XO cuts the wires to start a wireless business

XO Communications will sell its wireline networking business to an entity owned by XO's chief shareholder in a bid to erase XO's debt and create a new company focused on wireless broadband, the company announced Friday.

Elk Associates, a company owned by XO controlling shareholder Carl Icahn, was the winning bidder for XO's wired network, the company said in a press release. Elk Associates will pay US$700 million for the wired networking business, a sum that will allow XO to retire its debt and invest US$300 million into the new wireless business, it said. The XO name will follow the wired networking company, while the wireless company will operate under a new name.

The new wireless company is one of the largest holders of licenses for spectrum in the 28GHz to 31GHz frequency range, according to XO. That spectrum is used to deliver wireless broadband Internet access using a technology known as LMDS (Local Multipoint Distribution Service).

In 2003, XO announced it completed trials using an LMDS network to deliver broadband wireless at speeds up to 20M bps (bits per second), but the company has not said as much about its wireless capabilities of late. Intel Corp. has dominated the wireless broadband discussion recently with its heavy promotion of the WiMax standard.

XO was one of the CLECs (competitive local exchange carriers) that sought to challenge the former Baby Bell networking companies, such as Verizon Communications and SBC Communications, in the late 1990s. However, the company ran up a substantial amount of debt building out its network and filed for Chapter 11 bankruptcy in 2002.

The transaction is expected to conclude around the end of this year or the beginning of next year, XO said.

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