BCG中国网络通讯集团公司战略报告英文课件

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1、CHINA NETCOM BUSINESS PLAN UPDATEDecember 14, 1999 - BeijingTODAYS OBJECTIVES Review the overall analysis of regulation, competition, and market developmentDiscuss the specific implications for CNC strategy Review the specific draft business models for CNC How we might attack the business, carrier,

2、and IDD/DLD marketsWhat key trade-offs we need to makeWhat are the key success factors and assumptions? Discuss the initial economics of these business models, and of CNC overall Discuss the specific next steps in two key areas:How to finalize and endorse the overall CNC business modelHow to move fo

3、rward with the refined financials, organization design, and the plan for implementationCONTENT Key strategic principles Regulatory overview Market overview Competition overview Business models Next stepsKEY CNC STRATEGIC PRINCIPLES The objective of these principles is to provide further clarity in t

4、he development and evaluation of the CNC business model These will be revisited and refined as the project progressesOur development of business models will seek to be aligned with the principles Strategic principles and key assumptions will be considered in the following aspectsCNC shareholdersBack

5、bone businessLocal access businessInternational gateway businessRegulatory strategyCompetitive strategyMarketing strategyCNC SHAREHOLDERS Principles:Leverage shareholders concerted vision in creating a new generation IP broadband communication infrastructure and a profitable, successful companyLever

6、age shareholders existing backbone assets, local access assets, research capabilities and local government relationships to secure time-to-market and create competitive advantageSet a model of a new type of “SOE”, as efficient as the best of the FIE/private companies; beat shareholders expectations

7、by delivering high return Assumptions:CAS: strong interest in seeing CNC successful and profitable quickly, stands ready for favorable regulatory influence and research support; wants opportunities for networking R&DMOR and SARFT: extensive backbone and access assets and ROW-main focus on using MOR

8、for right of way, helping them participate in telecom-will not use SARFT local CATV in the near term, but they are a key user of the backboneLeverage CATVs city backbone-MOR will continue to favor CNC over Unicom, provided CNC meets the expectation as a profit center for MORShanghai Municipal Govt:

9、Eager to make Shanghai as Chinas test ground for building high-tech infrastructure (e.g. the integration of telecom, CATV, Internet)-in particular, testing HFC to deliver broadband internet-one issue: SPT and ATT JV; how to handle?BACKBONE BUSINESS Principles:Target advanced backbone among 15 key ci

10、ties in Eastern China; start with 2 cores from shareholders but quickly build own networkUse backbone for a variety of wholesale and retail voice and data servicesMaintain the leading edge IP/packet network, both for technological superiority and to fulfill shareholder missionMaintain the best cost

11、position, using ROWs, purchasing clout, right technologyBuild reserve capacity/conduit to deter others Assumptions:The costs of construction and ROW will be the majority of new network costs-virtually all of the network will use MOR or SARFT right of wayNetwork will be IP or packet in natureDeployme

12、nt plan will keep costs low, build out quickly, and create good position-lay large number of conduits in one time-later fill, light up, and color fiber strands-lease out conduit/fiber/bandwidth to maximize return (utilization)LOCAL ACCESS BUSINESS Principles:Be very focused in local deployment, targ

13、eting priority business areas onlyEmphasize broadband to the customer, using FTTB and LMDS where logicalSeek strong local market share, especially in new data services growth areasDifferentiate from China Telecom by superior services, quality, responsiveness -Build strong local team to enable fast s

14、ervice response-Emphasize “end to end” network ownership and management Assumptions:SH, BJ, GZ, and SZ business districts as targets for the near term-These account for the vast majority of business telecom demand-Need to set specific estimates for timing and sequence of deploymentAssume that CNC wi

15、ll have access to key city ROW, such as subway systemsWill need specific assumptions about the ease and cost of hooking up buildingsAssume that primary emphasis will be on FTTB, but that LMDS can play an important role, especially in initial deployment and in secondary citiesWill need specific assum

16、ptions about timing of adding secondary citiesINTERNATIONAL GATEWAY BUSINESS Principles:CNC will be one of few players with a full international licenseVital to enable CNC to provide end-to-end services, global data services, and higher margin IDD serviceHK gateway link may be strategically importan

17、t Assumptions:HK as one of the key location for international connection-a major traffic destination-a major relay locationInternational voice remains highly profitable segment in medium term futureExpect high growth together with steep price drop in international servicesActively plan ahead for joi

18、ning international sub-oceanic cable consortiumREGULATORY STRATEGY Principles:Must actively lobby for favorable regulatory decisions, together with shareholders-provide regulators with international benchmarking for best practices-align CNC objectives with fair competition, and public interests-have

19、 effective senior management focus on lobbying issuesBe careful about committing investment if regulatory issues too uncertainEnsure CNC strategy addresses national economic development prioritiesPay careful attention to managing relations with China TelecomExpected WTO in 2000 will imply greater op

20、ening of the market in the future Assumptions:At least a 2-3 year window when CNC can continue to enjoy favorable policy treatment, while also working to straighten out regulatory issues at local levelMany key regulations remain in grey areas, where CNC can play a role in shaping the policyWill need

21、 to make specific assumptions on a number of regulatory issues, and develop several scenariosAssume that CT and Unicom are the only full service competitors, but several niche playersWTO will introduce FDI into Chinas telecom market by 2002, but infrastructure play remain tightly controlled (still l

22、imited competition) until 2004/5-may be opportunity for some form of partnership with foreign telcosCOMPETITIVE STRATEGY Principles:Focus on the best service quality, supply what customers need, avoid competing on priceBuild both “highways” and “tollbooths”Prepare for rapidly changing industry struc

23、tureBe careful in positioning toward China Telecom: -complementary and addressing unmet needs-growing the whole marketThe only viable alternative to China Telecom for carriersThe only true “end to end” network across China, with clear central management Assumptions:Technology leads to continual chan

24、ge in industry structureThe decentralized nature and business oriented behaviors of China Telecom enables CNC to partner at the local levelHigh opportunity for CNC to fill China Telecom product/service backlog Unicom will be a threat to start a “price war”Various niche players emerge in later years,

25、 more threat than (carrier) opportunity for CNCMARKETING STRATEGY Principles:For local access, will target medium and large businesses in targeted buildingsFor backbone, provide carrier services For international, support other businesses and also offer IDD and refiling, etc.In all areas, emphasize

26、quality, service, end to end, etc.Get a few key customers early; prove ourselves and then build further Assumptions:Carrier and large and medium sized corporations are the key focus-especially those in telecom-intensive industriesAssume a growing demand for business telecom services-will need both h

27、igh and low growth scenariosNeed to validate the willingness of key customers to switch, and their anticipated areas of future demand growthIP phone still the source of revenue in the near futureDial-up ISP (171) may conflict with ISP carrier interests, but could also serve as strategic inroad for f

28、uture 3G(1)(1) Not in scope of this project CONTENT Key strategic principles Regulatory overview Market overview Competition overview Business models Next stepsREGULATORY HIGHLIGHTS Our key assumptions:MII regards CNCs IP-based license as Full Service license, but lacks clear regulatory documentatio

29、n. In case of local interpretation difference, MII is willing to clarify on behalf of CNC-e.g. ambiguity on local fixed line (CNC number)CNC will be granted International Gateway license by 1Q 2000CNC IP network protected by the current fixed/mobile interconnect regulation CNC not required to meet s

30、pecific coverage targets for the near future (2-3 years)The market will be opened up gradually, with FDI increasing:-more value added service providers by 2003-more I-Phone providers by 2001-no new Full Service providers till 2004/2005Account settlement specific for I-Phone will be regulated after t

31、he trial stage ends. It will be lower than the RMB0.14/min rate for basic telecom networks on a per call basisEqual access by prefix/pre-select in 1 year; number portability may take another 1-2 years at leastCNC will have LMDS spectrum CNC anticipates a well-intentioned regulator, with varied degre

32、es of control over local incumbent practice None of these assumptions are “guaranteed;” CNC must fight aggressively for themKEY REGULATORY ISSUES AND IMPLICATIONSService licensesFull Service license interpretationInterconnect enforcementAccount settlementPricing and rebalancingROW and access Frequen

33、cy spectrum allocation and feesUniversal Service ObligationEqual AccessNumbering and portabilityIGW license important to competitiveness,size of customer base and # of partnersMII notification on each instance adds delay to CNC local interconnectionTime to market in each city affected, detract CNC r

34、esourcesFuture Interconnect economicsFuture price competitiveness vs. other players (e.g. CT)economics; price competitiveness vs. CTCase-by-case local coordination and negotiation delay local access build-out; may also be expensive to obtainTime to market for local access build-out by LMDS access so

35、lutionsSubsidizing incumbent for USO affect cost structure of new entrantsUnable to reach CT local line customerMedium term implication: on-net voice not targeted for the near 4-5 years3 full service carrier including CNCMore licenses for value-added service providers (type II)MII supports CNC IP ba

36、sed license as Full Service LicenseBut lack of clear documentation may cause confusion at local levelBased on cooperation of carriersArbitration/settlement process exist but time consumingMild punishment, law suit as last resortFor current IP-phone trial, fees not settledLikely future settlement: LD

37、 carrier pays local PSTN operator RMB0.14/minPrice floor likely specified for incumbent by regulationNo imminent initiative for rebalancingLegally feasible for public telecom carrier (e.g. CNC)Practice will have to coordinate with municipalities and infrastructure buildingControlled by MII in co-ord

38、ination with PTAsFrequency not likely to be auctionedUSO for incumbent with contribution from new entrant2-3 years before transparent and equitable approachPrefix based solution provided by regulation in 1 yearNumber as national resources controlled centrallyFee will be collected for occupation of n

39、umber resource2-3 years before portability regulationsImpact on CNCHighest/ImmediateHigh/Medium TermKey issuesAssumptionImplication to CNCKEY REGULATORY BODIES AND RESPONSIBILITIESOther depts, e.g SETCVarious law making bodiesNPCState CouncilDept. of Radio Frequency AdministrationTelecom Administrat

40、ion BureauOther depts.Provincial Telecom Administration BureauChinaTelecomNationalCompanyMunicipal Level Telecom Administration BureauTelecom Operating Entities: e.g. CT fixed lineProvincial governmentMIIAdministrationOperationsNationalProvincialMunicipalityDrafting, passing of telecom laws and stat

41、ues, e.g. China Telecoms LawInternational, National and Inter-Provincial scope license grantingHighest level of regulatory enforcement/ arbitrationInternational Gateway administrationNational level telecom resources control (e.g. numbers, frequency spectrums)Provincial level telecom administrationPr

42、ovincial level license grantingProvincial level regulatory enforcement focus on coordinationIn the process of splitting operation and administrationA number of Municipal Level TABs are yet to be createdLimited enforcement powerOperation and administration not separateSettle interconnect and other di

