The high stakes for the next generation of wireless begins with access to ultra-high frequency licensed spectrum. Although most spectrum transactions remain private, just how competitive that market is began to become apparent this week as Straight Path received a competing bid for its millimeterWave (mmWave) spectrum.
Straight Path reported to the Securities and Exchange Commission that on April 13, that it received a letter from a third party is “a topping bid that it believes would be more favorable to our shareholders” than the amount bid by AT&T.
When Reuters broke the story, Straight Path investors saw their stock jump 22 percent on April 17 in response to the reports of a bid, which many speculated was by Verizon, that would trump AT&T’s offer (+160 percent premium over the Straight Path’s share price).
Welcome to the spectrum rush for 5G. In August 2016, Verizon already picked up XO Communications and its licenses at 28-31 GHz in the 39 GHz band (188 billion megahertz/POPs or 575 megahertz, according to industry estimates). AT&T answered by quietly purchased FiberTower, giving it spectrum at 24 GHz and 39 GHz in January of this year.
AT&T needs Straight Path’s 173 billion MHz-POPs of 24GHz and 39GHz spectrum plus the FiberTower buy to keep up with the spectrum haul that Verizon got with its purchase of XO Communications.
This is a land grab for what is known as ultra-high frequency spectrum, once thought uninhabitable for commercial wireless, to be used for broadband densification. Note that AT&T and Verizon paid little attention to the Broadband Incentive Auction’s 600 MHz spectrum, which is expected to be used for coverage not capacity.
“Well, some would say in the world of 5G, anything in the 2 GHz – 3.5 GHz range may be the ‘low band’ of 5G, with the high-band being the mmWave spectrum which FiberTower, Straight Path and XO all had,” wrote Jennifer Fritzsche, Wells Fargo senior analyst. “Funny – we remember when the low-band spectrum was 800 MHz and lower and it was called the ‘beach front property’ of the spectrum world.”
The competitive bidding over Straight Path’s spectrum begs the question of who the next acquisition target will be. Mobile satellite service provider Globalstar comes to mind. It has 11.5 megahertz at 2.4 GH nationwide (3.7 Billion MHz-POP). On its website, it touts itself as a “resource for LTE networks” and that “2.4 GHz is unique in its support of small cell deployment.”
The stock price of GlobalStar went up 20 percent after the Straight Path takeover, according to TheFly.com.
“Globalstar jumps as a spectrum play after Straight Path entices suitors,” TheFly.com wrote. “Shares of Globalstar are moving up after spectrum peer Straight Path said it received a bid from a third party looking to top the AT&T bid announced last week.”
TheFly.com noted that late in 2016 the FCC approved a Globalstar request to use its satellite spectrum (2483.5-2495 MHz) in a terrestrial wireless network.
It’s the Spectrum They are buying, Not the Company
None of these acquisition targets seem to be in that great of shape. Straight Path was recently fined by the FCC for not fully building out its network and providing substantial service. To settle the investigation, the Commission fined the Straight Path $100 million, but stated that it will drop that fine to $15 million if Straight Path agreed to return some licenses (93 of its 828 39-GHz spectrum licenses) to the FCC and sell the entirety of the license portfolio in arms-length transactions.
The company is proceeding with its plan to market its spectrum assets; it is required to pay the FCC 20 percent of the value received from the sale.
Nicholas Rossolillo, The Motley Fool, wrote this week that Globalstar is on “life support.”
“Globalstar has been growing its total sales, but still struggles with its bottom line. Its 2016 revenue increased 7 percent, but another round of financing could be needed to keep things afloat, as operating margin is still deep in the red,” he wrote. “After flirting with profitability early in the year, Globalstar dropped a bomb on investors in the fourth quarter. The company reported a quarterly $16.8 million loss on operations and a net loss of $117.2 million, returning the company to a long-term trend of red.”