TAX ALLOCATION AGREEMENT

EXECUTION VERSION

Exhibit 10.3

TAX ALLOCATION AGREEMENT

     Agreement as of July 25, 2008 by and among Starfire Holding Corporation (“Parent”), a Delaware corporation, having offices at 767 Fifth Avenue, New York and XO Holdings, Inc., a Delaware corporation (“XO”), having offices at 13865 Sunrise Valley Drive, Herndon Virginia, 20171 and the XO Subsidiaries (as defined below).

     WHEREAS, Parent is the common parent of an affiliated group (as such term is defined in the Internal Revenue Code of 1986, as amended, or any succeeding law (the “Code”)) of corporations for federal income tax purposes:

     WHEREAS, Parent and its subsidiaries have been filing consolidated federal income tax returns (“Consolidated Federal Returns”) and will continue to file Consolidated Federal Returns;

     WHEREAS, XO and its subsidiaries joined the Consolidated Group (as defined below) in filing Consolidated Federal Returns for the Prior Consolidation Period (as defined below);

     WHEREAS, during the Prior Benefit Period (as defined below), the Consolidated Group utilized a Prior Consolidation Tax Benefit (as defined below);

     WHEREAS, it is contemplated that the XO Group will continue to file separate state or local income or franchise tax returns unless Parent elects, or is required by law, to file such returns on a consolidated or combined basis with the XO Group (“Consolidated State Returns”);

     WHEREAS, XO has minority shareholders and third-party lenders; and

     WHEREAS, Parent and XO believe it is desirable to provide for the allocation and payment of federal and state income tax liabilities and certain related matters.

     NOW, THEREFORE, in consideration of the foregoing and of the covenants set forth below, the parties hereto have agreed as follows:

1. Definitions .

     (i) “XO Group” means XO together with the XO Subsidiaries. “XO Subsidiaries” means all direct and indirect subsidiaries of XO that are eligible to be included in a Consolidated Return (as defined below) with XO.

     (ii) “Consolidated Returns” mean all Consolidated Federal Returns and Consolidated State Returns.

     (iii) “Federal Income Taxes” means any income tax imposed under the Code including, without limitation, the corporate income tax, the minimum tax imposed on corporations, and the personal holding company tax.

     (iv) “State Income Taxes” means any income or franchise tax imposed under the tax law of any state (or political subdivision thereof) including, without limitation, corporate income taxes and minimum taxes.

     (v) “Net Operating Loss” means the amount of any net operating loss as defined in the Code or under the tax law of any state.

     (vi) “Net Capital Loss” means the amount of any net capital loss as defined in the Code or under the tax law of any state.

     (vii) “Credit” means the amount of any tax credit allowed under the Code or under the tax law of any state including, without limitation, investment tax credits ad foreign tax credits.

     (viii) The “Regulations” means the federal income tax regulations and proposed federal income tax regulations issued by the Secretary of the Treasury interpreting the Code and state and local income tax regulations and rules issued by applicable state and local administrative authorities.

     (ix) The “Consolidated Group” means the affiliated group (as defined in the Code) of which Parent (or its successor) is the common parent, for so long as such affiliated group files a Consolidated Return.

     (x) “Tax Benefits” as to any entity (or group of entities) means the Net Operating Losses, Net Capital Losses, and Credits generated by or available to such entity (or group of entities) and any carryforwards thereof.

     (xi) “Final Determination” shall mean the final resolution of liability for any Tax for a taxable period, (i) by IRS Form 870 or 870-AD (or any successor form thereto), on the date of the final acceptance by or on behalf of a party thereto and XO’s approval (which shall not be unreasonably withheld) in the case of a challenge of any XO Tax Benefit, or by a comparable form under the laws of another jurisdiction; except that a Form 870 or 870-AD or comparable form that reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for refund and/or the right of taxing authority to assert a further deficiency shall not constitute a Final Determination; (ii) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (iii) by a closing agreement or accepted offer in compromise under Section 7121 or 7122 of the Code, or comparable agreement under the laws of another jurisdiction with such agreement or acceptance being approved by XO (which approval shall not be unreasonably withheld) in the case of any matter relating to an XO Tax Benefit; (iv) by any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered (including by way of offset) by the Tax imposing jurisdiction; or (v) by any other final disposition, including by reason of the expiration of the applicable statute of limitations or by mutual agreement of the parties.

     (xii) “Current Consolidation Tax Benefits” means any Tax Benefit for which Parent is obligated to make a payment to XO under Section 4(d).

