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How Could Verizon Benefit from XO Communications Transaction?

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XO Communications and Verizon’s densification effort

In this series, we’ll look at what David Small, executive vice president of wireless operations at Verizon (VZ), had to say at the Jefferies Media & Communications Conference on February 24, 2016. His comments are in reference to Verizon’s agreement to buy the fiber assets of XO Communications. According to Verizon, this $1.8 billion transaction is expected to be completed in 1H17.

According to Small, “I’m very excited about what we’re doing with XO. Because when you think about fiber density and you think about a particular geography, you need far more robust fiber assets.” He also said, “But when you think about cell splits and you think about existing macro towers, having more assets upon which to light up macro cells with our own fiber versus somebody else’s fiber is a good thing to have. Having that fiber density for buildout of small cells is also incredibly important to us.”

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Other benefits of the XO Communications transaction

According to Verizon, XO Communications’ Ethernet as well as IP networks are expected to improve the carrier’s service proposition for wholesale as well as enterprise customers. According to Verizon, in terms of net present value, it expects a minimum of $1.5 billion of operational synergies from this transaction. Verizon will take XO Communications’ wireless spectrum on lease.

Note that according to Verizon, this deal also gives it the option to get XO Communications’ wireless spectrum. This option may be exercised until the end of 2018. According to a report by Fierce Telecom, “XO has 102 LMDS licenses in 28 GHz and 39GHz bands.”

For a diversified exposure to select telecom companies in the United States, you may consider investing in the iShares Core S&P 500 ETF (IVV). IVV held a total of ~2.4% in AT&T (T), Verizon (VZ), CenturyLink (CTL), Frontier Communications (FTR), and Level 3 Communications (LVLT) at the end of December 2015.

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