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Covad & Verizon Drop Suits

Craig Matsumoto
12/28/2005

Covad Communications Inc. cleared a legal hurdle today by settling a court case with Verizon Communications Inc. (NYSE: VZ), but a similar BellSouth Corp. (NYSE: BLS) case still looms.

The settlement catapulted Covad shares up 31 cents (46%) to 98 cents late today. Verizon stock was down 15 cents (0.5%) at $30.29 late today.

Covad relies on leased lines from the former Bells to deliver its DSL and T1 services to businesses, and its lawsuits represent the bitter spat that's developed between CLECs and incumbent telcos. CLECs like Covad have accused the Bells of unfair business practices, while the Bells have pushed to stop the discounts they've been forced to give the CLECs. In the latter case, the Bells got their wish with a Federal Communications Commission (FCC) ruling that took effect March 11. (See The Switch Is On for CLECs.)

Covad had filed an antitrust suit against Bell Atlantic in 1999; Bell Atlantic would merge with Nynex to form Verizon. Verizon countersued in 2001, claiming Covad had misrepresented its situation by falsifying trouble ticket reports.

Both suits were dismissed today, and the companies expanded the deal allowing Covad to use Verizon's lines. (See Verizon, Covad Make Up.)

Covad, which also leases its own switching facilities to other carriers, separately signed an agreement to provide services to some MCI LLC DSL business customers. MCI is being acquired by Verizon, so the deal ultimately would make Covad and Verizon more cozy. (See Verizon Wins Tussle for MCI and FCC Clears Megamergers.)

MCI has been a Covad reseller as well as a provider. In the latter case, Covad and MCI signed an agreement in 2002 that expired in May 2005, according to Covad's 10-K filing with the Securities and Exchange Commission (SEC) .

Covad filed a similar suit against BellSouth in 2000 that's been bouncing between the U.S. Supreme Court and the U.S. Court of Appeals for the Eleventh Circuit. As of June 2004, most of Covad's claims in this case were dismissed, a side effect of an early 2004 Supreme Court ruling. But a "price squeeze claim" and "certain state tort claims" are still alive, according to BellSouth's 10-K filing from March 2005.

— Craig Matsumoto, Senior Editor, Light Reading

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