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Mcleod USAViews: 1528
Jul 20, 2005 10:03 pmMcleod USA#

Mark Burkholder
Has anyone heard anything on McLeod USA? They were delisted from the NASDAQ about a month ago and tomorrow is the second deadline to repay the debt. I know they are looking for a buyer but there is no news on that at all.

Private Reply to Mark Burkholder

Jul 21, 2005 1:03 pmre: Mcleod USA#

Ira Stoller
From the delisting notice dated June 17th:

In light of the previously announced strategic and financial restructuring alternatives it is pursuing, the
Company has determined not to request a hearing to appeal Nasdaq’s determination to delist the Company’s securities.

There can be no assurances that the Company will be able to identify a strategic partner or buyer, reach
agreement with any such strategic partner or buyer, or reach an agreement with its lenders regarding a
capital restructuring. As previously announced, the Company is exploring these alternatives pursuant to a
forbearance agreement between the Company and its bank lenders. The forbearance period runs through
July 21, 2005. In the event these alternatives are not available to the Company, it is likely that the
Company will elect to forgo making future principal and interest payments to its lenders while it continues
to seek an extended forbearance period or permanent capital restructuring from its lenders, or alternatively,
the Company could be forced to seek protection from its creditors.

While the Company continues to explore a variety of options with the view toward maximizing value for
all of its stakeholders, none of the options presented to date have suggested that there will be any recovery
for the Company’s current preferred stock or common stock holders. Accordingly, it is unlikely that
holders of the Company’s preferred stock or common stock will receive any recovery in a capital
restructuring or other strategic transaction.

The Company’s securities will not be immediately eligible to trade on the OTC Bulletin Board or in the
“Pink Sheets”. The securities may become eligible if a market maker makes application to register in and
quote the security in accordance with SEC Rule 15c2-11, and such application is cleared. Only a market
maker, not the Company, may file a Form 211. The Company is not aware that a market maker intends to
make such an application.

Doesn't sound too promising. Sounds like one more clec biting the competitive dust. It's funny that just a few days before the delisting notice they won an award for the best human resources group.

Private Reply to Ira Stoller

Aug 01, 2005 12:48 pmre: re: Mcleod USA#

Mark Burkholder
Now they are turning their debt into equity and trying to negotiate handing the company over to their creditors who would become majority shareholders. Everyone I have heard from feels it is just a matter of time before they liquidate and customers receive 30 day notifications to disconnect services. Any thoughts?

Private Reply to Mark Burkholder

Aug 01, 2005 1:56 pmre: re: re: Mcleod USA#

Ira Stoller
Poor management? Poor financial and fiscal constraints? Not enough clients? Those are the usual reasons for companies to go under. Why the interest in this one company among all the other small CLECs who routinely don't make it?

Private Reply to Ira Stoller

Aug 05, 2005 2:56 pmre: re: re: re: Mcleod USA#

Mark Burkholder
I am not sure what you mean by CLECS who routinely do not make it. This is a large CLEC with thousands of customers and alot of network assets located in many states and have a fair amount of customers in my area (IL, WI). IN addition, they are the only facilities based alternative to SBC in many rural areas of IL.

They are not some small regional player that serves just one or two markets. Most of their circuits are provisioned from their own network (as opposed to resold or UNE-P) so switching them to SBC is going to require alot of work.

I know of at least a dozen customers I am in touch with here in CHicago who would be in serious trouble if Mcleod sends out a disconnect notice. I think legally they only have to provide a 30 day notice. THat is not enough time for a cusotmer to review alternatives, sign paperwork, get the contracts approved, provision the new circuits and ensure instllation before the cut off date. This situation has disaster written all over it. I hope I am wrong.

Private Reply to Mark Burkholder

Aug 05, 2005 3:32 pmre: re: re: re: re: Mcleod USA#

Raynard Williams
If you have list of these customers I can help you get them up and running before Mclead goes under.

Private Reply to Raynard Williams

Aug 08, 2005 2:21 pmre: re: re: re: re: re: Mcleod USA#

Cameron Richardson
I would agree with the latest post. If they are in this bad of shape, I would make sure that all these customers sign up with another provider ASAP! There will be sharks in the water very quickly on this one.

No offense to your post Raynard. I would be doing the same thing.

Once a company hits this point, they are sure to go under. Take it from me...I used to work for Worldcom, and now work for one of those "regional CLECs" that you spoke so nicely about (sarcasm).

