Dhruv Khanna, EVP-HR & GC September, 2001

1. Dhruv Khanna, EVP-HR & GCSeptember, 2001

2. Today’s Discussion • Who is Covad • How Regulation affects Covad’s business • How Covad manages its business to address the impacts of regulation on Covad • How the regulatory environment will affect Covad’s business and the CLEC industry

3. Who is Covad • Founded in October, 1996 • Raised approx $2.1 billion to date • Currently in a pre-negotiated Chapter 11 proceeding to eliminate approx $1.4 billion in debt • $158 million in revenue in the first half of 2001 approx = $159 million in revenue for all of 2000 • Headcount reduced from a peak of 4000 last year to approximately 1700 now • Only remaining non-ILEC DSL provider • 26 out of 50 cities are recurring cash contributing

4. We have the Largest Broadband Network in the US Seattle Portland Minneapolis Boston/ Providence Grand Rapids Milwaukee Columbus Dayton Cleveland Hartford New York Detroit Chicago Philadelphia/Harrisburg Sacramento Indianapolis Baltimore/Washington Richmond Pittsburgh Salt Lake City Kansas City San Francisco Norfolk Greensboro Denver St. Louis Louisville Las Vegas Raleigh Santa Barbara Charlotte Phoenix Albuquerque Nashville Memphis Los Angeles Greenville Columbia San Diego Charleston Birmingham Atlanta Tucson Dallas Jacksonville Austin 50 Regions 94 MSA’s ~ 40% of HHs ~ 45% of SmBus ~ 1,700 COs Orlando New Orleans Houston San Antonio Tampa Miami

5. With Great Customers & Increased Stability 90% of run-rate volume with top 10 partners 75% of installed base with top 10 partners Distressed lines down from 92K (33% of total) to 40K (12% of total)

6. We are #5 in DSL Lines in Service Covad #5 ranking

7. Market Segment Share 450K SMB DSL Lines Today We are #1 in Business Lines YE ‘00 US SMB Mkt (1000s) Source: Various internet consultancy reports; Covad market analysis; DSL prime, Telechoice

8. 190% CAGR In a Market that is Growing Dramatically US DSL Line Growth Projections in millions Morgan Stanley estimates - May 2000

9. We are in a Great Position vs the ILECs and Cable Competition • One nationwide network vs multiple regional networks • Business & consumer services not just consumer • Voice and data combined on DSL will be unique • Modern OSS to run the business • No legacy network or systems • People and expertise to evolve the business rapidly • No restrictions on interLATA voice, data or content combinations

10. Covad Snapshot • CO’s in Service 1718 • Lines in Service 335,000 • ARPU ~$59 • Business/Consumer Mix 50%/50% • Indirect/Direct Mix 93%/7% • Employees/FTE’s 1,600/1,700 • Revenue Run Rate ~$300,000,000+ • MSAs Served 94 • Homes/Business Passed ~40,000,000 • Daily Install Rate ~750 • Network Reliability >99.995% • Monthly Churn Rate ~ 2%

11. How Regulation Affects Covad

12. Major Telecom Law Changes • Communications Act of 1934 • Mixed Federal and State Jurisdiction • 1984 AT&T break-up by Judge Greene • 1996 Telecom Act • Tauzin-Dingell bill and ILEC structural separation bills It took 62 years to make a major revision to the telecom law

13. Impact of major law changes • 1984: MCI and other long-distance competitors obtained equal-access • 1996: CLECs won unbundling, resale and interconnection rights • Jan 1999: U.S. Supreme Ct ruled in favor of FCC jurisdiction: FCC determines rules, but states fix the rates for network elements • 1999-2001: CLECs won cageless physical collocation and line-sharing for DSL • Carrot and Stick in the 1996 Act: Section 271 and the Antitrust Savings Clause

14. The effect of the laws and regulations on our business • The principle: “Parity,” “non-discrimination,” and “equal-access” • Price of access = CLEC’s cost of doing business/cost structure • Quality of access = CLEC’s Quality of service to customers • Cost of entry • Nonrecurring and recurring costs • Affects profit margins, time-to-profitability and capital required • Costs of lobbying and litigating

15. How Covad manages its business to address regulation

16. Build an In-House Legal and Lobbying Department • Where law and regulation significantly affects a business, building an in-house capability early to address regulation is key • Hire the right lawyers, lobbyists and PR • Out-sourced resources should complement in-house resources • Hire, train and develop the best personnel • Budget and manage expenses closely • Undertake initiatives and defend regulations and rights selectively • Educate and advise others in the business

17. Management Strategy • Establish a clearly articulated strategy • Choose which federal and state fora in which to be active • Staff key geographies • Pursue consistent strategies in Congress, at the FCC and states, and in the court • Over-communicate within and throughout the department • Closely manage outside resources

18. Congress, the FCC, PUCs and courts • Communications issues are addressed by federal and state legislators, regulators and the courts • FCC >> Makes rules to interpret the law • PUCs >> Set rates for elements purchased by CLECs from ILECs • FCC, PUCs and DoJs involved in long-distance applications of RBOCs • Courts and arbitrators >> Enforce the laws and award damages

19. Pursue the right tactics • We helped win court affirmation of FCC authority • We won favorable rules from the FCC such as cageless physical collocation and line-sharing • We have fought many state PUC rate cases • We have sued 3 of the major ILECs for fraud and antitrust violations • We have won one of the largest antitrust settlements in history • We oppose ILEC efforts to change the law to favor them

20. The future impacts of law and regulation on us

21. Future Impacts • Tauzin-Dingell and other legislative changes such as the opposing call for structural separation • U S Supreme Court on applicable cost standard • Court and Congressional efforts on the Goldwasser court decision • FCC grant of 271s; state PUC rate matters • The ILECs’ blocking of local telecom competition has been increasingly exposed • When will the state and federal law enforcement authorities take action against the ILECs?