Plug Pulled on Cedar Rapids Overbuild

With its stock hovering below $3 a share for the first time, McLeod USA has shut down its overbuild of AT&T Broadband's second-largest Iowa market — for now.

The Cedar Rapids-based outfit has halted construction of a broadband network that already reached half of the city's 55,000 households with its offerings of cable, Internet access and local and long-distance phone service.

It's also slashing $300 million in capital spending, and furloughing 575 employees — or 5 percent of its work force — including 200 staffers in Cedar Rapids.

McLeod attributed the shutdown to the "economic pressures" that have battered overbuilders nationwide. In the case of McLeod, the company's stock was selling below $3 a share last week, down from a high of $25 a share a year ago.

The nation's largest independent competitive local- exchange carrier, McLeod is concentrating on delivering integrated communications services, as well as local- exchange service, in 25 states. Its networks are capable of offering, voice, video and data services to 90 percent of the nation's population.

"We're curtailing any further buildouts until we don't need to be so careful with our cash flow," McLeod spokeswoman Katie Wacker said.

It was the latest setback for McLeod, which had already stopped its pursuit of franchises in smaller Iowa jurisdictions through its Dakota Telecommunications Group subsidiary.

But the company still has an estimated 11,000 cable customers in Cedar Rapids and the surrounding communities of Hiawatha and Marion. That count is even larger when Internet-access and telephony customers are included, according to Wacker.

"We'll continue to service our customers," Wacker said. Additional subscribers can be hooked up "where fiber has been deployed and a drop is all that's needed," he added.

McLeod's curtailment of construction activity in metro Cedar Rapids was good news to AT&T Broadband, the city's incumbent operator and a longtime critic of overbuilds.

Despite McLeod's subscriber numbers, AT&T officials last week said the overbuild in Cedar Rapids had little effect on the MSO's local operations.

"That's the story here," said AT&T regional communications director Deb Blume. "Cedar Rapids is one of our top markets, and we've seen no inroads by McLeod. It's been business as usual."

One of AT&T's advantages in Cedar Rapids is a state-of-the-art network it inherited from Tele-Communications Inc., which acquired the upgraded system from Cox Communications Inc. in 1997.

Cedar Rapids represents McLeod's latest setback in Iowa.

In 1999, talks between the company and Des Moines collapsed, despite the City Council's willingness to allow the telco to start deployment as negotiations continued.

Talks with the community of Coraville also went nowhere due to McLeod's refusal to pay franchise fees for its high-speed Internet-access service.