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1、- 1 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHICONTENT Key strategic principles Regulatory overview Market overview Competition overview Business models Next steps- 2 -China Netcom - The Boston Consulting Group-Confidential-Destro
2、y by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIAGENDA Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forward- 3 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIEconomic
3、 modelingChoice of business modelsto pursue and timingRoadmap for pursuing business models and expected financial performanceIntegrated approach to CNC business planMajorissuesExpectedoutputHow do the market sizing and share assumptions translate into overall top line revenue for CNC?What capital in
4、vestments will be necessary to build out metro and long haul fiber networks?Predicted cash flow profile by business model and selected scenariosAssessment of market opportunitiesHow will China datacom market develop? How large is the overall opportunity for a new entrant?Overall market sizing and re
5、venue forecast by product areaRegulatory and competitive analysisWhat type of regulatory environment will evolve in China?Will equal access for voice and data be granted and when?What effect will WTO have?Regulatory mapping and CNC share predictions across scenariosStrategic implications and capabil
6、ities assessmentMETHODOLOGY BEING USED TO DEVELOP BUSINESS MODELS AND OVERALL STRATEGY- Current areas of focus- 4 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHICNC AT A CRITICAL STRATEGIC CROSSROADSPreliminary ConclusionsRecommendati
7、ons/Decisions to be MadeOffnet VOIP predicted to generate to provide breakeven economics for building backbone1 Wholesale revenue provides significant upside potential Majority of wholesale revenue relies on access to mobile carriersEnterprise solutions economics very attractive, but substantial com
8、plexity and resources involvedHigh-bandwidth international gateway critical to success in both wholesale and enterprise Economic predictions highly sensitive to a set of key assumptionsAccelerate vendor selection and backbone construction; time to market criticalCommitment to utilizing IP/DWDM invlo
9、lves risk to mobile carrier businessRFP to vendors should be based on product requirements vs. technologyStaging of investments and service launch must consider tradeoff between quality of service and coveragePreliminary talks with international carriers should begin ASAPScenario modeling will help
10、us decide where to focusOverarching question: Can CNC successfully pursue all opportunities outlined in the short/medium term? (1) Assuming settlement fees of 10% of revenue- 5 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHI Overall a
11、pproach Where HowBUSINESS MODELS SUMMARY: THREE CORE ELEMENTS Enterprise Solutions Capture datacom growth in key business centers with leading-edge products and superior customer service Top business districts in major urban areas; only the most dense areas in short term Focused Deployment Leverage
12、existing conduits to lay in major urban areasSuperior service and bandwidthTarget CTs weakness in service and bandwidth Utilize LMDS in intermediate cities and areas where time to market is critical Wholesale/Carrier Target mobile carriers and ISPs with backbone transport; consider supplying fixed-l
13、ine incumbents Cover POPs in all major calling zones; develop local leased lines network in key locations Aggressive deployment of backbone infrastructure to provide unparalleled bandwidth Establish high bandwidth international gateway to differentiate internet access Superior service with clear pos
14、itioning “The clear alternative to CT”ISP Long distance voice Capture early revenue from to fund development of subsequent business models Top 60 POPs by end of year 2000 utilizing mix of leased lines from CT and CNC network Position offnet voice as first product from “Chinas first datacom carrier”
15、Do not overextend resources in VOIP as it does not fit CNCs long term strategy Create “dial-around” solutions for business and interconnect terms- 17930 - 6 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIEnterprise solutionsPOTENTIAL
