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Covad Buys in Broadband

Covad Communications Inc. (OTC: COVD) is buying wireless ISP NextWeb Inc. for $24.7 million as it gears up to launch a WiMax-style mobile broadband service in parts of the U.S.

As Unstrung reported back in July, Covad has been testing wireless broadband kit for a while now and stated its intention to launch a "pre-WiMax" service in the first quarter of next year. (See Covad to Serve 'Pre-WiMax'.)

At the time, the CLEC was pushing its coming service as a high-speed alternative to DSL for business customers, with the first launch targeted for the Bay Area.

The acquisition of NextWeb gives Covad a ready-made customer base in the Bay Area and beyond, as the WISP provides service to nearly 3,000 business customers in the San Francisco area, Los Angeles, Orange County, Santa Barbara, and Las Vegas. NextWeb's service is available at more than 200,000 business locations in more than 175 cities in California and Nevada.

And the acquisition may help Covad deal with some of the WiMax "spectrum crunch" issues that Unstrung has highlighted recently. (See WiMax USA: Spectrum Crunch.) Covad has been running its test equipment in the unlicensed 5.8GHz band, whereas NextWeb's service operates in both licensed and unlicensed spectrum, something that's likely to be a key factor for operators looking to run wireless broadband services to business customers.

Expect to see more of these kinds of acquisitions as larger operators start to put together plans for business-class WiMax offerings -- or as they simply require a lot more spectrum to offer a consistent wireless service.

NextWeb stockholders will receive $4 million in cash and $19 million in Covad shares in exchange for their NextWeb shares and the assumption of $1.7 million in net debt. The deal is expected to close by the end of the year.

— Dan Jones, Site Editor, Unstrung

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