to your competition. It is the nature of our industry. Does the data back that up. Itre are ads everywhere, does not affect me, maybe it does subconsciously. What data tells you you have to have another ad . It does cost a lot, we are being more effective in advertising and we have moved more to digital and social media that arems of media more persuasive, particularly with millenials. Hence a john tweets. And framily. What is changing are demographics, family plans only work for traditional household of three people are more. Framily opens it up to the majority of households, 60 of households are two or fewer people. Media, in terms of the 18 to 33 demographic, 75 use social media, the people they are close to those beyond their immediate family and allows us to provide great offers to a broader audience. Part of the problem with high recurring expenses like marketing and advertising, you are incurring them at a time when your product is becoming, midsized to a degree. Voice is becoming co mmoditized. How do you fight that . And spark we have superior data speeds, we are going to launch how traditional voice, taking a traditional voice cell phone call which is four octaves up to seven octaves. Areas like music. Comcast gets this, that is nbccomcast bought universal. At t and verizon are waking up to the idea that content is the way to fend off commoditization. Is that something softbank would entertain . If you think about it as a carrier. We announced a partnership with spotify. I am thinkingic, video. Content, television, digital video. That is what steve burke is thinking about. That is what the folks at verizon and at t and elsewhere are thinking about. At a time when you are spending so much money to build out your network, you have the challenge of consolidation, is that a conversation you can participate in . Absolutely. How . I will not disclose that the content is important part of the future. Video content. I am not saying. Staying with us through the hour. We will ask Dan Weissberg is getting into the music business, about the companys new deal with spotify. David einhorn and his bubble basket very. Theory. Some stocks to watch out for later in the show. Market makers on bloomberg television. Streaming on your smart phone, your tablet, bloomberg. Com, and on fire tv and apple tv. To marketback makers, sprint offering its customers spotify access at a discount. A new phone is says is perfect for music lovers. Sprint ceo dan hesse is with us, why are you making a push into music . I have been in wireless for 17 years, everything has gotten better except music. In the old days, memory was limited and networks were slow. Music was greatly compressed in mp3s. What has happened in the music world is music has moved digital, but very High Resolution digital. The community has been showing great music. The best to create portable, one of the best portable music digital players in the world which also happens to be a smartphone. This device, available may 9, m8. Htc one sorry for bit the technology. Erik loves it. Res musicur high and played beautifully. Lossless audio. Youike you go to hd tracks, download it to this advice. Most peoples Music Libraries are mp3s. Music is nott available yet, it is likely early days of luray. It is like the early days of the bluray. We have an algorithm that takes what was compressed, a High Resolution file has about six times the information as a compact disc. And at the three has about an 1 10 of the information of a compact disc. You have a really good mp3, good speakers, a special headphone amp and 150 earbuds. Also a weak link is storage, this is the st card slot is this for music groupies . Go crazy, ig erik can play music on my iphone. I thought television was great until i saw High Definition. I think when people are exposed to this, i have two teenage boys , totally sold. One reason spotify was so interested is the clarify Technology Takes spotify and makes it sound so much better than it has ever sounded. It can basically decompress the music that is streaming into higherquality sound. It enhances it. Is sophisticated algorithms. Technically speaking you cannot decompress, that has been lost. Get some engineers, hearing is believing. Generally what they would do to make it sound better is increase the base of the travel the bass and the treble. How do you make it cool . That is cool. Likeat is cool for a nerd you, i still like the iphone. You have got to attract people. One of the reasons we are doing this promotion was framily, if you are a member, six months of free spotify premium, which is 10 a month. Songs on spotify. Spotify has 24 million active users, 6 million paying users come in to get people to experience how good. I cant believe it took me this long to get an iphone, are you saying the iphone is not cool . No. They sell iphones. I think this will usher in a new world in terms of smartphones. There is no reason smartphones cannot be highdefinition and music. A question, is a device like that, the one that breaks the cycle whereby carriers like yours have subsidized the purchase of a phone . Will people pay for that . 800 for that phone . They can get it for 679. It is still a big number. Customers are beginning one of the changes in the industry, we are bifurcating the rate plan from the device. That comes at a cost, youre having to finance the purchase. It has changed from subsidy to financing. The latter is better. What you would love is for somebody to step up with 675 and walk alone with a phone and begun. And be done. That is true and we have a number of consumers doing that. Largely they will have 24 payment are you finding it any easier, do you have leverage to push back against apples of whenworld, against samsung it comes to subsidizing the cost of the phone . The two we are getting out of subsidy and into financing, that is a big step forward. Ultimately a good thing or a bad thing . I think it is a very good thing. Why . It gets us out of subsidizing. It gets you into lending. Comparatively lending has taken a lot of companies down a dangerous road. Credit is a reason we do checks and the prepaid business is so important. For zero down you have to have time credit. Sorry, erik. You will have to buy it with cash. Why not pandora . We were looking for a great streaming service, especially a premium service. Spotify is the secondlargest largest source of revenue for the Music Industry and artists behind itunes. 