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Article by DailyStocks_admin    (08-15-08 05:28 AM)

Filed with the SEC from July 31 to Aug 6:

XO Holdings (XOHO)
Amalgamated Gadget requested to inspect certain records regarding the company's new issuance of preferred stock to affiliates of majority shareholder and Chairman Carl C. Icahn. Amalgamated Gadget said that the latest announced preferred-stock issuance may be yet "another attempt by Icahn to personally take XO Holdings' assets for himself, to the detriment of the minority shareholders."
Amalgamated Gadget previously has called for the resignation of Icahn from XO's board, saying that Icahn is "in clear violation of his fiduciary duties to minority shareholders." Amalgamated presently holds 12,152,195 shares (6.6%).
BUSINESS OVERVIEW

Overview

XO Holdings, Inc. (“XOH” or the “Company”), a Delaware corporation, is a leading facilities-based, competitive telecommunications services provider that delivers a comprehensive array of telecommunications solutions to growing businesses, large enterprises, government customers, emerging and established telecommunications carriers (See Glossary subheading in Item 1, Business, of this Annual Report for definitions of bold terms) and other communications service providers. We use the terms “we”, “our” and “us” to refer to XOH and its subsidiaries.

XOH was formed in December 2005, as part of a corporate restructuring to facilitate the proposed sale of XO Communications, Inc.’s (“XO Inc.”) wireline business. That transaction was mutually terminated by the parties on March 31, 2006. XOH became the publicly traded successor to XO Inc. in February 2006.

In 2002, XO Inc. filed for protection under Title 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. On January 16, 2003, XO Inc. consummated the plan of reorganization and emerged from its Chapter 11 reorganization proceedings with a significantly restructured balance sheet.

On June 23, 2004, XO Inc. completed the acquisition of all of the local exchange carrier businesses of Allegiance Telecom, Inc. (“Allegiance”). With the acquisition, XO Inc. became one of the nation’s largest competitive providers of national local telecommunications and broadband services.

We operate our business in two segments through two primary operating subsidiaries. XO Communications, LLC, (“XO LLC” or “XOC”) operates our wireline business under the trade name “XO Communications” and Nextlink Wireless, Inc. (“Nextlink”) operates our wireless business. Additional information about our reportable segments, including financial information, is included in Note 18 of our consolidated financial statements in Item 8 of this Annual Report.

XO Communications

XOC provides a comprehensive array of wireline solutions using both leading IP technology as well as traditional delivery methods. To serve the broad telecommunications needs of its customers, XOC owns and operates an extensive telecommunications network comprising a series of fiber optic cable rings located in the central business districts of numerous metropolitan areas. These rings are connected primarily by a network of dedicated wavelengths of transmission capacity. By integrating these networks with advanced telecommunications technologies, XOC is able to provide service primarily or entirely over a network that it owns or controls, from the initiation of the data or voice transmission to the point of termination. This integrated network provides multi-location businesses with a single-source telecommunications solution within a metropolitan area or across the country. XOC’s services are primarily marketed to businesses and communications services providers including Fortune 500 companies, governments, leading cable companies, content providers, mobile operators and carriers.

XO Communications continues to execute our wireline business strategic plan by focusing on the five key elements below:

Focus on Business and Carrier Customers. We provide a broad portfolio of reliable, scalable and high-speed telecommunications services tailored exclusively for business, enterprise, wholesale carrier and communications customers. We continue to invest in these and other next-generation solutions tailored to this class of customers.

Focus on Data and IP Services. Our Internet Protocol (“IP”) network was built in anticipation of the growth of IP traffic, and the eventual replacement of traditional telephony services with new, IP-based services. That shift is now underway as new technologies such as Voice over Internet Protocol reach critical mass. We offer our wholesale and business customers a number of different VoIP services. During 2007, we realized approximately 37% of our revenue from the sale of data and IP-related services, and expect continued revenue growth in these services in 2008.

We continue to place significant focus on developing new IP-based services. In 2007, we introduced three new IP-based services into the market and we enhanced our XOptions Flex service, now known as XO IP Flex, with certain IP-based features and functionality and higher speed options. We anticipate that, over time, services like IP-VPN will replace traditional Asynchronous Transfer Mode and Frame Relay networks. We do not have a legacy ATM or Frame Relay customer base. Therefore, the migration by customers to IP-based telecommunications services provides us opportunities for incremental growth. In 2008, we anticipate further service enhancements to our IP-based services, including a wider footprint for our MPLS IP-VPN services, added features for our VoIP services, added capabilities for our Ethernet services, and further integration of our VoIP and MPLS based services.

Utilize Our Network Assets. Our network is interoperable with both traditional and IP services. This allows customers to access our network with greater flexibility and enables us to offer solutions with significant appeal to business, carrier and wholesale customers. Our national network includes over 950 central office collocations from which we have the capability to serve over 75 major metropolitan markets across the United States. Our network footprint includes over one million fiber miles, approximately 3,000 on-network buildings, 34 Nortel DMS-500 switches , 25 Lucent 5ESS switches, 123 Sonus Networks soft switch controlled media gateways, and a new 18,000 mile next generation nationwide inter-city fiber optics network, of which 2 of 18 fiber optic strands were lit in 2006 with 400 Gbps transmission systems, with additional capacity installed in 2007 using 800 Gbps transmission systems. Ethernet over Copper (“EoC”) technology was deployed in 2007, which enables XO to reach customers with high speed Ethernet services (10 Mbps ) across over 390 wire centers. Where Ethernet over Copper is not a feasible technology, we can utilize Ethernet over Serial (“EoS”) technology to offer similar bandwidth . In late 2007, we significantly augmented our core IP network by implementing the latest Cisco CRS core router . This terabit capable router positions us well for significant growth in our IP transit services in 2008. This extensive network gives us the capability to serve over 40% of the U.S. business market for telecommunications services across all regions of the country.

This network allowed us to support the growth in IP demand as evidenced by our support of over 15 billion minutes of use on our VoIP network in 2007. We are also deploying up to 800 Gbps of high speed transport services to buildings in metro markets where major carriers are housed. Commonly referred to as “carrier hotels,” these sites expand our Carrier Services segment’s metro footprint and position as to capture greater market share of Metro IP and Wavelength services. We also increased the number of CVR and CHR routers in the network. These support the growing IP Transit business at speeds ranging from 10 Mbps to 10 Gbps.

