Windstream Fights Proposed XO-Verizon Merger, Wants Conditions

Verizon’s $1.8 billion acquisition of XO’s fiber-optic network business faces resistance from Windstream, which raised concerns late last week that the deal could harm competition in the market for business-data services.  

Windstream urged the Federal Communications Commission to impose certain conditions on the merger, including requiring Verizon to offer unbundled DS1 and DS3 capacity over copper and fiber at regulated rates even after Verizon migrates to IP-based infrastructure.

XO and Verizon have failed to establish the merger is in the public interest, according to Windstream’s FCC May 12 filing.

“To the contrary, without substantial conditions to ensure competition from other providers sustainably and immediately can replace the competition that XO brings to the market, this transaction likely will substantially reduce competition, not only in areas where Verizon is a dominant incumbent local exchange carrier (‘ILEC’), but also in areas where other ILECs are the largest providers of business data services,” Windstream declared.{ad}

Verizon announced plans in February to acquire XO’s fiber-optic network business and separately lease wireless spectrum from XO with the option to buy it by the end of 2018. The deal concerns some XO master agents who are worried about the future of their contracts.

Windstream noted that XO has been a competitor to Verizon in and out of its ILEC territories. The filing mentioned XO’s Ethernet-over-copper service — delivering up to 100 Mbps without being connected to Verizon’s prices for business-data services.

“This allows XO to beat Verizon’s Ethernet price in its ILEC regions, as well as put pressure on prices charged by AT&T in its ILEC regions,” Windstream said in the FCC filing. “As a CLEC, Windstream relies on XO (where XO is present) to provide a competitive check on Verizon’s extremely non-competitive wholesale offerings. Windstream’s ability to compete against Verizon for business data customers will be lessened if Verizon acquires XO.”

XO and Verizon have denied the merger will harm consumers or competition. They have pointed out XO’s U.S. fiber network is predominantly located outside areas where Verizon has built fiber. Even where the networks overlap, the FCC observed last month in a public notice, the companies have cited “a sufficient supply of high-capacity facilities from other major providers that will ameliorate material competitive harm from the transaction.”

But while XO and Verizon noted other CLECs or cable companies serve the majority of buildings where XO has a presence, Windstream alleged the merger applicants have failed to disclose the types of connections offered or whether the other competitors can support business-data services. Windstream also raised questions about how the merger will impact competition in AT&T’s incumbent region.

“Eliminating XO as an independent competitor in AT&T’s ILEC region will facilitate the ability of AT&T and Verizon to coordinate with one another,” Windstream contended. “By raising rivals’ costs, AT&T and Verizon have the ability to squeeze other competitive providers of complex business communications solutions, and make it impossible for those providers to fill the competitive hole left when Verizon acquired XO.”