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SBC, Covad strike $600 million DSL alliance

The local phone giant agrees to invest in Covad Communications and signs a $600 million agreement with the company to jointly deliver high-speed Net connections.

Local phone giant SBC Communications today agreed to invest in Covad Communications and signed a six-year, $600 million agreement with the company to jointly deliver high-speed Internet connections.

SBC will invest $150 million in Covad, which represents about a 6 percent minority stake, and settled several legal disputes as part of the plan.

Beginning Oct. 1, SBC, which has a broad plan to offer digital subscriber line (DSL) connections to consumers and businesses called "Project Pronto," will resell Covad DSL connections both in and out of the Baby Bell's 13-state region. Covad will receive a guaranteed $600 million in revenue over six years.

The deal marks the latest major alliance in the DSL sector and raises questions about whether Rhythms NetConnections, a comparable competitor, will seek a similar partnership.

Last month, local phone company Verizon Communications agreed to merge its DSL assets with those of NorthPoint Communications, a DSL wholesaler and Covad competitor. The deal leaves Rhythms as the last of the triumvirate of national DSL competitors without a significant Baby Bell partnership.

The deals are intended to provide Verizon and SBC with an avenue for providing high-speed Net access beyond their geographic regions. NorthPoint and Covad have spent the past two years building DSL networks in some of the nation's largest cities, giving the Baby Bells a broader reach.

For the DSL see story: Find a broadband providerupstarts, the Baby Bell alliances provide them with a major resale partner with a large base of potential customers and deep financial backing.

"It's a help to both of our business models," said Terry Moya, executive vice president of external affairs for Covad Communications. "We're building a relationship between the two companies so we can do some joint planning."

As part of the Covad-SBC deal, the two companies settled several legal issues, including an antitrust lawsuit by Covad against Pacific Bell and parent company SBC. The companies also settled their differences over line sharing--the process of delivering high-speed Internet access over the same phone line customers use for voice service--and agreed upon pricing for line sharing.

SBC had 435,000 DSL customers as of mid-August and expects to reach 1 million by the end of the year. Covad today raised its DSL installation estimates to 200,000 by the end of the quarter.