On Monday, Verizon Communications shored up its enterprise broadband network operations and also positioned itself for the launch of future fifth-generation (5G) wireless broadband services with a $1.8 billion agreement to acquire the fiber optic network business of XO Communications. Owned by financier Carl Icahn, XO offers high-speed data, Voice over Internet Protocol, web hosting and a range of other services to business customers across a national, inter-city fiber network that spans 20,000 route miles. The company also provides wholesale network capacity to wireless carriers, cable operators and resellers, and holds FCC wireless licenses in the 28 GHz and 39 GHz bands covering 45% of the U.S. population.
Verizon currently derives ten percent of its revenues from its enterprise business. The XO purchase is expected to boost Verizon’s ability to offer fiber-optic backhaul services, which form the bridge between mobile and landline networks. Observers also anticipate that the transaction will add density to the Verizon wireless network, as XO has agreed to lease its wireless spectrum assets to Verizon as part of the deal. Noting that XO’s wireless licenses “are in bands we can use for early testing on 5G in some markets,” a Verizon spokesman explained that “we intend to lease spectrum for [research and development] purposes.” Verizon will also have an option to purchase the spectrum it is leasing at the end of 2018.
Contingent upon receipt of FCC and other required regulatory approvals, the parties aim to complete the transaction during the first half of 2017. Acknowledging that XO has traveled “a bumpy road” since emerging from bankruptcy 13 years ago, Icahn told reporters that “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.”