Good luck! Get out now, before it's too late, and they are trying to provision circuits all over IL. Get into the queue now!

Cameron Richardson

Private Reply to Cameron Richardson

Aug 08, 2005 4:52 pmObservations from a distance#

Ken Hilving
New Page 1

I don't have any particular insight on McLeod USA, but a couple of points jump out from this thread.

First, this situation illustrates the importance of redundant paths. A fully redundant path should have physical, logical, and business diversity from the primary path. If this isn't possible, the order of importance is physical, then logical, and then business. A McLeod USA customer who implemented redundancy before now has a redesign effort in order to restore redundancy, but is not facing a disruption of service issue.

Next, this situation illustrates the importance of business continuity planning (BCP). If McLeod USA ceases to function, the scenario is extended circuit outage for the business. This should be part of the BCP and a well defined action plan should exist. This means the enterprise with a BCP knows what to do while implementing new circuits so that business continues. The situation with McLeod USA becomes an inconvenience of some magnitude, but not a disaster.

Another point is the need for good partnerships. It sounds like McLeod USA is facing a cash flow problem rather than a technical or service level problem. If their customers are more partners than simply billable units, there may be opportunities to resolve the issue. If the McLeod USA employees are partners instead of simply resources, the opportunity may exist to reduce costs internally. If the McLeod USA suppliers are partners instead of simply vendors, credit or deferred payment options may be available. Of course, if McLeod USA has a corporate mentality where the focus is on shareholder and senior team profit, there might be no options.

Finally, there is the issue of critical mass and perception becoming reality. What began as a question regarding McLeod USA financial status based on actions at NASDAQ has become a rumor that it is about to go under and customers need to bail out ASAP. The speculation of possible failure drives the reality by costing the company loyal customers and reducing the revenue stream. McLeod USA may lose any opportunity to continue operation based only on the perception that no opportunity exists.

I would hope that any McLeod USA customer would first discuss the situation and risks with McLeod USA before considering a change in provider. If the conclusion is that a change is the best decision, they should revisit the objectives and requirements that made them select McLeod USA to begin with. If these are still valid, they become the criteria for finding a new provider. If not, change them and then use the new criteria when finding their next provider.

Private Reply to Ken Hilving

Aug 08, 2005 5:41 pmre: Observations from a distance#

Cameron Richardson
There is but one problem with this thought process. You may, very well, speak with a representative of McLeod USA. However, that representative may be under the influence of the CEO (i.e., Bernie Ebbers - Worldcom), who may be telling everyone in the company that "we are strong", and that "we aren't going anywhere".

These are messages passed down to the masses on the front-line in order to keep business churning, as usual. When, in fact, the true message is kept in the boardroom for the executives to be aware of, and no one else.

Keep this in mind, when speaking to your "representative".

Sorry, but this definitely is a sore point for me. Worldcom let us all "know" that there were no problems. And, we continued as we always had...generating business for the company. When, we all knew what the "real story" was.


Private Reply to Cameron Richardson

Aug 08, 2005 9:01 pmre: re: Observations from a distance#

Ken Hilving
New Page 2

"We are all products of our environment and prisoners of our experience." At least, this is what my father tells me whenever we disagree.

I have found no reports of service disruption or degradation associated with the WorldCom bankruptcy or revival as MCI. There may have been problems with meeting new implementations that required new carrier infrastructure, at least until the bankruptcy issues were resolved, but again I have not found any reports of this.

With this in mind, my advice to McLeod USA customers stands. Reacting in panic to what might happen is a poor strategy that will likely result in higher communications costs, self inflicted service disruptions, and extra work for either internal staff or contract labor. A sudden termination of existing service is highly unlikely regardless of what happens to McLeod USA as an enterprise.

If the customer is looking at new services or major changes with their network independent of carrier issues, then a careful review of carrier capabilities is in order before any automatic award to McLeod USA.

Now for those looking to work for or invest in McLeod USA, Cameron offers some excellent advise based on his personal experiences.

Private Reply to Ken Hilving

Aug 08, 2005 10:44 pmMcleod USA assets#

Ken Hilving
It seems to me that the most valuable asset McLeod USA has is an installed customer base. This generates revenue each month and probably has the potential to do so for several more years (no major technology change threatening to eliminate the customer base).

Hardware and software probably have limited value if liquidated - pennies on the dollar at best. Real estate might have value depending on the market. Optic and copper infrastructure if owned might have some value, but if SBC is the only competing carrier than they set the value on it.

