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Baby Bells may dial into voice-over-DSL

Dozens of communications companies and equipment makers are working on voice services using digital subscriber lines to tap the $100 billion voice market.

High-speed Internet connections aren't just for Net access anymore.

Dozens of communications companies and equipment makers are preparing to offer voice services using digital subscriber lines (DSL), or telephone wires that can carry data and voice transmissions at high speeds.

By splitting a typical phone line, communications companies can offer multiple voice lines over just one physical wire, a service known as voice-over-DSL (VoDSL). New technology allows a communications provider to expand the capacity, or bandwidth, of old phone lines, giving a firm the opportunity to expand its base services.

Although the burgeoning broadband market is growing in size and revenue, it pales when compared to the local voice market, which is valued roughly at $100 billion annually. Several equipment companies are developing voice-over-DSL gear, and recent partnerships could pave the way for future DSL-based voice services.

Competitive local communications companies are still hesitant to jump into the market, but analysts and industry executives increasingly believe the Baby Bell local phone giants will soon embrace voice-over-DSL.

"We think that later this year and into next year you'll see a lot of the regional Bell operating companies pick up their deployment of voice-over-DSL technology," said Frank McEvoy, an equity research analyst at U.S. Bancorp Piper Jaffray. "Voice-over-DSL dramatically reduces the cost of deploying voice services to small businesses."

In addition to cost savings, analysts believe that as cable TV operators offer low-cost local voice service, the Baby Bells will adopt voice-over-DSL quickly to protect their market share.

For now, as evidenced by a handful of deals this week, the communications industry is simply trying to deploy DSL as quickly as possible.

SBC Communications cut the price of its consumer DSL service as part of a new promotion. Level 3 Communications and Rhythms announced a deal yesterday to co-market DSL services, while Qwest Communications International will work with Jato Communications to offer DSL in smaller cities.

SBC Communications plans to deploy commercial voice-over-DSL service by the end of the year, although the company hasn't begun trials yet, according to spokesman Michael Coe. "The cost of provisioning (voice-over-DSL) is so much cheaper than a traditional line. That's what we're really looking at," Coe said.

As further evidence of the increasing interest in voice-over-DSL technologies, General Bandwidth recently closed a second round of funding valued at $24 million. General Bandwidth is a new DSL equipment maker that will square off against Jetstream Communications, Tollbridge Technologies and CopperCom, the three best-known voice-over-DSL gear manufacturers. Many analysts expect these companies to go public later this year.

Also, Polycom and Nortel Networks made a voice-over-DSL technology deal today. Although specific terms were not released, the two companies said the relationship calls for them to work together to provide both the consumer premise equipment and the high-end gear necessary to offer multiple voice lines over one high-speed phone wire.

Competitive local communications companies such as Covad Communications, NorthPoint Communications and Rhythms NetConnections initially were expected to aggressively offer voice-over-DSL, but their efforts remain in the limited trial phase. Privately, executives within these smaller data companies say other services are higher on the to-do list than voice-over-DSL.

Others such as Intermedia, GST Communications and Focal Communications also are testing the technology.

BellSouth is currently testing voice-over-DSL in its labs and has plans to offer customer trails by mid-year, according to spokesman John Goldman.

"It's a very high interest item for BellSouth and I'm sure all the phone companies," Goldman said. "These are virtual lines so you have the ability to add and subtract lines as they're needed and you don't have to roll a truck every time (for installations)."

Goldman said the virtual phone lines will save the Bells' money on installation and provisioning costs by limiting technicians' time and eliminating the physical installation of copper wires needed about 50 percent of the time when new lines are activated.

"We think the number of voice-over-DSL lines is going to literally explode over the next two years," McEvoy said.

U.S. Bancorp Piper Jaffray, in a report released late last week, predicted voice-over-DSL lines will jump to 2.9 million lines by 2002, up from about 200,000 lines this year.

BellSouth, which finished 1999 with 35,000 lines in service, expects to claim 200,000 by the end of the year.

The equipment providers, which make the so-called gateways that link the high-speed DSL lines with the traditional phone system, admit significant voice-over-DSL revenue may be a year off, but say there is no denying voice-over-DSL will be a large market opportunity.

"This is an absolutely huge market," said Brendon Mills, co-founder and chief executive of General Bandwidth.