After Losing Bidding War, AT&T Has No Straight Path to 5G

(Bloomberg) -- Now that AT&T Inc. has surrendered in the bidding war over Straight Path Communications Inc., the telecommunications giant must choose whether to hold out for the chance to buy similar assets or pick another direction in the race to 5G.

Acquiring Straight Path for it vast swath of high-frequency airwaves would have helped AT&T build a nationwide 5G network connecting millions more devices at blazing-fast speeds. Instead, with its winning $3.1 billion offer, Verizon Communications Inc. is positioning itself to remain America’s wireless king.

AT&T must now quickly rejigger plans with an eye toward 2020, when fifth-generation wireless services are expected to roll out to consumers for the first time, and carriers will be vying for supremacy. Though the acquisition of closely held FiberTower Corp. earlier this year gave AT&T access to a small amount of spectrum for 5G tests in markets including New York, Chicago, Dallas and Seattle, those holdings are far from sufficient for border-to-border coverage -- or even coverage inside major urban centers.

Straight Path’s spectrum blankets much of the nation and, like FiberTower’s, is located in the 39 gigahertz frequency band. That’s why Straight Path would have been such a nice fit for AT&T. Frequencies such as 39 gigahertz offer channels that exceed the 100 megahertz required to provide multi-gigabit speeds and low latency -- what will be hallmarks of 5G. AT&T has estimated it will need channels at least 60 megahertz wide to meet the requirements for 5G.

Now there are fewer options available in 39 gigahertz, forcing AT&T to regroup.

“With no auctions of these licenses on the near-term horizon, AT&T may need to look at different frequencies,” said Bloomberg Intelligence analyst Matthew Kanterman.

Wireless carriers have to settle on which frequencies they’re using well in advance of their plans to upgrade their infrastructure, since chipmakers and phone developers have to design their equipment to eventually work on the new network.

And it’s vital for AT&T to keep pace with rivals on the move to 5G. While previous generations of mobile-phone systems have focused on increasing the speed and capacity of data delivery to phones, the ambitions for the fifth generation are much greater. The aim is to bring in devices that have previously existed without wireless connections and provide the backbone for revolutions in other industries such as self-driving cars and remote medicine. It would enable speedy downloads of ultra high-definition movies and remote maintenance of machinery in the field, along with long-distance surgery and more widespread use of autonomous vehicles.

AT&T, based in Dallas, could have an easier path to 5G if the U.S. Federal Communications Commission allows it to use all the airwaves once controlled by FiberTower. The regulatory agency earlier terminated 650 spectrum licenses after determining FiberTower hadn’t met requirements to use the airwaves.

AT&T could ask the FCC to restore the licenses so the company can use them, but rivals including T-Mobile US Inc. and the Competitive Carriers Association trade group want the FCC to auction the spectrum to the highest bidder instead. The FiberTower acquisition also gave AT&T 88 active licenses not included in the rivals’ request for an auction. AT&T told the FCC the transaction would “accelerate the development and deployment of next-generation 5G wireless services.”

Eric Ryan, an AT&T spokesman, declined to comment.

Getting the forfeited licenses back would buy AT&T time until the FCC auctions other swaths of 5G airwaves over the next several years, said Tim Farrar, an analyst and founder of Telecom Media Finance Associates Inc. The FCC has already approved the 28, 37 and 39 gigahertz bands for 5G use, and is evaluating the 24, 32, 47, 50 gigahertz bands and so-called millimeter waves in the 70 to 80 gigahertz ranges as possibilities.

“We shouldn’t forget that there will be high-frequency spectrum auctions coming,” said Roger Entner, an analyst at Recon Analytics. Much of those airwaves aren’t being used right now, so they’ll quickly be able to be put to work by auction winners, he said.

If AT&T can’t sway the FCC on the FiberTower licenses, it could also try to run a 5G network with spectrum the agency has made available for use without a license. The 64 to 71 gigahertz band can now be used by any carrier, including AT&T, on an unlicensed basis. But the company would have to contend with interference issues and other headaches, making unlicensed spectrum less than ideal.

High Ambitions

By acquiring Straight Path, Verizon will become one of the largest owners of 5G spectrum, doubling down on a strategy to be the fastest, most reliable and most robust wireless network. For years, Verizon has been able charge a premium price because it bills itself as the premium network in the U.S., a claim reinforced by the top rank in overall performance for the last 3 1/2 years in RootMetrics studies. 

“Verizon has always pitched network superiority,” Farrar said. “That is no longer feasible in low and mid band, so they are trying to achieve it” in the 5G bands.

That’s less of a concern for AT&T, he said, as the company is seeking to differentiate itself with content offerings. AT&T’s $85.4 billion proposed acquisition of Time Warner Inc. would make the phone carrier one of the biggest producers of TV shows and movies in the world.

To contact the reporters on this story: Paul Barbagallo in New York at pbarbagallo2@bloomberg.net, Todd Shields in Washington at tshields3@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Rob Golum