The Business of Broadband

SANTA CLARA, CALIF. (04/20/2000) - Bob Knowling, CEO of upstart competitive local exchange carrier Covad Communications Co., likes to envision his phone company competitors as ugly old giants sleeping lazily on their front porches.

And he's running like mad to give Covad some distance in the broadband Internet access race before those slumbering foes awake.

In 1999, Knowling set Covad on course to become a dominant provider of digital subscriber line (DSL) services. Market analysts say he 's been relatively successful so far, with Covad having grabbed more than 10% of the DSL market.

The Santa Clara carrier has deployed more DSL lines than any other CLEC, but despite Knowling 's belief that the Bells aren 't taking the market seriously yet, faces stiff competition from incumbent LECs.

Covad 's financials tell its story of success. Revenue rocketed 1,148%, from $5 million in 1998 to $66 million in 1999. That staggering growth places Covad atop the Network World 200 list of fastest-growing companies, well ahead of the other big gainers.

To be sure, it helps that Covad provides a hot commodity - high-speed Internet access. "The expanding need for bandwidth has really facilitated revenue growth opportunities," Knowling says.

True enough, agrees Claudia Bacco, vice president of TeleChoice 's DSL consulting service. But among CLECs, she adds, Covad has excelled because it 's maintained focus - on the type of customers it wants to serve, the flavor and speed of its DSL offerings and making it easy to order online.

Covad has captured its chunk of the DSL market in part by selling DSL services to enterprise users but mostly by wholesaling services to 300 ISPs, which in turn sell DSL to residential and business customers. It hopes to sustain its growth rate by bringing application service providers and "big-brand, brick-and-mortar" companies into the Covad fold, Knowling says. To do the latter, it recently acquired LaserLink.net, which provides branded Internet access to 68 million subscribers, in a stock deal valued at about $387 million.

LaserLink allows enterprises to increase brand affinity by providing their customers with Internet access, e-mail accounts - say, bknowling@amway.com - and the like.

Prior to the LaserLink.net acquisition, Knowling was projecting $235 million in revenue for 2000 from 290,000 subscribers. Those estimates are conservative and will be adjusted to account for the additional business Covad expects through LaserLink.net, Knowling says. Based on his original numbers, Knowling says he expects revenue to surpass a $1 billion run-rate by 2003.

"Our current business plan of record will allow us to pass 50% of businesses and 44% of homes with DSL service this year," says Knowling, while pitching the slogan "Covad Inside." Like they associate Intel inside PCs, people will one day think of Covad as providing the high-speed pipes needed for zippy Internet service. "I want to put up the most pervasive network in the world, so people come to know that their Internet experience is facilitated by Covad," he says.

And that, Knowling says, precludes Covad from playing exclusively in the DSL market. In fact, it means Covad will eventually have to move into wireless, cable modem or other high-speed access services.

After all, Knowling concludes, "This is not about DSL. It 's about broadband."

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