Covad Communications Group Reports Second Quarter 2006 Results; Company Exceeds Adjusted EBITDA and Cash Guidance; Continues to Execute on Growth Opportunities

Charles Hoffman, Covad president and chief executive officer,said: "In the second quarter we grew revenues and effectively managedcosts across our business. We continue to successfully focus onproviding high-margin, high-value solutions to direct businesscustomers."

"We also made significant strides towards ensuring our futuresuccess with several growth opportunities. Our build-out of what willbe the nation's largest next-generation network is well underway andwill enable us to meet the ongoing telecommunications needs of ourcustomers with unique product offerings such as higher-speedbroadband, line-powered voice access and other next-generationcommunications services. We also solidified our position as aninnovative leader in the wireless broadband space. As always, wecontinued to focus on providing an excellent customer experience,growing our business and improving profitability."

Summary of Financial Results

-- Net revenues for the second quarter of 2006 totaled $118.5 million, an increase of 0.6 percent from the $117.8 million reported for the first quarter of 2006, and an increase of 8.0 percent from the $109.7 million reported for the second quarter of 2005. Second quarter of 2006 includes a full quarter of revenues for Covad's wireless business. Net revenues for the first quarter of 2006 include $1.7 million from a software license agreement.

-- Broadband and VoIP subscription revenues for the second quarter of 2006 totaled $102.9 million, an increase of 1.9 percent from the $101.0 million reported for the first quarter of 2006, and an increase of 10.1 percent from the $93.5 million reported for the second quarter of 2005. Refer to the Selected Financial Data below, including Note 3, for additional information, including a reconciliation of this non-GAAP financial performance measure to the most directly comparable GAAP measure.

-- Wholesale subscribers for the second quarter of 2006 contributed $78.9 million of net revenues, or 66.6 percent, as compared to $81.1 million, or 68.9 percent, for the first quarter of 2006, and $78.1 million, or 71.1 percent, for the second quarter of 2005. Direct subscribers for the second quarter of 2006 contributed $39.6 million of net revenues, or 33.4 percent, as compared to $36.7 million, or 31.1 percent, for the first quarter of 2006, and $31.6 million, or 28.9 percent, for the second quarter of 2005.

-- Business subscribers for the second quarter of 2006 contributed $90.5 million of net revenues, or 76.4 percent, as compared to $87.5 million, or 74.3 percent, for the first quarter of 2006, and $81.5 million, or 74.3 percent, for the second quarter of 2005. Consumer subscribers for the second quarter of 2006 contributed $28.0 million of net revenues, or 23.6 percent, as compared to $30.3 million, or 25.7 percent, for the first quarter of 2006, and $28.2 million, or 25.7 percent, for the second quarter of 2005.

-- Income from operations for the second quarter of 2006 totaled $14.1 million, an improvement of $23.1 million from the $9.0 million loss reported for the first quarter of 2006, and an improvement of $39.7 million from the $25.6 million loss reported for the second quarter of 2005. As stated above, second quarter of 2006 results include a $19.5 million benefit from a one-time tax adjustment.

-- Adjusted earnings before interest, taxes, depreciation and amortization, or A-EBITDA, for the second quarter of 2006 totaled $25.6 million, an improvement of $22.8 million from the $2.8 million A-EBITDA reported for the first quarter of 2006, and an improvement of $33.6 million from the $8.0 million EBITDA loss reported for the second quarter of 2005. The second quarter of 2006 includes the benefit of a one-time tax adjustment that contributed approximately $19.5 million to Covad's A-EBITDA. This adjustment stems from a ruling the IRS made in the second quarter of 2006 in which it will stop collecting the federal excise tax for certain classes of telecommunications services. Covad had accrued for this tax from 2000 until early 2004. Covad did not pass this tax onto its customers; consequently it charged the expense to its operations. The ruling enables Covad to release this accrual as the ruling resolved uncertainty around the applicability of the tax to certain telecommunication services. In addition, A-EBITDA for the second quarter of 2006 includes a $2.1 million benefit from an employment related tax adjustment. A-EBITDA for the first quarter of 2006 includes a $1.7 million benefit from a software license agreement. Refer to the Selected Financial Data below, including Note 2, for additional information, including a reconciliation of this non-GAAP financial performance measure to the most directly comparable GAAP measure.

