CLECs give mixed economic report

The second quarter is typically a somewhat soft one for CLECs, but this season it also was seen as a barometer of overall economic conditions for the rest of the year — and the mood among CLECs was mixed.

Most carriers reported a rocky economy in the second quarter but managed to eke out gains, even if they were greater on the bottom line than the top. CBeyond, whose more than 30,000 small business customers make it a fair bellwether for trends in that economically sensitive sector, reported solid results (including 26% revenue growth) but nonetheless dropped its expectations for the year, citing “a continued challenging economy.” Cogent Communications and Paetec both cut their outlooks for the rest of the year as well, leading Standard & Poor's to lower its view of Paetec from “positive” to “stable.” TW Telecom acknowledged economic “head winds” while reporting 8% revenue growth.

ITC^DeltaCom, the last CLEC to report second-quarter earnings, told investors in August that it had “begun to see the impact of the economic slowdown in some of our markets.” ITC's operating revenue was up 1.6% from a year earlier, while its net loss shrank to about one-third of its 2007 level.

Level 3 Communications was something of a holdout, rhetorically, boldly claiming that it saw no softening in enterprise demand in the quarter and suggesting that those carriers that did may be suffering from “limited or narrow product line[s].” But Level 3's own results were more notable for their cost-reduction achievements than their sales results; revenue was flat sequentially and up 4% from a year earlier. Thus, some analysts saw Level 3 as a confirmation, rather than a refutation, of a stormy market. Downgrading Level 3 this month, Oppenheimer said, “We think this is the start of a difficult six- to nine-month period.”

YEAR-OVER-YEAR REVENUE GROWTH