XO Spins Off Wireline to Go Wireless

XO Communications this week said it is spinning off its wireline assets to focus on fixed broadband wireless service to businesses and service providers.

XO, a CLEC, is selling its national wireline telecommunications business for US$700 million in cash to finance its transition to a fixed broadband wireless provider. The buyer is Elk Associates, an entity owned by XO’s controlling stockholder, Carl Icahn, which has executed a definitive agreement to purchase the wireline business.

The agreement is the culmination of several months of evaluating multiple bids for the wireline business. But the agreement also allows XO to consider “superior proposals from third parties in certain events,” subject to paying Elk Associates a break-up fee of 1 percent of the consideration payable in the transaction.

Qwest is said to be considering XO’s wireline assets. Qwest would not comment specifically on whether it bid for the XO wireline assets, saying only that it “continues to evaluate opportunities that make business sense.”

XO also adopted a golden parachute plan back in June in the event of a change of management at the company.

Following the sale to Elk, XO will retain its fixed broadband wireless spectrum assets in the 28-GHz to 31-GHz range, which covers more than 70 U.S. metropolitan markets. XO anticipates operating its fixed wireless business under a new name because the “XO Communications” brand name will remain with the national wireline telecommunications business.

The transaction is anticipated to close in late 2005 or early 2006.

The proceeds from the sale of the wireline business will be used to repay XO’s outstanding long-term debt, to offer to redeem, at the closing of the sale, XO’s outstanding preferred stock and to fund growth and development of the wireless business. Once the sale is completed, the wireless business will be debt-free and is currently expected to have in excess of $300 million in cash to fund its operations and for other corporate purposes.

XO’s wireless services have already been made available to businesses and wireless service providers in select markets. The carrier plans to launch its services on a wider basis in the near future.

The wireless and wireline companies are expected to enter into commercial agreements to sell each other’s products and services.

By Jim Duffy – Network World (US online)