-- Net income for the second quarter of 2006 totaled $12.5 million, or $0.04 per share, an improvement of $21.8 million from the $9.3 million net loss, or $0.03 loss per share, reported for the first quarter of 2006 and an improvement of $28.9 million from the $16.4 million net loss, or $0.06 loss per share, reported for the second quarter of 2005. As stated above, second quarter of 2006 results include a $19.5 million benefit from a one-time tax adjustment. First quarter of 2006 includes a $1.7 million benefit from a software license agreement. Included in net loss for the second quarter of 2005 is a $9.4 million net gain from the sale of part of Covad's investment in ACCA Networks Co. Ltd, a Japanese broadband provider. Excluding these items, net loss for second quarter of 2006, first quarter of 2006 and second quarter of 2005 would have been $7.0 million, $11.0 million and $25.8 million, respectively.

-- Cash, cash equivalents and short-term investment balances, including restricted cash and investments, at the end of the second quarter of 2006 totaled $95.3 million, a decrease of $45.0 million when compared to the balance of $140.3 million at the end of the first quarter of 2006. Included in the total net cash usage for the second quarter of 2006 are (i) a $33.6 million payment related to the redemption of Covad's secured collateralized customer deposit with AT&T, (ii) $11.6 million of expenditures related to the build-out of Covad's LPVA platform, which are being funded with the proceeds from the strategic agreement with EarthLink, and (iii) a $6.1 million inflow from Covad's line of credit. Excluding these transactions, Covad's cash usage for the second quarter of 2006 was $5.9 million.

"As we execute our growth and operational strategy we continue tosee improving financial results," said Christopher Dunn, Covad's chieffinancial officer. "The action we have taken over the past fewquarters to improve our balance sheet, execute towards profitabilityand invest in our next-generation network capabilities puts Covad inan excellent position for the future."

Operating Statistics

-- Broadband lines in service at the end of the second quarter of 2006 were approximately 548,000, a 1.1 percent decrease from the second quarter of 2005. While total broadband lines in service decreased by 1.6 percent from the first quarter of 2006, business broadband lines in service increased by 3,600, or 1.5 percent, to 238,100. VoIP business customers at the end of the second quarter of 2006 were 1,343, a 1.1 percent increase from the first quarter of 2006 and a 54.4 percent increase from the second quarter of 2005. VoIP stations at the end of the second quarter of 2006 were approximately 44,000, a 2.8 percent increase from the first quarter of 2006 and a 46.9 percent increase from the second quarter of 2005. The customer and stations counts reflect an exit in the second quarter of 2006 from the Wholesale VoIP business where the company transitioned service for 170 Wholesale VoIP customers comprising 3,257 stations. Covad expects direct VoIP business customer growth to continue at previous quarter levels.

-- Broadband lines in service at the end of the second quarter of 2006 were approximately 469,900, or 85.8 percent, wholesale and 78,100, or 14.2 percent, direct, as compared to approximately 478,400, or 85.9 percent, wholesale and 78,500, or 14.1 percent, direct at the end of the first quarter of 2006, and approximately 472,800, or 85.3 percent, wholesale and 81,600, or 14.7 percent, direct at the end of the second quarter of 2005.

-- Broadband lines in service at the end of the second quarter of 2006 were approximately 309,900, or 56.6 percent, consumer and 238,100, or 43.4 percent, business, as compared to approximately 322,400, or 57.9 percent, consumer and 234,500, or 42.1 percent, business at the end of the first quarter of 2006, and approximately 324,700, or 58.6 percent, consumer and 229,700, or 41.4 percent, business at the end of the second quarter of 2005.

-- Weighted average revenue per user, or ARPU, for broadband lines in service for the second quarter of 2006 was $56 per month, same as the first quarter of 2006, and up from $55 for the second quarter of 2005. VoIP ARPU, excluding resellers, was $1,668 per month for the second quarter of 2006, down from $1,900 for the first quarter of 2006, and down from $1,698 for the second quarter of 2005.

-- Net customer disconnections, or churn, for broadband lines averaged approximately 3.0 percent in the second quarter of 2006, up from 2.9 percent for the first quarter of 2006, and down from 3.2 percent for the second quarter of 2005.

Business Outlook for Q3-06 and Full-Year 2006:

For the third quarter of 2006, Covad expects:

-- Net revenues in the range of $119.0 - $122.0 million.

