AT&T's Straight Path buy highlights value of high-band spectrum, analysts say

Carriers like AT&T and Verizon are increasingly looking to millimeter-wave spectrum as they densify their networks and prepare to deploy 5G services and technologies.

AT&T’s $1.6 billion deal to acquire Straight Path Communications underscores just how important millimeter-wave spectrum has become as the industry moves toward 5G, according to analysts.

The nation’s second-largest carrier announced a deal yesterday to give Straight Path shareholders $1.25 billion, or $95.63 per share, in AT&T stock for the company. The transaction has a total value of $1.6 billion including penalties Straight Path owes the FCC.  

Straight Path holds an average of 620 MHz in the top 30 U.S. markets, covers the entire nation with 39 GHz spectrum and it has retained all its 28 GHz spectrum licenses. Straight Path had long been expected to sell its licenses to a wireless or cable network operator.

The Straight Path deal is akin to Verizon’s $1.8 billion acquisition of XO Communications’ fiber business last year. In addition to gaining 1.2 million fiber miles, Verizon also pocketed more than 1,200 MHz of spectrum stretching across XO’s various millimeter-wave spectrum bands.

Carriers are increasingly looking to millimeter-wave spectrum as they densify their networks and prepare to deploy 5G services and technologies. Those airwaves don’t propagate as well as lower-band spectrum, but they offer significantly increased capacity. That makes them ideal for urban areas where data consumption is particularly high.

“AT&T believes that millimeter-wave spectrum will have a coverage range in the hundreds of yards,” MoffettNathanson Research wrote in a note to subscribers. “AT&T is paying a total of $0.009 per MHz-POP for the post-settlement 620 MHz of spectrum across the top 30 markets remaining at Straight Path, which covers a sum total of 175 billion MHz-POP as disclosed by the company at the time of its settlement (ignoring Straight Path’s net operating loss). Of the 620 MHz of spectrum, AT&T thinks that about 600 MHz of the spectrum is approved for use today, with another 20 MHz of the spectrum in the 28 GHz band not yet approved"

"If nothing else, then, these transactions clearly illustrate that valuations of millimeter wave spectrum, with its capacious breadth (channels are often hundreds of MHz wide) but extremely short propagation distances, simply aren’t remotely comparable to low and mid-band spectrum," the analysts added. "The two transactions nevertheless set a precedent for millimeter wave spectrum going forward.”

But those deals for millimeter-wave spectrum may cloud the potential value of Dish Network’s airwaves. Dish sits in a significant portfolio of midband airwaves, and it recently picked up 28 GHz of high-band spectrum and other assets in a swap with EchoStar.

Dish has said it plans to use those airwaves to deploy an NB-IoT network to provide connectivity to a wide variety of devices, but some analysts believe the company plans to sell its spectrum rather than putting it to use itself. The looming question, then, is just how much those airwaves might be worth.

“This (Straight Path) transaction signifies the growing importance of high band spectrum as we recently saw with Dish swapping some spectrum assets from EchoStar including wireless licenses in 28 GHz band and VZ’s acquisition of XO communications,” Amir Rozwadowski of Barclays wrote. “While mid-band spectrum that DISH primarily owns has value, we are now seeing carriers increasingly focusing on high band spectrum as they prepare for a 5G world.”