Views on Proposed Competition Code

1. Views on Proposed Competition Code James D. EarlInternational Director 15 May 2000

2. Outline • Who is Covad? • What does a competitive DSL provider need? • Why will incumbent “Deny, Delay and Degrade” provisioning? • What are external best practices? • How does a Regulator compensate for lack of a functioning market?

3. What We Do Today:Provide the Largest Broadband Network Who We Sell To:Small/Med. Bus., Enterprises, Consumers Who We Sell Through: Internet Service ProvidersPC OEMs & ASP’sTelecommunications Providers New Channels? Business Model:Monthly Recurring Service Revenues Covad’s Business Broadband Network Service Provider

4. Building the Largest Broadband Networkin the United States 40% of US Homes and 45% US of Businesses

5. Broadband Captures the Majority of Internet Growth Millions of US Subscribers • Summary • 1999 Market Est of 41 MM dial-up and 2.6 MM broadband • Slow to NO growth in dial up for next 5 years, averaging 2.5% • Broadband Opportunity accelerating averaging 81% year over year growth Dial-Up 5-Yr CAGR = 2.5% Broadband 5-Yr CAGR = 81.0%

6. Filling the Broadband Gap $900+/mo T1 PRICE $300/mo Business Services Covad DSL ISDN Home/Consumer Services $40/mo 56K Dial-up $20/mo 384K 1.5M 128K 56K 768K SPEED

7. How are we doing? Q1'00 DSL Lines in Service SBC201,000 US West136,000 Covad 93,000 GTE (includes resale)88,000 Bell Atlantic60,000 BellSouth 49,000 Total Top Providersapx 700,000

8. Internet CO “1” Employee Home CO “2” Consumer Home ISP or Corporate LAN/WAN CO “…X” Small Business Covad Network Ops Center Layer 2 PVC (new Layer 3 service) Covad U.S. Network Design Covad Hub CO xDSL DS-3 DS-3 or OC3 xDSL xDSL

9. Inputs Essential to DSL Provision • Local loops -- however provisioned to end users • Collocation -- access to copper • Transport -- links collocations and customers • Operational Support Systems -- loop quality, ordering, provisioning, maintenance

10. Incumbent Incentives to Deny, Delay and Degrade: • Discriminate to favor Incumbent’s own ADSL (Why does an incumbent offer only ADSL?) • Minimum cannibalization of lucrative T1/E1 (symmetric) services • Minimize cannibalization of ISDN • Favor in-house ISP in related competitive market • Delay advent of Voice over DSL and other innovative services

11. Incumbent Barriers to Entry • Prices of all essential inputs • Deny, Delay and Degrade in provisioning of all essential inputs • “No Space” in central offices and remotes • Security “requirements” in central offices • Prolong interval to obtain useable loop • Spectrum interference claims • Insufficient personnel assigned to provisioning

12. Regulation must substitute for market • Incumbent controls inputs essential for DSL • Incumbent has incentives to “Deny, Delay, and Degrade” the provisioning of those inputs • Sustainable competition requires non-discriminatory access to essential inputs • Regulation should • maximize efficiencies of existing infrastructure • encourage innovation in facilities and services • Facilities innovation unlikely to entail duplication

13. Recent Key FCC Orders • Collocation Order (31 March 1999) http://www.fcc.gov/Bureaus/Common_Carrier/Orders/1999/fcc99048.pdf • Switching equipment, non-discriminatory safety standards, cageless collocation, limits on “security” discretion, facilities tours • UNE Remand Order (5 November 1999) http://www.fcc.gov/Bureaus/Common_Carrier/Orders/1999/fcc99238.pdf • Access to subloops (RTs, MDUs), transport including dark fiber, all loop information in ILEC records • Line Sharing Order (9 December 1999) http://www.fcc.gov/Bureaus/Common_Carrier/Orders/1999/fcc99355.doc • ILECs must unbundle high frequency portion of loops • Technology deployment criteria: standard, regulatory approval, or successful deployment elsewhere • Limit service segregation in cables to analog T1.

14. Lessons from Canada • Line sharing works technically -- implemented in 1997 • Line sharing doesn’t work in practice -- incumbents tie line sharing to their own transport • Loop provisioning intervals • 5 days where facilities exist • 8 days where facilities do not exist • Regulatory regime established for voice competition doesn’t work for data

15. EC Recommendation on Unbundled Access • Shared access (“line sharing”) required by current law • Non-discrimination = same information and facilities incumbent provides itself, same conditions and time-scales • Recommendation on full unbundling “without prejudice to the application of Community competition rules.” • Refusing to grant access to local loop is likely to imply abuse of a dominant position. • Non-discriminatory pricing applies to local loops, collocation and leased transmission capacity. • Technical conditions and collocation: non-discriminatory and favorable to innovative services

16. Does the proposed code maximize network efficiencies through minimum RIO requirements? • Full, unbundled loop • Line sharing (spectrum unbundling) • Cageless collocation • ATM equipment and control routers in collocation • Interconnection at any technically feasible point (including those remote from CO -- building MDF) • Sub-loop unbundling • Mediation and Enforcement provisions

17. Some Questions • Non-discriminatory enough? • Compare EC recommendation: same facilities (loops, collo, transport, OSS, network information) on same conditions (including price) and in same time scale • Will pricing be non-discriminatory? • If potential entrants can not compete with incumbent price for retail service, no entry will take place. • Risk of entry rests on new entrant, not incumbent. • Benchmarking the Reference Interconnection Offer • Covad model interconnection agreement

18. The Goal • Competitive broadband provision attracts content providers and content generators. • Training a generation of students both formally and through experimentation -- requires symmetric access (not ADSL, not cable modem) • Facilitating business growth and individual development in unforeseeable ways • Hubbing globally to expanding communities of interest