XO Communications 2010 Annual Report Download - page 26

Our spectrum licenses may not be renewed upon expiration, which could harm our business.
Our spectrum licenses in the LMDS and 39 GHz bands are granted for ten-year terms. The FCC granted
renewal of all 90 of our LMDS licenses that were up for renewal in 2008 for another 10 year term until 2018.
On December 22, 2010, the FCC renewed all 10 of our 39 GHz licenses that were up for renewal in 2010 for
another 10 year term until 2020. In order to secure renewal of our LMDS and 39 GHz licenses, we must
generally be in compliance with all relevant FCC rules and demonstrate that we are providing ‘‘substantial
service’’ in our licensed areas. The FCC has granted our extension request to demonstrate substantial service
until June 1, 2012 for 48 of our LMDS licenses and for all 10 of our 39 GHz licenses. 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 of any substantial
service filings in relation to the 48 LMDS licenses and all 10 of our 39 GHz 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
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 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
telecommunications 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 past and potential
future industry consolidations 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 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.
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