EarthLink invests $50 million in Covad

Covad will expand network to eight additional cities in support of EarthLink's line-powered voice service.

EarthLink said Thursday that it has made a $50 million equity investment in Covad Communications Group to fund the expansion of the companies' co-developed voice services to eight new markets.

As part of the deal, EarthLink will receive $10 million in Covad common shares and $40 million in convertible debt, due in 2011.

Covad, a broadband access wholesaler, will use the money to fund infrastructure construction so that EarthLink can offer its line-powered voice service using the Covad network in Atlanta, Chicago, Los Angeles, Miami, New York, Philadelphia, San Diego and Washington, D.C.

EarthLink announced in January that it had partnered with Covad to offer the new voice over Internet Protocol, or VoIP, service in Dallas, Seattle and the San Francisco Bay area. EarthLink is bundling the service, starting this week, with DSL broadband access.

Unlike other VoIP services, the line-powered voice service puts all the intelligence and equipment for offering VoIP service in Covad's central office, where all the gear to provide the DSL service is housed. This differs from other VoIP services, such as the one offered by Vonage, which puts the intelligence at the customer site, requiring users to plug their phones into separate adapters.

The line-powered technology doesn't require consumers to add any hardware for the service. They can use their existing phones and plug them into phone jacks as they would with any regular telephone service. EarthLink is charging $69.95 per month for its top-tier package, which includes unlimited calling within the United States, plus an 8 megabits per second download and 1mbps upload DSL service.

EarthLink has traditionally used the phone companies' infrastructure to deliver its broadband service. It also has a deal with Time Warner Cable to sell service over its network. But after a series of legal blows and regulatory changes by the Federal Communications Commission, the company has increasingly looked for alternative-access technologies such as broadband service delivered via power line and via wireless technologies, such as WiMax and citywide Wi-Fi. It has already won bids to build citywide Wi-Fi networks in Philadelphia and Anaheim, Calif.

"With our Internet voice initiatives, we are reshaping our position in the marketplace and redefining what it means to be an ISP," Garry Betty, EarthLink's president and chief executive, said in a statement.

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