Covad Wins In Court, Announces More Losses

At the same time a Santa Clara judge was rejecting an injunction against
Covad Communications Group Thursday night,
the broadband provider was readying an announcement that shows its financial
status is much grimmer than it was acknowledging.

DSLnetworks, a broadband Internet service provider that had some of its
digital subscriber lines shut down by Covad, failed to convince a judge
Thursday afternoon that Covad was stealing customers.

Martha Sessums, Covad vice president of corporate communications, said
DSLnetwork’s contract didn’t call for non-disclosure of customer names,
which gives Covad the right to contact customers.

“The judge ruled that DSLnetworks had failed to show a breach of contract,
because the 1999 contract that they have does not give us any restrictions
on contacting their end users,” Sessums said. “(The judge) also found that
DSLnetworks hadn’t shown that they had taken any proper steps to show that
their list was confidential and, in fact, had given it to us and never told
us it was confidential.”

Another hearing for the injunction has been set for March 8.

While claiming victory in the court system Covad will
need some more good luck on Wall Street, which is sure to make its
displeasure known when investors react to the company’s year-end revisions.

A 2000 review conference call to investors was scheduled for Feb. 27, but
has been postponed as Covad accountants regroup and get financials in order.

At the conference, Covad officials will announce even deeper earnings before
interest, taxes, depreciation and amortization (EBITDA) losses and lower
revenues for 2000.

In addition to the 200 central offices it had originally planned to close,
officials said the data local exchange carrier (DLEC) will now close an
additional 60 COs nationwide. Covad is also halting the application process
on 500 more COs.

The closures are the result of cost-cutting measures needed after the
company cut its staff by 800, at the same time saying it was taking a
one-time restructuring charge of $20 million.

Officials now say the restructuring charge will be “substantially larger
than $20 million,” according to a statement released Friday, and they will
be looking to take further cost cutting measures down the road.

Chuck McMinn, Covad chairman, said the measures are necessary to reach
profitability down the road.

“We have made a number of significant changes to our business in the past
several months to put Covad on a quicker path to profitability,” McMinn
said. “Accurately accounting for these changes is essential, and we simply
need the extra time to ensure we review these changes and report them
correctly.”

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