CLEC surprise

With all the massive lay-offs, major bankruptcies and sagging stock prices, it may come as some surprise to discover how successful the CLEC industry is right now. Yesterday, Chicago-based telecom analyst firm New Paradigm Resources Group released its latest annual report on the CLEC industry. The most surprising yield of the report is the conclusion that things really aren’t too bad.

For one thing, total CLEC revenues grew 34% this year (from $29.2 billion in 1999 to $39.1 billion in 2000), a rate NPRG President Terry Barnich calls, “more than respectable.” And amid all the industry chatter about the funding drought for CLECs, the NPRG report reminds us that CLECs took in more than $4.5 billion in new financing this year, including some $100 -million rounds earned just last month. The executive summary of the report goes as far as stating, “The capital markets did not dry up; Wall Street rather became more selective about which business plans were funded.” Depending on your point of view, this is probably just a semantic argument. Plenty of women have told me, “No, no, it’s not you. I’m just very selective.” The result is the same, isn’t it?

I prefer to think of Wall Street as becoming increasingly confused rather than increasingly selective. And it’s not hard to see why. In 1999, for example, Covad’s gangbuster IPO led the charge for an onslaught of DSL players into the public market. Yesterday Covad announced it was firing 13% of its employees and its stock was somewhere around 95% off from this year’s high. (Merry Christmas, everybody!) And every time investors lose money on an underperforming CLEC, another CLEC with solid revenues and “more than respectable” growth gets punished for it in the public market.

The Covad story—like the AT&T story and the Robert Downey, Jr. story—reminds us of the kinds of surprises a single year can bring. And with 61.4% growth in data service revenues this year, the CLECs are likely to surprise us again in 2001.

Ed Gubbins is the moderator of the Competitive Challenges discussion board. Give Ed a piece of your mind at ed_gubbins@intertec.com.