Covad Communications Group Inc. is taking on the entrenched local telephone company in San Francisco today by adding voice telephony to its data services. If all goes as planned, Covad will expand telephone service to as many as 15 other U.S. cities by the end of next year.
More than six years after the Telecommunications Act of 1996 was enacted to spur competition, one of the few surviving rivals to the incumbent carriers is breaking into the traditionally monopolistic local telephone market. The company can afford to take on the incumbents because it is using infrastructure already in place for its DSL (digital subscriber line) services.
To get the voice-over-DSL service, called TeleXchange, a business adds to its phone system a single integrated access device, which converts voice signals into a data stream, enabling a single wire to carry both types of traffic. Covad is partnering with Focal Communications Inc., which converts the voice traffic back into voice signals before sending it over the public switched telephone network.
According to Covad officials, the voice quality is comparable to that of traditional telephone service. Voice communications over the Internet continue to be dogged by quality issues, but Covad minimized the distance the voice signals travel as data signals, making it "a very short hop as VoDSL," said Todd Kiehn, senior product manager at Covad in Santa Clara, Calif.
"We have engineered the network to be the equivalent [of 'plain old telephone service]," he said. "My experience is that you cant tell the difference."
The package of DSL, local and long distance voice, with up to eight voice lines is targeted to small businesses. Borrowing from the wireless phone pricing model, Covad is offering a "bucket" of long distance minutes bundled with unlimited local calls. By the end of next year, Covad plans to provide up to 24 voice lines to a customer.
A typical business with eight telephone lines would save 20 percent on its phone bill, according to Covad. With traditional phone service, that business would likely pay between $500 and $525 per month, but with Covad, the bill would come to $400, Kiehn said.
Covad incurs little incremental cost in adding voice to its DSL services, and it can undercut the local incumbent because it uses one loop, one network and one customer support center, Kiehn said. Companies receive just one bill for all three communications services.
"The preference among the vast majority of our customers is to get voice and data together," Kiehn said, adding that users appreciate a package deal "so theres no finger-pointing across the vendors."
Covad is breaking into the voice business in San Francisco first because the Bay Area is its home base, Kiehn said. By the end of next year, the company plans to expand voice services to between 10 and 15 additional cities and add T1 service for larger businesses, he said.