Covad names new CEO

Covad Communications, the beleaguered broadband services provider, has turned to 20-year telecommunications veteran Charles E. Hoffman to succeed Frank Marshall as president and CEO. Marshall, who had been serving in the post on an interim basis, will remain on the Covad board of directors as vice chairman.

Hoffman comes to Covad from Toronto-based Rogers Wireless Communications, where he most recently was president and CEO. Prior to joining Rogers, Hoffman spent two years with Sprint PCS as president of its northeast region, and 16 years with SBC Communications in a variety of senior management positions.

According to Jeff Moore, senior analyst with Current Analysis, Hoffman and Covad are a good fit for each other.

“He has tremendous experience in telecom and solid experience with taking difficult situations and turning them into successes. And Covad has the potential of being a textbook example of a company that experiences a dramatic turnaround,” he explained.

While Moore acknowledges Covad’s recent travails, which include a $1.4 billion loss for fiscal 2000 and a de-listing notice from the Nasdaq stock market, he says there are a lot of things going on under the surface that offer reason for optimism about the company’s future.

One is what Moore calls “the revolution in line sharing,” which he claims has given Covad the ability to service virtually all of its residential customers without a truck roll, dramatically reducing expenses. He adds that Covad has also made substantial improvements in its operations support systems, which will increase the company's efficiency.

Plus, the market price for consumer DSL recently jumped to $50, which is a good thing for Covad says Moore. “Covad DSL was always a little bit higher, generally speaking, than RBOC DSL, so now they’ll be much more competitive,” he explained. “They have the [option] of either raising their prices and improving their margins, or increasing their market share, and that’s a good choice to have.”

Moore further believes that Hoffman’s lengthy tenure at SBC may come into play at some later date. He notes that in the past year SBC has taken a stake in Covad and signed what Moore calls “a major peace treaty” with the broadband services provider.

In addition, SBC’s DSL offering is primarily ADSL, says Moore, which is not particularly well-suited for business applications, unlike Covad’s nationwide business-class DSL network. Plus, SBC has been getting a lot of criticism lately as it backtracks on previously announced out-of-region expansions of its DSL network.

Add it all up, says Moore, and one realistic future possibility is the sale of Covad to SBC.

“By buying Covad and having an instant presence around the country, SBC could deflect a tremendous amount of that criticism,” Moore explained. “SBC is one of the two biggest U.S. telecom players and, as such, can hardly afford in the long run to not have a nationwide presence.”

Michael Goodman, senior analyst at The Yankee Group, is less enthusiastic about Covad's future. He says Hoffman has a challenge in front of him in terms of restoring the company to profitability.

"This is a tough market for a re-seller," he said. "How do you get more revenue from the consumer? The answer is adding services. So they still have a tough row to hoe. Just because they have a new CEO doesn't mean they're on the yellow brick road."