43、sputesWhen not settled by provincial & municipal coordination, propagate up to provincial level and MIIPTAsPTBSource: Pyramid Research; BCG analysisKEY LICENSE ASPECTS AND IMPLICATION TO CNCFull Service and InternationalValue added servicesownershipGeographic scopeDurationlicense feesPerformance tar

44、getsTechnologyKey AspectsNumber of licenses tightly controlled: at most 3 in 2003, including CNCCNC full service license expected 1Q 2000International licenses tightly controlled: at most 4 in 2003, including CNCCNC IGW license expected by EOY1999More than 4 value-added service licenses possibleCont

45、rol-share foreign ownership not allowed in basic telecom and public data transport servicesUp to 50% of FDI in value added service providersIntra provincial services under control of provincial TABsNo limitRegulation will require license feesRegulation will specify clear service buildout targetsRegu

46、lations will be technology neutralBut will give preference to new technologyAssumptionsCurrent regulation only cover interconnection between 7 types of licensed basic telecom carriers (e.g. NLD, local, wireless, international)With IP-phone license, CNC needs to negotiate with CT local branches city

47、by cityCNC IP based bandwidth wholesale service not covered in published regulation, adds delay in local negotiationNumber of potential customers for carriers carrier servicesSpeed of establishment and coverage of targeted customer for carriers carrier serviceFinancial strength of new entrant custom

48、ersIntra-provincial LMDS service require application in each targeted areaCompetitors ability to lockout key service areasLimited degree of impact on economicsAdds planning and local coordination pressure to CNC local access solutionsCNC IP/DWDM backbone receive positive influenceImplication to CNCN

49、ATURE, SCOPE AND NUMBER OF LICENSESSource: BCG analysisVSAT transport serviceInternationalNLDOn-net voiceIP backboneIP-phone (including international)WirelessPagingVAS(e.g.ISP,VPN)Service natureOwning satelliteMaintain satellite channelVSAT base stationsOwnership & operation of international gateway

50、sInterconnect with foreign carriersLeasing IDD channels and linesBuilding & operating of national switches and trunk linesMaintaining POP is nationwideProvide basic voice & data national transportOwnership & operation of local access networksOwnership of last mileProvide basic local voice/data trans

51、port and access to NLD/IDDBuilding and leasing of broadband IP based backbone transport capacityProvide IP based voice serviceNo requirement in infrastructure buildingIncluding international IP based LDBuilding & operation of local BSC networkProvide wireless voice services Interconnect with nationa

52、l transport carrierBuilding & operation of Local Paging Networks Interconnect with national transport carrierWith or without building & operation of local networkOffer web-hosting, VPN, call center services, etc.ScopeNational coverageCross international point of presenceService national transport ca

53、rriersCross provincial boardersHave access to international PO connectsService local PSTNsCovers local service areas, (e.g. cities municipalities)Cross provincial boardersAccess to international points of connectCovers 12-25 trail cities Access to international points of connect Covers local service

54、 areas: cities municipalitiesMajority in local scope 4 national coveragePrimarily in local scopeNo. of futurelicensesRemain 3 for the next 6 years (CT, Unicom, and CNC) 3 In the next 6 years (CT, Unicom, CNC)3 In the next 6 years (CT, Unicom, CNC)45 in 1-2 years5-6 possible in the next 12 yearsMulti

55、ple licenses possible in the next 4-5 yearsNumerous national scope licensespossible in the next 2 yearsNumerous more licenses (with FDI) possible in the next 2 yearsLicense controlled byMIIMIIMIIMIIMIIMIIMIIPrimarily by provincial governmentProvincial governmentNo. of current licenses13223 (CT, Unic

56、om,CNC)4Trail stage22 national scope;multiple localUnlimitedBasic telecom servicesRemain 1 for the next 6 yearsINTERCONNECTION ISSUES AND IMPLICATION TO CNCKey IssuesAssumptionsImplication to CNCObligation clearly specified by regulation for interconnection between 7 types of telecom network license

57、d operatorsCNCs IP broadband network receive equivalent protectionMII sets technical specification of interconnect solutionsClear provision on cost and ownership of technical assetFrom time of written request, interconnect complete within:2 months if only CO data modification is involved4 months if

58、capacity expansion needed7 months if new POI (1) neededTime frame not strictly adhered to, varies from 4-6 monthsDispute settled primary via coordinationArbitrated by MII and local governmentViolation fine is very low (30,000 RMB max per offense)Possible to claim for compensation due to non-cooperat

59、ion of incumbents (the last resort)RMB0.07/min for PSTN access of each end of call pathSettlement for IP based will follow scheme when trial finishesIncumbents provide cabinet room and conduit accessIn case theres no excess conduit capacity, incumbent has to provide feasible expansion planLocal prac

60、tice will varyIncumbent charges rental fee for conduit accessIncumbent charges for leased line needed for interconnectInfrastructure and network investment related to interconnect are responsibility of both parties, separated from POIIncumbent obligation to interconnectInterconnect timeframeEnforcem

61、entAccount settlementAccess and collocationCharges and feesIf CNC network is not covered by regulation, local negotiation will leave loophole for incumbent and add delayIncumbent local practice varies, add complexity and delay to projectIncumbent can take advantage of timeframe loopholes, add delays

62、 at local levelCentral control over local TAB(2) varies due to varied degree of separation, lead to different degree of just and resolution timeframeUpward propagation to MII time consuming, adding delays to resolutionFuture economics: up to 30% of revenue paid to PSTN based on 0.30/min IP rateIncum

63、bent can take advantage of capacity constraints to delay interconnect at local levelSome incumbent local branches require CNC to pay for investment, ownership goes to incumbent, adds cost to CNC serviceNote 1: Point Of Interconnect 2: Telecommunications Administration BureauCLEAR GUIDANCE FOR INTERC

64、ONNECT ALREADY PUBLISHED, LOCAL PTA OBLIGED TO FOLLOW Local PTA can be resistant, also its organization not suitable for quick executionThe policy decision requesting local PTAs to corporate with interconnection trickles from top down: the central provincial PTA city PTACity PTA before implementatio

65、n will generally ask for lead time for verification with upper levels. E.g. in some cases new entrant has to wait for extended time period for this processUnder the Market Departments coordination, there are up to 18 independent departments within each city PTA to cooperate for the execution and res

66、ource planning of interconnectEach of these department can add delay to the process, lead times add upIn case of insufficient resource, the requesting and approval process for expansion / upgrade is even longerLocal PTA can easily use resource constraint as an excuse for delay in interconnection But

67、 interconnection is feasibleCNC has so far been able to reach interconnect contract at provincial levelsMost PTAs in CNCs target cities displayed timely cooperationIn order to ensure quick execution, CNC shouldUnderstand and incorporate into planning process the status of incumbent network resources

68、Give lead time in planning and communicating intention to interconnect with the incumbentBuild strong communication channel with all levels of PTAsCo-ordinate for good timing across all levels; parallel processing to minimize time needed and clear bottleneckBACKUPTHE PROCESS OF LOCAL INTERCONNECT IS

69、 GENERALY SMOOTH But Theres Great Difficulty in Some CitiesInterconnect in major cities is smoothe.g. BJ, SH, GZGreat difficulty in some cities e.g. WuhanFast agreement reachedFrom negotiation to implementation usually takes 2-3 weeksTakes 4-6 month to complete negotiation Issues:- local CT branch a

70、ttempted to curtail CNC by forbidding connections of multiple lines at CNC levelResolution:- resort to regulatory provision to reach IP phone interconnect agreement- push off multiple line issue as future negotiation agendaBACKUPTERMINATION SETTLEMENT MAY REDUCE CNC MARGIN (I)CurrentLikely scenarios

71、 for Y2000End userCustomer pays local PTA for PSTN usagee.g. RMB 0.1 every 3 min to PTANo settlement paid by CNC to PTACustomer pays local PTA for PSTN usagee.g. RMB 0.1 every 3 min to PTANo settlement paid by CNC to PTACNC pays RMB0.14/min to PTA for both origination and terminationCNC charges cust

72、omer IP-phone carrier rate e.g. RMB 0.3/min paid to CNC (debit from prepaid IP phone card)CNC charges customer IP-phone carrier rate e.g. RMB 0.3/minPer minute IP rate 0.44/min paid to CNCotherwise CNC see margin reducingNo settlement No settlementNo settlementCNCCNCEnd userPTASwitchSHPSTNSwitchCNC

73、backbone(1)SwitchSwitchBJPSTNPTATransmission(paid by CNC)Fees:12Transmission(paid by CNC)Note 1: Currently leased from CT. Own backbone by July 2000ExampleInter-connectionBackupTERMINATION SETTLEMENT MAY REDUCE CNC MARGIN (II)Example: National Long DistanceBackupCNC pays PTACNC paysPTAKeepIP-phone p

74、rice the sameCustomerpays PTA(1)IP-phone priceCustomerpays PTAIP-phone priceNew IP-phone priceCurrent IP-phone Trial Stage scenario: no settlementCNC Alternative ICNC Alternative IIPossible scenario for 2000: no settlement1RMB/minNote 1: PTA charges customer on 3 minute units, RMB0.18 per 3 min. Cal

75、culation for this example uses average per minute rate of RMB0.06, assuming customer calls long enough duration.Source: BJ PTAPossible scenario for 2000: RMB0.14/minsettlement rate for both origination and termination ends2Increase IP price to cover settlement costCustomer doesnt pay PTA but perceiv

76、e IP-phone price increaseCNC maintain current IP-phone revenueKeep IP price sameCustomer doesnt pay PTA nor perceive IP-phone price increaseCNC pays PTA out of IP-phone incomeCNC revenue = 54% of current IP-phone revenue0.30.440.360.36CNC retains 100% of IP-phone price as revenueCNC retains 100% of

77、IP-phone price as revenueThe RMB0.14/min settlement rate specified by current regulation is based on traditional fixed line economics. CNC would lobby for new settlement rate specific to IP-phone economicsKEY PRICING REGULATION ISSUES AND IMPLICATION TO CNCKey IssuesAssumptionsImplication to CNCRegu

78、lation follows cost-based pricing guidelineCarriers obliged to publish accounting data assisting pricing regulationPrice floor specified for incumbentNew entrant has flexible price range around incumbent rateLocal, NLD, IDD, wireless, satelliteNational leased linesPrice Bureau within each provincial

79、 government sets prices according to local standard of living and inflation ratesLocal PTAs will have autonomySince local networks have been built by local PTA investments, local PTA has strong influence on local price levelsGeneral pricing rulesDifferential TreatmentCentral controlLocal control / G

80、eographic practiceUsually high initial CNC cost position due to leasing access and settlementShort term uncertainty in price based competitivenessSome flexibility in pricing of CNC product offeringAdvantageous long term competition capability over incumbentClarity in pricing is favorable to CNCBut l