24 million active users, 6 million paying customers. Daniel, theas i met ceo of spotify. We met at the San Francisco airport. It was the largest and the quickest deal they have ever done. We talked about music quality, we wanted to bring the best experience. You ran into this guy at the airport and this is how it started . We did have a meeting in an airport. We were both moving. Two weeks later, we had a big deal. Universalbank buys music, that is a possibility, what does that do for you . Preferredlearly a access to content is Something Like that periodically were to happen. Because of the relationship between softbank and sprint, you would expect the benefits to flow down . Is very well could. Assuming Something Like that could happen and pass regulatory muster. It would be there could be a benefit. We will have a lot more with dan hesse when we come back. The ceo of sprint with us for the full hour. Coming up on Market Makers emco m a madness. Bayer will buy a chunk of merck. Details after the break. Welcome back to Market Makers. This show needs a webcam during commercials, we just had an incredible conversation. 26 minutes past the hour, time for on the markets. Twitter getting hammered again today. Down 9. 3 . This is all about supply and demand. 480 million twitter shares just became available for trading, quadrupling the size of the public flow, because the lockup from the ipo expire. Insiders selling their stock. Millioners holding 205 of those 480 million pledged not to sell. Still down 9 . Live from bloomberg headquarters in new york, this is Market Makers, with Erik Schatzker and Stephanie Ruhle. You are watching Market Makers on bloomberg television. I am Erik Schatzker. I am Stephanie Ruhle. 10 for the top business stories from around the world. Credit suisse close to settling a tax evasion investigation with u. S. Authorities. Adeal with a guilty plea and penalty of more than 1 billion. Cracking down on foreign banks that help americans even a taxes. A big payday for angela ahrendts, she started last october. Ahrendts. Thengela has been given stock is worth 68 million, she came to apple after being ceo at the rate at burberry. Ukraine casualties are rising. Rebels have seized more than 30 government buildings in the eastern part of the country. They are trying to take control of odessa in southern ukraine. Another day, another multibilliondollar pharmacy deal. Mercbayer spending 14 million o acquire mercks consumer unit. s ceo explained. Has a stronger u. S. Position, stronger than bayer. Bayer has a strong position across the globe and in emerging markets and in europe. Our intention is to take the merck brands and bring them to other geographies and create a lot of revenue synergy. Bayerh more on this merc acquisition of bayemercks consr unit, Cristina Alesci. Bayer being aggressive, trying to reshape the industry. Or reacting to everything going on. Heres the thing, you start with merck. What Pharma Companies in the u. S. Are dealing with is the fact that they have to reconfigure their whole model. They have to survive in a postblockbuster world with a long horizon on the development front. S standpoint, you can do a big transformative deal we sell pfizer do or dump what you are not good at, focus what you are good at, that is what i was geared up for the beginning of the year. These kinds of deals. Companies are shedding non core assets and doubling down on what they think is a promising way to go. Like what we saw a couple weeks ago with glaxo at novartis. Exactly. To 10ill get 8 billion billion of proceeds, some of it d, it will mostly be used to buy promising medications and hepatitis b or cancer. They can charge an extreme amount of money for specialized products, that will be the future of the company. Do you get a sense that that will continue to be the way the industry is going . Or are we going to see more shakeout. Another vision that maybe reflects the kind of thing we saw before, the megamergers. Like what we might see happen with pfizer and astrazeneca. I think you will see i want to focus on merck. I think we will see more on this. A retooling of the business. Increasingly specialized Pharma Companies. From 2013 to 2018, pharma largest inthe 13th the u. S. And europe will lose about 15 billion in sales over patent laws. The cliff. Thisis is what a striving activity. They want to get out of the lower margin businesses. Even merck has said that its older pipeline, it is going to shed. We will see merck and possibly sanofi shed drugs that are not producing margins. But it does not solve the patent cliff problem. Rcktever pattern cliffs me is facing become someone elses problem. These drugs are still, the older drugs, they are still spouting off a bunch of cash. If you are just interested in the cash and not in innovating g, you are allru right with the cash. You can basically run it off and take the benefit of it. Is part of the problem that Biopharmaceutical Companies that could provide too expensive. Too expensive. We have seen such a runup in biotech stocks. That could be an additional source of activity but it will take some time. All the people in the market have analyzed it as you have, are notma Companies Developing blockbuster drugs so they have to go to biotech stocks, that has led to a runup in biotech stocks, putting a damper on the activity. We could see a reversal. A self filling prophecy, Cristina Alesci covers deals and she is all over bayer and merck. Their boards, the relationship is different than it used to be. With the sprint ceo, dan hesse. Welcome back to a special Market Makers. Sprint ceo dan hesse is with us. What is it like right now . What is the climate for u. S. B