AOL, Covad Join Up for Broadband Customers

By Ron Miller

America Online and Covad Communications have struck a partnership in order to offer AOL customers a package that includes stripped down DSL access.

Under the terms of the deal, Covad will be the preferred DSL provider for AOL and AOL will market the service under the name “AOL for Broadband Powered by Covad.”

Customers who wish to purchase the bundled service get a simple DSL connection with a connection speed up to 1.5 MBPS for $34.95 a month, along with access to exclusive AOL content for an additional $14.95 per month. The total package also keeps the price point just under the all-important $50 per month barrier for broadband access with some extras thrown in.

Boyd Petersen, an analyst for Yankee Group, said the AOL-Covad arrangement is targeted at AOL’s traditional market: users who are interested in content. He said he sees AOL facing a price point issue in converting its dial-up customers to higher-speed, higher-priced packages, that the Covad arrangement is trying to address.

“AOL’s problem right now is how do they get content to consumers along with broadband access and not break the bank. AOL is in a bit of bind because other providers such as Comcast are not going to lower their price to get users to go to AOL,” Petersen said.

What’s more, the deal helps AOL provide broadband to customers more profitably. AOL’s Anne Bentley said AOL gets a content fee, plus a bounty, for bringing broadband access to Covad.

Meanwhile, Covad gets a shot at increasing its customer base, which helps drive down the cost of running a network. “We hope to generate major volume out of this deal, and that can only add to the overall economics for Covad and this is how we drive our revenue base,” Jeff Ahlquist, vice president of product management and development at Covad Communications said.

The arrangement comes as Covad works to increase its DSL network to nearly 50 million homes and businesses throughout the year.

By mid-2004, Covad expects to have 200 additional broadband equipment installations, bringing its total broadband network to more than 2,000 central offices. The expansion is an attempt to grow Covad’s addressable market as well as utilize its core ATM network.

Covad sells DSL services across the United States directly and through its partner network.

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