Paetec emerges among CLECs

Paetec's acquisition of McLeodUSA, announced last week, thrusts a major new nationwide competitor onto the CLEC scene. The half-billion-dollar deal gives Paetec, now an East Coast regional voice and data provider, a roughly 50% boost in revenue and takes it from 56 of the top 100 U.S. markets to 82.

With more than 13,000 intercity route miles of fiber and more than 4000 metro route miles, the combined Paetec/McLeod network is still smaller than those of rival CLECs Time Warner Telecom and XO Communications. But with $1.6 billion in annual revenue, Paetec can boast a better top line than each of those bigger carriers.

With its cross-country network and 3.4 million access lines, Paetec is now declaring itself a true alternative to AT&T and Verizon. But the company may pose a particular threat to Qwest Communications. During the conference call announcing the acquisition, Paetec executives vowed to target underserved enterprises in McLeod's Midwestern footprint, which includes major markets in Illinois, Michigan, Ohio and Texas. Officials also cited Denver, Phoenix and Seattle in particular as targets — all Qwest markets.

McLeod's focus on T-1 service and below for the past few years gives Paetec a ready base of small business customers, but Paetec (which currently focuses on T-1 and above) will also use those resources to reach the branch offices of its larger corporate clients. Paetec will likely bring to McLeod's footprint the nationwide MPLS virtual private network service it inherited from its acquisition of US LEC earlier this year, and it is eager to begin cross-selling its own services with those of McLeod and US LEC.

“Customers will now be able to use Paetec coast-to-coast,” said Arunas Chesonis, CEO of Paetec, last week. “The combined company is well positioned to be a leader in this space.”

With its acquisition of McLeod, the company is putting Qwest on notice