AT&T Looks To Bolster Its 5G Arsenal With Straight Path Acquisition

AT&T (NYSE:T), the second largest U.S. wireless carrier, announced that it would be acquiring Straight Path Communications, a company that owns a large nationwide portfolio of millimeter-wave spectrum, which is viewed as crucial for 5G wireless services. The $1.6 billion, all-stock deal is AT&T’s second such 5G-inspired purchase this year, following its acquisition of FiberTower in February. Below, we take a look at the rationale for AT&T’s purchase and where it stands in the race to deploy 5G services.

We have a $43 price estimate for AT&T, which is roughly in line with the current market price.

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Business Cases For 5G Remain Hazy, But Operators Are Betting Big

5G is a proposed telecommunications standard that will succeed the current 4G standards, providing Internet speeds that are potentially as much as 40x higher. 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 economics and financial viability of building out dense 5G networks also needs to be worked out by carriers. However, all the major U.S. carriers have been making plans to deploy the technology in some form, carrying out pre-commercial trials. Earlier this year, AT&T announced that it plans to conduct multiple trials using its higher-band frequencies. For instance, the carrier is expected to carry out trials of a 5G video service using its DirecTV Now streaming service in the coming months, with plans to conduct additional fixed and mobile 5G trials during the second half of the year, based on the 5G New Radio specification under development by the 3GPP body.

High-Band Spectrum Could Call For Sizable Infrastructure Investments

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. 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. However, the small cells will require carriers to have strong fiber optic networks to provide back-end connectivity. While AT&T could leverage its existing wireline broadband network, it would likely need to extend its fiber footprint or lease more fiber assets to fully make use of its growing high-band spectrum assets.

Straight Path is one of the largest holders of spectrum in the 28 GHz and 39 GHz millimeter-wave bands – which have been approved by the FCC to carry 5G wireless services. By acquiring Straight Path, AT&T is likely to have more spectrum than its key rival Verizon, which holds roughly 200 billion MHz-POP of spectrum in these two bands. However, a bulk of AT&T’s holding is in the 39 GHz band, which could require more infrastructure spending compared to Verizon, which holds most of its millimeter spectrum in the 28 GHz band.

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