2. Covad Confidential Broadband Technology and Policy – A Service Provider Perspective Anjali Joshi EVP, Engineering July 2002

3. Covad Confidential 2 Covad Today Technology strategy Impact of Policy Issues What needs to be done to promote healthy competition Today’s Discussion

4. Covad Confidential Covad Today

5. Covad Confidential 4 Covad’s Business National Broadband Services Provider What We Do Today: Provide the Largest Broadband Internet Access and Services Network Technology Base:DSL Profile : About 360,000 customers Who We Sell To: Small/Med. Bus., Enterprises, Consumers Who We Sell Through: Internet Service Providers Enterprises Direct Business Model: Monthly Recurring Access & Service Revenues

6. Covad Confidential 5 TeleSoHo TeleSurfer Customer Segmentation Product Offering Increased Margin Contribution Broad Portfolio of Offerings TeleXtend TeleSpeed Managed Security/VPNs Voice Solutions Households ~100 mm SMBs ~8 mm Enterprise SoHo Market ~37 mm Potential Subscriber Base Biz Cons Biz TeleLink

7. Covad Confidential 6 One National Network vs. Multiple Regional Networks Over 99.99% Network Reliability Over 3.5 million subscriber capacity Only National DSL Network

8. Covad Confidential 7 Source: Forrester Research estimates and company research Consumers SMBs 2001 Growth: 94% 2002E Growth: 53% 5-Year CAGR:47% 8 million SMBs 60% still have dial-up GROWTH POTENTIAL SMB w/ Dial-up 47% CAGR Market Opportunity is Significant Lines (MM)

9. Covad Confidential 8 Sell business services aggressively through both wholesale & direct channels Strong effort to grow business direct channel - telesales, Websales, Field Sales Consumer channel efforts focused on primarily large wholesale ISPs - e.g ELNK Consumer Business Direct Wholesale Price Sensitivity Product Focus Channel Strategy

10. Covad Confidential Technology Strategy

11. Covad Confidential 10 Layers of Network Capabilities

12. Covad Confidential 11 Covad Network Architecture

13. Covad Confidential 12 Covad DSL+IP

14. Covad Confidential 13 Covad Voice over DSL

15. Covad Confidential 14 End User CLEC / Service Provider ISP ASPs Retail Other IXC Verizon Qwest US West SBC Bell South The DSL Supply Chain Confusion on DSL availability Difficulty in ordering Long install cycles Complex coordination Issues Difficulty in managing multiple RBOCs No upstream visibility Inefficient manual processes Difficult product to manage

16. Covad Confidential 15 End User CLEC / Service Provider ISP ASPs Retail Other IXC Verizon Qwest US West SBC Bell South Systems Strategy OSS ARCHITECTURE Achieve completely automated, flexible & integrated Business Process flow OPEN, FLEXIBLE API seamless links with all partners, standard B2B interfaces and co- branded websites. OSS EDI LINKS Ensure timely & efficient provisioning of loops from ILEC suppliers by building EDI interfaces with their legacy systems

17. Covad Confidential 16 Benefits to Partners Benefits to Users Automated order management, line provisioning Full suite of services Network Visibility Ease of installation Reliability of service Superior customer support Operating Improvements: Consumer Interval Business Interval Consumer Self-installation 1Q 011Q02 < 25 days< 10 days < 30 days< 20 days 64 %virtually all Automated OSS and Provisioning

18. Covad Confidential Regulatory and Policy Issues

19. Covad Confidential 18 The Logic Behind the 1996 Act The Problem: How do you entice a monopoly to “give up” a dominant market position? Entry into local market requires cooperation of incumbent local telephone company Absent a “carrot”, local telephone company has “nothing to gain and everything to lose” by cooperating Congress’s Solution Enforceable interconnection and unbundled access Provide carrot of long-distance entry

20. Covad Confidential 19 Why Unbundle? Removing legal barriers not enough to foster competition Local telephone companies enjoyed 60+ years of guaranteed monopoly status New entrants cannot achieve these economies Congress decided that phone companies needed to share economies with entrants Result: Section 251 requires telephone companies to lease parts of their network Competitors pay for access Negotiated and arbitrated interconnection agreements

21. Covad Confidential 20 Unbundling the Local Network Network Interface Device (NID) Drop Feeder Distribution Interface (FDI) Feeder Central Office CLEC Collocated Equipment To Tandems and IXC Networks “Unbundled Local Loop” Unbundled Pursuant to FCC Regulations March Collocation Order Copper Fiber “Unbundled Transport” (DS3, OCx)

22. Covad Confidential 21 The 1996 Act in Context Home Office CO Switch Tandem Switch Tandem Switch Tandem Switch Long- Distance POP 1984 AT&T Divestiture 1996 Act: Unbundled Network Elements

23. Covad Confidential 22 Elements ILECs Control that We Need Local loops -- the copper wire to your home High frequency portion of loop -- line sharing Collocation -- how we connect to the copper Transport -- links collocations and customers Operational Support Systems -- loop quality, ordering, provisioning, maintenance

24. Covad Confidential 23 Key FCC Decisions Implementing the Act First Local Competition Order (8 August 1996) http://www.fcc.gov/ccb/local_competition/fcc96325.html Collocation and unbundling rules--includes DSL loops Immediately challenged by local telephone companies; only fully reinstated in January 1999 Collocation Order (31 March 1999) http://www.fcc.gov/Bureaus/Common_Carrier/Orders/1999/fcc99048.pdf Cageless collocation, switching equipment, non-discriminatory safety standards UNE Remand Order (5 November 1999) http://www.fcc.gov/Bureaus/Common_Carrier/Orders/1999/fcc99238.pdf Access to loop information Required by Supreme Court decision Line Sharing Order (9 December 1999) http://www.fcc.gov/Bureaus/Common_Carrier/Orders/1999/fcc99355.doc Effective June 6, 2000 Spectrum management standards

25. Covad Confidential 24 Regulatory Environment today Tauzin-Dingell etc have created confusion FCC Chairman has created fear, uncertainty and doubt Some high-tech companies have lobbied in favor of RBOCs, anti-competitive positions DC Circuit Court has cast a cloud over all UNEs on grounds contrary to the U.S. Supreme Court FCC still remains supportive of the 1996 Act US Supreme Court strongly supportive of FCC

26. Covad Confidential 25 What do we need? Hold the 1996 Telecommunications Act stable Monitor and enforce the rules stringently FCC should not change the rules on unbundling Structural separation would promote better use of copper assets and development of loop plant