XOs Wireless Encore Leads With Wholesale

XO COMMUNICATIONS INC. LIFTED THE curtain in November on a plan to spin off its national wireline business for $700 million in cash, creating a new fixed wireless wholesale company under a different, as-yet-undecided name. The news brings the company spotlight full circle: It began life as wireless provider NEXTLINK Communications Inc., after all.

We will primarily be a carriers carrier,initially for mobile operators looking for backhauland providing local-loop connectivity to CLECs and ILECs.
XOs Carl Grivner

XO is among the largest holders of spectrum licenses in the 28GHz to 31GHz range, covering more than 70 major metropolitan markets in the United States. This LMDS spectrum, important in the last round of fixed wireless market attempts, has been fallow ever since. Although proprietary fixed wireless flopped a few years ago, XO CEO Carl Grivner says reprising the broadband wireless access role is warranted, given a renewed market opportunity, particularly in the wholesale segment. The company already has takers on a trial basis, and expects commercial availability in the latter part of the year.

We will primarily be a carriers carrier, initially for mobile operators looking for backhaul and providing local-loop connectivity to CLECs and ILECs, he explains. We are building out that wholesale model, and already have a customer installed with our wireless backhaul solution.

Other services will include wireless T1s, Ethernet services and Internet access. XO may set up a spectrum leasing program for service providers if it makes sense. We are open to different business models, says Grivner, But mostly it will be your standard wholesale arrangement.

Another potential market is last-mile services for businesses. We see that market as a little ways off, but wireless is becoming more accepted in that segment all the time, Grivner says. The first wave will be disaster recovery and backup services. These businesses will retain a degree of skepticism until they try it out on that basis, I feel, so it may take three to five years to build up confidence within that market.

Other factors contribute to the ventures great expectations, Grivner says. For instance, the cash from the sale will be used to pay off XOs debts, leaving $300 million or so to start the wireless venture free of debt. Secondly, the technology has matured.

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The technology has advanced from a few years ago: Its several-fold cheaper now, easier to deploy, well-tested in Europe, has more capacity, Grivner says. Weve seen others entering this market with success, and obviously broadband wireless is one of those hot areas, the new bubble, as it were. And that can be very exciting.

As for the type of broadband wireless access the carrier will deploy, that is TBD. The WiMAX standard covers a range of XOs LMDS spectrum, although the company may have to build custom gear to utilize the standard. We have put WiMAX technology to work in the lab, Grivner acknowledges. But we do need to be agnostic, so were researching a wide range of technologies that could work with our LMDS spectrum.

The new company will complete that technical vetting over the course of 2006 and expects to name some customers soon. The operator plans to start trials in the second quarter in six markets: Dallas, Los Angeles, Miami, San Diego, Tampa, Fla., and Washington D.C.

The wireline business may be gone, but is far from forgotten. Elk Associates LLC, a private entity owned by XOs controlling stockholder, Carl Icahn, has agreed to purchase the wireline business and the XO Communications brand name. However Icahn will own up to 60 percent of the new wireless company as well. Thus, the companies will continue to perform together, with commercial agreements in place to sell each others products and services on a bundled basis.

 XO Communications Inc.

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