2007 Analyst and Investor Day A Transformation in Progress

Transcription

1 2007 Analyst and Investor Day A Transformation in Progress

2 2007 Analyst and Investor Day Safe Harbor Statement Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: This presentation discusses the Company s future business outlook. In this presentation we will make projections and other forward-looking statements regarding future events or the future operational and/or financial performance of the Company, including without limitation statements regarding future A- EBITDA, improving cash flow, improvements to our financial profile, plans for new services and revenue, including but not limited to revenue from VoIP, T1, growth products, consumer products and wireless broadband services. The Company disclaims any obligation to update any projections, estimates or other forward-looking statements. We caution you that such statements are only projections and actual events or results may differ materially as a result of risks facing the Company or actual results differing from the assumptions underlying such statements. Such risks and assumptions include, but are not limited to, the Company's ability to continue to enhance and expand sales of its services, deploy new services, increase automation in its processes, respond to increasing competition from other companies that provide voice and data services, limit churn among its existing customers, manage the Company s growth, maintain suitable interconnection agreements with the phone companies, all in a timely manner, at reasonable costs and on satisfactory terms and conditions, as well as new regulatory, legislative, and judicial developments. All forward-looking statements are expressly qualified in their entirety by the above "Risk Factors" and other risk factors and cautionary statements included in the Company s Forms 10-K and 10- Q filed with the SEC. Please refer to our Q Earnings Release and attached tables at for reconciliations of non-gaap financial measures to the most comparable GAAP financial measures. 2

3 2007 Analyst and Investor Day Agenda Business Overview & Strategy Markets & Products Charlie Hoffman Eric Weiss Break (15 minutes) Wholesale & Direct Business Overview EarthLink Home Phone Service Overview Financial Update Conclusion Q&A Dave McMorrow Lisa Graham Steve Howe Senior Vice President EarthLink Voice Services Justin Spencer Charlie Hoffman Covad Management 3

4 Business Overview and Strategy Charlie Hoffman President and CEO A Transformation in Progress

5 Overview & Strategy Covad at a Glance The ONLY national, facilities-based, next-generation communications service provider of voice, wireline and wireless broadband. 2,050 central offices in 235 metros Largest ADSL 2+ network Largest market share of Hosted VoIP for SMB market¹ 52,000+ VoIP seats in service Only provider of residential Line Powered Voice Portland Sacramento Sunnyvale Leading fixed wireless broadband provider to businesses in California 145+ wireless base stations business customers Seattle Santa Barbara Los Angeles San Diego Scaled, efficient customer operations. In Q1 07: 430K calls taken 46K orders closed 93% of consumer lines installed < 10 days. 14% quarterly increase in IP Traffic Las Vegas Salt Lake City Denver Albuquerque Phoenix Scottsdale Tucson Austin San Antonio Minneapolis Kansas City Dallas Grand Rapids Detroit Boston Pittsburgh Chicago Cleveland Hartford NYC Columbus Philadelphia St. Louis Dayton Washington DC Indianapolis Richmond Louisville Norfolk Nashville CharlotteGreensboro Memphis Houston Birmingham New Orleans Legend 1 - InStat, January 2007 Atlanta Jacksonville Tampa Orlando Miami ATM Switches Internet Pops CO s Manchester 5

6 Overview & Strategy Covad Strategy We continue to focus on the long-term strategy of transforming our business. Keys to this strategy are the following: Increase revenue from growth products Improve and sustain profitability while maximizing growth Leverage network enhancements to introduce new products that meet customer demand Improve mix of direct and wholesale revenues to control our destiny Manage legacy business and take aggressive action to improve churn 6

7 Overview & Strategy Execution & Transformation Covad s transformation from a broadband-only company to a Next- Generation Communications Service Provider is underway. We are one of a small group of telcos successfully making this transition. 32% T1 annual growth Broadband Only Next Generation 47% VoIP annual growth 156% Wireless annual growth with over 3,500 customer lines Total Revenue ($M) $500 $450 $400 $350 $389 $429 $443 $474 Partner-funded next-generation network in 758 central offices and 11 Tier 1 markets The largest ADSL2+ network servicing 14M+ homes and businesses $ Industry-leading services platform combined with highspeed bandwidth Note: Stated annual subscription revenue growth percentages from Q1 06 to Q1 07 7

