Covad Communications Group Inc. stocks were up nearly 8 percent Thursday morning on news that ISP EarthLink Inc. is investing $50 million in the communications provider.
EarthLink said it will provide the money as debt and equity financing for Covad to build networks in Atlanta, Chicago, Los Angeles, Miami, New York City, Philadelphia, San Diego and Washington, D.C., so EarthLink can provision its DSL and home phone service in those markets. The ISP already offers these services in Dallas, San Francisco and San Jose, Calif., and Seattle.
In exchange for EarthLinks new financing for Covad, EarthLink will receive $10 million in common stock and $40 million in convertible debt, due in 2011. The companies will reveal additional details in filings with the Securities and Exchange Commission. They expect the investment to close before March 31, 2006.
EarthLinks stock fell slightly, .33 percent, Thursday morning.
Covad’s line-powered voice access (LPVA) is made possible by next-generation DSLAM technology that incorporates the ATA functionality. While traditional VoIP uses the high-frequency portion of the local loop, with LPVA the signal is converted from digital to analog within the DSLAM. Once it becomes analog, Covad uses the base band portion of the loop, meaning DSL is not needed to send the voice signal, because it is analog, rather than an IP packet. Covad said that means LPVA is not subject to the distance limitations of DSL and, thus, enables a larger service footprint. EarthLink was the first ISP to partner with Covad when the communications provider rolled out its LPVA last year.
This agreement demonstrates the success of our strategy to target the residential market through strategic partnerships, said Charles Hoffman, president and CEO of Covad Communications. By strengthening our relationship, Covad and EarthLink are better able to provide a consumer VoIP service that far exceeds the competition in both voice quality and features.