Covad Invests Overseas

Covad Communications invested $11.5
million in Japanese digital subscriber line provider ACCA Networks, Co.
Ltd. Thursday, expanding its presence outside the U.S.

The agreement gives Covad a significant minority share
in ACCA Networks, Co. Ltd, in partnership with Japan-based NTT Communications Corp. and venture capital
firm Ignite Japan.

Under terms of the agreement, both Covad and NTT retain a 41.8 percent
stake in the company, with Ignite investing $1.6 million for a 6.7 percent
stake. Covad also gains two seats on ACCA Networks board of directors.

All three companies are bringing its particular strengths to ensure the
success of the DSL deployment. Covad is selling its operational support
system license to the company, NTT will provide the backbone support while
Ignite has been on-site overseeing the company’s financial and operational
growth . NTT is a unit of Japan telco giant Nippon Telegraph and Telephone
Corp, while Covad was recently named the number one DSL provider among
competitive local exchange carriers by Cahners In-Stat, an online research company.

Robert E. Knowling, Covad chairman, president and chief executive officer,
said opening markets in Japan made the time right for overseas expansion.

“We are investing thoughtfully and prudently in Japan, which we have always
known is an important opportunity for the deployment of broadband
services,” Knowling said. “The Japanese regulatory market is opening up
and we are working with the largest phone company in the world, which is
providing human resources and marketing support. Importantly, we are also
licensing our OSS to ACCA that, by itself, could pay back our entire cash
investment.”

ACCA will act as a wholesaler in Japan, selling its DSL service to Internet
service providers and business users as well as residential accounts. The
goal is to build out more than 450 central offices in 17 markets throughout
the major cities in Japan. A pilot launch has been set in Tokyo for the
fall.

Masanobu Suzuki, NTT president and chief executive officer, said the
agreement revitalizes the DSL deployment competition in Japan.

“ACCA Networks will be an important vehicle for NTT Communications’
continued expansion into high-quality broadband services,” Suzuki
said. “NTT will continue to strengthen its commitment towards up-to-date
customer needs and establish an end-to-end information distribution value
chain by expanding its high-speed access capabilities. We also expect that
the partnering with Covad Communications, which has been successful in the
U.S. market with its entrepreneurship, will bring great advantage to
business in the competitive and fast-moving Japanese market.”

According to Hidehiko Yuzaki, ACCA Networks founder and chief executive
officer, said the deal assembles a Japanese DSL “dream team,” and will help
open up markets stymied by lack of competition.

Competition comes mainly in the form of another American CLEC, Rythms NetConnections, which performed a
similar investment coup in late June. The carrier invested $1.6 million
for a one-third stake in Japan-based DSL provider Garnet Connections.

Both Covad and Rythms have been sending out investment
tendrils in the international market to bolster its stake in DSL
deployment. According to a Tuesday report by Cahners In-Stat, CLECs hold
on the DSL market is a tenuous one, with U.S. telcos the heavy favorites in
the long run.

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