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Verizon (VZ) Acquires WideOpenWest's Chicago Fiber Assets

Zacks Equity Research
Updated

Verizon Communications Inc VZ recently completed the $225-million purchase of fiber-optic network assets from WideOpenWest, Inc. WOW in the Chicago area. Per the terms of the deal, Verizon will pay WideOpenWest an additional $50 million to complete Chicago network build in second-half 2018. The amount will increase to $275 million at the time of completion.

The deal secures fiber to more than 500 macro-cell and small-cell wireless sites in the Chicago area. The high-capacity network is designed to support multiple services and connects Verizon Wireless macro towers and small cells. This will lower future leasing costs. The buyout will accelerate Verizon’s network densification and enhance its industry-leading 4G LTE network, upcoming 5G wireless standards and wireline connections. The deal will also boost the deployment of next-generation broadband services.

Accumulation of dark fiber will bolster Verizon’s cell network density, which will consequently boost mobile backhaul network. Dark fiber provides abundant bandwidth and is of utmost necessity for the smooth functioning of super-fast wireless networks like 4G and 5G. Dark fiber-based backhaul provides scalability and efficiency to bandwidth management. This will eventually help the company to significantly reduce backhaul costs.

Acquiring the Chicago fiber assets is just one of Verizon’s several moves in solidifying fiber network holdings. The service provider is pursuing a series of acquisitions of regional fiber assets and internal fiber expansions.

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Verizon’s Toil on Fiber-Optics

Verizon acquired dark fiber through the acquisition of MCI in 2006. In February 2017, the company acquired XO Communications’ dark-fiber optic network for $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 Communication has a portfolio of 102 LMDS licenses in 28 GHz and 39 GHz bands.

In April 2017, Verizon entered into a three-year purchase agreement with Corning Inc. GLW to buy fiber optic cables and associated hardware for nationwide wireless broadband network. Per the deal, Verizon will acquire around 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 AT&T Inc.’s T offer of $1.6 billion. Notably, 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.

Verizon also signed a $300-million agreement with Prysmian. which will be an additional supplier of fiber cable to support 4G and 5G wireless and wireline broadband plans. Prysmian will supply Verizon with more than 17 million kilometers (10.6 million miles) of ribbon and loose tube cables.

In September 2017, Verizon sought permission from the FCC, to retire copper networks in eight northeast markets, effective from Feb 28, 2018. The U.S. telecom behemoth wants to upgrade s obsolete copper network infrastructure with fiber and wireless network to support high-end mobile and wireline services for smart city, residential and business applications.

Zacks Rank & Price Performance

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

Verizon portrays an impressive price performance. In the past six months, shares of the company have rallied 12.3% compared with the industry’s gain of 1.1%.

 

 

Valuation Indicates Some Upside

In terms of price-to-earnings ratio (P/E - F12M), which is often used to rate telecom sector stocks, Verizon’s valuation looks attractive. The stock currently has a trailing 6-month P/E ratio of 13.52 compared with 14.97 for its industry.

 

 

When compared with the market at large, the stock looks favorable, as the P/E ratio for the S&P 500 index is at 18.98.

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AT&T Inc. (T) : Free Stock Analysis Report
 
Verizon Communications Inc. (VZ) : Free Stock Analysis Report
 
Corning Incorporated (GLW) : Free Stock Analysis Report
 
WideOpenWest, Inc. (WOW) : Free Stock Analysis Report
 
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