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Technology Stocks : Covad Communications - COVD
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To: John Curtis who wrote (190)7/26/1999 3:35:00 PM
From: Robert T. Miller  Read Replies (2) of 10485
 
John:

Maybe even medium term buyout candidates. A year and a half ago Covad's business plan included a symmetric 144Kbps line at $175 that an ISP would resell along with Internet access to one of their customers. So the total cost would be at least $200 per month.

I argued then that they would have to compete with higher speed cable offerings at $40 per month. It looked like the telcos would have to compete with prices starting at $40 that include Internet access. Now SBC is offering much higher speed at $39 and there are rumors in Bell Atlantic land of under $20 low-end DSL lines for ISPs.

So the Clecs have co-location agreements with the Telcos and ISP customers. But the FCC is lowering the mark for co-location so that you do not have to build a cage but only buy rack space. So maybe the ISPs buy rack space and bypass the CLECs. The CLECs do not have end users like the cable companies do with Paul Allen and ATT paying $5000 per customer. Most of the CLEC's customers will belong to ISPs.

While the dust is still flying and the CLECs have a head start may be the best time for the CLECs to find a partner. Once the dust settles the value of those mercurial customers may be in question.

It may be cheaper to lure the ISPs than to buy the CLECs. The Telcos don't need the co-location space so they will be looking to buy a customer base. The ATTs and AOLs are the best bet to buy a CLEC.

Just how profitable will a CLEC be when a DSL line cost not much more than an analog telephone line cost now and may deliver multiple VOIP lines and Internet access?

The real value lays in having a relationship with an end user broadband customer who has loyalty to you because of the service you provide. That should include reliable open broadband access to the Internet and whatever proprietary content or service you can supply.

The CLECs seem to have none of these long term. Most end user customers belong to potentially competing ISPs. They have to deal with and are at the mercy of other competitors, the Telcos, who are under unremitting pressure from the cable companies.

Looks like multiple squeeze plays here. Where is the silver lining?
Where is the profit margin after being first wears out?

Bob Miller
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