McLeod merger is simply super

McLeod USA bought Consolidated Communications Inc. last week in a $420 million deal, creating a facilities-based competitive local exchange carrier covering 14 contiguous states from Indiana to Utah. The new company will be called McLeod USA Inc.

The merger is the first of a trend toward "super regionals," said Clark McLeod, president and chief executive officer of McLeod USA and future chairman and CEO of the new company. McLeod defines a super regional as a carrier with fully integrated services, the transmission network and facility to deliver those services, and continuous geography, scale and scope.

The new environment created by the Telecom Act of 1996 made the super regional feasible, McLeod said. National carriers are moving to become international and full service providers at the same time.

Meanwhile, Bell regional holding companies are deciding whether to go national or become super regionals themselves by adding and offering one-stop shopping, McLeod said.

The merger will create a company with $400 million in annual revenues. McLeod USA already has a 30% market share of business lines in Iowa - U S West's territory - and with the CCI merger it will have a 20% share in Illinois - Ameritech's territory, McLeod said.

The CLEC market generally splits into two groups: high margin service providers targeting businesses and traditional CLECs with a mix of residential and business customers, said Tom Nolle, an analyst with CIMI Corp., Voorhees, N.J. The second group would benefit most by making acquisitions, he said.

"It's likely in some areas of the country, particularly areas where there is not a huge concentration of businesses, you'll probably see an amassing of CLECs," Nolle said.

However, some CLECs may wait until the regulatory environment has calmed down somewhat because questions like universal service are still up in the air, he said. A large CLEC may also run into different regulations in different states that require court appearances or special filings, Nolle said.

"The business conditions don't favor aggregate consolidation in a CLEC sense until we know how the regulations will all play out," he said. "The CLEC opportunity is created by the telecom act, so the pace of the telecom act obviously sets the pace of CLEC opportunity growth.

McLeod said CCI is a perfect fit with his company and he doesn't expect to find another company like it, but he is open to future acquisitions and growth possibilities.