8 Overview & Strategy Key achievements since our last meeting May Covad ClearEdge Integrated Access named Product of the Year by Communications Solutions; product is upgraded with new pricing and features Jun Licensed spectrum deals with FirstAvenue Networks and NextLink (XO) for high-capacity circuits Aug Announce bundle of Covad ClearEdge Integrated Access and Cisco Unified CallManager Express Sep Launched Covad ClearEdge Office, industry s first hosted VoIP solution for very small businesses Nov On-time completion of next-generation network project in 758 central offices Jan Launched enhanced business continuity features on Covad ClearEdge VoIP services May Launched Bonded T1 May Founding member of WiBro and mobile WiMAX community Jun Invited to join Russell 3000 index Aug VoIP and broadband distribution deal with VGE, one of industry s largest master agents Oct Announced plan to acquire DataFlo, expanding wireless network into Chicago area suburbs Oct Received Adweek/IAB Gold Awards for best B2B and search engine marketing campaigns, named finalist for best Internet campaign Dec Signed partnership deal with United Online Mar VoIP and broadband distribution deal with TBI 8

9 Overview & Strategy Covad Growth Drivers Growth Drivers What we ve done Where we re going Business-Class Broadband 32% T1 annual growth* 23% of total sub. revenue from T1 Launched Bonded T1 Enhanced Bonded T1 (increased bandwidth and expanded distribution channels) VoIP 47% annual growth* ~15% business hosted VoIP market share (named leader by InStat and AMI-Partners) Added Business Continuity features Focus on profitability and product simplification SIP Trunking Bundle with Cisco UC500 Small Business solution Wireless 156% annual growth* Expanded footprint into Chicago suburbs Evolve footprint to meet market demand Launch WiMAX-featured equipment Next-Gen Services LPVA ADSL million homes across 758 COs 10k new LPVA subscribers in Q107 Largest nationwide ADSL 2+ network Standalone ADSL 2+ service for businesses Enhanced next-generation platform for value-added applications 9 Sources: In-Stat, IDC, Gartner, Parks Assoc, Covad Analysis *Stated annual subscription revenue growth % is from Q1 06 to Q1 07

10 Overview & Strategy Covad s Unique Assets Our success is based on over a decade of innovation in network, systems and customer operations. Network Systems Customer Ops 2,000+ COs in 235 MSAs Next-generation network capability in 758 COs covering 11 major markets Enabling LPVA, Bonded T1, ADSL wireless base stations passing 600,000 businesses Network powered by industry leading partners: Cisco, Samsung, Sylantro, Nokia, Redback End-to-end automation of the customer experience including: Prequalification Retail & Wholesale order entry Order fulfillment and billing Trouble ticket support Schedule dispatch 2006 statistics: 7 repeatable and on-time releases 106 system enhancements System availability above 99.5% 24x7, dedicated customer service 150 US-based customer service representatives with avg. experience level of 5 years Cost-efficient, dedicated support from partners Resolve and HTMT 230 field service technicians, 5 years average tenure Innovative, efficient alternative support such as Web-based chat 10

11 Overview & Strategy Focus on growth and efficiency Revenue per employee has grown 31% in two years, driven by increased productivity and the benefits of automation $500,000 $490,490 $450,000 $417,699 $400,000 $374,191 $350,000 $300,

12 Overview & Strategy Conclusion Today we will provide you with further proof points of our progress in successfully transforming our business: We provide robust, differentiated products that meet the needs of our customers We continue to be the partner of choice for industry leading providers such as EarthLink, AT&T, Verizon, United Online, and others We have a solid and improving financial profile 12

13 Markets & Products Eric Weiss Chief Marketing Officer

14 Markets & Products Summary Broadband consumer and business markets are: growing rapidly; and expanding use of higher bandwidth and higher value applications. We are capitalizing on this growth: with high performance, next generation network services; and by adding value on top of broadband with bundles and new services. 14

15 Markets & Products Market Overview: Consumer Broadband demand growing at a healthy rate of 24% (Q305-Q306) DSL is a larger market and has been growing faster than cable since Q203 Applications and Content Driving Demand for Higher Bandwidth Speeds 2% 21% 29% 9% 39% Communication Productivity Entertainment Info Gathering Creativity Source: Parks Associates Q206 Source: Current Analysis Dec. 06 Consumer is 19% of Covad subscription revenue, sold through wholesale partners Covad competes with unique offers (e.g. LPVA, VOA, ADSL 2+) and nationwide presence 15

