Covad Communications CEO Quits
Financial reality caught up with Robert E. Knowling Jr. on Wednesday, forcing him to resign as chief executive of high-speed Internet service provider Covad Communications Group two weeks after the company reported widening losses.
With Covad’s stock trading more than 90% below its 52-week high, the company’s board of directors decided that new leadership was in Covad’s “best interest,” according to a company statement. Knowling, 45, also served as president and chairman of the board. Knowling became Covad’s CEO in 1998 after serving as executive vice president of operations and technologies for Baby Bell US West.
Investors reacted positively to the executive change. In Nasdaq trading Wednesday, Covad shares closed at $5.97, up 69 cents, but off their 52-week high of $66.67 on March 1.
Covad said Frank Marshall will step in as interim chief executive and that former Covad CEO and co-founder Charles McMinn will become chairman of the Santa Clara company. The changes were made during a regularly scheduled board meeting. The board has commenced a search for a permanent chief executive, the company said.
Although Covad is considered one of the leading companies in the nascent business of providing high-speed Internet access over copper phone lines using digital subscriber line technology, the cost of building out a DSL network has turned out to be greater than investors expected. DSL service is typically 10 times faster than traditional dial-up Internet connections.
In mid-October, Covad said it lost $190 million in its fiscal third quarter, or $1.22 per share, compared with a net loss of $54 million or 47 cents per share a year earlier. At the time, Covad blamed the widening loss on nine of its Internet service provider customers who left the company with unpaid bills totaling $11.4 million.
Covad is racing against competitors NorthPoint Communications Group and Rhythms NetConnections to build the DSL system with the biggest footprint in major markets. Covad has concentrated on supplying services to major U.S. cities and expects to be in markets with 45% of homes and 50% of businesses by the end of the year. All three companies typically bundle their technology with Internet service providers, such as Concentric Network, Juno Online Services and EarthLink.
Covad also faces competition from companies using other technologies to provide the so-called last mile of high-speed Internet access to customers’ desktops. Excite@Home and Roadrunner provide broadband Net access over cable television lines, while start-ups like NextLink Communications, Teligent and Winstar Communications are offering alternatives using fixed-wireless technology.
Analysts estimate that 4 million Americans will be using some sort of high-speed Internet access service by year’s end.
Despite the company’s growing losses and sagging stock price, Knowling’s departure comes on the heels of some financial victories. Knowling recently netted $500 million in a four-day marathon financing round. And in September, he sold 6% of Covad to local phone giant SBC Communications for $150 million. That deal also is expected to bring in another $600 million over six years by allowing SBC to resell Covad’s services nationwide.
“Bob has made significant contributions to Covad as he has focused the company on growing both its DSL footprint and its subscriber base,” Marshall, the new CEO, said in a statement. But now the company must focus on “achieving cash flow positive status as quickly as possible while maintaining our leadership position as a national broadband service provider,” he said.
Marshall, 53, has served on Covad’s board of directors since 1997. He has held leadership positions at communications equipment maker Cisco Systems, including stints as general manager of the company’s Core Business Unit and vice president of engineering.
Knowling didn’t return a phone call seeking comment.
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The Associated Press and Bloomberg News contributed to this report.
