Covad Set To Emerge From Bankruptcy

powerlord writes "All of us still rooting for Covad can let out that deep breath we've been holding. According to an article on the Seatle IP Wire Covad is set to emerge from bankrupcy. They claim they've managed to shed most of their debts and are concentrating on 50 major metropolitan areas right now. They expect 40 of the markets to be cash positive by year end, with the entire company cash positive by mid 2003. Their stock rose $0.75 to $1.39."

Comments

Glad to hear this

[phillymjs]

...since I'm about to make the switch from @Home to Comcast's own cable modem service. If it turns out to suck, now I'll have a viable alternative to Verizon DSHell.

~Philly

Congrats, but

[Erasei]

I worked with a company that partnered with Covad a few years ago. With any past partner, you wish them the best, and hope they do well as a company.

But the reason (well, one of the many) reasons they went bankrupt in the first place was the old problem known as 'the last mile'. In the DSL world, the telco still has to be involved. So, how can a company like Covad, basically a reseller, expect to survive against the telco selling DSL themselves?

This is great news

[bconway]

As a user of SpeakEasy.net, one of the few good DSL providers left who don't use the broken-by-design PPPoE protocol, I'm definitely relieved to hear that Covad will be sticking around for a while. SpeakEasy assured all of their customers that in the event of Covad going under they would provide service by some other means, though that's always questionable at best. Great job, guys!

Re:This is great news

[Syberghost]

one of the few good DSL providers left who don't use the broken-by-design PPPoE protocol

Now, let's be fair; they haven't finished designing it yet, so maybe it won't be broken if they're ever done. :-)

Re:This is great news

[cmowire]

The backup plan, of course, is for Speakeasy to just buy lines from the phone company directly.

At least, I hope. I hope that in 5 years, there is still an ISP that will let you have static IP addresses and servers for a reasonable premium over normal rates. I love my speakeasy connection. If Covad sticks around for a while longer and is profitable, I'll do what I intended to do a while back and start hosting my own services, instead of paying for an ISP.

Of course, Covad is becomming part of the phone company by partnering with SBC.

Re:This is great news

[nicedream]

I am very satisfied with my DirecTV DSL (formerly Telocity).

I get a static IP and I am allowed to run anything I want, no firewalls, no port blocking.

$50/month. I couldn't be happier (especially since I live 2 blocks from the nearest DSL switch).

Re:This is great news

[automatic_jack]

I use SpeakEasy too. After getting burned by Flashcom and their HORRIBLE service, Speakeasy has been a dream come true. Four static IPs, a 384kbit pipe, and dialup to use when the high-band is down, although the only times that has happened have been when FUCKING VERIZON PIECE OF SHIT TECHS unplug us.

I live in an apartment building, and twice in the last year our DSL has died. When Covad comes to look at it, the first time the wire was unplugged from the block, and the second time it was unplugged and actually cut, in three places. Apparently Verizon techs will cut Covad wires if they see them, because the Covad guys are not union. The second time this happened we had to pay $200 for repair. ARGH!

Re:This is great news

[rekoil]

Depending on the LEC involved, this is not as easy as it seems, and you really have to understand exactly what Covad does to understand this.

Covad is NOT and ISP, they do the dirty work of connecting ISPs to DSL end users. They do this by colocating their DSLAM hardware in the LECs' central offices, which the LECs are required by law to allow them to do at prices typically set by the state PUC. Covad then provisions residential lines from the LEC, having them terminate into their DSLAM instead of (or in addition to, via a signal splitter) the LEC's own POTS switch. From there, Covad connects the DSLAMs into their switched ATM network, which Covad's client ISPs also connect circuits into. Covad then routes the data streams from the ISP to the end user and back.

Some LECs, most notably SBC, have a similar service, although not offered in all areas. In this case, the ISP can, and does, order connectivity to the end user directly from the LEC. However, Verizon doesn't do this, so without Covad (or Northpoint or Rhythms, pre-crash), the ISP would be forced to colocate DSLAM hardware and provision trunk circuits into every LEC central office in the area they wish to service. This, as you might expect, is extremely expensive, and few ISPs can achieve the per-DSLAM customer density to make it remotely profitable, epecially low-margin ADSL customers.