16、BUSINESS MODELS COVER WIDE RANGE OF PRODUCT/MARKET ALTERNATIVESOpportunity for growthCurrent market sizeWholesale/carrierConsumer ISP?Domestic and International Long Distance VoiceResidentialMed/large enterprise customersCarriersPotential traffic per consumerProductsEmerging datacomDataVoiceEmerging
17、 data niche- 7 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIAGENDA Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forward- 8 -China Netcom - The Boston Consulting Group
18、-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIAPPROACH TO DOMESTIC AND INTERNATIONAL VOICE BUSINESS MODELObjectivesHypothesized ApproachCapture early revenue from launch of prepaid IP calling cards“Cash cow” for funding other business model developmentPursue prefix and equal
19、access long distance for business customers as soon as possible to begin establishing relationshipsManage pricing and product life cycle effectively to maximize total margin and avoid investing in declining productsDo not overextend ourselves nor blur our “datacom” imageFight the regulatory battle t
20、o ensure favorable approaches to equal access and interconnectMarket calling cards to business customers in the short term for travelling personnelEmphasize quality image/brand to distinguish from CT and Unicom-position calling card as first step in becoming a next generation full services providerE
21、stablish mechanisms to link marketing expenditures with revenue and margin growth by product to ensure effective investmentEmphasize low cost targeted marketing and loyalty programsDo not overextendAlways emphasize advanced technology and evolution to full services provision- 9 -China Netcom - The B
22、oston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIDOMESTIC AND INTERNATIONAL VOICE SUMMARYPreliminary EconomicsPhase I CapEx (2000,2001): 3.8 B RMBFiber/construction: 2.4 B RMBIP/DWDM equipment: 720 M RMBPOP/VOIP: 530 M RMBOSS/Network management system: 100
23、M RMBOpEx expected to be 30% of revenue by 2002Market share and revenue estimates - 2002Offnet DLD: 30%Offnet ILD: 30% $2 B RMBIP Intl. termination: 27%5 year NPV: Essentially breakeven considering offnet voice alone1Key Issues to be AddressedInterconnect agreements with local PTAs; attempt to obtai
24、n blanket policy from MII International gateway license and connectivitySettlement charges commensurate with VOIP pricingDevelopment of business offnet strategyScalable “dial-around” solutions in short termEqual access longer termQuality of service for voice, must approach switched quality rapidlyPo
25、int of diminishing returns for adding VOIP gateways vs. strategic value of providing coverage(1) Highly sensitive to settlement fees- 10 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHILARGE MARKET WITH POTENTIAL TO GAIN SHARE QUICKLYN
26、ew entrants typically gain share quicklyExample: IDD and DLD servicesMarket sizeable - off-net traffic accounts for 15% of total DLD/ILD revenue by 2004Source: China Telecom annual reports; CNCs team inputs; BCG surveys, analysis & benchmarkingYear after entryOptus (DLD)Tele 2 (DLD)Mercury(DLD)Hong
27、Kong (IDD)Japan (IDD)US (IDD)(RMB BN)DLD On-NetDLD Off-NetILD On-NetILD Off-Net(%)- 11 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHICAREFUL MANAGEMENT OF PRE-PAID CALLING CARD BUSINESS NECESSARY TO ALIGN WITH LONG TERM STRATEGY Prep
28、aid calling cards call for different capability set and target customers than longer term business modelsFocus on consumers will not complement long term vision of providing enterprise solutionsMass advertising and marketing around a low-cost position may not fit image required for future needs Thre
29、e factors important to consider in managing prepaid calling card businessAttempt to position cards in marketing messages as the first product from a company that is building the most advanced network in PRCConsider selling cards to businesses for their traveling personnel to begin establishing enter
30、prise relationshipsCarefully manage product life cycle to begin pulling back marketing investment as wholesale and enterprise business models grow- 12 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHICNC VOIP REVENUE AND MARKET SHARE EX
