Verizon (NYSE: VZ) is confident that its acquisition of XO Communications' fiber assets will give it an array of new dark fiber facilities that can satisfy its wireless densification efforts and enhance its enterprise business.
Shammo (Source: Verizon)
Speaking to investors during the Morgan Stanley Technology, Media & Telecom Conference, Fran Shammo, CFO of Verizon, said what made XO a valuable target is its metro fiber density.
"The reason the deal was opportunistic is that XO has a lot of good fiber around metro areas and a lot of metro rings around metropolitan areas," Shammo said. "The two key ingredients of an excellent LTE network, but also positioning yourself for the next generation is you need that fiber to carry all of that content so these metro rings and long haul assets were a critical asset."
Shammo said that adding XO to its fold will enable Verizon to reduce costs it pays to other wholesale providers -- including a mix of other telcos like CenturyLink (NYSE: CTL) and competitive players like Zayo Group -- for dark and lit fiber-based backhaul circuits.
"Because we actually pay a lot to third parties to carry our traffic to the last mile, this gives us the capability to move some of that traffic over to our own network when we close the deal," Shammo said.
A key element XO brings to Verizon's wireless backhaul table is dark fiber. According to an FCC filing, a large portion of XO's fiber footprint consists of dark fiber facilities.
"The majority of XO Communications' fiber in each of its top 20 fiber areas is unlit, or "dark," with those areas having 79 percent unlit fiber on average, including up to 96 percent unlit in Dallas," Verizon said in an FCC filing. "This transaction affords Verizon the opportunity to put that unlit fiber to use by supporting further densification of its cell network."
Verizon said that while it has deployed fiber to the majority of its current cell sites, XO's dark fiber will accommodate future small cell deployments.
"High performance fiber (with high bandwidth and low latency) is an important means of providing efficient backhaul; indeed, Verizon already has fiber backhaul from most of its existing macro sites," Verizon said. "But as Verizon deploys substantial numbers of new macro sites and small cells to ensure ample capacity and further coverage nationwide, XO Communications' fiber assets offer significant capacity to quickly support that deployment."
Additionally, Shammo cited how the XO deal would be able to bolster its enterprise business by enhancing its on-net fiber footprint.
While XO doesn't solve all of Verizon's on-net fiber connection issues, it will also enable it reduce the reliance on other third-parties to satisfy enterprise customers who have needs in multiple states.
The telco would also be able to sell services to potentially new customers that may want a provider that has the ability to serve not only their national, but also international needs.
XO currently has fiber connected to over 4,000 buildings, meaning that the service provider could boost its on-net connections to deliver and control the Ethernet and cloud services it delivers to customers traditionally outside of its traditional wireline territory.
"It brought about 4,000 additional buildings that had fiber connected to it, which will be prime Greenfield for our enterprise business," Shammo said. "They will be able to go out and start selling to buildings that we never had the opportunity to sell into before so that brings some opportunity to us."
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