Small- and medium-size businesses have begun taking advantage of a high-speed Internet option called Digital Subscriber Lines (DSL) over the past year. And one of the hottest companies offering DSL right now, according to industry analysts, is Covad Communications Inc., a Santa Clara, Calif.-based start-up that will establish its East Coast center of operations in Prince William County.

This "always-on" Internet link--no dial-up necessary--operates over regular copper telephone line but at a higher rate of speed than a standard modem. It can carry much more traffic than phone-modem links and costs far less than the high-speed, high capacity T1 lines that phone companies such as Bell Atlantic Corp. offer.

Covad's move to Prince William will start as a small 30-person group in a year-long lease at Battlefield Business Park, then move to a 17-acre location at Innovation@Prince William in 2000, growing to an unspecified number of employees. County and state officials have not confirmed the company's arrival.

The DSL signal is most clear when customers are within about three miles of a phone company's central office, where all the copper phone lines come together. Right now, Covad has space in 880 of these nondescript phone company buildings throughout the country. Covad plans to have stake in 1,100 central offices by year's end and about 2,000 by the end of next year, analysts and company officials said.

Covad sells its services through more than 350 Internet service providers.

Covad's use of existing copper phone lines allows it to offer lower rates and 24-hour local connection. Covad operates 16,700 lines, and its clients include Cisco Systems Inc., Oracle Corp. and Sprint Corp.

Only about 10 percent of Covad's customers are residential, said Michael Smith, the company's Northern Virginia regional marketing manager. Small- to mid-size businesses make up the other 90 percent.

Covad's network, however, can reach more than 40 percent of all U.S. homes and 45 percent of all U.S. businesses, according to the company.

The company has networks throughout the country, primarily in "football cities," Smith said. "If a city has a football team, we're probably there."

The company was founded in 1996 by Chuck McMinn, board chairman; Chuck Haas, vice president of sales and marketing; and Dhruv Khanna, general counsel and vice president. All had worked for Intel Corp. at some point and began Covad on the belief that a company could capitalize on the deregulation of the telecom industry and cash in on the fast moving Internet industry.

Initial funding came from Intel, Crosspoint Ventures and Warburg Pincus.

Covad went public in January and has surpassed industry analysts predictions. Third-quarter results released last week reported revenue for the quarter that ended Sept. 30 at $19.1 million. That was a 77 percent increase over the previous quarter, which had revenue of $10.8 million. Analysts had expected revenue from the third quarter to reach $15.8 million.

The net loss for the third quarter increased to $54.1 million, from $41.9 million in the second quarter. That loss is attributed to equipment costs associated with the company's rapid expansion, among other things.

Revenue for the nine months ended Sept. 30 was $35.6 million, compared with $2.6 million for the same period last year. Financial analysts expect the revenue to be $61.3 million in 1999 and reach $234.7 million by the end of 2000.

Covad plans to offer voice service on the same phone line as Internet service by next year.