Covad Gets Financing

Internet service provider EarthLink Inc. said Thursday that it had agreed to provide broadband voice and data communications company Covad Communications Group Inc. with $50 million in debt and equity financing to fund the expansion of its voice services to eight new markets.

In exchange for the financing, Atlanta-based EarthLink will receive $10 million in Covad common shares and $40 million in convertible debt due in 2011.

Covad’s shares climbed 2 cents to $1.67. EarthLink’s shares fell 5 cents to $9.

The additional network build-outs will bring Covad’s line-powered voice access to Atlanta, Chicago, Los Angeles, Miami, New York, Philadelphia, San Diego and Washington, D.C.

The deal will help EarthLink provide phone services combined with high-speed Internet access using Covad’s technology.

Covad’s line-powered voice access technology combines traditional phone wiring with EarthLink’s voice over Internet protocol. As a result, calls are delivered over Covad’s and EarthLink’s managed national networks, rather than the public Internet, EarthLink said.

“The EarthLink announcement further validates the quality of Covad’s unique nationwide DSL network,” Jefferies & Co. analyst Romeo A. Reyes wrote in a client note, maintaining a “buy” rating on Covad.

The analyst added that the deal was expected, “but the announcement removes any uncertainty regarding the deal’s timing and terms.”

Charles Hoffman, president and chief executive of Covad, said, “This agreement demonstrates the success of our strategy to target the residential market through strategic partnerships.”