- The Washington Times - Monday, August 13, 2001

Three maps hang on a wall in the well-organized corner office of XO Communications Inc. Chairman and Chief Executive Daniel F. Akerson. They are valuable keepsakes to Mr. Akerson, but they will not help him chart the course that leads XO out of its deep debt.
Mr. Akerson has long grown tired of talking about XO's $5.3 billion in debt and has searched for ways to change the discussion about the company he has guided since Sept. 1999.
For now, though, it is among the distinguishing characteristics of the Reston telecommunications behemoth, and its long-term health relies on Mr. Akerson's ability to find a plan to overcome the indebtedness.
Mr. Akerson, a 52-year-old Minnesota native with a long history and impressive connections, confidently predicts XO will be one of the industry's survivors. It is too early to know whether he will succeed, but Mr. Akerson recognizes the difficulty of the job.
"It's not for the faint of heart. You don't want to be a nine-to-five bureaucrat in this industry. It's a tough industry to be in," Mr. Akerson told The Washington Times in a recent interview.
Analysts remain skeptical he can chart XO's way to profitability. It is not because Mr. Akerson is unequipped to steer the 7-year-old company in the right direction. Mr. Akerson, who helped lead Nextel Communications Inc. and MCI Corp. before arriving at XO, was included on the Forbes list of America's Most Powerful People last year and is recognized as a leader in the telecommunications industry. He is a trusted soldier of wireless telephone pioneer Craig O. McCaw, who owns 19 percent of XO's common stock.
But XO's problems may simply be too big.
"The good news is that this company has people involved who are big players. The bad news is they still need a lot of money," says Ken Kotylo, telecommunications services analyst at Chicago investment banking firm William Blair & Co.
Mr. McCaw founded the company in 1994 as Nextlink Communications Inc. to market telecommunications services to busi- nesses.
As part of its plan to compete with the Baby Bells like Verizon Communications Corp. XO has remained steadfast in its belief that it must build its own national infrastructure. The alternative is to lease space on networks owned by competitors.
Building one's own network is a costly plan. XO raised $200 million in its 1997 initial public offering and $3.4 billion in equity and debt funding in 1998 and 1999 to fund construction. It sold preferred stock last year to raise another $1.2 billion then received $250 million in equity funding in April from leveraged buyout firm Forstmann Little & Co., which owns 22.4 percent of the company and once employed Mr. Akerson as a general partner.
XO also had to resort to selling high-yield bonds when it raised another $517 million this year.
"These capital-intensive industries, once you get them up and running, you have an asset that can really throw off a lot of money," Mr. Akerson says.
Last month XO reported revenue for the quarter ending June 30 of $306.8 million. That met Wall Street's expectations and was up from $140.6 million for the same period a year ago. XO estimates revenue will reach up to $1.3 billion for the year. But it accumulated net losses through the first half of the year of $904.6 million.
Despite rising revenue, XO needs still more money.
"Whether they will get it that's the wild card," Mr. Kotylo says.
A shortage of cash forced XO to scrap a $2 billion European expansion plan this year.
The company is trying to address a widely recognized funding gap the difference between the cash and access to cash it has and the cash it needs. Not only does XO need money for operations, the company's executives must figure out how to manage the debt payments on interest and principle. Debt payments balloon from 2006 to 2009.
Mr. Akerson estimates the $1.8 billion in cash and marketable securities the company had on hand at the end of June will last into the first half of 2003, and he says the company plans to renew its search for equity in six to 12 months. He says XO needs an estimated $750 million to fund all the company's capital expenses and operating costs before it is cash-flow positive.
Mr. Kotylo estimates that figure is a bit conservative and that XO may need up to $1.5 billion before it is cash-flow positive.
With the search for more capital beginning in earnest later, a new plan to eliminate some debt surfaced last month when the company began to buy back bonds that require semiannual interest payments. A pokerfaced Mr. Akerson declined last week to detail XO's plans for a debt repurchase. Repurchasing debt could boost XO's stock, which Mr. Akerson, predictably, thinks is undervalued.
XO's stock closed Friday at $1.67 on the Nasdaq stock market, down 97 percent from its high last year of $66 a share. The stock shot up 21 percent in the two days following news that XO would buy back debt.
Mr. Akerson declined to say how much money the company will spend to buy back debt.
A debt repurchase generally is a sound plan, Mr. Kotylo says, but XO must be careful not to use up its valuable cash reserves to retire debt and leave it with too little money for operations.
Good advice, perhaps, but Mr. Akerson is disdainful of analysts who try to tell him how to run XO. He has the blessing of Mr. McCaw and of Forstmann Little, whose $250 million investment in April was widely viewed as a vote of confidence in Mr. Akerson's leadership.
"I get a lot of 30-year-old analysts on Wall Street who just got out of business school who want to debate with me. They want to tell me how to spend money … I've run a couple of companies in my life, and I know what we need to do," he says.
He maintains his distaste for Wall Street even though the fall of telecommunications companies around him makes him wary. Competitive local exchange carriers Teligent Inc., in Vienna, and E.spire Communications Inc., in Herndon, filed for bankruptcy in this year.
"Wall Street was willing to feed the monster and credit was extended extraordinarily easy," Mr. Akerson says. "I would be foolish not to be concerned, but I also take some comfort in the fact that we are doing some things quite well."
Time will tell whether his map for XO leads the company in the right direction.

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