McLeod CEO ready to step down, believes consolidation will continue

On what he hopes will be the eve of a successful acquisition by Paetec, McLeod USA CEO Royce Holland is looking forward to not working full time. But he still has a lot to say about the competitive service provider space he helped create, as an early member of the Metropolitan Fiber Systems team and the founder of Allegiance Telecom (now XO Communications).

Holland foresees more consolidation for the competitive service providers, to potentially include expansion globally through acquisition, believing the healthier competitive industry is one that doesn’t include too many companies chasing the same business.

“I’m hopeful that consolidation will continue to gain momentum,” Holland said in a telephone interview from his office in Dallas. “The problem with the competitive industry is that it has always been way too fragmented. That is what led to industry meltdown back in the late 1990s – there were way too many companies chasing the same market opportunities. There were way too many $200 million to $700 million companies in our space. It would be much more healthy to have fewer $2 billion to $3 billion companies.”

Not only would such national operations be better able to serve multi-location customers and compete against AT&T and Verizon, Holland said, “They could focus more resources on product development than they could” as smaller companies.

There would even be an advantage to a CLEC operating with a national footprint because they would have local facilities in more places than AT&T and Verizon, Holland said.

“If it is a multi-location customer – the majority of what we are selling is to multi-location customers – that is advantageous,” he said. “IP VPNs have become so popular, to be able to have a nationwide IP VPN covering 20 to 30 or hundreds of locations – that’s something Verizon or AT&T would have more issues trying to provide than a Paetec or an XO because they don’t have the local facilities.”

At McLeod, Holland maintains he stayed true to his initial plan, revealed when he stepped into McLeod leadership in January of 2006. There were two major initiatives – one, a reorganization to get the balance sheet in order, and two, a refocusing of sales efforts on higher value T-1 customers, as opposed to POTS lines.

“McLeod had strengths – the biggest one was a very large network with a lot of it being underutilized,” Holland said. “It was a nice platform to serve customers at low incremental costs. And they had a very hardy group of people who had been through a lot of hard knocks but knew how to execute and do their jobs. The problem wasn’t a matter of them not executing, it was that they were executing on the wrong business plan.”

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