-- A-EBITDA in the range of $5.0 - $8.0 million, excluding LPVA project operating expenses of approximately $3.5 million

-- Net loss in the range of $8.8 - $13.0 million.

-- Net usage of cash, cash equivalents and short-term investments, including restricted cash and investments in the range of $(2.0) - $(5.0), excluding LPVA project cash usage of $(15.0) - $(20.0).

For the Full-Year 2006, Covad expects:

-- Net revenues in the range of $475.0 - $485.0 million as previously stated at the May 30, 2006 Analyst and Investor Day hosted by Covad in New York City.

-- A-EBITDA in the range of $44.0 - $50.0 million, excluding LPVA project operating expenses of approximately $7.0 million. A-EBITDA includes the benefit of the aforementioned one-time tax adjustment that contributed approximately $19.5 million to A-EBITDA.

-- Net loss in the range of $9.5 to 19.5 million

Conference Call Information

Covad will conduct a conference call to discuss these financialresults on Wednesday, July 26, 2006 at 5:00 p.m. Eastern Time (ET)/2:00 p.m. Pacific Time (PT). The conference call will be webcast overthe Internet. To listen to the call, visit the Event Calendar sectionon the Covad web site athttp://www.covad.com/companyinfo/investorrelations. Investors andpress may also listen by telephone to the call by dialing (800)218-0204. Participants are advised to call in 10 minutes prior to thestart time. The conference call will be recorded and available forreplay listening until 11:59 p.m. EST on August 2, 2006 by dialing(800) 405-2236 and reference pass code 11066574.

About Covad

Covad is a leading nationwide provider of integrated voice anddata communications. The company offers DSL, Voice Over IP, T1, Webhosting, managed security, IP and dial-up, broadband wireless, andbundled voice and data services directly through Covad's network andthrough Internet Service Providers, value-added resellers,telecommunications carriers and affinity groups to small andmedium-sized businesses and home users. Covad broadband services arecurrently available across the nation in 44 states and 235Metropolitan Statistical Areas (MSAs) and can be purchased by morethan 57 million homes and businesses, which represent over 50 percentof all US homes and businesses. Corporate headquarters is located at110 Rio Robles San Jose, CA 95134. Telephone: 1-888-GO-COVAD. WebSite: www.covad.com.

Safe Harbor Statement under the Private Securities LitigationReform Act of 1995:

The foregoing contains "forward-looking statements" which arebased on management's current information and beliefs as well as on anumber of assumptions concerning future events made by management.Examples of forward-looking statements include the company's expectedrevenue, net loss, A-EBITDA, net usage of cash, cash equivalents andshort term investments, including restricted cash and investments, andour ability to meet the telecommunications needs of our customers withhigh-speed broadband, line-powered voice access and other advancedservices. Readers are cautioned not to put undue reliance on suchforward-looking statements, which are not a guarantee of performanceand are subject to a number of uncertainties and other factors, manyof which are outside Covad's control, that could cause actual resultsto differ materially from such statements. These risk factors includeour ability to rapidly expand and deploy new services and improve ourexisting services, the impact of increasing competition, pricingpressures, consolidation in the telecommunications industry,uncertainty in telecommunications regulations and changes intechnologies, among other risks. For a more detailed description ofthe risk factors that could cause such a difference, please seeCovad's 10-K, 10-Q, 8-K and other filings with the Securities andExchange Commission. Covad disclaims any intention or obligation toupdate or revise any forward-looking statements, whether as a resultof new information, future events or otherwise. This information ispresented solely to provide additional information to furtherunderstand the results of Covad.
COVAD COMMUNICATIONS GROUP, INC.
SELECTED FINANCIAL DATA (unaudited)
(in thousands)

Condensed Consolidated Balance Sheet
Data As of As of As of
Jun 30, Mar 31, Dec 31,
2006 2006 2005
--------- --------- ---------

Cash, cash equivalents, and short-term
investments $ 55,877 $ 84,985 $ 96,501
Restricted cash and cash equivalents 39,428 55,310 5,503
Accounts receivable, net 34,010 29,729 28,074
All other current assets 11,148 12,669 10,971
Property and equipment, net 78,487 70,035 71,663
Collocation fees and other intangible
assets, net 25,353 26,314 20,715
Goodwill 50,020 50,020 36,626
Deferred costs of service activation 24,763 24,534 25,456
Deferred debt issuance costs, net 4,683 4,470 3,223
All other long-term assets 2,254 1,848 1,849
-------- -------- --------
Total assets $326,023 $359,914 $300,581
======== ======== ========

