BEST PRACTICES RESEARCH

Competitive Strategy Leadership, VoIP Access and SIP Trunking

Services Markets, North America, 2010

Frost & Sullivan’s Global Research Platform

Frost & Sullivan is entering its 50th year in business with a global research organization of
1,800 analysts and consultants who monitor more than 300 industries and 250,000
companies. The Company’s research philosophy originates with the CEO’s 360 Degree
Perspective, which in turn serves as the foundation of its TEAM Research methodology.
This unique approach enables us to determine how best-in-class companies worldwide
manage growth, innovation and leadership. Based on the findings of this Best Practices
research, Frost & Sullivan is proud to present the 2010 North American Competitive
Strategy Leadership Award in the VoIP access and SIP trunking services market to XO
Communications.

Significance of the Competitive Strategy Leadership Award

Key Industry Challenges Addressed by Competitive Strategy Leadership

The majority of competitive local exchange carriers (CLECs) have identified voice over
Internet Protocol (VoIP) and SIP (Session Initiation Protocol) trunking as key market
differentiators when competing against established incumbents. Many acknowledge that
the capabilities and the value proposition of IP trunking extend beyond the technology
being just a cost-effective means for transporting voice. The technology is in fact a key
enabler for achieving interoperability between unified communications (UC) applications
and carrier IP-based voice platforms. CLECs are increasingly attracted by the capabilities
offered by newer technologies such as SIP, including easy service creation, full multimedia
capabilities, considerable reduction in capital and operating expenditures, full personal
mobility and presence, integration of communications with IT applications, end-user
control, and greater interoperability.

While incumbents are largely focused on the commercial and large enterprise markets,
CLECs have managed to strengthen their hold on the small and medium business (SMB)
segment for VoIP and integrated access. They are now looking to expand this reach into
the large enterprise segment by offering SIP trunking services, positioning its multimedia
capabilities as a key value-add in a broader scheme of enterprise communication needs,
which involve adding communication capabilities to line-of-business applications and
integrating these with enterprise communication platforms.

CLECs, many of whom started off by offering basic VoIP access, have been quick to realize
the market opportunity for value-added services targeted at larger enterprises such as
trunk overflow and dynamic sharing of trunk capacities, along with interoperability for
desktop UC products such as Microsoft Office Communications Server (OCS) R2.

© 2010 Frost & Sullivan 1 “We Accelerate Growth”

 BE
EST PRACTI
ICES RESEA
ARCH

XO Communications s has aggre

essively purs
sued the VooIP market opportunityy for several
years no
ow, having consistently
c y launched products
p tha
at address different
d customer
segmentts and their unique nee
eds.

Impact of Compettitive Strattegy Leadeership Awaard on Key Stakehold

ders

The Competitive Strategy Leadership

L Award is a prestigious recog gnition of XO’s
accomplishments in n the VoIP access and SIP trunkiing services s sector. An
A unbiased d, 3rd
party rec
cognition caan provide a profound impact in enhancing th he brand vaalue and the ereby
accelerating XO’s growth.
g s captured in Chart 1 below, by researching, ranking, and
As
recogniz
zing those who
w deliver excellence and best practices in their
t respecctive endeavors,
Frost & Sullivan
S hoppes to inspire, influence, and impa act three sp
pecific consttituencies:
• Investors
nvestors an
In nd shareholders alway ys welcome e unbiased and imparrtial third party
p
re
ecognition. Similarlyy, prospective investo ors and sh hareholders are drawn to
coompanies with
w a well-e
established reputation for excellen nce. Unbias sed validation is
th
he best and most crediible way to showcase an a organizattion worthy of investment.
• Customers
C
3rd party industry reco ognition has been pro oven to be the most effective
e waay to
assure custo omers that they
t are partnering witth an organization thatt is leading in its
field.
• Employees
This Award represents the creativ vity and de edication off XO’s execcutive team and
employees. Such public recognitio on can boo ost morale and inspire e your team to
coontinue its best-in-clas ve strategy leadership for XO.
ss pursuit off competitiv
C h a r t 1: Be s t P ra
r c tic e s L evera
e g e f o r G row t h A c c el e r a t io n

Key Ben
nchmarkin
ng Criteria for Comp etitive Str ategy Lead
dership Aw
ward
For the Competitive
C e Strategy Leadership
L A
Award, the following crriteria were used to
benchma ark XO Com
mmunication ns’ performa
ance agains
st key competitors:

