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Covad Announces Minimal Gains in Q4

Fresh out of bankruptcy court, Covad Communications announced Wednesday a one percent gain in digital subscriber line (DSL) gains in the fourth quarter of 2001, an incremental gain to 351,000 total subscribers.

The data competitive local exchange carrier (DLEC), however, continues to reduce its dependence on revenues from the Internet service providers (ISP) in its wholesale program, down from 33 percent at year-end 2000 to 13 percent.

Downplaying the meager fourth quarter gains, Charles Hoffman, Covad president and chief executive offer, pointed to improvements in gaining business-class customers over residential users.

"During this recent difficult economic period, we have continued to strengthen and grow our business including improving our balance sheet by eliminating $1.4 billion in debt and raising capital to fully fund our business plan," he said. "We have lowered our cost structure, increased revenue and decreased losses by focusing on small business lines and have continued to manage our distressed partner lines. This quarter we also introduced new business-class services and are now better positioned to control our future as we continue to provide high quality broadband services nationwide."

Covad sells a business-class synchronous DSL (SDSL) offering, which gives enterprises and small office, home office (SOHO) workers the standard business package including static IP addresses, dial up backup accounts, 15 email address and guaranteed symmetric upload and download speeds starting at 192 Kbps (for $149 a month) all the way up to 1.5 Mbps ($419 a month).

The revenues accrued from business accounts is much bigger than pricing for standard residential service, which runs $49.95 a month.

Covad continues to make gains in its business package, with 52 percent of its total lines using the service. Residential service makes up the remaining 48 percent.

On another front, Covad has been reducing its dependence on revenues garnered from outside sources since they filed for federal bankruptcy protection last year. At first signing up any ISP who could stand up to sign on the dotted line, Covad found out the hard way that many of these providers couldn't acquire the customers they promised.

Wednesday's announcement of 13 percent is in-line with officials desire to continue reducing such dependence and make it a go on their own.

Officials said they have further reduced their monthly burn rate, the amount of money spent on housekeeping, wages and the like. In the fourth quarter, they posted a burn rate of $20 million, down from last quarter's roughly $23 million burn rate.

A burn rate without revenue guidance doesn't do much help when trying to figure out how well the company is actually doing. A Covad spokesperson wasn't available for comment at press time, but a rough guesstimate of third quarter 2001 revenues ($84.8 million) multiplied by one percent and added gives Covad roughly $85.7 million in revenues.

Of course, that number is before bankruptcy-related charges and earnings, interest, taxes, depreciation and amortization (EBITDA), the standard used by many struggling companies to measure their profits, but with cash burn included gives the DLEC a slight gain in profits.

Covad officials did say they still have $290 million in the bank at the end of the quarter.