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Covad Invests Overseas

Covad Communications invested $11.5 million in Japanese digital subscriber line provider ACCA Networks, Co. Ltd. Thursday, expanding its presence outside the U.S.

The agreement gives Covad a significant minority share in ACCA Networks, Co. Ltd, in partnership with Japan-based NTT Communications Corp. and venture capital firm Ignite Japan.

Under terms of the agreement, both Covad and NTT retain a 41.8 percent stake in the company, with Ignite investing $1.6 million for a 6.7 percent stake. Covad also gains two seats on ACCA Networks board of directors.

All three companies are bringing its particular strengths to ensure the success of the DSL deployment. Covad is selling its operational support system license to the company, NTT will provide the backbone support while Ignite has been on-site overseeing the company's financial and operational growth . NTT is a unit of Japan telco giant Nippon Telegraph and Telephone Corp, while Covad was recently named the number one DSL provider among competitive local exchange carriers by Cahners In-Stat, an online research company.

Robert E. Knowling, Covad chairman, president and chief executive officer, said opening markets in Japan made the time right for overseas expansion.

"We are investing thoughtfully and prudently in Japan, which we have always known is an important opportunity for the deployment of broadband services," Knowling said. "The Japanese regulatory market is opening up and we are working with the largest phone company in the world, which is providing human resources and marketing support. Importantly, we are also licensing our OSS to ACCA that, by itself, could pay back our entire cash investment."

ACCA will act as a wholesaler in Japan, selling its DSL service to Internet service providers and business users as well as residential accounts. The goal is to build out more than 450 central offices in 17 markets throughout the major cities in Japan. A pilot launch has been set in Tokyo for the fall.

Masanobu Suzuki, NTT president and chief executive officer, said the agreement revitalizes the DSL deployment competition in Japan.

"ACCA Networks will be an important vehicle for NTT Communications' continued expansion into high-quality broadband services," Suzuki said. "NTT will continue to strengthen its commitment towards up-to-date customer needs and establish an end-to-end information distribution value chain by expanding its high-speed access capabilities. We also expect that the partnering with Covad Communications, which has been successful in the U.S. market with its entrepreneurship, will bring great advantage to business in the competitive and fast-moving Japanese market."

According to Hidehiko Yuzaki, ACCA Networks founder and chief executive officer, said the deal assembles a Japanese DSL "dream team," and will help open up markets stymied by lack of competition.

Competition comes mainly in the form of another American CLEC, Rythms NetConnections, which performed a similar investment coup in late June. The carrier invested $1.6 million for a one-third stake in Japan-based DSL provider Garnet Connections.

Both Covad and Rythms have been sending out investment tendrils in the international market to bolster its stake in DSL deployment. According to a Tuesday report by Cahners In-Stat, CLECs hold on the DSL market is a tenuous one, with U.S. telcos the heavy favorites in the long run.



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