##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from to .
 Commission file number: 001-32588
 COVAD COMMUNICATIONS GROUP, INC.
  Delaware(State or other jurisdiction
of incorporation or organization)
    
    77-0461529(I.R.S. Employer
Identification Number)
 110 Rio Robles
San Jose, California(Address of principal executive
offices)
    
    95134(Zip Code)
 (408) 952-6400  (Registrants telephone number, including area code)
 þ o
 þ o
 o þ
 APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
 þ o




---



##### Table of Contents



COVAD COMMUNICATIONS GROUP, INC.
 For the Quarterly Period Ended September 30, 2005
 TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONITEM 1. Financial Statements
    
    
    2Condensed Consolidated Balance Sheets
    
    
    2Condensed Consolidated Statements of Operations
    
    
    3Condensed Consolidated Statements of Cash Flows
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5ITEM 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    24ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    55ITEM 4. Controls and Procedures
    
    
    55PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    56ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    57ITEM 3. Defaults Upon Senior Securities
    
    
    57ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    57ITEM 5. Other Information
    
    
    57ITEM 6. Exhibits
    
    
    58SIGNATURES
    
    
    59EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
 1




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 COVAD COMMUNICATIONS GROUP, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (All dollar and share amounts are presented in thousands, except par value)
 September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    94,417
    
    
    $
    117,506Short-term investments in debt securities
    
    
    17,481
    
    
    
    33,490Restricted cash and cash equivalents
    
    
    4,167
    
    
    
    2,533Accounts receivable, net
    
    
    32,131
    
    
    
    30,041Unbilled revenues
    
    
    3,889
    
    
    
    3,825Inventories
    
    
    6,147
    
    
    
    4,629Prepaid expenses and other current assets
    
    
    4,320
    
    
    
    3,757Total current assets
    
    
    162,552
    
    
    
    195,781Property and equipment, net
    
    
    72,808
    
    
    
    78,707Collocation fees and other intangible assets, net
    
    
    23,638
    
    
    
    34,561Goodwill
    
    
    36,626
    
    
    
    36,626Deferred costs of service activation
    
    
    27,184
    
    
    
    30,152Deferred customer incentives, net
    
    
    1,454
    
    
    
    2,683Deferred debt issuance costs, net
    
    
    3,475
    
    
    
    4,231Other long-term assets
    
    
    2,448
    
    
    
    2,484Total assets
    
    $
    330,185
    
    
    $
    385,225LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    23,106
    
    
    $
    20,755Accrued compensation
    
    
    19,989
    
    
    
    15,619Accrued collocation and network service fees
    
    
    20,730
    
    
    
    24,160Accrued transaction-based taxes
    
    
    30,164
    
    
    
    33,730Collateralized and other customer deposits
    
    
    9,780
    
    
    
    7,906Unearned revenues
    
    
    4,846
    
    
    
    4,420Other accrued liabilities
    
    
    9,120
    
    
    
    10,127Total current liabilities
    
    
    117,735
    
    
    
    116,717Long-term debt
    
    
    125,000
    
    
    
    125,000Collateralized and other long-term customer deposits
    
    
    42,866
    
    
    
    44,444Deferred gain resulting from deconsolidation of subsidiary
    
    
    
    
    
    
    53,963Unearned revenues
    
    
    46,252
    
    
    
    51,518Other long-term liabilities
    
    
    2,078
    
    
    
    2,218Total liabilities
    
    
    333,931
    
    
    
    393,860Commitments and contingencies (Note 6)Stockholders deficit:Preferred stock, $0.001 par value; 5,000 shares
authorized; no shares issued and outstanding at September
30, 2005 and December 31, 2004
    
    
    
    
    
    
    Common Stock, $0.001 par value; 590,000 shares
authorized; 266,560 shares issued and outstanding at
September 30, 2005 (263,681 shares issued and outstanding
at December 31, 2004)
    
    
    267
    
    
    
    264Common Stock  Class B, $0.001 par value; 10,000 shares
authorized; no shares issued and outstanding at September
30, 2005 and December 31, 2004
    
    
    
    
    
    
    Additional paid-in capital
    
    
    1,696,237
    
    
    
    1,695,424Deferred stock-based compensation
    
    
    (26
    )
    
    
    (939
    )Accumulated other comprehensive income (loss)
    
    
    9
    
    
    
    (985
    )Accumulated deficit
    
    
    (1,700,233
    )
    
    
    (1,702,399
    )Total stockholders deficit
    
    
    (3,746
    )
    
    
    (8,635
    )Total liabilities and stockholders deficit
    
    $
    330,185
    
    
    $
    385,225
  2




---



##### Table of Contents



COVAD COMMUNICATIONS GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (All dollar and share amounts are presented in thousands, except per share amounts)
 (Unaudited)
 Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues, net
    
    $
    112,069
    
    
    $
    105,687
    
    
    $
    329,528
    
    
    $
    321,490Operating expenses:Cost of sales (exclusive of depreciation and amortization)
    
    
    84,497
    
    
    
    65,939
    
    
    
    233,486
    
    
    
    196,981Selling, general and administrative
    
    
    39,513
    
    
    
    35,488
    
    
    
    123,379
    
    
    
    100,668Depreciation and amortization of property and equipment
    
    
    12,040
    
    
    
    14,078
    
    
    
    38,734
    
    
    
    42,735Amortization of collocation fees and other intangible assets
    
    
    3,998
    
    
    
    5,328
    
    
    
    14,079
    
    
    
    15,121Provision for restructuring expenses
    
    
    
    
    
    
    145
    
    
    
    
    
    
    
    915Total operating expenses
    
    
    140,048
    
    
    
    120,978
    
    
    
    409,678
    
    
    
    356,420Loss from operations
    
    
    (27,979
    )
    
    
    (15,291
    )
    
    
    (80,150
    )
    
    
    (34,930
    )Other income (expense):Interest income
    
    
    1,072
    
    
    
    1,044
    
    
    
    3,029
    
    
    
    1,879Gain on sale of equity securities
    
    
    12,177
    
    
    
    
    
    
    
