COMMENTARY -- It's All Saints Day, but Wall Street is mostly buzzing about corporate sinners...
Shares of Covad are taking the predictable beating. Regardless of what happens, this company is not going to go away, because it has a pretty hefty stream of guaranteed revenue thanks to its deal with SBC Communications (NYSE: SBC) and others outside of the financially-shaky clients cited in Covad's third quarter report.
Whether Covad will ever become a great company is another story. To repeat, broadband access will eventually become the same commodity-type industry that dial-up service is today. But that won't happen in the near future; Covad should be able to roll up some wins in the meantime.
Here's why I lump them together: the whole business is lousy. The ISP field shares all the woes of long-distance telephone service -- cut-throat competition, falling margins, slowing growth. No one has ever made more than a small profit purely on Internet access or related services, such as Web hosting. America Online (NYSE: AOL), Yahoo! (Nasdaq: YHOO), B2B exchanges and others have repeatedly demonstrated that the real money is not in the pipes, but rather in what flows over them.
Microsoft executives have long argued (perhaps hypocritically, considering the fact that MSN charges fees) that bandwidth should be free. Worldcom would retort that software should be free. Looking at the trends, it looks like Microsoft is winning that exchange.
Chart lines seem to indicate the stock established a bottom around 20 after some unwarranted and just plain weird doubts following the company's third quarter report a few weeks ago. Now the stock looks to be climbing as it should, because the company ought to do well. AMD recently slashed prices, rolled out faster chips and introduced a new chipset compatible with improved memory, just in time for what's expected to be a reasonably strong holiday season.
I'm not advocating piracy -- even if current copyright laws are silly -- but reality is reality: if not Napster, people will find other ways to share music on the Internet. You don't even have to stop using the Napster client -- just download Napigator and find an opennap server outside Napster's own network. Whatever people choose, you can be sure that the minute Napster starts charging even a dime, much of its audience will disappear. 22GO>