XO Communications Wires for Fed Business

XO Communications Wires for Fed Business

The siren call of federal spending is beckoning XO Communications Inc. to plunge into the waters of government procurement.

After nine months laying the groundwork for federal procurement opportunities ? which included building a customer base among state and local governments ? XO is eagerly awaiting the next round of Metropolitan Area Acquisition contracts from the General Services Administration to provide local telecommunications services to agencies in cities across the country. Next up: Seattle and Salt Lake City.

XO of Reston, Va., used to be known as Nextlink Communications, a provider of broadband communications services to almost 88,000 commercial customers nationwide. After merging with Concentric Network Corp. in June 2000, the company changed its name. Less than a month later, the company formed its government and institution markets division to find ways to penetrate the government, educational and medical markets.

"You don't just walk in to the federal government and knock a big one down, like you do in the carrier or enterprise channels," said Craig Johnson, executive director of national sales for XO's government unit. "We've been laying the groundwork. Selling into state and local covers the cost of my channel while I'm getting ready to bid on big federal contracts."

For instance, XO won a contract to provide fiber-optic communications to the city of Memphis, Tenn. "We built fiber to every school in the Memphis school district and to every municipal building," he said.

XO Communications Inc.
http://www.xo.com

Business: Broadband, fiber-optic and fixed wireless telecommunications services
Chairman and CEO: Dan Akerson
Headquarters: Reston, Va.
2000 Revenue: $723.8 million
2000 Net Loss: $309.4 million
Employees: More than 6,000
Ticker: NASDAQ: XOXO


One of XO's major advantages in taking on federal opportunities is that the company has broadband communications networks over fiber-optic and fixed wireless facilities it owns across the United States, according to Lisa Lawless, executive director of communications. That makes it possible for the company to adopt a "last-mile" strategy: making the connection from the customer's physical location to the outside communications network.

"We didn't want to rely on competitors as suppliers," Lawless said. "In the government sector, there are products and services we can offer by owning the network."

Pursuing government contracts is an attractive option. XO has estimated the federal telecommunications market is about $7 billion, with an annualized growth rate of 5 percent, Lawless said.

The company put together a team of experienced professionals. Johnson came to XO after more than 20 years in the telecommunications industry, including five years with Winstar Communications Inc. of New York. Chris Vasko, director of business development for the government division, joined XO from Sprint Corp., Westwood, Kan., where she spent 12 years in their government systems division.

There are tangible benefits for a new entrant into the government market, Vasko said, such as coming in after the market has already moved along the technology curve.

"Upgrading the services of existing customers is a form of cannibalism," Vasko said. "Most of our customers are new, so a dollar is a new dollar."

XO has another advantage over many of its competitors, said company officials. As a relatively young company ? Nextlink was founded in 1994 ? XO has very little tied up in older systems.

"We don't have the legacy systems that many companies have to deal with in terms of trying to add enhancements or merging into new [systems]," Vasko said.

The company saw its 2000 revenue jump to $723.8 million from $274.3 million the previous year, a 164 percent increase, while its losses for the year grew to $309.4 million from $214.2 million in 1999. However, XO's stock has been battered recently. At press time, it was trading under $4 per share, after a 52-week high of $63.90.

Trent Spiridellis, a telecom analyst with Banc of America Securities LLC in New York, said XO's move into the public sector is a good one.

"Going after government entities is consistent with [XO's] thrust into the enterprise segment of the market. It portends attractive revenue opportunities," he said. "The difference in what XO does vs. other carriers is that XO is building out fiber networks to the end user."

With fiber networks, XO can roll out bandwidth-intensive applications that are in demand by government and enterprise customers, he said.

According to Spiridellis, many analysts believe the telecommunications industry will go through a major shakeout, similar to that seen in technology and Internet companies.

"We think there will be significant fallout among XO's competitors over the next 12 to 24 months," he said. But XO is set up to last over the long run, he said.

Johnson's unit has been preparing for several federal projects. He would like XO to become a subcontractor for Electronic Data Systems Corp., Plano, Texas, on the Navy-Marine Corps Intranet contract, an eight-year, $6.9 billion effort to provide desktop, network and telecommunications services to the Navy and Marine Corps.

Another XO goal is to be chosen by the GSA as an MAA provider. Johnson is looking to bid on the MAA request for proposal for Seattle, released April 2. If the company is successful on an MAA, it would open the door to providing long-distance service when the GSA ends the forbearance period for each local contract.

XO also is putting together a proposal to be included on the GSA's Schedule 70 for technology, as well as working on some strategic relationships with major systems integrators.

"That's one reason I came here," Vasko said. "We're going after the big boys now."

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