Partners: Verizon's XO Communications Purchase Proves Commitment To Enterprise, Hybrid Cloud

Telecom giant Verizon said Monday that it intends to buy fellow telecom XO Communications for its fiber-optic network assets in a deal worth about $1.8 billion.

The carriers agreed that Verizon would acquire Herndon, Va.-based XO Communications' fiber-based IP and Ethernet networks. XO's established fiber assets will help Verizon better serve its enterprise and wholesale customers, the carrier said. The fiber business will also bolster Verizon's already-dense cell network.

Via the terms of the deal, Verizon will be leasing XO's available wireless spectrum.

[Related: Verizon, Viptela Join Forces For Channel-Friendly SD-WAN Service]

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This latest acquisition proves that Verizon is in it for the long haul with its enterprise business customers, said Michael Wolfington, vice president of West partner sales for Portland, Ore.-based Kingcom, a national Verizon platinum partner that sells Verizon products and services exclusively.

"Channel partners should feel very confident about their client’s long-term telecom services when working with Verizon," Wolfington said. "This is yet another investment from Verizon back into the medium[-size] and enterprise business space that our partners will benefit from."

Verizon said it is expecting cost savings to total more than $1.5 billion after the deal is complete. When reached for comment, the carrier told CRN that because the transaction is not expected to close until the first half of 2017, "it is premature to announce specific operational plans at this time, including partner-related details."

While XO has always been friendly to the channel, Verizon's channel strategy has changed over the years, according to J.R. Vernick, president and co-founder of Clinton, N.J.-based RDS Solutions, a telecom services, consulting and management provider and Verizon and XO partner.

"From an agent's perspective, no one has forgotten when Verizon wasn't very channel-friendly. So you are taking a company that has always been friendly, and pairing it with one that is currently channel-friendly. We just hope that continues," Vernick said.

Along with enterprise customers, SMB and midmarket customers are also starting to adopt fiber-based solutions, so the deal is a win-win for customers across the board, said Andrew Pryfogle, senior vice president of cloud transformation for Petaluma, Calif.-based Intelisys, a Verizon and XO partner.

"The deal is absolutely an enterprise play, but I'd say it's also an SMB play. There are a ton of SMBs that are now going to be able to access Verizon via that XO fiber footprint," he said.

As Verizon hunkers down on its hybrid cloud strategy, it will need a very robust network to support these offerings, Pryfogle said.

"XO has a world-class network with a tremendous footprint in all the major cities. That dovetails very nicely into that private, hybrid cloud strategy," Pryfogle said. "The connectivity [Verizon] will gain through those fiber assets [is] very significant."

Carl Icahn has served as chairman and sole shareholder of XO Holding, which owns XO Communications, since 2001. Despite XO's coming out of bankruptcy in 2003, Icahn called the past 13 years "a bumpy road for XO." Even though he worked diligently to keep XO alive, the deal does not represent a significant annualized return on his investment, he said.

Icahn said that the sale to Verizon was the best achievable outcome for XO in today's environment.

But because the deal won't close until 2017, there's still a tremendous amount of wiggle room for Icahn to have a change of heart, or for the acquisition to fall through, according to one Verizon partner who requested anonymity.

"I won't be surprised if this didn't happen," the partner said.

In the meantime, XO Communications will continue to operate as an independent company until the carriers obtain the necessary regulatory approvals, XO Communications said.