FAST FORWARD

Quick talk about what's next

Allegiance Telecom finally completed its 36-market network in December. For CEO Royce Holland, life should start getting easier now, but he says it's only getting faster. Senior Writer Ed Gubbins talked with Holland about rescuing abandoned customers, financial issues and new business challenges.

On Web hosting: As 2001 unfolded, the top end of that business — co-location and dedicated hosting — saw diminished demand, over-capacity and slim margins. We changed our course in the third quarter and decided not to build out any new data center space or do any more acquisitions. We've maintained the shared hosting business at the lower end of the market, the [small and medium-sized enterprise] market that we're in anyway because it's part of our product bundle.

On orphaned customers: We've turned up a number of abandoned Teligent customers. We could have turned around a lot more. We don't have electronic bonding with Teligent and folks like that. It's so manually intensive. It's a lot easier for us to take customers from the ILECs.

On considering privatization: [After Sept. 11] we went down to $3 [per share]. I was thinking: There's a huge amount of value to be had. And if the market doesn't recognize it, then the insiders who own about 30% of Allegiance are going to take that value off the table. If the stock had stayed around $3, we'd probably be working toward that right now. We talked to our top 20 institutional investors, and almost unanimously they said, “You can forget about taking the company private. There's no way we're going to sell you our stock at these levels.” To privatize, you've got to be fully funded. You've got to have a nice balance sheet. We can do it, maybe Time Warner Telecom can do it. I don't know of anybody else that could.

On what's next: We're through building out our markets. Still, we're going to grow at about 50% on the top line [in 2002], but we're targeting operating cash flow positive in the second half of the year. We'll be really accelerating that move down the path to profitability because we won't have so many resources dedicated to turning up markets.