Baby Bell gives nod to voice-over-DSL

General Bandwidth, a communications equipment maker, will announce an investment Monday by local-phone giant SBC Communications, representing the Baby Bell's support of the company's voice-over-broadband technology.

Gartner analyst Jay Pultz says many compelling economic reasons exist for the Baby Bells and smaller competitive local-exchange carriers to embrace voice-over-DSL technology. see commentary

In a recently completed third round of funding, General Bandwidth received $47 million led by Thomas Weisel Partners and SBC Venture Capital, a unit of SBC Communications. General Bandwidth plans to use the funding to develop its technology and expand into the European and Canadian markets.

The investment by SBC is significant, likely sanctioning General Bandwidth's gear for future use on SBC's regional local-phone network. Despite what on the surface appears to be a competitive threat, SBC, which has aggressively launched digital subscriber lines (DSL), was an early proponent of voice-over-broadband technology and vowed to launch it by the end of the year.

General Bandwidth, which has a host of privately held competitors including Accelerated Networks, CopperCom, Jetstream Communications and TollBridge Technologies, manufactures equipment for carriers that allows them to offer multiple phone lines over a single high-speed, or "broadband," Internet connection.

This voice-over-broadband gear is primarily intended for small and midsized businesses, offering them Net access in addition to several office phones at a fraction of the usual cost. These new equipment makers largely have targeted smaller competitive local-phone providers, touting the technology as a means of stealing market share from the major incumbent local-phone companies such as SBC, BellSouth and Verizon.

But now the Baby Bells, which account for most of the nation's DSL launches, are beginning to look to the new technology to maximize their existing phone networks. An explosion in recent years of second phone lines for consumers, dedicated dial-up Internet access and home offices has taxed the big local-phone providers' systems.

A shortage of copper phone lines and potential local voice competition from cable operators such as AT&T, Comcast and Charter Communications may make the cost and time savings of voice-over-broadband attractive, some say.

"It's much less expensive to deploy voice-over-DSL than it is to deploy analog phone lines," said General Bandwidth chief executive Brendon Mills. "Cable telephony and other competitors are encroaching, and once (the Bells) lose a customer, it's hard to get them back. So the telcos are gearing up to offer a new bundle."

The voice-over-broadband technology is relatively new but could be a substantial market. Only 40,000 customers will use a voice-over-DSL service this year, but the market is projected to grow to 2 million lines by 2004, according to communications consulting company TeleChoice.

Experts expect companies such as SBC to use the new technology to offer consumers a package of high-speed Net access, perhaps up to four local-phone lines for a family, and several other services all over one broadband connection.