Xalted

Posted: 07/01/2000

Is There Financial Trouble Ahead for CLECs?

First there was USN Communications Inc. Now it's GST Telecommunications Inc. These companies have become infamous as the only two CLECs to file bankruptcy since the advent of the competitive telecommunications industry.

Bankruptcy is never pleasant. Just ask the shareholders and employees of these companies. In this issue, Ken Branson documents the problems faced by GST, which resulted in the company's filing for Chapter 11 protection and seeking to sell all of its assets at fire sale prices.

But do USN's and GST's failings signal bigger problems for the CLEC industry?

I asked this question of several top CLEC executives at the ALTS Annual Conference in Miami just after GST filed Chapter 11, and the general consensus was "no." GST's demise, they said, was more of an internal management problem than fundamental failings in the CLEC industry, in which the majority of CLECs have yet to reach profitability.

"When you have 400 CLECs and only two have failed, that's pretty good," David C. Ruberg, chairman, president and CEO of Intermedia Communications Inc. said. In fact, the CLECs are faring much better than the airlines, which saw several major companies fail after competition was introduced in their industry.

But even though these bankruptcies don't mean the rest of the CLEC industry is at risk, it could cause investors and Wall Street to become more cautious when doling out their dollars. CLECs will now be valued more on real profitability and less on potential market opportunity.

As a result, today's CLECs, and especially the competitive providers of tomorrow, should expect to come forward with more than just a good idea. To succeed and prosper, these companies will need a strong business plan with a clear strategy for implementing it.

Until next time,

Gail Lawyer
Executive Editor