Covad Acquires Broadband Wireless Provider NextWeb

Covad Communications Group Inc., a national provider in the United States of voice and data communication primarily for businesses, has signed an agreement to acquire NextWeb Inc., a provider of fixed wireless Internet services for business.

NextWeb, based in Fremont, Calif., uses licensed and unlicensed wireless technology to deliver broadband service to SMBs.

Covad will acquire NextWeb for approximately $24.7 million. NextWeb stockholders will receive $4 million in cash, $19 million in Covad shares in exchange for their NextWeb shares and the assumption of $1.7 million in net debt. A portion of Covad shares to be issued are restricted from sale in the open market for a period of time.

The acquisition is expected to close by the end of the year, subject to the approval of NextWeb stockholders.

NextWeb provides service to nearly 3,000 business customers in San Francisco Bay Area, Los Angeles, Orange County (Calif.), Santa Barbara and Las Vegas.

Both companies offer VoIP services for business. Covad acquired IP Centrex provider GoBeam more than a year ago to provide hosted PBX services to customers. NextWeb today resells the hosted PBX service of CommPartners Inc., a wholesale business VoIP provider based in Las Vegas, Nev.

The acquisition will give Covad an alternate broadband route to customers in addition to the T1 and SDSL connections that it currently uses, most obtained from incumbent carriers.

For us this is a network-replacement strategy, replacing copper in some circumstances with wireless, says Patrick Bennett, executive vice president of Covad. It also provides a better regulatory environment for us than we find in copper today. Most broadband wireless today is in unlicensed bands that are free from regulation.

In addition, Bennett says, there are operational advantages to wireless. For a first installation NextWeb is putting customers in service, on average, in three to five days, whereas we are from 22 to 30 days from the time a customer places the order.

Covad today has to wait for the ILEC to provision the SDSL or T1 circuit.
In addition Covad estimates that wireless access, in which Covad itself would own the last-mile connection, can reduce recurring customer costs by as much as 60 percent compared to T1 lines.

I think its a very important move for the industry, says Lindsay Schroth, senior analyst for the broadband access technologies group at Yankee Group Research Inc. Nextweb has been one of most successful of the wireless ISPs. They have developed a profitable business model, gone into cities and competed with the incumbents for T1 services. They focus on customer service and good quality of service in general, Schroth says.

Besides providing an alternative route to subscribers, the NextWeb buy is part of a longer-term strategy to use wireless to offer more to certain customers. Schroth adds. It is pretty clear that anyone using a pre-WiMAX system is going to have the ability to develop a profitable business model if they target the business segment, because of lower equipment cost and also because there is little competition today to telco T1 in both rural and urban areas.

Covad will not make a decision on whether to continue to market the CommPartners service until after the acquisition is complete, says Bennett.

“The CommPartners solution is directed at the lower end of market and we have directed our service at 25 to 250 stations.