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.”