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XO Regards Growth as Essential to Its Survival

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  XO Communications needs to grow, chief executive Carl J. Grivner says. (Xo Communications)


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XO Communications Inc.
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By Yuki Noguchi
Washington Post Staff Writer
Monday, July 5, 2004; Page E01

Carl C. Icahn's vision of a telephone company is starting to come into focus.

A year and a half after the acquisitive billionaire gained control of bankrupt XO Communications Inc., the Reston phone company has become the biggest of the upstarts that sell local and long-distance service in competition with giants like Verizon Communications Inc.

With its recent $513 million acquisition of Allegiance Telecom Inc., XO serves 200,000 small and medium-sized businesses in more than 70 cities from Los Angeles to Boston.

Now, chief executive Carl J. Grivner says XO is looking at other phone companies to buy, and it plans to form partnerships with companies overseas to offer service internationally. It's discussing joining with mobile-phone companies to package cellular calling with its service. And by the end of the year, it plans to offer an Internet-phone product with features like voice messages sent as attachments to e-mail.

"We want to continue to be the largest competitive carrier in the U.S.," Grivner said, "and that means we are going to keep looking at opportunities to grow."

But analysts question whether XO is big enough to thrive. In an age when size matters for survival in the telecom world, XO is still small by some measures. It has less than 1 percent of the business customers and 2 percent of the revenue of Verizon. Unlike Verizon, it doesn't sell residential services or have a mobile-phone subsidiary. And the phone industry's giants are competing with new determination to win back XO's business clients.

XO competes primarily on price. It says its prices are 10 to 15 percent lower than those of most major local phone companies. And because its network extends nationally, Grivner said, it can offer service to businesses with branch offices in cities that regional companies like Verizon or Qwest Communications International Inc. don't serve.

In addition to local and long-distance phone service, XO sells Internet services, including high-speed lines and software tools that help businesses run their Web operations. Where the company does not own a phone network, it leases network capacity from other companies to sell under its own brand. It leases network capacity to other carriers as well.

Founded in 1994 as Nextlink, XO was among the most ambitious among hundreds of new telecom companies that sprang up in the mid-1990s. It invested more than $5 billion to build networks across the country. But XO ran into trouble after investors pulled back from the overbuilt telecom industry in 2000.

XO, which filed for bankruptcy in 2002, caught the eye of Icahn, who is known for his takeover of Trans World Airlines in the mid-1980s and for parlaying stakes in companies like Texaco Inc. and Nabisco Group Holdings Corp. into hefty profits. When XO emerged from Chapter 11 bankruptcy protection, Icahn owned 82 percent of the company.

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