State of the CLEC Industry: Survival of the Fittest

The CLEC (Competitive Local Exchange Carrier) industry has experienced a highly published general shakeup over the last year. This was due to inadequate business plans and a lack of access to new capital caused by a change in venture capital requirements. Many CLECs were unprofitable and several were forced into bankruptcy.

However, there are CLECs that are surviving and prospering. Those CLECs that have made it past the initial shakeup have returned to proven fundamentals, maximizing the use of available resources and infrastructures. Cahners In-Stat Group believes that despite the growing dominance of the ILECs in the telecom industry, many competitive service providers are still doing well, and many more CLECs are coming into the market. Since December of 1999 the CLECs have increased the amount of installed lines from 8,318,244 to 16,400,000 in the first quarter 2001, which accounts for 8.5% of all lines installed.

This report examines the early CLEC setbacks, the recovery that is underway, identifies several hundred CLECs, and profiles five of the most viable. The movement in the tier two and tier three markets looks promising and is an area the ILECs are not aggressively pursuing. The surviving CLECs have revised their business plans and are beginning to realize funding from selective venture capitalists.

Executive Summary

Methodology

Introduction: The Relentless Competitors

Market Overview

The CLEC Industry

CLEC Transformation

Acquisitions and Bankruptcies

Strategy during Transformation

Moving Forward: 2001 and Beyond

CLEC Subscriber Forecast

The Next Five Years

Major CLEC Profiles

Covad Communications Company

Time Warner Telecom

McLeodUSA

Net2000 Communications

XO Communications

Appendix 1. Current list of CLECs

List of Tables

Table 1. Total End-User Lines

Table 2. CLEC Industry Categories

Table 3. Bankruptcy filings and consolidation of CLECs

Table 4. Worldwide Broadband Subscriber Forecast by Access Technology (000s)

Table 5. Five Year Forecast: Worldwide Broadband Service Revenues ($ in millions)

Table 6. U.S. Broadband Subscriber Forecast by Access Technology (000s)

List of Figures

Figure 1. First Quarter 2001 DSL Lines in Service

Figure 2. CLEC Access Line Growth (in millions)

Figure 3. CLEC Network Route Miles

Figure 4. Total U.S. CLEC Revenue ($'s in millions)

Figure 5. Worldwide Broadband Subscribers (000s)

Figure 6. Five Year Forecast: Worldwide Broadband Service Revenues ($ in millions)