Megapath and Covad have announced that the two companies will be merging their operations, depending on regulatory approval. According to a company representative, the transaction will create one of the largest managed service local exchange carriers (MSLEC) in the United States. Terms of the deal weren't disclosed, but the companies say that barring regulatory approval, the deal should close sometime in the third quarter of this year. The combined businesses will be owned by Platinum and MegaPath investors.

"It seems that Megapath will become the ISP side of Covad and Covad.net will be going away," one source who just attended an internal video presentation tells Broadband Reports.

Both Covad and Megapath were huge players in the early residential broadband market, and should be more than familiar to most of our readers. Like many independent carriers, both companies found it difficult to compete in the residential sector against the nation's deep-pocketed incumbents.

As such, both companies focused more intently on the (at the time) less incumbent-laden small/medium business and managed services market. In some instances, the brush-off of residential customers was brusque, to be polite.

In 2007, Covad was purchased by Platinum Equity for $304 million, a price tag many considered particularly fair given Covad's national reach. Covad currently offers IP broadband services in more than 4,400 central offices nationwide.

"From my understanding, Megapath's network will be integrated into Covad's network for central offices that Covad is not currently in," says our source. "They (in internal meetings) never outright said what would happen in CO's that both companies are in, but I got the impression that the Megapath equipment would be shut down," the source says.

"This transaction brings together two industry leaders who will focus on expanding service offerings and distribution channels to further our leadership positions in the SMB, enterprise and wholesale markets," MegaPath CEO D. Craig Young said in a prepared statement. "By leveraging the strengths of each company, we will provide customers and partners with expanded expertise, broader innovative services and a powerful network that simplifies the way they communicate and conduct business online."