XO Communications 2009 Annual Report Download - page 26

Future litigation also may be necessary to enforce and protect our trade secrets and other intellectual property
rights. Any intellectual property litigation could be costly and cause diversion of management’s attention from
the operation of our business. Adverse determinations in any litigation could result in the loss of proprietary
rights, subject us to significant liabilities or require us to seek licenses from third parties that may not be
available on commercially reasonable terms, if at all. We could also be subject to court orders preventing us
from providing certain services in connection with the delivery of services to our customers.
Our spectrum licenses may not be renewed upon expiration, which could harm our business.
Our spectrum licenses in the Local Multipoint Distribution System (“LMDS”) and 39 GHz bands are granted
for ten-year terms. The renewal dates for our ten 39 GHz licenses are in 2010. As of June 30, 2009, the FCC
had granted renewal of all 90 of our 28 GHz licenses that were up for renewal in 2008.
In order to secure renewal of our LMDS licenses, we must generally be in compliance with all relevant FCC
rules and demonstrate that we are providing “substantial service” in our licensed areas. During 2008, the FCC
granted our extension request to demonstrate substantial service until June 1, 2012 for the 48 LMDS licenses
for which we sought an extension. As of June 30, 2009, substantial service showings for our remaining 43
LMDS licensed markets have been approved by the FCC. Failure to demonstrate substantial service in any
licensed market could have an adverse effect on our operations and financial results. While management
expects that we will be able to secure FCC approval for renewal of our 39 GHz licenses in 2010 as well as
approval of any substantial service filings in relation to the 48 licenses for which we received an extension
until 2012 to demonstrate substantial service, there is no assurance that we will receive such FCC approvals.
Risks Related to Competition and our Industry
The telecommunications industry is highly competitive, and has experienced the consolidation of many
existing competitors and the introduction of significant new competitors. If we are not able to
successfully compete against existing and new competitors, our financial condition could be materially
and adversely affected.
The communications industry is highly competitive. We compete with AT&T, Verizon, Qwest Communica-
tions, Level 3 Communications, other ILECs and CLECs, cable operators and a host of other competitors in
the provision of network services. Many of these competitors generate greater revenue, and possess
significantly greater assets and financial resources than us, especially in light of mergers between AT&T and
SBC, Verizon and MCI, and AT&T and Bell South. The significant financial resources of our larger
competitors enable greater capability in deploying new technologies, new product offerings and enhanced
service levels. In addition, we expect increased competition from the entry of non-traditional telecommunica-
tions companies, such as cable television companies, microwave carriers, wireless telephone system operators
and private networks built by large end-users, into our metropolitan markets. If we are not able to successfully
compete against our larger competitors and the new entrants into the telecommunications market, our financial
condition and results of operations could be materially and adversely affected.
We face intense price competition in the market for network services which could result in adverse
effects on our revenues, future cash flows, growth and profitability.
We compete with AT&T, Verizon, Qwest Communications, Level 3 Communications, other ILECs and CLECs,
cable operators and a host of other competitors in the provision of network services. Many of these
competitors have high-capacity, IP-based fiber-optic networks capable of supporting large amounts of data, IP
and voice traffic. Some of these competitors claim certain cost structure advantages that, among other factors,
may allow them to offer services at a price below that which we can offer profitably.
As a result of increasing competitive forces, including technological advances, service providers have reduced
the prices charged for network services in recent years. Additionally, in light of the mergers between AT&T
and SBC, between Verizon and MCI, and between AT&T and Bell South, we face significant price and service
competition with respect to our network services from these incumbents, which are the largest incumbent
carriers in the United States, as well as from many other large telecommunications service providers that are
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