CLEC veteran Royce Holland looks ahead

The biggest challenge was getting a distribution channel to address the small to mid-sized business market, given that direct and agent sales forces had been “almost eradicated” as a cost-cutting move, in favor of telemarketing.

“We increased the field sales force from less than 100 to about 250 today and of course quite a few support personnel,” Holland said. “We hired sales engineers as well. We very significantly increased our sales operation. Most of what we sell today is T-1 based. About the only POTS services we are selling are either to existing POTS customers or to T-1 customers who have locations they want us to provide POTS to.”

As a result, McLeod’s gross margins have grown from less than 40% at the end of 2005 to more than 50% today, he said, with an expectation of hitting the mid-fifties within a couple of years. Revenue from POTS customers, which was three times the revenue from T-1 customers when he started, will hit the 50-50 mark in 2008 “and significantly improve from there,” Holland said. Most of that T-1 traffic is IP-based integrated voice and data networking.

McLeod was headed for an $150 million IPO when Paetec offered $557 million in stock in September of 2007. The two companies are a near-perfect fit, creating a nationwide carrier with coverage in 37 of the top 50 markets and 82 of the top 100, and overlap in only one – Chicago.

The merger is expected to close in late January, Holland said, at which point, he will go back to doing what he was doing before taking on McLeod.

“My wife and I would like to get back to hiking, which I haven’t had much time for lately, and I’ll continue working futilely on my miserable golf game,” he said.

Holland will keep a hand in the industry as a member of the board of directors of Masergy and said he will explore other options as well, including special purpose acquisition companies. But for now, he’s looking forward to taking some time off.