81、imits CNC pricing flexibilityDisadvantageous local price based competitive position in some geographiesVaried cost structure across geographies complicates product management process, difficult for CNC to have consistent pricing, and hence, image.LEASED LINE COST HIGHEST AMONG INTERCONNECT COSTSAppr

82、oximately RMB 134K/month to Link up One CityItemCost per month (in RMB1,000)Leased line to local PTACapacity: 2 M bpsNumber of channels: 30Domestic LD transport(1)Total for connecting up one cityLeased line to international gatewayE1 capacityTotal for IDD from one city9100-150109 - 159 134 average32

83、0454 average(1) Before CNC backbone construction completes, bandwidth for this segment is leased from China TelecomBackupROW AND ISSUES RELATED TO BULIDING LOCAL LOOPKey IssuesAssumptionsImplication to CNCTheoretically, CNC can assume privileged access to public resources, e.g. bridges and roadsTher

84、e is no specific definition of ROW in most localitiesIn practice, theres no free accessOn time fee charged for digging as high as RMB 20K per km reimbursement to local municipalitiesLabor account for 5-10% of total costConduits in bridges and commercial buildings owned by municipal governmentsCondui

85、ts in residential area largely owned by CTConduit access auctioned by local government when building completesOnce auctioned, additional conduits can not be easily added for 4-5 yearsUtility privilegeAccess fees and costOwnership & controlSchedulingTheoretical utility privilege does not guarantee lo

86、cal cooperation Local access to conduit in most cities primarily rely on renting from resource holders e.g. CT, utilities etc.Negotiation of rental largely on a case-by-case basisCase-by-case negotiation will delay local loop buildoutConduit access rights have to be purchased back from exiting holde

87、rsPlanning and coordination needed to fit scheduleFREQUENCY FOR WIRELESS BB NEED TO BE ALLOCATEDCurrently Only Narrow Band Wireless Spectrum AssignedKey IssuesAssumptionsImplication to CNCNo clear regulation available and fierce competition expected in frequency bands for LMDS (25-38GHz)1890-1900MHz

88、 and 1960-1980MHz reserved for FDD Mode WLL1900-1920 reserved for cordless standards e.g. DECTWireless datacom in 821-825 and 866-870MHz range, NO voice traffic is permitted in this rangeFrequency management policies implemented by local DTAs, in conjunction with PTAs and PTBsLocal frequency allocat

89、ion is issued after PTA test and MII examination, a process of 6 - 12 monthsAllocation remains fixed for 3-5 years on averageFrequency policies handled by local DTAs, problems resolved locally and appealed to MII1975-1980MHz band occupied by DGTs wireless access network in SH, BJ, GZ, SZ, FZ and Xia

90、men1890-1895 and 1970-1975MHz occupied by Unicom in CD, TJ and CQLocal wireless access licenses need to be obtained from local PTAsPrimarily to be controlled instead of frequency auctionsNo overall regulation backing onetime solutionRoof top access and building access depend on case-by-case negotiat

91、ions with property ownersFrequency band allocationAdministration of frequenciesLicense of serviceFrequency feesRoof top accessReserved frequency and available LMDS modulation affects viability and quality of CNC access solutionsLong circle of frequency allocation process will impact time-to-market f

92、or CNC solutionsOccupied frequency spectrums in key target cities expect to take long cycle of negotiation and migrationCost of local wireless access solutionslocal license application cycle delay and variationWill introduce delays in key cities e.g. BJ, SH and GZTime to market to key target custome

93、rsOTHER REGULATIONS AND OBLIGATIONSKey IssuesLikely scenarioImplication to CNCLess transparent practices likely to remain for 4 -5 years before equitable policies are madeDuring the interim, incumbent is subsidized for USO by other carriers, reflected in account settlement prices: RMB0.07/min instea

94、d of RMB0.044/minNew entrant not expected to be obligated Instead indirectly participate in paying incumbent subsidy via higher pricesExpect to be thoroughly addressed over 1-2 years timeRegulation provides general end user right to choose LD carrier, access provider to assign default LD carrierEnfo

95、rcement is responsibility of local TAB within provincial governmentsTechnical solution requirement for incumbent not specifiedNumbers, as national telecom resources, regulated by MII and local TABs, granted via allocation or auctionRegulation will specify coverage, service targets and timeframeRegul

96、ation will specify usage fee for assigned numbersSpecific regulations and technical solutions not likely in 2-3 yearsCurrently no carrier has portability practicesUniversal Service ObligationEqual AccessNumbering planNumber portabilityIndirect USO subsidy affects price-based competitive capability a

97、nd economicsNon-transparent USO contribution practices creates loopholes for incumbent to predate pricingCustomers willingness to switch carrierUnprotected numbering resources affect viability of future CNC offeringsTimeframe requirement adds planning pressure and difficulty to solutionCustomers wil

98、lingness to switch carrierKEY CNC BUSINESS OBJECTIVES AND CORRESPONDING REGULATORY IMPERATIVES The Carriers Carrier, Enterprise Solutions and Offnet Voice business models require CNC to achieve the following business objectives, and hence actively lobby for favorable regulations3 3(3 3)3 33 33 3Carr

99、iers CarrierEnterprise SolutionsOff-net VoiceFiber local access solutionOff-net voice interconnect solutionLMDS broadband wireless access solutionBusiness ObjectiveImportant to realizing business modelOBTAIN FREQUENCY SPECTRUM IN 6 MONTHS TIME FRAMETo Ensure LMDS Solution Is Available Before June 20

100、00Frequency AssignmentFeasibility TrialRoof Top AccessService LicenseFrequency FeeAdvocate MII to reserve the suitable 25-38GHz frequency range for LMDS applications. Clarity in provision should be obtained in the near future.Advocate MII to sub-allocate suitable LMDS frequency spectrum to carriers

101、in the near future-finish national level planning for number of carriers-provide a short list of alternatives to determine allocation scheme sub-bands within the feasible 25-38 range to planned carriers-e.g. 25 - 25.5GHz range reserved for CNCor specific frequency spectrum auction plan-frequency all

102、ocation should have nationwide coverage, not geography specificAdvocate MII to set specific migration procedure for occupied frequency spectrum with timeframe specifiedFeasibility for LMDS solution should be technology specific instead of carrier specific(1), MII should publish acceptable solutions

103、based on previous trials to avoid duplication of effortObtain approval from MII for feasibility trial in one key city (e.g. BJ or SH) for two considerations-control of trail time frame-early customer lock-inObtain carrier utility right and compensation procedure that has nationwide application from

104、MII, avoid case-by-case cooperationObtain nationwide applicable service provider license based on spectrum allocationAdvocate MII to set frequency usage fee based on number of operational base-stations, multiplied by a per base-station feeKey Issues For The LMDS Business ObjectiveCNC Imperatives dep

105、loying LMDS In 15 major citiesLMDSCNCPriorityHighest/ImmediateHigh/Medium TermNote 1: Unicom will start trial in ChengDu before EOY1999, expected to finish trial around June 2000.OBTAIN REGULATORY SUPPORT FOR UTILITY PREVILEGEAvoid Case-by-case Local Negotiation to Ensure Quick DeploymentFiber Local

106、AccessCNCPriorityHighest/ImmediateHigh/Medium TermUtility privilege & ROWCompensation fees for diggingBuilding AccessScheduling for future access and capacityObtain specific regulation defining CNCs utility right and obligationObtain specific regulation from MII for cooperation procedure with munici

107、palities for access-advocate MII to coordinate with Municipal Governments in 5 key cities for trial of cooperation procedure-fix regulation based on trial for application in other citiesObtain regulation governing cooperation timeframeAdvocate MII to coordinate with Municipal Governments in key citi

108、es for overall compensation produce and fee determination based on indicative indexes (e.g. Real Estate Index held by statistical institutions)Obtain specific regulation based on result of MII coordination, for application in other citiesFor Municipal Government controlled bridges and commercial bui

109、ldings-advocate regulation to include specific provisions for-obligation of building operator for conduit and equipment room access-conduit leasing fee scheme guideline-conduit provision timeframeFor China Telecom controlled buildings and residential areas, advocate regulation for access similar to

110、that of interconnectionAdvocate regulation for civil planning authorities to publish info and procedures in-conduit capacity and auctioning and fees-conduit ownership and transferring and fees-regulation should specify guideline for fee determinationKey Issues For The Fiber Local Access Business Obj

111、ectiveCNC Imperatives In Building Fiber Access in 5 Key CitiesOBTAIN STRONG ENFORCEMENT AND FAIR SETTLEMENT RATETo Ensure Optimal Economics, Also Obtain Equal Access ProvisionsOffnet VoiceCNCPriorityHighest/ImmediateHigh/Medium TermInterconnect EnforcementAccount SettlementEqual AccessAdvocate serio

112、us punishment clauses that are adhered to by all players and geographies, overseen by independent partyAdvocate for specific regulation for access pricing based on incremental cost of network, eliminate incumbent predatory charge for interconnectionAdvocate speed up of restructuring of incumbents or

113、ganization to facilitate competition and cooperationAdvocate for new settlement scheme different from the current settlement for fixed/mobile telecom network interconnection-clarify with regulation making body that economics difference between IP and traditional calls-advocate settlement rate lower

114、than the current RMB0.14/min rate specified for traditional network interconnection-use international benchmark and LRIC (Long run incremental rate)Advocate completion of new settlement regulation before current trial stage endsRegulation for Prefixed Based equal access (e.g. same length prefix for

115、all players) should be implemented within short time frame of less than 1 yearAdvocate regulation for technology investment requirement for all carriers to provide solution to identify caller-enables user to avoid dialing long prefixes -enable enterprise users that demand differential service to hav

116、e different priority treatmentKey Issues For The Off-net Voice Business ObjectiveCNC Imperatives In Offering Off-net VoiceSUMMARY: KEY REGULATORY RELATED CNC IMPERATIVESService licensesInterconnect EnforcementROW and access Frequency spectrum allocation and feesUniversal Service ObligationTerminatio

117、n settlementEqual AccessNumbering and portabilityGranting of International gateway license and clarification of CNC full service licenseClarification of equal interconnect privilege for IP broadband network (e.g. CNCs)Serious punishment clauses that are adhered to by all players and geographies, ove

118、rsaw by independent partyAccess pricing based on incremental cost of network, eliminate incumbent predatory charge for interconnectionRestructuring of incumbents organization to facilitate competition and cooperationSpecific regulation defining new telecom entrants utility right and obligation, and

119、cooperation procedure with municipalities for accessOverall compensation settlement produce and amount determination based on indicative indexes (e.g. Real Estate Index held by statistical institutions)Specific allocation of 25-38GHz spectrum for LMDS applicationsApproval of six-month CNC LMDS trial

120、 in target city e.g. BJ or SHSpecific procedures for occupied frequency spectrum reallocation/migrationGuidelines and procedures for local frequency resource allocation and feesTransparent USO contribution regulation, eliminate indirect subsidy by higher priceAccounting separation of incumbent along

