Friday, December 21, 2007

Royce on the CLEC sector

Telephony mag in an interview with Royce Holland, CEO of McLeodUSA, "foresees more consolidation for the competitive service providers, ... believing the healthier competitive industry is one that doesn't include too many companies chasing the same business. ... "I'm hopeful that consolidation will continue to gain momentum," Holland said. "The problem with the competitive industry is that it has always been way too fragmented. That is what led to industry meltdown back in the late 1990s - there were way too many companies chasing the same market opportunities. There were way too many $200 million to $700 million companies in our space. It would be much more healthy to have fewer $2 billion to $3 billion companies."

It is difficult to believe that a CLEC CEO would be saying such stuff. Competition ISN'T good? You are correct. Unless it leads to differentiation and innovation, two things that we have not seen from the CLEC sector. History shows us that big telcos choke on their own acquisitions - MCI, Intermedia, and Level3. Get Bigger to get Better! Puh-lease! Tom Peters writes: "Big Mergers don’t work. Small acquisitions can/do work—if you don’t screw with their energy." And Charles Darwin reminds us that "It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change." This Industry is changing constantly. At McLeod, Holland says: "The problem wasn't a matter of them not executing, it was that they were executing on the wrong business plan." That may be the smartest thing he said in the interview.

M&A is good for bankers, stakeholders, and the C-Level crowd cashing in options and taking packages (e.g., Royce who has now done this 3 times - Allegiance, MFS, and McLeod). But it isn't usually good for customers and agents.

It's not the size, it's the execution. Covad was small, but had serious problems with provisioning. (How many CLEC's have provisioning and billing issues? I know. A lot.) However, I have seen smaller CLEC's execute well on a narrowly defined business plan: AstroTel, Hunt Telecom, CavTel.

Tom Peters wrote In Search of Excellence in 1982, but the lessons are still valid today:

  1. Have a Bias for Action;
  2. Stay Close to the Customer;
  3. Be Hands On, Value-Driven;
  4. Stick to the Knitting;
  5. Simple Form, Lean Staff; and
  6. Excellence Always.

I usually boil this down to Focus, Plan and Execute. You can do anything, but not everything. These principles work - small or large. It is just very execute the larger you get.

I'll leave you with this quote from Paul Ormerod, author of Why Most Things Fail: Evolution, Extinction and Economics: "I am often asked by would-be entrepreneurs seeking escape from life within huge corporate structures, ‘How do I build a small firm for myself?’ The answer seems obvious: Buy a very large one and just wait."

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