During 2007, we continued to expand the reach of our Ethernet services. Ethernet has historically been limited to locations served by fiber, but we equipped many central office collocations to provide mid-band Ethernet services utilizing EoS and EoC. Through the end of 2007, we deployed EoC equipment in 240 central office locations across 35 markets, providing 10 Mbps access circuits to hundreds of Internet, VPN and VoIP customers. Similarly, EoS equipment has been deployed in 35 markets as well, and provides 10, 50 and 100 Mbps access to XO IP-based services.

By utilizing our IP Network, we began launching bandwidth based pricing on bundled voice and data services instead of the traditional line based pricing strategy common within the telecom market. This pricing strategy more accurately reflects the IP service portfolio which is entirely bandwidth-based and allows customers to pay based on their actual bandwidth needs.

Provide Quality Services to our Customers. We support our nationwide network with an integrated array of systems and support personnel to ensure our customers receive the highest quality of service. We employ a software-based single interface to all network fault management requirements and for advanced, highly accurate provisioning. Our professional staff monitors the network 24 hours a day, 7 days a week, with subject-matter experts available to resolve issues quickly and accurately. We offer online tools that provide customers secure, self-service portals for the creation, maintenance, tracking and reporting of a number of services. We continue to invest in several operational areas including provisioning, care efficiency and billing accuracy as a way to further improve our customers’ experiences with our services.

Leverage Nextlink Wireless Spectrum to Gain Customers and Reduce Network Costs. Nextlink’s wireless assets provide us with a unique opportunity to reach more customer locations than with fiber or more costly Type II interconnect arrangements with other carriers. In addition to marketing wireless connectivity to businesses and carriers through our sales channels, we are also replacing leased circuits in our network infrastructure with wireless solutions from Nextlink.

As one of the nation’s largest competitive communications companies, XOC is uniquely positioned as a leading local and national alternative to the ILEC for businesses and large enterprises. XOC operates in a market that continues to change rapidly as a result of technological advancements and industry consolidation. The majority of market share is maintained by the legacy ILECs. However, competitive service providers, like XOC, have succeeded in gaining market share from the ILECs by offering comparable services at competitive prices.

XOC expects to further grow its share within the retail and wholesale business-to-business telecommunications market by delivering superior service and enhancing the customer’s experience. To be proactive in repairing any network outages and to maintain the highest network quality, XOC has a 24-hour-a-day-7-day-a-wee k network operations center with a network surveillance system. XOC has call centers to support the needs of existing customers and also provides locally-based support for many large customers.

XOC uses its nationwide IP network, extensive local metropolitan networks and broadband wireless facilities provided through Nextlink to offer a broad portfolio of services. These services are aggregated into two categories, Core and Legacy/TDM. Our Core services include products utilizing next generation IP technologies and transport services and include the following components: network transport, data and Internet services; converged and VoIP services and managed services.

Network Transport, Data and Internet Services. XOC offers numerous solutions for dedicated Internet access — from traditional 1.5 Mbps T1 services to mid-band Ethernet Internet access up to 10 Mbps to high speed optical Internet access at speeds up to 10 Gbps.

XOC provides private line point-to-point connectivity. Private line services provide special access and point-to-point circuits to high volume customers, which they use for both primary and back-up circuits. In addition, fiber optic technology that enables signals to be transmitted at different wavelengths on a single fiber allows XOC to lease one or more dedicated wavelengths with connections of up to 9.6 Gbps, a transmission rate known as OC-192 . This service supports a variety of transmission protocols, including ATM, Frame Relay, and Synchronous Optical Network .

A suite of Ethernet Transport services, including Gigabit Ethernet (“GigE”), as well as inter-city Ethernet services at 10 Mbps, 100 Mbps, 1 Gbps, and 10 Gbps between markets is available on both our fiber network and through Nextlink’s fixed wireless capabilities. These services are designed to provide high-speed, high-capacity connections between customers’ Local Area Networks within and between metropolitan areas and reduce costs for customers as they eliminate the need for ongoing configuration, management and acquisition of equipment.

In addition, XOC’s facilities-based network allows it to offer data and telecommunications equipment collocation in many of its facilities across the United States. This capability allows customers to locate their equipment in secure, controlled access cabinets or cages at XOC facilities. By placing their equipment in an XOC collocation, customers enjoy easy connection to the XOC network and other carrier networks, available 24-hour-a-day-7-day-a-wee k monitoring, backup power, and other services that help customers increase bandwidth, reduce costs, avoid capital expenditures, and improve redundancy and business continuity capabilities.

Converged and VoIP Services. XOC offers a growing portfolio of Converged and VoIP services including integrated bundles, Session Initiation Protocol (“SIP”) service, and VoIP origination and termination solutions. Converged solutions allow voice and data traffic to transverse the same circuit, treating voice services as another data application. XOH is an acknowledged leader in IP telephony and our new SIP service was recognized by Internet Telephony Magazine as a 2007 Service of the Year. SIP provides a native IP connection to the newest generation of IP-based PBXs. In 2007, XOC upgraded its XOptions Flex VoIP bundle to IP Flex. IP Flex added additional speeds and features. XOptions Flex/IP Flex provides a VoIP solution for customers who want to keep their existing phone equipment. XOC has one of the largest deployments of soft-switches to support both circuit switched voice traffic and packet-based VoIP traffic, carrying over 15 billion minutes of VoIP traffic in 2007.

Managed Services. XOC Managed Services enable customers to deploy private, managed networks through our Multi-Protocol Label Switching -enabled Internet Protocol Virtual Private Network (“MPLS IP-VPN”) service. This service allows multi-location customers to securely connect their sites to achieve more bandwidth for the dollar, faster application deployment, lower network operating costs, and more access options. MPLS IP-VPN service provides the quality of service of legacy ATM and Frame Relay services, but with the scalability and flexibility of an IP network. In addition, it offers universal site-to-site connectivity, a broader selection of access options and no rigid limits on bandwidth. Customers can select Class of Service options to prioritize their network traffic.

In addition, XOC Managed Services provide network, equipment and professional services as an integrated solution for customers through our XO One managed IP-enabled PBX (“iPBX”) offerings. The offer includes iPBX installed and managed at our customers’ premises that allows customers with single or multiple locations to outsource the deployment and management of their premise-based IP systems. This solution provides businesses with the benefits and features of IP Telephony while helping to lower their total cost of network ownership by eliminating the expenses of purchasing, maintaining and managing their own voice and data equipment. XOC also offers network-based Interactive Voice Response services that provide custom-designed voice response systems that reduce costs and improve serviceability by routing calls, capturing information, locating, retrieving and communicating data and more.

Our Legacy/TDM services are predominantly deployed using TDM and circuit switched voice technologies and include the following categories: voice services and integrated voice response and hosting.