16 Markets & Products Market Overview: Business Small Business, Distributed Enterprise Vast majority (81%) of Covad subscription revenue Sold through wholesale and Covad-branded channels Large growing market Covad competes with breadth of business-class broadband, voice and increasingly value-added services 16

17 Markets & Products Business market growth opportunities Continuous demand for more bandwidth and applications Power users leverage broadband for greater value-add Bundle adoption is growing - predicted voice & data bundles growth is 17 million in 2008 from 11 million in % of SMBs are consolidating IT suppliers $2,000 $1,500 $1,000 $500 $- Monthly Spend Small Business $1,340 $1,511 62% 73% 38% 27% Communication applications Local, long distance, and Internet Sources: Parks Associates, IDC, Gartner Dataquest and Cisco 17

18 Markets & Products VoIP: still a solid growth market >75% of SMBs believe cost, features, management, migration are better with VOIP Business continuity is a major driver for adopting hosted services the major obstacle is the high upfront expenditure... Downward pricing pressure has been minimal Covad rated #1 in hosted VoIP market share Lines in Millions Business VoIP Lines CAGR: 82.0% Sources: In-Stat, Savatar Research, AMI Partners, all 2006 Sources: Parks Associates, IDC, Gartner Dataquest and Cisco 18

19 Markets & Products Customers demand a business-class solution Large Enterprise class features at a small biz total cost of ownership Small biz owners want to look big Integration with other SMB applications, workflow Managed as mission critical network service Multi-tier 24x7 NOC and local site support Business continuity, disaster recovery, E911 QoS: Managed network capability Remote worker/telecommuter ready Find me follow me service, unified communications Provider who can address voice, data, and wireless Nationwide Want national vendor assurances with a local touch = Covad + channel partner 24x7 multi-tier NOC/support, backed by SLA Nationwide on-site installation services and network of local fulfillment partners, VARs and integrators 19

20 Markets & Products Product Strategy Enhancing the value of our nationwide broadband network assets Moving up the bandwidth performance curve Adding value on top of the pipes Robust portfolio of growth products Loyalty marketing to slow decline of legacy products 20

21 Markets & Products Products, Markets and Channels Covad distributes a balanced product portfolio through two channels, Wholesale and Direct. Consumer SOHO (1-5) VSB (5-20) SMB (21-100) Distributed Enterprise Medium (100-1,000) Enterprise (1,000+) Covad Direct xdsl, T1, VoIP, VOA, Wireless Wireless Covad Wholesale LPVA, ADSL VOA, xdsl, T1, Frame Access, Wireless Subscription Revenue Mix* Wholesale 62% *As of Q1 07 Direct 38% Business 81% Consumer 19% Customer Examples Direct Marriott Intel Yum Brands NBC US Army Pfizer KPMG Nickelodeon Wholesale AT&T Verizon Earthlink AOL Qwest XO Speakeasy 21

22 Markets & Products Covad Wireless Up to 6x the service area of DSL, and 3X the service area of T1 Expand network reach beyond DSL footprint Access speeds up to 100 Mbps Own the last mile Enables new services and address new markets Better customer experience Reduce exposure to regulatory uncertainty ~145 wireless base stations Over 200 cities 4 major markets ~600,000 businesses covered Green: Wireless coverage Red: DSL coverage White: CO Boundary 22

23 Markets & Products Wireless Benefits High speed Internet access for SMB market delivered over alternative last mile network Customer Benefits Wide Wide choice choice of of speeds Super-T: Super-T: 768K 768K to to 6 Mbps Mbps HiCap: HiCap: to to Mbps Mbps Fast Fast install install in in days days Available where where DSL DSL may may not not be be Same Same day day speed speed upgrades No No ILEC ILEC dependency Competitive cost cost Covad Benefits Higher Higher ARPU ARPU services Cost Cost effective up-sell Faster Faster order order to to cash cash Serve Serve customers outside copper footprint No No telco telco loop loop costs costs Higher Higher margins margins Reduced Reduced regulatory regulatory uncertainty uncertainty 23

