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Verizon Bags XO for $1.8B

Carol Wilson
2/22/2016

Verizon is buying XO Communications for $1.8 billion, immediately bulking up its national fiber optic network significantly. The deal fits into a general industry consolidation trend in the fiber optic network space, but hadn't been on the industry radar, per se.

XO Communications Inc. operates a 20,000 route mile intercity network in the US and Canada, reaching 85 major metropolitan markets in those countries with network speeds up to 100G. The company also has metro fiber networks in 40 major cities, and a 13,000 route mile metro network with more than 4,000 on-net business buildings and 1,000 central office connections it claims as unique to its network.

That combination of facilities will enable Verizon Communications Inc. (NYSE: VZ) to quickly increase the capacity of services it can offer business and wholesale customers, while enabling it to compete in the data center interconnection space and -- perhaps most importantly -- to "densify" its wireless networks, with more capacity in more places.

The rise in smartphone and app-driven traffic is making denser wireless networks important today, and the growth of the Internet of Things and eventual arrival of 5G networks will only exacerbate that trend. Acquiring XO, a competitive network operator, which built its national network based on IP transport and Carrier Ethernet services, gives Verizon not only additional capacity but extended reach beyond its existing footprint.

According to Verizon, the deal brings additional financial benefits, including a step-up on the basis of the assets as well as operating and capital expense savings. The latter could stem from reduced need to lease or build out its own fiber in support of wireless expansion. The company claims the net present value of the transaction's operational synergies will exceed $1.5 billion.

Separately of the network purchase, Verizon said it will simultaneously lease available XO wireless spectrum and will have the option to buy NextLink, the entity that holds that spectrum, by the end of 2018. XO's NextLink owns LMDS spectrum it originally planned to use to deliver fixed broadband access to buildings that didn't have fiber. Local Multipoint Distribution Service operates in the 26GHz and 29GHz bands and was intended as point-to-multipoint last-mile technology.

— Carol Wilson, Editor-at-Large, Light Reading

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Sterling Perrin
Sterling Perrin
2/22/2016 | 10:36:02 AM
Enterprise Ambitions
Carol,

This is a really interesting development, especially given all the spectulation in Januay that Verizon was planning to exit the entprise market:

http://www.lightreading.com/services/cloud-services/verizon-enterprise-sale-would-signal-big-shift/d/d-id/719199

XO is exclusively an enterprise/wholesale provider so there really isn't any other way to read why Verizon would buy them - it's an enterprise investment. Was the Reuters report back in January 100% off the mark?

Sterling
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