Broadband Technology and Policy A Service Provider Perspective Anjali Joshi EVP Engineering July 2002 Covad Confidential Today s Discussion Covad Today Technology strategy Impact of Policy Issues What needs to be done to promote healthy competition 2 Covad Confidential Covad Today Covad Confidential 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 Business Model 4 Covad Confidential Direct Monthly Recurring Access Service Revenues Broad Portfolio of Offerings Customer Segmentation Product Offering Increased Margin Contribution Biz Cons Biz Voice Solutions Managed Security VPNs Enterprise SMBs 8 mm TeleSpeed SoHo Market 37 mm TeleSoHo Households 100 mm Potential Subscriber Base 5 Covad Confidential TeleXtend TeleSurfer TeleLink Only National DSL Network One National Network vs Multiple Regional Networks Over 99 99 Network Reliability Over 3 5 million subscriber capacity 6 Covad Confidential Market Opportunity is Significant Consumers Consumers SMBs SMBs Lines MM 9 24 8 20 47 12 GROWTH POTENTIAL 16 7 GR A C 6 5 4 8 3 4 2 1 0 1999 2000 2001 2002 2001 Growth 2002E Growth 5 Year CAGR 7 2003 2004 2005 0 94 53 47 Source Forrester Research estimates and company research Covad Confidential of Small Businesses SMB DSL SMB w Dial up Lines 8 million SMBs 60 still have dial up Channel Strategy Wholesale Sell business services aggressively through both wholesale direct channels Direct Strong effort to grow business direct channel telesales Websales Field Sales Consumer Price Sensitivity 8 Covad Confidential Business Product Focus Consumer channel efforts focused on primarily large wholesale ISPs e g ELNK Technology Strategy Covad Confidential Layers of Network Capabilities 10 Covad Confidential Covad Network Architecture IS P CO R o u te r DSLAM ATM S w it c h CO In te r n e t ATM S w it c h IS P R o u te r DSLAM CO ATM S w it c h IS P R o u te r DSLAM 11 Covad Confidential Covad DSL IP IS P CO R o u te r DSLAM ATM S w it c h CO In te r n e t ATM S w it c h IS P R o u te r DSLAM W eb H ost E m a il CO ATM S w it c h IS P R o u te r DSLAM 12 Covad Confidential IS P E m a il W eb H ost V ir tu a l IS P Covad Voice over DSL IS P CO R o u te r DSLAM ATM S w it c h CO In te r n e t ATM S w it c h IS P R o u te r DSLAM CO ATM S w it c h I S P I SC PL E C R o u te r DSLAM V o ic e G a te w a y 13 Covad Confidential PSTN The DSL Supply Chain No upstream visibility Inefficient manual processes Difficult product to manage ISP IXC End User End User ASPs Retail Verizon CLEC CLEC Service Service Provider Provider Other Confusion on DSL availability Difficulty in ordering Long install cycles 14 Covad Confidential SBC Qwest Bell South US West Complex coordination Issues Difficulty in managing multiple RBOCs Systems Strategy OSS ARCHITECTURE Achieve completely automated flexible integrated Business Process flow ISP IXC End User End User ASPs Retail Other 15 OPEN FLEXIBLE API seamless links with all partners standard B2B interfaces and cobranded websites Covad Confidential Verizon CLEC CLEC Service Service Provider Provider SBC Qwest Bell South US West OSS EDI LINKS Ensure timely efficient provisioning of loops from ILEC suppliers by building EDI interfaces with their legacy systems Automated OSS and Provisioning Benefits Benefits to toPartners Partners Automated order management line provisioning Full suite of services Network Visibility Operating Improvements Benefits Benefits to toUsers Users Ease of installation Reliability of service Superior customer support 1Q 01 1Q02 Consumer Interval 25 days 10 days Business Interval 30 days 20 days 64 virtually all Consumer Self installation 16 Covad Confidential Regulatory and Policy Issues Covad Confidential 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 18 Covad Confidential 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 19 Covad Confidential Unbundling the Local Network Unbundled Local Loop Unbundled Pursuant to FCC Regulations Fiber Copper Copper Central Office Feeder Network Interface Device NID 20 Covad Confidential Drop Feeder Distribution Interface FDI CLEC Collocated Equipment March Collocation Order To Tandems and IXC Networks Unbundled Transport DS3 OCx The 1996 Act in Context Tandem Switch LongDistance POP Home CO Switch Tandem Switch Office 1996 Act Unbundled Network Elements 21 Covad Confidential Tandem Switch 1984 AT T Divestiture 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 22 Covad Confidential 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 23 Covad Confidential Regulatory Environment today Tauzin Dingell etc have created confusion FCC Chairman has