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Covad Wins Flashcom's Customers in Court

A bankruptcy court in California has awarded data local exchange carrier (DLEC) Covad Communications the right to migrate all of the Covad-supplied customers of ailing ISP Flashcom DSL to other service providers, the company announced Thursday. Flashcom filed for bankruptcy protection on Dec. 8, and it is the largest of Covad's "distressed ISP" customers.

In an agreement approved by the United States Bankruptcy Court in Santa Ana, Calif., Covad will provide up to $750,000 in both cash and debt forgiveness up front, and could pay up to $2.75 million more depending on how many Flashcom lines are successfully migrated through the Covad Safety Net program.

Covad now has the right to seek migration requests from about 24,500 Flashcom DSL customers.

"We remain fully committed to working with distressed ISP partners to get payment and find solutions for their customers," said Chuck McMinn, Covad chairman. "Unfortunately, after lengthy negotiations with some of our distressed ISPs, we were forced to turn off their connection to Covad's network. Because we could not reach an agreement with these ISPs and they did not pay their bills to Covad, the end users of these ISPs have unfortunately experienced a disruption or termination of their DSL connections. Flashcom is a great example of how an ISP and Covad can negotiate an agreement to minimize the impact on innocent end users."

Specifically, the DLEC shut down DSLnetworks and Internet Express. DSLnetworks last week filed an injunction against Covad, which it said was trying to steal its customers through the Covad Safety Net program. The injunction called for an immediate halt to that practice. But DSLnetworks was unable to convince the judge, who rejected the injunction. Another hearing has been set for March 8.

Daryl Schoolar, a senior analyst with Cahners Instat's Internet Strategies Group, said Covad had little choice but to shut down some of the ISPs.

"I think it is a smart move by Covad," he said. "They are in a fight for their corporate lives and can't afford to risk revenues on ISPs that might not be able to pay their bills. Yes, it will move them from wholesale to retail relationships, but WorldCom, AT&T and Cable & Wireless have all successfully managed this dual relationship for years. I doubt Covad will seriously risk relationships with financially healthy ISPs. The only ISPs that need to worry are those that can't pay their bills."