Verizon & XO: Spectrum, 5G Cause for Rumored Deal?

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For two firms that have had somewhat of a contentious relationship, seeing Verizon in late-stage talks to purchase XO Communications is certainly an interesting predicament. Peter Radizeski broke the story yesterday on TechZone360, and suggests the alleged deal is all about spectrum and 5G. Per Rob Powell, this rumor has been making the rounds with an unverified price tag of $1.9 billion—only time will tell what comes to fruition.

The point Radizeski makes on spectrum is echoed by the industry. I had the opportunity to catch up with industry thought leaders on the matter, with spectrum shining through as the impetus for the acquisition.

Gartner’s Akshay Sharma told TMC, “Of course I can't comment on a speculative acquisition, but if it were to occur, I would believe it would be based on XO's unique wireless holdings in the LMDS area (28-32Ghz), which could be potentially used for 5G.” He noted Samsung has dabbled in this arena, and with its recent Starry launch, CSPs are tasked with coming to market quickly with HD and UltraHD video services so they may compete with more cost effective brands.

Sharma continued to explain the capability provided by leveraging LMDS spectrum. “Higher frequency does have issues like in-building penetration from macro cell sites, so likely a distributed small cell architecture would be needed leveraging concepts like CoMP (coordinated multipoint) techniques to have devices communicate with multiple base stations concurrently.”

It has been clear for some time that Verizon has been looking to sell much of its local exchange properties, so we can assume that the value of XO would have to be based on customer value and less to do with Core network assets, which would have large overlap. Partner, Crossfire Media Carl Ford explained to TMC.

Ford continued, "Verizon has always made shrewd investments and been patient in their acquisitions, so if the rumor is true, it may be that either the timing is right, or some of the parties are looking to bring the discussion to a close.  Based on the reaction of the stock market, I think the timing may not be right."

Timing is everything in business, and as Radizeski noted in his blog, “LMDS operates between 28 GHz and 32 GHz and falls in the microwave sector of spectrum. For 5G cell service, the FCC may be approving this band soon. If VZ can pick up XO for $2B, that is far cheaper than buying spectrum. It would have spectrum in 15 metros to trial 5G with.”

It appears the fight for 5G is on. No, we haven’t entered the “Thunderdome” yet, but this is certainly a shot over the bow of carriers. The addition would provide Verizon with a nice 5G sand box to play.  While AT&T and Verizon are pretty much neck-and-neck in network size in the states, internationally AT&T is far more extensive.

A point of note to bear in mind is that 2016 marks the end of 2G support- begging the question: Where does IoT fit in this mix?

At this point, this deal exists in the realm of the hypothetical, but as TMC CEO Rich Tehrani highlighted in his blog, this wouldn’t be the first time Radizeski was on the money.

Stay tuned, as we wait to see if rumor and speculation either come to fruition or exit the Web as quickly as they appeared.




Edited by Stefania Viscusi
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