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Covad Communications is granting America Online access to its digital subscriber line services over its U.S. network as part of a five-year wholesale agreement, the company announced Thursday.

AOL will have access to a network that currently covers more than 40 million U.S. homes and businesses, Covad says in a statement. The company estimates that its network reaches approximately 40 percent to 45 percent of all U.S. homes and businesses.

By using DSL services through Covad's network, AOL, which is the largest ISP in the country, will gain the flexibility and scalability of a single resource when offering customers the ability to upgrade from dial-up Internet service to broadband, Covad says.

As part of the agreement, for which terms were not disclosed, AOL has been issued warrants by the Santa Clara, California, company, giving it the option to purchase a total of 3.5 million shares of Covad common stock, with an estimated value of $3.5 million, Covad says.

Struggling Services

Covad emerged from bankruptcy last year when the U.S. Bankruptcy Court for the District of Delaware approved the company's reorganization plan.

Straining under a myriad of financial problems, AOL's parent company, AOL Time Warner, over the past few months has been trying to kick start AOL's flailing Internet unit, which has been suffering from a lack of significant subscriber growth in recent quarters.

Last month, AOLTW said it had restructured its long-standing cable partnership with AT&T in a manner that created the first third-party broadband cable carriage agreement for AOL.

As part of the deal, AT&T Broadband and Comcast, which have announced plans to merge and form AT&T Comcast, will make AOL's high speed broadband access service available on their systems. AOLTW said that it expects AT&T Comcast to reach over 10 million homes within two years of the completed merger.

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