XO Communications 2009 Annual Report Download - page 27

the dominant competitors in all of our service areas. We expect to continue experiencing downward pricing
pressure with respect to our network service offerings. Our ability to reduce prices in response to competitive
pressures may be limited by our reliance on some of our principal competitors to provide key network
elements that we need to provide network services, our ability to successfully deploy technologies that
improve our network operating efficiencies, and our ability to continue to drive other cost structure
improvements. If we are unable to competitively price our services to meet marketplace demand, we could
experience adverse effects on revenues, future cash flows, growth and profitability.
Our success is highly dependent on our ability to retain and recruit talented employees.
We depend on the performance of our executive officers and key sales, engineering, and operations personnel,
many of whom have significant experience in the telecommunications industry. If we were to experience the loss
of a significant number of our professionals in the future, it could adversely affect our results of operations,
including our ability to continue performing certain functions and to complete certain initiatives in accordance
with our existing budgets and operating plans. To attract and retain the number of employees we need to grow
our business, we may have to increase our compensation levels or incur higher recruiting costs in the future.
We have substantial business relationships with several large telecommunications carriers, and some of
our customer agreements may not continue due to bankruptcies, acquisitions, non-renewal, or other
factors, which could materially and adversely affect our revenue and results of operations.
We have substantial business relationships with several large telecommunications carriers for whom we provide
wireless, local and long distance transport services. However, as of December 31, 2009, we did not have any
individual customers who generated more than ten percent of our total revenue. The highly competitive
environment and the industry consolidation in the long distance and wireless markets has challenged the financial
condition and growth prospects of some of our carrier customers, and has caused such carrier customers to
optimize the telecommunications capacity that they use among competing telecommunications services providers’
networks, including ours. Replacing this revenue may be difficult because individual enterprise and small to
medium business customers tend to place smaller service orders than our larger carrier customers. In addition,
pricing pressure on services that we sell to our carrier customers may challenge our ability to grow revenue from
carrier customers. As a result, if our larger carrier customers terminate the services they receive from us, our
revenues and results of operations could be materially and adversely affected.
Technological advances and regulatory changes are eroding traditional barriers between formerly
distinct telecommunications markets, which could increase the competition we face and put downward
pressure on prices, which could impair our results.
New technologies, such as VoIP, and regulatory changes are blurring the distinctions between traditional and
emerging telecommunications markets. Additionally, some of our biggest competitors have been freed from
certain regulatory requirements that required such competitors to make certain elements of their networks
available to CLECs on just, reasonable, and non-discriminatory rates, terms and conditions. Furthermore, the
increasing importance of data services has focused the attention of most telecommunications companies on
this growing sector. This increased competition could impair our prospects, put downward pressure on prices
and adversely affect our operating results.
We are subject to comprehensive and continually evolving regulation, which could increase our costs
and adversely affect our ability to implement our business plan.
XOH and some of our services and facilities are regulated by the FCC, states, local zoning authorities, and
other governmental entities in a regulatory environment that is becoming more challenging for CLECs. These
regulators routinely conduct rulemaking proceedings and issue interpretations of existing rules. These
regulatory proceedings could impose additional obligations on us, give rights to competitors, increase our
costs, and otherwise adversely affect our ability to implement our business plan. Attempts to limit the basic
competitive framework of the Telecom Act could be detrimental to the successful implementation of our
business plan.
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