Covad Closes Chapter 11, Opens New Plan

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On a field littered with the carcasses of Internet excess, Covad Communications Inc. is a rarity — a broadband company that actually survived Chapter 11 bankruptcy to resume its hunt for customers.

Relieved of its $1.4 billion of debt, the five-year-old company has re-emerged with 1,400 employees, 300,000 digital subscriber lines and a goal to make a profit in 2003.

"The big difference between us and the others was that we took our medicine early, and we've gotten better," said executive vice president of marketing and strategy Chuck Haas, one of Covad's co-founders.

With 52 percent of its lines accessing small to medium businesses and 48 percent hooked to residences, Covad's emphasis is on building its subscriber base in existing markets, rather than expanding to new ones.

"We built a little too big, and we shut down some [central offices] last year, downsized the size of the company and the number of offices we had — and we made some tough choices," Haas said.

Covad has pared its central-office count from 2,000 to 1,800.

"That's a great number for us now," said Haas. "That allows us to be very capital-efficient, because basically we have a network that is paid for, now that we have bought back the $1.4 billion in bonds."

Covad's retuned strategy also involves expanding its consumer-service distribution by seeking resale deals with major Internet-service providers. EarthLink Inc. has already signed on, and getting other major ISPs to buy in is dependent on convincing them the company has a sound business plan, Haas said.

"We believe that partnering with companies that have content and large bases of customers is the best way for us to fill our network, and that is the strategic objective for this year," he said.

While the residential side is significant, Covad's primary market remains the business realm. Last year it launched TeleSOHO, a self-installed small office-home office asynchronous DSL service, and TeleXtend, a T-1 service aimed at reaching areas outside of DSL's service boundaries.

This week, the company added two self-installable firewall products to its lineup. TeleDefend provides firewall protection for a company with one site, while TeleDefend VPN provides security to companies with multiple offices or telecommuters.

The firewall products are geared for smaller businesses that need system security but don't want to manage it.

Covad's main rivals for business clients are still the RBOCs. Although cable companies have recently created business-service subsidiaries, they are still on the fringe, Haas said.

"Cable companies traditionally haven't had small businesses as their customers," he said. "This is going to be a big switch for them, and I question whether they would focus on it well enough to do it as well as we do. I'm sure we will see them in pockets, but we don't see that as a big threat."

Though it may have taken a bankruptcy to turn things around, Covad is in a much better position to compete, according to TeleChoice Inc. DSL analyst Pat Hurley.

"I think that with their finances the way they are now and with the network that they have built out, they don't need to spend a lot of money to add customers on now," he said.

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