Broadband Voice Rises

Venture capitalists are tossing money at contenders building products that send voice over broadband technologies, even as regional Bells hold their noses - and their wallets - in reaction to technology that's as tasty to them as cannibalism

Venture capitalists are tossing money at contenders building products that send voice over broadband technologies, even as regional Bells hold their noses — and their wallets — in reaction to technology thats as tasty to them as cannibalism.

Last week, Santera Systems announced that it has raised $110 million from venture companies that like its voice switch, which Santera said lets carriers transition from the circuit world to the packet world at their own pace. Earlier this summer, General Bandwidth, which makes Voice-over-broadband gateways, raised $66 million; CopperCom raised $65 million; and TollBridge Technologies collected $22 million.

Thats pretty respectable for a market that sold just $28 million worth of VoB gateways during the first six months of the year, according to telecommunications market research firm RHK.

"Its very big news to hear of additional funding of vendors in this area," said RHK analyst Teresa Mastrangelo. "The biggest positive is that Santera and the others continue to receive funding in a highly competitive and tight capital market. VCs and investment communities still believe in this."

As the market develops, technology managers can look forward to easier maintenance and lower operating costs, observers said.

The notion of putting voice, data and, someday, video on the same network seems a good idea to most carriers that dont already have monthly checks rolling in from local telephone customers.

"If we can see a [regional Bell] commit to rolling it out publicly, that will jump-start the market," Mastrangelo said. "It would be huge, because it would indicate that [they] consider the technology reliable."

Competitors deploying Voice-over-DSL are targeting small and midsize businesses that view it as a lower-cost alternative to other options.

BellSouth, Qwest Communications International, SBC Communications and Verizon Communications are happy rolling out DSL to households so they can have two revenue streams — voice and data — each month. But if they combine voice and data on one set of equipment, "its unclear to them how theyre not cannibalizing their own services," Mastrangelo said.

The Bells would have to invest in expensive new equipment to replicate what they already provide — but they worry that the new services are less reliable than the century-old circuit-switched voice network.

At conferences, vendors bubble about the Bells VoB plans. General Bandwidth promised in March that it would have two Bell customers by springtime, but, so far, no such deals have been announced.

Qwest filed a disclosure statement recently, indicating it wants to start rolling out "multiservice" DSL. The company plans to offer "a la carte" telephony services to businesses outside its region. BellSouth and Verizon declined to discuss their plans. SBC is deploying VoB for Dallas 8,000-desktop city government, which previously used eight different antiquated data delivery systems. SBC plans more IP telephony announcements at the Networld+Interop conference in Atlanta next month.

"We have great demand from our customers for IP telephony systems," SBC spokesman Ashley Blaker said. "Were making sure the technology is ready. We have an obligation to test systems and meet standards. We dont want to resell customers something theyre not going to be happy with."

Qwests disclosure statement "is a pretty big positive," Mastrangelo said. "It means an [incumbent] is really seriously looking at it. Theyre all in trials, but there doesnt seem to be any rush to get it going."

The vendors supplying the network equipment are so bunched up that the first one to land a contract with a regional Bell will zoom to the top of the pack, she said.

Voice-over-cable modem is still a small slice of VoB, but two companies, AT&T and Cox Communications, are gradually building up client numbers among cable customers.

The RHK report revealed that a pair of new entrants, Zhone Technologies and comMatch, gained a 6 percent and 13 percent share of the market revenue, respectively, while Accelerated Networks almost dropped out of the picture with a 2 percent share. Jetstream Communications leads in market revenue with a 30 percent share, followed by CopperComs 21 percent; Zhone leads in unit shipments. The U.S. share of the VoB equipment market fell from 97 percent last year to 70 percent so far this year.

Zhone was expected to announce it will acquire Nortel Networks access devices unit, which makes DSL gear.

In May, Nortel announced plans to phase out the division, though the Canadian networking giant still supports the units products — various Universal Edge platform models — still under warranty.

Zhones acquisition strategy appears to be influenced by its joint development pact with Qwest. Zhone backers include Texas Pacific Group and Kohlberg Kravis Roberts & Co.