updated 1/13/2005 7:17:20 PM ET 2005-01-14T00:17:20

Covad Communications Group Inc. is testing a technology that could enable non-Bell telephone companies to sell traditional local service -- a potential new mode of competition and consumer choice after a series of Bell regulatory victories which prompted AT&T Corp. and others to exit the market.

Covad, a leading provider of broadband DSL service over phone lines leased from the Bell monopolies, said Thursday it hopes to offer the new capability for use by prospective service providers by midyear.

The technology being deployed, provided by Nokia Corp. and Zhone Technologies Inc., sends a call from a home to the central office using an old-fashioned analog signal, then converts it to the digital format known as VoIP, or Voice-over-Internet Protocol.

The VoIP signal is routed over the Internet to a separate facility with a "soft switch," which steers the call toward its ultimate destination.

By using VoIP, there's no need for Covad and its partners to lease any of the local Bell's equipment except the actual copper phone line which travels between the central office and a customer's premises.

That could prove to be a crucial cost benefit for would-be competitors to the four regional Bells, Verizon Communications Inc., SBC Communications Inc., BellSouth Corp., and Qwest Communications International Inc.

Recent court victories and federal rulings promise to free the Bells from rules which require them to lease their local network equipment to rivals at low government-set rates which had been designed to foster competition.

The low rates succeeded in prompting AT&T, MCI Corp. and others to enter the local phone business, luring more than 17 million customers away from the Bells by the middle of last year, according to government statistics.

But with the promise of a sharp increase in costs, expected by late 2005, AT&T and MCI stopped marketing the service last summer.

However, the sudden shift in the rules did not remove the requirement that the Bells lease their local copper lines at government-set rates.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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