Allegiance-XO: Wholesale’s Double-Team

XO Communications Inc. President of Carrier Services Ernie Ortega says he cannot break down the numbers, but the big picture is clear. XO will have better network coverage in U.S. cities following the acquisition of Allegiance Telecom Inc., helping the Reston, Va., company be more competitive in the wholesale market. “Obviously, it makes us more competitive,” Ortega says. “The main factor that drives price point is footprint.”

In February, XO announced winning the bid to acquire most of Allegiance Telecomms assets in 36 markets for $311 million in cash and 45.38 million shares of XO common stock. The agreement, XO says, will add 100,000 customers and bring its annual revenue to more than $1.6 billion, positioning the company as one of the largest competitive telecom providers. Frost & Sullivan analyst Rod Woodward says the acquisition of small and medium-sized businesses represents the most important aspect of the deal.

Senior executives at Allegiance and XO say the agreement also will strengthen XO’s wholesale business. Both companies declined to specify their annual wholesale revenue.

Ortega says XO will double the number of central offices where it has a presence, with a combined network reaching approximately 900 locations. XO and Allegiance overlap in 33 markets. Through the acquisition, XO also is expanding its network to northern New Jersey, Long Island and Ontario/Riverside, Calif.

Allegiance owns 31 Class 5 switches used to connect approximately 850 COs in 36 local markets. John Dumbleton, senior vice president of wholesale services and alternate channels with Allegiance, says Allegiance brings an important wholesale product to XO: so-called TDM aggregation used to provide carriers T1 loops. Dumbleton also says Allegiance has developed automated back-office systems that will allow the combined XO and its wholesale customers to realize cost savings.

On Feb. 9, XO named Ortega to lead its carrier division. At the time, the Reston, Va., carrier disclosed creating a support system dedicated entirely to carrier sales. That system includes customer care, product management, sales engineering and service delivery.

As PHONE+ was going to print, the future of Dumbleton and other Allegiance executives, including CEO Royce Holland, had not been determined. During an interview in early March, Allegiance spokesman Jerry Ostergaard said April was the target month for getting a management team in place. XO and Allegiance have a combined workforce of approximately 6,900 employees, although 600 Allegiance employees are part of an equipment business that XO is not acquiring. As of March, it was not known how many people the combined company would employ.

Dumbleton declined to provide specifics on how the carriers were integrating the networks. “We are all very focused [on figuring out] what does each company do very very well,” he says.

Ortega says one thing is clear: XO has four distinct assets that position it effectively in wholesale market: LMDS spectrum covering 95 percent of the top 30 markets; an IP network; an intercity backbone and a metropolitan footprint in 70-plus markets. “That pretty much sets XO up as a significant player in the wholesale game,” he says.