     (xiii) “Excess XO Tax Benefits” means any Tax Benefit of the XO Group (determined as if the XO Group had always filed separate Consolidated Returns with respect to the XO Group) that reduces the liability of the Consolidated Group for Federal Income Taxes or Consolidated State Income Taxes for any taxable year ending after the date hereof in excess of

the Section 4(d) Amount. For avoidance of doubt, the Excess XO Tax Benefits shall be calculated by not taking into account the Prior Consolidation Tax Benefit.

     (xiv) “Previously Reimbursed XO Tax Benefit” means any Tax Benefit of the XO Group for which Parent has previously made a payment to XO under Section 4(d) hereof.

     (xv) “Prior Benefit Period” means the period beginning with the beginning of the Prior Consolidation Period and ending December 31, 2004.

     (xvi) “Prior Consolidation Period” means the period beginning January 16, 2003 until January 16, 2004.

     (xvii) “Prior Consolidation Tax Benefit” means the Tax Benefit of the XO Group (determined as if the XO Group had filed a separate Consolidated Return with respect to the XO Group for each year taxable year during the Prior Consolidation Period) that reduced the tax liability of the Consolidated Group during the Prior Benefit Period as reflected on the Consolidated Return filed by the Consolidated Group as adjusted by any Final Determination (but only to the extent that the utilization of such adjustment resulted in a reduction of the tax liability of the Consolidated Group).

     (xviii) “Section 4(d) Amount” shall have the meaning set forth in Section 4(d) hereof.

2. Joinder in Consolidated Returns .

     (a) XO hereby agrees and consents (i) to join with the Consolidated Group in the filing of Consolidated Returns with respect to any fiscal year in which Parent elects to file such returns, (ii) to use its best efforts to cause each of the XO Subsidiaries to consent to the filing of Consolidated Returns for such years, (iii) to furnish to Parent all information relating to members of the XO Group as may be necessary or appropriate for the preparation of Consolidated Returns, (iv) to execute and deliver to Parent, and use its best efforts to cause the XO Subsidiaries to execute and deliver to Parent, all consents, directors’ resolutions and other documentation which Parent may reasonably require to evidence Parent’s authority to file Consolidated Returns, and (v) to maintain the same fiscal year as Parent and use its best efforts to cause the XO Subsidiaries to maintain the same fiscal year as Parent for all periods in which Parent and XO are members of an affiliated group (as defined in the Code); provided, however, the foregoing shall not be interpreted to prevent XO from issuing additional stock pursuant to strategic transactions, corporate acquisitions, debt conversions and settlements, warrants, options or rights to subscribe to its stock, or for other corporate purposes, which would cause the XO Group to not be a part of the Consolidated Group.

     (b) Parent hereby consents to join with the Consolidated Group in the Filing of Consolidated Returns; provided, however, that Parent is not precluded from taking any action which would require Parent to discontinue the filing of Consolidated Returns including, without limitation, a sale or other disposition of all or a portion of its stock ownership in XO and/or the filing of an application with the Commissioner of Internal Revenue, or other appropriate authorities, including tax authorities of any state (or political subdivision thereof) (“Taxing Authorities”) on behalf of the Consolidated Group, requesting permission to discontinue the filing of Consolidated Returns.

     (c) Parent shall prepare and file Consolidated Returns on behalf of the Consolidated Group and may charge XO and the XO Subsidiaries an appropriate amount for XO’s share of reasonable out-of-pocket expenses related to the preparation of such returns. Parent shall make all decisions regarding any elections or other matters relating to the preparation and filing of Consolidated Returns; provided, however, that in making elections and other decisions with respect to members of the XO Group, Parent shall consult with the XO Group and in good faith consider their recommendations regarding the possibility of making such elections in a manner as to maximize the Tax Benefits that would be available to the XO Group.

     (d) XO will promptly pay to Parent an appropriate amount for all reasonable out-of-pocket expenses (including legal and accounting expenses) incurred by Parent in connection with any administrative or judicial proceedings with respect to such Consolidated Returns to the extent that such proceedings are reasonably allocable to the XO Group; provided however that XO will not be responsible for the payment of any such expenses to the extent they are allocable to Parent’s utilization of Prior Consolidation Tax Benefits or other of XO’s Tax Benefits unless Parent has made a payment to XO for the use of such Tax Benefits under Section 4(d).

3. Payment of Tax and Refunds .

     Subject to the provisions of this Agreement and compliance with the terms hereof, Parent shall be obligated to and shall make all payments and be entitled to all refunds of Federal Income Taxes and estimated Federal Income Taxes on behalf of any and all members of the Consolidated Group, and shall indemnify and hold the members