XO Communications may be finding the integration of its recent acquisition, Allegiance Telecom, trickier than it anticipated. The national CLEC's third-quarter earnings report — the full first quarter following the close of that deal — has analysts casting doubts on the combined company once hailed as a new supercompetitor.

XO reported a 37% sequential increase in recurring revenue for the third quarter and a 15% increase in recurring EBITDA (excluding a multimillion-dollar one-time settlement). Though its $5.5-million recurring EBITDA was better than the $4.7 million it earned in the second quarter, it still fell far short of the $7 million expected by research analysis firm Needham & Company. Excluding contributions from Allegiance, Needham analyst Vik Grover estimated XO's EBITDA was “sharply negative.”

“Despite management's claims, [XO's EBITDA suggests it] is not executing on its streamlining and turnaround initiatives but instead milking the EBITDA-positive Allegiance Telecom property to subsidize results,” Grover wrote in a recent research note. “The company may need…additional funding if it is not able to flawlessly execute its plan.”

Grover believes that XO may be having trouble blending its assets because XO's network was built using equipment from Nortel Networks, while Allegiance's network was built by Lucent Technologies. The FCC also is making it hard for XO to migrate certain access circuits to unbundled network element T-1s. Those factors, and the fact that XO did not retain much of Allegiance's talent, give Grover doubts that XO will be able to realize all of its proposed $100 million a year in synergies.

An XO spokesman argued that XO's results are more favorable than the declining revenues being reported by peers like MCI and AT&T. Yet, Broadwing just reported results in line with expectations a month after closing its purchase of Focal Communications.

XO's 10-K filing said quarterly revenue for the next year should be “relatively stable with” third-quarter revenues. But Grover said XO's EBITDA should improve over the next several quarters as XO purges network redundancies.

Perhaps fanning the flames of analyst and investor anxiety, XO hasn't conducted a quarterly earnings call since before it declared Chapter 11 bankruptcy in June 2002. Grover also said XO hasn't been returning phone calls lately.

“The company needs to talk to the street,” he said in a recent e-mail.

“When we're ready to do that, we'll do that,” said the XO's spokesman.