Covad shares trade strong on first day

Covad shares rose 27.375, an increase of 152 percent, to close at 45.375, after pricing its initial public offering at $18 per share yesterday.

The company's range was $16 to $18. The company first filed to go public in mid-December.

The company issued 7.8 million common shares under the ticker symbol "COVD," raising more than $140 million. More than 12 million shares traded hands, making Covad the tenth most active issue today on the Nasdaq National Market.

Covad, a "competitive local exchange carrier," or CLEC, is a wholesaler of digital subscriber lines (DSL), a high-speed data delivery technology that uses standard copper phone wires.

Covad is one of the first DSL companies to go public. The company began in the fall of 1996 with funding from initial investors Warburg Pincus, Crosspoint Ventures, and Intel.

The three founders of Covad all formerly worked for Intel, including chairman Chuck McMinn, who was a product manager for one of Intel's first chips.

Long distance giant AT&T invested some $25 million in Covad, while Nextlink Communications added $20 million to the company's coffers. Earlier this week, the company received a $15 million infusion from Qwest Communications International. (Warburg Pincus was an investor in LCI International, a long distance company acquired by Qwest last year.)

Covad sells its DSL service to Internet service providers and large corporate customers, typically for telecommuting applications.

In regulatory documents filed with the Securities and Exchange Commission, Covad said it has about 100 customers, including Concentric Network, Verio, and Cisco Systems.

DSL is the main broadband alternative to cable modems.

For the quarter ended September 30, the company reported a net loss of $28.3 million on revenue of $2.6 million. For the 1997 fiscal year, Covad had a net loss of $2.6 million, on revenue of $26,000.

Covad offers DSL service in New York, Los Angeles, San Francisco, Boston, Seattle, and Washington with plans to reach 22 markets by the end of the year.

CLECs, like Covad, were formed by the Telecommunications Act of 1996 as a way to introduce competition into the local phone market, dominated since 1984 by the regional Bell operating companies (RBOCs) such as Bell Atlantic, SBC Communications, and GTE.

Covad's fellow CLECs and chief competitors include NorthPoint Communications and Rhythms NetConnections.

Managing underwriters of the IPO also include investment banks BT Alex. Brown, Donaldson Lufkin & Jenrette, and Goldman Sachs.