Cooperation in CLEC-ville

Nextlink Communications and Covad Communications forged a deal last week that may signal a new market move for Nextlink and possibly lead to further consolidation between two prominent competitive local exchange carriers.

Under the deal, Covad will get $20 million from Nextlink and become the carrier's preferred provider of digital subscriber line service, which Covad plans to deploy in 22 U.S. markets. Covad's DSL play also would be a good way for Nextlink to make its residential market debut.

"They're putting in an ATM backbone and co-locating their DSL [access multiplexer]," said George Tronsrue, president and chief operating officer of Nextlink. "If we choose to offer service in high-end residential markets, these guys would be a real efficient way to do that-particularly if their handoff point is right there at our switch."

That's a possibility given the second part of the deal, which makes Nextlink a preferred provider of local transport and co-location services to Covad.

The cash influx from Nextlink begs the question of whether this arrangement could be a precursor to more cooperation between the carriers. Covad is in a quiet period because of its pending initial public offering and unable to comment, but Tronsrue clearly views Covad as an important partner. "The moment I started to see what they were doing, it struck me as worthwhile to take a strategic interest in a company like this," Tronsrue said. "You can't do everything yourself."