NEW YORK, Oct. 29, 2015 /PRNewswire/ -- Kerrisdale Capital, a private investment company, has published a report on Straight Path Communications Inc., a $600 million company that holds and leases wireless spectrum licenses in the United States. Kerrisdale believes that Straight Path is worth, at best, 90% less than its current market cap, which has surged as a result of hype and misconceptions surrounding the anticipated use of millimeter-wave (mmWave) frequencies in 5G mobile technology.
The full report can be found at http://kerr.co/strp.
Kerrisdale has a short position in Straight Path and stands to benefit if the share price falls.
5G Does Not Require mmWave
Straight Path holds a portfolio of spectrum licenses primarily in the 39GHz band, one of several mmWave bands being considered for mobile-broadband use in 5G services. 5G is the next generation of cellular technology after 4G LTE and is years away from standardization and commercial release. In 2015 alone, Straight Path's stock price has appreciated 151%, with the latest move triggered by Verizon's announcement in September that it would launch 5G "field trials" next year. However, Kerrisdale believes that Straight Path investors are erroneously treating every new 5G announcement as if it necessarily involves mmWave.
Kerrisdale's report shows that many key aspects of the nascent 5G vision have nothing to do with mmWave. For instance, new air interfaces and massive MIMO are technologies that can greatly enhance throughput in the bands already used for 3G and 4G, as well as low-frequency bands to be rolled out in the future. In early October, the Chinese equipment vendor Huawei and the Japanese carrier NTT DOCOMO completed "the world's first successful large-scale field trial of 5G new radio access technologies" using a sub-6GHz frequency – not mmWave.
Straight Path's Spectrum Faces Enormous Competition
While Straight Path's claim that it holds "96% of active 39GHz FCC licenses" has led some to believe the company has a monopoly on "5G spectrum," Kerrisdale's report points out the vast majority of 39GHz licenses are held by the government after their previous owners gave up or went out of business. There will be a flood of spectrum supply when the FCC re-auctions these licenses, along with licenses in similar bands like 28GHz, 37GHz, and potentially more. In addition, with at least 14 GHz of unlicensed mmWave spectrum on the table, carriers will have access to abundant bandwidth without paying a dime. The physical properties of these bands make unlicensed and shared spectrum a far better substitute for licensed spectrum than at conventional frequencies, further driving down the value of Straight Path's portfolio.
mmWave Networks May Never Be Commercially Viable
While mmWave enthusiasts emphasize that the challenges of very poor signal propagation might be addressed with techniques like adaptive antenna arrays – which still only allow for short-range communication – that leaves many other problems unsolved. mmWave signals are easily blocked by walls, trees, floors, passers-by, and even users' fingers, requiring unprecedentedly dense small-cell deployments to give any hope of effective coverage, even in a small area. But small cells, even at conventional frequencies and using existing technology, have thus far failed to meet the cost/benefit test on any large scale and are not widely used. The setup for mmWave small cells is even worse: using such exotic frequencies requires not only brand-new, yet-to-be-developed technology but also the daunting financial and logistical project of installing base stations almost everywhere. Kerrisdale strongly doubts that carriers will ever undertake such a boondoggle – and if they do, there won't be room in the budget to pay up for spectrum.
Conference Call Schedule
Sahm Adrangi, Chief Investment Officer, will host a conference call on Friday, October 30, 2015 at 3:00pm EDT to discuss the company's report.
To participate in the conference call, dial 855-780-5918 and reference the access code 71266689.
A replay of the call will be available following the call at http://kerr.co/strp-oct30.
About Kerrisdale Capital
Kerrisdale Capital Management, LLC, is a fundamentally-oriented investment manager that focuses on long-term value investments and event-driven special situations.
SOURCE Kerrisdale Capital Management, LLC