After getting mentioned more than 70 times in the FCC's Notice of Proposed Rulemaking (NPRM) on spectrum above 24 GHz -- Samsung, in contrast, was mentioned only about 60 times -- the lesser-known Straight Path Communications, with just seven employees, got a big boost in its profile.
The detailed 100+-page NPRM caught the attention of both investors and short sellers who argue the company is worth far less than its current market cap suggests. Kerrisdale Capital, a short-seller that would benefit from a drop in the company's stock price, chronicled the details in a 31-page report blasting Straight Path's model. Straight Path is fighting back, releasing a statement in support of its current operations and plans, and it's scheduled a conference call for Nov. 2 to answer investors' questions.
Kerrisdale is the same firm that put out negative reports about the viability of Globalstar's terrestrial low power service (TLPS) spectrum a year ago.
The short sellers believe the financial market is misinterpreting the value of Straight Path's spectrum, for one thing, saying the company is worth 90 percent lower than where it's trading. While Straight Path's claim to hold "96 percent of active 39 GHz FCC licenses" has led some to believe the company has a monopoly on 5G spectrum, Kerrisdale argued that the vast majority of 39 GHz licenses are held by the government after their previous owners gave up or went out of business. There will be a "flood" of spectrum supply when the FCC re-auctions these licenses, they say, along with licenses in similar bands like 28 GHz, 37 GHz, and potentially more.
Straight Path owns bankrupt fixed wireless provider Winstar Communications' spectrum licenses in the 28 GHz and 39 GHz bands, and it's counting on the growing momentum for using millimeter-wave spectrum for 5G services as a boon for the company. Last week, the FCC released its NPRM that discussed what to do with the 39 GHz band, in particular, and sought comments. The rules are still not finalized.
Davidi Jonas, Straight Path's CEO, told FierceWirelessTech earlier this week that the release of the highly anticipated NPRM was positive. "It's definitely had a positive impact in the market perception in terms of the viability of our story," he said. But he added that until the rules are adopted, there's always some degree of uncertainty, noting that "the commission doesn't propose rules with the expectation that they are not going to adopt them."
"The level of likelihood has certainly raised substantially, so there's a pretty strong likelihood that there will be flexible use rights for incumbent licensees in 39 GHz and 28 GHz," and Straight Path owns more than 50 percent of the active spectrum in the two bands, which puts it in a strong positon. "We think 39 GHz has certain things that make the band more accessible" and because of that, it's more focused on 39 GHz, where it owns more than 95 percent of the active spectrum. "We certainly feel this is a huge opportunity," he said, adding that how big the opportunity is will unfold in the coming months and years.
Backhaul is one niche the spectrum traditionally has been used for, but it's not the most valuable use of the spectrum, he said. The expectation of the market generally is Straight Path's spectrum eventually will be acquired by a network operator, whether that be Verizon, AT&T, Sprint or T-Mobile US, or Comcast, Time Warner, Google or Facebook -- somebody with a large network that needs data capacity and enhanced speed and throughput for their network, and "I think that's a reasonable conclusion," he said.
To date, it's been mostly a communications assets company, but at a certain point, "we might look at it more dynamically." Right now, he acknowledged, its revenue is pretty small relative to its market value, and at a certain point, "I think the dynamic will shift" and it will use the assets to drive revenue and create more value.
"We feel like there's very little competition to us and we have huge room for growth. We have an unparalleled network. There's just nothing else like it in the country, and we feel that if we really put that network to use, I don't think there's anything that any of the other network operators … any way for them to compete. Their networks are big and heavy and unwieldy, and our network would be fast and fungible," as well as cheaper to deploy with the ability to create partnerships with building and home owners. "If we really just turned on the jets, I just don't know if there's anyone who would be able to catch up to it because they don't have the spectrum."
The Kerrisdale investors argued that 5G doesn't necessarily involve millimeter wave spectrum, that Straight Path's spectrum is just "one tiny drop" in the mmWave bucket, and that mmWave spectrum has fundamental limitations that will restrict its usefulness. They said that while complex multi-antenna arrays may help to overcome weak propagation in a cost-effective way -- itself an open question -- mmWave transmissions still won't be able to go through walls or over hills. "There is no straight path here -- just a winding, dusty road to failure," their report stated.
In his statement today, Jonas noted that Straight Path entered into an agreement with Cambridge Broadband Networks to expedite production of a 39 GHz point-to-multipoint radio, which is intended to open up additional markets for use of its spectrum assets for backhaul and other applications. With its CTO Jerry Pi, one of the leaders of mmWave mobility and 5G, the company is opening a Gigabit Mobility Lab in Plano, Texas, to begin development of a 39 GHz transceiver to demonstrate the viability and superiority of such services at 39 GHz.
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