XO Communication's (OTC BB: XOHO.OB) Q3 earnings showed that its transition towards a broadband-driven business model is a work in progress. While broadband and IP services are XO's future elements for growth, the near-term reality of ongoing Integrated/Voice and Legacy/TDM service declines show the relative growing pains XO has endure as wholesale carrier and enterprise customers continue to slowly transition towards IP.
During the quarter, XO reported that total revenue was $385.7 million, an increase of $3.7 million, or 1 percent, compared to Q3 2009. However, Q3 net income was $12.4 million, a $6.6 million decline, or 35 percent compared to net income of $19.0 million in Q3 2009.
The star of XO's third quarter revenue mix was clearly broadband. XO's broadband offerings generated $228.8 million in revenue, an increase of $25.0 million, or 12 percent, from Q3 2009. Fueling the broadband revenue increase was continued growth in its IP-VPN, IP Flex, Ethernet and Dedicated Internet Access service offerings.
"Our strong year-over-year EBITDA expansion and continued revenue growth within our core broadband offerings this quarter underscore that our long-term business plan is working," said Carl Grivner, chief executive officer of XO Holdings.
Of course, XO saw its share of losses in Q3. As expected, the growth of XO's broadband services was somewhat offset by the year-over-year declines in Integrated/Voice and Legacy/TDM services, such as carrier long distance termination services. Third quarter Integrated/Voice services revenue was $51.7 million, a decrease of $13.6 million, or 21 percent, compared to the third quarter of 2009.
Along with its broadband gains, XO expanded the reach of its network service capabilities during the third quarter. Notable service developments during the third quarter were a 30 percent increase of its Ethernet over Copper network, which expanded the carrier's Ethernet coverage in 39 existing markets and enabled it to launch services in Charlotte, N.C., Buffalo and Rochester, N.Y. In addition, XO expanded its network presence in both the Los Angeles and Atlanta metro areas.
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