121、 business line and geographyReporting and accounting procedure for Cost Based SettlementSpecific regulation governing responsibility and obligation for investment in equal access solutionsPublic number resource allocation/auction/ transfer proceduresKey issuesCNC imperatives, key areas to advocateCN

122、CPriorityHighest/ImmediateHigh/Medium TermCONTENT Key strategic principles Regulatory overview Market overview Competition overview Business models Next stepsKEY FINDINGS IN MARKET ASSESSMENT (I) 1998 telecom market size estimated at RMB 239 BN, grow at 19% CAGR to RMB 676 BN in 2004DLD/ILD voice at

123、 RMB 67 BN, with 6% CAGR growth to RMB 93 BN in 2004Total datacom at RMB 24 BN, with 36% CAGR growth to RMB 154 BN in 2004 Offnet voice (IP-phone) represents the major opportunity near-term, market size passing 30% volume by year 2004; but window for CNC closing as competition intensifies and price

124、declines Datacom growth solid mid-long term, fueled by emerging services (conservatively estimated to be over 20% of total datacom by 2004) Geographically, demand highly concentrated in top citiesVoice market 199 Bn in year 1998, 64% in top 60 citiesData market 24 Bn in year 1998, 46% in top 4 citie

125、sKEY FINDINGS IN MARKET ASSESSMENT (II) Business customer consumes 54% of voice market, 97% of data marketLarge, medium enterprises are bulk users in the business sector (55% of Toa voice, 95% of total data)Financial services, high tech, professional services, intl trade, and top general manufacturi

126、ng firms identified as major telecom Telecom service quality and service levels are the key purchasing criteria among key (large and medium)customers Carrier market at RMB 15 BN in 1998, grow at 10% CAGR to RMB 27 BN in 2004ISP and mobile the main carrier segments: over 90% of total carrier marketCO

127、NTENT Key strategic principles Regulatory overview Market overviewDemand forecastGeographic segmentationCustomer segmentation Competition overview Business models Next stepsDEMAND MODELING METHODOLOGYProduct ACURRENT MARKET SIZE By productProduct BProduct C.Driver 1Driver 2Driver 3Growth driversFore

128、cast usingHistorical trendForeign benchmarkChina-specific adjustmentProduct AProduct BProduct C.Driver 1Driver 2Driver 3FUTURE MARKET SIZE By productIterationsIterations/ verify modelShare assumptions by product by yearCompetitive environmentForeign benchmarkGeographic coverageCNC REVENUE by product

129、Fill in gapsBreakdown to growth drivers, test formulae/ relationship2004 TELECOM MARKET PROJECTED TO BE RMB 676 BNData And Internet Services Are The Growth Engine Going Forward Data(2) Internet(3) Other (4) (RMB Bn)99-04CAGR (%)Voice (1)Data (2)Internet (3)Other (4)55%10% 0%35%239 Total Voice (1)(1)

130、 Voice services include local, domestic long-distance (on-net & off-net), and international long distance (on-net & off-net, including Hong Kong, Macau and Taiwan)(2) Data services include leased lines (mobile and paging operators, ISPs & business) and access ports(3) Internet services include inter

131、net access (broadband & narrowband), web hosting / collocation, and other emerging services(4) Other services include the sale and lease of dark fiber / conduits, mobile, and pagingSource: BCG analysis312363441506587676 10% 25% 102% 23% 19%48% 9% 1%42%46% 9% 2%43%41%10% 3%45%39%11% 5%45%36%12% 7%44%

132、34%13%10%43%Telecom Market Size1998 TELECOM MARKET IS RMB 239 BNMarket Size(RMB Bn)Local (63)DLD (48)ILD (18)Leased lines(0) (23)Internet access (1)Mobile (69)Paging (15)97 - 99 CAGR(0) Estimated(1) Voice services include local, domestic long-distance (on-net & off-net), and international long dista

133、nce (on-net & off-net, including Hong Kong, Macau and Taiwan)(2) Data services include leased lines (mobile and paging operators, ISPs & business) and access ports; leased lines market estimated with CNCs team inputs(3) Internet services include internet access (broadband & narrowband), web hosting

134、/ collocation, and other emerging services(4) Other services include the sale and lease of dark fiber / conduits, mobile, and pagingSource: China Telecom annual reports; CNC team inputs; BCG analysis(1)(2) (3)(4)38%23%20%Overall - 27%BackupMARKET FORECASTBackupBACKUP: DRIVERS AND ASSUMPTIONSBackupTo

135、 be updated DATA AND INTERNET SERVICES SHOW SUBSTANTIAL POTENTIAL FOR GROWTH: 37% CAGR 1999-2004 Leased Lines - ISP Leased Lines - Business Market Size (RMB Bn)24 Total Leased Lines - Mobile99-04CAGR Access Ports Internet Access Web Hosting / Collocation Other Emerging Services Leased Lines - Paging

136、324160831141544%41%1%39%152%69%136%(1)(1) 01-04 CAGR(2) 00-04 CAGRSource: CNC team inputs; foreign benchmarks; BCG analysis84%(2)37%EMERGING DATA SERVICES WILL ACCOUNT FOR MORE THAN 20% OF THE TOTAL DATA SERVICES MARKET BY 2004Existing data services marketEmerging data services marketTotal data serv

137、ices marketRMB BnYearRMB BnYearRMB BnYear99-04CAGREmergingExisting99-04CAGR99-04CAGR31%238%37%Source: CNC team inputs; foreign benchmarks; BCG analysisTHE EMERGING SERVICES MARKET IS EXPERIENCING TREMENDOUS GROWTHMarket size (RMB Bn)Estimated emerging data servicesPortalBroadband - contentBroadband

138、- network applicationsIP VPNWeb Hosting /Collocation(1)(1) Listed separately in CNC market analysisSource: BCG estimatesExamplesBackupEmerging servicesOpportunities and challenges for CNCExpected market size in 2004 (RMB BN)Web hosting / collocation(1)Fit with CNCs strategy as a leading backbone pro

139、viderBuild relationship with large businessesNeed to develop specific capabilities, e.g. e-commerce applications, securityMay lead to future application hosting opportunities5PortalB2B represents huge business values; opportunities to build relationship with large businesses; but first-mover advanta

140、ge is important, competition may be fierce and market will eventually be dominated by a few big playersB2C portals target are end consumers; may not be the most profitable option for CNC16(B2B: 5 B2C: 11)Broadband contentContent development not our priorityMay form strategic partnerships with conten

141、t providers; improve customer retention2Total emerging services market expected to reach RMB 32B by 2004, or more than 20% of the total data / Internet services marketIP VPNFit with CNCs strategy as a leading backbone providerPart of a complete product bundle (including Internet access, web hosting)

142、; help to build relationship and reduce churnNeed to address concerns including network security, end-to-end service1(1) Listed as “existing service in CNC market analysisSource: international benchmarks; Morgan Stanley; BCG analysisBroadband network applications(e.g. video telephony)Fit with CNCs s

143、trategy as a leading backbone providerNeed to address issues including network performance and QoS-level guarantee1A NUMBER OF EMERGING SERVICES WILL BECOME ATTRACTIVE OPTIONS OF PRODUCT OFFERINGS FOR CNCBackupCARRIER: EXPECTED SHARESCompetitorKey strengths / weaknesses20002004Expected shareCNCIP/DW

144、DM backbone, bandwidth and cost leadershipStrike for excellent service and value for moneyWeakness: late-starter1%7%mobile bb 26% addr. ISP 15% China TelecomVoice servicesSatellite communicationsExtensive existing backboneExisting local access, captive demandWeakness: legacy system makes it difficul

145、t to cut down costs80%65%Existing coverage / user baseWeakness: bandwidth constraint5%5%UnicomEarly mover to marketNearly complete coverage in 150 citiesCaptive mobile demandWeakness: In-fighting board, acrimonious relationship with CT10%20%JitongSolution primarily based on VSAT coverage, bandwidth

146、constraintExisting bandwidth primarily occupied by own IP phone serviceQuestionable excess bandwidth for resale5%3%Rationale / BenchmarkMobile operatorsA high percentage of the leased line demand in local lines (80%), but CNC will have a relatively low share in local lines (1%). For backbone, expect

147、 by 2004 about 40% will be IP-based and CNC will have a 65% share (as a dominant IP-backbone provider)ISPsExpect by 2004 about 70% of the market will be addressable (instead of being captive by China Telecom). Since there will probably be at least 5 to 6 backbone operators at that time, we expect ab

148、out a 15% share out of this.Paging operatorsNot CNC prioritySource: CNC team inputs; BCG analysisLARGE / MEDIUM BUSINESSES: EXPECTED SHARESCompetitorKey strengths / weaknesses20002004Expected shareCNCMultiple alternatives to ensure rollout/coverage in local access to targeted customersAble to capita

149、lize on different local practice at CT , and partnership with MORNeed to build up capability & share quickly1%15%China TelecomVoice servicesSatellite communicationsIncumbent: existing customer baseExtensive coverage in local loopWeakness: service back log, bureaucracy drags service qualityLegacy sys

150、tem in backbone, hinders ability to offer lower price/high bandwidth services74%55%Coverage/bandwidth limitedWeakness: bandwidth constraint in later years5%5%UnicomEarly to market, built local access in TJ/CQ/SCWeakness: continuous management problems10%15%JitongAggressively going after market from

151、current ISP baseWeakness: bandwidth constraint (VSAT-based solution)10%10%Rationale / BenchmarkIn 2000, CNC coverage and time-to-market limits share achievableBy 2004, expect CNC coverage of over 80% of the business demand, with overall share of around 20% in the business leased lines and Internet a

152、ccess markets.Also expect to aggressively go into the web hosting/ coll, reaching 15% share by 2004. For other emerging data and Internet services, expect to get a 5% share due to the nature of more fragmented competition.Source: CNC team inputs; BCG analysisOFF-NET VOICE: EXPECTED SHARESCompetitorK

153、ey strengths / weaknessesCNCLow cost based on new technologyInnovative & motivated management teamFavorable regulatory backingsWeakness: late to market, IP voice the only consumer oriented product (lacks synergy)China TelecomVoice servicesIncumbent / early entrantExisting coverageNo interconnect has

154、sleWeakness: - higher cost position based on existing infrastructure- cannibalize circuit voice servicesUnicomEarly to marketSynergy with mobile businessWeaknesses: - initial stage unclear management focus- Acrimonious relation with CTJitongQuick and successful launch in 1999 ,early to marketAggress

155、ive marketing, high discount to distributorsWeakness: no long-term backbone solution-satellite network may affect voice quality (latency)20002004Expected share15%28%55%40%15%20%15%12%Rationale / BenchmarkIn 2000, CNC deployment plan will not be as aggressive as our competitors; only about 60% of the

