A judge yesterday approved XO Communications Inc.'s plan to emerge from bankruptcy protection, which means the Reston-based telecommunications firm will soon begin a new life as a private company with a new owner -- billionaire financier Carl C. Icahn -- who plans to look for opportunities to merge XO with smaller telecom firms.

The restructured XO will shed all but $500 million of its original $5.3 billion in debt through the bankruptcy reorganization process. Icahn, who purchased the bulk of XO's bank debt and a large chunk of its bonds, will own more than 80 percent of the firm.

The company plans to emerge by the end of the year or early next year, once it receives state and federal approval of the change in ownership.

"I think it's going to be a very good company," Icahn said in an interview yesterday. "I think there is opportunity for consolidation; we're going to be able to find other [small, local telephone firms] that we'll be able to merge with." He said he has not identified any acquisition targets.

During his career, Icahn has acquired stakes in distressed companies, including TransWorld Airlines, RJR Nabisco Holdings Corp., Texaco Inc., American Real Estate Partners LP and Trump Taj Mahal, and tried -- mostly successfully -- to return them to profitability. He now has his sights on telecom companies.

Telecom firms are "an opportunity because they're so beaten down," he said. Icahn said he will not be involved in XO's day-to-day management, and he will keep the company's current management in place.

XO was one of Washington's most prominent local telephone service providers until it filed for bankruptcy protection in June. The company, which operates in 63 cities, was also among the most ambitious of the new upstart telecommunications firms seeking to sell voice, Internet and data services in the United States and Europe.

"It's been a very tough year," said Daniel F. Akerson, chairman and chief executive of XO. The company spent $15 million to $20 million on bankruptcy fees, and management spent countless hours negotiating the restructuring, he said.

"But none of the senior management team left," and the company still employs 5,100 people, which is down from its peak of 6,450, he said.

In addition, the company is generating cash from operations and did not lose many of its 215,000 customers during the bankruptcy process. Now it will be able to market itself without the cloud of bankruptcy over its head, Akerson said.

Researcher Karl Evanzz contributed to this report.

Financier Carl C. Icahn, XO's new owner, plans to merge the company with other, smaller telecom firms.