Editor’s note: Charlotte Beat is a regular feature on Wednesdays.Watch out for US LEC.
That’s the word from Vic Grover, a telecom analyst with Kaufman Brothers in New York. He has seen a lot of competitive local access carriers, or CLECs, come and go since telecom deregulation in the 1990s, and his “buy” rating on US LEC stock is a firm one.
“They are doing very well,” Grover tells Local Tech Wire. But he isn’t talking just about the Charlotte-based firm’s network, services or prices. He likes what he sees happening inside the company — sales and customer service.
“The differentiator for this company is its sales force,” Grover says. “They are motivated.
“I’ve met their Atlanta team and some of their regional managers. They are one of the few companies that figured it out. They not only have to sell. They have to sustain.”
US LEC continues to report consistent growth in customers and revenues, but Grover says what strikes him is customer retention.
“Their churn ran is down to 1 percent,” he points out. “That’s very key.”
And he sees several reasons for the low turnover. “Their sales process is superior,” Grover says, noting that the sales agents, sales engineers and customer management teams work well together to win customers, to get them on line, and to keep them satisfied.
Aaron Cowell, Jr., US LEC’s chief executive officer, appreciates Grover’s comments. “In our field, people have different strategies. There are folks who believe that you try to grow by outpacing your churn. US LEC takes a much different view,” he tells LTW. “Our core principal is that every customer who comes on our network must stay.”
4Q earnings due
US LEC is set to report its fourth quarter earnings on Feb. 25. The company’s stock has taken a hit over the past year, falling to under $2 recently from $5 in March of 2002. But the telecommunications industry overall has been wracked, too, and US LEC is among the few survivors of the companies that aspired to take on the regional Bell operating companies like BellSouth.
“The CLEC sector has imploded,” Grover says, pointing out that 90 percent of them are gone.
So how has US LEC managed to weather the storm?
Grover sites several reasons, including the sales force, quality of service, competitive prices and services. But another key, he says, has been US LEC’s focus on business customers, not consumers.
The company, which was founded in 1996 and went public in 1998, recently passed the 10,000 customer mark and provides service in more than 70 metropolitan markets stretching from Louisiana to Pennsylvania. Helping drive US LEC revenues has been the fact that 40 percent of those customers have signed on for multiple services — data and voice. Once a customer is won, US LEC is not only keeping it but also selling add-on services.
Some 60 percent of new customers are signing for data and voice services from contract signature. That trend enabled US LEC to announce recently that the number of data customers had doubled in eight months and that data services now accounted for more than 10 percent of its revenues.
SouthernLINC, a wireless service provider, recently selected US LEC to provide its landline backbone. And US LEC also recently acquired data and Internet customer bases from Interpath and a New York-based ISP that provided service in four Southern states.
Building its own ‘footprint’
Another factor in its growth has been US LEC’s commitment to building and maintaining its own network and facilities rather than just leasing from BellSouth and other carriers, Grover adds.
“US LEC fits into the category as an emerging carrier candidate,” he says, noting its network, which includes 26 switching centers across the Southeast. “They have a nice footprint.”
Because it operates a network, US LEC also isn’t as caught up in the raging debate at the Federal Communications Commission about the discounted resale of products and access by the RBOCs to other telecoms. A decision to end or alter such discounts by the FCC could come as early tomorrow, according to Kaufman Brothers.
US LEC is one of the few CLECS that don’t rely entirely on so-called special access, according to a spokesperson.
But US LEC also faces challenges as most carriers do these days. In January, US LEC also adjusted its financing, striking a deal with creditors to push back millions in principal payments for a year. The company also got an infusion of $5 million in cash, the investment being led by chairman Richard Aab.
Michael Robinson, US LEC’s chief financial officer, told Local Tech Wire at the time that the deal gave it “time to grow into the shoe” of opportunity it sees for growth in a market where some competitors have disappeared and the RBOCs struggle with their own challenges.
Grover concurs. “The deal on the financing gives them some flexibility,” he says. Unlike many other CLECS, he says, “They had a capital efficient model. They raised just enough money to finish their network.”
He also points out that the focus of the larger firms on other markets, such as BellSouth’s drive over the past year to sell long-distance services, has left openings for companies such as US LEC to win market share.
“They certainly have benefited from the weak competitive strategy of the RBOCs,” he says.
US LEC: www.uslec.com