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

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. :-)

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.

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?

[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.

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...

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.