Zayo's Caruso: Verizon's XO fiber acquisition won't change things much

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Zayo Group is aware that the fiber provider industry is consolidating around it -- a trend that it has helped lead since being founded in 2007 -- but the fiber provider is not afraid of Verizon's (NYSE: VZ) recent purchase of XO Communications' fiber network.

Dan Caruso, Zayo Group

Caruso

Speaking to investors during the J.P. Morgan Global High Yield & Leveraged Finance Conference, Dan Caruso, CEO of Zayo, said that the acquisition won't cut into its business.

"I don't think it will change things much, and obviously they just closed on the deal," Caruso said. "The ark of consolidation has been a theme of Zayo from the very beginning that the fiber industry was going to consolidate over the next ten years and we want to be one of the large providers at the end of that consolidation."

While XO established itself as a national player serving small and medium-sized business customers, it did not compete with Zayo for dark fiber or lit service deals for wireless backhaul or small cells. Zayo mainly competed with XO on selling some optical wavelength and Ethernet services, but not much else.

Interestingly, Zayo along with Level 3 provides wholesale dark fiber services to Verizon and XO.

"After us and Level 3, XO was the only other company in the U.S. that has a national presence, but they weren't a strong player in what we do," Caruso said. "We would never see them in mobile infrastructure or dark fiber deals. We would see them in wavelengths and some Ethernet deals, but they would go a lot more down market and a lot of revenue was small business voice and data services."

Caruso added that he does not know how Verizon will be able to leverage XO's fiber assets to satisfy its thirst for dark fiber-based backhaul for small cells.

Verizon along with Sprint (NYSE: S) have been advocating dark fiber solutions for new small cell deployments, a trend that Zayo has been benefitting from. As of the end of the fourth quarter 2015, Zayo had a total of 2,224 small cells on its network. Out of this mix, 596 were operational, while the remaining sites were under contract with major wireless operators. 

The service provider told investors during its fourth quarter earnings call that it plans to dedicate about $75 million in capital to build out 1,000 additional small cell sites.

"I don't see how you take XO's networks and put them to work in the area of small cell in a significant way," Caruso said. "I heard Verizon was talking about that but not much capital has gone into those fiber networks in the the past five to six years. They weren't that extensively developed that extensively prior to that either so I don't know if that will change the outlook for our mobile infrastructure opportunity in any material way."

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