Total current liabilities $ 96,720 $142,367 $133,217
Long-term debt 165,000 166,014 125,000
Collateralized and other long-term
customer deposits 4,464 7,585 16,912
Unearned revenues 41,533 42,074 43,758
Other long-term liabilities 2,117 2,460 1,863
Total stockholders' equity (deficit) 16,189 (586) (20,169)
-------- -------- --------
Total liabilities and stockholders'
equity (deficit) $326,023 $359,914 $300,581
======== ======== ========

COVAD COMMUNICATIONS GROUP, INC.
SELECTED FINANCIAL DATA (unaudited)
(in thousands, except per share amounts)

Condensed
Consolidated
Statements of
Operations Data Three Months Ended Six Months Ended
----------------------------- -------------------
Jun 30, Mar 31, Jun 30, Jun 30, Jun 30,
2006 2006 2005 2006 2005
--------- --------- --------- --------- ---------

Revenues, net $118,535 $117,751 $109,741 $236,286 $217,459

Operating expenses:
Cost of sales
(exclusive of
depreciation and
amortization) 80,802 79,937 76,240 160,739 148,989
Benefit from
transaction tax
adjustment (19,455) - - (19,455) -
Selling, general
and administrative 31,889 34,965 41,492 66,854 83,866
Depreciation and
amortization of
property and
equipment 8,080 8,648 12,909 16,728 26,694
Amortization of
collocation fees
and other
intangible assets 2,636 2,400 4,717 5,036 10,081
Provision for
restructuring and
post-employment
benefits 511 763 - 1,274 -
-------- -------- -------- -------- --------
Total operating
expenses 104,463 126,713 135,358 231,176 269,630
-------- -------- -------- -------- --------

Income (loss) from
operations 14,072 (8,962) (25,617) 5,110 (52,171)

Other income
(expense)
Gain on
deconsolidation of
subsidiary - - - - 53,963
Gain on sale of
equity securities - - 9,421 - 16,667
Other (1,599) (318) (207) (1,917) (488)
-------- -------- -------- -------- --------
Other income
(expense), net (1,599) (318) 9,214 (1,917) 70,142
-------- -------- -------- -------- --------
Net income (loss) $ 12,473 $ (9,280) $(16,403) $ 3,193 $ 17,971
======== ======== ======== ======== ========

Earnings (loss) per
common share:
Basic $ 0.04 $ (0.03) $ (0.06) $ 0.01 $ 0.07
======== ======== ======== ======== ========
Diluted $ 0.04 $ (0.03) $ (0.06) $ 0.01 $ 0.07
======== ======== ======== ======== ========

Weighted average number of
common shares outstanding
Basic 292,993 276,488 263,918 284,791 263,852
======== ======== ======== ======== ========
Diluted 339,915 276,488 263,918 290,050 309,260
======== ======== ======== ======== ========

Gross Margin
(Note 1) $ 37,733 $ 37,814 $ 33,501 $ 75,547 $ 68,470
% of revenue 31.8% 32.1% 30.5% 32.0% 31.5%


A-EBITDA Calculation
(Note 2) Three Months Ended Six Months Ended
----------------------------- -------------------
Jun 30, Mar 31, Jun 30, Jun 30, Jun 30,
2006 2006 2005 2006 2005
--------- --------- --------- --------- ---------

Net income (loss) $ 12,473 $ (9,280) $(16,403) $ 3,193 $ 17,971
Plus:Other income
(expense), net 1,599 318 (9,214) 1,917 (70,142)
Depreciation
and
amortization
of property
and equipment 8,080 8,648 12,909 16,728 26,694
Amortization of
collocation
fees and other
intangible
assets 2,636 2,400 4,717 5,036 10,081
Employee stock-
based
compensation 837 664 - 1,501 -
-------- -------- -------- -------- --------
A-EBITDA (Note 2) $ 25,625 $ 2,750 $ (7,991) $ 28,375 $(15,396)
======== ======== ======== ======== ========

COVAD COMMUNICATIONS GROUP, INC.
SELECTED FINANCIAL DATA (unaudited)
(in thousands, except key operating data


