Covad drops BlueStar operations

Covad Communications said today it would close its wholly owned BlueStar network subsidiary to achieve cost-savings of $75 million over the next year.

The struggling independent DSL provider acquired BlueStar in September 2000 to create a direct sales model for smaller markets. But changing market conditions and Covad’s revamped business model does not support a BlueStar relationship, a Covad spokeswoman said.

“When we acquired BlueStar, the financial markets were rewarding growth and we wanted to use BlueStar as a fast means for getting into the direct-sales route,” she said. “The current financial market isn’t appropriate for that right now and we continue to have high operating losses with BlueStar.”

Last year, BlueStar contributed $5.8 million in revenue while hitting Covad with a $27.4 million operating loss. In the first quarter 2001, the subsidiary posted $5.6 million in revenue and a $27.6 million operating loss.

The spokeswoman said the $75 million savings would be the net total following the deal.

The company said its other operations would not be affected by the BlueStar action.

Covad said the BlueStar closing would affect 100,000 homes and businesses, and 235 central offices are expected to shut down. Approximately 400 job cuts in the southeastern U.S. will also result.

Covad said it would use its Safety Net program—originally created to maintain connectivity and to migrate lines for customers stranded by its distressed ISP partners—to catch fallen BlueStar customers.

“It’s certainly an easy process that we know how to work quickly,” the spokeswoman said.