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Covad CEO Keeps Calm

Covad CEO Charles Hoffman insists that all the talk about regulatory changes doesn't frighten him

January 9, 2003

3 Min Read
Covad CEO Keeps Calm

At a time when most service providers are tensely awaiting a Federal Communications Commission (FCC) ruling on whether or not to give the regional Bells regulatory relief, Covad Communications Inc. (OTC: COVD) president and CEO, Charles E. Hoffman, says he’s not all that worried about the verdict.

“We don’t think that it’s going to affect us at all,” he says. “All we use is copper last-mile line-sharing.”

While most of the debate and discussion surrounding the FCC’s regulatory review has centered around which elements, if any, should be included in the unbundled network elements platform (UNE-P), another part of the equation is whether line-sharing should be upheld (see Fed Reg Debate Heats Up).

While the Bells claim that today’s regulated line-sharing puts them at a disadvantage when competing against cable companies offering high-speed data services, the CLECs such as Covad insist that it is the only way to maintain competition in the space (see SBC's Beck Is Big on Broadband and Courts Coming Through for CLECs). Line-sharing is crucial for competitive broadband carriers like Covad, because it enables them to provide high-speed data services over the same line a customer uses for voice services, even if the customer does not use the carrier's services for voice. Covad claims that line-sharing should get much of the credit for the recent rise in the number of broadband users in the U.S. According to a recent FCC report, more than 14 million Americans had broadband subscriptions in June last year. That's a 27 percent increase from the same period of 2001.

“2003 will be much more of a growth year for broadband than 2002,” Hoffman says. “Broadband is finally taking off… There’s a buzz about it.”

Not everybody thinks Hoffman should be resting so easily. If the CLECs lose access to these lines, many observers believe the broadband space will be completely dominated by the Bells and the cable companies. “I think that Covad could be hit pretty hard,” says Network Conceptions LLC analyst Phil Jacobson.

Hoffman feels confident the Commission will find in the CLECs' favor. Although one commissioner, Kevin Martin, has been very vocal in voicing his opinion that line-sharing should be abandoned, Hoffman says he hopes the other four commissioners will come to Covad’s aid.

Even if the FCC’s regulatory review rules for the RBOCs, Hoffman doesn't think it will be as devastating to the CLECs as many seem to think it will. The implementation process will probably be drawn out for a long time by a slew of lawsuits from both the competitive carriers and states wary of loosing their regulatory control, he says.

“I think it will be very uncertain for a while,” he says. “I don’t think the FCC will eliminate competition altogether.”

He’s not taking any chances though. “I’ll be lobbying all next week to make sure we’re not collateral damage."

Even if line-sharing remains untouched after the whole debacle is over, Covad’s business could still suffer, Hoffman concedes. The company has wholesale partnerships with many of the large competitive carriers, like AT&T Corp. (NYSE: T) and MCI (Nasdaq: MCIT), which could be hard-hit by a change in UNE-P regulations (see AT&T, Covad Team on DSL).

But wallowing in uncertainty for a long time could also have its price for carriers like Covad. Investors will likely postpone putting a lot of money into the space until the issue is resolved, in Jacobson's view. “It’s going to be really hard to raise money when people know that your business model [could go] down the toilet,” he says.

“The uncertainty is causing [telecom] investors to be more cautious,” Hoffman admits. But Covad, he insists, is in a strong financial position. He points out that the company, which will be announcing the metrics for its fourth-quarter results next week, has $230 million in cash and only $50 million in debt.

In afternoon trading today, Covad’s stock was up 3.33 percent, trading at $1.24 a share.

— Eugénie Larson, Reporter, Light Reading

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