31、PECTATIONSSource: CNCs team inputs; various benchmarks; BCG analysisVoice revenueShare assumptionsCNC Revenue(RMB BN)Off-Net DLD% of total CNC revenue100%76%37%30%23%16%Off-Net ILDInternational Termination19993%80%1%3%80%1%5%80%0%Off-Net DLDOff-net share of total DLDGeographic coverage of CNCCNC sha
32、re within coverageOff-Net ILDOff-net share of total ILDGeographic coverage of CNCCNC share within coverageInternational TerminationIP share of totalGeographic coverage of CNCCNC share within coverage200010%60%25%11%60%25%11%60%20%200117%75%29%18%75%29%18%75%25%200223%90%33%26%90%33%24%90%30%200330%1
33、00%30%33%100%30%30%100%30%200432%100%28%35%100%28%35%100%31%- 13 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIPRELIMINARY ECONOMICS FOR LONG DISTANCE VOICE MODEL (PHASE I BUILDOUT)VOIP Revenue Alone Justifies Building Backbone5 year
34、 PV(1) (M RMB)CapEXOpExRevenue5 year NPV15%: -500M RMB5 year IRR:12%Essentially breakeven economics for operating backbone for VOIP onlyVOIP(2)Backbone constructionBackboneInternational terminationIDDDLDIPPOP/Access platformOSSPresent value of cash flows(1) Assuming 15% cost of capital(2) Including
35、settlement charges estimated at 10% of VOIP revenue, and marketing/sales at 10% of revenue(3) Backbone OpEx charges allocated 1/3 each to VOIP, wholesale, and enterprise business model economicsSource: BCG benchmark database; industry interviews; BCG analysis- 14 -China Netcom - The Boston Consultin
36、g Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIAGENDA Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forward- 15 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interi
37、m-14Dec99-TZD-gx-SHIAPPROACH TO WHOLESALE/CARRIER BUSINESS MODELObjectivesHypothesized ApproachDevelop wholesale business as traffic generator to improve economics of backbone through higher utilizationBecome the wholesale carrier of choice with technologically superior service offerings including h
38、igh bandwidth international gateway connectivityConsider wholesaling access to CT, Unicom, and Jitong depending on competitive implicationsSuperior customer service with clear positioning “The clear alternative to CT”Aggressive deployment of backbone infrastructure Connecting top 15 cities by end of
39、 2000 and expanding to top 50 cities by 2002 Seek partnerships to establish high bandwidth international gateway connectivity-absolutely essential for differentiating CNC offeringDevelop interconnection capabilities in all major POPs and mobile basestations in key geographical locationsWholesale acc
40、ess to incumbent providers where feasible, but do not wholesale sources of competitive advantage (e.g., enhanced data services such as IP VPNs) Rollout product offering in staged manner to ensure quality of serviceInternet connectivityMobile interconnectAccess ports to backbone- 16 -China Netcom - T
41、he Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIWHOLESALE/CARRIER SUMMARYPreliminary EconomicsPhase I CapEx (2000,2001): 100 M RMBISP access platform: 50 M RMBOSS/Provisioning systems: 50 M RMBOpEx expected to be 10% of revenue by 20021Market share and
42、 revenue estimates - 2002Mobile (backbone): 15%ISPs: 9% 1.1 B RMBAccess ports: 100%2Dark fiber: 100%25 year NPV: $2.1 B RMBAssumes launch date of 3Q 2000 for leased lines and relatively aggressive mobile sharesPotentially too optimisticKey Issues to be AddressedBackbone technology platform - QOS for
43、 voice vs. lower cost deployment?High-bandwidth international gateway paramount to differentiating ISP accessFavorable regulatory backing for courting regional CT mobile carriersEnsuring existing VOIP gateways can serve wholesale needsRevenue opportunity of wholesaling dark fiber vs. enabling compet
44、itionOrganizational challenges(1) Including allocation of backbone OpEx(2) Market estimates based on revenue generation by CNC alone- 17 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIPOTENTIAL WHOLESALE CUSTOMERS INCLUDE ISPs, MOBILE
45、 OPERATORS, AND FIXED LINE CARRIERS ISPs offer significant potential if CNC can provide superior bandwidth access and to international gatewayCurrent satisfaction among regional ISPs very lowInternational gateway license in conjunction with high bandwidth trans-oceanic carrier alliance could provide
46、 vastly superior service Mobile carriers will be searching for lower cost alternatives to carry long distance traffic due to intensifying competition CNCs new high capacity VoIP network and international gateway likely to yield lower costs Fixed line carriers potentially looking for alternativesExis