    28,844
    
    
    
    Gain on deconsolidation of subsidiary
    
    
    
    
    
    
    
    
    
    
    53,963
    
    
    
    Interest expense
    
    
    (1,243
    )
    
    
    (1,281
    )
    
    
    (3,775
    )
    
    
    (3,646
    )Miscellaneous income, net
    
    
    168
    
    
    
    1,724
    
    
    
    255
    
    
    
    1,956Other income, net
    
    
    12,174
    
    
    
    1,487
    
    
    
    82,316
    
    
    
    189Net income (loss)
    
    $
    (15,805
    )
    
    $
    (13,804
    )
    
    $
    2,166
    
    
    $
    (34,741
    )Earnings (loss) per common share:Basic
    
    $
    (0.06
    )
    
    $
    (0.05
    )
    
    $
    0.01
    
    
    $
    (0.14
    )Diluted
    
    $
    (0.06
    )
    
    $
    (0.05
    )
    
    $
    0.01
    
    
    $
    (0.14
    )Weighted-average number of common shares outstanding:Basic
    
    
    266,412
    
    
    
    260,304
    
    
    
    264,731
    
    
    
    245,219Diluted
    
    
    266,412
    
    
    
    260,304
    
    
    
    270,342
    
    
    
    245,219
  3




---



##### Table of Contents



COVAD COMMUNICATIONS GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (All dollar amounts are presented in thousands)
 (Unaudited)
 Nine months ended September 30,2005
    
    
    2004Operating Activities:Net income (loss)
    
    $
    2,166
    
    
    $
    (34,741
    )Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:Provision for bad debts (bad debt recoveries), net
    
    
    224
    
    
    
    (1,903
    )Depreciation and amortization
    
    
    52,813
    
    
    
    57,856Loss on disposition of property and equipment
    
    
    25
    
    
    
    152Amortization of deferred stock-based compensation, net
    
    
    (833
    )
    
    
    871Amortization of deferred customer incentives
    
    
    1,229
    
    
    
    1,311Other stock-based compensation
    
    
    
    
    
    
    14Other non-cash charges
    
    
    756
    
    
    
    555Accretion of interest on investments, net
    
    
    (306
    )
    
    
    (540
    )Gain on sale of equity securities
    
    
    (28,844
    )
    
    
    Gain on deconsolidation of subsidiary
    
    
    (53,963
    )
    
    
    Net changes in operating assets and liabilities, net of assets acquired and
liabilities assumed in purchase acquisition:Accounts receivable
    
    
    (2,314
    )
    
    
    870Unbilled revenues
    
    
    (64
    )
    
    
    575Inventories
    
    
    (1,518
    )
    
    
    927Prepaid expenses and other assets
    
    
    (555
    )
    
    
    (1,847
    )Deferred costs of service activation
    
    
    2,968
    
    
    
    1,904Accounts payable
    
    
    2,351
    
    
    
    2,092Collateralized and other customer deposits
    
    
    296
    
    
    
    (5,886
    )Other current liabilities
    
    
    (3,480
    )
    
    
    (9,139
    )Unearned revenues
    
    
    (4,840
    )
    
    
    (5,470
    )Net cash provided by (used in) operating activities
    
    
    (33,889
    )
    
    
    7,601Investing Activities:Restricted cash and cash equivalents, net
    
    
    (1,634
    )
    
    
    50Purchase of short-term investments in debt securities
    
    
    (38,654
    )
    
    
    (125,864
    )Maturities of short-term investments in debt securities
    
    
    55,000
    
    
    
    110,030Proceeds from the sale of equity securities
    
    
    29,807
    
    
    
    Purchase of property and equipment
    
    
    (32,427
    )
    
    
    (28,841
    )Proceeds from sale of property and equipment
    
    
    132
    
    
    
    84Payment of collocation fees and purchase of other intangible assets
    
    
    (3,156
    )
    
    
    (7,005
    )Cash acquired through acquisition
    
    
    
    
    
    
    107Acquisition costs
    
    
    
    
    
    
    (473
    )Decrease in other long-term assets
    
    
    36
    
    
    
    720Net cash provided by (used in) investing activities
    
    
    9,104
    
    
    
    (51,192
    )Financing Activities:Proceeds from the issuance of senior unsecured convertible debentures, net
    
    
    
    
    
    
    119,999Principal payment of long-term debt
    
    
    
    
    
    
    (50,000
    )Principal payments under capital lease obligations
    
    
    (866
    )
    
    
    (132
    )Proceeds from the issuance of common stock
    
    
    2,562
    
    
    
    4,190Proceeds from the issuance of common stock related to acquisition
    
    
    
    
    
    
    1,781Net cash provided by financing activities
    
    
    1,696
    
    
    
    75,838Net increase (decrease) in cash and cash equivalents
    
    
    (23,089
    )
    
    
    32,247Cash and cash equivalents at beginning of period
    
    
    117,506
    
    
    
    65,376Cash and cash equivalents at end of period
    
    $
    94,417
    
    
    $
    97,623Supplemental Disclosures of Cash Flow Information:Cash paid during the period for interest
    
    $
    3,823
    
    
    $
    8,513Supplemental Schedule of Non-Cash Investing and Financing Activities:Equipment purchased through capital leases
    
    $
    573
    
    
    $
    Common stock issued in settlement of claims related to bankruptcy
    
    $
    
    
    
    $
    6,951
  4




---



##### Table of Contents



COVAD COMMUNICATIONS GROUP, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (All dollar and share amounts are presented in thousands, except per share amounts)
 (Unaudited)
 1. Basis of Presentation and Summary of Significant Accounting Policies
      Use of Estimates
   5




---



##### Table of Contents



Earnings (Loss) Per Share
   6




---



##### Table of Contents



Three months ended September 30,
    
    Nine months ended September 30,2005
    
    2004
    
    2005
    
    2004Basic:Weighted-average number of common
shares outstanding
    
    
    266,483
    
    
    
    260,495
    
    
    
    264,802
    
    
    
    245,299Less weighted-average number of
common shares outstanding subject
to repurchase
    
