Covad expanding into 200 new COs

Covad Communications today outlined its first network expansion plan in more than two years, adding 200 new central offices and four new markets to its broadband access network.

Covad will complete the expansion in the middle of 2004, bringing its total network footprint to encompass 2000 COs and 100 markets, most of them in the 100 largest metro areas in the U.S. Covad will add capabilities for both symmetric and asymmetric DSLs as well as T-1 capabilities to all of the new facilities and will prep the new locations for its impending voice-over-IP-service launch later this year.

When Covad emerged from bankruptcy in early 2002, it scrapped its previous aggressive expansion plans, choosing instead to focus on building up services and attracting customers in the network it already had in place. But bolstered by lucrative wholesale customer contracts from MCI and AT&T, Covad decided to resume expansion once more, but very selectively, a Covad spokesman said today.

"This is a very cost-conscious approach to expansion," the spokesman said. "We’re only going into the central offices we need to go into, based on what our customers have been asking us. We expect to have a return on investment within one year."

Covad released no details about the total cost of the expansion, though Covad officials said they would update Wall Street on Covad’s changed capital expenditure budget at its fourth quarter earnings call next month.

Citing competitive reasons and ongoing contract negotiations, Covad also did not name the exact new markets into which it would expand its network. The new build outs, however, will add about 5 million new businesses and homes to Covad’s nationwide footprint, adding to the 45 million it currently reaches.

Covad also announced it has topped half-a-million access lines in service. Covad added 26,000 lines in the fourth quarter, 29% of which were provisioned for MCI and AT&T. Its total subscriber line count reached 517,000 for the end of the year, a 36% increase since 2002. Though Covad’s Q4 net ads were disappointing, analysts said they expected those numbers to ramp up substantially in 2004 as Covad deploys voice-over-IP services and AT&T and MCI intensify their DSL bundling efforts.

A financial note from Needham said that AT&T will most likely expand into several more states with DSL, and MCI will launch a nationwide marketing blitz before Covad reports its year-end earnings in early February.