Voice Services. XOC’s traditional voice services are a proven alternative to the ILECs. XOC has negotiated and entered into interconnection agreements with applicable ILECs and certain independent carriers, and implemented permanent local number portability, which allows new customers to retain their existing telephone numbers when they choose XOC as their service provider. XOC offers a variety of traditional voice applications and services including standard dial tone (with 911 access, touch tone dialing, directory assistance, and operator assisted calling), retail and wholesale local and long distance (including international, toll-free, operator-assisted, and calling card) services, local business lines, trunks (including Primary Rate Interface), local voice features such as messaging, and voice and web conferencing.

Integrated Voice Response and Hosting. XOC offers a range of web hosting, messaging, collaboration and application hosting services to help customers manage their online business and provide online business tools to its access customers. These services include websites and application hosting, server collocation, online business applications, professional website services, and network connectivity and redundancy.

XOC operates through two customer-centric business units: XO Business Services (“Business Services”) and XO Carrier Services (“Carrier Services”). Business Services markets its telecommunications solutions to government agencies and business customers, ranging in size from growing businesses to Fortune 500 companies. Business Services provides managed IP, data and end-to-end communications solutions. Carrier Services markets wholesale solutions to carriers and other telecommunications customers. This business unit structure helps XOC increase its focus around specific customer groups, grow revenue within each customer group, and it highlights XOC’s unique competitive advantages in serving business and carrier customers as the telecommunications industry consolidates.

Business Services

Business Services provides government agencies and business customers with managed IP, data and end-to-end voice communications solutions. Business Services is focused on obtaining and retaining customers through an outstanding customer experience and profitably growing revenue through an expanding IP-based service portfolio that builds on our strong position within the small-to-medium sized business market. Business Services also leverages XOC’s nationwide network to increase its penetration in the larger enterprise market.

The United States market for wireline business telecommunications services consists of approximately 14.8 million businesses with average monthly telecommunications spending of approximately $6.3 billion. XOC’s network footprint reaches approximately 40% of that available market.

To reach its markets, Business Services employs a direct sales and support organization. In addition, Business Services has agreements with over 400 third-party national, regional and local agents and agency firms, who represent a broad range of voice, data, consulting, and equipment services that they provide to end users. These business partners extend the reach of the Business Services sales organization on a more cost effective basis.

Business customers in the U.S. telecommunications market span a wide range of sizes and needs, from small and medium sized businesses to large multi-location enterprises. Business Services is aligning its service offerings, its sales and channel strategies and its customer support models to better meet the needs of these broad customer groups:

Small-to-Medium Business (“SMB”). The lower end of the SMB group consists primarily of single-location companies that require voice and data services typically serviced through a single T1 facility and generally spend less than $1,000 per month in telecommunications services. The upper end of the SMB group consists of larger single- site or multiple site customers. These customers may require multiple service packages, some level of customized solutions and spend several thousand dollars a month in telecommunications services.

Mid-Market Business. Business Services is ideally positioned to serve the needs of mid-market businesses. These are growing companies that generally spend in excess of $5,000 per month in telecommunications services and are frequently underserved by large telecommunications providers. XOC has a range of services, from bundles that are suited to branch locations, to customized solutions that meet the needs of company headquarters locations or multi-site networks.

Enterprise. Enterprises are large commercial entities with complex communications needs. These customers require high bandwidth, secure private networks, multi-location services and unique solutions. Enterprise type customers typically spend tens of thousands of dollars or more per month in telecommunications services.

Government. Government entities from local school districts to state offices and federal agencies frequently require telecommunications solutions that are similar to mid-market and enterprise businesses. Yet, government customers have unique needs and purchasing processes necessary to meet the requirements of serving the public.

Historically XOC has served a portion of all these groups, with an especially strong presence in the SMB market. In 2007, we took steps to align the Business Services organization to better serve the mid-market, enterprise and government segments. We shifted more of our sales representatives to a mid-market role and established both an Enterprise Solutions Group and a Government team to bring greater focus to each of these respective customer groups. While this transformation began in mid-2007, we have already experienced a shift in the mix of new sales, with a higher percentage of new sales coming from these areas of increased focus.

Carrier Services

Carrier Services delivers a broad range of IP, data and wholesale voice services to ILECs, CLECs , ISPs , interexchange carriers , non-facility based resellers, building local exchange carriers, wireless service providers, and VoIP service providers. Taking advantage of consolidation within the industry and increased customer demands for bandwidth, Carrier Services also targets international carriers and cable companies. Carrier Services offers customers high-capacity, inter-city private line and inter-city Ethernet services. In 2007 XOC deployed a 400 Gbps capability in 22 large carrier hotels and in some cases upgraded some of those carriers to 800 Gbps. Expanding the metro footprint within these metropolitan markets allows Carrier Services to capture a greater share of the Metro IP and Wavelength services market. The investment in inter-city optical capacity and in customer “very high speed” routers enables Carrier Services to compete in the carrier IP business, as well as to win business with cable companies.

The Carrier Services’ business unit consists of sales and marketing, customer service, finance, field engineering and service delivery departments that work closely with Carrier Services’ customers to provide wholesale specialized solutions. In addition to wholesale versions of the services described above under the heading “XO Communications,” Carrier Services leverages the extensive XOC network to provide additional benefits to carriers.

Carrier Services offers wholesale local voice services, which allow carrier customers to expand their own service footprint with a branded local service offering, while eliminating capital costs, improving their services and reducing operating costs. IP Aggregation aggregates end-user 1.5 Mbps to 6 Mbps end-link traffic and delivers it to our customers over a clear channel DS3 . Customers without a POP in a particular city where they have purchased IP end-links have an option to backhaul their customers’ traffic across the XOC backbone to the city where their POP is located. Traffic is transported securely via MPLS and allows customers to manage their own IP address space. Wholesale long distance termination services provide solutions to terminate inter- and intra-state long distance calls with only one interconnection. VoIP Origination and VoIP Termination services provide inbound access through XOC’s IP network. VoIP Termination provides long distance connectivity to terminate IP-originated calls to the Public Switched Telephone Network . These services are used by some of the nation’s leading retail VoIP service providers

Nextlink

Nextlink provides a high-speed wireless alternative to local copper and fiber connections. Nextlink currently offers wireless backhaul , network extensions, network redundancy and diversity services utilizing broadband radio signals transmitted between points of presence located within LOS over distances of up to 13 miles. Nextlink’s services provide critical telecommunications links within customer networks without requiring them to construct their own facilities or purchase capacity from the regional ILECs. Nextlink services also provide carriers and end-user customers with network diversity and redundancy to permit them to deploy telecommunications services that are less vulnerable to natural disasters or other disruptions than traditional, terrestrial telecommunications networks.

