Motley Fool
Covad's Stock Goes High-Speed
Thursday December 29, 3:53 pm ET
By Tom Taulli
In the tech world, lawsuits may actually be a way to get both the
sparring companies to strike a strategic alliance. Back in October,
RealNetworks (Nasdaq: RNWK - News) settled its antitrust suit with
Inside Value pick Microsoft (Nasdaq: MSFT - News). But that wasn't all
-- the companies also announced a deal in which Microsoft would
promote RealNetworks' Rhapsody music service on MSN.com.
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This week, we saw something similar happen: Covad (AMEX: DVW - News)
settled its antitrust suit against Verizon (NYSE: VZ - News), and at
the same time, Verizon said it was expanding its line-sharing
agreement with Covad. The agreement allows more Verizon voice-service
resellers -- like Covad -- to sell DSL services, and it also includes
an expanded pact for line-sharing with MCI, which is a division of
Verizon.
Such agreements are critical. After all, to provide DSL service, a
company like Covad needs to use telco networks like those that Verizon
provides. But even though this is a positive for Covad, the exact
magnitude of the impact is difficult to ascertain, since the financial
terms of the arrangement were not disclosed.
That lack of clarity didn't stop investors from pushing Covad's stock
up 60%. But then again, Covad investors have had little to cheer
about. After all, just a few years ago, the company was mired in
bankruptcy. And Covad's fundamentals are still worrisome. In the third
quarter, the company sustained a loss of $15.8 million, or $0.06 per
share, compared with a loss of $13.8 million, or $0.05 per share, in
the same period a year ago.
It also can't be overlooked that the high-speed Internet access market
is fiercely competitive. Telcos aren't the only players. Cable
companies are in on the act. Municipalities are offering their own
Wi-Fi services. Even electric utilities are beginning to provide
high-speed access through their power lines, as seen in Income
Investor recommendation TXU's (NYSE: TXU - News) recent deal.
With such shaky financial performance, expect the recent surge in
Covad's stock price to be temporary. The best news for Covad
shareholders would have actually been selling out to Verizon, not
striking a partnership deal.
Fool contributor Tom Taulli does not own shares mentioned in this article. |
