March 3, 2004 2:05 PM PST

Covad snaps up VoIP start-up

Broadband service provider Covad Communications announced Wednesday that it will acquire privately held GoBeam in an effort to speed up the launch of its voice over Internet Protocol service.

The stock deal is valued at $48 million and is expected to close in May 2004.

Covad, which offers broadband data access over digital subscriber line (DSL) connections nationwide, announced last month that it planned to enter the VoIP market. At the time, the company didn't discuss details of exactly how it would deliver this service. The company had three choices: build it itself, partner with a third party, or buy the technology. Covad decided to buy into the market.


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"In the short term, partnering would have been fine," said Steve Lail, vice president of voice deployment for Covad. "But in the long run, it wouldn't have been ideal. We want to provide enhanced features, and going through a third party every time we change or add something to the service wouldn't have been effective."

GoBeam is already being used by more than 13,000 business customers throughout California and the Chicago area.

VoIP, a method for transmitting long-distance and local phone calls over the Internet, is one of the hottest technologies around, as carriers like AT&T, Qwest Communications and Verizon Communications announce plans to offer it.

The market is expected to grow drastically over the next several years. VoIP in the United States is forecast to grow to more than 5 million subscribers by 2007, a fivefold increase over 2002 levels, according to Stratecast Partners. Today, there are roughly 100,000 lines provided through IP PBXs (private branch exchanges), devices that enable VoIP. By 2007, that number is expected to grow to more than 1.7 million lines, according to Forrester Research.

Covad had several start-ups to choose from when it was looking for a VoIP service provider to buy, including Vonage, 8x8 and VoicePulse. Lail said the company chose GoBeam, because it was focused on serving the small-business segment. Most start-ups focus on the consumer market.

"We plan to eventually offer VoIP to residential customers, but we plan to target small businesses first," Lail said. "Out of the companies providing service to this market, GoBeam had the most comprehensive solution."

 

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