Icahn, who is buying XO through his New York-based Elk Associates, gained control of XO in 2003 as part of a Chapter 11 reorganization.
XO, which will use the money to retire long-term debt, plans to rename itself, American City Business Journals reported Monday.
The as-of-yet-named wireless business and XO's continuing wireline business are expected to co-market and sell each other's products and services.
"The action we take today will create a pure-play fixed broadband wireless provider that combines significant resources with in-depth industry expertise to meet the growing demand for high-bandwidth broadband wireless services," says XO Chief Executive Carl Grivner in a statement.
"Our new focus on fixed wireless communications will enable us to offer robust fixed wireless solutions to businesses, mobile phone companies and wireline telecommunications companies."