© 2010 Frost & Sullivan 2 “We Acccelerate Growth”

 BE
EST PRACTI
ICES RESEA
ARCH

• Lev
verage of Coompetitive Intelligence
I
• Exe
ecution of Competitive Strategy
• Imp
pact on Marrket Share
• Com
mpetitive Brrand Positio
oning (brandd strength and
a unique market pos
sition)
• Imp
pact on Customer Satis sfaction/Value

Decisioon Suppo rt Matrixx and Me asuremen

nt Criteriia

To suppo ort its evalu

uation of besst practices across mulltiple busineess performance catego ories,
Frost & Sullivan em mploys a customized Decision Su upport Matrrix (DSM). The DSM is i an
analyticaal tool thatt compares s companies s’ performa ance relativve to each other with an
integration of quanttitative and qualitative metrics. The DSM features criteria a unique to each
Award ca ategory and d ranks imp portance by assigning weights to each criteriion. The relative
weighting reflects current
c marrket conditions and illu ustrates thee associatedd importanc ce of
each critterion accorrding to Froost & Sullivaan. Fundam mentally, eac ch DSM is distinct
d for each
market and Award d category. The DSM allows our research and consu ulting team
ms to
objectiveely analyze each com mpany's perrformance on o each crriterion rela ative to its
s top
competittors and ass sign perform
mance rating gs on that basis.
b The DSM
D follows a 10-point scale
that allow
ws for nuan nces in perfo
ormance eva aluation; rattings guidelines are sho
own in Charrt 2.
C h a r t 2: Pe
P r f o r ma nc
ce -b a s ed Ra
R t i ng s fo
o r D e c is io n S up po r t Matrix

This exeercise encompasses alll criteria, leading

l to a weighted d average ranking
r of each
company y. Researchers can then easily iddentify the company with
w the highhest ranking
g. As
a final step, the res
search teamm confirms the veracity y of the moodel by ensuring that small
s
changes to the ratings for a specific
s critterion do noot lead to a significant change inn the
overall relative
r rank
kings of the
e companiess.

© 2010 Frost & Sullivan 3 “We Acccelerate Growth”

 BEST PRACTICES RESEARCH

Ch a rt 3: Fro s t & Su lliva n’ s 10 S te p P ro ce ss f o r Ide n tif y in g Awa rd- Rec ip ien ts

Best Practice Award Analysis for XO Communications

The Decision Support Matrix, shown in Chart 4, illustrates the relative importance of each
criterion for the Competitive Strategy Leadership Award and the ratings for each company
under evaluation. To remain unbiased while also protecting the interests of the other
organizations reviewed, we have chosen to refer to the other key players as Competitor 1
and Competitor 2.
Ch a rt 4: De c is ion Sup p o rt M a trix f o r
C o m p e t i t iv e S t r a teg y L e a d e rs h ip Awa rd

Measurement of 1–10 (1 = lowest; 10 = highest) Award Criteria

Execution of Competitive
Leverage of Competitive

Impact on Market Share

Impact on Customer

Weighted Rating
Competitive Brand

Satisfaction/Value
Intelligence

Positioning
Strategy

Relative Weight (%) 20% 20% 20% 20% 20% 100%

XO Communications 7 9 8 8 8 8

Competitor 1 7 8.25 7.5 7. 5 7.5 7.55

Competitor 2 7 7.5 7.25 7 7 7.15

© 2010 Frost & Sullivan 4 “We Accelerate Growth”

 BEST PRACTICES RESEARCH

Criterion 1: Leverage of Competitive Intelligence

XO Communications consistently demonstrates an ability to offer products and services that

leverage the latest technology and service models, be it VoIP, SIP trunking or managed
services. The company has been continuously strengthening its network assets and
platforms while simultaneously expanding its services portfolio. XO Communications’
services are targeted at a diverse customer audience, right from small business customers
who look for streamlined products at a lower cost to large businesses that focus on scalable,
robust and versatile solutions. Its turnkey managed services are designed to be future-
proof, as the company has time and again proved it can anticipate market needs and tailor
its products to address emerging business needs. Over the years, XO’s capability matrix has
broadened in scope and complexity to include products like IP Flex, IP Flex with VPN, XO
SIP and XO Enterprise SIP.