In the Washington DC area, only Network Access Solutions is taking this route, to the best of my knowledge. They only offer business-class SDSL service, which is premium priced, and probably the only was NAS can hope to recover the cost of putting a DSLAM in every CO in the area.

Re:This is great news

[cmowire]

So do I. ;)

But I hope that I'll be able to do it while being able to have FTP, VNC, HTTP, and STMP servers.

Re:This is great news

[cmowire]

Thanks for the clarification.

I do know that in some markets where there are no good DSL providers, you can IP tunnel through another ISP just to get the IP address.

Of course, that's an awful hack. ;)

This is really good news.

[Anonymous Coward]

Posting as AC for a reason.

I work for a Covad ISP and we have had to deal with major hassles for the last year or so in keeping our customers happy and buying despite the obvious uncertainty surrounding their finances. (The collapse of the other vendors - Northpoint, Rhythms, et al. didn't help.) When they finally did announce bankruptcy and the deal to get their affairs in order, we all breathed a sigh of relief - but still held on for dear life until the thing was completed.

Through all this, they have kept service levels very high. I'm quite impressed.

Seattle P-I or Post-Intelligencer - correction

[WillSeattle]

geesh, Hemos, it's even spelled out in the URL.

The reason I mention it is the Seattle Times is a fascistic dishrag that backs Bill G without question, and both it and the Post-Intelligencer are morning papers now. Plus the P-I is even older - I work in their old building, which is now a Group Health admin center for us techies.

As to the story, one of the things about Covad and bankruptcy is that this shows us why Chapter 11 and Chapter 7 are very different. The former means you're going to come back like a phoenix, the latter usually means it's time to drive a stake thru your heart.

-

New Jersey

[jpostel]

I just hope they come back to the central NJ area. There are a ton of my clients that are itching to get better ISPs.

Too little too late

[AntiPasto]

As someone who lost their job (and one that I really really liked too) because of the bankrupcy, I'd just like to say that this is nice and all, but what are we to learn about emerging markets?
We were a reseller, and well, perhaps we jumped into it soon, but heck, we couldn't compete with cable, and DSL was the first to offer a sales chain so that we could keep our customers. We lost our customers, so they had to let me go (the reprovisioning person!!! hehe ah well).
The big bells still have DSL by the balls (I mean, after all it is their stuff, and they get support/technical/installation priority), so is small business connectivity provisioning going towards the relm of the phone/cable companies?

Amazing!

[chill]

"Covad said it has learned from the past and will not expand until it can afford it. Currently, its service area is focused on the top 50 metropolitan areas in the United States.

By the end of this year, 40 of Covad's 50 operating areas will be profitable. The entire company is expected to be cash-flow positive by the second half of 2003."

Amazing that a "new economy" company is now focusing on earning and profit instead of growth. Who'd a thunk it.

Was debt the problem?

[ManualCrank Angst]

I thought the problem was the telcos screwing them over with feet-dragging. Unless bankruptcy (please note the spelling) has changed since we covered it in Social Studies, it doesn't force other businesses to start playing fair.

Re:Was debt the problem?

[Error629]

I work with Covad, and a big part of it is is their lineshare ADSL Customer base, SDSL and IDSL through them are fine. They lose customers who have ADSL on lineshare, because if the phone line starts having problems, the ILEC's rarely fix it, since they aren't providing the DSL. Even if the customer has had it for a year through Covad, they've lost a customer. So yeah, I guess that amounts to your customer base getting screwed by the LEC's. :/

Re:Was debt the problem?

[rekoil]

A lot of lawsuits and state PUC rulings have gone a long way into improving this picture. I remember reading an article a few weeks ago that quote a Covad exec as saying that their average per-line LEC charge has gone from approx. US$20/month, which is the same amount Verizon charges for a standard voice line to around US$5/month.

