Covad Wins DSL Ruling Against PacBell
Pacific Bell must pay rival Covad Communications more than $27.2 million in damages and costs for illegally obstructing the company’s competing high-speed Internet access service, an arbitration panel ruled.
The decision, released this week by the panel, stems from a long-running case brought by Santa Clara, Calif.-based Covad against PacBell, the state’s largest local phone company.
Covad, which sells fast Internet connections using digital subscriber line technology, said the award reflects lost business suffered by Covad in 1997 and 1998 when PacBell did not provide access to equipment and switches in the time required under the federal Telecommunications Act of 1996.
Covad accused PacBell of substantially hampering its DSL business by falsely claiming that certain PacBell equipment offices had no room for Covad’s DSL gear. The company said it was denied access to a key office in Menlo Park, Calif., for about a year because of purported lack of space.
“When we finally got to inspect the office, we found that there was room for not one but 11 competitors there,” said Dhruv Khanna, a Covad founder and the firm’s general counsel.
The award comes as Covad’s stock price continues to lag on Wall Street and rumors circulate of a potential buyout offer. A senior Covad official said the company hopes to remain independent.
Covad’s stock, which traded at a 52-week high of $66.66 in early March, fell $4.38, or more than 16%, to close at $22.50 on Nasdaq. A PacBell spokesman said the company will appeal the Covad decision, arguing that the problems cited in the lawsuit already have been resolved and that there is no legal basis for Covad’s damage claim.
“Covad is trying to use the Telecom Act to compensate for its inability to meet its own revenue forecasts, claiming that PacBell is responsible for every dollar it fell short,” said PacBell spokesman Steve Getzug.
Nationwide, PacBell and parent SBC Communications have installed an estimated 200,000 DSL lines, while Covad says it has installed about 100,000.
Khanna said that although PacBell has improved since the case was filed, the company still falls short of the requirements outlined in the Telecommunications Act, a law enacted in part to spur competition in the local phone market.
PacBell’s performance under the Telecommunications Act remains a key issue for the company because it is seeking approval to enter the long-distance market on its home turf in California.
In reviewing PacBell’s long-distance application, state and federal regulators will decide whether the phone company has opened its phone market to rivals as specified by the 1996 act.
Since the Telecommunications Act was passed, Covad has sued PacBell and its affiliates several times over alleged anti-competitive behavior, and now has won cases in Texas and California. Covad still is pursuing an antitrust lawsuit against PacBell in federal court in San Francisco.
“So far, we’ve won every single time,” Khanna said. “The findings of these arbitration panels clearly demonstrates that PacBell has violated the law, has repeatedly violated the law, and that it has damaged competition--and Covad in particular--at least to the tune of $27.2 million.”
Under provisions of the Telecommunications Act, incumbent local phone companies such as Pacific Bell are required to give competitors access to certain parts of their networks and switching facilities--and to provide the access within certain time limits.
In late 1998, an arbitrator ruled that PacBell had violated those rules, and later awarded Covad interim damages and fees totaling more than $740,000. Last week, the American Arbitration Assn. added the $27.2-million damage award to the case.
SBC shares fell $1.56 to close at $42.69 on the New York Stock Exchange.
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Bloomberg News was used in compiling this report.