Nextlink’s business strategy is primarily focused on preserving its licensed spectrum and validating its business model. This business strategy is focused on the following key elements:

Preserve the Spectrum. Nextlink continues to build out its wireless networks to satisfy the Federal Communications Commission’s (“FCC”) “substantial service” requirements for local multipoint distribution system license renewal purposes.

Focus on Growing Key Markets. Nextlink is focused on penetrating and growing its business in six key markets where spectrum licenses are held and where a core level of network infrastructure already exists by identifying backhaul and access opportunities within those markets and signing long-term customer service contracts.

Building Networks to Meet Customer Demand. Nextlink will build networks in additional markets in response to customer demands and with purchase commitments under long-term contracts.

Nextlink provides services in an emerging market and is subject to the inherent risks of early-stage enterprises. Nextlink’s primary target customers are mobile wireless and wireline telecommunications carriers, large commercial enterprises and government agencies that require network access, optimization and redundancy. Currently, seven customers account for all of Nextlink’s revenue. The largest customer is XOC.

Nextlink holds 91 licenses in the LMDS wireless spectrum (28-31 GHz range) and ten 39 GHz licenses. These licenses cover 75 basic trading areas (“BTA”), which are typically cities or metropolitan areas located throughout the United States. The license term of Nextlink’s broadband wireless spectrum is generally ten years. Nextlink’s licenses are renewable for additional ten year terms. In order to secure renewal of its LMDS and 39 GHz licenses, Nextlink must generally be in compliance with all relevant FCC rules and demonstrate that it is providing substantial service in its licensed areas. The tables below illustrate the details for these licenses.

An LMDS coalition filed for an extension of named member companies’ substantial service requirements on June 14, 2007. In order to utilize its resources in the most efficient manner possible, Nextlink joined this coalition and, on October 10, 2007, petitioned the FCC for extension of its B Band LMDS licenses. Subsequently, Nextlink petitioned the FCC for extension of its substantial service requirements for its A3 Band license in New York and Nextlink joined the petition for 17 of its A Band license markets.

Network

We are able to provide our services to customers predominantly over an integrated national wireline network. Our wireline network consists of metropolitan fiber rings and an inter-city fiber network capable of carrying high volumes of data, voice, video and Internet traffic. Our network consists of assets, substantially all of which we own or control through indefeasible exclusive rights or other leasing or contractual arrangements, located across the United States making us a national facilities-based carrier. Integrating these networks with additional advanced hardware and software allows us to offer our customers a comprehensive array of telecommunications services primarily or entirely over a network that we own or control.

Metropolitan Fiber Networks and Local Facilities. Our metropolitan fiber networks consist of rings of more than 900,000 fiber miles contained in fiber optic cables encircling the central business districts of numerous metropolitan areas. The number of “fiber miles” is equal to the number of route miles multiplied by the number of fibers along that path. We operate 38 metropolitan fiber networks in 22 states and Washington, D.C., including 27 of the 30 largest metropolitan areas in the United States. In the aggregate, our metropolitan area networks consist of more than 9,000 route miles of fiber optic lines connecting over 950 unique Incumbent Local Exchange Carrier end-office collocations in 38 U.S. cities.

The core of each of our metropolitan fiber networks is one or more rings of fiber optic cable in a city’s central business district that connect to our central office locations from which we can provision services to our customers. These central offices contain the switches, routers and other electronics that direct data and voice traffic to their destinations, and also have the space to house the additional equipment necessary for future telecommunications services. A critical element of our metropolitan fiber network is the number of central offices within each of our local markets in which we have located our aggregation and transmission equipment, referred to as collocations. In general, a Competitive Local Exchange Carrier is able to provision services at lower cost if it operates a collocation within a relatively short distance of its customer. Following our June 2004 acquisition of the local exchange carrier business of Allegiance, we operate collocations in over 950 central offices as part of our network. Virtually all of our collocations are concentrated in the business districts in which our target customers are located. We operate one of the most extensive collocation footprints in the United States. We believe that our extensive collocations provide us with substantial market opportunities to both sell services to our targeted business customers and to serve as points of termination for traffic originated by other carriers.

We strive to build and own these metropolitan fiber networks or obtain indefeasible rights to use fiber so that we can control the design and technology used to best meet our customers’ needs. Our IRUs allow us to use a specified amount of capacity on a specified fiber on those cables for terms ranging from 10 to 25 years. We built our high capacity metropolitan fiber networks using a backbone density ranging between 72 and 432 strands of fiber per cable. Fiber optic cables have the capacity, or bandwidth, to carry tens of thousands of times the amount of traffic as traditionally-configured copper wire. Our high-count fiber cables allow us to augment the scale of our broadband and voice services without incurring significant additional construction costs.

Our metropolitan fiber networks are connected by our own switching, routing and optical equipment. The metropolitan networks are connected to dedicated, high-capacity wavelengths of transmission capacity on our inter-city fiber optic cables, which we refer to as wavelengths. By using our own switching and routing equipment, we maximize the capacity and enhance the performance of our inter-city network as needed to meet our customers’ current and future telecommunications needs.

Inter-city Network. We have designed and built an advanced and reliable inter-city network. There are at least two physically diverse fiber paths connecting each of our markets to their adjacent markets. This allows us to reroute traffic around inter-city fiber cuts to ensure end-to-end connectivity to our customers. Metropolitan fiber rings are diversely routed to the XO POP. This ensures that customer traffic can reroute around network impairments.

Our inter-city fiber network is comprised primarily of a twenty-year IRU with respect to 18 fiber optic strands pursuant to arrangements with Level 3 Communications, Inc. (“Level 3”). This fiber network traverses over 16,000 miles and connects more than 60 cities in the United States and Canada, including most of the major metropolitan markets served by our metropolitan fiber networks. In addition, we have inter-city fiber IRUs from Abovenet Communications, Inc. (“Abovenet”) and Qwest Communications Corporation (“Qwest”) for routes totaling another 2,000 route miles.

We have lit 2 of our 18 fiber optic strands with 400G-capable transmission equipment and have lit an additional 2 fiber optic strands on segments of our network that required additional capacity with the latest 800G technology. We believe that lighting our inter-city fiber network is strategically beneficial to us. Using our own inter-city fiber optic network and associated transmission and switching equipment provides a lower cost basis for running our network and a higher level of service for our customers.