24 Markets & Products Bonded T1: Good for customers, Good for Covad Mission Critical Applications Corporate intranet & extranets Outsourced data storage Premium CRM/software as a service Distance learning/training Telemedicine Mission Critical Reliability Covad Bonded T1 One coherent link of 2 T1s T1 in service since 2001 Nationwide network $800 $700 ARPU 250 Margin $ (T1 normalized to 100) Up Market Opportunity: $600 $500 $400 $300 $200 $100 $ Mid-sized businesses will spend the largest portion of their telecom budget on wireline data services, increasing to 51% by Source: In-Stat T1 BT1* T1 BT1* 24 *forecast

25 Markets & Products Competing more on Value Increasing Complexity, Up-market Focus & Differentiation Basic Voice Dial One LD Voice T1 Toll Free Calling Card LD Voic Conference Call Basic Data DSL Dial-Up Basic Internet Access Integrated T1 Advanced Voice & Data T1, Bonded T1 VOIP Unified comms Conferencing Wireless On-site service Web Hosting Continuity MPLS High Value IT & App Solutions Spam and Virus Security VPN Remote Backup Software on Demand Rich Conferencing Network Integration Video Surveillance Fixed Mobile Convergence 2007 Strategy: Solidify foundation in Advanced Voice & Data Lay groundwork to move to yet higher value add Traditional CLECs Core competency of many CLECs Outside competency of most CLECs today 25

26 Markets & Products Security, Continuity & Hosting are large market opportunities for SMB Market size & Growth Security $1.9 B 66% Increasing attractiveness to SMBs Security Continuity Hosting Care Mobility Interaction Key Services: Messaging, Firewall, VPN Most attractive VAS to SMBs Continuity Key Services: Network Based Storage, Network redundancy Backup can utilize network off-hours Hosting $2.0 B 9% $3.3 B 19% Key Services: Web and Application Hosting Workflow applications, ecommerce Source: Altman Vilandrie & Co. 26

27 Markets & Products Security Solutions Desktop and server security solution >40% take rate as part of DSL->T1 up-sell Trialing Unified Threat Management solution 27

28 Markets & Products Business Continuity Opportunity Business continuity is a leading value-added application 40% of small businesses impacted by a disaster never reopen ClearEdge Voice Find me, Follow me : conduct business from any location Failover automatically reroutes calls Redundant Access True network diversity (wireline-wireless) Carrier class /web hosting with remote access Sources: IDC, In-Stat, Gartner 28

29 Markets & Products Hosting & Web Enablement Value-add to broadband and VoIP offers Designed to meet business web 2.0 needs web mail, e-commerce, live chat and blogging Easy to create, use, and maintain Hosted in carrier class data centers 29

30 Markets & Products Growth Products enable Covad to compete on performance and/or value Performance Consumer ADSL High Capacity Wireless ADSL 2+ Biz ADSL Super T Wireless Bonded 3-4x T1 BondedT1 T1 IDSL SDSL Voice Optimized Access (VOA) Voice + Bonded T1 Line Powered Voice (LPVA) ClearEdge Voice VAS: Continuity, Security, Hosting Value Add 30 Note: Dotted line boxes are products not yet launched

31 Markets & Products Award-winning Products May 2006 Communications Solutions 2005 Product of the Year (Covad PBXi Plus) January 2005 Internet Telephony Product of the Year for 2004 (Covad VoIP) January 2006 Internet Telephony Product of the Year for 2005 (Covad LPVA) July 2004 Frost & Sullivan Customer Value Enhancement Award (Business Telecommunications Services) October 2005 Internet Telephony Best Hosted VoIP Provider Best SMB Provider Top 100 VoIP Provider May 2004 Network Computing Well-connected Award (Covad VoIP vpbx) July 2005 TMC Labs/Internet Telephony 2005 Innovation Award (Covad VoIP with Voice Optimized Access) July 2003 Network Computing Editor s Choice Award (Covad VoIP) May 2005 CMP Media/VARBusiness Magazine Midmarket "Product of the Year" (Covad VoIP vpbx) April 2003 CNET Editor s Choice (Covad DSL Self-install Kit) 31

32 Markets & Products Marketing Strategy Loyalty marketing Enhance value of existing customers Demand generation marketing Partner marketing 32

33 Markets & Products Direct Marketing: It s all about online Search engine marketing and optimization Managing over 70,000 word combinations by IP address, time of day tracked from click->lead->call->sale Proactive Chat Blogger Program Google Print and Video trials Increased qualified leads 44%, decreased cost/lead 42%* 33 * Access; Q1 06 vs. Q1 07

