Covad Restructures Direct Channel as Part of Previously Announced Restructuring Initiative; Includes Additional Staff Reductions, Office Consolidations and CO Closings.

Business Editors/High-Tech Writers

SANTA CLARA, Calif.--(BUSINESS WIRE)--Dec. 29, 2000

Covad Communications (Nasdaq:COVD), the leading national broadband services provider utilizing DSL (Digital Subscriber Line) technology, today announced it is restructuring its Covad Business Solutions division, formerly BlueStar.net, as part of its previously announced initiative to reduce operating costs in 2001 by 20-30 percent. The restructuring will result in streamlining Covad's direct sales and marketing channel while cutting operating costs by further reducing the company's workforce, consolidating office space and eliminating underutilized central offices.

The costs of this additional restructuring of the business are included in the estimated $20 million fourth quarter restructuring charge that Covad announced on December 12, 2000, covering the costs of severance and cost reductions. This restructuring results in a 400-position reduction or approximately 14 percent of the employee base. Coupled with the staff reduction announced on November 27, 2000, the total headcount for Covad has been reduced by approximately 800 people.

"The direct channel, which incorporates direct field sales, web sales and telesales, continues to be an important channel for Covad, but we needed to consolidate and streamline operations to meet our drive to profitability goals," said Chuck McMinn, chairman of Covad. "We expect Covad Business Solutions to be a major contributor to our line count for 2001, helping to ensure that we add business customers in a cost-effective way."

The workforce reductions are taking place in various Covad facilities throughout the East and Central regions. The positions impacted are at all levels of the organization and include sales, operations, marketing and support functions, affecting approximately 400 full-time employees. Employees affected by the reduction will be informed within 30 days. Covad is providing career services and counseling through its Employee Assistance Program, along with severance arrangements and benefits continuation.

The cost reductions also include consolidation of office space and closure of various central offices that are currently under-performing and/or not fully built-out. Covad plans to close approximately 200 central offices affecting less than one-and-one-half percent of the company's subscriber base. This brings Covad's total in-service central office count to approximately 1800, which continues to provide service coverage for approximately 40 to 45 percent of homes and businesses in the U.S.

"In order to satisfy market priorities and achieve profitability sooner, we will continue to look at every aspect of our business and take the necessary steps to control costs," said McMinn. "By controlling costs, we expect the expense levels of the company to be significantly reduced for 2001. Today's cost cutting efforts are concentrated in our direct channel. We will continue to evaluate other ways to maximize efficiency and productivity to reach our profitability goals.

"Although some of these actions are difficult, we're confident that we're making prudent decisions and taking immediate actions that will make our business even stronger," said McMinn. "Given the fact that the demand for our broadband services continues to thrive, we're excited about the opportunities we have to fill our nationwide network, continue to expand distribution channels and deliver value-added services that will increase revenue and margins. Our goal is to continue to improve the company's financial performance for 2001, and execute on the plan that was communicated on December 12."

About Covad Communications

Covad is the leading national broadband service 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 112 of the top Metropolitan Statistical Areas (MSAs). Covad's network currently covers more than 40 million homes and business and reaches approximately 40 to 45 percent of all U.S. homes and businesses. Corporate headquarters is located at 4250 Burton Drive, Santa Clara, CA 95054. Telephone: 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 press release that are not historical facts are "forward-looking statements," including statements concerning the Company's plans to expand its network, market opportunities, the cost, timing and scope of the deployment of the Company's network and launching of its services, implementation of line sharing and self-installation, anticipated capital expenditures, expense reductions and other operating results, success of strategic relationships, and the statements made by the chairman in this release. Actual events or results may differ materially as a result of risks facing the Company or actual results differing from the assumptions underlying such statements. Such risks and assumptions include, but are not limited to, the Company's ability to successfully market its services to current and new customers, the consolidation of sales to a fewer number of wholesale customers, the Company's ability to generate customer demand, to achieve acceptable pricing, to respond to increasing competition, to manage growth, to receive timely payment from our Internet service providers and other customers, to access regions and negotiate suitable interconnection agreements, all in a timely manner, at reasonable costs and on satisfactory terms and conditions, as well as regulatory, legislative, and judicial developments. All forward-looking statements are expressly qualified in their entirety by the "Risk Factors" and other cautionary statements included in the Company's SEC filings.