Copyright 2003 The Chronicle Publishing Co.
The San Francisco Chronicle
MARCH 12, 2003, WEDNESDAY, FINAL EDITION
Despite a major regulatory setback last month, Covad Communications Tuesday stood by its prediction that the Santa Clara DSL provider will have a positive cash flow later this year.
“Nothing has changed,” said Covad chief executive Charles Hoffman. “Business is better than ever.”
Hoffman said the high-speed Internet provider will become profitable in the first half of this year — meaning that not counting interest, taxes and some other deductions, it will show a profit. The company should generate cash six months later, he said.
Covad’s stock lost half its value last month after the Federal Communications Commission narrowly voted to phase out line-sharing rules, which allow Covad to rent the high-frequency portion of telephone lines that are already being used to handle voice calls.
By using voice lines to carry DSL, Covad avoids the hassle and expense of installing new phone lines and pays a lower monthly fee.
Prior to the announcement, Covad shares closed at 67 cents Tuesday, far below its 52-week-high of $2.60.
Hoffman pointed out that federal regulators said the line-sharing regulations would be phased out during three years. By then, Hoffman said, Covad may be able to use an alternative technology, such as wireless, to deliver high-speed Internet service. (Hoffman cautioned that the FCC still hasn’t released the details of the decision.)
The FCC ruling itself is also in doubt, because Covad and others plan to challenge the decision to toss out line sharing.
And Covad also is hopeful that it can reach agreements with local telephone companies to continue leasing the high-frequency portion of voice lines.
Covad had an agreement with SBC Communications, the nation’s second-largest local phone company, to rent the high-frequency portion of the phone lines for about $5 per month.
And SBC Communications chief executive Ed Whitacre said he has no problem allowing Covad to continue to share the lines for roughly that price in the wake of the FCC decision.
“Oh sure,” Whitacre said in an interview with The Chronicle. However, Whitacre said, he opposes the decision by regulators in California and some other states to let Covad use the lines for free.
Verizon Communications, the largest U.S. local phone company, may be less hospitable.
Verizon chief executive Ivan Seidenberg told The Chronicle last month that he is willing to work out a deal to let Covad use the lines only temporarily.
“If Covad has a strategy . . . to migrate their business to a fiber-optic network (or some other technology), that’s a very reasonable thing for them to talk about,” Seidenberg said. “If they don’t have a strategy to migrate to a future technology, then it’s a whole different question.”
Separately Tuesday, Covad reported that it lost $35 million in the fourth quarter, compared to an $859 million profit a year ago. (The 2001 earnings were boosted by a one-time elimination of debt via bankruptcy.)
Revenue decreased by 2 percent to $88 million. Covad said it has 381,000 data lines, a net gain of 23,000 during the fourth quarter.
Covad predicted its first-quarter revenue will be $90 million to $92 million. And it will go through $30 million to $35 million.
E-mail Todd Wallack at email@example.com.