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Covad unplugs late-paying ISP partners

Covad Communications shuts down the high-speed Net connections it leases to DSLnetworks and Internet Express, and terminates their partnerships.

    In a fight for the crumbs of an increasingly cash-strapped market, Covad Communications has shut down the high-speed Internet connections it leases to DSLnetworks and Internet Express, and terminated their partnerships.

    Covad, a provider of DSL (digital subscriber line) connections, said it shut down the broadband lines it leases to DSLnetworks on Wednesday evening, which left DSLnetwork's business customers with no high-speed Internet access. Covad said it also shut off the DSL connections for customers of Internet Express, another of its ISP partners, last week.

    "They were delinquent in their payment and they did not submit an acceptable plan to make them current with Covad," said Covad spokeswoman Suluh Lukoskie.

    The disputes stem from money DSLnetworks and Internet Express, both privately held, apparently owe Covad.

    Predominately a wholesaler, Covad sells DSL lines to ISP partners that resell them to business customers and some consumers. Covad, which has about 250 ISP partners, is particularly gun-shy about its ISP customers' financial and payment situations after 14 ISPs could not pay their bills on time last year and forced the company to restate its earnings. Covad also says four of its other partner ISPs have recently filed for bankruptcy protections.

    "We have terminated our business relationships with DSLnetworks and Internet Express," Lukoskie said. "We are in a situation where we need to make smart business decisions that will get us to profitability. We're not here to fund other people's businesses."

    Thousands of customers were affected by the dispute with Covad, according to DSLnetworks. But thousands of other customers have seen their providers go out of business, file for bankruptcy protections or sell their customer bases to other competitors. The morass of financial difficulties is curious given the intense customer demand for broadband Net access and growth projections for the market.

    The number of worldwide DSL lines is expected to increase to 66.4 million in 2004 from 4.5 million in 2000, according to a report released Thursday by IDC, a market research firm.

    As a result see related story: Tough times for high-speed ISPsof the vast ISP troubles, Covad has become increasingly concerned over its relationship with the ISPs with which it does business. Covad and DSLnetworks were in recent negotiations over a new payment plan, but those talks broke down, according to Covad.

    DSLnetworks was not meeting its financial obligations, according to Covad spokeswoman Suluh Lukoskie. "They could not pay, or were not paying, with respect to the amount they owed us," Lukoskie said.

    DSLnetworks sees the situation differently.

    "If they're saying that negotiations broke down, that's news to us," said Dan Melmed, director of marketing at DSLnetworks. Melmed says that DSLnetworks was meeting its previously agreed payment schedule to Covad. "The bottom line is this: We had a deal worked out with Covad, and they're reneging on that deal," he said.

    Covad alerted DSLnetworks' customers of the shutdown with a letter that urged them to go to the "Safety Net" section on its Web site for information about other service options, Covad's Lukoskie said. The options allow customers to continue service through Covad or with another of its partner ISPs.

    "We're shocked," said Melmed, who says his company was completely blindsided by Covad's action.

    "Apparently, Covad doesn't know what the word 'end user' means, or what 'customer' means, or what 'customer service' means," said Arturo Moldavia, senior vice president of marketing at Internet Express.

    In a statement see story: Find a broadband providerposted on the Internet Friday, Internet Express said: "It seems that without prior notification to do so and during negotiations with Internet Express to come to a resolution of their issues with us, Covad decided to switch off everyone's DSL service that has not chosen to move to a Covad Safety Net partner."

    Covad is also moving into the ISP business with the acquisition of BlueStar.net, which puts it in direct competition with its line-leasing ISP customers. The company announced a plan this week to rename its direct sales unit Covad Business Solutions.

    Melmed added that DSLnetworks has been in the process of switching its customers from the lines it leases through Covad to other service providers such as NorthPoint Communications, Rhythms NetConnections, and Pacific Bell because of business and service considerations.

    "DSLnetworks sees (Covad's decision to terminate our agreement) as an attempt...to bring customers over to Covad," Melmed said.