XO Unwinds & Unwires
On Friday evening, XO announced that it is transforming into a fixed-wireless broadband carrier, using the spectrum it already owns in 70 U.S. markets. XO's wireline network, along with the "XO" name, is being sold for $700 million to Elk Associates LLC, an entity controlled by XO majority stockholder Carl Icahn. (See XO Goes Wireless.)
The $700 million price is about half of XO's forecasted revenues of $1.45 billion for the year ending December 2005, according to analysts polled by Thomson Financial. Much of the $700 million would be used to pay off XO's debts, with the remaining $300 million used to fund the wireless venture, which would start life debt-free.
Shareholders didn't seem thrilled with the deal, as XO stock traded down 16 cents (6.3%) at $2.38 in midday trading on Monday.
While XO never bought naming rights to a stadium, the company's story bears many other hallmarks of a classic telecom crash story.
XO filed for Chapter 11 bankruptcy in 2002 -- in itself a long and agonizing story. (See XO Finally Files for Bankruptcy.) After re-emerging, XO made several attempts at buying up large, troubled carriers in controversial deals that sometimes were fought in the courtroom.
(Nasdaq: GLBC) and (NYSE: CWP) turned down XO, but the company finally landed its fish with the $656 million purchase of Allegiance Telecom Inc., beating out (NYSE: Q) in the process. (See Court Chills Icahn's Global X Bid, Firms Fight Over C&W's US Assets, XO's Quest for Allegiance, and XO Buys Allegiance .)
Recently, XO got into the VOIP game, even joining the VOIP peering cooperative. (See XO to Launch VOIP Services, XO Launches National Biz VOIP, and XO Adds to VOIP 'Peer Pressure' .) And lately, XO has been a vocal opponent of the major telecom mergers in process, even pointing out the Federal Communications Commission's (FCC) evidence of "tacit collusion" in the deal between (NYSE: SBC) and (NYSE: VZ). (See Altnets Tackle FCC Over Merger, XO Criticises Verizon-MCI, and XO Cries Collusion .) XO had been trying to sell its wireline business for "a period of several months," according to Friday's release, and the Icahn bid wasn't a slam dunk. XO claims it entertained "multiple bids" for the wireline business and says it will even consider more bids, should anyone want to chime in.
But that scenario seems unlikely. "We believe that there are few other potential bidders for these assets, with the exception of Qwest Communications," writes CIBC World Markets analyst Tim Horan in a note issued this morning.
XO -- or whatever its new name is -- won't be starting from scratch in wireless. The company claims to own spectrum in the 28GHz to 31GHz range in more than 70 major U.S. markets. This is the spectrum intended for Local Multipoint Distribution Services (LMDS), used for last-mile broadband voice/video and data connections.
LMDS, some of you may recall, was the last big fixed-wireless hype before the WiMax bandwagon kicked into gear. Riding the telecom boom curve, operators talked up the high-frequency wireless technology in the late 90s and the dawn of the 21st century as if it were a brave new world of gigabit wireless transfer speeds.
Indeed, XO along with many others, originally started testing LMDS back in 2000.
But the technology itself had some problems. It wasn't and presumably still isn't, that effective at line-of-sight applications, and didn't work well in rain or fog. The original base stations were also quite expensive.
Combine these elements with the popping of the telecom bubble, and it's clear why most operators' LMDS plans proved to be stillborn.
Now, any planned LMDS deployments would have to compete with WiMax offerings and other properitary fixed and mobile offerings. There is no WiMax-like gear available that supports the LMDS bands. Most of the initial "pre-WiMax" kit available in the U.S. either runs in the unlicensed bands or the 2.5GHz or 2.6GHz bands. — Craig Matsumoto, Senior Editor, Light Reading
— Dan Jones, Site Editor, Unstrung, contributed to this story.
— Phil Harvey, News Editor, Light Reading, just sat around nodding his head a lot.