Our IP network consists of an OC-192 and a 10 Gbps Ethernet-based high-capacity backbone that runs along the same routes as our inter-city fiber optic and transmission network. Our IP backbone connects to our inter-city fiber network at ten IP backbone nodes and 70 local facilities in 38 markets, and provides connectivity to one hosting data center. These IP backbone nodes provide inter-city IP transport between each of our metropolitan fiber networks and connectivity to other Internet Service Providers (“ISPs”) which is commonly referred to as peering . Peering with other ISPs is done in each of our IP backbone facilities except for Denver.

Our IP/MPLS architecture, constructed with our own 10 Gbps wavelengths, provides the highest level of restoration available to IP networks today. Redundant routes and capacity are identified and reserved so that in the event of a failure, the network will automatically restore traffic in the shortest time possible without the need for manual intervention.

Wireless Network. Our wireless network deploys fixed wireless point-to-point and point-to-multipoint networks providing wireless broadband connectivity and incorporates encryption and authentication technologies to protect information privacy. Our primary network deployment design can be considered an “aggregation network,” meaning it is designed to collect telecommunications traffic from a large number of sites, aggregate that traffic at a single location while maintaining the integrity and quality of the multiple signals, and deliver the resulting larger stream of aggregated traffic to terrestrial, fiber-based networks for distribution across the country. Our wireless networks are also capable of separating large streams of telecommunications traffic and delivering signals as appropriate to multiple locations within an operating region from a single site. We describe the deployment of our aggregation network services as a “middle mile” solution for telecommunications service providers. Additionally, we provide “last mile” high bandwidth data solutions for enterprise and government applications.

CEO BACKGROUND

Carl C. Icahn. Upon consummation of our restructuring in February 2006, Mr. Icahn became the Chairman of the Board and a director of XO Holdings. From January 2003 until February 2006, Mr. Icahn served as Chairman of the Board and a director of XO Communications, Inc. Mr. Icahn has served as Chairman of the Board and a director of Starfire Holding Corporation, a privately-held holding company, and Chairman of the Board and a director of various subsidiaries of Starfire, since 1984. Since August 2007, through his position as Chief Executive Officer of Icahn Capital LP, a wholly owned subsidiary of Icahn Enterprises L.P. (“IEP”), and certain related entities, Mr. Icahn’s principal occupation is managing private investment funds, including Icahn Partners LP, Icahn Partners Master Fund LP, Icahn Partners Master Fund II LP and Icahn Partners Master Fund III LP. Prior to August 2007, Mr. Icahn conducted this occupation through his entities CCI Onshore Corp. and CCI Offshore Corp since September 2004. Since November 1990, Mr. Icahn has been chairman of the board of Icahn Enterprises G.P. Inc., the general partner of IEP. IEP is a diversified holding company engaged in a variety of businesses, including investment management, metals, real estate and home fashion. Mr. Icahn was chairman of the board and president of Icahn & Co., Inc., a registered broker-dealer and a member of the National Association of Securities Dealers, from 1968 to 2005. Mr. Icahn has served as chairman of the board and as a director of American Railcar Industries, Inc., a company that is primarily engaged in the business of manufacturing covered hopper and tank railcars, since 1994. From October 1998 through May 2004, Mr. Icahn was the president and a director of Stratosphere Corporation, the owner and operator of the Stratosphere Hotel and Casino in Las Vegas, which is currently a subsidiary of IEP. From September 2000 to February 2007, Mr. Icahn served as the chairman of the board of GB Holdings, Inc., which owned an interest in Atlantic Coast Holdings, Inc., the owner and operator of The Sands casino in Atlantic City until November 2006. Mr. Icahn has served as a Director of Cadus Corporation, a company engaged in the ownership and licensing of yeast-based drug discovery technologies since July 1993. In May 2005, Mr. Icahn became a director of Blockbuster Inc., a provider of in-home movie rental and game entertainment. In October 2005, Mr. Icahn became a director of WestPoint International, Inc., a manufacturer of bed and bath home fashion products. In September 2006, Mr. Icahn became a director of ImClone Systems Incorporated, a biopharmaceutical company, and since October 2006 has been the chairman of the board of ImClone Systems. In August 2007, Mr. Icahn became a director of WCI Communities, Inc., a homebuilding company, and since September 2007 has been the chairman of the board of WCI. In December 2007, Mr. Icahn became a director of Federal-Mogul Corporation, a supplier of automotive products, and since January 2008 has been the chairman of the board of Federal-Mogul. Mr. Icahn received his B.A. from Princeton University.

Carl J. Grivner. Mr. Grivner has served as Chief Executive Officer and President of XO Holdings and XO Communications, LLC and a director of XO Holdings since their respective formations on October 25, 2005. Mr. Grivner has also served as a member of the Managing Board of XO Communications, LLC since our restructuring. From May 2003 until the consummation of our restructuring, he served as Chief Executive Officer, President and a director XO Communications, Inc. From May 1, 2003 to May 15, 2003, he served as a member of the Office of the Chairman of the Board of XO Communications, Inc. From February 2002 to April 2003, Mr. Grivner was Chief Operating Officer of Global Crossing, Ltd. From June 2000 to February 2002, he was Executive Vice President, Operations of Global Crossing. On January 28, 2002, Global Crossing and certain of its subsidiaries filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. From July 1999 to April 2000, Mr. Grivner was Chief Executive Officer of Worldport Communications, Inc. From July 1998 to July 1999, he was Chief Executive Officer, Western Hemisphere of Cable & Wireless plc. Mr. Grivner received a B.A. from Lycoming College and served in the United States Marine Corps from 1975 to 1978.

Adam Dell. Mr. Dell has been a member of our board of directors since the consummation of our restructuring in February 2006 and, from January 2003 until such time, was a member of XO Communications, Inc.’s board of directors. Since January 2000, he has served as the Managing General Partner of Impact Venture Partners, a venture capital firm focused on information technology investments. From October 1998 to January 2000, Mr. Dell was a Senior Associate and subsequently a Partner with Crosspoint Venture Partners in Northern California. From July 1997 to August 1998, he was a Senior Associate with Enterprise Partners in Southern California. From January 1996 to June 1997 Mr. Dell was associated with the law firm of Winstead Sechrest & Minick, in Austin, Texas, where he practiced corporate law. Mr. Dell currently serves on the boards of directors of the Santa Fe Institute, MessageOne and OpenTable. He also teaches a course at the Columbia Business School on business, technology and innovation and is a contributing columnist to the technology publication, Business 2.0. Mr. Dell received a J.D. from University of Texas and a B.A. from Tulane University.