    
    (71
    )
    
    
    (191
    )
    
    
    (71
    )
    
    
    (80
    )Weighted-average number of common
shares outstanding used in the
computations of basic earnings
(loss) per share
    
    
    266,412
    
    
    
    260,304
    
    
    
    264,731
    
    
    
    245,219Diluted:Dilutive stock options and warrants
    
    
    
    
    
    
    
    
    
    
    5,540
    
    
    
    Common shares subject to repurchase
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    Weighted-average number of common
shares outstanding used in the
computations of diluted earnings
(loss) per share
    
    
    266,412
    
    
    
    260,304
    
    
    
    270,342
    
    
    
    245,219
   Three months ended September 30,
    
    Nine months ended September 30,2005
    
    2004
    
    2005
    
    2004Stock options
    
    
    26,728
    
    
    
    26,659
    
    
    
    23,851
    
    
    
    26,659Options under employee stock purchase plan
    
    
    8,863
    
    
    
    8,312
    
    
    
    6,843
    
    
    
    8,312Warrants
    
    
    6,514
    
    
    
    6,514
    
    
    
    5,871
    
    
    
    6,514Common stock issuable under the assumed
conversion of its convertible debentures
    
    
    39,380
    
    
    
    39,380
    
    
    
    39,380
    
    
    
    39,380
 Stock Based Compensation
   7




---



##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss), as reported
    
    $
    (15,805
    )
    
    $
    (13,804
    )
    
    $
    2,166
    
    
    $
    (34,741
    )Stock-based employee compensation
expense (reversal) included in the
determination of net income (loss), as
reported
    
    
    30
    
    
    
    (1,079
    )
    
    
    (833
    )
    
    
    896Stock-based employee compensation
expense that would have been included
in the determination of net income
(loss) if the fair value method had
been applied to all awards
    
    
    (3,308
    )
    
    
    (6,719
    )
    
    
    (10,438
    )
    
    
    (18,224
    )Net loss, pro forma
    
    $
    (19,083
    )
    
    $
    (21,602
    )
    
    $
    (9,105
    )
    
    $
    (52,069
    )Weighted-average number of common
shares outstanding used in the
computations of basic and diluted loss
per share
    
    
    266,412
    
    
    
    260,304
    
    
    
    264,731
    
    
    
    245,219Basic and diluted loss per common share:As reported
    
    $
    (0.06
    )
    
    $
    (0.05
    )
    
    $
    0.01
    
    
    $
    (0.14
    )Pro forma
    
    $
    (0.07
    )
    
    $
    (0.08
    )
    
    $
    (0.03
    )
    
    $
    (0.21
    )
 Comprehensive Income (Loss)
  Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    (15,805
    )
    
    $
    (13,804
    )
    
    $
    2,166
    
    
    $
    (34,741
    )Unrealized gains (losses) on
available-for-sale securities
    
    
    (1,608
    )
    
    
    50
    
    
    
    29,838
    
    
    
    (57
    )Realized gain on equity securities
previously included in unrealized gain
(loss)
    
    
    (12,658
    )
    
    
    
    
    
    
    (29,806
    )
    
    
    Foreign currency translation adjustment
    
    
    481
    
    
    
    
    
    
    
    962
    
    
    
    Comprehensive income (loss)
    
    $
    (29,590
    )
    
    $
    (13,754
    )
    
    $
    3,160
    
    
    $
    (34,798
    )
 Inventories
  Goodwill
  8




---



##### Table of Contents



Collateralized and Other Customer Deposit s
 Revenue Recognition
  Revenue Recognition
 Post-Employment Benefits
  Recent Accounting Pronouncements
  9




---



##### Table of Contents



conditional asset retirement obligation ,
   10




---



##### Table of Contents



2. Revenue Recognition
  11




---



##### Table of Contents



September 30, 2005
    
    
    December 31, 2004Gross accounts receivable
    
    $
    35,161
    
    
    $
    31,607Allowance for service credits
    
    
    (2,665
    )
    
    
    (1,405
    )Allowance for bad debts
    
    
    (365
    )
    
    
    (161
    )Accounts receivable, net
    
    $
    32,131
    
    
    $
    30,041
 Significant Customers
  12




---



##### Table of Contents



Wholesaler Financial Difficulties
   3. Customer Warrants
  13




---



##### Table of Contents



4. Restructuring
 Reduction in Force
  14




---



##### Table of Contents



Other Restructuring Activities
    5. Long-Term Debt
    15




---



##### Table of Contents



6. Commitments and Contingencies
 Litigation
      16




---



##### Table of Contents



17




---



##### Table of Contents



Other Contingencies
    Indemnification Agreements
  18




---



##### Table of Contents



Commitments
       7. Business Segments
    19




---



##### Table of Contents



As of and for the three months
    
    
    
    
    
    
    
    
    
    Total
    
    Corporate
    
    Consolidatedended September 30, 2005:
    
    Wholesale
    
    Direct
    
    Segments
    
    Operations
    
    TotalRevenues, net
    
    $
    79,724
    
    
    $
    32,345
    
    
    $
    112,069
    
    
    $
    
    
    
    $
    112,069Cost of sales (exclusive of
depreciation and amortization)
    
    
    52,399
    
    
    
    21,440
    
    
    
    73,839
    
    
    
    10,658
    
    
    
    84,497Selling, general and administrative
    
    
    1,913
    
    
    
    11,029
    
    
    
    12,942
    
    
    
    26,571
    
    
    
    39,513Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,038
    
    
    
    16,038Income (loss) from operations
    
    
    25,412
    
    
    
    (124
    )
    
    
    25,288
    
    
    
    (53,267
    )
    
    
    (27,979
    )Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,174
    
    
    
    12,174Net income (loss)
    
    $
    25,412
    
    
    $
    (124
    )
    
    $
    25,288
    
    
    $
    (41,093
    )
    
    $
    (15,805
    )Total assets
    
    $
    44,327
    
    
    $
    20,331
    
    
    $
    64,658
    
    
    $
    265,527
    
    
    $
    330,185
 As of and for the three months
    
    
    
    
    