47、ting long-haul transport infrastructure limitedChina Telecom could even be a possible customer given current focus on increasing residential teledensity- 18 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIOVERALL WHOLESALE MARKET SIZE
48、IS SUBSTANTIAL AND GROWING AT A MODEST RATEAnticipated Price Decrease in Leased Lines Limits Overall Revenue Growth Leased Lines - ISP Market Size (RMB B)15 Total Leased Lines - Mobile99-04CAGR Access Ports Leased Lines - Paging1818202226284%41%1%152%(1)9%(1) 01-04 CAGRSource: CNC team inputs; forei
49、gn benchmarks; BCG analysis Dark Fiber68%(1)- 19 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHICARRIERS SEEKING ALTERNATIVES.ISPs definitely seeking alternatives to CTMobile carriers likely to follow“We need a telecom service provide
50、r that is not our competitor.”-Founder, Eastnet“China Telecom, with their own network development plans, tends to starve us on capacity or to force us to pay in advance for excess capacity.”-Manager, Infohighway“The fact that it takes China Telecom two months every time we need an extra line makes i
51、t very difficult to have our own customers. We want another operator who can get us leased lines fast.”- Manager, InfohighwayMobile carriers might consider diverting part of their traffic to alternative service providers with:more attractive pricinghigher quality servicehigher bandwidthInterviews wi
52、th regional mobile carriers and Unicom need to be conducted to verify potential- 20 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIBUT TECHNOLOGICAL LIMITATIONS AND COMPETITIVE CHALLENGE ARE IMPORTANT FACETS TO MANAGECompetitive Chall
53、engeTechnological LimitationsMobile carriers may be hesitant to use VOIP technology for primary applicationsCarriers currently addressing sound quality as a major improvement initiativeVOIP has yet to deliver toll-quality voice transmission, even on landlineMobile carriers may take view that VOIP co
54、uld further degrade voice qualityChina Telecom likely to have advantage in competing share of CT Mobiles businessStrong former intra-CT connection even after splitExtensive backbone coverage and large TDM based capacityUnicom Mobile Services business as tough targetBuild presence by offering low-cos
55、ttrials and backup capacityLobby for clear regulation from MII on freedom of choice for carriers- 21 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIPREDICTED WHOLESALE ECONOMICS ADD SIGNIFICANT VALUE TO VOIP BUSINESS MODELAdditional C
56、apEx and OpEx Minimal5 year PV(1) (M RMB)CapEXOpExRevenue5 year NPV15%:2.1B RMB5 year IRR: 40%Wholesale critical to enhancing profitability of backboneVOIPBackbone allocationDark FiberAccess portsISPsMobile operatorsVOIPVOIPISP accessOSS(1) Assuming 15% cost of capitalSource: BCG benchmark database;
57、 industry interviews; BCG analysisOSS/provisioningPresent value of cash flows8,0007,0005,0001,0006,000-3,000-4,000- 22 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIAGENDA Business ModelsDomestic and international long-distance voice
58、Wholesale/carrierEnterprise solutionsIssues going forward- 23 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIAPPROACH TO ENTERPRISE SOLUTIONS BUSINESS MODELObjectivesHypothesized ApproachCapture strong share among medium/large busines
59、s by offering enhanced datacom solutionsGoal to establish clear position as best service/quality provider in major marketsUtilize most cost effective deployment technologies to cover major metro areasMinimize head-to-head competition by offering differentiated, data-centric products-attempt to drive
60、 datacom marketDevelop image as fast, responsive solutions providerEnable competitive advantage for business customers through datacomFor building managers: make their buildings more attractive to tenantsDeployment to target key buildings in major metropolitan areasFour cities by year 2000/01Top 15
61、cities by 2001Fiber in most dense urban hi-rise areas and LMDS to complement and serve less dense areasInitial lead products will be low cost voice over IP and high bandwidth internet accessMigration to full datacom solutions as customer base and capabilities growQuality customer service more import
