Covad to launch VoIP service

The digital subscriber line (DSL) service provider said Monday that it will begin selling unlimited local and long-distance calling to its business broadband customers by the end of the year. After that, it will introduce phone service plans for its residential broadband subscribers. It plans to announce subscription rates and the service introduction schedule by midyear.

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Covad's jump into the telephone service business is not a surprise, said Jon Arnold, an analyst at Frost & Sullivan. Every major U.S. broadband provider now either sells some kind of phone service or has announced plans to do so. Covad's competitors in the cable broadband industry have been the most eager, as they hope to use cheaper dialing plans to woo customers away from local phone companies.

The technology behind these services is voice over Internet Protocol (VoIP), which makes phone calls using the Internet Protocol, a popular method for sending data from one computer to another. After years of overpromising and underdelivering, VoIP is generating significant interest among telecommunications carriers, businesses and consumers, thanks to significant improvements in quality of service.

"Everybody's trying to jump on the bandwagon," Arnold said. "Every ISP is looking to get into voice and (to) do it before their customers are lost to others."

Arnold described Covad's calling plans as on par with those offered by Vonage, 8x8, VoicePulse and other Internet phone service providers, which have a total of 300,000 subscribers, according to most estimates. But the audience for subscription services is expected to blossom to 5 million by 2006.

With so many companies entering the market, it's hard for Covad to differentiate its service, said Steve Lail, vice president of voice deployment at the Santa Clara, Calif.-based company. But, he said, Covad has found an opportunity in selling VoIP services to small businesses. Although other broadband providers have targeted VoIP at companies, this smaller segment seems to have been overlooked, he said.

"There are a large number of competitors, and many are focused on the upper end of the market, or consumers," he said. "So our sweet spot is small to very small business accounts."