After months spent pondering its future, XO Communications took the unusual step of breaking itself apart, spinning the existing competitive carrier business off to its largest investor, Carl Icahn, and creating a new wireless business in the process.

Proceeds from the $700 million wireline sale will be used to pay off debt and to fund operations of the wireless carrier, to be named later, which will focus on the service provider market, both in backhaul and last-mile access. The new company will take advantage of the spectrum XO owns in the 28 GHz to 31 GHz local multipoint distribution service band.

XO CEO Carl Grivner said the move will help both halves of XO.

“I would say our wireless assets have been undervalued — this breaks those off into their own entity,” he said. At the same time, XO will now be debt-free and in position to consider further expansion as the CLEC industry continues to consolidate, Grivner said.

The wireline business will still face the challenge of proving its financial stability to customers, said Brian Washburn, analyst with Current Analysis, who views the move as positive for investors. Competitors “can paint an image of a CLEC run by an investor that is willing to make radical moves without consideration for the health of XO itself or the best interests of its customers,” he said in a Current Analysis report.

Grivner said the wireless entity is particularly interested in wireless backhaul, a booming market now that cellular providers are building 3G networks, but the company is also testing the WiMAX waters.

ONLINE EXTRA

Carol Wilson also recently reported on how competitive carriers are generally beginning to create closer ties to wireless operations. You can find that story on our Web site.
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