Verizon's XO Communications acquisition clears FCC’s approval

Verizon

Verizon has gained FCC approval for its $1.8 billion acquisition of XO Communications, clearing a major regulatory hurdle for a deal that will expand the telco's metro and on-net fiber as well as millimeter wave wireless spectrum holdings in several major markets.

“We are pleased that the FCC has approved Verizon’s purchase of XO’s wireline business,” said Will Johnson, Verizon's senior vice-president of federal regulatory affairs, in a statement provided to FierceTelecom. “We look forward to quickly putting XO’s fiber to work to better to serve our customers and to aid our deployment of 5G."

Now that it has gotten the FCC’s green light, Verizon said it now needs state regulatory approvals in Pennsylvania and New York State.

RELATED: Verizon's Stratton: We’re leveraging XO’s internal fiber assets across wireline, wireless businesses

The FCC’s approval of Verizon’s XO deal comes at an interesting time in the business services market segment.

With Donald Trump as President-elect, the FCC appears to be holding back on making decisions on other major issues like business data services (BDS) regulations.  

Following a request from two Republican lawmakers to focus on what they felt are more pressing issues—like the wireline incentive auction—the FCC removed a scheduled vote today on the pending BDS regulatory proposal.

Verizon, which is not only a large provider and purchaser of BDS, worked with competitive industry association Incompas to come up with a compromise for the FCC to consider in regulating the wholesale services market.

Broader fiber uses

For Verizon, the value of the XO acquisition is about having a broader fiber network that it can use to satisfy three main domains: Business services, consumer FiOS and as backhaul for its upcoming 5G wireless services.

By acquiring 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.

One market where it has put this plan in place is in Boston. Verizon lifted its previous ban on new FiOS builds 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.

John Stratton, EVP and president of operations for Verizon, recently told investors that with its partnership with Boston and the resulting fiber build to attach small cells on city street lights and utility poles, Verizon will improve its 4G LTE wireless service.

“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. 

Competitive challenges abound

On the road to getting FCC approval of its XO acquisition, Verizon faced challenges from a number of competitive carriers like Windstream and EarthLink. These two providers were concerned the deal will give Verizon and AT&T a more favorable position in the Ethernet market, resulting in higher prices for wholesale customers.

Windstream, which is in the process of merging with EarthLink and is keen on expanding its on-net fiber footprint, can’t build fiber everywhere. As a result, it still has to purchase last mile facilities from other carriers like Verizon and AT&T to satisfy business customer requests outside of its ILEC boundaries.

“The loss of an independent XO would increase ILEC dominance not only in Verizon’s territory, but also where XO currently provides a competitive alternative to AT&T,” Windstream said in an earlier FCC filing (PDF).

Another key concern cited by competitive players is having ongoing access to Ethernet over Copper (EoC). Competitive providers have purchased EoC facilities from XO Communications to provide lower speed Ethernet services to small business customers and satellite offices of larger business customers.

Verizon has dismissed the CLECs’ challenges to the XO purchase, saying that it will enhance the services it provides to enterprise and wholesale customers.

Additionally, Verizon said it "intends to grandfather and continue to provide those XO services that are not migrated to an equivalent Verizon service." Verizon plans to migrate those customers to "reasonably equivalent" Verizon fiber-based business services, as long as it does not violate those customers' current service agreement terms.