Verizon just bought a booster for its 5G future.
The telecommunications giant will pay about $3.1 billion in an all-stock deal to acquire Straight Path Communications, which holds a treasure trove of wireless licenses useable in future super-fast next-generation 5G mobile and fixed broadband services.
Straight Path, based in Glen Allen, Va., holds valuable spectrum licenses -- in the high-frequency bands of 28 gigahertz and 39 GHz -- for which devices and services are expected to be deployed over the next few years. These 5G services promise much faster speed than current wireless technology, as well as better connectivity and improved battery life. "Think of it as Wi-Fi on steroids," said Roger Entner, founder of Recon Analytics.
Beyond mobile service, 5G can supply improved wireless home broadband and connect a menagerie of connected devices, the deployment of which Intel expects to grow from 2 billion to 200 billion by 2020.
Telecom providers continue to joust in a race to secure spectrum for 5G delivery. T-Mobile recently spent nearly $8 billion, its largest investment ever, in the recent FCC auction as part of its 5G plans. Both AT&T and Verizon have announced 5G trials to begin later this year. Eventually, 5G wireless can delivery speeds beyond 1 Gigabit per second (current mobile networks typically deliver in the tens of megabits per second).
5G standards have not been finalized yet, "but this gives Verizon an early lead on this high-frequency spectrum," Entner said. "But we know there will be spectrum auctions coming in the next few years. This is the first mile of a marathon run."
Verizon will pay $184 per share of Straight Path stock, almost twice what AT&T had said it would pay for the company last month. Straight Path's shares were priced at $31.41 the day before its January 2017 $100 million settlement with the Federal Communications Commission for failing to timely deploy wireless services with its acquired spectrum.
At the time, the FCC charged Straight Path with "squatting" on wireless spectrum, which is considered a public resource.
As part of that settlement, Straight Path forfeited some spectrum to the FCC and must pay 20% of the proceeds from the sale to the U.S. Treasury. Straight Path was spun off from IDT Corp. after that company acquired the spectrum licenses from Winstar Communications, which filed for bankruptcy in 2001.
The acquired swaths of millimeter wave spectrum can be used for 5G services nationwide, in the case of 39 GHz licenses, and the major markets (28 GHz), Verizon says.
Shares of Straight Path (STRP) dropped 20% in early trading to $178.20. Investors had hoped that the bidding war would continue, pushing shares as high as $235.88 on Tuesday and closed Wednesday at $233.79.
After AT&T's bid became public, another unnamed bidding rival emerged, which Wall Street unearthed as Verizon.
Verizon will also pay to AT&T a $38 million deal termination fee. The boards of both companies have approved the transaction and expect to close the deal within nine months.
Verizon (VZ) shares were down 0.5% to $46.13.
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