Channel Partners Online has a nice report on what XO has been up to lately, as the company discussed with a group of agents yesterday. Apparently, they've got a three year plan aimed at radically transforming the company's revenue profile.
XO has long had a lot of revenues it shouldn't ever have chased in the first place. That's why their margins have lagged so far despite the excellent fiber assets. Until now, Icahn has directed management to act as a more of a museum curator than anything else, preserving voice revenues, LMDS spectrum etc. But after Icahn stopped playing around and took the company private, the game quickly changed. Legacy services like TDM, dialup, and DSL are being phased out, while IP-based products will get all the love. $300M of the company's revenue, or about 20% of their total, will be directly affected although obviously they will try to migrate customers wherever possible.
This does suggest that October's round of layoffs won't be the only one, given that so far only wholesale long distance voice has been turned off entirely. I'm curious where those revenues went - maybe we'll see them turn up somewhere else during earnings season.
But if the extent of the changes XO discussed at this meeting is representative, then it also suggests that perhaps Icahn won't be selling the company in August as everyone thinks he intends. Such transitions take time, and they rarely look better halfway through. If XO had started this process half a decade ago, they'd be a very different company today. One wonders what took them so long, as it's more painful to do it now.
It also brings the heretofore remote possibility of XO as the acquirer further to the surface. XO has the fiber assets, but when it comes to the right kind of revenues it still lacks scale. The easy way forward, albeit a risky one, would be to acquire some. I'll have to think about who might fit the bill, just in case Icahn goes shopping.
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