Covad Confidential

Broadband Technology and Policy – A Service Provider Perspective

Anjali Joshi

EVP, Engineering

July 2002

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Covad Confidential

• Covad Today

• Technology strategy

• Impact of Policy Issues

• What needs to be done to promote healthy competition

Today’s Discussion

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Covad Today

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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

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TeleSoHo

TeleSurfer

Customer Segmentation Product Offering

Incr

ease

d M

arg

in C

on

trib

uti

on

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

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• One National Network vs. Multiple Regional Networks• Over 99.99% Network Reliability• Over 3.5 million subscriber capacity

Only National DSL Network

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Source: Forrester Research estimates and company research

ConsumersConsumers SMBsSMBs

0

4

8

12

16

20

24

1999 2000 2001 2002 2003 2004 20050

1

2

3

4

5

6

7

8

9

# of SmallBusinesses

SMB DSLLines

• 2001 Growth: 94%• 2002E Growth: 53%• 5-Year CAGR: 47%

• 8 million SMBs• 60% still have dial-up

GR

OW

TH

P

OT

EN

TIA

L

SMBw/ Dial-up

47% CAGR

Market Opportunity is SignificantLines (MM)

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• 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

Dire

ct

W

hole

sale

Price Sensitivity Product Focus

Channel Strategy

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Technology Strategy

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Layers of Network Capabilities

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ISP

ISP...

ATMSwitch

Router

CO

CO

DSLAM

CO

DSLAM

ATMSwitch

DSLAM

Router

ISPATM

Switch Router

Internet

Covad Network Architecture

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Covad Confidential

VirtualISP

ISP

Em ailW ebHost

ISP

ISP...

ATMSwitch

Router

CO

CO

DSLAM

CO

DSLAM

ATMSwitch

DSLAM

Router

ISPATM

Switch Router

Internet

ISP

ISP...

ATMSwitch

Router

CO

CO

DSLAM

CO

DSLAM

ATMSwitch

DSLAM

Router

ISPATM

Switch Router

Internet

Em ailW ebHost

Covad DSL+IP

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Covad Confidential

ISP

ISP...

ATMSwitch

Router

CO

CO

DSLAM

CO

DSLAM

ATMSwitch

DSLAM

Router

ISPATM

Switch Router

Internet

PSTN

VoiceGateway

ISP/CLEC

Covad Voice over DSL

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Covad Confidential

End UserEnd UserEnd UserEnd UserCLEC / CLEC / Service Service ProviderProvider

CLEC / CLEC / Service Service ProviderProvider

ISPISP

ASPsASPs

RetailRetail

OtherOther

IXCIXC

VerizonVerizon

QwestQwest

US WestUS West

SBCSBC

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

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Covad Confidential

End UserEnd UserEnd UserEnd UserCLEC / CLEC / Service Service ProviderProvider

CLEC / CLEC / Service Service ProviderProvider

ISPISP

ASPsASPs

RetailRetail

OtherOther

IXCIXC

VerizonVerizon

QwestQwest

US WestUS West

SBCSBC

Bell South

Systems Strategy

OSS ARCHITECTUREAchieve completely automated, flexible & integrated Business Process flow

OPEN, FLEXIBLE APIseamless links with all partners, standard B2B interfaces and co-branded websites.

OSS EDI LINKSEnsure timely & efficient provisioning of loops from ILEC suppliers by building EDI interfaces with their legacy systems

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Benefitsto Partners

Benefitsto Partners

Benefitsto Users

Benefitsto 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 01 1Q02

< 25 days < 10 days

< 30 days < 20 days

64 % virtually all

Automated OSS and Provisioning

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Regulatory and Policy Issues

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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

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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

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Unbundling the Local Network

NetworkInterfaceDevice(NID)

Drop

FeederDistributionInterface(FDI)

Feeder

CentralOffice

CLECCollocatedEquipment

To Tandemsand IXCNetworks

“Unbundled Local Loop”

Unbundled Pursuantto FCC Regulations

March Collocation Order

Copper Copper

Fiber

“UnbundledTransport”(DS3, OCx)

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The 1996 Act in Context

Home

Office

COSwitch Tandem

Switch

TandemSwitch

TandemSwitch

Long-Distance

POP

1984 AT&TDivestiture

1996 Act:UnbundledNetwork Elements

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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

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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

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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

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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