Verizon has agreed to acquire Straight Path Communications in a $3.1 billion all-stock transaction, outbidding rival AT&T which made a $1.6 billion offer for the company last month. Verizon expects the deal to close within nine months, pending FCC approval. The acquisition will give the wireless behemoth a significant nationwide portfolio of millimeter-wave spectrum, which is viewed as important for the deployment of the next generation of wireless services. In this article, we take a look at the rationale for Verizon’s purchase and where it stands in the race to deploy 5G.
We have a price estimate of $53 for Verizon’s stock, which is about 15% ahead of the current market price.
Where U.S. Carriers Stand In Terms Of 5G
5G is a proposed telecom standard that will succeed the current 4G standards, providing wireless Internet speeds that could be as much as 40 time faster. The technology is still in its early stages, and global standards are only in the process of being finalized. Moreover, the applications and use cases that could leverage such high data speeds still remain somewhat unclear. The business model and overall financial viability of building out dense 5G networks also still need to be worked out by carriers. However, all the major U.S. carriers have been making plans to deploy 5G in some form, and Verizon was the first player to take a serious step. While the company has been field testing the technology for about a year now, it indicated that it would begin customer trials in five U.S. cities beginning in Q2, with pilots in 11 markets expected by mid-2017.
Making Verizon’s Spectrum Portfolio 5G Ready
Millimeter-wave wireless spectrum is seen as crucial to the deployment of 5G services. This spectrum has higher frequencies, allowing it to carry large amounts of data over short distances, unlike lower frequency spectrum which supports lower data rates and wider coverage. Straight Path holds a sizable amount of spectrum in the 28 GHz and 39 GHz millimeter-wave bands – which have been approved by the FCC to carry 5G wireless services. With the acquisition, Verizon is estimated to hold about 236 and 180 billion Mhz-POP in the 28 GHz and 39 GHz bands, respectively. In comparison, AT&T is estimated to hold just about 40 and 8 billion Mhz-POP, respectively, in the two bands, after factoring in its acquisition of FiberTower.
Verizon’s Recent 5G And Broadband Focused Deals
The weaker propagation characteristics of high-band spectrum call for denser infrastructure on the part of telecom companies, with a larger number of small cells and greater levels of frequency reuse, and the small cells will require carriers to have strong fiber optic networks to provide back-end connectivity to these cells. Verizon has been carrying out a series of deals to support its overall broadband and 5G deployment. In February this year, the carrier spent roughly $1.8 billion to acquire XO Communications, which has a vast fiber optic network across the U.S. The carrier also entered into three-year deal to buy at least $1.05 billion worth of optical fiber from Corning. Verizon also recently signed a $300 million contract with the Prysmian Group for fiber-optic cable.
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