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A CLEC With Confidence in its Outlook? Meet McLeod

It's not often that a company gets praised for what it doesn't do, but the decision of one competitive local exchange carrier (CLEC) to get out of a losing proposition has brought them within 18 months of cash-flow positive.

McLeod USA, an independent voice and data carrier out of Cedar Rapids, IA, expressed confidence in its operations Tuesday as it announced the withdrawal of an additional $175 million from its $1.3 billion credit facility. At the same time, the CLEC said it was expecting to land itself in the land of cash-flow positive in 2003.

That positive outlook, despite the fact it is drawing upon more of its credit reserves, comes in large part from its decision earlier this year to drop its wireless PCS deployment, a decision that will pump about $120 million into its coffers.

In 1997, McLeod paid $30 million for 26 D and E spectrum licenses that covered much of the Midwest, part of the company' strategy to trump analog cell phone services in the area and become the leading wireless provider in the region.

But the independent carrier had also been on a tear, acquiring competitors left and right while pursuing its own land-based expansion throughout the United States. Its fiber-optic mesh switch platform would span more than 31,000 miles and connect to 25 states.

McLeod's buyout of fellow CLECs like Intelispan Inc., and CapRock Communications Corp. gave it national clout at a time when investors were keen on companies that had a business plan on rapid expansion through acquisition and network builds.

When investor monies dried up, so did McLeod's chances for a dual wireless/wireline deployment. Deciding to opt with the latter, the safe decision, the CLEC is now able to concentrate on its core voice and data businesses.

While many CLECs were faced with dissolution in the face of competition from incumbent local exchange carriers (ILECs), McLeod has been one of the few independent carriers able to expand its operations and compete with its main competitor (Qwest) while maintaining financial solvency.

The carrier has a track record of staying ahead of its earnings before interest, taxes, depreciation and amortization and has met or exceeded its revenue goals for 20 straight quarters. McLeod, unlike most high-tech public companies in the nation, also has unspent credit reserves, to the tune of $550 million.

Steve Gray, McLeod president and co-chief executive officer, said that with more than a $500 million to call upon and the money it will get for the sale of its wireless licenses, he is very confident of the CLEC's long-term outlook.

"This management team remains absolutely committed to meeting the objectives we have established, including increasing investor value over the long term," Gray said. "We intend to maximize our cash flow, continue solid growth in a challenging market, and manage through tough industry conditions."