156、 IP voice market will be addressable. CNC will have about a 25% market share in these (addressable) areas.By 2004, expect to cover all key areas. But CNC share will dropp from the peak of 33% in 2002 due to more competitors entering.Benchmark:In Hong Kong, 3 new entrants with call-back: 20-30% share

157、 in 2 years; i.e., incumbent =70%; half a year after ISR, incumbent has 50% shareSource: CNC team inputs; BCG analysisSHARE ASSUMPTIONSBackupCNC REVENUE PROJECTIONBackup20002004CNC shareCNC shareMarket growthMarket growthMarket size RMB 10BRELATIVE ATTRACTIVENESS OF DIFFERENT PRODUCT CATEGORIES CHAN

158、GES IN THE NEXT FEW YEARS80%40%0%0%15%30%0%15%30%3000%50%0%300%Emerging dataIP voiceExisting datacomOn-net voiceCarrierOn-net voiceCarrierEmerging dataExisting datacomIP voiceCONTENT Key strategic principles Regulatory overview Market overviewDemand forecastGeographic segmentationCustomer segmentati

159、on Competition overview Business models Next stepsCHINA TELECOM MARKET CONCENTRATED IN TOP CITIESTop 60 Cities Account For 64% of the Voice & Data Market1998 Accumulated Revenue (RMB Bn )(1) Excluding paging of RMB 14 BNSource: Pyramid Report; China Statistics Yearbook; BCG analysisBJGZSZNext11 citi

160、esNext45 cities223SHChina Total(1)050100150200250010203040506070IP / OFF-NET VOICE REPRESENTS SUBSTANTIAL OPPORTUNITY IN NEAR-TO-MEDIUM TERMIP Voice Market Size (RMB Bn)CNCs Expected Share (%)Estimated CNC Revenue and Profit (RMB Bn)RevenueLikely Profit(1)YearYearYearMarketShareRevenue / ProfitCNCs

161、share drops after 2002 when the IP voice market becomes more competitive(1) Estimated using a profit margin of 30% in 1999 down to 10% in 2008; based on foreign benchmarksSource: CNC team inputs; BCG analysisProfit margin drops as competition intensifies and price decreasesIP voice continues to repl

162、ace traditional circuit voice in DLD & ILDFOR VOICE MARKET: IDD/MOBILE CONSUMPTION MAJOR SOURCE OF REVENUE IN TOP CITIESMobileSHBJGZSZOther 11 cities45 other citiesRest of ChinaSource: China Telecom; BCG estimate36%1998 voice market size(RMB Bn)26%11%5%7%7%8%LocalDLDIDD3.12.31.6719.4302.92.42.30.40.

163、34.413.8233.219.32.715.11.87.82.767.42.47.62.85.42.86.8BackupTotal: 199GEOGRAPHICALLY EVEN MORE CONCENTRATED FOR DATACOM46% Revenue in Top 4 Cities1998 Data Communications Revenue (RMB Bn )Source: Pyramid Report; China Statistics Yearbook; BCG analysisBackupNext 11 citiesNext45 citiesTop 4 citiesChi

164、na Total24600+ GEOGRAPHIC SEGMENTATIONTop 4Next 11(1)45 others(2)Beijing, Shanghai, Guangzhou, ShenzhenFuzhou, Xiamen, Shijiazhuang, Zhengzhou, Wuhan, Changsha, Nanjing, Xuzhou, Jinan, Tianjin, HangzhouHefei, Chongqing, Foshan, Jiangmen, Shantou, lanzhou, Guilin, QuanzhouNanning, Haikou, Baoding, Da

165、qing, Harbin, Qiqihar, Guiyang, Handan, Tangshan, Luoyang, Xiangfan, Changchun, Jilin, Nantong, Suzhou, Nanyang, Changzhou, Wuxi, Yangzhou, Nanchang, Anshan, Dalian, Shenyang, Chengdu, Jining, Taizhou, Qingdao, Weifang, Weihai, Yantai, Taiyuan, Xian, Urumqi, Kunming, Ningbo, Shaoxing, WenzhouBackupS

166、ample list: actual names of city may differ(1) According to CNC plan (on CNC backbone)(2) Ranked by total GDP and GDP/cap, expected to correlate with telecom spending levelTOP CITIES BOAST HIGHEST TELECOM SPENDING PER CAPITA1998 Annual Telecom Spending Per CapitaRMB /capSHBJGZ SZ (1)11 cities45 citi

167、esMobile5254441135672111760BackupIDDDLDLocalROC22233256397235130124176200348(2)348(2)665526240187239(2)239(2)1057734(1) Large non-local/business traveler population base(2) GZ, SZ estimated under same assumptionCONTENT Key strategic principles Regulatory overview Market overviewDemand forecastGeogra

168、phic segmentationCustomer segmentation Competition overview Business models Next stepsBUSINESS CUSTOMERS REPRESENT 54% OF VOICE MARKET, 97% OF DATA MARKETLocal1998 Telecom revenue (RMB Bn )ResidentialBusinessDLDIDDMobilePaging Leased linesInternetVoiceData35282227315323778230.80.26349186915231Source

169、: China Telecom; Pyramid researchTotal2374 BUSINESS CUSTOMER TIERS ARE IDENTIFIED ACCORDING TO MONTHLY TELECOM SPENDINGTier rankingTypical company profileCompany examplesTypical monthly telecom spending per office (RMB K)1Top high tech firmTop international trade Top financial institutesTop news age

170、ncy and ministry info centerEricsson, Motorola, Sinochem, Bank of China, XingHua News Agent500-10002Financial services companies (regional HO, foreign banks)FIE/JV professional services companies (e.g. consulting firms, market research firms, law firms) Medium size international trade firms and adva

171、nced general manufacturing companies (e.g. active application of ERP to improve efficiency, several locations in China)ABN AMRO, Pudong Development Bank, BCG, Xian Janssen, Tung Tai Food100-5003Local high tech firms (usu. 100-500 employees)JV professional services companies (usu. Around 50-100 emplo

172、yees)General manufacturing firms ( typically. 100-500 employees)SH Hua Teng, Nestle, Zhen Fong Electronics,Gillette10-100Small companies42-10EACH TIER HAS DISTINCT NEEDS AND EXPECTATIONSTier RankingMost Important telecom needsIncreasing bandwidthIncreasing network coverageVoice/data system integrati

173、onImproving the ability to using the internet for eCommerceIncreasing bandwidthIncreasing network coverageIntroducing new services to improve efficiencyCost managementIncreasing bandwidthHandling growing demand for internet accessInstalling and managing LAN/WANCost managementIncreasing bandwidth Pro

174、ducts/services neededVideo conferencinglower cost VPNbetter link of wireless and fixed line phones(1)VPNVideo conferencingHigh speed data access to the office from homeRedundancy, to reduce dependence on China Telecom( esp. FS firms)Lower cost, more reliable access to the foreign countriesEasy adjus

175、tment of telecom usageHigh speed internet accessTelecom cost tracking systemHigh speed internet accessService Level expectationsExtensive access network coverageOne stop, flexible servicesDetailed service level agreement (e.g. monthly downtime limit, on-site support time)More responsive support serv

176、ices (e.g. quick fix of leased line problems)Less lead time/ response time for telecom services (e.g. adding lines or bandwidth)Less down time for reliable email/data transmission1234(1) Product/services CNC might not provide in near termINDUSTRY TYPE AND CONSUMER TIER ARE HIGHLY CORRELATEDFinancial

177、 ServicesGeneral ManufacturingHigh TechProfessional ServicesInternationalTradeOther industrylocal voice, DLDlocal data, international data, most of which are real timePotential needs from ecommerce business involvementlocal voice, DLDlocal data for management systems, international leased line (for

178、FIE)Local voice, DLD, IDD (FIE)local data transmission between HO and branches, international leased line (for FIE)Extranet, VPNlocal voice, DLD, IDD (FIE)local data, international data(FIE)local voice, DLD, IDDlocal data between HO and branchesInternet, Extranet for ecommercelocal voice, (DLD)dial

179、up internetno dedicated leased lineTier 1Tier 2Tier 2 (most FIE)Tier 3 (other advanced)Tier 1,2 (top FIE)Tier 3 (local/medium)Tier 2 (FIE)Tier 3 (local/medium)Tier 1 (largest)Tier 2Tier 3 or belowIndustry TypesMain Telecom NeedsTypical Tier RankingLARGE AND MEDIUM ENTERPRISES REPRESENT 62% OF TELECO

180、M SPENDING IN BUSINESS SECTOROver 95% For Data Services48431616Small(1)(Tier 4 and below)Voice (107)Data (23)1998 Revenue (RMB Bn )(1) Size definition according to China Statistics YearbookSource: China Telecom, Pyramid Research, China Statistics Consultants Co., China Statistics Yearbook, BCG estim

181、ate61Large(1)(Tier 1,2,3)Medium(1)(Tier 3, Tier 4)4,6002042# of companies (000)Total: 130EXAMPLE: KEY INDUSTRIES AND COMPANY PROFILECompany nameABN amro bankGangao SecurityPudong development bankXian JanssenNestleAdvance ElectricsEricsson (SH)Ericsson (BJ)Hua TengBCGHorizonOverseas tradeCompany name

182、SHBJBJSinochemEast NetGubei Real EstateBJSHSHSHSHSHSHSHSHSHSHSHTier ranking2222332132421N.A.N.A.Telecom spending RMB per m2/month1472506756202332515033677050N.A.N.A.N.A.Telecom spending RMB per/cap/month 31432000100055640175024024004172000538167N.A.N.A.N.A.OtherTradePSHTGMFSBackupInfo. high wayBJN.A

183、.N.A.N.A.A TYPICAL BUSINESS BUILDING GENERATES 4.5 MM RMB TELECOM REVENUE PER MONTHBackupTypical Business Building# Company (by type)12 Tier 135 Tier 250-60Tier 330Tier 45000m2 15000m2 4000m2 750 250 504Typical Spending Per Month (K RMB)1,5003,000120=(1) Gross Floor SpaceSource: BCG interview, BCG a

184、nalysisGFS(1): 30,000m2Occupancy: 80%Average in SH:3,000 (RMB K)Total: 4,620(RMB K)eitherxorxxxINTERVIEWS CONDUCTED TO ASSESS CUSTOMER NEEDS AND TRENDS, TO COMPLEMENT AND VERIFY SECONDARY DATA Identify key customer needs, ensuring CNC supplies what our customers needTelecom needs in the coming 1 to

185、3 yearsExpected growth in telecom spendingVerify assumptions on key customer segmentsTypical customers profile (industry type, office size, # of employees, avg. monthly spending, FIE/SOE, etc.)Typical purchasing decision process/patternsTest possibility and criteria for customers switching to CNC, h

186、ence CNC addressable market and plausible share in a buildingMain dissatisfactions toward current telecom service providersWhat will make customers be willing to switch? What are their key concerns regarding switching? Estimate demand for typical business buildings, to enable local access economic m

