Straight Path sees way forward after FCC fine

The FCC announced it reached a $100 million settlement with Straight Path Communications, ending an investigation into the company’s failure to deploy wireless services as required under FCC spectrum licensing rules—and Straight Path saw its shares rise more than 50% on the news.

The FCC commenced its investigation after an anonymous source in November 2015 alleged that Straight Path obtained renewal of its 39 GHz band licenses from the FCC by submitting filings incorrectly claiming that it had constructed systems that were never built. Straight Path launched an internal investigation itself and concluded in July 2016 that equipment had been deployed for only a short time and that no gear was present at the time of the investigation.

“Squatting on spectrum licenses without any meaningful effort to put them to good use in a timely manner is fundamentally inconsistent with the public good,” Travis LeBlanc, chief of the FCC’s Enforcement Bureau, said in a press release. “Wireless spectrum is a scarce public resource. We expect every person or company that receives a spectrum license to put it to productive use.”

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Under the settlement, Straight Path will pay two civil penalties and surrender about 20% of its 5G licenses to the FCC. For the $100 million civil penalty, Straight Path will pay $15 million upfront with $85 million suspended unless Straight Path sells all its remaining licenses or surrenders them to the FCC within 12 months. Also, 20% of any sale proceeds must be paid to the Treasury as an additional civil penalty.

Despite the fact that being fined millions of dollars sounds like bad news, Straight Path’s stock actually rose more than 50% on the settlement news, trading as high as $51.50 at one point.

"We are pleased that we were able to achieve a comprehensive settlement with the FCC, which allows us to move forward as the largest holder of 39 GHz spectrum, with about 95% of the total licenses commercially available at this time, as well as a significant holder of 28 GHz in major markets, including New York and San Francisco. These licenses allow us to continue as a leader in the next frontier of telecommunications,” Straight Path Communications CEO Davidi Jonas said in a statement announcing the settlement.

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Post-settlement, Straight Path holds an average of 620 MHz in the top 30 U.S. markets and covers the entire nation with 39 GHz spectrum, and it has retained all of its 28 GHz spectrum licenses. “With this settlement, we have cleared the way for a review of strategic alternatives to maximize shareholder value,” Jonas said, adding that it has retained investment banking advisory firm Evercore to represent it in its endeavors.

For a long time, the expectation has been that Straight Path would sell its licenses to a network operator, be it wireless, cable or greenfield. Now that the FCC investigation is complete, that provides a degree of certainty for the company that previously wasn’t there.

Jonathan Rand, CFO of Straight Path, told FierceWireless that it’s hard to say whether the company will straight out sell its licenses or actually build a network, but the settlement gives the company until the end of the year to sell its spectrum assets or pay another $85 million. It also has time to raise the $15 million due in installments to the FCC over a 9-month period. The company is confident it will be able to raise the funds, Rand said, noting the FCC’s recognition of these bands as appropriate for 5G deployment, which no doubt raises their value.

Depending on what Evercore’s analysis reveals, that will be something for Straight Path’s board to decide in terms of how it moves forward, according to Rand. “We’re really excited,” he said. “It really puts us in a completely different light,” and solidifies the company’s extensive portfolio of 39 GHz and 28 GHz licenses.