Covad said in a written statement that digital subscriber line installations this quarter will exceed analyst forecasts by 30 percent with 200,000 in service at the end of the month.
Separately, No. 2 local-phone carrier SBC plans to invest $150 million for a 6 percent stake in Covad.
The San Antonio-based carrier will also sell Covad's service, an agreement that guarantees Covad $600 million over six years starting next month, the companies said.
Covad is benefiting from burgeoning demand for fast Web access over copper phone wires as consumers and businesses increasingly rely on the Internet to shop and get information.
Covad uses local phone networks of Verizon Communications and SBC to provide service.
Covad attributed the raised line forecast partly to the automation of installations.
"This is very impressive given the fact that the company was subjected to a two-week Verizon strike earlier in the quarter," Michael Bowen, an analyst at Deutsche Banc Alex.Brown, wrote in a research note.
Mr. Bowen, who was estimating 183,600 lines at quarter's end, rates Covad shares a "strong buy."
Covad had 138,000 digital subscriber lines in service at the end of June.
About 87,000 Verizon employees in the Northeast United States walked out for two weeks last month. New York-based Verizon is the biggest U.S. local phone company.
Covad's shares rose $2, or 11 percent, to $20.38 in Nasdaq trading of 28 million, making it the fourth most-active stock on U.S. markets Monday. The shares had fallen 51 percent this year.
SBC rose 62 cents to $45.68 in New York Stock Exchange trading of 6.6 million.
In June, when it announced the purchase of BlueStar Communications Group Inc., Covad said customer additions would fall short of targets. Covad blamed the adoption of BlueStar's direct-to-the-customer â€“ rather than wholesale â€“ sales approach.
Mr. Bowen expected 208,700 lines by this quarter before the June announcement.
SBC and Covad also agreed to settle various legal disputes, including Covad's antitrust suit against SBC.