The 5G Technology AT&T Just Paid $1.6 Billion For

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Telecom giant AT&T Inc. (NYSE: T) announced this morning that it has agreed to acquire Straight Path Communications Inc. (NYSEMKT: STRP) in a deal totaling $1.6 billion, including licenses and liabilities. The all-stock deal values Straight Path at $95.53 per AT&T share.

According to AT&T, the acquisition includes 735 millimeter-wave (mmWave) licenses in the 39 GHz band and 133 licenses in the 28 GHz band and covers the entire United States, including the top 40 markets. mmWave technology is one of the cornerstones upon which next generation high-speed 5G networks will be built.

4G LTE networks typically broadcast wireless cellular signals at frequencies below 6 GHz. Using mmWave technology to connect mobile customers with nearby base stations is a new use of a technology that is currently used to transmit data from satellite or radar systems and is beginning to be used by cellular providers to move data between nearby cellular base stations.

By itself, mmWave technology is not sufficient to generate 5G speeds due in large part to its inability easily to travel through buildings or other obstructions. The Institute for Electrical and Electronics Engineers (IEEE) has a good explanation of some of the basic technologies being developed to provide wireless networks that can deliver up to 100 gigabits per second (Gbps) to a smartphone. That’s fast enough to download an entire movie in high-definition in less than a second compared with about 10 minutes on today’s 4G/LTE networks.

AT&T and Verizon have already tested 5G fixed-line systems and AT&T is expected to test wireless service later this year. The 5G networks are expected to deliver download speeds of up to 400 megabits per second (Mbps). 4G LTE networks today deliver a top download speed of about 12 Mbps.

The deal is expected to close within 12 months, pending Federal Communications Commission approval.

Straight Path’s stock traded up about 150% following the announcement to $92, after closing Friday at $36.48. The stock’s 52-week low is $15.06.

AT&T’s shares traded down about 0.4%, at $40.43 in a 52-week range of $36.10 to $43.89. The stock’s 12-month consensus price target is $43.05.