Covad Takes A Hit From FCC Ruling

A recent FCC ruling denies Covad and other providers the steep discounts they were set to enjoy on access to new fiber-optic networks owned by the Regional Bell operating companies (RBOCs). The FCC also ruled that the RBOCs are no longer required to lease high-speed portions of their copper lines to DSL providers, which use them to provision services.

"The FCC passed on an opportunity to guarantee that broadband competition continues on a level playing field across the country," said Covad President and CEO Charles Hoffman on a call with analysts last week.

Cliff Young, CEO of ClearPath Networks, a VPN solution provider based in El Segundo, Calif., said Covad has been more committed to the channel as of late. The company re-assigned some of its direct teams to focus on the channel, and co-marketing activities have increased, he said.

Young said the ruling will have an impact on Covad but may be a blessing in disguise, as it may help redirect Covad toward more business-oriented value-added offerings and partnerships.

To that end, Covad this week is slated to introduce new products and services for small businesses and distributed enterprises, including high-speed ADSL and more value-add services such as Web hosting and design. The company also is mulling a partnership with a wireless company as solution providers push more into Wi-Fi, said Tom Thayer, vice president and assistant general manager of Covad Broadband Solutions.

"Going after small business and distributed enterprises is a core part of our strategy for this year, and we've had tremendous success working with agents and resellers," Thayer said. "We're investing in them personally and heavily on the sales side, and there's a good reason for it. They are key to the provisioning of a value-added solution, and they extend our reach much greater than we could on our own," he said.

The ruling doesn't directly affect Covad's access to second-line loops and T1 facilities, which it uses to serve business customers, Hoffman said. Those customers accounted for 60 percent of Covad's revenue in 2002.

Hoffman did not rule out exiting the consumer business entirely due to the FCC ruling.

"Whether Covad can survive a sharp decrease in consumer business remains to be seen," said Audrey Levi, president of networking VAR Altek Consulting Group, Miami. Levi added that Altek is having quite a bit of success bundling other services with DSL in the small-business market.