Verizon to acquire Straight Path for $3.1B, ending bidding war with AT&T

The value of Straight Path's high-band spectrum has soared in recent weeks during a bidding war between Verizon and AT&T.

Verizon isn’t much interested in more 600 MHz spectrum, but it isn’t afraid to spend heavily to bulk up on its high-band airwaves.

Straight Path said this morning it had inked “a definitive merger agreement” that will see the nation’s top wireless service provider pay roughly $3.1 billion in an all-stock transaction, ending an aggressive bidding war with AT&T for the company’s airwaves. Verizon will also fork over a termination fee of $38 million to AT&T.

Straight Path shares had soared in recent weeks as the bidding war between the two carriers intensified, but Verizon’s offer marked a discount of nearly 18% from Straight Path’s close on Wednesday, as Reuters noted.

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AT&T earlier this month announced plans to acquire Straight Path in a deal aimed at bulking up its portfolio of millimeter-wave spectrum. But reports surfaced last week indicating an unidentified major telecom player—which was said to be Verizon—had outbid AT&T, agreeing to pony up $1.8 billion.

Straight Path holds an average of 620 MHz in the top 30 U.S. markets and covers the entire nation with 39 GHz spectrum. 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.

Straight Path earlier this year reached a $100 million settlement with the FCC, ending an investigation into the company’s failure to deploy wireless services as required under FCC spectrum licensing rules.

Straight Path agreed to pay two civil penalties and surrender about 20% of its 5G licenses to the FCC. For the $100 million civil penalty, Straight Path will pay $15 million upfront with $85 million suspended unless Straight Path sells all its remaining licenses or surrenders them to the FCC within 12 months. Also, 20% of any sale proceeds must be paid to the Treasury as an additional civil penalty.

Verizon surprised analysts earlier this year when it sat out of the FCC’s incentive auction of 600 MHz spectrum despite qualifying to bid in the event. But the Straight Path deal illustrates how much the value of millimeter-wave airwaves has increased as carriers begin to prioritize increased capacity in advance of 5G services—even if that higher-band spectrum doesn’t propagate as well as lower frequencies.

“Verizon has been one of the most vocal carriers in leading the industry towards 5G,” Mike McCormack of Jefferies wrote this morning in a research note. “Initial standards are unlikely to be set until 2018, with full standards more likely in the 2020 time frame. Nevertheless, the (Straight Path) transaction positions Verizon well ahead of peers in access to high-frequency spectrum holdings suitable for 5G, which the company is likely to leverage for pre-standards fixed wireless deployments as early as 2018.”