Consolidated Revenue
Data Three Months Ended Six Months Ended
----------------------------- -------------------
Jun 30, Mar 31, Jun 30, Jun 30, Jun 30,
2006 2006 2005 2006 2005
--------- --------- --------- --------- ---------

Broadband
subscription
revenue (Note 3) $ 96,753 $ 94,880 $ 90,736 $191,633 $179,823
VoIP subscription
revenue (Note 3) 6,194 6,124 2,738 12,318 5,169
High-capacity
circuit
subscription
revenue 4,656 4,416 4,511 9,072 8,704
-------- -------- -------- -------- --------
Total subscription
revenue 107,603 105,420 97,985 $213,023 $193,696
Financially
distressed partners
(Note 4) (50) 72 120 22 (6)
Customer rebates and
incentives not
subject to deferral
(Note 5) (84) (77) (268) (161) (316)
Other revenue, net
(Note 6) 11,066 12,336 11,904 23,402 24,085
-------- -------- -------- -------- --------
Revenues, net $118,535 $117,751 $109,741 $236,286 $217,459
======== ======== ======== ======== ========


Consolidated Cost of
Sales Data
(exclusive of
depreciation and
amortization) Three Months Ended Six Months Ended
----------------------------- -------------------
Jun 30, Mar 31, Jun 30, Jun 30, Jun 30,
2006 2006 2005 2006 2005
--------- --------- --------- --------- ---------

Direct cost of
revenue, net
(Note 8) $ 24,640 $ 23,545 $ 20,559 $ 48,185 $ 39,714
Other network and
product costs
(Note 9) 36,707 56,392 55,681 93,099 109,275
-------- -------- -------- -------- --------
Cost of sales
(exclusive of
depreciation and
amortization) $ 61,347 $ 79,937 $ 76,240 $141,284 $148,989
======== ======== ======== ======== ========

Key Operating Data As of
-----------------------------
Jun 30, Mar 31, Jun 30,
2006 2006 2005
--------- --------- ---------
End of Period Lines
(EOP)
Company
Business 238,130 234,516 229,747
Consumer 309,859 322,434 324,652
-------- -------- --------
Total Company 547,989 556,950 554,399

Wholesale
Business 173,183 171,855 169,559
Consumer 296,741 306,576 303,239
-------- -------- --------
Total Wholesale 469,924 478,431 472,798

Direct
Business 64,947 62,661 60,188
Consumer 13,118 15,858 21,413
-------- -------- --------
Total Direct 78,065 78,519 81,601

Direct VoIP
Customers 1,343 1,328 870
Stations 43,968 42,787 29,922

Average Revenue per
User (ARPU)
Company
Business $ 100 $ 99 $ 97
Consumer $ 24 $ 25 $ 26
-------- -------- --------
Total Company $ 56 $ 56 $ 55

Wholesale
Business $ 83 $ 82 $ 80
Consumer $ 24 $ 24 $ 25
-------- -------- --------
Total Wholesale $ 45 $ 45 $ 45

Direct
Business $ 145 $ 146 $ 145
Consumer $ 34 $ 34 $ 32
-------- -------- --------
Total Direct $ 125 $ 122 $ 114

Direct VoIP
Customers
(excluding
resellers) $ 1,668 $ 1,900 $ 1,698
Stations $ 49 $ 49 $ 35


COVAD COMMUNICATIONS GROUP, INC.
SELECTED FINANCIAL DATA (unaudited)
(in thousands)

Business Outlook
---------------------------

A-EBITDA Calculation
(Note 2)
Q3-2006 Full Year-2006
--------------------- ---------------------
Projected Range of Projected Range of
Results Results
--------------------- ---------------------

Net loss $(13,000) $ (8,800) $(19,500) $ (9,500)
Plus:Other income
(expense), net 2,200 1,900 6,500 5,500
Depreciation and
amortization of
property and
equipment 8,700 8,300 34,000 32,000
Amortization of
collocation fees and
other intangible
assets 2,800 2,300 13,000 12,000
Employee stock-based
compensation 800 800 3,000 3,000
-------- -------- -------- --------
A-EBITDA (Note 2) 1,500 4,500 36,000 43,000
LPVA project operating
expenses 3,500 3,500 7,000 7,000
-------- -------- -------- --------
A-EBITDA (Note 2),
excluding LPVA project
operating expenses $ 5,000 to $ 8,000 $ 44,000 to $ 50,000
======== ======== ======== ========

Notes to Unaudited Selected Financial Data

1. Gross margin is calculated by subtracting cost of sales (exclusive
of depreciation and amortization) from revenues, net.

