XO Communications 2009 Annual Report Download - page 42

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Revenue — 2008 Compared to 2007
Total revenue for 2008 increased slightly compared to the prior year. Revenue was earned from services
provided in the following categories for the years ended December 31 (dollars in thousands):
2008
%of
Revenue 2007
%of
Revenue Dollars Percent
Change
Core services
Broadband ................... $ 670,616 45.4% $ 530,257 37.1% $140,359 26.5%
Integrated/Voice ............... 317,423 21.5% 337,324 23.6% (19,901) (5.9)%
Total core services ............... 988,039 66.9% 867,581 60.7% 120,458 13.9%
Legacy/TDM services ............ 489,571 33.1% 561,084 39.3% (71,513) (12.7)%
Total revenue ................... $1,477,610 100.0% $1,428,665 100.0% $ 48,945 3.4%
Core Services. We experienced a continued growth in market demand for telecommunications services using
next generation IP technologies and transport services. For 2008, revenue from our Core Broadband Services
increased 26.5% compared to the prior year primarily due to growth in our Dedicated Private Line and IP Flex
services. During 2008, our Dedicated Private Line revenues increased $35.8 million, or 14.7%, over the prior
year as a result of our investments in our long-haul network. A significant portion of Dedicated Private Line
sales were driven by our wholesale Carrier sales force offering wavelength solutions. The growth in IP
solutions was led by a year over year $29.8 million, or 44.3%, revenue increase in IP Flex, our flagship
integrated data and voice solution which is largely sold by our commercial Business Services unit. Also
contributing significantly to the growth in our Broadband revenue was our DIA, IP VPN, and Telco
Collocation solutions. DIA revenue increased $24.5 million, or 18.2%, for 2008 compared to 2007 as DIA
continues to be a centerpiece of our overall Core Broadband marketing in response to continued strong
demand. IP VPN revenue increased $16.9 million to $18.6 million for 2008 due to strong response to
marketing efforts in 2008 following the product launch in late 2007. Telco Collocation revenue increased
$14.6 million, or 58.9%, for 2008 compared to 2007 in tandem with growth in Dedicated Private Line, DIA,
and ethernet networking. Secured qualified collocation space remains at a premium in a number of key
markets, and we have been able to capitalize on the growth of key Broadband products to drive growth in
Telco Collocation.
The growth in the Broadband category of our Core Services was slightly offset by a net reduction in
Integrated/Voice revenue. This category contains more mature bundled data and voice offerings introduced in
2000 such as XOptions and Integrated Access, as well as traditional CLDT. The primary driver of the decrease
in Core Integrated/Voice revenue for 2008 compared to the prior year was the customer demand shift to
IP-enabled solutions such as IP Flex. This decline was partially offset by a $21.3 million increase in CLDT
revenue for 2008 compared to 2007, caused primarily by increased volume.
Legacy/TDM Services. For 2008, revenue from services in our Legacy/TDM category decreased compared
to 2007 due to a continuing shift in marketing and customer demand away from TDM products to next
generation solutions.
COS — 2009 Compared to 2008
Our cost of service (“COS”) includes telecommunications services costs, network operations costs and pass-
through taxes. Telecommunication services costs include expenses directly associated with providing services
to customers, such as the cost of connecting customers to our network via leased facilities, leasing components
of network facilities and interconnect access and transport services paid to third-party service providers.
Network operations include costs related to network repairs and maintenance, costs to maintain rights-of-way
and building access facilities, and certain functional costs related to engineering, network, system delivery,
field operations and service delivery. Pass-through taxes are taxes we are assessed related to selling our
services which we pass through to our customers. COS excludes depreciation and amortization expense.
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