As widely reported, Verizon has entered into an agreement to acquire the fiber network business and assets of XO Communications from its sole shareholder Carl Icahn for $1.8 Billion, plus an option to purchase XO’s spectrum that expires at the end of 2018. Verizon is also leasing the spectrum from XO, presumably to “test drive” the spectrum until it either exercises or passes on the option.
In Verizon’s words, “[Its] ownership of XO’s fiber-based IP (Internet protocol) and Ethernet networks will help better serve enterprise and wholesale customers. In addition, acquired fiber facilities will help Verizon continue to densify its cell network.” The XO acquisition is reminiscent of Verizon’s acquisition of MCI that closed just over 10 years ago and delivered a global network and a sizable customer base, though Verizon had to outbid Qwest International (now CenturyLink), paying $8.5 Billion.
For enterprise customers, the merits of the transaction are mixed. XO had become a viable competitive MPLS carrier often as a customer’s secondary MPLS provider. This role likely ends as the transaction closes. While not having the size or scale of the MCI network, the XO assets are substantial and XO’s network will support both Verizon’s wireless and enterprise businesses.
The remaining domestic-based “competitive carriers” of substantial scale are dwindling. The largest by far is Level 3 which recently acquired tw telecom. The Verizon-XO transaction triggers speculation whether Comcast or, perhaps, Charter-Time Warner, assuming that deal closes, might pursue Level 3. Such an acquisition would secure a meaningful position in the global enterprise market and a valuable IP-backbone.