Were it me, I would think in terms of maximizing the value of that revenue stream as a creditor. Perhaps by hiring a third party to continue the service, or perhaps with an outright sale of the customer base and facilities valued on its revenue potential.

Key point - service is not likely to be turned off regardless of what happens to McLeod USA.

Private Reply to Ken Hilving

Aug 09, 2005 2:51 pmre: Mcleod USA assets#

Cameron Richardson
I agree that service will not be "disrupted". But, a current customer could look forward to the following:

-Lack of Customer Service (Lay-offs)
-Lack of Technical Support (Lay-offs)
-Not knowing who your provider will be in the future (impending sale)

Almost all CLECs, or LECs of all kinds, that claim bankruptcy end up selling in the near future.

That's my point...that is all. It just took alot longer for MCI to be bought...and, that's still not even final yet.

Yes, a little bitterness, but truth is in the pudding.


Private Reply to Cameron Richardson

Aug 11, 2005 1:44 pmre: re: Mcleod USA assets#

Mark Burkholder
Having been through carrier meltdowns in the past I have to strongly disagree with your assertion that a service disruption is unlikely. At least in IL carriers are only required to offer a 30 day disconnect notice which, as pointed out, is not enough time to go through the process of carefully selecting a new carrier. That is why a smart customer would start that process now so if the notice comes they will have already selected an alternative.

I agree with Cameron because already I have had a couple of McLeod USA customers attempt to break their contracts and they are being told that they company is in solid shape, has a good plan to maintain service and expects that it will be business as usual for some time. Yet McLeod refused to comment when their own internal auditor Deloitte Touche LLP, raised “substantial doubt” over McLeodUSA’s “ability to continue as a going concern.”

Here is the full article on that:

We went through this recently with ICG. I can't tell you the nightmare it was in terms of time, resources and headaches trying to get that cutomer who had a simple integrated T-1, over to a new provider before the disconnect date. I am talking about having to verbally tongue lash and threaten them in order to extend disconnect dates so my customer would not be without service. They are a small customer so having to install temporary lines and internet would have really hurt their bottom line. Sure a large enterprise can afford to allocate resources and budget for redundancy but a small business trying to keep their telecom expenses to a minimum is really put in a bind.

Again, I agree a customer should carefully consider pricing, product offerings, long term financial stability and many other factors before making any hasty decisions. However that needs to start now because there will be absolutely no warning of the 30 day notice if it comes to that. McLeod USA is now a two time loser and I just can't see their creditors wanting to bring in a management team to right a ship that has sunk twice. HOpefully, Kenneth is right because although my firm would benefit from a McLeod meltdown, it would be nearly impossible for all of those customers to migrate in 30 days. Given their treatment of customers in the past, I don't see McLeod offering more of a notice.

If anyone has a contact at McLeod please email me so I can see if they would be willing to provide a list.


Private Reply to Mark Burkholder

Aug 18, 2005 11:47 amre: re: re: Mcleod USA assets#

Ira Stoller

I have to disagree with you on the issue of service interruption when a carrier goes belly up. Remember the recent Norvergence debacle? Almost overnight several thousands of clients were without phone service.

It can happen.

Private Reply to Ira Stoller

Aug 18, 2005 8:19 pmre: re: re: re: Mcleod USA assets - In heaven, there is no beer#

Ken Hilving
New Page 2

Seems like somebody has a bit of a dilemma here. I think this is where the smartass in the center cube gets to yell out "That's going to leave a mark!"

At the onset, Mr. Client chose to go with the least cost provider McLeod USA instead of SBC, and to also commit to a long term contract to further reduce projected costs. Now some point down the timeline, Mr. Client is being advised to leave McLeod USA based on financial reports and rumor of imminent carrier failure and service loss.

Cost remains an issue for Mr. Client. What should he do?

Since McLeod USA has not violated the terms of the contract they are under no legal obligation to release Mr. Client from the remaining term of the contract. Doing so adds to McLeod USA financial woes, and so it is unlikely that they will do so out of any altruistic motives.

Any solution will include the continuing cost of the McLeod USA service contract until such time, if any, that McLeod USA fails to deliver service or ceases to exist in any fashion. A sale of McLeod USA assets to another entity will most likely include all existing contracts, so the real release point is when service is no longer provided or the original contract term is fulfilled.

