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SBC, Covad Strike $750 Million Deal

Despite being the second-largest digital subscriber line provider in the nation, Covad Communications Group made a $750 million deal with the devil, giving SBC Communications, Inc., a six percent equity piece of the company.

SBC , the nation's number one DSL provider, has had a checkered past with the data local exchange carrier (DLEC), with both sides sparring over line sharing provisioning, pricing and anti-trust issues, among others. All seems forgiven, as both sides agreed to settle pending anti-trust and regulatory legal issues.

The deal calls for SBC to guarantee $600 million in resale revenues over the next six years. It also provides incentives for SBC to sell business lines provided by Covad. SBC will immediately begin marketing Covad's symmetrical DSL (SDSL) business service and asynchronous DSL (ADSL) residential service.

According to Selim Bingol, SBC spokesperson, the marketing deal that calls for SBC to purchase $600 million worth of DSL service merely expands his company's presence throughout the country.

"We're working with a leading provider to gain access where we currently don't have a presence," Bingol said, "and will buy that much of their service to increase our presence around the U.S. They are an outstanding company, and look forward to working with them."

Robert E. Knowling, Covad chairman, president and chief executive officer, said the deal is a sign of the market demand being larger than the issues of any two companies.

"This changes the market dynamics and demonstrates that customer demand for broadband is so strong that two industry leaders can set aside past disputes and cooperated to deliver DSL faster and to a wider range of customers," Knowling said. "This deal is the Telecom Act in action, proving that it works. Everyone wins here, especially customers who are waiting to experience high-speed Internet access. We welcome working closely with SBC."

Funding for Covad comes at a price, however. SBC will take a six percent minority stake in the company, valued at $150 million. The funding is a short-term fix to Covad's recent accounts receivable woes, with between $8-$10 million in uncollected revenues from Internet service providers leasing DSL lines from Covad.

For better or worse, both are adopting common standard performance benchmarks. In addition to agreeing on a $10 non-recurring line-sharing price and $5.75 monthly line-sharing rate, both are working on a joint-operational support system (OSS) based on Covad's loop ordering OSS.

Now that the two are working together, SBC concedes Covad's OSS performed 25 percent more efficiently.

Edward E. Whitacre, Jr., said the deal doesn't mean the two aren't competitors anymore, just aligns both to provide for the growing number of DSL users.

"We are very pleased to strategically align ourselves with Covad in this rapidly growing sector of the industry," Whitacre said. "Although we will continue to be vigorous competitors, this agreement allows us to work together to fulfill the exploding demand for broadband for both businesses and consumers nationwide."