Verizon (VZ) Acquires XO, Strengthens Dark Fiber Backhaul

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U.S. telecom behemoth Verizon Communications Inc.VZ recently completed the acquisition of privately held XO Communications Inc.'s dark fiber optic network. The deal, valued at $1.8 billion, was formulated in Feb 2016. The company will also lease XO's LMDS (Local Multipoint Distribution Service) wireless spectrum with an option to buy them by the end of 2018. XO has a portfolio of 102 LMDS licenses in 28 GHz and 39 GHz bands.

Integration of all XO operations and facilities is expected to commence immediately. Verizon anticipates the transaction to deliver in excess of $1.5 billion in operating and expense savings in net present value. XO operates a fiber-based IP and Ethernet network consisting of 20,000 route mile intercity network in the US and Canada.

The network covers 85 major metropolitan markets in these two countries offering data transfer speed up to 100 Gbps. Moreover, the company operates 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 1.2 million fiber miles.

Verizon has decided to install dark fiber based network throughout its footprint in order to support the existing 4G LTE network and more importantly to transition into the upcoming 5G wireless network. The company acquired dark fiber, for the first time, through its acquisition of MCI in 2006. Dark fiber provides abundant bandwidth which is of utmost necessity for the smooth functioning of super-fast wireless networks such as 4G and 5G. Dark fiber based backhaul provides scalability and efficiency to bandwidth management. This will eventually lead the company to significantly reduce its backhaul costs.

The takeover of XO will significantly enhance the capacity of the services Verizon offers to its business and wholesale customers, giving it a foothold in the data center interconnection market. Additionally, it will bolster Verizon's cell network density boosting its mobile backhaul network.

Moreover, XO's fiber assets will enable the company to enhance its dark fiber-based solutions for its small cell network. The densification of cell network will significantly help the company to install and build its upcoming 5G network. Verizon's competitors, such as, AT&T Inc. T , Sprint Corp. S and CenturyLink Inc. CTL are also strengthening their dark fiber network for small cell wireless backhaul.

Price performance of Verizon

In the last one year, the stock price of Verizon has witnessed a negative growth of 4.64% compared with the Zacks categorized U.S National Wireless industry's growth rate of 13.78% in the same time period. Nevertheless, Verizon has a very powerful diversified business model. In the wireless front, it will start initial deployment of the upcoming 5G network in 2017 while on the wireline front, the company is aggressively expanding its dark fiber-based footprint. In the digital media front, Verizon has become a major contender for the lucrative online advertisement business. We believe these are primary reasons behind the stock currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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