Covad Hits Bump as It Moves Into a Retail Market

SANTA CLARA, CALIF. (06/21/2000) - DSL carrier Covad Communications Co. is reshaping itself into a retailer rather than a wholesale vendor of high-speed access services, but it's having trouble with the transition.

The shift could ultimately mean good things for businesses because they will have another DSL vendor with national reach to buy services from.

But first, Covad has to successfully make the transition, and that has so far proven to be rough going. Covad announced June 16 that it expects to sell fewer DSL lines this year than it had predicted earlier: 245,000 instead of 300,000.

That reassessment sent Covad's stock into a decline last week.

Part of the problem, says Covad's CEO Robert Knowling, is that ISPs that buy DSL wholesale from Covad now will be reluctant because Covad is a direct competitor in the retail market.

Covad, which started out just wholesaling broadband access to ISPs and other carriers, announced recently that it plans to buy BlueStar Communications, a Nashville vendor of DSL Internet access services to business customers in the Southeast. The US$148 million sale is pending. That deal gives Covad a direct sales force as well as a DSL infrastructure in smaller cities.

While the company might face some rocky times, buying from Covad may actually be good for customers. When buying from Covad directly, customers are dealing with a business that owns its own network, except for the actual phone line between the customer site and Covad's access multiplexers. If a problem arises, customers can deal directly with Covad.

If customers buy from a retailer that wholesales services from Covad, the retailer takes the complaint and has to pass it on to Covad, which then has to chase down the problem. That adds an extra time-consuming layer between the customer and the company that can actually correct a problem.


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