Criterion 2: Execution of Competitive Strategy

XO Communications has proactively sought to address the needs of businesses looking to

consolidate trunks and voice platforms, centralize management and administration, become
more self-sufficient and reduce their reliance on other companies for technical support. In
order to efficiently address such market needs, providers need to ramp up their network
assets to be able to offer attractive application bundles. XO Communications has
consistently enhanced its network capabilities, having recently launched a 40 Gbps network
across all the key metros in the U.S., which allows ultra high-bandwidth and low-latency
network connectivity to its enterprise and wholesale customers. The company also last
expanded its nationwide VoIP service footprint to cover nearly all 50 states and nearly 3,000
cities. Later this year, the company plans to trial a nationwide 100 Gbps Ethernet service
both at the transport layer and at the IP-MPLS layer as part of an ongoing attempt to
enhance capacity. The company’s decision to support higher channel speeds will help in
delivering more specialized and value-added applications such as video to its customers.

In 2009, XO Communications launched XO Enterprise SIP, which offers automatic failover

from one Enterprise SIP connection to another, ensuring redundant paths to the PSTN even
if one of the primary SIP connections is unavailable. Enterprise SIP gives multi-location
businesses the flexibility and scalability to transform their distributed voice network
architecture into a more centralized and cost-effective VoIP environment. The service also
offers enormous flexibility by allowing businesses to route voice traffic to the SIP trunking
sites either over their own private data networks, a third-party VPN (Virtual Private
Network), or XO’s MPLS IP-VPN service.

Over the last few years, network enhancements and strong provisioning standards, aided by
superior customer service, have helped the company to migrate customers from
competitors’ service offerings.

© 2010 Frost & Sullivan 5 “We Accelerate Growth”

 BEST PRACTICES RESEARCH

Figure 1: Growth Excellence Matrix – XO Communications

4.5

4.4
XO Com m unications
Growth Strategy Excellence

4.3
3.8 3.9 4.0 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9

4.2
Com pany B

4.1

4.0

Com pany C
3.9
Implementation Excellence

Note: Size of the bubble indicates the degree of leadership in customer Source: Frost & Sullivan
value and market penetration.
Criterion 3: Impact on Market Share

In 2009, XO Communications continued its strong performance in the North American VoIP
access and SIP trunking market, emerging as the leader in terms of users, with a 22.2
percent share of the 3.8-million-user market. It also registered a strong revenue growth of
21.5 percent for the year. Its impressive performance can be attributed to new customer
additions and an ever-expanding network footprint in key business regions such as southern
California. The company has been aggressively building out its IP-MPLS infrastructure in
order to offer value-added services in an effort to stem the anticipated decline in legacy
TDM voice revenues. Frost & Sullivan believes that this strategy will help the company
generate incremental revenues from value-added services that would more than offset the
decline in its legacy voice business.

Criterion 4: Competitive Brand Positioning

The XO brand has come to be associated with high service levels, stringent provisioning
standards and excellent value for money. The company currently has 25,000 business
VoIP/SIP customers, three-quarters of them being small businesses that look for complete
end-to-end solutions from a single vendor. XO’s IP Flex with VPN extends quality of service
(QoS) assurances all the way up to the switching platforms on the customer’s premises. To
the small business customer, it offers a managed router option, which is deemed extremely
valuable in environments with little in-house IT expertise. It offers free online tools to help
customers monitor connectivity and network performance and run real-time tests on their
bandwidth. The company has also geared up its internal systems and processes to shorten
service delivery enable agents to make better decisions based on consolidated views of their
customers and reduce operational costs through automation of workflow processes.

Criterion 5: Impact on Customer Satisfaction/Value

XO Communications has a growing base of satisfied customers who continue to leverage

networks and related services for enhancing productivity, achieving lower costs and
increasing their competitiveness. The company offers 99.999 percent network availability,

© 2010 Frost & Sullivan 6 “We Accelerate Growth”

 BEST PRACTICES RESEARCH

and a response time of under-30 minutes in the event of an outage. For VoIP services SLAs,
the company compensates with credits prorated on monthly charges for outages exceeding
one hour. Such stringent service level standards have ensured low customer churn even
during times of severe business uncertainty. Over the last few years, the company has
started diversifying its customer base to include larger, high-value accounts consisting of
multi-site, distributed enterprises across select verticals. The company has a clear services
roadmap that includes Microsoft OCS interoperability, fixed-mobile extensions, mobility,
hosted PBX, and contact center on demand, which would enhance customer value by
ensuring quick return on investments.

