Covad Buys Qwest DSL Service

May 9th, 2007

Covad Communications has announced it is acquiring approximately 23,000
out-of-region business DSL customers from Qwest Communications for $3.75
million in cash.

The customers will be offered similar Covad business-class services,
Covad says. There will be a 105-day transition period for the Qwest
customers.

Covad will release Qwest from an earlier contract that would have
required Qwest to buy Covad services with a present estimated net value of $8.8
million. Qwest may receive an additional payment of up to $1.25 million,
depending on the success of the migration.

Qwest said it is selling the business as part of an effort to identify
profitable revenue opportunities. Covad, meanwhile, said the former Qwest
business represents a significant inorganic growth opportunity for Covad, which
operates a nationwide network.

Some analysts viewed the transaction negatively, however.

“Everyone loses, if only a little,” states Brian Washburn of Current
Analysis in a report on the deal. “Qwest is pulling the plug on national
business services via DSL, increasingly a focus of its big three IXC
competitors. Covad, which is in no position to make payouts, is putting down
millions to acquire customers it already served on a wholesale basis. Covad
also loses Qwest’s financial commitments and the Qwest brand name as a partner.
Customers lose their carrier of choice in this forced switch.”

The swap won’t turn around Covad’s
ongoing
losses–the service provider recorded a $34.7 million net loss
on $90.9 million revenue for the first quarter of 2003–and it lets Qwest exit
from $8.8 million in financial commitments to Covad, Washburn notes.

“Not a good move for a company under pressure to become cash-flow
positive,” he states.

Most customers are located in California, Delaware, Illinois, Indiana,
Kansas, Maryland, Massachusetts, Michigan, Missouri, New Jersey, New York,
Ohio, Pennsylvania Texas, Connecticut, Florida, Georgia, Nevada, North
Carolina, Louisiana, Wisconsin, Alabama, New Hampshire, and Rhode Island.

Fewer than 250 customers will be affected in Arizona, Colorado,
Minnesota, New Mexico, Oregon, Utah, and Washington.

Qwest said it will continue to offer high-speed broadband services to
customers outside its 14-state region, such as dedicated Internet access, frame
relay, ATM, private lines, and VPNs.

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