    
    
    
    
    Total
    
    Corporate
    
    Consolidatedended September 30, 2004:
    
    Wholesale
    
    Direct
    
    Segments
    
    Operations
    
    TotalRevenues net
    
    $
    75,296
    
    
    $
    30,391
    
    
    $
    105,687
    
    
    $
    
    
    
    $
    105,687Cost of sales (exclusive of
depreciation and amortization)
    
    
    42,488
    
    
    
    15,574
    
    
    
    58,062
    
    
    
    7,877
    
    
    
    65,939Selling, general and administrative
    
    
    1,715
    
    
    
    12,309
    
    
    
    14,024
    
    
    
    21,464
    
    
    
    35,488Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,406
    
    
    
    19,406Provision for restructuring expenses
    
    
    8
    
    
    
    
    
    
    
    8
    
    
    
    137
    
    
    
    145Income (loss) from operations
    
    
    31,085
    
    
    
    2,508
    
    
    
    33,593
    
    
    
    (48,884
    )
    
    
    (15,291
    )Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,487
    
    
    
    1,487Net income (loss)
    
    $
    31,085
    
    
    $
    2,508
    
    
    $
    33,593
    
    
    $
    (47,397
    )
    
    $
    (13,804
    )Total assets
    
    $
    49,328
    
    
    $
    54,646
    
    
    $
    103,974
    
    
    $
    304,946
    
    
    $
    408,920
 As of and for the nine months
    
    
    
    
    
    
    
    
    
    Total
    
    Corporate
    
    Consolidatedended September 30, 2005:
    
    Wholesale
    
    Direct
    
    Segments
    
    Operations
    
    TotalRevenues, net
    
    $
    234,155
    
    
    $
    95,373
    
    
    $
    329,528
    
    
    $
    
    
    
    $
    329,528Cost of sales (exclusive of
depreciation and amortization)
    
    
    146,406
    
    
    
    59,518
    
    
    
    205,924
    
    
    
    27,562
    
    
    
    233,486Selling, general and administrative
    
    
    6,238
    
    
    
    38,164
    
    
    
    44,402
    
    
    
    78,977
    
    
    
    123,379Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,813
    
    
    
    52,813Income (loss) from operations
    
    
    81,511
    
    
    
    (2,309
    )
    
    
    79,202
    
    
    
    (159,352
    )
    
    
    (80,150
    )Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,316
    
    
    
    82,316Net income (loss)
    
    $
    81,511
    
    
    $
    (2,309
    )
    
    $
    79,202
    
    
    $
    (77,036
    )
    
    $
    2,166
 As of and for the nine months
    
    
    
    
    
    
    
    
    
    Total
    
    Corporate
    
    Consolidatedended September 30, 2004:
    
    Wholesale
    
    Direct
    
    Segments
    
    Operations
    
    TotalRevenues net
    
    $
    232,900
    
    
    $
    88,590
    
    
    $
    321,490
    
    
    $
    
    
    
    $
    321,490Cost of sales (exclusive of
depreciation and amortization)
    
    
    133,301
    
    
    
    40,490
    
    
    
    173,791
    
    
    
    23,190
    
    
    
    196,981Selling, general and administrative
    
    
    6,332
    
    
    
    23,380
    
    
    
    29,712
    
    
    
    70,956
    
    
    
    100,668Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,856
    
    
    
    57,856Provision for restructuring expenses
    
    
    286
    
    
    
    254
    
    
    
    540
    
    
    
    375
    
    
    
    915Income (loss) from operations
    
    
    92,981
    
    
    
    24,466
    
    
    
    117,447
    
    
    
    (152,377
    )
    
    
    (34,930
    )Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    189
    
    
    
    189Net income (loss)
    
    $
    92,981
    
    
    $
    24,466
    
    
    $
    117,447
    
    
    $
    (152,188
    )
    
    $
    (34,741
    )
  20




---



##### Table of Contents



8. Acquisition of GoBeam, Inc.
     Total purchase cost:Value of common shares issued
    
    $
    38,910Value of assumed GoBeam options and warrants
    
    
    45439,364Acquisition costs
    
    
    473Total purchase cost
    
    $
    39,837Purchase price allocation:Tangible net liabilities acquired
    
    $
    (4,479
    )Intangible assets acquired:Customer relationships
    
    
    6,600Internal use software
    
    
    1,090Goodwill
    
    
    36,626Total purchase consideration
    
    $
    39,837
   21




---



##### Table of Contents



Nine months endedSeptember 30, 2004Revenue
    
    $
    324,441Net loss
    
    $
    (42,311
    )Basic and diluted net loss per share
    
    $
    (0.16
    )
   9. Related Party Transactions
  22




---



##### Table of Contents



10. 2003 Employee Stock Purchase Plan
  11. Sale of Investments
  12. Income Taxes
  13. Subsequent Events
     23




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion of our financial condition and results of operations should be read
in conjunction with the unaudited condensed consolidated financial statements and the related notes
thereto included elsewhere in this Report on Form 10-Q and the audited consolidated financial
statements and notes thereto and managements discussion and analysis of financial condition and
results of operations for the year ended December 31, 2004 included in our Annual Report on Form
10-K filed with the Securities and Exchange Commission on March 14, 2005. This discussion contains
forward-looking statements, the accuracy of which is subject to risks and uncertainties. Our actual
results could differ materially from those expressed in forward-looking statements for many reasons
including, but not limited to, those discussed herein and in the Risk Factors section of our
Annual Report on Form 10-K , which is contained in Part I, Item 1, Business  Risk Factors, of
that report. We disclaim any obligation to update information contained in any forward-looking
statement. See Forward Looking Statements.
 (All dollar and share amounts are presented in thousands, except per share amounts)
 Overview
 Our Business
     24




---



##### Table of Contents



Our Opportunities and Challenges
   Cash
management
 Efficiently deliver broadband Internet access services to consumers
 Respond to Changes in Telecommunications Regulations 
 Expand and diversify our sources of revenue
 New market opportunities
 Recent Developments
  25




---



##### Table of Contents



Critical Accounting Policies and Estimates
  
    
    We recognize revenues when persuasive evidence of our arrangement with the
customer exists, service has been provided to the customer, the price to the customer is
fixed or determinable and collectibility of the sales price is reasonably assured. We
recognize up-front fees associated with service activation over the expected term of the
customer relationship, which is presently estimated to be twenty-four to forty-eight months
using the straight-line method. Similarly, we treat the incremental direct costs of service
activation, which consist principally of customer premises equipment, or CPE, service
activation fees paid to other telecommunications companies and sales commissions, as
deferred charges in amounts no greater than the up-front fees that are deferred, and such
incremental direct costs are amortized to expense using the straight-line method over a
range of twenty-four to forty-eight months.
    
