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Verizon's Fiber Spend Won't End With Corning

Mari Silbey
4/19/2017
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Earlier this year, Verizon released a forecast of its capital expenditures for 2017 as somewhere between $16.8 billion and $17.5 billion. Now the telco has further announced that it will spend at least $1.05 billion of its capex budget over the next three years with Corning, purchasing optical equipment for fiber deployments. (See Verizon Looks Ahead to 5G as 4G Competition Affects Q4.)

As part of its partnership with Corning Inc. (NYSE: GLW), Verizon Communications Inc. (NYSE: VZ) began fiber rollouts in Boston last year under a One Fiber initiative that calls for densifying fiber assets to prepare for 5G fixed wireless services. Fiber backhaul promises to be a huge issue for 5G, and the telecom industry as a whole is struggling with how best to prepare for new requirements with the technology that will tax their existing infrastructure. The question is, do telcos build out more fiber themselves? Or do they try to acquire it from other companies?

At the moment, Verizon appears to be going with the former option, but it remains to be seen if a widespread fiber build is on the table. One choice that Verizon may be considering instead is the purchase of a cable company with fixed-line, last-mile infrastructure already deployed. That wouldn't be a cheap option, but it could potentially be a fast route to fiber support for 5G.

Merger and acquisition speculation is rampant now as the Federal Communications Commission (FCC) wraps up its quiet period following the completion of the incentive auction for wireless spectrum. Some analysts believe Verizon could end up buying Dish Network LLC (Nasdaq: DISH) to acquire new spectrum assets, but others believe the company may be in the hunt for a cable operator like Comcast Corp. (Nasdaq: CMCSA, CMCSK) or Charter Communications Inc. to earn itself a last-mile network in several markets that could serve as backhaul for new 5G services. (See Verizon CEO Comments Feed Merger Frenzy.)


For more fixed broadband market coverage and insights, check out our dedicated gigabit/broadband content channel here on Light Reading.


However, if Verizon were to seriously consider acquiring a cable company, it would first need to determine if a cable company's fiber assets are suitable for 5G deployments. CEO Lowell McAdam has said that he thinks Verizon will need super-dense fiber to support 5G, in the neighborhood of 1,700 fiber strands per cable. That, unfortunately, is not typical of deployed cable networks.

On the other hand, running counter to McAdam's assumption is the fact that Comcast has said it believes its existing wireline infrastructure maps perfectly to future 5G needs. (See Comcast: Our Network's Ready for 5G.)

Both Verizon and Comcast may be overstating their positions as a prelude to negotiations. Or they may both be stating the situation as they see it, even if their views differ on what 5G will require. The only thing that's certain is that more spending for fiber assets is on the way. Verizon's $1-billion-plus investment with Corning is just the start.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

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bosco_pcs
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bosco_pcs,
User Rank: Light Sabre
4/19/2017 | 3:05:42 PM
Re: Routine?
Don't know. VZ's strategy is a bit confusing. For a while, nothing was happening with FiOS until it got prodded by the City of Boston. Also, it unloaded a bunch of FiOS along with the landlines to Frontier (at least out in CA). 

Is it because some 5G requirements and/or wireless design that make fiber backbone back in vogue in terms of backhaul and radio etc? That is beyond me. But for a while VZ was doing AOL / Yahoo kind of things. So is this a strategic shift at the corporate level? Or, like you said, routine lumpy telco CAPEX?

Also, as you pointed out, there is a difference between shealth and last mile. 

On a separate note, this and other activities may suggested Century Link (CTL)'s acquisition of Level 3 (LVLT) quite a smart move ahead of the pack. Whether management can carry out a successful integration is another story
msilbey
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msilbey,
User Rank: Blogger
4/19/2017 | 3:00:10 PM
Re: Routine?
And it's earnings season, so expect even more coy responses on M&A strategy.
Duh!
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Duh!,
User Rank: Light Sabre
4/19/2017 | 2:35:13 PM
Routine?
I think you're reading too much into this.

There's been a global supply shortage of optical fiber since late 2015. Manufacturing capacity is constrained, and manufacturers hesitate to expand due to the extremely cyclical nature of the business. All this does is assure VZ that they'll have enough material for their One Fiber initiative (which I think is a big deal), while also assuring Corning that they will see return on investment in new manufacturing. Vendors do that sort of thing with customers all the time.  Other than the size of the deal, it barely rates a paragraph on PR Newswire.

The amount of fiber involved is a bit eyebrow raising. It does speak to a big push on new construction for One Fiber over the next 3-4 years. Keep in mind that this is strand miles, not sheath miles. That's at least an order of magnitude difference. Still, that's a lot of route miles.

That's it, as far as I can tell.

As far as M&A is concerned. McAdam has to be coy. Never confirm or deny. M&A with a cable company is fun to speculate about, but  not such a great strategic fit. Of course, I would have said that about AOL and Yahoo! a few years back. Correction: I still do.

Stay tuned for other breadcrumbs.
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