The bidding war between the two telecommunication giants came to an end today as Straight Path said it has accepted a $3.1 billion all-stock offer from Verizon. The acceptance came after AT&T told Straight Path it would not make any new bids.
The deal values Straight Path stock at $184 per share, and will now see Verizon acquire 868 licenses in the 28 GHz and 39 GHz bands that are viewed as important to the deployment of 5G network technologies. Despite concerns over the ability to monetize mmWave spectrum licenses, the industry is moving aggressively to include bands above 15 GHz for 5G services due to the quantity of capacity available compared with traditional cellular license bands.
Verizon anticipates closing on the deal within nine months, subject to FCC review. In addition to its board, Straight Path said the transaction is supported by majority shareholder Howard Jonas who has entered into a voting agreement with Verizon and agreed to vote his Class A shares in support of the deal.
As part of the agreement, Verizon is also on the hook to pay a $38 million termination fee to AT&T, which last month initiated a $1.6 billion tender on Straight Path that was approved by Straight Path’s board.
The initial AT&T bid valued Straight Path’s stock at $95.63 per share, but was eclipsed last week by a $135.96 per share bid from an unnamed bidder, which was then bumped to $184 earlier this week. Today’s announcement revealed Verizon was that mystery bidder.
MmWave for 5G
Verizon said the deal plays into its 5G deployment plans and linked the acquisition to recent purchases designed to bolster its spectrum and fiber portfolios.
“Verizon now has all of the pieces in place to quickly accelerate the deployment of 5G,” said Hans Vestberg, EVP and president of global network and technology at Verizon, in a statement. “Combined with our recent transactions with Corning Incorporated, XO Communications, and Prysmian Group, this is another step to build the next-generation network for our customers.”
Verizon recently signed fiber deals with Corning and Prysmian Group valued at more than $1.3 billion, and last year picked up fiber and mmWave spectrum in the 28 GHz band through a $1.8 billion acquisition of XO Communications.
Iain Gillott, founder of iGR, said the Straight Path deal further strengthened Verizon’s notion that it did not need any more traditional cellular spectrum, which was highlighted by the carrier emerging empty handed from the FCC’s recent 600 MHz incentive auction proceedings.
“There is a lot of traditional spectrum out there in the hands of companies like Dish and Sprint, and Verizon did not go aggressively after any 600 MHz spectrum, so Verizon obviously feels like it doesn’t need any more,” Gillott said.
Analysts also noted the deal showed considerable confidence from Verizon in being able to tap mmWave spectrum for 5G services.
“Verizon is not a dumb company,” said Gillott. “They have been running millimeter wave trials for some time now and obviously feel from what they have seen that they can make a business case for deploying services using that spectrum. They don’t plop down $3 billion on hoping something will work.”
On the other hand, Gillott said AT&T decided it did not need that spectrum as badly and thus passed on increasing its offer. This was not a surprise to Gillott. He said AT&T has started to morph into more of an entertainment company due to its DirecTV acquisition and pending deal to acquire Time Warner as opposed to Verizon, which remains more of a traditional telecom player.
Joe Madden, founder of Mobile Experts, has been studying the business model around commercial deployments using mmWave spectrum and said recent conversations with carriers and vendors have shown there is a place for the propagation-challenged bands in dense, urban environments.
“Getting fiber into a home or apartment can be very difficult for carriers,” Madden said. “It’s one thing to get it into the street, but to get it those last few hundred meters adds significantly to the cost structure.”
Madden envisioned Verizon being able to feed fiber into a street-level cell site supporting mmWave spectrum that could then beam a broadband signal into the side of an apartment building or multi-dwelling unit.
“This could be set up across the street from a multi-dwelling unit with 50 windows all facing the transmitter,” Madden explained. “Verizon could hit all of those units without having to deal with unit-to-unit deployments.”
That model is similar to what Verizon is currently doing in terms of its pre-commercial 5G trials. Those trials are set to begin in 11 markets by the middle of the year, and will include fixed wireless services using several hundred cell sites covering several thousand customer locations.
Straight Path Rollercoaster
The bidding war was quite the turnaround for Straight Path, which earlier this year agreed to a $100 million settlement with the FCC for failure to deploy wireless services as required by the FCC’s licensing policy. As part of that settlement, Straight Path had to surrender 196 of its licenses in the 39 GHz band, sell the remainder of its licenses, and give 20 percent of the proceeds of that sale to the U.S. Treasury Department.
Straight Path investors might have mixed feelings on the deal as the company’s stock plunged this morning more than 20 percent on the announcement to around $179 per share. The company’s stock had been as high as $235.88 per share earlier this week, though the company was trading at just $32 per share prior to the FCC settlement earlier this year.
While the deal would seem to place a significant value on similar spectrum holdings, Gillott noted there were few remaining players in the market with the depth of spectrum holdings controlled by Straight Path and thus it’s unlikely another single deal of such a large amount will be announced.