Going forward, Frost & Sullivan believes that XO Communications will continue to
aggressively consolidate its market position and grow revenues and profitability through its
steadfast focus on IP-enabled services coupled with superior service levels.

The CEO 360 Degree Perspective T M - Visionary Platform for Growth

Strategies
The CEO 360 Degree Perspective model provides a clear illustration of the complex
business universe in which CEOs and their management teams live today. It represents
the foundation of Frost & Sullivan's global research organization and provides the basis on
which companies can gain a visionary and strategic understanding of the market. The 360
degree perspective is also a “must-have” requirement for the identification and analysis of
best-practice performance by industry leaders.

The 360 degree model enables our clients to gain a comprehensive, action-oriented
understanding of market evolution and its implications for their companies’ growth
strategies. As illustrated in Chart 5 below, the following six-step process outlines how our
researchers and consultants embed the 360 degree perspective into their analyses and
recommendations:

© 2010 Frost & Sullivan 7 “We Accelerate Growth”

 BE
EST PRACTI
ICES RESEA
ARCH

C h a rtt 5: How t he C EO 's 3 60 Deg re e Perspectt i ve M o d e l D irect O urr R esea rc h?

h

Criticaal Import ance of TEAM

T Reesearch
Frost & Sullivan’s TEAM Rese earch meth hodology re epresents the
t analytic
cal rigor off our
researchh process. Itt offers a 36
60 degree view
v of indu
ustry challen
nges, trends, and issue es by
integrating all 7 of Frost & Su ullivan's research meth hodologies. Our experie ence has sh hown
over thee years thaat companie es too oftenn make important gro owth decisio ons based on a
narrow understand ding of the eir environm ment, leadiing to erro ors of both h omission and
commiss sion. Frost & Sullivan contends
c that successfful growth strategies
s are founded on a
thoroughh understa anding of market, te echnical, economic,
e financial, customer, best
practices
s, and demmographic an nalyses. In that vein, the letters T, E, A an nd M reflectt our
core technical, econnomic, appllied (financiial and bestt practices) and marke et analyses.. The
integration of these
e research disciplines
d into the TEAAM Research h methodology provide es an

© 2010 Frost & Sullivan 8 “We Acccelerate Growth”

 BE
EST PRACTI
ICES RESEA
ARCH

evaluatio
on platform
m for bench hmarking in
ndustry pla
ayers and for
f creating
g high-pote
ential
growth strategies
s fo
or our clientts.
C h a r t 6: Be n chm
m a rk i n g Pe
e rf o rm an c e w i th TE AM Re s ea rch

About XO Com municati ons

XO Com mmunicationns, a subsid diary of XO O Holdings,, Inc. (OTC CBB: XOHOO), is a leaading
nationwide provider of advanc ced b r o ad b and commmunications services and solution ns for
business ervice providers. Its cu
ses, enterprrises, government, carrriers and se ustomers incclude
more thhan half of the Fortun ne 500, in addition to leading cablec comp
panies, carrriers,
content providers and
a mobile network op perators. Utilizing its unique comb
bination of high-
h
capacity nationwidee and metrro networks s and broaddband wirelless capabilities, XO offers
o
customeers a broa ad range of o manage ed voice, data and IP service es with prroven
performaance, scala
ability and value in more
m than 75 metropolitan mark kets acrosss the
United States.
S

About Frost & Sullivan

Frost & Sullivan, th

he Growth Partnership p Company,, enables cllients to ac
ccelerate grrowth
and achieve best inn class positions in groowth, innovvation and leadership. The compa any's
Growth Partnership
P Service pro
ovides the CEO
C and the CEO's Growth Team with discip plined
research
h and best practice
p models to drivve the generation, evalluation and implementation
of powerrful growth strategies. Frost & Sullivan leverages almost 50 years of experience in
partnerin
ng with Global
G 10000 companie es, emerging busines sses and the investm ment
commun nity from 311 offices on six contine
ents. To join
n our Growth Partnersship, please visit
http://w
www.frost.coom.

© 2010 Frost & Sullivan 9 “We Acccelerate Growth”