AT&T just settled the Wall Street debate over the value of high bandwidth airwave rights suitable for super-fast next generation wireless networks.
Shares of tiny wireless startup Straight Path Communications, which owns a boatload of airwave rights in the 39 GHz and 28 GHz bands, have bounced around from $15 to $50 over the past year and closed at $36.48 on Friday. On Monday, AT&T announced an all-stock deal to acquire Straight Path for $95.63 per share.
That’s great news for Straight Path shareholders and a potential disaster for investors that bet against the company by selling the shares short. It’s also a huge win for the Federal Communications Commission, which settled an investigation into Straight Path in January with an agreement to receive 20% of the proceeds of the sales of its licenses.
That puts the agency in line to collect over $300 million of the total deal, which AT&T valued at $1.6 billion including the shares it plans to exchange for Straight Path’s shares. AT&T is paying “a fair price for the spectrum that we’re acquiring,” a spokesman said, noting the airwave rights cover major cities such as New York, Los Angeles, San Francisco and Atlanta.
The deal will give AT&T a major boost in its effort to build 5G wireless networks using high bandwidth airwaves, as Straight Path (STRP) owns spectrum licenses covering the entire country in the 39 GHz band and additional licenses for the 28 GHz band. Known as the millimeter bands, the higher frequencies are capable of carrying far more data than lower bands like 700 MHz currently used in 4G networks, but have trouble traveling as far and penetrating obstacles. AT&T has already announced plans to conduct a variety of trials this year using the higher frequencies.
With all of Straight Path’s licenses, AT&T could more easily offer a wireless TV service nationwide in addition to faster service for mobile devices, Well Fargo analyst Jennifer Fritzsche noted on Monday. But AT&T will also need more cell sites with fiber optic connections to make good use of the frequencies. “We have long thought (AT&T) was in the early innings of its fiber deployment, and this announcement gives us more conviction in this view,” she wrote. “It is worth noting this fiber build or leasing could even occur outside of its incumbent footprint to realize the full benefits of this spectrum.”
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The Straight Path move follows AT&T’s (T) deal to acquire smaller license holder FiberTower and Verizon’s (VZ) arrangement last year to lease similar airwave rights from XO Communications. Dish Network (DISH) swapped some assets with Echostar in January, including four 28 GHz licenses. At the same time, Google (GOOGL) has plans to expand its Fiber gigabit Internet service using Webpass, the high-band spectrum service it acquired last year.
Licenses in just about all those deals have travelled a tangled path to market—and still may not have much value until the big telecom carriers figure out if they can roll out 5G service economically at the higher frequencies. AT&T, Verizon, Sprint (S), and T-Mobile (TMUS) are all still in pre-commercial trials. And no one can promise yet when—or even if—the complicated technology needed to broadcast the high-band signals at speeds 10 to 40 times faster than current 4G wireless networks will be financially viable.
Straight Path, spun out of telecom provider IDT (IDT) in 2013, had hired investment bank Evercore in January to conduct “a review of strategic alternatives to maximize shareholder value,” Wall Street lingo for exploring a possible sale. IDT acquired the licenses from bankrupt wireless pioneer Winstar in 2001.
But even spun off on its own Straight Path struggled to succeed, leading to allegations that it wasn’t using the licenses as it had reported. The probe ended in a deal with the FCC. The company paid a penalty of $15 million and surrendered a small portion of its licenses. Then, Straight Path had one year to either sell all its remaining licenses and pay the government 20% of the sale price, pay another $85 million penalty, or hand back the licenses to the FCC.