An alternate carrier solution is or is not in place. If it is, Mr. Client has no immediate concern provided the network design was properly done. A failure of McLeod USA to deliver service remains a circuit outage scenario regardless of cause. General recommendation in either case - continue or begin to look at cost effective alternative providers to McLeod USA. If an alternate provider is selected, begin negotiating a contract to take effect on the day the current McLeod USA contract expires. Request the new provider to respond to an early cut with 30 days notification.

What if a Fujita 5 tornado were to take out the POP and a quarter mile on either side? I have seen areas cleared to bare dirt by these in Texas, and the upper Midwest faces the same risks. What will Mr. Client do if his provider is literally wiped out in an instant?

Satellite connectivity can provide the necessary bandwidth for data that is not latency dependant. It can typically be installed in less than one week. Wireless connectivity can often be installed in under 30 days and does not have the latency issues. It can also serve for voice communications. Cellular telephones can be used in place of POTS with all the feature required. These are just some of the alternative approaches to consider for business continuity planning.

Of course, McLeod USA may not fail and an F5 tornado is still rare. However, if Mr. Client has been having sleepless nights worrying about it, he should keep that worry in mind when selecting future services. I see a strong case for considering SBC as the next provider since it has a much lower likelihood of going under financially. WorldCom serves as a reminder that size is no guarantee of success though. An alternative connectivity source would be wise if communications plays that large a role in the business.

"Whatever you do, you'll regret it."

Robert McLeod Gray

As a side issue for Mr. Client, it is also time to revue his choice in IT director or consultants. After all, somebody likely advised him into his current dilemma. If that advice came from vendor representation (i.e. his McLeod USA account rep) there is a lesson to be learned here as well. Be very cautious of any advice coming from someone with a vested interest in a particular solution.

Anyone in the McLeod USA coverage area wanting a referral to an independent telecommunications consultant near to their location, or a quote for my time and travel if they would like my expertise applied directly to their specific needs, is welcome to PM me.


Private Reply to Ken Hilving

Aug 19, 2005 12:09 pmre: re: re: re: re: Mcleod USA assets - In heaven, there is no beer#

Mark Burkholder
Latest update from McLeod USA. Two officers resign their posts. According to McLeod, this is standard procedure given their current restructuring efforts. The countdown to their demise continues:


Any McLeod customers in WI or IL interested in an unbiased telecom consultant to evaluate their services feel free to send me a private message.


Private Reply to Mark Burkholder

Sep 08, 2005 1:45 pmre: Mcleod USA#

Mark Burkholder
Well tomorrow is the next deadline for their forbearance. Can't wait to see what they come up with this time. Hopefully, it will be more substantial than just another extension of the deadline.


Private Reply to Mark Burkholder

Sep 14, 2005 1:46 pmre: re: Mcleod USA#

Mark Burkholder
The deadline came and of course they extended their deadline. I don't know if that is a good sign or not for their future but it sure is driving everyone nuts having to wonder what their future is.


Private Reply to Mark Burkholder

Sep 27, 2005 4:59 pmrMcleod USA may not be on deathwatch any longer#

Mark Burkholder
Now I have inside info from two very reliable sources that they have struck a deal with their creditors, will go bankrupt again (I am assuming CHapter 7 this time)be taken over by the banks and be privately held and then quickly launch a new marketing campaign. It is really unreal but apparently they may be well positioned in the market given the scope of their network.

Private Reply to Mark Burkholder

May 08, 2007 4:25 amMcLeod USA - another look#

Ken Hilving
I thought it might be interesting to look at the situation with McLeod USA again, especially with a new member of the network who works there.

Mark, it appears your "really unreal but apparently" was on the mark.

Private Reply to Ken Hilving

May 08, 2007 8:50 pmre: McLeod USA - Leadership Team#

Ken Hilving
A check of the McLeodUSA leadership team shows changes in 2006 that included a new CEO, CFO, CTO, and General Counsel and Company Secretary. Sales and ops leadership remains in place except for the VP of Customer Service. The former CTO moved into this position.

This indicates to me that the McLeodUSA had a solid base of products and services, but was weak in business leadership. From what I have seen, key investors were looking for a faster return on their investment or there were personality conflicts between these investors and the former leadership.

McLeodUSA is also looking to retire its private debt and move back into public trading. Apparently the revenue versus expense picture is looking pretty good over the past year or so as well.

The current leadership team has some interesting connections that could lead to some attractive new products and services. Of course, this is pure speculation on my part.

Private Reply to Ken Hilving

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