187、odelingIN DEPTH INTERVIEWS REVEAL SIGNIFICANT OPPORTUNITY FOR NEW ENTRANT TELCOS Long process for CT to meet customer requirements, which is fast-growingOn average, expecting 5-10%per account yearly growth in the expenditure on data services; key growth driver in data usage penetration in enterprise

188、sDemand for data services driven by the increasing needs for management tools (e.g. ERP), Internet access, eCommerce capability, etc. Bandwidth usage for most large companies still relatively lowA few leased lines; mostly 64-128kbps, only a few at 512kbpsWould welcome higher bandwidth at reasonable

189、cost Major discontent is in response time and service qualityLong lead time to install service, e.g. more than half a year for an international leased lineNever inform consumers of service down-time, take an intolerably long time to fixBig users dont feel favorably treated when their inquiries proce

190、ssed with residential and small business users through a common service number 112 Hence price is not the primary factor for switching to CNCQuantified service level guarantee and excellent service quality are the key switching factors for big and medium size business usersBackupSERVICE QUALITY & SE

191、RVICE LEVEL ARE THE KEY SWITCHING FACTORSEspecially for Tier I & 2 CustomersSwitching CriteriaProduct/Service qualityService levelPriceProduct offeringRelative maturity as telecom customerTier 1Tier 2Tier 3Tier 4Source: BCG interviewImpact on switching decision weak strongCUSTOMER EXPECTING GROWTH I

192、N DATA SERVICES EXPENDITURE “We expect 5-10% increase each year in data services spending mainly because of the using of ERP and the pursuit of ecommerce opportunities.” - Head of Communications, Sinochem “Many things will drive up our telecom needs rapidly in the near future: the growth of the comp

193、any size, the increasing traffic between HQ and branches, the increasing needs for product testing and development, and the development of ecommerce capability. I think our companys data services expenditure will continue to grow at 5-10% per year.” - Head of Communications &Network, Shanghai Hua Te

194、ng “We are seeing our trader group expanding at very fast pace. Our telecom spending, especially data services spending, will definitely go up fast (at least more than 15% per year) if our business continues to grow.” - Branch Manager, GangAo Securities “Our current MIS system requires more frequent

195、 data transmission between sub-branches, branches and the HQ. We are replacing all dial-up with leased line and adding bandwidth. Telecom spending will thus increase.” - IT DIV. Mgr., Pudong Development BankBackupCUSTOMERS CAN BE WON OVER BY MEETING GROWTH NEED China Telecoms Slow Pace and Long Cycl

196、e is Major Area of DiscontentISPs seeking alternatives to CTBusiness Clients also frustrated“ As we build up strong momentum in customer base growth, having the right capacity at the right time is critical. China Telecom, with their own network development plans, tends to starve us on capacity or to

197、 force us to pay in advance for excess capacity.”- Founder, EastNet“We want to build our own national brand, but the fact that it takes China Telecom two months every time we need an extra line makes us very difficult to have our own customers. We want another operator who can get us leased lines fa

198、st.”- Manager, Div. Of Customer Develop, Information Highway (IHW)“Were are fretting over our customers complaint about increasing difficulty to access time critical information and perform trades. Our request for bandwidth upgrade were submitted to China Telecom months ago, nothings happening.”- Br

199、anch Manager, GangAo Securities“We need help to easily adjust our usage of telecom services, such as adding lines or bandwidth. CTs not very responsive to our requests.”-Head of Communications &Network, Shanghai Hua TengBackupRESPONSE TIME AND MEASURABLE SERVICE QUALITY ARE DIFFERENTIATION FACTORSCu

200、stomers need quantifiable metrics“We are not satisfied if the carrier simply gives us qualitative reports about downtime in general - We are interested in quantifiable, detailed MTBF(Mean Time Between Failure) and recovery time reports as measurement of service quality. So far China Telecom failed t

201、o deliver on it.”- IT Manager, Ericsson“When our Leased Line link is down, we need an expert at the other side to answer our specific questions. The 112 Customer Service number China Telecom provides for both residential and business customers merely adds frustration and delay.”- IT Manager, Ericsso

202、n Beijing HQ“As one of the biggest telecom users, we will certainly require favorable treatments, like bandwidth guarantee and priority in IP phone processing.”- IT Manager, SinoChemKey customers require specialized careBackupTELECOM SERVICE QUALITY AND SERVICE LEVELS ARE THE KEY PURCHASING CRITERIA

203、 AMONG KEY CUSTOMERSOne-stop, end-to-end solution desiredPrice is important, but not predominant“Multiple carriers had approached us with various service propositions. Our answer is: Were committed to sign up if it can give us one contact point for a total solution and service agreement.”- IT Manage

204、r, Ericsson“P&G has clear initiatives in building world wide VPN and driving eCommerce growth. When it comes to data infrastructure, what intolerable is the delay in contract arrangement for each of the building blocks.”- Manager, Data & Computing Services, P&G“Lower price may appear attractive. But

205、 we wont consider using services any less reliable than CTs services - even if they are of much lower price.”- IT Mgr, Pudong Development Bank“We are definitely more concerned with the overall telecom service performance and reliability. I would say price is not the primary concern for any financial

206、 institutes.” -MIS Manager, ABN AMRO Bank“As a trade company, we welcome lower price service providers. But we are not going to make compromise on service levels and qualities. International call over IP is much cheaper than IDD, but is inconvenient to use and the current voice quality is unsatisfac

207、tory.”- IT personnel, Overseas TradeBackupISP AND MOBILE ARE THE MAJOR CARRIER SEGMENTS(1) Customers include MOR, CATV and other large volume usersSource: Pyramid research; BCG analysisDark Fiber, Conduits & Access Ports(1)PagingISPMobileN/A0.2%46%5%CAGR (98-05)Carriers market size(RMB Bn )142080.60

208、.60.61.1010203019982005 (projected)0BOTH CHALLENGES AND OPPORTUNITIES FOR CNC TO ADDRESS CARRIERS NEEDSISPs looking for alternatives to CT .More reliable services (backbone, international gateway)Broader bandwidth at a reasonable priceLess lead time for adjusting info needs (e.g. adding line/bandwid

209、th) also worry about carriers compete directly with ISPsCNC best positioned to address such needsBut need to address ISPs concern of CNCs 171 as competitionISPMobile carriers still concerned with IP voice qualityMore lead time expected before toll quality will be achieved and carriers will be willin

210、g to lease IP backboneTradition link of Mobile Operators with CT weakening over timeOpportunity for CNC, but CNC needs to provide value-for-moneyMobileCONTENT Key strategic principles Regulatory overview Market overview Competition overview Business models Next stepsCOMPETITIVE SUMMARYRegulatory res

211、ponse to WTO development will lead to more open market in generalMore emerging (Type II) players in the Value Added Service areasEmerging players more likely to become CNC customers than competitorsChina Telecoms split along service lines will create cooperation opportunities to CNCGeographical brea

212、k-up of China Telecom fixed line services uncertain, opportunity of cooperation for CNCBreak-up may not be complete, as former China Telecom constituents still hold commanding share at least till year 2005Unicom might emerge as CNCs arch-rival if internal conflict ends Jitong has built quick custome

213、r response capability based on VSAT platform, but would largely remain as a minor competitive force due to bandwidth constraintNot excluding cooperation opportunityTherefore, Initial assessment asserts CNC to target about 20%+ long term share in the Carrier, Large/Medium Enterprise Solutions markets

214、China UnicomCOMPETITIVE LANDSCAPE TODAY: 1999 (I)ResidentialBusinessSegmentsFull-service providersValue Added Service ProvidersCellularInternet accessBroadband applicationsOn-net voiceOff-net voiceIP phoneOn-net voiceOff-net voiceInternet accessLeased lineVPN / other broadband applicationsMultiple I

215、SPsLocalMSOsSatelliteCNCChinaUnicomPagingChina TelecomSatelliteCommunicationsCorpMobileCommunicationsCorpFormerChinaTelecomFormer CT pagingHold license/ Deploy ?JitongJitongJitongCNCMultipleISPsCNCCOMPETITIVE LANDSCAPE TODAY: 1999 (II)Competitors In Telecom MarketsTargeted offeringsCarriers CarrierS

216、witchedVoiceAllDLDILDIPLarge/medium business customersChina TelecomChina Telecom SatelliteUnicomJitongCompetitor3 33 33 33 33 3(3 3)(3 3)3 3TJ, CQ, Sichuan3 33 33 33 33 33 3CNC3 33 33 33 32 SCENARIOS WILL EMERGE IN COMPETITIVE LANDSCAPEDepend on Interaction of Pro-competitive regulation and FDIPro-c

217、ompetitive RegulationImplementationActiveness of FDINumber of FDI backed playersIntensity of FDI fundingLandscape todayFew basic carriersLimited number of type II carriersLow FDI activityFunding depend on internal resourcesScenario 2: Open CompetitionIn the VAS areaControlled number of basic carrier

218、sNumerous active FDI backed regional/Type II playersOpenCompetitionClosedCompetitionLatentActiveLikely in 2004Less likelyin 2004 Scenario 1: Open in all frontsMultiple CLECs and IXCsNumerous regional/Type II playersup to 50% FDIMOST LIKELY COMPETITIVE LANDSCAPE IN 2003/4ResidentialBusinessSegmentsFu

219、ll-service providersValue Added Service ProvidersCellularInternet accessBroadband applicationsOn-net voiceOff-net voiceIP phoneOn-net voiceOff-net voiceInternet accessLeased lineVPN / other broadband applicationsMultiple ISPsProvincialMSOsSatelliteCNCChinaUnicomPagingCT broken into regionsSix region

220、al operating companies for NLDHQ controls international and dataSatelliteCommunicationsCorpMobileCommunicationsCorpFormerChinaTelecomFormer CT pagingJitongJitongJitongMultiple ISR playersMultiple I-Phone playersMultiple ISR playersMultiple I-Phone playersUtilitiesCATVsMultipleRegionalPlayersMultiple

221、 VANsMultiple ISPsMultiplePlayersCNC4-5 morenationalplayersCATVsLIKELY SCENARIO MEANS MORE OPPORTUNITY THAN THREAT1-2 type II new entrants in each locality likely allowed by regulationCNC low cost IP based backbone provide national/international access and transportInitial market research point to C

222、NCs aspired one contact services attractive to type II playersNew entrant ISPs, MSOs and Wireless Carriers as potential customerLocal autonomy and separate P&L lead to flexibility in partnershipCT local bandwidth requirement not easily accommodated by national plan due to separate investment ownersh

223、ipPaging, Wireless, ISP services separated from incumbent as potential customerBecoming more responsive to key customer needsStarting to form allegiances with new entrants (e.g. CT with Unicom in wireless)Increasingly focus on building datacoms capabilities in anticipation of demand growthBuilding c

