XO, Credit Crunch & the Ultimate Backstop
September 22, 2008
Here’s another great comment I got from a reader on a recent blog post about XO:
I chuckle whenever I hear people suggest that PAET should buy XO. PAET is primarily a type 2 reseller. XO, on the other hand, has quality metro fiber assets throughout the country.
Thank you for your response, and keep the emails coming.
The challenge XO has with any M&A opportunity of strategic value may be Carl Icahn. Mr. Icahn has a propensity to view just about anything he “invests” as a purely financial exercise. The ability to buy strategically and execute financially should be the criteria.
With the credit crunch on, asset light companies are going to have a very difficult time demonstrating margin growth to facilitate further borrowing leverage. The risks of ILECs raising costs to CLECs will be a great concern to surviving financial firms with much tighter lending standards. Revenue growth will be taking a back seat to EBITDA margin growth and quality of EBITDA which, in my opinion, only local fiber-based players can demonstrate. In addition, those hard fixed assets (fiber sheaths) provide the ultimate backstop for tighter credit standards.
Just a note, in case readers didn’t see it in an earlier post, “type 2″ refers to situation where a carrier who buys a circuit wholesale from Ma Bell and then resells this circuit to an end-user.
Want to weigh in on the credit crunch, fiber assets or other topics? Shoot me an email.
Written by Dave Rusin - Telecom Executive
Posted by admin | Filed Under American telecom, Telecom USA, Telecommunications companies, Telecommunications industry, Telecommunications news, Trends + telecommunications, Trends in telecommunications
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2 Responses to “XO, Credit Crunch & the Ultimate Backstop”
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And I chuckle whenever I hear that XO “has fiber all over the place”. We have ordered 1000’s of circuits from XO, and I will tell you righ now that 90% of them are Type II from ATT or VZ. Especially DS3 or below. Even their EOTDM product is delivered via Type II RBOC loops.
Hi Anonymous – Sounds like you have fallen victim to an overzealous XO sales rep. One of the many weaknesses in the industry (poor quality sales reps).
If you really have ordered 1000s of circuits in different locations around the country, the majority will be offnet (type 2). XO (or AFS for that matter) is a good fit in on-net locations, but not really a great carrier to use for a nationwide buildout. IMO, you’d be better going direct with ATT or VZ.
And EOTDM should always be type 2 by definition since CLECs don’t deploy copper plants (only fiber). At least i am not aware of CLECs deploying copper plants.