Telecom Straight Path's Shares Hit by Short Seller's Report
October 29 2015 - 08:10PM
Dow Jones News
Straight Path Communications Inc., a small telecom company with
seven employees, lost more than a third of its market value
Thursday after a short-selling hedge fund released a report
critical of the valuation of its portfolio of wireless airwave
licenses.
Kerrisdale Capital Management LLC said Straight Path's airwaves
holdings are unlikely to be useful for next-generation networks and
even if they were, the spectrum is widely held and wouldn't be used
for years, if at all.
"Straight Path is the latest spectrum story to catch the
attention of investors," said Kerrisdale Chief Investment Officer
Sahm Adrangi, whose firm has about $350 million in assets under
management. "It isn't very extreme to say it is worth nothing."
Straight Path defended its holdings and criticized the report as
being designed to help short sellers, who have been hurt by a
recent surge in the stock after betting it would decline.
"I wouldn't call this a substantive report," said Chief
Executive Davidi Jonas, though he conceded that the company's
revenue from the airwaves isn't likely to pick up meaningfully in
the next five years.
Shares of the company fell 38% Thursday to $29.35. They were
around $22 in early September and rose to a high of $50 last week.
Short sellers represent about 26% of its shares outstanding,
according to FactSet.
Straight Path's shares had risen amid indications that the
airwaves it holds would eventually get used. Verizon Communications
Inc. last month said it has begun work on developing
fifth-generation networks and the Federal Communications Commission
last week laid out a framework to put such airwaves to use in the
future.
The controversy is an example of both the soaring demand for
wireless spectrum and the difficulty in valuing it. As Americans
spend more time watching video, playing games and shopping on their
mobile phones, more bandwidth is needed for cellular connections.
The government's last license auction brought bids of almost $45
billion, well-above initial estimates for the total proceeds.
The company concedes that the higher frequency licenses it holds
are unlikely to be useful for years.
Straight Path, which has its main offices in Glen Allen, Va.,
was spun out of telecom provider IDT Corp. in July 2013. IDT's
founder, Howard Jonas, is the father of Straight Path's chief
executive and owns 72% of the voting rights through a trust. The
CEO of IDT, Shmuel Jonas, is the Straight Path CEO's brother.
An IDT spokesman declined to comment on Thursday's stock
decline.
Straight Path had revenue of $13.2 million for the fiscal year
ended July 31, almost entirely from payouts of patent-infringement
lawsuits and related license agreements. The licenses now held by
Straight Path were previously owned by WinStar Communications and
were bought by IDT for about $56 million in 2001 and 2002 after
WinStar went bankrupt.
In a statement defending the value of its holdings, Straight
Path said it would hold a conference call with investors
Monday.
Fourth-generation networks generally use LTE technology, but a
fifth-generation platform hasn't yet come together. The FCC has
said its coming auction for lower frequencies could be prime for 5G
networks but has also said high frequency may play a part. The
attributes of Straight Path's high frequency airwaves mean they
don't travel well through buildings or other obstructions, so would
require new technology.
But most telecom observers don't expect the next generation
networks, or 5G, to become a reality until roughly 2020. Smaller
carriers Sprint Corp. and T-Mobile US Inc. are still rolling out 4G
technology.
Straight Path's Mr. Jonas said the company is working to develop
a prototype transceiver that would work with its frequencies. He
also highlighted mentions of the company's licenses in the FCC's
recent proposal. Those references are largely related to proposals
made by the company and comments it has made to the commission.
Kerrisdale Capital contends that Straight Path's licenses aren't
likely to make money partly because there are large amounts of
similar airwaves that could be available for use, and at high
frequencies many providers can share the bandwidth.
Write to Thomas Gryta at thomas.gryta@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 29, 2015 19:55 ET (23:55 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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