Verizon is shelling out $20 billion to acquire fiber networking giant Frontier Communications in a move that re-integrates past assets and further fuels a fiber networking market that has become increasingly hot over the past year.

Verizon’s proposal calls for the telecom operator to pay $38.50 per share for Frontier, which is a near-44% premium over where Frontier’s stock price was trading over the past 90 days. The proposal has been approved by the boards at both companies, with Verizon expecting the deal to close around the end of next year.

Frontier’s fiber networking business includes 7.2 million fiber locations that serve 2.2 million subscribers across 25 states. The fiber provider is generating more than half of its revenues from its fiber business.

Those assets will join Verizon’s approximately 7.4 million fiber connections across nine states and Washington, D.C. Those combined networking assets will count approximately 10 million fiber customers across 31 states and Washington D.C., with fiber networks passing more than 25 million premises.

“The acquisition of Frontier is a strategic fit,” Verizon CEO Hans Vestberg noted in a statement. “It will build on Verizon’s two decades of leadership at the forefront of fiber and is an opportunity to become more competitive in more markets throughout the United States, enhancing our ability to deliver premium offerings to millions more customers across a combined fiber network.”

The deal’s fit should also be eased by some familiarity. Frontier just over 10 years ago acquired Verizon’s local landline assets in California, Florida, and Texas for $10.5 billion, which was part of Verizon’s plan at that time to shed fiber assets outside of its core Northeast markets. That deal also included 9,400 Verizon employees being moved to Frontier.

Verizon sees broad fiber networking benefits Verizon management also stated that an enhanced fiber presence helps its broader operations.

“Where we have fiber and mobility [and a] customer has both, it's a 50% reduction in mobility churn, 40% reduction in fiber churn,” Verizon Consumer CEO Sowmyanarayan Sampath said during an investor conference earlier this week.

Verizon also noted that the acquisition will boost its ability to serve its intelligent edge network in support of artificial intelligence (AI) and IoT use cases. Vestberg, who has been a long-time proponent of the operator being in a strong position to power edge computing services, continues to pump up that potential despite a lack so far of a significant return.

“Our portfolio of high-performance spectrum, the capacity of our fiber, and our ability to deploy and support mobile edge compute make us as the backbone of the AI economy and the partner of choice for players in the space,” Vestberg said during the carrier’s most recent earnings call. “We will power the best AI services for our customers. What sets us apart with AI is our network’s mobile edge computing capabilities and deep fiber footprint. By processing data closer to the source we enable real-time AI application that requires security, ultra-low latency, and high bandwidth. This is where our network shines, opening up possibilities that simply weren’t feasible before.”

Sampath this week was directly asked about this opportunity with a question tied to smaller rival Lumen Technologies scoring a $5 billion deal with Microsoft that will see the hyperscaler use Lumen’s AI-focused Private Connectivity Fabric infrastructure to expand its network capacity.

“We tend to win a lot of those deals that come to data centers. We are connected to some of the top data centers there,” Sampath said. “We win our fair share and we're seeing our share of fiber deals in this space. Those are dark fiber deals that have very different accounting. I'm not sure how the $5 billion translates to revenue, … but we take part in that market and we do very well in that space.”

Verizon adds fuel to fiber infatuation Verizon’s expansion pursuit comes on the heels of rival T-Mobile US pushing its chips into the fiber game. That ante involved T-Mobile US striking a partnership with investment firm EQT to purchase U.S.-based fiber Lumos, which was shortly followed by T-Mobile US partnering with investment firm KKR to acquire fiber provider Metronet.

T-Mobile US CEO Mike Sievert noted during the carrier’s most recent earnings call that it was comfortable with its fiber partnership model “so that we can get more leverage on our equity dollars,” and that “we have some further appetite, but not much.”

“While we're open minded to things that fit this strategy, it would have to be the right deal,” Sievert said following the Metronet purchase. “Our appetite is somewhat limited for more. I can tell you we're not currently working on another transaction like this, and since they've been coming every month or two, I want to make that clear as well.”

TD Cowen in a research report noted that Verizon’s pending deal could draw an “overbid” from T-Mobile US “given Frontier is the last large fiber player available in this new era of convergence.” T-Mobile US was at one point rumored to be looking at Frontier before ultimately pursuing the pair of joint ventures.

Verizon management, for its part, stated that it much prefers to own all of its fiber assets.

“Look, if a business is good enough, it should be good enough for us. And we want to own the whole business, because we like the fiber business,” Sampath said, hinting at Verizon’s 20 years of owning and operating fiber assets. “We know the economics of fiber very well. We know and we have some of the best operating metrics in the world around that space. So we like the space, and we think the business is good, we should own most of it.”

Sampath also took a dig at the joint venture model, noting that joint ownership can make overall management more complicated.

“We've had experience with having a joint venture partner and it's not always easy to extricate yourself from that situation many years down the line,” Sampath said, specifically pointing to Verizon’s long-standing relationship with European operator Vodafone that cost Verizon $130 billion to exit. “If the business is good, we would like to own most of it.”

Fellow U.S. telecom market heavyweight AT&T this week also bolstered its already strong focus on the fiber market by striking five-year deal for Nokia to provide AT&T with fiber “solutions” to support the carrier’s network footprint expansion and upgrades. This includes the use of Nokia’s Lightspan MF programmability hardware and Altiplano Access Controller platforms that can support passive optical network (PON) technologies at speeds up to 100 Gb/s (100G).

That deal expands AT&T’s surging fiber interest, which have been core alongside its 5G network to the carrier’s re-birth following the fire sale of its DirecTV and WarnerMedia assets.

AT&T’s fiber network passed 27.8 million total locations at the end of the second quarter, with the carrier stating plans to reach more than 30 million locations within its 21-state wireline footprint by the end of 2025. AT&T’s fiber efforts also included a joint venture with venture capital firm BlackRock that launched in late 2022, and is targeted at expanding AT&T’s fiber footprint outside of that 21-state wireline footprint.

AT&T CFO Pascal Desroches during the carrier’s most recent earnings call added that “the better-than-expected returns we’re seeing on our fiber investments potentially expands the opportunity to go beyond our initial build targets by roughly 10 million to 15 million additional locations.”

AT&T’s management had repeatedly stated that fiber is the most cost-effective way to meet surging broadband demand.

“When we take a look at the data traffic that we serve over our wireless and our fiber networks, our network itself, we’re calling for a 5x increase in net traffic,” AT&T COO Jeff McElfresh said during a Bank of America investor event in 2022. “And no matter what your last mile serving architecture is, that’s going to require a lot of fiber. We’ve made that point pretty clear.”

AT&T early last year also struck a deal with Frontier to deploy wireless infrastructure in Frontier’s fiber-focused facilities. This will allow AT&T to add fiber connectivity to its wireless infrastructure in locations where it does not currently own or control its own fiber.

That deal built on a previous multi-year deal between the two parties that initiated AT&T’s capability to tap into Frontier’s fiber assets to bolster its 5G and edge deployments.

TD Cowen’s generic routing encapsulation (GRE)gory Williams added that these moves angle toward a growing convergence push by wireless operators as they attempt to counter similar moves coming from the other direction by cable-based communication providers.

“Convergence could be destructive for the entire industry as players fight across the wireline-wireless landscape and ‘sacrifice the other side’ as cable is doing today,” Williams wrote. “Despite this ‘race to the bottom,’ convergence may be inevitable, because if one player pushes for it (such as AT&T and cable), then the others may be forced to reluctantly follow.”