224、apability to bring quick solutions to key customers (e.g. JT with VSAT)Incumbents building flexibilityOpportunityThreatCHINA TELECOM (I)99%Recent split along service lines, national paging service folded into UnicomBut each former China Telecom constituent still holds dominating share in respective

225、market *:China Mobile Communications Corp.China Telecom(Voice and Data Services)China Satellite Communications Corp.National Long Distance ServicesInternational Long Distance ServicesBroad-bandData ServicesISPservice(163, 169 China-Net)National / International LevelRegional LevelMunicipality/ City L

226、evelProvincialLevelLocal Voice and Data ServicesLikely to further break down into 6 regional companiesLikely to remain as one national entityVSAT based backbones and local base stationsLikely to remain as one national entityHolding local GSM networks and frequenciesLikely to remain as one national e

227、ntityLikely to further break down into 6 regional companies100%100%90%80%+95%100%* As of 3Q 1999CHINA TELECOM (II)The fixed line services of China Telecom will likely to be broken up into 6 regional companiesGenerating significant competitive impact to CNCPotential threat:Separate P&L improve abilit

228、y to have business focus and cohesive controlFDI cooperation become more feasibleResulting in overall stronger competitorCNC expect 4-6 years window of opportunity to establish and preempt competitive disadvantageCTs huge amount of complexity in control and asset will delay separation processCTs man

229、agement in-flights need to be resolved before significant progress madeCentral regulatory maintain tight control on FDI in basic telecom servicesExpect only some baby CT could establish successful coop with strong FDIChina TelecomWest China TelecomSouthwest China TelecomNorth China TelecomEast China

230、 TelecomSouth China TelecomCentral China TelecomBroken upLocal networks will belong to the regionUncertain if there will be a separate national long distance carrierFurther breakdown along geographical lines possibleCHINA TELECOM (III)Key strengthUnmatched existing infrastructure:-international gate

231、way in BJ, SH, GZ and SZ; -18 International SOC(1); “8X8” national FO backbone of 173,000 km;-ChinaDDN, ChinaPAC, ChinaFRN, ChinaX.25, ChinaNET comprise national datacom coverageHolds critical resources in local networks and largest business and residential customer baseKey weaknessManagement team a

232、nd organization not competition readySlow to provide total solution in product offering and support, due to multilevel/department controlCompetitive moveReducing tariffs (latest in 3/99) and installation fees (latest reduction up to 50%), led to subscriber base boom; Offer 50% - 70% discount on DLD,

233、 eliminated administrative feesIncreasingly try to raise value of each subscriber, e.g. installation of 2nd phone line, VASAggressively investment in datacom: 1998-1999 growth 24%Improving customer service to key accounts (e.g. Ericsson)Threat / Opportunities presented to CNCBefore complete and tran

234、sparent regulatory implementation, strong ties with local telecom administration will remain powerful leverage against new entrantsCurrently holds 100% business customer base, network effect and CTs initiative to improved service will add difficulty for CNC to persuade switchAfter CT split, mobile a

235、nd ISP service have potential to become customers or partners to CNCUncertainty around regional breakup of fixed-line services, if split may present cooperation opportunities(1) Submarine Optical Cables, CT SOC connects to Japan, Korea, Europe (including land cable) and USUNICOMEntrenched new player

236、The only other GSM carrier besides CT, the only CDMA carrier. Holds 5% share wireless marketLicensed to operate local service in TJ, CQ and Sichuan province, TJ service rolled out with 10000 usersInherited CTs profitable paging service with RMB14bn in asset value, and 41M subscribersReceived MORs te

237、lecom assets worth RMB10bn, with 42,000km SDH FO links covering 500 L/M citiesKey strengthBackbone coverage to all major cities nationwide, with self-built intra and inter provincial FO backbones covering 25 provincial capitals, plus the MOR backbone (one of the largest reseller of capacity)Own acce

238、ss networks in some key cities (e.g Tianjin) enables short time-to-marketKey weaknessLack of cohesiveness in management and organizationLack of focus in business strategy and product offeringCompetitive moveSets priority on Datacoms and Mobile network development, and long distance servicesWon appro

239、val to offer direct Internet access and VPN services to business customers, covering 100 major cities and most of Chinas local netsRecently started wireless local loop trial in CD, targeting commercial service by mid-2000, also begin LMDS trial by EOY 1999Threat / Opportunities presented to CNCEmerg

240、e as strong competitor to CNCs targeted business customer baseUncertainties around possibility for CNC to resell capacity to its mobile servicesJITONGPrimarily an ISP, with aggressive targets in business marketHolds one of the two existing Internet backbonesNational VSAT covering 14 provincial capit

241、alsKey strengthVSAT based solution provides flexibility and quick response to ensure rollout/coverage in local access to targeted customersInternational gateway presence in BJ, SH, and SZHolds large business and residential datacom user baseKey weaknessBandwidth with existing primarily VSAT based ba

242、ckbone primarily occupied by its ISP serviceWeak management team, lacks clear vision in network building and service offeringCompetitive moveAggressively targeting business customers in key geographiesAggressively seeking funds for network buildout, planning IPO in early 2000Threat / Opportunities p

243、resented to CNCHas aggressive plan targeting business customers in key cities, e.g. SH, BJCooperation opportunity likely to exist for CNC IP/DWDM backbone to offer transport capacityHIGH POSSIBILITY FOR COOPERATION AT LOCAL LEVELCompetitorChina Telecom fixed line ServicesChina Telecom WirelessUnicom

244、 (include former CT paging services)MethodProbabilityMethodCNCs shareRationale/commentsPotential partnershipPotential as carrier customerInterconnectLeased line for local access100% for VoIP1999-2000: 50% of targeted cities2001-2004: 60% of targeted citiesInter-city traffic diverted to CNC backboneI

245、nter-city traffic through CNC backbone as backup20% of total CT wireless traffic goes through CNC backboneAt most 5% of inter-city traffic goes through CNC backboneRequired by government, but expect some delay in implementationCT backbone is assumed to be CT wireless primary carrierCNC IP/DWDM back

246、bone as complementary carrier with lower costCNC only complements areas where Unicom cannot coverCNC as low cost backup solutionJitongCNC backbone provide back-up bandwidth20% of total Jitong trafficJitongs primarily VSAT based backbone will not meet expansion needCATVHFC as local access partner in

247、major citiesOver 50% possibility in CNC target cities, if fiber availablecarrier customer and fiber leasing2000-2002: 5 key cities2003-2004: 15 major provincial capitalsCNC fiber only complements areas SARFT lacks coverageISPscarrier customer1999-2000 10%2000-2004 40%CNC high speed back bone is effe

248、ctive to drive up end user demandCARRIER: EXPECTED SHARESCompetitorKey strengths / weaknesses20002004Expected shareCNCIP/DWDM backbone, bandwidth and cost leadershipStrike for excellent service and value for moneyWeakness: late-starter1%7%mobile bb 26% addr. ISP 15% China TelecomVoice servicesSatell

249、ite communicationsExtensive existing backboneExisting local access, captive demandWeakness: legacy system makes it difficult to cut down costs80%65%Existing coverage / user baseWeakness: bandwidth constraint5%5%UnicomEarly mover to marketNearly complete coverage in 150 citiesCaptive mobile demandWea

250、kness: In-fighting board, acrimonious relationship with CT10%20%JitongSolution primarily based on VSAT coverage, bandwidth constraintExisting bandwidth primarily occupied by own IP phone serviceQuestionable excess bandwidth for resale5%3%Rationale / BenchmarkMobile operatorsA high percentage of the

251、leased line demand in local lines (80%), but CNC will have a relatively low share in local lines (1%). For backbone, expect by 2004 about 40% will be IP-based and CNC will have a 65% share (as a dominant IP-backbone provider)ISPsExpect by 2004 about 70% of the market will be addressable (instead of

252、being captive by China Telecom). Since there will probably be at least 5 to 6 backbone operators at that time, we expect about a 15% share out of this.Paging operatorsNot CNC prioritySource: CNC team inputs; BCG analysisLARGE / MEDIUM BUSINESSES: EXPECTED SHARESCompetitorKey strengths / weaknesses20

253、002004Expected shareCNCMultiple alternatives to ensure rollout/coverage in local access to targeted customersAble to capitalize on different local practice at CT , and partnership with MORNeed to build up capability & share quickly1%15%China TelecomVoice servicesSatellite communicationsIncumbent: ex

254、isting customer baseExtensive coverage in local loopWeakness: service back log, bureaucracy drags service qualityLegacy system in backbone, hinders ability to offer lower price/high bandwidth services74%55%Coverage/bandwidth limitedWeakness: bandwidth constraint in later years5%5%UnicomEarly to mark

255、et, built local access in TJ/CQ/SCWeakness: continuous management problems10%15%JitongAggressively going after market from current ISP baseWeakness: bandwidth constraint (VSAT-based solution)10%10%Rationale / BenchmarkIn 2000, CNC coverage and time-to-market limits share achievableBy 2004, expect CN

256、C coverage of over 80% of the business demand, with overall share of around 20% in the business leased lines and Internet access markets.Also expect to aggressively go into the web hosting/ coll, reaching 15% share by 2004. For other emerging data and Internet services, expect to get a 5% share due

257、to the nature of more fragmented competition.Source: CNC team inputs; BCG analysisOFF-NET VOICE: EXPECTED SHARESCompetitorKey strengths / weaknessesCNCLow cost based on new technologyInnovative & motivated management teamFavorable regulatory backingsWeakness: late to market, IP voice the only consum

258、er oriented product (lacks synergy)China TelecomVoice servicesIncumbent / early entrantExisting coverageNo interconnect hassleWeakness: - higher cost position based on existing infrastructure- cannibalize circuit voice servicesUnicomEarly to marketSynergy with mobile businessWeaknesses: - initial st

259、age unclear management focus- Acrimonious relation with CTJitongQuick and successful launch in 1999 ,early to marketAggressive marketing, high discount to distributorsWeakness: no long-term backbone solution-satellite network may affect voice quality (latency)20002004Expected share15%28%55%40%15%20%

260、15%12%Rationale / BenchmarkIn 2000, CNC deployment plan will not be as aggressive as our competitors; only about 60% of the IP voice market will be addressable. CNC will have about a 25% market share in these (addressable) areas.By 2004, expect to cover all key areas. But CNC share will dropp from t

261、he peak of 33% in 2002 due to more competitors entering.Benchmark:In Hong Kong, 3 new entrants with call-back: 20-30% share in 2 years; i.e., incumbent =70%; half a year after ISR, incumbent has 50% shareSource: CNC team inputs; BCG analysisCONTENT Key strategic principles Regulatory overview Market

262、 overview Competition overview Business models Next stepsAGENDA Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forwardEconomic modelingChoice of business modelsto pursue and timingRoadmap for pursuing business models and expected financ

263、ial performanceIntegrated approach to CNC business planMajorissuesExpectedoutputHow do the market sizing and share assumptions translate into overall top line revenue for CNC?What capital investments will be necessary to build out metro and long haul fiber networks?Predicted cash flow profile by bus