    We perform ongoing credit evaluations of our customers financial condition and
maintain an allowance for estimated credit losses. In addition, we have billing disputes
with some of our customers. These disputes arise in the ordinary course of business in the
telecommunications industry and we believe that their impact on our accounts receivable and
revenues can be reasonably estimated based on historical experience. In addition, certain
customer revenues are subject to refund if the end-user terminates service within thirty
days of service activation. Accordingly, we maintain allowances, through charges to
revenues, based on our estimate of the ultimate resolution of these disputes and future
service cancellations, and our reported revenue in any period could be different than what
is reported if we employed different assumptions in estimating the outcomes of these items.
 26




---



##### Table of Contents




    
    We state our inventories at the lower of cost or market, determined using the
first-in, first-out method. In assessing the ultimate recoverability of inventories, we
are required to make estimates regarding future customer demand.
    
    We record property and equipment and intangible assets at cost, subject to
adjustments for impairment. We depreciate or amortize property and equipment and intangible
assets using the straight-line method over their estimated useful lives. In assessing the
recoverability of our property and equipment and intangible assets, we must make
assumptions regarding estimated future cash flows and other factors to determine the fair
value of the respective assets. If these estimates and assumptions change in the future, we
may be required to record additional impairment charges relating to our property and
equipment and intangible assets.
    
    We record goodwill when the consideration paid for an acquisition exceeds the
fair value of net tangible and intangible assets acquired. We measure and test goodwill for
impairment on an annual basis or more frequently if we believe indicators of impairment
exists. The performance of the test involves a two-step process. The first step compares
the fair value of the reporting unit to its carrying amount, including goodwill. The fair
value of the reporting unit is determined by calculating the market capitalization of the
reporting unit as derived from quoted market prices or other generally accepted valuation
methods if quoted market prices are not available. A potential impairment exists if the
fair value of the reporting unit is lower than its carrying amount. The second step of the
process is only performed if a potential impairment exists, and it involves determining the
difference between the fair values of the reporting units net assets, other than goodwill,
to the fair value of the reporting unit. If the difference is less than the net book value
of goodwill, impairment exists and is recorded. We determine our reporting units, for
purposes of testing for impairment, by determining how we manage our operations, if a
component of an operating unit constitutes a business for which discrete financial
information is available and our management regularly reviews such financial information,
and how the acquired entity is integrated with our operations. Based on these criteria, we
determined that our Wholesale and Direct segments are our reporting units. On June 8, 2004,
we completed the acquisition of all of the outstanding shares of privately-held GoBeam,
Inc., or GoBeam, as described in Note 8 to our condensed consolidated financial statements,
Acquisition of GoBeam, Inc. We integrated and manage the GoBeam business within our
Direct segment. Accordingly, the recorded goodwill from the acquisition of GoBeam was
allocated to the Direct segment for purposes of testing for impairment.
    
    We are a party to a variety of legal proceedings, as either plaintiff or
defendant, and are engaged in other disputes that arise in the ordinary course of business.
We are required to assess the likelihood of any adverse judgments or outcomes to these
matters, as well as potential ranges of probable losses for certain of these matters. The
determination of the liabilities to be recognized, if any, for loss contingencies is made
after analysis of each individual situation based on the facts and circumstances. However,
it is reasonably possible that the liabilities reflected in our condensed consolidated
balance sheets for loss contingencies and business disputes could change in the near term
due to new facts and circumstances, the effects of which could be material to our condensed
consolidated financial position and results of operations.
    
    We continue to analyze the applicability of certain transaction-based taxes to
sales of our products and services and purchases of telecommunications circuits from
various carriers. This analysis includes discussions with authorities of jurisdictions in
which we do business and various transaction-based tax experts to determine the extent of
our transaction-based tax liabilities. We believe that these discussions will be concluded
without a material adverse effect on our condensed consolidated financial position and
results of operations. It is reasonably possible that our estimates of our
transaction-based and employment-related tax liabilities could change in the near term, the
effects of which could be material to our condensed consolidated financial position and
results of operations.
    
    We make market development funds, or MDF, available to certain customers for
the reimbursement of co-branded advertising expenses and other purposes. To the extent that
MDF is used by our customers for co-branded advertising, and the customers provide us with
third-party evidence of such co-branded advertising and we can reasonably estimate the fair
value of our portion of the advertising, such amounts are charged to advertising expense as
incurred. Other MDF activities are recorded as reductions of revenues as incurred. Amounts
payable to customers relating to rebates and customer incentives are recorded as reductions
of revenues based on our estimate of sales incentives that will ultimately be claimed by
customers.
 27




---



##### Table of Contents




    
    We account for income taxes using the liability method, under which deferred
tax assets and liabilities are determined based on differences between the financial
reporting and tax bases of our assets and liabilities. We record a valuation allowance on
our deferred tax assets to arrive at an amount that is more likely than not to be realized.
In the future, should we determine that we are able to realize all or part of our deferred
tax assets, which presently are fully reserved, an adjustment to our deferred tax assets
would increase income in the period in which the determination was made.
    
