The ratings on Los Angeles-based competitive local exchange carrier (CLEC) U.S. TelePacific Holdings Corp. reflect a vulnerable business risk profile stemming from significant competition from larger, better capitalized incumbent telecom operators, the lack of any sustainable competitive advantages, low barriers to entry, market concentration, and a highly leveraged financial profile. The CLEC industry has a high degree of business risk, characterized by intense competition, price compression, and technology shifts. While the company has demonstrated modest success in growing its client base in underpenetrated markets by providing excellent customer service, longer term prospects are highly uncertain, especially given its lack of geographic diversity. Tempering factors include meaningful synergies from recent acquisitions, which should contribute to improving margins, and expectations for modest
