Mega-Merger: Verizon to Buy XO's Fiber Biz

**Editor’s Note: Please click here for a recap of the biggest channel-impacting mergers in Nov.-Dec. 2015.**

Verizon is purchasing XO Communications’ fiber-optic network business in a roughly $1.8 billion deal that’s expected to close during the first half of 2017.

The transaction would provide Verizon with access to XO’s fiber-based IP and Ethernet networks, “helping to better serve enterprise and wholesale customers,” according to XO. In addition, the acquired fiber facilities will help Verizon continue to densify its cell network.

Separately, Verizon also will lease available XO wireless spectrum, with an option to buy that spectrum by the end of 2018.

Kevin King, Verizon Enterprise Solutions’ director of corporate communications, tells Channel Partners that because the deal isn’t expected to close until next year, “providing specifics on operational impacts for partners would be premature at this time.”

“This transaction will create a stronger provider of business broadband services for the customers of XO Communications,” said Chris Ancell, XO’s CEO.

“In 2001, I began purchasing the senior debt of XO, and the following year the company filed for bankruptcy,” said Carl Icahn, XO Holdings’ chairman and sole shareholder. “I then worked diligently with other stakeholders to keep XO alive, and in 2003 the company emerged from bankruptcy,” he said. “The following 13 years were a bumpy road for XO, as well as other telecoms, as we reckoned with major network overcapacity and other issues caused by overly optimistic projections and capital expenditures made by previous owners. In fact, we had to inject additional capital into the company several times over those years to keep it operating. Although this sale to Verizon does not represent a significant annualized return on our investment, we believe that in today’s environment it does represent the best achievable outcome for the company’s customers, employees and owner.”{ad}

Bill Menezes, Gartner’s principal research analyst of UC, network systems and service, said Verizon buying XO’s fiber assets is all about adding mobile network capacity.

“Verizon has made wireless video services – not just connectivity, but also content – a key part of its growth strategy,” he said. “That will require significantly more network capacity. Acquiring additional fiber assets such as XO’s for increasing the capacity of the backhaul from Verizon’s cellular towers and small cells, instead of simply leasing more fiber links, increases Verizon’s ability to cost-effectively increase the capacity of its wireless network to support this flood of video traffic.”

Verizon also no doubt is looking ahead to …

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… the wireless network-capacity demands of the Internet of Things (IoT) as it connects millions more mobile devices, ranging from connected cars and wearables, to its cellular network, Menezes said.

“Having a fiber link to backhaul all that traffic will be critical,” he said. “Although Verizon already has fiber backhaul from most of its cellular towers, the carrier will need to deploy substantial numbers of new macro-cellular sites and small cells to ensure it has ubiquitous coverage. XO’s fiber assets will support that.”

While Verizon and XO pursue regulatory approvals from governmental agencies, XO will continue to operate independently.

In the U.S., XO owns and operates one of the largest IP and Ethernet networks that provides private data networking, cloud connectivity, UC and voice, internet access and managed services.