Has Verizon Really Paid a High Price for Straight Path Acquisition?

Verizon Wireless

There has been a tiff between two telecommunication giants – AT&T and Verizon, as to who was going to acquire the spectrum holder, Straight Path Communications!

And quite recently, the decision has been made by Straight Path and it was decided to be acquired by Verizon, one of the leading telecom companies, known for its quality prepaid phone service in the United States.

The deal has been sealed for an enterprise value of around $3.1 billion offered by Verizon, against its rival AT&T that made an offer of $1.6 billion, the previous month.

The acquisition has been made as an all-stock transaction by the renowned wireless and low income phone service provider. The buzz has spread within the telecommunication industry like wildfire as most experts consider the deal as a ‘huge sum being paid for a tiny spectrum coverage’.

So, has Verizon made an impulsive decision in buying Straight Path? We don’t think so! Let’s have a look, why:

The Acquisition

Straight Path Communications is a spectrum owner with US spectrum licenses for 39 GHz bands, counting to 735 and 133 licenses for the 28 GHz bands. Thus, the company has been named as one of the largest spectrum owners for high-frequency mmWave (millimeter-wave) spectrum.

This spectrum is seen as an extensive resource by the next generation 5G broadband service providers and with this realization, AT&T, a behemoth prepaid phone service provider, started the offer for the acquisition.

At the time of the offer, Straight Path’s stock price was $36 when AT&T offered to acquire the startup with an offer of $95.63 per share.

After AT&T, Verizon secretly sealed the deal through an offer for a whopping price of $184 per share.

With a bid of five times the stock price, the decision of acquisition by the mobile and low income phone service provider has been under a number of doubts.

How is Verizon Going to Benefit from the Deal?

We must not base our judgments on the high-priced bids being offered by Verizon. Straight Path is the owner of a huge amount of 28 GHz and 39 GHz spectrum throughout the country.

After adequate calculations, it has been noticed that the bid amount seemed minuscule in front of what is being paid to cover the potential customers through spectrum licenses used by Verizon for its 4G LTE services. Thus, when calculated from the service point of view of the huge prepaid phone service provider, the cost of spectrum turns out to be 1.7 cents for each person. Thus, the deal wasn’t much of a stretch for Verizon but it was a smart and intelligent decision.

In a Nutshell

Verizon is a renowned mobile, wireless, and low income phone service provider that has been facing tough competition from many other telecom companies emerging in recent times. With the idea of broadening its 5G broadband services, the telecom giant has acquired Straight Path Communications, a spectrum owner.

The acquisition amount might seem huge and reckless but when calculated closely, the deal is going to bring great profits to the prepaid phone service provider. With spectrum coverage throughout the country, Verizon is surely seeking growth with a winning strategy!

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