Verizon to Buy XO's Fiber Unit From Carl Icahn for $1.8 Billion

  • No. 1 wireless carrier will lease XO's airwaves to test 5G
  • Deal adds to Verizon's backhaul network for corporate clients

Verizon Communications Inc. agreed to buy fiber-optic networks from Carl Icahn’s XO Communications LLC and lease spectrum for about $1.8 billion, giving the nation’s largest wireless carrier more Internet bandwidth for corporate clients and airwaves to test faster wireless technology.

As part of the deal, Verizon will lease spectrum from closely held XO, with an option to buy the unit that controls the airwaves by the end of 2018, according to a statement Monday. These airwaves are in high-frequency bands that the Federal Communications Commission has designated for the development of super-fast 5G networks.

While industry standards for 5G haven’t been established and the first applications are still years away, both Verizon and No. 2 carrier AT&T Inc. have announced plans to start tests this year. The next generation of wireless technology is expected to offer up to 10 times the speed of today’s 4G.

XO holds 102 licenses to spectrum in the 28 gigahertz and 39 gigahertz range, which cover about 45 percent of the U.S., according to Bob Varettoni, a Verizon spokesman. “This is spectrum in bands we can use for early testing on 5G in some markets, so we intend to lease spectrum for R&D purposes,” Varettoni said.

The XO deal gives Verizon, which gets about 10 percent of its revenue from its enterprise business, more infrastructure to sell backhaul -- the fiber-optic junction points that allow a faster bridge from mobile to landline networks. Carriers like Verizon have increased the use of smaller antennae to provide better coverage in cities. XO gives Verizon fiber connections to urban sites to meet the increasing demand for mobile video like movies and live sports. 

“Building and acquiring fiber assets is very strategically important for Verizon,” said Kevin Roe, with Roe Equity Research LLC. “This deal is clearly enterprise-driven but I would not underestimate the importance of robust fiber assets to support Verizon’s long-term mobile network road map.”

The deal brings Verizon closer to its “5G mobile-network vision,” Roe said.

Icahn’s ‘Bumpy Road’

Icahn, XO’s sole shareholder, began purchasing senior debt in 2001. He called the past 15 years a “bumpy road.” The sale doesn’t represent a “significant annualized return” on his investment but the “best achievable outcome for the company’s customers, employees and owner” in today’s market, he said in a statement.

Citigroup Global Markets Inc. acted as Verizon’s financial adviser while Debevoise & Plimpton LLP provided legal counsel. For XO, Evercore served as financial adviser and Thompson Hine LLP provided legal counsel.

The transaction is expected to close in the first half of 2017, Verizon said.

Before it's here, it's on the Bloomberg Terminal.