34 Markets & Products Loyalty Marketing Increase the value of existing customers 4.5% 4.0% Covad Churn Saves - 18% improvement in Saves (Q107 vs. Q406) 3.5% 3.0% 2.5% 2.0% 2 Customers under Contract 180% increase (Q107 vs. Q406) 1.5% target Covad Overall Covad Direct 3 Up-selling/Increasing ARPU Converted 600 DSL customers to T1, increasing ARPU >100%, renewing contract and providing enhanced security. 34

35 Markets & Products Partner Marketing: Demand Generation Programs 90% of Covad VoIP dealers are Cisco certified 20% of Access agents are Cisco certified Covad is 90% of Cisco s HIPC sales 35

36 Markets & Products Award Winning Marketing September 2006 MIXX Gold Award Best B2B Campaign October 2005 Digital Marketing Gold Award Best Online/Offline Integrated Campaign The Ringing September 2006 MIXX Gold Award Best Search Engine Marketing Campaign October 2005 CEBA Creative Excellence in Business Advertising Finalist Single Page Ad Death by Dialtone August 2006 Buzz Awards Finalist Best Internet Campaign April 2005 Cisco Brand Usage Recognition Best Integrated Campaign VoIP the Movie November 2005 Ad-Tech Finalist Best Search Marketing Campaign 36

37 Markets & Products Conclusion: How we accelerate growth Enhance product value proposition High performance next-gen services Value on top of broadband Maximize the value of each customer Aggressive loyalty marketing Increase leverage of indirect and wholesale channels Next-generation products such as LPVA & Bonded T1; expand mind-share with partners Increase sales productivity 37

38 Markets & Products Q&A

39 Break- 15 minutes

40 Wholesale & Direct Business Overview Dave McMorrow Executive Vice President- Sales

41 Wholesale & Direct Business Overview Summary Revenue diversification creates a healthy balance across market sectors, channels and revenue Transforming base towards higher valued services a picture of strength and stability We are much more than just a DSL company Wholesale expected to return to growth Creating unique value & being a trusted partner are keys to success in all channels Experienced & productive sales team 41

42 Wholesale & Direct Business Overview Subscription Revenue Profile Subscription Revenue Greater channel and product diversity year over year 62% Wholesale, 38% Direct* Subscription Revenue Direct Wholesale Balanced distribution supports controlled growth while maintaining potential for velocity (est.) Subscription Revenue Product Mix Product line diversity & focused targeting supports move to higher value customers 42% of Subscription Revenue is non- DSL Subscription Revenue (est.) Wireless VoIP LPV T1 DSL ARPU continues to improve +8%, Q1 06 to Q1 07 Customer life time revenue increasing Example: ~$12,000 Biz T1 vs ~$500 Residential ADSL 42 *Subscription Revenue as of Q1 07

43 Wholesale & Direct Business Overview Legacy vs Growth profile by Channel Wholesale Subscription Revenue $70.0 $45.0 Direct Subscription Revenue Revenue (in millions $60.0 $50.0 $40.0 $30.0 $20.0 $11.4 $13.0 $14.3 $15.4 $16.4 $17.7 $54.0 $54.3 $54.6 $54.1 $52.9 $51.5 $18.9 $20.3 $49.6 $48.0 $22.0 $45.6 Revenue (in millions $40.0 $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $12.2 $13.2 $14.9 $16.6 $18.1 $17.6 $17.1 $16.4 $15.7 $15.1 $14.5 $14.2 $13.9 $20.4 $23.3 $25.1 $27.3 $28.2 $10.0 $5.0 $0.0 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 $0.0 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Legacy Growth Legacy Growth Wholesale Q107 Subscription Revenue: $68M, -2% from Q1 06 Growth Products: $22M, 33% of Wholesale Subscription Revenue Direct - Q1 07 Subscription Revenue: $42M, +16% from Q1 06 Growth Products: $28M or 67% of Direct Subscription Revenue 43

44 Wholesale & Direct Business Overview Average Revenue Per User (Broadband ARPU) Higher ARPU/margin business customers are fueling revenue growth $60 $103 ARPU $58 $56 $54 $52 ARPU $101 $99 $97 $50 Q105 Q2 5 Q305 Q405 Q106 Q206 Q306 Q406 Q107 $95 Q105 Q205 Q305 Q405 Q106 Q206 Q306 Q406 Q107 Total Company ARPU Business ARPU 44