62、ant short term than full product offeringEmphasis on ease of use and fast provisioning versus competitors-exploit CTs weaknessesEducation of customers on use of datacom products as competitive weaponsMarketing partner with key building managers - 24 -China Netcom - The Boston Consulting Group-Confid
63、ential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIENTERPRISE SOLUTIONS SUMMARYPreliminary EconomicsPhase I Capital Investment (2000,2001): 1.1 B RMBFirst four cities (assuming fiber): 650 M RMBAdditional 11 cities1: 400 M RMBOpEx expected to be 40% of revenue by 2002Market share and rev
64、enue estimates - 2002Offnet Voice2: 20%Existing data: 10% 1.1 B RMBEmerging data: 5%5 year NPV: Roughly 1.2 B RMBAssumes launch date of 3Q 2000 for data servicesLikely too optimisticKey Issues to be AddressedRight of way for existing ducts and diggingPartnership strategy for high bandwidth IGW Right
65、s to LMDS frequency spectrumAre the 15 cities designated for Phase I buildout the right 15 cities for local access?Tradeoff between pure economics by city vs. strategic value of providing end-to-end connectivityWhat is a realistic time frame for launch?Magnitude of organizational and human resource
66、requirements(1) Assuming LMDS capital and revenue 2 times Fuzhou estimate for cities 11-15; 3 times Fuzhou estimate for cities 5-10(2) Assumes no local voice revenue through 2004- 25 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIENTE
67、RPRISE SOLUTIONS BUSINESS MODEL MOST COMPLEX WITH HIGH CAPEX AND OPEX REQUIREMENTS. Building metropolitan fiber rings to offer access to medium and large businesses poses significant challengeOperating expenses required dwarfs long haul network costs on a per city basisComplexity in obtaining night-
68、of-way varies by districts within each cityDesigning fiber route and network configuration requires significant experience Converting customers to full CNC service may not be as easy as it seems on surfaceInitial risk for companies utilizing new entrant Coverage issues for offering service to all bu
69、siness locationsExperienced sales-force with established relationships a must- 26 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIBUT COMPRISES TREMENDOUS UPSIDE POTENTIALInternet AccessLeased LinesILDDLDLocalOtherPortalBroadband Conte
70、ntWeb Hosting/ CollocationExisting ServicesEmerging Services98-04CAGR124%40%-10%7%11%IP VPNBroadband Network Applications71%83%186%98%111%286%00-04CAGRMarket size (RMB BN)Market size (RMB BN)7896187Overall16%Overall86%332Source: CNC team inputs; foreign benchmarks; BCG analysis- 27 -China Netcom - T
71、he Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHICUSTOMER NEEDS EXIST THRUGHOUT THE VALUE CHAINCTs Offering Yields Significant GapsLearnBuyGetUse/supportPayCustomer value chainNeeds identifiedHow datacom services can help their business Assistance deplo
72、ying solutionsQuicker and more convenient application channelsRapid and reliable provisioningFaster, reliable repair servicesPrompt, customized billingLack customer focusSolutions virtually non-existentMostly one-way product marketingNo customer input for provisioningCT determines queue without spec
73、ific timing No penalties for missed appointmentsNegligent repair serviceSlow fulfillment & technical support responsePoor response to customersLimited bill customizationCTapproachSignificant opportunity for CNC establish position in customer solutions, ease of use, and responsive serviceAreas highli
74、ghted most in customer interviewsSource: Customer interviews; BCG analysis- 28 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHISTAGED PRODUCT INTRODUCTION NECESSARY TO MANAGE QUALITYHypothesized Product IntroductionsVoiceData2000200120
75、02200320042008Phase I & IIPhase IIIPhase IV Leased LinesMobile carriersEneterpriseHigh bandwidth dedicated internet access for businesses and ISPsAccess Ports VPNBasic enterprise Broadband applicationsPlatforms to enable VOD, etc. Web HostingDark FiberResidential ISP?Advanced VPNExtranetVoice, video
76、 QoS guaranteesIndustry specific offeringsOther emerging services (e.g. e-Commerce)IP-phone voicePrefix “Dial-around” solutionsEqual access voice?On-net voice?Focus on quality over quantityMarket as integrated productsStress CNC role as integrated datacom playerPositioningIssues- 29 -China Netcom -
