Verizon signs $1.1B fiber purchase agreement with Corning, supports wireline, wireless broadband initiatives

Verizon signed a $1.1 billion, three-year fiber and hardware purchase agreement with Corning, enhancing capacity to support a next-generation fiber platform that will support all of the company's businesses.

Under the terms of the agreement, Verizon will purchase up to 20 million km (12.4 million miles) of optical fiber each year from 2018 through 2020.  

In order to satisfy Verizon and other carrier customers’ need for more fiber facilities, Corning announced plans to expand capacity and to invest more than $250 million in its optical fiber, cable and solutions manufacturing facilities. Corning expects these capacity expansions to begin to come online in 2017 and become fully operational in 2018.

This new fiber supply agreement relates to Verizon’s move to realign its network around a next-gen fiber platform that will serve multiple purposes: improve 4G LTE coverage, speed 5G deployments, and deliver fiber-based broadband to homes and businesses.

“Priorities for us are the growth opportunities in 5G—fixed 1GB service, smart cities and low-latency applications for commercial use in transportation and other industries—and 4G LTE densification to add network capacity nationwide,” said Bob Varettoni, a spokesman for Verizon, in an e-mail to FierceTelecom.

Maintaining schedules

What drove Verizon to call on Corning for this new fiber order was simple: fill in the supply gaps for fiber.

“Securing the required volume of optical fiber and hardware solutions with Corning will ensure we meet our planned rollout schedules,” said Viju Menon, chief supply chain officer for Verizon, in a release.

While purchase of fiber from Corning is part of Verizon's ''One Fiber'' initiative to invest in optical fiber to speed 5G deployment, densify its 4G LTE coverage and provide broadband services to homes and businesses, the service provider has not named another city yet.

In 2016, Verizon announced an initial stage of its One Fiber initiative in Boston to invest $300 million over 6 years. As part of that initiative Verizon will replace the city's aging copper network infrastructure with fiber.

But Varettoni said that this pact with Corning will leverage and extend the existing networks it has with new complementary routes. 

“Today’s agreement is about 2018-2020 deployment, with a different network architecture that will build off current networks,” Varettoni said. “Meanwhile, we have not announced any future One Fiber deployments.”

Verizon also closed its $1.8 billion acquisition of XO Communications, giving the telco metro fiber rings in 45 of the top 50 U.S. metro markets. This includes over 4,000 on-net buildings and 1.2 million fiber miles.

“It does complement the XO fiber, which is in current use,” Varettoni said.

Dycom, Zayo could benefit

Verizon’s order will likely be a big boost for Corning’s optical business, one that has seen its own ups and downs in recent quarters. Corning reported that its optical communications unit sales rose 11% in the fourth quarter, and this deal could further that trend. However, once Verizon starts moving with the actual fiber build, it could have potential benefits for partners like Dycom, which counts Verizon as its fourth-largest customer.

Jennifer Fritzsche, senior analyst for Wells Fargo, said in a research note that Verizon will need to tap into nonunion construction sources to install the fiber, particularly when it fans out into areas not part of its own network footprint.

“As Verizon builds more outside of its ILEC territory (where it is often required to use its own unions), it will have more opportunity to use third-party labor,” Fritzsche said. “With DY's fiber construction business 5+ times larger than its next largest competitor, we see it as well-positioned to capture much of this converged wireline/wireless spend from VZ.”

Dycom CEO Steven Nielsen sees Verizon and other wireless operators’ plans to densify their 4G and plan for 5G networks as a windfall for new wireline business. This is because these network builds will require more fiber to backhaul traffic from small cell and macro cell sites.

“As we look out over the near to intermediate term, we are increasingly encouraged that newly emerging wireless technologies are driving significant additional wireline growth opportunities,” Nielsen said, according to a Seeking Alpha transcript.

Besides Dycom, fiber network providers like Zayo, a large seller of dark and lit fiber to Verizon, could also be a top supplier. After CenturyLink completes its acquisition of Level 3 later this year, Zayo will be the largest standalone fiber supplier with a wide supply of metro and long-haul fiber routes.

Fritzsche said that even if Zayo will be challenged in pursuing new revenue opportunities, Verizon’s plans show how important fiber facilities have become again.

“While we acknowledge VZ is a top customer for Zayo, we note much (if not all) the revenue Zayo gets from VZ is under multi-year contracts,” Fritzsche said. “While the incremental new revenue from VZ could get harder, we believe the VZ move today highlights the strategic need for this fiber asset.”