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Covad Takes Global Aim

Covad Communications Group Monday formed a new unit to spearhead its worldwide digital subscriber line deployment.

At the heart of the international deployment is Covad Communications Group's ability to market its Operational Support System license, which automates the setup process between the phone company, Internet service provider and end user.

The subsidiary, Covad International B.V., met its first match with the $11.5 million equity investment in ACCA Networks Co., Ltd., a Japan-based local access company Thursday. In an agreement with NTT Communications Corp., a Nippon Telephone and Telegraph Corp. subsidiary, both bought a nearly 42 percent stake in the company to launch DSL services throughout Japan. A Tokyo pilot is scheduled for late fall.

If the latest deal is any indication, Covad has found a way to create generate revenue by licensing its OSS to foreign companies. In its deal with NTT, Covad made a one-time equity investment into the company with no requirements for additional funding and first-refusal status. Covad's OSS license was then sold to ACCA Networks.

This is the company's second overseas investment. Earlier this year, its investment arm bought into Dishnet DSL, an Indian broadband ISP. Covad also licensed its OSS to the company.

It's money that's needed as the competitive local exchange carrier expands its DSL deployment throughout the United States. While Covad is the top CLEC in DSL deployment with more than 100,000 subscribers, it doesn't hold a candle next to the likes of SBC Communications, Inc., which has nearly 500,000 DSL customers.

According to a Cahner's Instat report, CLECs face an uphill battle for DSL supremacy. It's author, analyst Mike Lowe, predicts the regional Bell operating carriers will wind up DSL winners because of its ownership of the network high-speed access is offered upon. Deals similar to the recent Verizon Communications acquisition of Northpoint Communications, Inc., marrying the CLECs superior OSS to the telcos network, are expected in the near future.

Robert E. Knowling, Covad chairman, president and chief executive officer, said the company will takes its investment wherever the opportunity might present itself.

"Now is the time to get a foothold outside the U.S. and we are doing it in a very careful, thoughtful way, while continuing to focus on our core business domestically, Knowling said. "We are only getting involved in major markets where we have strong management, significant strategic influence and where it is financially prudent."

Robert Davenport, former Covad executive vice president of corporate development was named the international president and chief executive officer. According to Davenport, the company will continue its search for companies through strategic investments, alliances and acquisitions.

"We will continue to take a financially disciplined approach as we evaluate opportunities to expand our footprint internationally," Davenport said. "We will look for opportunities where the regulatory framework is opening up and where Covad can provide real value with our technical, regulatory and operational expertise, without creating a distraction for our core business."