Verizon could pursue further fiber acquisitions in 2017, say analysts

Verizon

Verizon recently came one step closer to completing its acquisition of XO Communications when it gained FCC approval, but the telco's goals to densify its wireless network and win back small business from cable could drive it to pursue other fiber deals.

As the service provider looks to integrate the XO fiber assets into its fold, which will immediately deepen its metro and long-haul reach across various markets, the service provider will be able to satisfy three tiers: wireless backhaul, business services and supporting potential FiOS expansions.

After it completes its purchase of XO Communications, Verizon will immediately gain a fiber network that serves 40 major U.S. markets with over 4,000 on-net buildings and 1.2 million fiber miles. XO’s intercity network also spans 20,000 route miles connecting 85 cities.

Jennifer Fritzsche, Senior Analyst for Wells Fargo, said in a research note while XO is the current acquisition on the table, Verizon could go after other large scale fiber assets.  

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“We would not be surprised if VZ pursues other such (likely bigger) fiber acquisitions in 2017 as it would be in line with comments about building scale in key verticals,” Fritzsche said. “Fiber is clearly a major part of the 5G push but it also has implications for enterprise and SMB penetration.”

The idea of Verizon shelling out more money for other wireline fiber assets would be in line with the rapid pace of consolidation of the fiber wireline market.

While fellow telco CenturyLink made the largest move with its proposed acquisition of Level 3, a number of other telcos and competitive providers like Consolidated, Windstream and Zayo are being no less aggressive.

Consolidated and Windstream announced separate deals to acquire FairPoint and EarthLink, enabling these telcos to enhance their fiber reach. Meanwhile, Zayo will enhance its West Coast reach by acquiring Electric Lightwave. Each of these deals are different in size and scope, but the common denominator is they will enhance each service provider’s fiber holdings.

Multi-tasking fiber

John Stratton, VP for Verizon, recently emphasized that fiber is a crucial part of the telco’s strategy to investors.

The service provider Verizon named Boston as a new target for FiOS by establishing an agreement with Boston via a $300 million, six-year investment plan that will replace the city's aging copper network infrastructure with fiber.

Stratton said that it chose to expand in Boston because of the opportunity to leverage its fiber footprint to support its wireless densification efforts as well as delivering higher speed services to consumers and businesses.

Being able to have available fiber on hand will also enable Verizon to potentially win back SMB customers that they lost to cable because they could not match the higher speeds cable can deliver today over their hybrid fiber coax (HFC) networks.

Additionally, Verizon can leverage the fiber to backhaul traffic from small cells on city street lights and utility poles to improve current 4G LTE wireless services while setting the stage for future 5G wireless deployments. The telco is planning on commercial trials next year.

Internally, Verizon has dubbed the multi-tasking of its fiber network to serve multiple uses as the “one-fiber” initiative.  

“With our work in Boston, one of the obvious things we have an opportunity to do now is leverage that as a common asset across all lines of the business,” Stratton said. 

Boston build gets underway

Just last week, Verizon began lighting up new FiOS customers after getting approval for its video franchise from Boston Mayor Marty Walsh.

Since Verizon announced its agreement with Boston in April, the service provider told FierceTelecom that it has passed over 25,000 homes and businesses with fiber, enabling it to deliver service to these locations by the end of the year.

Financial analyst firm Jefferies noted in its meeting notes with Verizon that management said they were “encouraged by the early feedback” from the FiOS roll out.

Boston may be the one of the first cities to benefit from the one-fiber strategy, but they may not be the last.

Verizon cited Boston as “test market” that it could potentially replicate in other cities, but could not reveal what cities it is currently speaking with on establishing a similar agreement.

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