45 Wholesale & Direct Business Overview Market Segment & Facility Profile Market Segment Profile Facility Profile Subscription Revenue Subscription Revenue E (est) Business Consumer Dedicated Loop Shared Line Greater reliance on biz sector 81% of subscription revenue derived from the biz sector ~+$100M subscription revenue increase since 2004 All 2007 incremental revenue growth expected from the biz sector Facilities management and reliance 81% of subscription revenue rides on UNE facilities ~+$133M subscription revenue increase since

46 Wholesale & Direct Business Overview Wholesale Distribution 23% Partner Distribution Balance* Subscription Revenue 5% 31% 16% 24% 30% 26% 45% ILECs New Sales Product Mix* Business Service Providers Consumer Service Providers Carriers & CLECs Misc & Reseller Resi DSL Biz DSL T1 Low dependency on any single partner, category or sector No single partner with > 11% of Total Subscription Revenue* Why partner with Covad Wholesale? National coverage Breadth & depth of product line Best-in-Class systems and support Trusted partner *As of Q

47 47 Wholesale & Direct Business Overview Wholesale Partners

48 Wholesale & Direct Business Overview Line Powered Voice Access (LPVA) Line Powered Voice Subscription Revenue Consumer Subscription Revenue Subscription Revenue ($Millions) Subscription Revenue LPV ADSL - Q107 Q207 Q307 Q E LPVA Velocity 50%+ quarterly growth expected, Q4 06 to Q4 07 Q407 is the inflection point for subscription revenue from the residential sector Covad subscription revenue derived from the consumer segment expected to return to positive growth in Q407 48

49 Wholesale & Direct Business Overview Direct Distribution Direct Subscription Revenue Diversity 53% 25% 46% 21% 8% Direct New Sales Distribution 3% 22% 22% VoIP Wireless DSL T1 Inside Sales Web Sales Field Sales Channel Sales Direct & Indirect Sales Greater than 50% of subscription revenue is non- DSL Inside/Out model Why buy/partner with Covad? Best in Class operation excellence Unique value proposition Sales engagement model Excellent systems support Nationwide footprint 49 Note: Charts depicted above are for Q1 07

50 Wholesale & Direct Business Overview Master Agents Master Agents have added over 2,000 sub agents to the Covad channel Master Agents New Sales Q1'2006 Q2'2006 Q3'2006 Q4'2006 Q1'2007 Master Agents New Sales by Product Broadband VoIP Q1'2006 Q2'2006 Q3'2006 Q4'2006 Q1'

51 Wholesale & Direct Business Overview Sales Productivity Direct Sales Productivity Total Direct Channel Sales Field Sales Inside Sales $0 $2,000 $4,000 $6,000 $8,000 Monthly New Sales per Rep Direct & Indirect Sales 161 quota carrying sales people $4k per head/mo Total Wholesale Wholesale Accounts Strategic Partners Wholesale Sales Productivity $0 $50,000 $100,000 $150,000 Monthly New Sales per Rep Wholesale Sales 11 quota carrying sales people $85k per head/mo 51

52 Wholesale & Direct Business Overview Conclusion Covad has transformed to a healthier place because of balanced distribution and diversified service revenue profile T1, VoIP, Wireless & Line Powered Voice are key growth drivers Business Broadband continues to be the key to our foundation, but it is not a DSL-only story LPV turns consumer segment positive along with Wholesale in Q407 Committed to be channel friendly model with excellent value proposition Sales productivity reaching optimal performance 52

53 Direct and Wholesale Business Overview Q&A

54 EarthLink DSL & Home Phone Service Lisa Graham, Senior Vice President- Covad Sales Steve Howe, Senior Vice President EarthLink Voice Services [CLIENT SENDING LOGOS]

55 [CLIENT SENDING LOGOS] 55

56 The Best of Both Worlds Customer Experience Your home phone works (all jacks). Bundles Local, LD & DSL service. Voice portal VoIP features Value Proposition Voice /data bundle Same form factor as traditional voice service Calling Card International rates Premium features included Customer Requirements DSL service Must be in market and CO that is covered Copper to the Home Unlimited Calls 8Mb DSL: $69.95/mo Unlimited Calls 1.5Mb DSL: $64.95/mo 500min of Calls 1.5Mb DSL: $49.95/mo 56