77、The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHICNC SHOULD USE CREATIVE WAYS TO GROW THE MARKET, AVOID HEAD TO HEAD COMPETITIONCompetitors all focus on the same demand from the same customersSavagely compete on priceReactively wait for customers to id
78、entify need, request productsPursue growing customers - data intensive enterprisesFresh opportunities for sales, instead of competing over existing businessApproach proactively with new products, instead of waiting for customers to initiate sales processCreatively identify new marketsI.e. market for
79、 companies requiring very rapid provisioning or customized productsBecome the only choice for these companiesLobby the government to support more e-commerce and information industries growthCTCNCUnicomJitongCT is likely to be unable to meet growing demand aloneTraditional, narrow viewNew approaches
80、to growing sales- 30 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHITOTAL GDP VS. GDP/CAPITA IS A PRELIMINARY INDICATOR FOR ATTRACTIVE LOCAL ACCESS MARKETSExample: 15 Initial Cities with POPs on CNC NetworkShanghaiBeijingGuangzhouTian
81、jinHangzhouWuhanNanjingJinanShijiazhuangZhenzhouChangshaXuzhouXiamenFuzhouShenzhenExamples of additional cities not in initial 15 designated for CNC POPsHypothetical breakeven curve for building local accessSuzhouWuxiTotal GDP (k RMB)GDP/cap (k RMB)- 31 -China Netcom - The Boston Consulting Group-Co
82、nfidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIVERY DENSE MARKETS SUCH AS SHANGHAI BEST SERVED BY METRO FIBER RINGSMPOP/rail stationHong Qiao Development AreaPeoples parkHuai Hai RoadXujiahuiPudong Financial ZoneFiber length:Along subway:Along elevated ring road:Along road:17000m
83、9000m8000m# of major businessbuildings accessed:200Fibers alongSubway in constructionSubwayElevated ring roadRoad (dig required)Dense Business Area servedMetro stationsMMM- 32 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHISHANGHAI EC
84、ONOMICS VERY ATTRACTIVE DUE TO HIGH BUILDING AND BUSINESS DENSITY5 year PV(1) (M RMB)CapEXOpExRevenue5 year NPV15%: 310M RMB5 year IRR:70%Shanghai presents most attractive enterprise solutions marketSG & AAllocated backboneIDDEmerging data(3)DLDData servicesSONET/switching equipmentOSSAllocated back
85、bone(2)(1) Assuming 15% cost of capital(2) Cost of providing F/R and ATM service on backbone allocated over first 4 cities(3) Web hosting IP VPNS, etc.Source: BCG benchmark database; industry interviews; BCG analysis; real estate agency interviews; field analysisPower provisioning, etc.Fiber constru
86、ctionRight of wayPresent value of cash flows- 33 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIMEDIUM SIZED CITIES WITH HIGH GDP/CAPITA SUCH AS FUZHOU BEST SERVED WITH LMDS SOLUTIONFiber length:Along road:# LMDS station: 5000M1Area s
87、erved(1):# of major businessbuildings covered:40km240(2)LakeFiber along roadRailwayRailway stationRoadLMDS stationMajor buildingsArea servedRS(1) More detailed field analysis required to map buildings and most effective LMDS positioning; assumes 3.5 km radius for LMDS area(2) Assume half of the buil
88、dings are prime business buildings for economic modelingSR- 34 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIPRELIMINARY FUZHOU ECONOMICS UTILIZING LMDS VERY FAVORABLE5 year PV(1) (M RMB)CapEXOpExRevenue5 year NPV15%:20M RMB5 year IR
89、R:60%LMDS solutions for medium sized cities will play a critical role in developing enterprise solutionsSG & APower, provisioning, etc.IDDEmerging data servicesDLDData servicesBase stationCPE(1) Assuming 15% cost of capitalSource: BCG benchmark database; industry interviews; BCG analysis; real estat
90、e agency provided dataBldg equipmentSpectrum feesFiber to POPPresent value of cash flows- 35 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIOTHER CITIES OF SIZEABLE POPULATION BUT RELATIVELY LOW GDP/CAPITA MAY NOT WARRANT INVESTMENTEx
91、ample: ShijiazhuangNo fiber connectionrequired, assume rail station is LMDS base1Area served(1):# of major businessbuildings covered:40km220(2)RailwayRoadLMDS stationMajor buildingsArea servedSS(1) More detailed field analysis required to map buildings and most effective LMDS positioning; assumes 3.