Vincent J. Intrieri. Mr. Intrieri has served as a director of XO Holdings since the consummation of restructuring in February 2006. Prior to that, he had served as a director of XO Communications, Inc. since January 2003. Since July 2006, Mr. Intrieri has been a director of Icahn Enterprises G.P. Inc., the general partner of Icahn Enterprises L.P., a diversified holding company engaged in a variety of businesses, including investment management, metals, real estate and home fashion. Since November 2004, Mr. Intrieri has been a Senior Managing Director of Icahn Capital LP, the entity through which Carl C. Icahn manages third party private investment funds. Since January 1, 2005, Mr. Intrieri has been Senior Managing Director of Icahn Associates Corp. and High River Limited Partnership, entities primarily engaged in the business of holding and investing in securities. Since April 2005, Mr. Intrieri has been the President and Chief Executive Officer of Philip Services Corporation, a metal recycling and industrial services company. Since August 2005, Mr. Intrieri has served as a director of American Railcar Industries, Inc. (“ARI”), a company that is primarily engaged in the business of manufacturing covered hopper and tank railcars. From March 2005 to December 2005, Mr. Intrieri was a Senior Vice President, the Treasurer and the Secretary of ARI. Since April 2003, Mr. Intrieri has been Chairman of the Board of Directors and a director of Viskase Companies, Inc., a producer of cellulosic and plastic casings used in preparing and packaging processed meat products. Mr. Intrieri also serves on the boards of directors of the following companies: Lear Corporation, a supplier of automotive interior systems and components; National Energy Group, Inc., a company engaged in the business of managing the exploration, production and operations of natural gas and oil properties; WestPoint International, Inc., a manufacturer of bed and bath home fashion products; and Federal-Mogul
Corporation, a supplier of automotive products. With respect to each company mentioned above, Carl C. Icahn, directly or indirectly, either (i) controls such company or (ii) has an interest in such company through the ownership of securities. Mr. Intrieri is a certified public accountant. Mr. Intrieri received a BS in Accounting from The Pennsylvania State University.

Peter K. Shea. Mr. Shea has been a director of XO Holdings since December 2006. Since December 1, 2006, he has been head of portfolio company operations at Icahn Enterprise Holdings L.P., an entity controlled by Mr. Icahn, and since December 27, 2006, president of Icahn Enterprises G.P. Inc., the general partner of Icahn Enterprises L.P., a diversified holding company engaged in a variety of businesses, including investment management, metals, real estate and home fashion. Since December 21, 2006, Mr. Shea has also served as a director of American Railcar Industries, Inc., a publicly traded company of which Mr. Icahn is the principal beneficial stockholder and Chairman of the board of directors that is primarily engaged in the business of manufacturing covered hopper and tank railcars, and since December 20, 2006, as a director of WestPoint International Inc., a manufacturer of bed and bath home fashion products. Since November 2006, Mr. Shea has been a director of Viskase Companies, Inc., a publicly owned producer of cellulose and plastic casings used in preparing and packaging meat products, in which Mr. Icahn has a controlling interest through the ownership of securities. From 2002 to November 2006, Mr. Shea was an independent consultant to various companies and an advisor to private equity firms. From 1997 to 2001 he was a Managing Director of H.J. Heinz Company in Europe, a manufacturer and marketer of a broad line of food products across the globe. Mr. Shea has an MBA from the University of Southern California and a BBA from Iona College.

Keith Meister. Mr. Meister has been a director of XO Holdings since the consummation of our restructuring in February 2006. Prior to that, he had served as a director of XO Communications, Inc. since January 2003. Since March 2006, Mr. Meister has served as Principal Executive Officer and Vice Chairman of the Board of Icahn Enterprises G.P. Inc., the general partner of Icahn Enterprises L.P., a diversified holding company engaged in a variety of businesses, including investment management, metals, real estate and home fashion. Since November 2004, Mr. Meister has been a Managing Director of Icahn Capital LP, the entity through which Carl C. Icahn manages third party private investment funds. Since June 2002, Mr. Meister has served as senior investment analyst of High River Limited Partnership, an entity primarily engaged in the business of holding and investing in securities. Mr. Meister also serves on the boards of directors of the following companies: Motorola, Inc., a provider of global communications; American Railcar Industries, Inc., a company primarily engaged in the business of manufacturing covered hopper and tank railcars; WestPoint International, Inc., a manufacturer of bed and bath home fashion products; WCI Communities, Inc., a homebuilding company; Federal-Mogul Corporation, a supplier of automotive products; and BKF Capital Group, Inc., an investment management firm. With respect to each company mentioned above, Carl C. Icahn, directly or indirectly, either (i) controls such company or (ii) has an interest in such company through the ownership of securities. Mr. Meister received an A.B. in government, cum laude, from Harvard College in 1995.

Robert Knauss. Mr. Knauss has been a member of XO Holdings’ board of directors since the consummation of our restructuring in February 2006 and from August 2004 until such time served as a director of XO Communications, Inc. Mr. Knauss currently serves as chairman and independent director of the NYSE-listed investment fund Equus II, Inc. and as an independent director on the boards of The Mexico Fund, Inc and of WestPoint International Inc. He previously served as chairman of Philip Services Corporation from 1998 to 2000 and from 2002 to 2003 and as a director of Seitel Inc. from June 2002 to July 2004. Mr. Knauss also previously served as the Dean and Distinguished Professor of the University of Houston Law Center and as Dean of Vanderbilt University Law School. Mr. Knauss holds a J.D. from University of Michigan and a B.A. from Harvard College.

Fredrik Gradin. Mr. Gradin has been a member of XO Holdings’ board of directors since the consummation of our restructuring in February 2006. From August 2004 until restructuring was completed, he served as a director of XO Communications, Inc. Mr. Gradin has been president and chief executive officer of Explorer Group Inc., an investment management company, since its inception in 1998. Prior to founding Explorer Group Inc., Mr. Gradin served as president of Spectron Energy, Inc., a leading energy brokerage company. Mr. Gradin holds a B.A. from Rice University.

MANAGEMENT DISCUSSION FROM LATEST 10K

RESULTS OF OPERATIONS

The following tables contain certain data from our consolidated statements of operations for the year ended December 31, 2007 compared to December 31, 2006 and December 31, 2006 compared to December 31, 2005

Revenue — 2007 Compared to 2006

Total revenue for the year ended December 31, 2007 increased slightly compared to the prior year. We experienced strong growth in our core service offerings relating to Data & IP services, which are largely based on next-generation technologies. This was partially offset by decreases in our Legacy/TDM services, which are predominately deployed using TDM, circuit switched voice technologies.

