If there’s one name that’s synonymous with competitive telecommunications, it’s probably Royce J. Holland. He served as president and co-founder of MFS Communications, one of the first competitive local carriers with operations in 52 metropolitan areas in North America, Europe and Asia. After the Telecom Act of 1996 was passed, Holland went on to co-found and act as chairman and CEO of CLEC Allegiance Telecom. And after a brief hiatus from telecom, Holland in January took on the CEO post at Iowa-based CLEC McLeodUSA Inc.
McLeodUSA's Royce J. Holland
XC: We haven’t heard much from you since XO Communications bought Allegiance Telecom Inc. in 2004. What have you been doing?
RH: Actually taking some time off, doing a lot of hiking – my wife and I are big hikers – and dabbling in some things. But aside from that, it’s probably the first time since I got out of college that I have taken some time off. So I have thoroughly enjoyed it.
XC: McLeodUSA has completed its financial restructuring and emerged from Chapter 11. What now?
RH: Really growing the business, especially with our cutting edge IP architecture, our dynamic integrated access product and some of the enhanced services we’ll be offering with that. It’s a bit of a reorientation of the company. McLeod traditionally has functioned to some extent like a phone company – really offering the full suite of services to resident and business as well as Yellow Pages and operator services and all of that. We’re going to be focusing a little more toward corporate customers that really have voice and data needs and really can fully utilize voice over IP and broadband data, IP VPN and things of that nature.
XC: How are you going to expand the product line?
RH: The next service we’re going to offer, in fact we’re going to be rolling it out very quickly, is the IP VPN product.
XC: There’s been a lot of talk in the industry about the move to a few megacarriers. How can a company like McLeodUSA be expected to succeed in such an environment?
RH: Certainly, with all the mergers and acquisitions, there has been a trend to megacarriers. That is something that is going to take over the residential market. The trend certainly now is a move to a duopoly environment with the Bell companies and the cable TV companies. I don’t think that is a viable alternative in the business market. Skills that make the cable TV companies what they are do not translate to business. I think there’s a tremendous need for innovative companies out there. I think if you were to ultimately shrink down to where you only had a couple of behemoths – say a Comcast and a Verizon – as the only choice for business, that would be something that would really retard the ability of businesses to access cutting edge technology products at a reasonable price.
XC: Sure it would. But are you saying that’s not going to be the reality on the business side?
RH: I don’t think it will be. I mean, we have certainly seen some things that are disturbing. You know, the Omaha ruling is most disturbing. That is where Qwest now is no longer having to provide access to UNEs in a number of COs. There’s somewhat of a deregulation on the wholesale side that goes beyond the Triennial Review Remand Order. I think that is a very poor idea myself. Because if ultimately you should take away access to the local loop bottleneck, then you would be in a position where you really were consigning most of the small businesses in America to a monopoly provider where occasionally they might have cable access, but not a lot. Having just a monopoly cable TV company and a monopoly RBOC competing in a so-called duopoly environment with very much managed competition I think would be turning back the clock a couple of decades on progress.
XC: What are your thoughts on how the Telecom Act of ’96 played out and the status of the telecom environment today?
RH: I still think the Telecom Act of 1996 was one of the most significant pieces of commercial legislation in the last century. The Telecom Act of ‘96 for the first time really extended benefits of competition beyond just the large corporate enterprise market. If you’re a large corporate enterprise with a telecommunications spend of $100,000 a month you can afford to have diverse suppliers and diverse entries into your building and really play one carrier off the other, which forces carriers to be innovative.
Back in the early days of MFS we were one of those alternatives, but the only customers we could serve [were] the customers that we physically connected with our own wires. And it had to really be corporate enterprise to justify that sort of construction. The Telecom Act, though, allowed carriers like my old shop Allegiance Telecom, XO, McLeod, many others to go out and not have to overbuild the last mile, because that’s where all the expense is.