92、5 km radius for LMDS area(2) Assume half of the buildings are prime business buildings for economic modeling- 36 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIOVERALL ECONOMICS APPEAR MARGINAL FOR SHIJIAZHUANG5 year PV(1) (M RMB)CapE
93、XOpExRevenue5 year NPV15%: -3M RMB5 year IRR:5%Cities without dense business districts may not be attractive enterprise markets regard less of overall sizeSG&APower, provisioning, etc.IDDEmerging data servicesDLDData servicesBase station(1) Assuming 15% cost of capitalSource: BCG benchmark database;
94、 industry interviews; BCG analysis; real estate agency provided dataSpectrum CPEBldg. equipmentPresent value of cash flows- 37 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIOVERALL REVENUE AND MARKET SHARE EXPECTATIONS: ENTERPRISE SO
95、LUTIONSPredominately voice (DLD / ILD) revenue in the first two years; migrating to data and Internet services by 2002CNC revenue(RMB BN)Internet AccessLeased LinesILDDLDShare assumptionsOtherEmerging ServicesWeb Hosting / CollocationSource: CNC team inputs; foreign benchmarks; BCG analysis19993%80%
96、1%3%80%1%0%0%0%0%0%0%DLDOff-net share of total DLDGeographic coverage of CNCCNC share within coverageILDOff-net share of total ILDGeographic coverage of CNCCNC share within coverageLeased LinesGeographic coverage of CNCCNC share within coverageInternet AccessBroadbandNarrowband / Dial-UpWeb Hosting
97、/ CollocationOther Emerging Services200010%60%25%11%60%25%30%2%2%0%0%0%200117%75%29%18%75%29%47%10%10%0%5%1%200223%90%33%26%90%33%63%14%14%0%8%2%200330%100%30%33%100%30%80%18%18%0%10%4%200432%100%28%35%100%28%82%21%21%0%13%6%- 38 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Sh
98、redding-45034-05-Interim-14Dec99-TZD-gx-SHIOVERALL ECONOMICS ATTRACTIVE FOR PHASE I BUILDOUT IN TOP FOUR CITIES5 year PVs (M RMB)CapExOpExRevenue5 year city NPV5 year IRRShanghaiBeijingGuangzhouShenzhenTotal1451491579554650444740033216839607686404802848311172835370%45%30%28%Overall Phase I 5 year NP
99、V: 620M RMB5 year IRR: 44%Source: BCG benchmark database; industry interviews; BCG analysis- 39 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIGOING FORWARD, CITIES WILL NEED TO BE ANALYZED ON A CASE BY CASE BASISDeployment technology
100、 will play a critical roleMethodology/criteria for choosing local access marketsInitial prioritization by total GDP vs. GDP/capitaRelevance and proximity to CNC networkMap urban area by biggest buildings and availability of existing conduitsDetermine if density falls into one of the three density ca
101、tegoriesEstimate costs and revenue associated with buildout1.2.3.4.5.Go or no go!Cost to deliver enterprise solutionsIncreasing business density and areaIntermediate density best served by LMDSVery dense and large area best served by fiberToo costly to serveFiberLMDS- 40 -China Netcom - The Boston C
102、onsulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIRECAP OF OVERALL PHASE I ECONOMICS AND KEY ISSUES Enterprise Solutions2 1.1 B 3.2 B (38%) 1.2 B Businesses/km2 Data growth IGW/connectivity Deployment cities Realistic rollout Buildout economics for 15 cities vs. co
103、nnectivity value Wholesale/Carrier 100 M 2.3 B (27%) 2.1 B Mobile share Internet growth IGW/connectivity Voice QOS Regulatory backing Cost of deployment vs. service flexibility Long distance voice 3.8 B 3 B (35%) - Settlement charges Pricing/competition IGW/connectivity Managing life cycle Business
104、solutions Economics of 60 VOIP cities vs. strategic value of coverage Economics1 CapEx 2004 Revenue (% of total)5 YR NPV3Key Issues SensitivityTop issues to addressTradeoffs(1) All values in RMB and based on preliminary inputs to be refined(2) Includes only Phase I buildout to top 15 cities(3) Assum
105、ing 15% cost of capital- 41 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIAGENDA Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forward- 42 -China Netcom - The Boston Co
106、nsulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIEMERGING OPPORTUNITIES EXIST FOR CONSUMER ISP AND ADVANCED DATA SERVICES Residential ISPCNC may be in unique position to offer true broadband internet access due to IP network and international gatewayWhat strategies
107、 will capture significant value while minimizing development time and necessity for brand equity? Web Hosting/Data CentersNiche competitors such as Exodus in the U.S. aggressively pursuing this business modelWill opportunities develop in the near term for China and could CNC supply resources necessa
