The ratings on Los Angeles-based competitive local exchange carrier (CLEC) U.S. TelePacific Holdings Corp. (TelePacific) reflect a highly leveraged financial risk profile and a high degree of business risk stemming from substantial competition from larger and better capitalized incumbent telephone companies. The ratings also reflect pricing pressure, a lack of sustainable competitive advantages, low barriers to entry, integration risk, and market concentration. Tempering factors include the company's solid EBITDA margins relative to its peer group and access-line growth because of low penetration levels and improving churn. TelePacific has a vulnerable business risk profile. The company provides integrated telecommunications services to about 38,000 small and midsize business (SMB) customers with around 1.2 million lines. Its primary competition consists of incumbent telephone