When you’re dealing with a base that has a customer spend of a few hundred of a few thousand a month, then you can’t afford to overbuild the last mile. But by being able to access UNE loops and UNE T1s, it really facilitated the rollout of advanced services. I mean, it wasn’t the ILECs that rolled out the cutting-edge integrated access products. It was the CLECs who did that. At Allegiance, we rolled out a TDM integrated access product in 2000, which really then spread through the industry very quickly. Now, I think Cbeyond probably deserves most of the credit for rolling out the IP-based version of that product, that now McLeod, XO and others are also providing as well. It really opens the door – I’m sure our big, ponderous competitors would say Pandora’s box – to a lot of disruptive technology and new services that companies like us are a lot better prepared, with our short product development cycles and innovative approach and direct sales force, to go commercialize in the SMB market than say an SBC or a Verizon.
XC: Right. But access to incumbent telcos’ local networks is not as open as some expected. So what are the regulatory issues that are top of mind at McLeod?
RH: There has been, I think, some chipping away at it. With the exception of the Omaha ruling, which I think was very ill-conceived and ill-advised, the other things are reasonable. I think still we’ve got 700 colocations throughout our footprint – very broad footprint. I’d say 95 percent-plus of those colocations we have access to UNE T1s and UNE loops and the kind of things we need to reach those medium and small businesses. And as long as we have that available at a wholesale pricing level, we can continue to be competitive and compete. I haven’t sensed any desire at the FCC or the state commissions to go try to take that away. The Telecom Act of ‘96 established it as the law of the land. The Bell companies every session of Congress try to get some of their more friendly members to try to introduce bills to take that away – the infamous Tauzin/Dingell bill being the poster child for remonopolization. But I don’t think those things are going to succeed. Too much progress has been made, and there’s too many unfavorable consequences really to the economy to turn the clock back to pre-1984 days.
XC: Do you expect to see new federal telecom legislation this year?
RH: I don’t know that we will this year. That’s always chancy in an election year. I know there’s talk about doing something in Congress to reform the Universal Service system. But when you get into things like that, it’s very controversial. You’ve got rural America against urban America and things like that.
XC: Cable companies have expressed an interest in expanding into business services. Are you seeing cablecos in the business market?
RH: Maybe in some office parks. Certainly Cox has probably been the most aggressive in doing that. But when it comes to reaching small office buildings and various other business districts, that’s very expensive. So unless cable really wanted to go out and offer the suite of business products offered by companies like McLeod, they’re not going to be competitive, and I have a hard time trying to believe they want to go out and make that kind of huge investment when they’ve already got a natural marketplace. The more they do that, the more they encourage the RBOCs to expand into their core business too.
XC: On a more personal note, what were you doing ten years ago?
RH: What we were doing at MFS at the start of ‘96 was moving forward, hoping the Telecom Act would get passed. We had done a lot of contribution to make that happen. We had signed a very historic interconnection agreement with Nynex in January of 1995. That particular agreement, for the first time between a Bell company and a CLEC, established a lot of the principles of recip[rocal] comp[ensation], loop unbundling, access to databases, customer service records, all the things we take for granted today. Both companies actually went to the FCC, to [former South Dakota Republican Sen. Larry] Pressler’s staff in the Senate and to … the House and gave that document to them. And that, probably more than anything, became the blueprint for the competitive checklist. Later on, in ‘95, we signed very similar agreements with Ameritech and with Pacific Bell. I may say, this made us as unpopular as a skunk at a picnic with AT&T and MCI because they were very unhappy that we had not pressed to get bill and keep arrangements. We agreed on high recip comp rates. We actually got booted out of the California Competition Coalition (laughs) after we signed with Pac Bell. So we were in the position of trying to get the Telecom Act done. That was clearly a case of the industry working out in the marketplace to establish rules from experience.
We have done the same thing in the U.K. with BT, where actually competition came a little sooner to the market than it did to the U.S. … [W]e were kind of laboratory in New York. It did show it could work. It was very cumbersome – all paper processes and faxes back then, so you couldn’t scale it.
But then as we went forward and sold MFS and WorldCom, that closed on the last day of ’96, I left and formed Allegiance really to have a company specifically designed to take advantage of the Telecom Act. We then got together with Nynex again and had the first electronic bonding [deal].
McLeodUSA Inc. www.mcleodusa.com