    We account for stock-based awards to employees using the intrinsic value
method, and non-employees using the fair value method. Under the intrinsic value method,
when the exercise price of our employee stock options equals or exceeds the market price of
the underlying stock on the date of grant, we do not record compensation expense in our
condensed consolidated statements of operations. We use the intrinsic value method in
accounting for employee stock options because the alternative fair value accounting
requires us to use option valuation models that were not developed for use in valuing
employee stock options. Rather, such option valuation models were developed for use in
estimating the fair value of traded options that have no vesting restrictions and are fully
transferable. Because our employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimates of these valuation models, we
believe such existing models do not necessarily provide a reliable single measure of the
fair value of our employee stock options.
 Recent Accounting Pronouncements
  conditional asset retirement obligation ,
 28




---



##### Table of Contents



29




---



##### Table of Contents



Results of Operations For The Three and Nine Months Ended September 30, 2005 and 2004
 Business Segment Information
   30




---



##### Table of Contents



Revenues, net
     31




---



##### Table of Contents



Segment Revenues and Significant Customers
  Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Wholesale
    
    $
    79,724
    
    
    $
    75,296
    
    
    $
    234,155
    
    
    $
    232,900Percent of total net revenues
    
    
    71.1
    %
    
    
    71.2
    %
    
    
    71.1
    %
    
    
    72.4
    %Direct
    
    $
    32,345
    
    
    $
    30,391
    
    
    $
    95,373
    
    
    $
    88,590Percent of total net revenues
    
    
    28.9
    %
    
    
    28.8
    %
    
    
    28.9
    %
    
    
    27.6
    %
     Revenue Recognition
 32




---



##### Table of Contents



Wholesaler Financial Difficulties
 Revenue
Recognition
 Operating Expenses
   Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Amount
    
    $
    140,048
    
    
    $
    120,978
    
    
    $
    409,678
    
    
    $
    356,420Percent of net revenues
    
    
    125.0
    %
    
    
    114.5
    %
    
    
    124.3
    %
    
    
    110.9
    %
 Cost of sales (exclusive of depreciation and amortization)
   Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Amount
    
    $
    84,497
    
    
    $
    65,939
    
    
    $
    233,486
    
    
    $
    196,981Percent of net revenue
    
    
    75.4
    %
    
    
    62.4
    %
    
    
    70.9
    %
    
    
    61.3
    %
  33




---



##### Table of Contents



34




---



##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Wholesale Segment
    
    $
    52,399
    
    
    $
    42,488
    
    
    $
    146,406
    
    
    $
    133,301Direct Segment
    
    
    21,440
    
    
    
    15,574
    
    
    
    59,518
    
    
    
    40,490Corporate Operations
    
    
    10,658
    
    
    
    7,877
    
    
    
    27,562
    
    
    
    23,190Total
    
    $
    84,497
    
    
    $
    65,939
    
    
    $
    233,486
    
    
    $
    196,981
   35




---



##### Table of Contents



Selling, General and Administrative Expenses
   Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Amount
    
    $
    39,513
    
    
    $
    35,488
    
    
    $
    123,379
    
    
    $
    100,668Percent of net revenue
    
    
    35.3
    %
    
    
    33.6
    %
    
    
    37.4
    %
    
    
    31.3
    %
   36




---



##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Wholesale Segment
    
    $
    1,913
    
    
    $
    1,715
    
    
    $
    6,238
    
    
    $
    6,332Direct Segment
    
    
    11,029
    
    
    
    12,309
    
    
    
    38,164
    
    
    
    23,380Corporate Operations
    
    
    26,571
    
    
    
    21,464
    
    
    
    78,977
    
    
    
    70,956Total
    
    $
    39,513
    
    
    $
    35,488
    
    
    $
    123,379
    
    
    $
    100,668
   37




---



##### Table of Contents



Depreciation and Amortization
    Provision for Restructuring Expenses
  Other Income (Expense)
 Net Interest Expense
  38




---



##### Table of Contents



Investment Gains
  Gain on Deconsolidation of Subsidiary
  Income Taxes
  Related Party Transactions
   Liquidity and Capital Resources
  39




---



##### Table of Contents



Nine months ended September 30,2005
    
    
    2004Net cash provided by (used in):Operating activities
    
    $
    (33,889
    )
    
    $
    7,601Investing activities
    
    
    9,104
    
    
    
    (51,192
    )Financing activities
    
    
    1,696
    
    
    
    75,838Total
    
    $
    (23,089
    )
    
    $
    32,247
 Operating Activities
  Investing Activities
   Financing Activities
  40




---



##### Table of Contents



Liquidity
    
    
    further development of our VoIP capabilities, including systems and software to
expand and improve our VoIP services;
    
    our continuing ability to obtain access to ILEC facilities, including
line-shared telephone lines, remote terminals, interoffice transport and high-capacity
circuits, all at reasonable prices;
    
    rates at which resellers and end-users purchase and pay for our services and the pricing of such services;
    
    financial condition of our customers;
    
    levels of marketing required to acquire and retain customers and to attain a
competitive position in the marketplace;
    
    rates at which we invest in engineering, equipment, development and
intellectual property with respect to existing and future technology;
    
    operational costs that we incur to install, maintain and repair end-user lines and our network as a whole;
    
    pending and any future litigation;
    
    existing and future technology, including wireless;
    
    unanticipated opportunities;
    
    network development schedules and associated costs; and
    
    number of regions entered and the timing of entry and services offered.
 41




---



##### Table of Contents



Contractual Cash Obligations
  2005
    
    
    2006-2007
    
    
    2008-2009
    
    
    Thereafter
    
    
    Total3% convertible debentures
    
    $
    
    
    
    $
    
    
    
    $
    125,000
    
    
    $
    
    
    
    $
    125,000Interest on note payable
    
    
    
    
    
    
    7,500
    
    
    
    5,469
    
    
    
    
    
    
    
    12,969Capital leases
    
    
    236
    
    
    
    192
    
    
    
    13
    
    
    
    
    
    
    
    441Office leases
    
    
    1,176
    
    
    
    9,642
    
    
    
    8,142
    
    
    
    2,530
    
    
    
    21,490Other operating leases
    
    
    107
    
    
    
    687
    
    
    
    346
    
    
    
    
    
    
    
    1,140Purchase obligations
    
    
    956
    
    
    
    281
    
    
    
    
    
    
    
    
    
    
    
