EarthLink will invest $50 million in debt and equity financing to enable Covad Communications to build out a line-powered voice over DSL network to eight additional cities, the two companies said today.

EarthLink has been offering Home Phone Service, a line-powered VoIP option, as part of its service bundle to customers in four cities – Dallas, San Francisco, San Jose and Seattle – and will now expand that offering to Atlanta, Chicago, Los Angeles, Miami, New York city, Philadelphia, San Diego and Washington, D.C.

The EarthLink service rides Covad’s ADSL 2+ network, which the network operator builds out over lines leased under commercial agreements with major local service providers. By offering line-powered voice, EarthLink can provide a primary line replacement service with the same service parameters as traditional telephony, in that the network provides the power and the service works in the event of a commercial power failure, at least for a period of up to eight hours.

“With our Internet voice initiatives, we are reshaping our position in the marketplace and redefining what it means to be an ISP,” said Garry Betty, EarthLink's president and chief executive officer, in a prepared statement. “EarthLink DSL and Home Phone Service strengthens our role as a 'Total Communications Company' by delivering one of the industry's most comprehensive portfolios of voice and data products to meet our subscribers' growing communications needs.”

The agreement is good news for Covad, which secures the funding to continue to upgrade its national DSL footprint, while working with a major partner in EarthLink. Covad has built its business case on strategic partnerships.

The data CLEC is also expanding in other directions, including closing its acquisition of NextWeb, a wireless service provider which will continue to operate under its own brand for this year. While NextWeb operates today in California and Nevada, with about 3000 business customers, it can enable Covad to build out nationally using wireless technology.

“This is a means of gaining control of our own network end-to-end, which is very important,” said Graham Barnes, CEO of NextWeb.

As businesses require more bandwidth, Covad will have the option of using its higher-speed access networks, such as ADSL 2+, or a wireless option, said David McMorrow, executive vice president.

“Ultimately, it comes down to economics, when and where do you overbuild with wireless?” he said.

Since first announcing the ADSL2+ trial with EarthLink in 2005, Covad executives have made it clear the two companies would both bear the financial risk of any future network buildouts.

EarthLink will be position to offer high-speed data, line-powered voice and, through recently announced agreements with DirecTV and EchoStar, owner of DISH network, a resold satellite TV service.