FierceTelecom: So the target customer for this service would be domestic and international service providers that want to use XO as a gateway to carry traffic into Latin America?
MacNeil: There's certainly that, and I think with continued Internet traffic growth into and out of Mexico. The U.S. is really kind of a dot or a node on the global infrastructure, albeit a very important one as it pertains to the Internet. One of the other things we anticipate to see is as more Asian carriers buy capacity coming into the West Coast of the United States. For example, China is making investments everywhere in the world. Certainly, in Mexico and South America, this is a pathway to take you from the West Coast landing station to McAllen and a border crossing.
If you take a step back and look at it, the U.S. is kind of a key node in the global infrastructure. Again, with the adoption of Ethernet and the adoption of higher bandwidth, we just want to facilitate the highest traffic flows possible. We're also capable of high capacity Ethernet and SONET-based private line services for enterprises that have needs in Mexico and Central America.
FierceTelecom: We just saw a recent report by Insight Research that said private line will dip slightly but then ramp back up. Are you seeing a similar trend?
MacNeil: It's all in the definition. We sell private line, but we use Ethernet protocol to interface with customers. There's such a thing as Ethernet Private Line. With these 10 Gbps wavelengths, I can put up to 10 Gbps wavelength and with a software selection ask do you want it to be OC-192 SONET, 10 Gig Ethernet LAN PHY, or WAN PHY? These are all selectable settings for us. We're indifferent because of the generation of the equipment whereas legacy-type infrastructure those choices of flavor drive specific capital investments in logistics. It's much more cumbersome to deliver for someone to deliver over legacy equipment. Secondly, there's an embedded base of 10 Gig wavelengths whereas the new flavor is predominantly Ethernet.
The real drop long-term is at the lower speeds (DS1 and DS3), but what's picking up is Ethernet. Ethernet is growing at 30-plus percent and there's a lot more flexibility in terms of speed increments because you don't have to jump from one DS1 to one DS3, but rather 5, 10, 20 Mbps. It's a much more smooth, flexible opportunity. For example, our business services unit told me that they saw a 10X increase in Gigabit Ethernet circuits over the past year. This is in addition to our Ethernet over Copper (EoC) service.
FierceTelecom: The other trend that XO could potentially take advantage of is giving competitive carriers in Mexico another connectivity option especially as Carlos Slim consolidates his Telmex and America Movil assets. Do you see yourself playing a bigger role for carriers looking for new wholesale options to connect from Mexico and into the U.S. as well?
MacNeil: Yeah, you bring up an interesting point. If things go that way and if Slim's America Movil arm, which is a much more nimble company, becomes the dominant power it may open up opportunities for other second tier carriers that will have needs. They'll have choices beyond TELMEX and maybe able to do something with that.
Click here to go back to Part I of the interview
XO launches nationwide 40 Gbps service
XO takes Q4 09 profit hit, but sales and year results were up
XO increases So Cal network reach