    1,237$
    2,475
    
    
    $
    18,302
    
    
    $
    138,970
    
    
    $
    2,530
    
    
    $
    162,277
         42




---



##### Table of Contents



Risk Factors
 Our services are subject to government regulation, and changes in current or future laws or
regulations and the methods of enforcing the law and regulations could adversely affect our
business.
    Charges for network elements are generally outside of our control because they are proposed by the
ILECs and are subject to costly regulatory approval processes.
   43




---



##### Table of Contents



Our business will be adversely affected if our interconnection agreements are not renewed or if
they are modified on unfavorable terms.
    We depend on a limited number of customers for the preponderance of our revenues, and we are highly
dependent on sales through our resellers.
   The markets in which we operate are highly competitive, and we may not be able to compete
effectively, especially against established industry competitors with significantly greater
financial resources.
  
    develop and adopt new or emerging technologies;
 44




---



##### Table of Contents




    
    respond to changes in customer requirements more quickly;
    
    devote greater resources to the development, promotion and sale of their products and services;
    
    form new alliances and rapidly acquire significant market share;
    
    undertake more extensive marketing campaigns;
    
    adopt more aggressive pricing policies; and
    
    devote substantially more resources to developing new services.
    Failure to complete development, testing and introduction of new services, including VoIP services,
could affect our ability to compete in the industry.
  We may need to raise additional capital under difficult financial market conditions.
  45




---



##### Table of Contents




    
    changes in government regulations and legal actions challenging government regulations;
    
    customer disconnection rates that reduce our revenues;
    
    significant price reductions by our competitors;
    
    higher levels of marketing expense required to acquire and retain end-users
that purchase our services from us and from our resellers;
    
    the need to upgrade our systems by investing in our existing and future technology and infrastructure;
    
    investment opportunities in complementary businesses, acquisitions or other opportunities;
    
    any adverse resolution of lawsuits against us; and
    
    additional risk factors mentioned throughout this section.
   In order to become cash flow positive and to achieve profitability, we must add end-users and sell
additional services to our existing end-users while minimizing the cost to expand our network
infrastructure.
  
    
    acquire new end-users;
    
    enter into and maintain agreements with the RBOCs or obtain favorable
regulatory rulings that provide us with access to unbundled network elements on terms and
conditions that allow us to profitably sell our consumer services;
    
    enhance and improve our VoIP services;
    
    upgrade our network to improve reliability and remain competitive;
    
    expand our direct sales capability and infrastructure in a cost-effective manner; and
    
    continue to implement and improve our management information systems, including
our client ordering, provisioning, dispatch, trouble ticketing, customer billing, accounts
receivable, payable tracking, collection, fixed assets, transaction-based taxes and other
management information systems.
 46




---



##### Table of Contents



If we do not reduce our end-user disconnection rate our revenue and end-user growth will decline.
  
    
    move to a new location;
    
    disconnect because of better offers in the market; or
    
    disconnect because they do not like our service or the service provided by our resellers.
  We may experience decreasing margins on the sale of our services, which may impair our ability to
achieve profitability or positive cash flow.
  If our internal controls over financial reporting do not comply with the requirements of the
Sarbanes-Oxley Act, our business, reputation and stock price could be adversely affected.
   47




---



##### Table of Contents



Some of our resellers are facing financial difficulties, which makes it more difficult to predict
our revenues.
  The development of our direct business poses operational challenges and may cause our resellers to
place fewer orders with us or may cause us to lose resellers.
  
    
    recruit, hire and train additional direct sales teams;
    
    create effective automated systems to provision, manage and bill for VoIP services;
    
    manage expanding and increasingly diverse distribution channels;
    
    effectively manage additional vendors; and
    
    enhance our network and access products to provide business-class VoIP services.
  The communications industry is undergoing rapid technological changes and new technologies may be
superior to the technology we use.
  
    
    third parties, including some of our competitors and potential competitors, to
develop and provide us with access to new communications and networking technology;
    
    our ability to anticipate or adapt to new technology on a timely basis; and
    
    our ability to adapt to new products and technologies that may be superior to,
or may not be compatible with, our products and technologies.
  A system failure could delay or interrupt service to our customers, which could reduce demand for
our services.
  48




---



##### Table of Contents



A breach of network security could delay or interrupt service to our customers, which could reduce
demand for our services.
  Our success depends on our retention of certain key personnel, our ability to hire additional key
personnel and the maintenance of good labor relations.
   We depend on a limited number of third parties for equipment supply, software utilities, service
and installation and if we are unable to obtain these items from these third parties we may not be
able to deliver our services as required.
  
    
    DSLAMs;
    
    CPE, including modems, routers, bridges and other devices;
    
    network routing and switching hardware;
    
    customer support;
    
    installation services;
    
    customized software design and maintenance;
    
    network management software;
 49




---



##### Table of Contents




    
    systems management software;
    
    database management software;
    
    collocation space;
    
    software used in our products;
    
    hosting, email and IP provisioning services;
    
    softswitches, used to provide VoIP services; and
    
    Internet connectivity and Internet protocol services.
   
    
    the possibility that some of our vendors will leave the DSL equipment business
or will stop supporting equipment that we already have installed;
    
    the absence of guaranteed capacity;
    
    the possibility that software vendors will stop supporting software that we use; and
    
    reduced control over delivery schedules, quality assurance, production yields and costs.
  We use third-party vendors offshore for tasks that were previously done by our employees.
    50




---



##### Table of Contents



We have made and may make acquisitions of complementary technologies or businesses in the future,
which may disrupt our business and be dilutive to our existing stockholders.
    We must pay federal, state and local taxes and other surcharges on our service, the applicability
and levels of which are uncertain.
   51




---



##### Table of Contents



We are a party to litigation and adverse results of such litigation matters could negatively impact
our financial condition and results of operations.
  Our intellectual property protection may be inadequate to protect our proprietary rights.
    Third parties may claim we infringe their intellectual property rights.
  
