Verizon's Ethernet Growth Backed By XO Communications Buyout

U.S. telecom behemoth Verizon Communications Inc. (NYSE:VZ) has gained the third position, pushing Charter Communications Inc. (NYSE:T) to the fourth in the U.S. Ethernet Carrier Services Leaderboard by Vertical Systems Group (VSG).

We believe that Verizon’s ethernet growth is backed by the prospects of the acquisition of privately held XO Communications Inc.’s dark fiber optic network (in February 2017).

The acquisition of XO Communications has helped Verizon enhance its metro and on-net fiber footprint. Verizon gained metro fiber networks in 40 major U.S. markets and a 13,000-route mile metro network with more than 4,000 on-net business buildings and 1.2 million fiber miles.

Additionally, Verizon gained a fiber-based IP and Ethernet network consisting of 20,000 route mile intercity network in the United States and Canada. The network covers 85 major metropolitan markets in these two countries offering data transfer speed up to 100 Gbps. These factors will aid Verizon fortify its ethernet footprint.

Moreover, XO Communications’ fiber assets will enable the company to enhance its dark fiber-based solutions for its small cell network. The densification of cell network will significantly help the company to install and build its upcoming 5G network.

The companies in the latest leaderboard are AT&T Inc. (NYSE:T) , Level 3 Communications Inc. (NYSE:T) , Verizon, Charter, CenturyLink Inc. (NYSE:CTL), Comcast Corp. (NASDAQ:CMCSA), Windstream Holdings Inc. (NASDAQ:WIN) and Cox, in terms of their respective positions. All of these eight companies on the leaderboard have at least 4% or more of the U.S. Ethernet services each.

It is interesting to note that Level 3 Communications is the only fiber-optic network service provider – in the Leaderboard category. The other seven companies are incumbent telecom carriers - AT&T, Verizon, CenturyLink and Windstream or cable MSOs (multi-service operators) - Charter’s Spectrum Enterprise, Comcast and Cox.

Several analysts and research reports claim that while growth rate has slowed down, demand for Carrier Ethernet services remains very strong in 2017. The revenue and profitability outlooks for many providers are improving as fiber build outs are completed and pricing begins to stabilize.

Further, we expect that mergers and acquisitions will play a major role in altering future ratings on VSG’s upcoming Ethernet Leaderboards.

Zacks Rank and Price Performance

Verizon currently carries Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past three months, shares of Verizon have inched up 4.86%, outperforming the 0.84% decline of the industry it belongs to.

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