108、ry? E-commerce solutionsMany telcos in Europe and U.S. offering e-commerce solutionsWill opportunities develop in the near term for China and could CNC supply resources necessary? - 43 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIDa
109、tacom services explosion Slowed adoptionStable competition with CT, Unicom, and Jitong; clear regulationsIncreased competition with limited cooperation from CTFragmented, unstable competition; multiple entrants and unclear regulationsBase caseBestWorstDemand sideCompetitive/Regulatory Situation (Sup
110、ply side)ENVIRONMENTAL UNCERTAINTIES LEAD TO THREE BASIC SCENARIOS TO BE ANALYZEDGrowth in existing data and and emerging datacom services (as expected)- 44 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIMONTE CARLO SIMULATION WILL AL
111、LOW FOR GAUGING THE EFFECTS OF UNCERTAINTIES IMPLIED IN SCENARIOSExample: Effect of Average Building Size, Tier 1 Business Proportion & Spending on Shanghai Metro Access EconomicsEstablish Input Variables25,000.0028,750.0032,500.0036,250.0040,000.00Average building size (m2)MinMost likelyMax7.5%11.3
112、%15.0%18.8%22.5% Tier 1 businessesMinMost likelyMax300.00350.00400.00450.00500.00Average spending/sq m for Tier 1 (RMB)MinMost likelyMaxProbabilityMonte Carlo simulation of 1000 trials with 5 year NPV as forecast outputFrequency ChartCertainty is 95.00% from $238,500 to $558,816 000 RMBMean = $381,0
113、16.000.023.046.068.091022.7545.568.2591$150,000$262,500$375,000$487,500$600,0001,000 Trials 6 OutliersForecast: 5 YR NPVResulting forecast- 45 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIMONTE CARLO SIMULATION PROVIDES VERY USEFUL
114、OUTPUT 95% certainty that with the inputs provided, 5 year NPV will be greater than 239M RMB Statistically impossible for the project to have a negative NPV based on provided inputs Forecast mean is actually higher than our base case value (381M vs. 318M) due to effects of variable inputs A sensitiv
115、ity report generated from the simulation tells us that average building size contributes the most to output variance, therefore it is the most important input to focus on clarifying- 46 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIC
116、ONTENT Key strategic principles Regulatory overview Market overview Competition overview Business models Next steps- 47 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHINEXT STEPS Agree on business mix assumptions Develop organization s
117、tructureAgree on key principles and objectivesTimeline, key milestones Develop implementation action planHigh level plan (by quarters) till Jan 2002Detailed plan (by month) Jan-Jul 2000Key milestones, process control Integrate and refine overall CNC financialObjectives and assumptions for financial
118、modelScenarios / sensitivities- 48 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIORGANIZATION DESIGN METHODOLOGYDefine principles & objectivesKey criteriaDesign organization structurePossibility of combination/hybrid modelsDefine job
119、 responsibility/accountability corresponding to organization structureExample for process flow (how each function interacts)Example for KPI, principles for KPISelect models to test- 49 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIMA
120、JOR OUTPUTS: ORGANIZATION DESIGNKey principles for KPIWith examplesDivision/accountability“Internal market” as cross-dept incentiveOrganization chartDotted line vs. solid lineReporting/accountabilityRationale/methodology- 50 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shreddi
121、ng-45034-05-Interim-14Dec99-TZD-gx-SHIIMPLEMENTATION PLAN DESIGN METHODOLOGYObjective/target scheduleMajor function/module working backwardDetailed work and cycle time for module/sub-module refine timelineDraft implementation timelineKey checklist & mile stones per divisionKey process for rollout (a
122、cross divisions)Product rolloutGeographic rolloutRevise target if necessaryIdentify bottleneck, refine scheduleSegmented view of implementation- 51 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIKey cross-functional coordination proce
123、ss flowExamplesMAJOR OUTPUTS: IMPLEMENTATION PLANKey rollout plan exampleProduct CityMS project time-line/milestonesOverallBy divisionHighlightsMajor milestones resource planning- 52 -China Netcom - The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIWORKPLAN(1)(1) Refer to CNC team schedule for details. TDC off Dec 22-30; TC off Dec 20-24; Rest off Dec 27, 31 for holiday