    
    be time-consuming, costly and/or result in litigation;
    
    divert managements time and attention from developing our business;
    
    require us to pay monetary damages or enter into royalty and
licensing agreements that we would not normally find acceptable;
    
    require us to stop selling or to redesign certain of our products; or
    
    require us to satisfy indemnification obligations to our customers.
  52




---



##### Table of Contents



The price of our common stock may continue to fluctuate significantly.
  
    
    state and federal regulatory and legislative actions;
    
    general economic conditions and the condition of the telecommunications industry;
    
    our ability to maintain existing customers and add new customers and recognize
revenue from distressed customers;
    
    our ability to reach profitability and cash flow positive operations;
    
    adverse litigation results;
    
    announcements of new products, services or pricing by our competitors or the
emergence of new competing technologies;
    
    our failure to meet the expectations of investors or of analysts;
    
    the adoption of new, or changes in existing, accounting rules, guidelines and
practices, which may materially impact our financial statements and may materially alter
the expectations of securities analysts or investors;
    
    the level of demand for broadband Internet access services and VoIP telephony services;
    
    departures of key personnel; and
    
    effective internal controls over financial reporting.
  Substantial leverage and debt service obligations may adversely affect our cash flow. (Refer to
Part I, Item 2  Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources for additional information)
   
    
    increasing our vulnerability to general adverse economic and industry conditions;
    
    limiting our ability to obtain additional financing;
    
    requiring the dedication of a portion of our expected cash flow from operations
to service our indebtedness, thereby reducing the amount of our expected cash flow
available for other purposes, including capital expenditures;
 53




---



##### Table of Contents




    
    limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and
    
    placing us at a possible competitive disadvantage relative to less leveraged
competitors and competitors that have better access to capital resources.
 Forward-Looking Statements
  
    
    impact of the federal, state and local telecommunications regulations,
decisions and related litigation, and our ability to obtain ILEC network elements and
facilities at reasonable rates;
    
    timing of our cash flows;
    
    extent to which customers purchase our services;
    
    relationships with our strategic partners and other potential third parties;
    
    pricing for our services in the future;
    
    margins on our service offerings;
    
    possibilities that we will increase our revenues;
    
    plans to make strategic investments and acquisitions and the effect of such investments and acquisitions;
    
    estimates and expectations of future operating results, the adequacy of our
cash reserves, and the number of anticipated installed lines;
    
    plans to increase sales of value-added services, like VoIP;
    
    anticipated capital expenditures;
    
    plans to enter into business arrangements with broadband-related service providers;
    
    feasibility of alternative access solutions, like wireless;
    
    effects of litigation currently pending; and
    
    other statements contained in this Report on Form 10-Q regarding matters that are not historical facts.
    
    These statements are only estimates or predictions and cannot be relied upon.
We can give you no assurance that future results will be achieved. Actual events or results
may differ materially as a result of risks facing us or actual results differing from the
assumptions underlying such statements.
  54




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 (All dollar amounts are presented in thousands)
   Cash and cash equivalents
    
    $
    94,417
    
    
    
    2.81
    %Short-term investments in debt securities
    
    
    17,481
    
    
    
    0.55
    %Restricted cash and cash equivalents
    
    
    4,167
    
    
    
    0.10
    %$
    116,065
    
    
    
    3.46
    %
 
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
  Changes in Internal Controls.
  55




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
      56




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  57




---



##### Table of Contents



Item 6. Exhibits
 Incorporated by ReferenceExhibit
    
    
    
    
    
    
    
    
    
    ExhibitNumber
    
    Exhibit Description
    
    Form
    
    File No.
    
    Date of First Filing
    
    Number
    
    Filed Herewith3.1
    
    Amended and Restated Bylaws
    
    8-K
    
    001-32588
    
    11/02/2005
    
    3.131.1
    
    Certification Pursuant to
    
    
    
    
    
    
    
    
    
    XRule 13a-14(a)31.2
    
    Certification Pursuant to
    
    
    
    
    
    
    
    
    
    XRule 13a-14(a)Certification Pursuant to 1832.1*
    
    U.S.C. Section 1350, as
    
    
    
    
    
    
    
    
    
    XAdopted Pursuant toSection 906 of theSarbanes-Oxley Act of 200232.2*
    
    Certification Pursuant to
    
    
    
    
    
    
    
    
    
    X18 U.S.C. Section 1350, asAdopted Pursuant toSection 906 of theSarbanes-Oxley Act of 2002
 
 *
    
    These certifications accompany the Registrants Quarterly Report on Form 10-Q and are not
deemed filed with the SEC. 58




---



##### Table of Contents



SIGNATURES
  COVAD COMMUNICATIONS GROUP, INC.By:
    
    /s/ CHARLES E. HOFFMANCharles E. HoffmanPresident, Chief ExecutiveOfficer and DirectorDate: November 9, 2005By:
    
    /s/ JOHN E. TREWINJohn E. TrewinSenior Vice President andDate: November 9, 2005
    
    
    
    Chief Financial Officer
 59




---



##### Table of Contents



EXHIBIT INDEX
 Incorporated by ReferenceExhibit
    
    
    
    
    
    
    
    
    
    ExhibitNumber
    
    Exhibit Description
    
    Form
    
    File No.
    
    Date of First Filing
    
    Number
    
    Filed Herewith3.1
    
    Amended and Restated Bylaws
    
    8-K
    
    001-32588
    
    11/02/2005
    
    3.131.1
    
    Certification Pursuant to
    
    
    
    
    
    
    
    
    
    XRule 13a-14(a)31.2
    
    Certification Pursuant to
    
    
    
    
    
    
    
    
    
    XRule 13a-14(a)Certification Pursuant to 1832.1*
    
    U.S.C. Section 1350, as
    
    
    
    
    
    
    
    
    
    XAdopted Pursuant toSection 906 of theSarbanes-Oxley Act of 200232.2*
    
    Certification Pursuant to
    
    
    
    
    
    
    
    
    
    X18 U.S.C. Section 1350, asAdopted Pursuant toSection 906 of theSarbanes-Oxley Act of 2002
 
 *
    
    These certifications accompany the Registrants Quarterly Report on Form 10-Q and are not
deemed filed with the SEC.