Covad, Verizon rework DSL deal

by Guest Contributor | Dec 16, 2004 3:23:00 PM

Tags: Guest Contributor

Takeaway: Anticipating regulatory changes, Covad struck an undisclosed deal to lease DSL lines from Verizon.

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By Jim Hu
Staff Writer, CNET News.com

Broadband ISP Covad on Wednesday revised its deal to lease DSL lines from Verizon Communications in anticipation of pending changes in telecommunications regulations.

With the agreement, Covad secures future assurances to offer DSL service to customers in Verizon customers in its 19-state market. The company has already struck similar leasing agreements with other Baby Bell phone companies SBC Communications and Qwest Communications International.

Details of today's agreement were not disclosed.

The agreement with Verizon is important for Covad, preparing the company for expected changes in the nation's telecommunications laws that could harm the DSL provider. The Federal Communications Commission is planning to roll back rules created as part of the Telecommunications Act of 1996 that set discounted rates at which the Bells must lease their DSL lines to competitors. The changing of these rules will mean higher lease rates--determined by the Bells, not by the government.

Today, the FCC took another step in that direction, when it voted in favor of discontinuing requirements for the Bells to share their phone switching gear with competitors. Start-up phone services still have access to the Bells' copper lines, but they can't lease the Bells' switching equipment at government-set rates. Instead, they'll have to buy their own equipment or negotiate new deals.

Changes in the nation's telecommunications regulations are a huge win for the Bells. Since 1996, the Bells argued vigorously that the line-sharing rules were unfair because the act allowed independent ISPs and phone competitors such as AT&T to ride their networks at costs below market value.

The Bells also demanded a level regulatory playing field because cable companies were venturing into their core voice business while establishing a dominant lead in broadband Internet access.

For little guys such as Covad, DSL will be a more difficult market to conquer. While Covad still owns DSL lines in some markets, the lion's share of its DSL subscribers use a local Bell operator's network. Covad has since turned its attention to the already crowded business of selling phone service to broadband Internet subscribers.

Covad will continue to pay government-set leasing rates for the lines it provides to customers who subscribed before November. To serve newer customers, Covad will have to pay Verizon the newly negotiated rate.