[March 16, 2006]

Earthlink and Covad Partner to Bring VoIP to Eight Additional Cities

By Susan J. Campbell

TMCnet Contributing Editor

Covad, a provider of integrated voice and data communications, has partnered with Earthlink, a next generation Internet service provider, to expand Voice over IP (VoIP) market availability. This partnership will provide Earthlink with the ability to offer customers low-cost phone services bundled with high-speed Internet access in an additional eight cities.

As part of the agreement between the two companies, Earthlink will provide Covad with $50 million in debt and equity financing to fund additional network build-outs to bring Covad’s line-powered voice access to Atlanta, Chicago, Los Angeles, Miami, New York City, Philadelphia, San Diego and Washington, D.C. Earthlink currently provides DSL and Home Phone Service in Dallas, Texas, San Francisco and San Jose, California, as Seattle, Washington.

Covad’s line-powered voice access enables the alternative offering of Earthlink DSL and Home Phone Service in lieu of traditional or local phone companies. Customers can receive a bundle of local and long distance phone service and high-speed Internet access using existing phone, wiring and computer equipment.

Earthlink assures consumers that its voice services will operate during a power outage, support enhanced 911 calling as well as offer custom calling features.

According to Garry Betty, Earthlink’s president and chief executive officer, the company’s Internet voice initiatives are reshaping its position in the marketplace and redefining what it means to be an ISP. Earthlink DSL and Home Phone Service strengthens the company’s role as a ‘Total Communications Company’ by delivering one of the industry’s most comprehensive portfolios of voice and data products to meet subscribers’ growing communications needs.

Charles Hoffman, president and CEO of Covad Communications states that this agreement demonstrates the success of Covad’s strategy to target the residential market through strategic partnerships. By strengthening the relationship, Covad and Earthlink are better able to provide a consumer VoIP service that far exceeds the competition in both voice and quality and features.

By taking advantage of the next-generation Digital Subscriber Line Access Multiplexer (DSLAM) technology, Covad’s line-powered voice access unites the ‘last mile’ of traditional telephone copper wiring with EarthLink’s advanced VoIP features. This will enable Covad to offer higher-speed broadband access (ADSL 2+, G.SHDSL) and new business-class services such as metro Ethernet and bonded T1.

Earthlink positions its service such that customers will have the advantage of high quality service as calls will be delivered over Covad’s and Earthlink’s managed national networks rather than the public Internet. In addition, subscribers will also receive Earthlink’s Internet tools and services like spamBlocker, VirusBlocker™ and Spyware Blocker™.

The agreement stipulates that in exchange for Earthlink’s new financing for Covad, Earthlink will receive $10 million in common stock and $40 million in convertible debt, due in 2011. This investment is subject to customary closing conditions and is expected to complete before March 31, 2006.

This partnership is a strategic move for both Earthlink and Covad to be able to compete against traditional phone services. By offering customers the ability to make an easy switch, as new lines and equipment are not necessary, the two companies are paving the way for easy expansion and revenue growth.

The challenge for this endeavor will be in ensuring consumer confidence in the services that are being offered. Reliability, especially during times of outages, will be a big deal for consumers, specifically those who are used to traditional services. Innovation can often times offer greater capability and service, but also a perceived risk in the mind of the consumer. This will need to be overcome in order for adoption and growth to occur.

Susan J. Campbell is a contributing editor for TMC and has also written for eastbiz.com. To see more of her articles, please visit Susan J. Campbell’s columnist page.

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