Covad Communications Acquires BlueStar Communications.

Business/Technology Editors

SANTA CLARA, Calif.--(BUSINESS WIRE)--June 16, 2000

Acquisition Will Accelerate Covad's National Network Expansion Beyond

Major Metropolitan Areas; Will Expand Covad's Reach to More than 40%

of all U.S. Homes and 44% of all U.S. Businesses

Covad Communications (Nasdaq: COVD), the leading national broadband services provider utilizing DSL (Digital Subscriber Line) technology, today announced a definitive agreement to acquire privately held Nashville, Tenn. based BlueStar Communications Inc., a provider of broadband and Internet services for small and medium-sized businesses throughout the Southeastern United States.

The transaction will expand Covad's national reach beyond major metropolitan areas into smaller, under-served cities and rural areas, allowing more end users to experience high-speed "always on" broadband Internet connections. On a combined basis, Covad will be able to provide broadband services out of more than 1,800 central offices (COs) throughout the country reaching more than 40 percent of all U.S. homes and 44 percent of all U.S. businesses.

"Today, we have installed well over 100,000 broadband lines and the key to scaling our business and installing millions of lines is to rapidly expand our network footprint and the way we deliver broadband services," said Robert E. Knowling Jr., president, chairman and CEO of Covad. "Acquiring BlueStar will allow us to accelerate our nationwide deployment, increase our distribution methods, and deliver enhanced broadband solutions to small businesses."

"Being acquired by Covad will enable BlueStar to align itself with the nation's leading broadband DSL company with a recognizable brand and will provide us with access to the nation's largest, most reputable broadband network," said Robert E. Dupuis, chairman of the board and CEO of BlueStar. "We are looking forward to integrating our businesses so that we can quickly and more efficiently bring turnkey broadband solutions to small and medium-sized businesses in smaller, under-served areas."

Covad will purchase privately held BlueStar Communications in an all stock transaction for eight million shares of Covad common stock plus assumption of BlueStar's existing debt. Up to five million additional Covad shares may be issued to the BlueStar stockholders if certain performance targets are met by BlueStar over the 2001 fiscal year. Both company's Boards of Directors have approved the transaction. Based on the eight million shares, the acquisition is valued at approximately $202 million as of yesterday's closing price of Covad common stock. The companies anticipate closing the transaction within 60 to 120 days subject to regulatory approvals and other customary closing conditions. BlueStar will operate as a wholly-owned subsidiary and Robert E. Dupuis, chairman of the board and CEO of BlueStar, will continue to head the business unit and report to Robert E. Knowling, Jr., Covad's chairman, president and CEO.

Acquiring BlueStar will enable Covad to provide homes and small businesses in numerous secondary and tertiary cities throughout the Southeastern U.S. with turnkey broadband access solutions that meet their Internet connectivity, networking and data needs. In addition to broadband Internet access, Covad and its channel partners will be able to directly offer small businesses value-added services such as remote access capabilities and application services within a secure private network. Covad will continue to strongly support all of its existing channel partners in selling broadband services to home and business users throughout the nation to bring broadband to the masses.

"Our goal is to provide homes and businesses with more choice in how they get broadband service," continued Knowling. "By taking advantage of BlueStar's sales approach, we will be able to better serve the needs of small businesses in secondary and tertiary markets in the Southeast. This direct sales model will increase total revenues by adding higher revenue lines to the business mix, but will lower our 2000 line growth to roughly 330% and reduce 2001 line growth to roughly 150%. We expect this tradeoff will generate higher company revenues and higher returns on installed lines for our shareholders."

Covad will be hosting a conference call to discuss the specifics of this acquisition. The conference call will be held on Friday June 16th at 8:30am EST. To access the conference call, please dial 212-896-6116 (no password is required). The replay number for the call is [phone], passcode #15571044. The replay will be available through Friday, June 23rd.

With over 250 COs in service today, BlueStar currently serves 35 areas throughout the Southeastern U.S., including Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, and Tennessee. For more information on BlueStar, visit www.bluestar.net.

In conjunction with the acquisition announcement, BlueStar intends to withdraw its registration with the Securities and Exchange Commission (SEC) for an initial public offering. In addition, Bear Stearns advised Covad in this transaction and provided a fairness opinion with respect to this transaction.

About Covad

Covad is the leading national broadband services provider of high-speed Internet and network access utilizing Digital Subscriber Line (DSL) technology. It offers DSL, IP and dial-up services through Internet Service Providers, telecommunications carriers, enterprises, affinity groups, PC OEMs and ASPs to small and medium-sized businesses and home users. Covad services are currently available across the United States in 79 of the top Metropolitan Statistical Areas (MSAs) and after the BlueStar acquisition is complete will be available in 100 MSAs. Covad services are expected to be available in 165 MSAs by the end of 2000. At that time, Covad's network will reach more than 45 percent of all US homes and 50 percent of all US businesses. Corporate headquarters is located at 2330 Central Expressway, Santa Clara, CA 95050. Telephone: 1-888-GO-COVAD. Web Site: www.covad.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

The statements contained in this release which are not historical facts may be deemed to contain forward-looking statements, including but not limited to statements regarding the intention to deploy our network in new and existing MSAs, the timing and breadth of coverage in each MSA, our ability to reduce our prices, increase distribution methods, scale our business, deliver enhanced broadband solutions, and our ability to provide multimedia content. Actual results may differ materially from those anticipated in any forward-looking statements as a result of certain risks and uncertainties, including, without limitation, the company's dependence on incumbent local exchange carriers for collocation, unbundled network elements, transport and other facilities, development of necessary technologies and operations, ability to manage growth of our operations, and the need to raise additional capital. For other risks and uncertainties applicable to our business refer to the Company's Securities and Exchange Commission filings.