57 The Best 2 Product Bundle in the Market Feature Lead Offer 1Line + Most features + VM Price w/ Data Data Speed: Domestic Usage Canada Calling Also Included Earthlink DSL & HPS $ Mbps Included Comcast Verizon Vonage Digital Voice $ Mbps Included Freedom $ Mbps Included Unlimited $59.90 (Assumes $34.95 Data Product) Included Req s CPE All Phones Ring Mex/UK/Ger ( /min) Wire-line Termination No Yes, Incl. Battery No Yes Yes Yes True e-911 Location based to PSAP Yes Yes Yes Not Really 6-12 / 3 / / 9 / / 10 / 12 Reqs $1.95 MRC Yes Yes, But Geek Squad 1-12 / 4 / 5 Portal Integrated Beta Data Only Voice Only Gotcha s None $3/mo Modem Lease Fee $5 to 7 SLC Charge Non-Managed VoIP Arch. Not a Serious Comp Threat 57

58 A Mass Market Alternative 12 Million+ HH passed Deployed Markets 58

59 Getting the Word Out Triple-Play Retail Storefronts Door to Door OBTM Media Direct Mail Upsells 59

60 What was that Mr. Trump? 60

61 Our Rebellious Nature Comes Out 61

62 Broad Array of Sales Partners 62

63 Covad & EarthLink: A Great Team Over 8 Years of Teamwork in Broadband Distribution Partnership a disruptive force in the marketplace - First nationwide DSL deployment in America - First to bring DSL2+ and 8Mb service to the marketplace - First VoIP offering to beat telcos on price and features Expect to see more firsts as we innovate together 63

64 Financial Update Justin Spencer Acting Chief Financial Officer

65 65 Financial Update Summary Growth Initiatives are ramping, leading to improved financial performance in 2007 Revenue Growth $520 Revenue $485-$ Growth Products: $220M+, 30%+ annual organic subscription revenue growth Continued efforts to manage legacy products A-EBITDA Expansion : ~50% growth 2 Improving Operating Efficiencies Solid Capital Structure to fuel growth Improving Cash Flow in 2H 07 Notes: A-EBITDA excludes $19.5M transaction tax adjustment 2. 50% growth is to the mid-point of 2007 A-EBITDA guidance ($ in Millions) ($ in Millions) $500 $480 $460 $440 $420 $400 $50 $30 $10 ($10) ($30) ($50) $443 ($31) $ E A-EBITDA $20 1 $25-$ E

66 Notes: Financial Update Revenue Growth and Transition Growth product subscription revenue is expected to increase by nearly $50-60M, or 30%+ in 2007 $ in Millions 2007 Growth product increase in 2007 is all organic growth organic subscription growth increase was ~$47M Subscription Revenue $550 $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 $397 $431 $111 $169 $286 $262 $445-$460 $220 - $230 $225 - $ E Growth Legacy 2006/2007E % Change 3-5% 30-36% (12-14%) Other Revenue, net expected to be $40 to $45M, given the subscription revenue noted above. Total 2007 revenue expected to be $485 to $505 million Growth Subscription Revenue includes $10.9M of Wireless subscription revenue acquired via NextWeb and Dataflo in

67 Revenue (in millions) Financial Update Growth Product Revenue Profile Covad growth products, currently comprising 46% of total subscription revenue, are expected to accelerate in 2007 with the launch of LPVA and Bonded T1 services Growth Products Subscription Revenue $50.0 $45.0 $40.0 $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $23.6 $8.8 $2.4 $12.4 $26.1 $9.2 $2.7 $14.2 $29.2 $9.5 $3.8 $15.9 $32.0 $9.9 $4.7 $17.4 $36.8 $10.1 $1.4 $6.1 $19.2 $41.0 $10.7 $3.0 $6.2 $44.0 $11.0 $3.2 $7.0 $21.2 $22.8 $47.5 $11.3 $3.4 $8.5 $50.1 $12.4 $3.4 $9.0 $24.3 $25.3 Q1 06/07 CAGR All Growth Products 36% Biz ADSL & LPVA Wireless VoIP T1 23% 156% 47% 32% $0.0 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q