XO Launches Wavelength FLEX to Accommodate Customers with Frequent Configuration Changes

| Jun 3, 2009 | Wholesale Telecom Services | Competitive Intelligence Report

| Analyst: Brian Washburn

Current Perspective: Slightly Positive
Vendor Importance: Moderate
Market Impact: Moderate

Event Summary

June 2, 2009 -- XO Communications announced the availability of XO Carrier Wavelength FLEX, a program that lets current and new customers change their wavelength configurations as needed. In exchange for a flat, one-time fee, customers can switch long-haul network routes and change metro routes, open new PoPs along existing long-haul routes, and swap transport formats – without paying early termination fees or signing new service initiation contracts. The service is available across all of XO's metro networks and long-haul routes.

Analytical Summary

• Current Perspective: Slightly positive on XO's launch of XO Carrier Wavelength FLEX, because some types of wholesale clients see large changes in their traffic patterns, depending on individual contract wins and losses. Industry players including XO have offered hubbing services that let customers add capacity on a flexible basis, but there have not been official, off-the-shelf contract vehicles that let customers make flexible changes on a wavelength basis. On the other hand, wavelength-level customers usually have the clout to get their wholesale partners to accommodate changing service needs, especially if it means higher contract spend.

• Vendor Importance: Moderate to XO, because the carrier is already known for pricing low to win business, particularly when it comes to wavelength transport services. Wholesale customers that need to change their wavelength configurations may have the clout to negotiate the right to make changes into their wholesale contract, or to make adjustments after the fact. However, there is less resistance in going with an off-the-shelf contract vehicle that allows for changing network configurations, without customers having to negotiate mid-term contract modifications on a custom basis.

• Market Impact: Moderate on the wholesale wavelength services market, because flexible contracting options can make it easier for carriers to do business with XO instead of other service providers. Couple the benefits of XO Carrier Wavelength FLEX with XO's company reputation for low wavelength prices, and it is both easier and cost-effective for carriers with fluctuating traffic patterns just to pack their traffic growth/changes into their XO contract.

Recommended Competitor Actions

• All wavelength services providers can hit on the point that they, too, are easy to do business with. They can discuss flexibility in establishing custom contracts and in accommodating their service provider partners' needs as they evolve. They can position XO as putting boilerplate language into contracts that merely re-positions a contract penalty as a service fee, but otherwise merely makes official what is already accepted custom industry practice.

• Level 3, Qwest, AT&T, and Verizon Business each can tout a more comprehensive presence than XO – nationally, internationally, regionally, and in metro and access situations. They can claim XO's flexible route changes do not mean much, since XO has fewer routes to offer its customers compared to their comprehensive presence.

• Regional wavelength providers including Integra Telecom (Electric Lightwave), Interstate FiberNet (Deltacom), and RCN Metro Optical Networks (NEON Communications) – as well as competitive access providers – can tout their high capillarity to reach the destination points where wavelengths actually need to go, not just connectivity between the nation's largest cities. They can laud XO Carrier Wavelength FLEX, but claim XO just gets customers to the right region or state – not the right final traffic destination.

Recommended End User / Customer Actions

• For large national and regional buyers of wavelength services, XO Carrier Wavelength FLEX would be a good addition to an overall portfolio. Having XO in the mix should help the company haggle with other carriers over pricing and discounts. If another carrier is being difficult about contract flexibility, a threat that the client might just hand the wavelength business to XO at the next opportunity might encourage a difficult partner to cooperate.

• XO's national and metro networks are comprehensive enough to place it on the list of the largest optical providers in the U.S. However, carriers that need a comprehensive network reach will probably have to do business with several other providers to build the most ideal footprint for their needs. A multi-carrier contract approach tends to make good business sense.

• Carriers interested in contract flexibility across the board may want to check out not just XO Carrier Wavelength FLEX, but also hubbing services (in XO's case, XO Hub Service), which let a carrier purchase capacity and grow the contract on an as-needed basis.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

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