Remember, the LEC is either handing the copper pair off directly to Covad, bypassing the POTS network, or splitting it in front of their POTS switch and running a "splice" to Covad. In neither case is $20/month justified.

Also, the LECs seem to have figured out that (a) many state PUCs are serious about not letting them sell inter-LATA services (long distance, multi-state IP backbones) until they learn to play fair with CLECs and DLECs, and (b) Tauzin-Dingell, the LECs' best, last chance at getting rid of Covad et al, won't be signed into law anytime soon. Hence, the increased cooperation.

The switch to line-sharing DSL has helped a lot as well, since a LEC truck roll isn't needed to deliver a new copper pair, and because the line also carries dialtone, there's no way it can be "mistaken" for an available pair by a telco tech.

80% isn't enough?

[cperciva]

They expect 40 [out of 50] of the markets to be cash positive by year end, with the entire company cash positive by mid 2003.

Either there's some interesting accounting going on, or they'r expecting to lose *lots* of money in the remaining 10 markets -- like over four times as much as the average profit from the profitable markets.

Re:80% isn't enough?

[arget]

*ding, ding, ding* Drop that duck. You said the phrase of the day: "interesting accounting"

While the markets may be cash flow positive, the administration overhead is the big sucking sound that's draining off that cash. The company hq, the salaries, etc. In essence, everything but the colocated equipment and a techie or two.

With accounting like that, why only 40/50?

Re:80% isn't enough?

[ProfDumb]

They expect 40 [out of 50] of the markets to be cash positive by year end, with the entire company cash positive by mid 2003.

Either there's some interesting accounting going on, or they'r expecting to lose *lots* of money in the remaining 10 markets -- like over four times as much as the average profit from the profitable markets.

I bet you are right about the accounting. The probably have a lot of centralized costs that they don't allocate out to individual markets. These might include (re-financed) debt, marketing, management, etc. In that case all of their markets could be profitable and yet the company could be unprofitable over all.

Re:80% isn't enough?

[uslinux.net]

They may be close to profitable in those markets, but not close enough. Consider as a rather simple example: In 40 of their remaining markets, they end up profitable by $1 per market. In the remaining 10 markets, they lose money by $5 per market. All told, they lose $10, and 80% of their markets are profitable, but the rest may be close. A simple example, but it makes the point. Despite being in the red, those markets will probably be profitable soon - people still want broadband, especially now that cable ISPs and other DSL companies like Northpoint at going belly-up. They've abandoned the unprofitable markets, so anything left at this point WILL be profitable, or it WILL be sold.

Debt WAS the problem

[Anonymous Coward]

These guys ridiculously overexpanded; sent huge rebate checks to customers who signed up for service; spent tons of $$ on advertising; failed to get operational costs under control; and generally burned a billion dollars. (Yes, Virginia, billion.) Bankruptcy gave them a second chance that was much better than the alternative of liquidation. The ILECS contributed to the fuckups but were by no means the sole source.

Reselling CAN be profitable.

[Tsar]

So, how can a company like Covad, basically a reseller, expect to survive against the telco selling DSL themselves?
One word—volume.

All kidding (well, most kidding) aside, I recently saw an article referenced on DSLReports that makes an excellent point—in general, DSL customer service sucks. Installation can be time-consuming without a guarantee of eventual success, service is occasionally spotty, and online help can be hit-or-miss. Work-at-home folk who depend on their broadband for their livelihood, as well as those of us who are just willing to pay a bit extra for good service, would likely do business with a reseller who would wrap a telco's DSL line in better support for a slightly higher monthly fee.

On the other end of the spectrum, a reseller could purchase DSL service wholesale and provide stripped-down service (no email, Usenet, or toll-free support) for less than the full-service products offered by the telco. Many of us geeks would go ga-ga for such a service, especially if all extra services (such as static IP's) were offered a la carte.

