COVAD, NEW EDGE MERGE FOOTPRINTS

Steering clear of the rapid network expansion philosophy that sunk so many companies just a few years ago, Covad Communications and New Edge Networks have signed a deal that will create what amounts to the largest DSL footprint in the nation. The two data LECs have agreed to resell each other's T-1 and synchronous DSL services, thus providing Covad with access to New Edge's Tier II, III and IV markets and granting New Edge entry into Covad's major metro markets.

Amazingly, there is little overlap between the two networks. Of the combined 2300 central offices in which the two companies own facilities, there are only 20 that overlap, most of which are in the Pacific Northwest. On the surface, the two seem a perfect fit. But both have different goals and motives for the relationship.

Covad wants to offer a nationwide DSL service that targets businesses with offices, facilities or remote sites in the country's small and mid-sized markets. New Edge, which announced less than a month ago that it was on the hunt for acquisitions, seems content with its strategy of selling to small business customers. After acquiring Excite@Home's @Work assets, New Edge was able to secure some significant metro infrastructure. Currently, it's selling T-1 and greater dedicated Internet services. It plans to augment that offering with Covad DSL.

For the two companies, the deal was a logical alternative to expansion or acquisition at a time when the capital markets are at their lowest. “The only way to ubiquity is to use other people's facilities,” said Dan Moffat, CEO of New Edge.

Covad will definitely be getting the most out of the relationship. Before filing for bankruptcy last year, Covad planned to expand into small cities across the U.S. Now, with line-sharing near extinction thanks to the FCC's recent triennial review, Covad must shift its focus to businesses, said Matt Davis, director of broadband access technologies at The Yankee Group.

“Three years ago, this deal wouldn't have gone through,” he said.

Covad is targeting large businesses such as retail chains, and companies with numerous branch offices. Those types of distributed businesses aren't located exclusively in major metro areas, so Covad needed access to smaller markets, said Tom Thayer, vice president and general manager of Covad's Broadband Solutions Group.

“Covad is still expanding — we haven't stopped,” Thayer said. “This is part of a multi-pronged approach to getting access to our customers. New Edge provides the perfect match.”