Verizon's 5G plans could spell dark fiber opportunities for Zayo, Level 3, others

Verizon's (NYSE: VZ) recent move to establish an agreement with Boston and its pending purchase of XO's fiber network shows that it seeing a new value in fiber assets.

While Verizon may not intend to sell dark fiber to other carriers, it's clear that it sees value in these facilities.

By purchasing XO Communications' fiber assets, Verizon will gain a base of dark fiber facilities in 40 major U.S. markets with over 4,000 on-net buildings and 1.2 million fiber miles. A large portion of the assets are unlit fiber.

The service provider noted in a FCC filing following the XO announcement that the "majority of XO Communications' fiber in each of its top 20 fiber areas is unlit, or "dark."

No less important was the provider's move to reignite its FiOS FTTH investment plans, announcing that it would bring the fiber-based broadband service to Boston via a $300 million, six-year investment plan.

Boston was among several cities that Verizon had passed over in its initial FiOS build, despite pleas from city leadership, who said they would ease restrictions on the permitting process.

Similar to AT&T's (NYSE: T) intention for its growing GigaPower network, Verizon also sees the fiber it will deploy for residential FTTH services can be used to satisfy small cell backhaul and business services. 

"VZ is clearly putting its money where its mouth is with both the XO transaction and Boston announcement," said Jennifer Fritzsche, senior analyst for telecommunication services at Wells Fargo, in a research note. "We do not believe this fiber commitment will stop here. This fiber push serves a dual purpose -- both wireline and (perhaps more importantly) wireless support (C-RAN, small cell etc)."

Another key factor of Verizon's 'One Fiber Network Plan' will be to work with a host of partners outside of its Northeast wireline footprint, particularly for small cell and DAS backhaul.

As it lays out its 5G plans, the service provider could also be creating a new opportunity for a host of dark fiber providers it will have to use.

Fritzsche said potential dark fiber wholesale benefactors of Verizon's 5G push could be Zayo and potentially Level 3, which has mainly stayed out of the wireless backhaul trend.

"ZAYO comes to mind," Fritzsche said. "And if you have VZ being a lot more aggressive in its out of region fiber strategy, this may wake up the fiber giant (LVLT) to revisit dark fiber in a more serious way. So net net -- while still early...if VZ carries through on its promises for 5G -- this could be a significant boon for fiber cos (both those who own fiber and build fiber [DY]!) and a competitive unknown/overhang for the RLEC wireline only players."

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