Verizon Buy of Straight Path Spectrum Expected to Face Opposition at FCC
Verizon beat out AT&T to buy Straight Path and its high-frequency spectrum for $3.1 billion -- almost twice what AT&T bid (see 1704260041). The FCC must review the deal and some observers believe it could face questions given the dominant millimeter wave position it establishes for Verizon, which previously bought XO and its high-frequency licenses. Buying Straight Path gives Verizon 39 GHz spectrum, one of the bands the FCC is teeing up for an auction and which is expected to be a spectrum building block for 5G.
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The Competitive Carriers Association said members are concerned. “Secondary market transactions led by the duopoly continue to exacerbate industry consolidation and stifle competitive choices for rural and remote consumers, especially when these transactions aggregate an enormous amount of next generation spectrum into the hands of the largest wireless carrier,” CCA President Steve Berry told us. “Should Verizon’s purchase of Straight Path be approved, coupled with its acquisition of XO Communications last year, Verizon’s spectrum holdings will surpass the current 1250 MHz spectrum threshold limit in most of the 25 major markets nationwide.” Berry said putting a “vast amount” of spectrum in the hands of an already dominant carrier should give the FCC pause, especially as carriers build up their spectrum portfolios to launch 5G.
General Counsel Caressa Bennet said Rural Wireless Association also is concerned, though at this point, high-frequency spectrum is unlikely to see much use in rural areas. “Generally speaking, concentrating one band of spectrum heavily with one carrier means the ecosystem is not likely to develop fully,” Bennet said. “It would make sense for the FCC to review this and determine if any of the spectrum acquired by Verizon should be divested in specific geographic areas. A cap on the amount of high band spectrum any single carrier could hold in a geographic area makes sense, similar to the low-band spectrum cap.”
Public Knowledge also raised a red flag. Verizon/Straight Path "is just the latest spectrum acquisition by AT&T and Verizon that threatens to concentrate spectrum holdings in the millimeter wave bands, and highlights the importance of FCC oversight to ensure that the competitive issues created by significant aggregation of sub-1GHz spectrum don't resurface in bands critical for 5G,” said John Gasparini, PK policy fellow. “Potential concentration of spectrum holdings in the millimeter-wave bands also elevates the importance of unlicensed and shared spectrum throughout these bands. Shared and unlicensed bands cannot be foreclosed by dominant carriers.”
Craig Moffett of MoffettNathanson said earlier this week the FCC could force Verizon to repack the 39 GHz holdings to clear the way for the auction of other licenses in the band (see 1705080056).
“As the early moves in the 5G spectrum gambit play out, the FCC has to make sure that it doesn't block moves later on that would allow others to get the appropriate spectrum,” said Roger Entner, analyst at Recon Analytics. “The FCC should use foresight and structure any current transactions with the desired end-state in mind, which is to make available as much spectrum available and deployed as possible to serve the American people.”
BTIG analyst Walter Piecyk said he doesn’t expect commission resistance. “The FCC should be pleased that a company actually wants to invest in the … technology that could help to put this challenging spectrum to use and approve this deal quickly,” he said.
Straight Path announced a final deal with Verizon before U.S. markets opened Thursday. “Verizon will pay on behalf of Straight Path a termination fee of $38 million to AT&T,” the company said in a news release. “The transaction has been approved by the boards of directors of both Straight Path and Verizon.”
The high frequency spectrum was a topic at a meeting Verizon held Monday for sell-side analysts. Executives said the higher bands will play a big role in helping the company “densify” its network in a 5G world. Verizon is doing tests now to “figure out exactly how to scale and how to engineer in millimeter wave networks,” said Ed Chan, senior vice president-network infrastructure planning.
Part of the money Straight Path sees will flow to the Treasury. In a settlement with the government in January, Straight Path agreed to turn in 196 of its 828 licenses in the 39 GHz band, sell the remainder of its license portfolio and remit 20 percent of the proceeds of that sale to the Treasury as an additional civil penalty. The settlement came in the final days of Tom Wheeler’s chairmanship. The FCC alleged Straight Path violated agency buildout and discontinuance rules.