CEO of COVD speaks out... -- EFNT2

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Date Posted: 22:08:57 06/05/00 Mon
Author: warren
Subject: CEO of COVD speaks out...

Covad CEO Speaks Out at Supercomm 2000
by Michael Hodel | 11:30 AM | 06-05-00 | E-mail Article to a Friend

Much has been made recently of the difficulties in getting high-speed Internet access via digital subscriber line (DSL). This morning, at Supercomm 2000--the largest and most important telecommunications conference in the United States--Robert Knowling, chief executive officer of DSL provider Covad Communications Group COVD, spoke to a group of telecom-equipment manufacturers, expressing his frustration with the regional Bells that dominate the industry and outlining his company's strategy for the future.

Knowling referred to the Bells, which include Bell Atlantic BEL and SBC Communications SBC, as "incompetent suppliers" that stifle Covad's efforts to bring service to its customers. Covad must lease the phone line over which DSL service is provided, so the Bells hold significant power over the company.

Regulations force the Bells to offer competitors such as Covad easy access to their networks, but Knowling stated that the Bells are still engaged in anticompetitive practices. He went as far as to solicit audience support for Covad's effort to block the Bells from entering the long-distance market. In exchange for opening up their networks, the Bells have been promised access to the long-distance markets. Covad has been a particularly harsh critic of allowing competition into the local-service market and actually sued Bell Atlantic when the Federal Communications Commission allowed that Bell to enter the New York long-distance market, claiming that Bell Atlantic was hindering competitors' access to its networks.

Knowling said the DSL business is the toughest he has ever been in because of the problems Covad has had with the Bells. He said he has pleaded with equipment and software vendors to design products to allow competitors such as Covad to fill orders quickly and allow consumers to easily install DSL service in their homes and businesses. In the meantime, poor customer service will continue to be an obstacle to DSL installation and thus to the success of Covad and its peers.

If too many customers walk away frustrated with their DSL experience, it may be tough to win them away from alternative technologies, such as cable modems. This remains a big risk for investors in Covad and other competitive DSL providers, including Northpoint Communications Group NPNT, Rhythms NetConnections RTHM, and DSL.net DSLN.

Knowling also outlined Covad's future strategy. First, the company needs to expand its business to achieve economies of scale and get the attention of equipment suppliers. Second, the company intends to continue building its own data network. This will allow Covad's customers to bypass the public Internet for many services, avoiding the growing congestion. After all, a superfast connection is useless if the Internet itself is slow. Finally, Covad intends to move beyond high-speed Internet connections to use its network for voice communications and other services, such as streaming video.

Covad Communications' share price has fallen off a cliff during the recent downturn in the technology market. Despite this decline, Covad's shares remain fairly expensive relative to the size of the company's sales. For Covad's investors to realize significant returns, it is imperative that the company execute its strategy and see improvement in its relationship with the Bells. Neither of these conditions is certain to hold, making Covad's shares suitable only for investors willing to take on significant risk.

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