Core Services. We experienced a continued growth in market demand for telecommunications services utilizing next generation IP technologies and transport services. We consider our services with these characteristics to be our core Data & IP services. These services include Dedicated Internet Access (“DIA”), XOptions Flex IP, Carrier VoIP origination and termination, Ethernet, and other IP-based solutions, as well as data services including Telco Collocation, Multi-Transport Networking (“MTNS”) and Dedicated Private Line. Our core Integrated/Voice services include PRI, Integrated Access, and XOptions, and other traditional integrated voice/data services, as well as our wholesale Carrier long distance, Carrier Long Distance Termination (“CLDT”).

For the year ended December 31, 2007, revenue from our Core Data & IP services increased compared to the prior year. During 2007, we significantly enhanced our nationwide fiber optic network and related systems architecture with next-generation equipment capable of handling voice and data in an IP environment. This allows us to service more customers at higher speeds. Furthermore, we experienced increased demand for private line and Collocation space and equipment, which occurred because of the increasing importance of privacy, speed and security sought by both commercial and carrier business in their telecommunications needs. The launch of Ethernet over Copper technology coupled with additional high speed routers also contributed to this growth. The impacts of (i) our network enhancements, (ii) new service launches and (iii) increased sales of existing services are reflected in the 23.6% increase in revenue earned from our core Data & IP services during 2007, compared to 2006.

This growth was slightly offset by a decline in revenue from our Carrier VoIP service, which occurred because several of our larger Carrier VoIP customers have experienced financial challenges which have adversely impacted their volume of activity with us. Approximately $11 million of the $100.5 million increase in core service revenue for the year ended December 31, 2007 compared to 2006 was due to settlements with a number of carriers for previously disputed interconnect receivables.

Core Integrated/Voice contains more mature integrated offerings such as XOptions and Integrated Access, as well as traditional Carrier Long Distance (“CLDT”) wholesale termination. For the year ended December 31, 2007, revenue from Core Integrated/Voice declined $31.9 million as compared to 2006. We experienced declines in traditional integrated offerings as customer demand has shifted to IP-enabled solutions such as XOptions Flex. These declines were partially offset by growth associated with higher volume associated with CLDT.

We expect revenue from Core Data & IP services, as a percentage of our total revenue, will increase during 2008 compared to 2007 as a result of growth from the continuing demand for next-generation, IP-based telecommunication services and the continued demand for more secure means customers will need to meet their telecommunications needs.

Legacy/TDM Services. Voice and data services we consider to be legacy are predominantly deployed using TDM, circuit switched voice technologies. Legacy voice and other services include basic business lines, switched trunks, local usage, commercial traditional switched long distance, carrier reciprocal access, IVR, Voice Conferencing, Calling Card and revenue from transaction based pass-through taxes. Legacy data and integrated services include DSL, Web Hosting, and Shared Tenant Services.

For the year ended December 31, 2007, revenue from services in our Legacy/TDM category decreased compared to 2006. Our Legacy/TDM services continue to comprise a large portion of our installed customer base and generate a significant percentage of our revenue. We believe certain Legacy/TDM services continue to be an important part of our overall service mix. However, on-going demand in the marketplace for our Legacy/TDM services is not nearly as strong as it is for our core services. Accordingly, we have shifted our sales and marketing efforts to focus on promoting our Core Data & IP services.

We expect revenue from Legacy/TDM services, as a percentage of our total revenue, will continue to decline during 2008 as we continue to emphasize and expand the footprint of our Core Data & IP service base within the marketplace and continue to experience turnover in the base of existing legacy customers.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations
The information in the table below should be read in conjunction with our condensed consolidated financial statements, including the notes thereto, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q. Forward-looking information with respect to our business, on a consolidated basis, is discussed at the end of each financial results analysis.

Revenue
Total revenue for the three months ended March 31, 2008 increased $11.2 million, or 3.2%, due to growth in our data and IP services, XOptions Flex product and Carrier Long Distance Termination offerings, partially offset by churn in our small business customer base. We expect 2008 revenue to remain relatively flat or increase slightly compared to 2007 revenue. As we invest for growth, we anticipate adding higher value enterprise customers to our expanding network.

Core Services. For the three months ended March 31, 2008, revenue from our core services increased $37.4 million over the same period of the prior year primarily due to the growth in our core data and internet protocol, or IP, services. Core data and IP services increased 30.0% during the three months ended March 31, 2008 as a result of our network enhancements, new service launches and increased sales of existing services. During 2007, we significantly enhanced our nationwide fiber optic network and related systems architecture with next-generation equipment capable of handling voice and data in an IP environment. This has allowed us to serve more customers at higher speeds driving demand for private line and collocation space. The launch of Ethernet-over-Copper technology coupled with additional high speed routers also contributed to this growth.
Core Integrated/Voice services contain more mature integrated offerings such as XOptions and Integrated Access, as well as traditional carrier long distance wholesale termination. For the three months ended March 31, 2008, revenue from Core Integrated/Voice increased slightly compared to same period in 2007 due to higher volume associated with carrier long distance termination. This growth was partially offset by declines in traditional integrated offerings as customer demand has shifted to IP-enabled solutions such as XOptions Flex.
Legacy/TDM Services. For the three months ended March 31, 2008, revenue from services in our legacy/TDM category decreased 17.5% compared to 2007 because we have shifted our sales and marketing efforts to primarily focus on promoting our core data and IP services. This decline in revenue is expected to continue as a result of the shift in the sales and marketing efforts. However, our legacy/TDM services are an important part of our overall service mix comprising a large portion of our installed customer base. Our legacy/TDM services generated over one-third of our revenue during the three months ended March 31, 2008.
Cost of Service
Our cost of service (“COS”) includes telecommunications services costs, network operations costs and pass-through taxes. Telecommunication services costs include expenses directly associated with providing services to customers, such as the cost of connecting customers to our network via leased facilities, leasing components of network facilities and interconnect access and transport services paid to third-party service providers. Network operations include costs related to network repairs and maintenance, costs to maintain rights-of-way and building access facilities, and certain functional costs related to engineering, network, system delivery, field operations and service delivery. Pass-through taxes are taxes we are assessed related to selling our services which we pass through to our customers. COS excludes depreciation and amortization expense.