2. Management believes that Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization ("A-EBITDA"), defined as net loss
excluding (i) depreciation and amortization of property and
equipment, (ii) amortization of intangible assets, (iii) other
income (expense), net, and (iv) employee stock-based compensation
expense, is a useful measure because it provides additional
information about the company's ability to meet future capital
expenditures and working capital requirements and fund continued
growth. Management also uses this measure to evaluate the
performance of its business segments and as a factor in its
employee bonus program. A-EBITDA may be defined differently by
other companies and should not be used as an alternative to our
operating and other financial information as determined under
accounting principles generally accepted in the United States.
A-EBITDA is not a prescribed term under accounting principles
generally accepted in the United States, does not directly
correlate to cash provided by or used in operating activities and
should not be considered in isolation, nor as an alternative to
more meaningful measures of performance determined in accordance
with accounting principles generally accepted in the United
States. A-EBITDA generally excludes the effect of capital costs.

3. Broadband and VoIP subscription revenue is defined as billings for
recurring broadband and VoIP services provided during the period.
Broadband and VoIP subscription revenue excludes charges for
Federal Universal Service Fund ("FUSF") assessments, dial-up
services, and high-capacity circuits and other adjustments. In
addition, Broadband and VoIP subscription revenue includes bills
issued to customers that are classified as financially distressed
and whose revenue is only recognized if cash is received (refer to
Note 4 below for a more detailed discussion on accounting for
financially distressed partners). Management believes broadband
and VoIP subscription revenue is a useful measure for investors as
it represents a key indicator of the growth of the company's core
business. Management uses broadband and VoIP subscription revenue
to evaluate the performance of its business segments.

4. When the company determines that (i) the collectibility of a bill
issued to a customer is not reasonably assured or (ii) its ability
to retain some or all of the payments received from a customer
that has filed for bankruptcy protection is not reasonably
assured, the customer is classified as "financially distressed"
for revenue recognition purposes. A bill issued to a financially
distressed customer is recognized as revenue when services are
rendered and cash for those services is received, assuming all
other criteria for revenue recognition have been met, and only
after the collection of all previous outstanding accounts
receivable balances. Consequently, there may be significant timing
differences between the time a bill is issued, the time the
services are provided and the time that cash is received and
revenue is recognized.

5. Customer rebates and incentives not subject to deferral consist of
amounts paid or accrued under marketing, promotion and rebate
incentive programs with certain customers. Rebates and incentives
paid or accrued under these programs are not accompanied by any
up-front charges billed to customers. Therefore, these charges are
accounted for as reductions of revenue as incurred.

6. Other revenues consist primarily of revenue recognized from
amortization of prior period SAB 104 deferrals (refer to Note 7
below for a discussion of SAB 104), FUSF billed to our customers
and other revenues not subject to SAB 104 deferral because they do
not relate to an on-going customer relationship or performance of
future services.

7. In accordance with SAB 104, the company recognizes up-front fees
associated with service activation, net of any amounts
concurrently paid or accrued under certain marketing, promotion
and rebate incentive programs, over the expected term of the
customer relationship, which is presently estimated to be 24 to 48
months, using the straight-line method. The company also treats
the incremental direct costs of service activation (which consist
principally of customer premises equipment, service activation
fees paid to other telecommunications companies and sales
commissions) as deferred charges in amounts that are no greater
than the up-front fees that are deferred, and such deferred
incremental direct costs are amortized to expense using the
straight-line method over 24 to 48 months.

8. Direct costs of revenue, net consists of monthly charges we
receive from telecommunications carriers to support the delivery
of broadband and VoIP services to our customers. Direct costs of
revenue, net includes the on-going costs associated with
high-capacity circuits provisioned for our wholesalers and the
costs associated with local loops provisioned for our broadband
and dial-up end-users.

9. Other network and product costs consist of all other costs,
excluding depreciation and amortization, associated with equipment
maintenance, central offices' (COs) cost, installation costs paid
to others, the internal installation services group, and federal
universal service fund tax.