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Is Verizon Mulling to Bid for Straight Path Communications?


As per a recent report by Reuters, Verizon Communications Inc. VZ is considering offering a counterbid to acquire Straight Path Communications Inc., a leading provider of fixed wireless spectrum licenses. Notably, on Apr 10, 2017, AT&T Inc. T announced its decision to purchase Straight Path Communications in an all stock merger deal.

AT&T has agreed to pay $95.63 per share, a near-160% premium over Straight Path's closing price of $36.48 on Apr 7. Total value of the AT&T deal was around $1.6 billion after considering the liabilities of Straight Path. On Apr 13, after the market close, Straight Path submitted a filing with SEC stating that the company is exploring a new offer from a third party that may top the AT&T bid. According to Reuters, the new entrant is Verizon.

Importantly, Straight Path has a strong portfolio of 868 spectrum licenses in the high-frequency 28 GHz and 39 GHz bands, which are included in the Federal Communications Commission’s (FCC) designation for the next generation of wireless broadband services. Notably, on Jul 2016, in a landmark voting, the FCC unanimously decided to make high-frequency radio spectrums (above 24 GHz) available for the use of the 5G wireless network.

The regulatory body has voted to open up a total of nearly 11GHz of spectrum. Of the total, 3.85GHz will be licensed spectrum and the remaining 7GHz will be unlicensed bandwidth to be used for mobile and fixed-wireless 5G network. According to the research firm ABI Research, 5G network deployment is expected to ramp up after 2020 and its market size may reach $247 billion worldwide by 2025.

Verizon is conducting field trials for its upcoming 5G wireless network. The company is preparing for initial deployment of the next-generation 5G wireless networks in the U.S. in 2018. AT&T is testing 5G technologies on 3.5GHz, 4GHz, 15GHz and 28GHz frequency bands. Moreover, T-Mobile US Inc. TMUS is using the company’s 28 GHz and 39 GHz frequency bands to test run 5G wireless standards.

Importantly, in Feb 2017, Verizon completed the acquisition of privately held XO Communications Inc.’s dark fiber optic network. The deal, valued at $1.8 billion, was formulated in Feb 2016. The company will also lease XO’s LMDS (Local Multipoint Distribution Service) wireless spectrum with an option to buy them by the end of 2018. XO has a portfolio of 102 LMDS licenses in 28 GHz and 39 GHz bands.

The U.S. telecom industry has lately emerged as an intensely contested space where success thrives largely on technical superiority, quality of services and scalability. Thus, in order to stay ahead of competitors, existing players need to be constantly on their toes to introduce innovative products.

Recently, Comcast Corp. CMCSA unveiled its wireless data plan going by its intentions to enter this market by mid-2017. The company has also acquired a series of licenses in the recently concluded 600 MHz low-band wireless spectrum auction conducted by the FCC.

At this juncture, acquisition of more high-frequency wireless spectrum will be immensely helpful for Verizon to make a strong foothold in the upcoming 5G wireless network race.

Price Performance of Verizon

Year-to-date, the stock price of Verizon has witnessed a loss of 8.58%, underperforming the Zacks categorized U.S National Wireless industry’s decline of 4.99% in the same time period.

Nevertheless, Verizon has a very powerful diversified business model. In the wireless front, it will start initial deployment of the upcoming 5G network in 2018 while on the wireline front, the company is aggressively expanding fiber-based footprint. In the digital media front, Verizon has become a major contender for the lucrative online advertisement business. We believe these are primary reasons behind the stock currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

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