Proud owner of a self-restored 1968 Ford Fairlane, 302 V8, 9" 4.11 geared...
Self-restored? Wasn't this the setup for a Stephen King novel?

this post courtesy covad, may they live long and..

[neilv]

Well, I for one am impressed both with covad, and with speakeasy. I ordered DSL 3 weeks ago, and here it is (the service man left 10 minutes ago)! No hassles or problems, delivery on time, I'm very pleased.

My understanding of Covad's strategy, which seems good, is this: they buy only business lines from Ameritech, making them a priority customer, and getting correspondingly great response from Ameritech. But, because of the magic of bulk buying, Speakeasy ultimately is providing me with residential service and pricing. Essentially, buying a premium service at a discount, then recategorizing and re-pricing for the home market. It's working well enough that Ameritech bailed out Covad by making them responsible (pre-buying) for Ameritech's business DSL lines. I mean Verizon. OR is it SBC? Anyway, hooray for Covad.

Here's hoping they stay around!

neil

Poor choice of phrase

[wowbagger]

All of us still rooting for Covad ..

Ahh, so Covad is where all the 5|r!97 \!dd!3z are hanging out...

Poor choice of phrase...

Re:Poor choice of phrase

[wowbagger]

So sad to have to explain the joke, but some people don't seem to get it....

"rooting" is slang for "attempting to access a computer illegally and gain administration access to it".

Thus, when using the term "rooting" with respect to a network supplier, it is a poor choice of terms.

A better one would have been "pullling", since another possible meaning of that would be "pulling networking cable or fiber", which is far more apropos to a network supplier...

Strange

[yoink!]

I find it really strange to hear about all these high speed service provider bankruptcies in the US. It seems like every few days or so, /. is running another story about a failed Cable or DSL provider.

What puzzles me even more is the widespread success, at least here in Montreal, Quebec, of high speed internet (both G.lite DSL and Cable.) In fact the biggest provider, Bell Canada, is going to RAISE it's dial-up rates in January, lower it's DSL rates (via a few special sign up offers) and attempt to force the remaining dial-up users over to domesticated dedicated internet connections. It must be getting to costly to keep up all those modem pools with fewer and fewer users on them.

Re:Strange

[iabervon]

Broadband is a profitable market with a large start-up cost. If you were doing it when venture capital and loans were easy to get, you probably just went ahead and spent the money to get started everywhere, and ignored the fact that, if things continued as planned, you'd lose money for the forseeable future paying back the loans and so forth.

Then the bubble burst, and suddenly it was hard to come by the capital to pay the loans. So, while people are actually interested in your service and paying for it, you've budgetted to lose a ton of money, and you'll continue to lose the money until you reorganize with profit in mind-- ditch a lot of your longer-term infrastructure investments, get more reasonable terms on loans, and so forth. What was a reasonable business strategy before doesn't work now, and changing strategies like that can require protection from creditors.

If you're in a situation where you can put a dollar into infrastructure each day for a week and get back twenty at the end, and you can get loans based on your expected worth at the end, you'll want to put in as much money as you can. If suddenly you can't get the loans any more, you'll find that you can't finish building your infrastructure, and you can't pay off the loans you've taken, either, since the payoff you expected won't happen.

Probably your local companies chose a more conservative initial strategy, and then didn't have as much difficulty changing, or had the capital from other sources to cover it. If they didn't take on a lot of debt initially, because they started with a small deployment, they're probably fine.

Learned their lesson?

[YouAreFatMan]

"Covad said it has learned from the past and will not expand until it can afford it."

And it took how long and how much wasted money to realize a principle that a 8 year-old with a lemonade stand has figured out?

On the plus side for Covad, they managed to outlast their competition both on the DSL side (Northpoint, Rythms) and cable (Excite), so they've got the opportunity for a bigger share of the pie, and a better chance of staying afloat.

Other notable articles

[ackthpt]

XO agrees to takeover, Nov. 30th. This has been my ISP for 5 years and I'm probably bolting soon.

Covad getting some cash back in Nov. 14th

Covad sorting out finances Aug. 8th. $1.4 Billion debt with bondholders.