For the three months ended March 31, 2008 compared to the same period in 2007, telecommunications services costs increased in both dollars and as a percentage of total revenue.
Telecommunications services increased $28.5 million during the first quarter of 2008, compared to the same quarter in 2007. During the three months ended March 31, 2008, growth in sales of our IP and data service lines and the incremental increase in the volume of wholesale long distance resulted in an increase to telecommunications services costs of $25.5 million compared to the same period in 2007. In addition, during the three months ended March 31, 2007, we revised our estimated cost of service related to the FCC’s Triennial Review Remand Order (“TRRO”) downward approximately $15.2 million. These increases were somewhat offset by $11.1 million of incremental savings achieved through certain network optimization projects completed during the three months ended March 31, 2008. Network optimization projects are initiatives and actions we take to reduce our costs associated with providing telecommunications services to our customers. Network optimization projects include initiatives involving network planning, network efficiency and other similar actions which vary in type, size and duration.
For the three months ended March 31, 2008 compared to the same period in 2007, network operations costs increased by $4.9 million and as a percent of revenue. The most significant contributing factor to this increase was a $4.1 million increase in personnel and contractor related expenses required to support and maintain our enhanced network. Pass-through taxes increased 29.6% during the first quarter of 2008, compared to the same period of last year due to a $4.1 million error correction related to the years 2003 through 2006. We determined certain payments for taxes due to various state and local jurisdictions had been incorrectly recorded and concluded the correction was not material to any of the affected years and corrected the liability during the first quarter of 2008.
Excluding the effects of future net dispute settlements and future changes in our liability estimates, if any, we anticipate our cost of service as a percentage of revenue for the remainder of 2008 will remain relatively consistent with the same periods in 2007.
Selling, General and Administrative
Selling, general and administrative expense (“SG&A”) includes expenses related to payroll, commissions, sales and marketing, information systems, general corporate office functions and collection risks. SG&A increased during the three months ended March 31, 2008 compared to the same period in 2007 primarily due to increased personnel related expenses. During 2007, in support of revenue growth related to our higher margin services, we significantly enhanced our nationwide fiber optic network and related systems architecture with next-generation equipment. Corresponding to these enhancements, we expanded our sales, customer service and other back-office functions necessary to provide our customer base with the highest levels of care and support. As a result, payroll, benefits and other personnel related expenses and sales commission expense for the three months ended March 31, 2008 increased approximately $13.4 million compared to the same period in 2007. The significant growth in personnel related expenses was partially offset by a $2.8 million reduction in our required provision for uncollectible accounts and a $5.7 million reduction in legal expenses. For the three months ended March 31, 2008 our provision for doubtful accounts decreased due to the ongoing effect of several initiatives directed at collecting old, past due customer accounts and reducing the number of past-due active customer accounts.

As a percentage of revenue, SG&A has remained consistent for the three months ended March 31, 2008 and 2007 at approximately 35%. We anticipate SG&A as a percentage of revenue will not significantly change for the remainder of 2008.
Depreciation and Amortization
Amortization expense declined $5.1 million for the three months ended March 31, 2008, compared to the same period in 2007 because our definite lived intangible assets became fully amortized in the second quarter of 2007. Depreciation expense remained flat for the three months ended March 31, 2008 compared to the three months ended March 31, 2007.
Interest and Other Income, Net
The $3.0 million increase in interest and other income, net for the three months ended March 31, 2008 compared to the same period in 2007 was primarily due to a $4.3 million realized gain on McLeodUSA common stock, as result of a stock conversion from the acquisition of McLeod by PAETEC. This gain was partially offset by a $1.4 million decrease in interest income and an impairment loss of $0.2 million on another marketable security during the first quarter of 2008. The decrease in interest income was related to the decrease in our cash and cash equivalents and a decline in interest rates between respective periods.
Comparison of Segment Financial Results
Overview
We operate our business in two reportable segments: wireline services through XOC and wireless services through Nextlink. XOC and Nextlink offer telecommunications services delivered using different technologies to different target customers. We do not allocate interest and other income, net, interest expense, accretion of our preferred stock or income tax expense to our two reportable segments. Additional information about our reportable segments, including financial information, is included in Note 10 of our unaudited condensed consolidated financial statements in this Quarterly Report.
XO Communications
XOC provides a comprehensive array of wireline telecommunications solutions using both IP technology and traditional delivery methods. XOC markets its solutions primarily to business customers, ranging from growing businesses to Fortune 500 companies, and to government customers. XOC also markets its solutions to telecommunications carriers and other communications customers. XOC offers customers a broad portfolio of voice, data, and bundled integrated offerings.
XOC is organized into three business units: XO Business Services, XO Carrier Services and XO Hosting and Small Business. XO Business Services is focused on business, large enterprise and government customers, XO Carrier Services targets wholesale telecommunications provider customers and XO Hosting and Small Business focuses on the small to mid-sized business customer by delivering managed telecom solutions and applications.

Because XOC earned substantially all of our revenue and incurred the majority of our costs and expenses for the three months ended March 31, 2008 and 2007, the discussion of our consolidated operations under the heading “Results of Operations” above may be used to explain the comparison of financial results for our XOC segment.
Capital Expenditures
Capital expenditures for the three months ended March 31, 2008 increased $22.6 million, or 55.3%, due to XOC’s investment in strategic, growth-related capital projects in support of business growth. We plan to continue to make investments in our technology infrastructure, operations and other areas of our business. Our capital expenditures for the three month period ending March 31, 2008 was $63.4 million. We expect that our capital expenditures for the remainder of the year will be approximately $118 to $150 million, which includes additional capital expenditures included in $22.0 million of newly approved expenditures. Our board of directors approved these new expenditures in April 2008 to lay the foundation for a long-term strategic plan, which seeks to improve operational efficiency, accelerate revenue growth and significantly shift our revenue mix requiring further capital expenditures. Without these expenditures, the Company believes it would be difficult to continue to compete against the ever increasing pressures from the Regional Bell Operating Companies.
Nextlink
Nextlink provides a high speed wireless alternative to local copper and fiber connections, utilizing licensed wireless spectrum covering 75 major markets in the United States. For a complete list of the wireless spectrum held by Nextlink and the markets covered, refer to the section entitled “Wireless Business Services” in Item 1, Business of our 2007 Annual Report. Currently Nextlink has entered into agreements to provide services in several states including California, Florida, Illinois, Massachusetts, Texas and Virginia, and expects to launch services in additional markets over the next two years. During 2008 Nextlink is focusing its marketing efforts in a few carefully selected markets to improve returns on investments. Nextlink currently offers wireless backhaul, network extensions, network redundancy and diversity services utilizing broadband radio signals transmitted between points of presence located within a line-of-sight over distances of up to 13 miles. For the three months ended March 31, 2008, Nextlink’s top three customers accounted for 75.0% of Nextlink’s revenue. One of these customers was XOC, an affiliate.

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