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Why Verizon Outbid AT&T to Acquire Straight Path

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Verizon’s 5G strategy

In the telecommunications world, 5G (fifth-generation) technology is generating a lot of buzz. It could provide ten to 100 times faster wireless speeds than 4G (fourth-generation) technology. Verizon Communications (VZ) is working on its 5G initiative with Cisco Systems (CSCO), Nokia (NOK), Ericsson (ERIC), Intel (INTC), and Samsung (SSNLF).

During the MoffettNathanson Media & Communications Summit held on May 17, 2017, Matt Ellis, Verizon’s executive vice president and CFO (chief financial officer), discussed what was so compelling about acquiring Straight Path. He said, “When you look at the Straight Path asset, they bring more of that 28 and also nationwide coverage of 39 gig level. So, it was really a case of adding another asset that’s, we’re going to need to build out 5G and be able to deploy as quickly as we want to.”

Verizon’s management noted that Straight Path Communications has a valuable millimeter wave spectrum that could support Verizon’s foray into 5G. Last month, Verizon acquired Straight Path for $3.1 billion in an all-stock transaction, ending an aggressive bidding war with AT&T (T).

Management also highlighted that Verizon has gotten access to XO Communications’ license to use 28 GHz (gigahertz) millimeter wave spectrum in significant parts of the United States, which provides a long-term pathway for Verizon in 5G technology.

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AT&T and 5G

In addition to Verizon, AT&T has been an aggressive player in the 5G market. In the past, it has tried to outbid its rivals in order to gain spectrum advantage. AT&T was the highest bidder during the AWS-3[1. Advanced Wireless Service] spectrum auctions in early 2015 and purchased spectrum worth $18.2 billion. The AWS-3 spectrum auction was the major auction conducted by the FCC (Federal Communications Commission) after 2008. As seen in the above graph, Verizon and T-Mobile (TMUS) also participated in that auction and made winning bids of $10.4 billion and $1.8 billion, respectively.

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