Looks like an uphill battle, but, if the economy does improve, expect the fortunes of these to follow. I'd just hate to think either would sell out and lock users into something like MSN...

Different packages

[sterno]

This is real simple for me. The best upstream bandwidth I can get through the local phone carrier is 128Kbps. I can get more, but then I have to pay for business class service which is WAY beyond what i need both in price and services.

I've been using Covad's services for two years now and they provide what I want. I've got 384Kbps up which is sufficient for most of my uses. Also, they have no stupid regulations about what I can and cannot do with my connection. Now I grant that when I move next I'll have to get a different service package because their default upstream is going to 128Kbps now, but at least the options are their without being exhorbitant.

Re:Different packages

[KelsoLundeen]

I second this: Covad DSL seems -- at this point, at least -- much better than nearly any alternative.

I've got a 1500/384 pipe, absolutely *no* restrictions on servers or bandwidth, up to 10 IP addresses, no funky PPPoE, and access to a shell account. (Plus I'm going through Speakeasy's Chicago POP, so my pings are -- and have remained -- remarkably low for stuff like Quake.)

Yeah, it's a little pricey -- 75+ bucks a month (more because I have several IP addresses) -- but I'd always said that I'd be willing to pay a bit more for decent service, and so far Covad has given me superb service.

Kudos to Covad. As a former Telocity/Rhythms customer, I'm glad to see that out of the Rhythms/Northpoint/Covad group there appears to be at least one (possible) survivor.

Besides, there's no way in hell I'd give another penney to AT&T or Ameritech. I'd go back to a 56K if AT&T or Ameritech were my only DSL/Cable choices. (Although I'm worried about the DirecTV/EchoStar proposed merger, but that's another thread, another day ...)

Kelso

Re:Different packages

[joshv]

With great reluctance, after failing in two other attempts to get other providers to come out and install DSL in my apartment, I decided to go with Ameritech DSL when I moved into a new place.

Other than the fact that they sent me a USB modem instead of the Ethernet version (quickly corrected) service has been excellent and bandwidth consistantly high and reliable.

I was rather surpised, until I realized it wasn't really the old Ameritech (which had managed to roll out DSL to several thousand subscribers in Michigan in 3 years), this is SBC, which has a much better record in the DSL marketplace.

It's good service and I know SBC is not going anywhere anytime soon Granted I don't have quite the speed you do, but maybe offering such speed is one of the reasons Covad went bankrupt in the first place.

-josh

Re:Different packages

[MrResistor]

I've been very happy with SBC as well (through Pacific Bell). I've had their service for over 1.5 years, and I've had only one problem (which turned out to be my NIC going flakey) and their customer service and tech support have been excellent.

Actually it makes sense...

[sterno]

If they are taking the profits from those 40 cities and investing them in infrastructure and expansion in those other 10, then it makes sense that they wouldn't be profitable overall in the short term.

speakeasy owns j00

[Perianwyr Stormcrow]

I was lucky enough to start out with a pretty brilliant DSL ISP (CapuNet) who were pretty damn awesome, but when they dumped residential service (seemingly like all others in my area) I had to go somewhere. The somewhere CapuNet offered me was the craptastical Earthlink, which I had no intention of climbing aboard. So, I looked into Speakeasy, and it seemed like that was the solution for me... and time has certainly proven this.

It doesn't hurt that a good half of my favorite shoutcast stations are now hosted by speakeasy... heh heh. Now all they need is a good goth station.

'year end' = 'end of this year'

[KFury]

FYI while the blurb says "Years end" the article says 'end of this year.'

I'll be mighty impressed if they can make 40 of their 50 metro areas profitable in the next two weeks.

petty whining

[toast0]

thats smtp you mean... simple mail transfer protocol...

unless theres something useful by the name of stmp?

also, ftp is bad!, you want ssh, seriously. ignoring security issues, ftp has an old and cludgy network setup that doesn't work too well when firewalls are involved