Covad

» see covad.com as it lived, on the wayback machine

~ the obituary ~

Covad was a regulatory product before it was a technology product, and the regulation was american. The 1996 Telecommunications Act obliged the incumbent phone companies to let competitors put their own equipment inside the exchange buildings and lease the copper running out of them. A company with no lines of its own could therefore sell you a line. Turkey never had anything that worked that way at consumer scale. Whatever i signed up to at home, TTNet or Turknet, the copper belonged to Türk Telekom and everyone else was reselling what Türk Telekom sold them.

So the american fight over broadband in 1999 has no Turkish equivalent i can put next to it. There was one wire and one owner, and the argument here was about price rather than about access. Covad's entire existence, its money and its lawyers alike, came out of a rule that in most of the world was either never written or never enforced.

It was founded in 1996 in San Jose by people out of Intel, Charles McMinn and Dhruv Khanna among them, and it went at the opportunity harder than anyone. Covad was the first provider to offer DSL on a national footprint in the United States. It did not do so under its own name very often. The model was wholesale: Covad owned the hardware in the exchange and the relationship with the incumbent, and somebody else owned the customer.

~ the case file ~

~ the rule that made it ~

The mechanism was collocation. Covad rented a cage in the incumbent's central office and filled it with DSLAMs. From there it leased the copper pairs that ran out of the building and into houses. The refinement that mattered arrived on 9 december 1999, when the FCC issued its Line Sharing Order. Before it, a competitor renting a pair got the whole pair and the customer needed a second line for voice. After it, the incumbent kept the low frequencies for the dial tone and Covad got the high frequencies for data on the same wire. One copper pair, two companies billing for it.

None of this happened without fighting. In april 1999 Covad sued Bell Atlantic and a dozen of its subsidiaries, including claims under the Sherman Act. Bell Atlantic brought a patent action back at it and lost on summary judgment on 4 april 2000, the court finding Covad's systems did not practice the patent at all. In 2000 SBC settled its own dispute by agreeing to resell Covad's service under a deal Covad valued at around $600 million over six years, and by investing $150 million in the company it had been fighting. That is the shape of the whole industry in one paragraph.

~ the first bankruptcy ~

Covad went public in january 1999 and the market value ran past $10 billion, which was normal for the month. The economics underneath never worked. Every subscriber needed a truck roll and a port in a cage, and every bill got argued over with the company that owned the exchange. When the funding stopped in 2001 the whole competitive DSL sector went down together and Covad went with it.

It filed chapter 11 on 15 august 2001, with the plan already negotiated with the holders of its debt. The court confirmed on 13 december 2001 and the plan closed on 20 december. About $1.4 billion of notes came off the books, settled at $257 million, which is nineteen cents on the dollar. Bondholders took the loss and the network stayed switched on. By the end of 2002 Covad had roughly 381,000 lines running, and the resellers on the other side of them numbered more than 150, with AOL and EarthLink among the larger ones.

~ where the lines went ~

The second half of the decade was slower and better run. Covad kept upgrading, putting Samsung Acemap equipment in by 2008 to reach ADSL2 rates around 15 Mbit/s, and by the third quarter of 2006 it had 530,000 lines and ranked as the sixteenth largest ISP in the United States. It was a real business by then, just not a growing one, because cable had taken the consumer market and the incumbents had learned how to compete.

Platinum Equity announced a buyout on 28 october 2007 and closed it on 15 april 2008 at $1.02 a share, about $304 million for the equity and around $470 million counting the debt. A stock that had carried a ten billion dollar company was worth a little over a dollar. Two years later came the end. Covad was merged with MegaPath and with Speakeasy into a single company that kept the MegaPath name, closing on 1 september 2010 with more than 85,000 business customers between them. The wholesale assets moved on again in january 2015 to Global Capacity. The copper is still in the ground and somebody is still renting it. The company that spent fourteen years arguing for the right to do so is not there to collect.

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