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XFONE, Inc. (XFN)

Q1 2011 Earnings Conference Call

May 17, 2011 10:00 AM EST

Executives

John Nesbett – Founder and President, IMS

Guy Nissenson – President and CEO

Niv Krikov – CFO

Analysts

Ben Atkinson – Gagnon Securities

[Presentation]

Question-and-Answer Session

Operator

We will now conduct a question-and-answer session. (Operator Instructions) One moment while we poll for questions. Our first question comes from Ben Atkinson with Gagnon Securities. Please state your question.

Ben Atkinson – Gagnon Securities

Yes, good morning. My question, Guy, is on the opportunity for backhaul in the new PRIDE build-out areas. Could you just give us a little bit more detail there on, what you see is the opportunity?

Guy Nissenson

Okay. So as you probably know with all the bandwidth growth that is happening due to the smartphones, iPads, BlackBerrys et cetera, the need for reliable fiber optic based backhaul system is paramount. And then where we built now in this PRIDE network and then both in Texas and in Louisiana, for the most part, there is no one that can provide or very few companies that can provide backhaul services to the degree that we can.

And what we are doing at the moment is starting to sign-up wireless companies to backhaul their mobile data services into their main networks. One of the good things about doing that, is that the incremental EBITDA is very high on these types of services because the fiber is already in the ground and for us it’s another way to use the same systems. So we are very happy with the two companies that’s already signed. And we expect to grow to more cell towers with these providers and also hope to sign additional providers as we continue to grow the PRIDE network out.

Ben Atkinson – Gagnon Securities

Can you give us a sense for what the revenues could be for this business, maybe just from the perspective of – over the long-term what the overall market size could be?

Guy Nissenson

We are not completely sure with regards to what the current network providers are paying at the moment. Obviously this is an upgraded in backhaul solution for them. And we don’t have the exact figures. I can say that we hope to grow this to be a relatively high revenue base for us as we build product but we don’t have the exact figure at the moment.

Ben Atkinson – Gagnon Securities

Thank you.

Guy Nissenson

You’re welcome.

Unidentified Analyst

Guy, another question. On the PRIDE network, how much of what you’ve learned in Lubbock and other areas have you expanded, are you able now to take into PRIDE and will the PRIDE network build out in a more efficient way?

Guy Nissenson

Yes, obviously we’ll have everything we do and I think the fact that we have done another project with the same entity in the U.S. government with USDA is helping us a lot with regards to build a network quicker to understand exactly what they need, and also to be able to report them in a kind of timely fashion and everything.

I think we also learned quite a lot from them in what is the actual costs that we have to spend and if we went into Levelland, with a lot of matters that were not completely clear, in PRIDE, there is nothing like that. We are currently building everything in PRIDE on the basis of what we already know in Levelland which has kind of helped us to hopefully gain lower cost base from suppliers in calculating correctly the cost of each of the component from the actual build out to the set-top boxes. Everything now is much – we know much more about because we’re doing it in Levelland.

Unidentified Analyst

Okay. On this backhaul opportunity that, Ben, was asking you about, could you instead of talking about in terms of revenues, if you were getting ex capacity utilization, how much increase in utilization might you get, do you think?

Guy Nissenson

I think once we put the fiber in the ground, it’s almost limitless when you connect these types of cell towers. We’re looking to try and provide every cellular company in the area with this backhauling ability. And the more we see customers move into things like smartphones and iPads, et cetera, the more bandwidth we will have to carry and obviously the more bandwidth we’ll have to carry, the higher the revenues.

I think that comes together with other needs for fiber for example as cloud computing grows, there is no doubt that only high bandwidth type services will be able to carry this type of data in and out different network areas. So I think these two things together, the trend of kind of cloud computing or remote computing and also the fact that people are moving into higher bandwidth mobile services will fully utilize our network in the PRIDE network area and also elsewhere like Levelland and Lubbock.

Unidentified Analyst

Okay, thank you.

Operator

(Operator Instructions) Thank you. Ladies and gentlemen, there appears to be no further questions at this time. I’ll turn the conference back to management for closing remarks. Thank you.

Guy Nissenson

Okay, thank you very much for calling in. The company really appreciates your continued support and hope you’ll join us again on our next quarterly call. Thank you very much.

Operator

Thank you. This concludes today’s conference. All parties may now disconnect. Have a great day.

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