Verizon To Aggressively Deploy Dark Fiber For 5G Backhaul

U.S. telecom behemoth Verizon Communications Inc. (NYSE:VZ) has decided to acquire and install dark fiber based network throughout its footprint. This initiative comes in a bid to support the existing 4G LTE network and more importantly to aid the company transition into the upcoming 5G wireless network.

Dark fiber provides abundant bandwidth which is of utmost necessity for the smooth functioning of super-fast wireless networks such as 4G and 5G. Dark fiber based backhaul provides scalability and efficiency to bandwidth management. This will eventually lead the company to significantly reduce its backhaul costs.

Verizon acquired dark fiber through its acquisition of MCI in 2006. In February 2017, the company acquired XO Communications Inc.’s dark-fiber optic network. The deal was valued at $1.8 billion. Verizon will also lease XO’s LMDS (Local Multipoint Distribution Service) wireless spectrum with an option to buy them by the end of 2018. XO has a portfolio of 102 LMDS licenses in 28 GHz and 39 GHz bands.

In April 2017, Verizon entered into a three-year minimum purchase agreement with Corning Inc. (NYSE:GLW) to buy fiber optic cables and associated hardware for its nationwide wireless broadband network. Per the deal, Verizon will acquire up to 20 million kilometers (12.4 million miles) of optical fiber each year from 2018 through 2020 from Corning, with a minimum purchase commitment of $1.05 billion.

In May 2017, Verizon acquired Straight Path Communications Inc., a leading provider of fixed wireless spectrum licenses. The company agreed to pay $3.1 billion for Straight Path, significantly more than its rival AT&T Inc.’s (NYSE:T) offer of $1.6 billion. Importantly, Straight Path has a strong portfolio of 868 spectrum licenses in the high-frequency 28 GHz and 39 GHz bands, which are included in the Federal Communications Commission’s (FCC) designation for the next generation of wireless broadband services.

Meanwhile, in August 2017, Verizon stated it would spend $225 million to acquire a high-capacity fiber network in the Chicago area belonging to WideOpenWest Inc. (NYSE:WOW) . Verizon has been leasing this fiber network, which provides connectivity to more than 1,000 cell sites of different scales.

Accumulation of dark fiber will bolster Verizon’s cell network density consequently boosting its mobile backhaul network. The densification of cell network will help the company install and build its upcoming 5G network. Adoption of small cells has increased due to the inconvenience of installing large towers in inaccessible areas.

Verizon stated that small cells will be used to augment its existing 4G LTE and upcoming 5G network and will primarily concentrate on high traffic locations like a business district or a shopping mall. The company anticipated these to increase voice capacity and data speeds and to complement current 4G LTE infrastructure. The networks will require fiber-optic connections to local hubs, which link to "long haul" Internet infrastructure.

Price performance of Verizon

Year-to-date, the stock price of Verizon has witnessed a decline of 9.18% compared with the industry’s growth of 3.47%. Nevertheless, the company has a very powerful diversified business model. On the wireless front, it will start initial deployment of the upcoming 5G network in 2018. Meanwhile, it is aggressively expanding its fiber-based footprint on the wireline front. In the digital media front, Verizon has become a major contender for the lucrative online advertisement business. We believe that these are the primary reasons behind the stock currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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