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Verizon to Bolster Fiber Optic Network in Major U.S. Cities

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U.S. telecom behemoth Verizon Communications Inc. (VZ - Free Report) has decided to aggressively cooperate with major U.S. cities in order to expand its fiber optics networks to support 4G LTE and upcoming 5G wireless standards as well as wireline connections.

At the recently concluded Goldman Sachs 26th Annual Communacopia Conference, Verizon’s chairman and CEO Lowell McAdam stated that the company is no longer interested in acquiring big cable MSOs (multi-service operators). Instead, it will strengthen its fiber-based networks. In the cities of Boston and Sacramento, Verizon has already started upgrading the city’s aging copper network infrastructure with fiber and wireless network to support high-end mobile and wireline services for smart city, residential and business applications.

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 help 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. (GLW - Free Report) 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 (T - Free Report) 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 that it would spend $225 million to acquire a high-capacity fiber network in the Chicago area belonging to WideOpenWest Inc. (WOW - Free Report) . 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

Verizon’s shares have increased 2.77%, outperforming the industry’s decline of 1.46% in the last three months. The company currently carries 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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