264、iness 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 revenue forecast by product areaRegulatory and competitive analysisWhat type of regulatory environment will evol

265、ve 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 capabilities assessmentMETHODOLOGY BEING USED TO DEVELOP BUSINESS MODELS AND OVERALL STRATEGY- Current areas of focus

266、CNC AT A CRITICAL STRATEGIC CROSSROADSPreliminary ConclusionsRecommendations/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 ca

267、rriersEnterprise solutions economics very attractive, but substantial complexity 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 c

268、onstruction; time to market criticalCommitment to utilizing IP/DWDM invlolves 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

269、with international carriers should begin ASAPScenario modeling will help 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 Overall approach Where HowBUSINESS MODELS SUMMARY: TH

270、REE 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 existing conduits to lay in major urban area

271、sSuperior 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-line incumbents Cover POPs in all major calli

272、ng 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 positioning “The clear alternative to CT”ISP Lo

273、ng 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” Do not overextend resources in VOIP as it do

274、es not fit CNCs long term strategy Create “dial-around” solutions for business and interconnect terms- 17930 -Enterprise solutionsPOTENTIAL BUSINESS MODELS COVER WIDE RANGE OF PRODUCT/MARKET ALTERNATIVESOpportunity for growthCurrent market sizeWholesale/carrierConsumer ISP?Domestic and International

275、 Long Distance VoiceResidentialMed/large enterprise customersCarriersPotential traffic per consumerProductsEmerging datacomDataVoiceEmerging data nicheAGENDA Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forwardAPPROACH TO DOMESTIC AND

276、 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 access long distance for business customers as soon as possible to begin establishing relation

277、shipsManage 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 to ensure favorable approaches to equal access and interconnectMarket calling cards to business

278、 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 providerEstablish mechanisms to link marketing expenditures with revenue and margin growth by product t

279、o ensure effective investmentEmphasize low cost targeted marketing and loyalty programsDo not overextendAlways emphasize advanced technology and evolution to full services provisionDOMESTIC AND INTERNATIONAL VOICE SUMMARYPreliminary EconomicsPhase I CapEx (2000,2001): 3.8 B RMBFiber/construction: 2.

280、4 B RMBIP/DWDM equipment: 720 M RMBPOP/VOIP: 530 M RMBOSS/Network management system: 100 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

281、alone1Key Issues to be AddressedInterconnect agreements with local PTAs; attempt to obtain blanket policy from MII International gateway license and connectivitySettlement charges commensurate with VOIP pricingDevelopment of business offnet strategyScalable “dial-around” solutions in short termEqual

282、 access longer termQuality of service for voice, must approach switched quality rapidlyPoint of diminishing returns for adding VOIP gateways vs. strategic value of providing coverage(1) Highly sensitive to settlement feesLARGE MARKET WITH POTENTIAL TO GAIN SHARE QUICKLYNew entrants typically gain sh

283、are 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 Kong (IDD)Japan (IDD)US (IDD)

284、(RMB BN)DLD On-NetDLD Off-NetILD On-NetILD Off-Net(%)CAREFUL MANAGEMENT OF PRE-PAID CALLING CARD BUSINESS NECESSARY TO ALIGN WITH LONG TERM STRATEGY Prepaid calling cards call for different capability set and target customers than longer term business modelsFocus on consumers will not complement lon

285、g term vision of providing enterprise solutionsMass advertising and marketing around a low-cost position may not fit image required for future needs Three factors important to consider in managing prepaid calling card businessAttempt to position cards in marketing messages as the first product from

286、a company that is building the most advanced network in PRCConsider selling cards to businesses for their traveling personnel to begin establishing enterprise relationshipsCarefully manage product life cycle to begin pulling back marketing investment as wholesale and enterprise business models growC

287、NC VOIP REVENUE AND MARKET SHARE EXPECTATIONSSource: 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 D

288、LDGeographic coverage of CNCCNC share 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%2002

289、23%90%33%26%90%33%24%90%30%200330%100%30%33%100%30%30%100%30%200432%100%28%35%100%28%35%100%31%PRELIMINARY ECONOMICS FOR LONG DISTANCE VOICE MODEL (PHASE I BUILDOUT)VOIP Revenue Alone Justifies Building Backbone5 year PV(1) (M RMB)CapEXOpExRevenue5 year NPV15%: -500M RMB5 year IRR:12%Essentially bre

290、akeven 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 settlement charges estimated at 10% of VOIP revenue, and marketing/sales at 10% of

291、revenue(3) Backbone OpEx charges allocated 1/3 each to VOIP, wholesale, and enterprise business model economicsSource: BCG benchmark database; industry interviews; BCG analysisAGENDA Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forwar

292、dAPPROACH 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 high bandwidth inter

293、national 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 2000 and expanding

294、 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 access to incumbent pr

295、oviders 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 backboneWHOLESALE/CARRIER SUMMARYPreliminary Econ

296、omicsPhase 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 revenue estimates - 2002Mobile (backbone): 15%ISPs: 9% 1.1 B RMBAccess ports: 100%2Dark fiber: 100%25 year NPV: $2.1 B RMBAssumes launch

297、 date of 3Q 2000 for leased lines and relatively aggressive mobile sharesPotentially too optimisticKey Issues to be AddressedBackbone technology platform - QOS for voice vs. lower cost deployment?High-bandwidth international gateway paramount to differentiating ISP accessFavorable regulatory backing

298、 for courting regional CT mobile carriersEnsuring existing VOIP gateways can serve wholesale needsRevenue opportunity of wholesaling dark fiber vs. enabling competitionOrganizational challenges(1) Including allocation of backbone OpEx(2) Market estimates based on revenue generation by CNC alonePOTEN

299、TIAL WHOLESALE CUSTOMERS INCLUDE ISPs, MOBILE 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

300、 trans-oceanic carrier alliance could provide 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 carr

301、iers potentially looking for alternativesExisting long-haul transport infrastructure limitedChina Telecom could even be a possible customer given current focus on increasing residential teledensityOVERALL WHOLESALE MARKET SIZE IS SUBSTANTIAL AND GROWING AT A MODEST RATEAnticipated Price Decrease in

302、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; foreign benchmarks; BCG analysis Dark Fiber68%(1)CARRIERS SEEKING ALTERNATIVES

303、.ISPs definitely seeking alternatives to CTMobile carriers likely to follow“We need a telecom service provider 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.”-

304、Manager, Infohighway“The fact that it takes China Telecom two months every time we need an extra line makes it 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

305、alternative service providers with:more attractive pricinghigher quality servicehigher bandwidthInterviews with regional mobile carriers and Unicom need to be conducted to verify potentialBUT TECHNOLOGICAL LIMITATIONS AND COMPETITIVE CHALLENGE ARE IMPORTANT FACETS TO MANAGECompetitive ChallengeTechn

306、ological 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 could furth

307、er 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-costtrials a

308、nd backup capacityLobby for clear regulation from MII on freedom of choice for carriersPREDICTED WHOLESALE ECONOMICS ADD SIGNIFICANT VALUE TO VOIP BUSINESS MODELAdditional CapEx and OpEx Minimal5 year PV(1) (M RMB)CapEXOpExRevenue5 year NPV15%:2.1B RMB5 year IRR: 40%Wholesale critical to enhancing p

309、rofitability of backboneVOIPBackbone allocationDark FiberAccess portsISPsMobile operatorsVOIPVOIPISP accessOSS(1) Assuming 15% cost of capitalSource: BCG benchmark database; industry interviews; BCG analysisOSS/provisioningPresent value of cash flows8,0007,0005,0001,0006,000-3,000-4,000AGENDA Busine

310、ss ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forwardAPPROACH TO ENTERPRISE SOLUTIONS BUSINESS MODELObjectivesHypothesized ApproachCapture strong share among medium/large business by offering enhanced datacom solutionsGoal to establish clear

311、 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 datacom marketDevelop image as fast, responsive solutions prov

312、iderEnable 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 cities by 2001Fiber in most dense urban hi-rise areas and LMDS

313、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 important short term than full product offeringEmphasis on ease of us

314、e and fast provisioning versus competitors-exploit CTs weaknessesEducation of customers on use of datacom products as competitive weaponsMarketing partner with key building managers ENTERPRISE SOLUTIONS SUMMARYPreliminary EconomicsPhase I Capital Investment (2000,2001): 1.1 B RMBFirst four cities (a

315、ssuming fiber): 650 M RMBAdditional 11 cities1: 400 M RMBOpEx expected to be 40% of revenue by 2002Market share and revenue 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 optimisti

316、cKey Issues to be AddressedRight of way for existing ducts and diggingPartnership strategy for high bandwidth IGW Rights 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 pro

317、viding end-to-end connectivityWhat is a realistic time frame for launch?Magnitude of organizational and human resource 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 2004ENT

318、ERPRISE 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

319、-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 b

320、usiness locationsExperienced sales-force with established relationships a mustBUT COMPRISES TREMENDOUS UPSIDE POTENTIALInternet AccessLeased LinesILDDLDLocalOtherPortalBroadband ContentWeb Hosting/ CollocationExisting ServicesEmerging Services98-04CAGR124%40%-10%7%11%IP VPNBroadband Network Applicat

321、ions71%83%186%98%111%286%00-04CAGRMarket size (RMB BN)Market size (RMB BN)7896187Overall16%Overall86%332Source: CNC team inputs; foreign benchmarks; BCG analysisCUSTOMER NEEDS EXIST THRUGHOUT THE VALUE CHAINCTs Offering Yields Significant GapsLearnBuyGetUse/supportPayCustomer value chainNeeds identi

322、fiedHow datacom services can help their business Assistance deploying solutionsQuicker and more convenient application channelsRapid and reliable provisioningFaster, reliable repair servicesPrompt, customized billingLack customer focusSolutions virtually non-existentMostly one-way product marketingN

323、o customer input for provisioningCT determines queue without specific timing No penalties for missed appointmentsNegligent repair serviceSlow fulfillment & technical support responsePoor response to customersLimited bill customizationCTapproachSignificant opportunity for CNC establish position in cu

324、stomer solutions, ease of use, and responsive serviceAreas highlighted most in customer interviewsSource: Customer interviews; BCG analysisSTAGED PRODUCT INTRODUCTION NECESSARY TO MANAGE QUALITYHypothesized Product IntroductionsVoiceData200020012002200320042008Phase I & IIPhase IIIPhase IV Leased Li

325、nesMobile 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 QoS guaranteesIndustry specific offeringsOther emerg

326、ing 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 playerPositioningIssuesCNC SHOULD USE CREATIVE WAYS TO GROW THE MARKET, AVOID HEAD TO HEAD COMPET

327、ITIONCompetitors all focus on the same demand from the same customersSavagely compete on priceReactively wait for customers to identify need, request productsPursue growing customers - data intensive enterprisesFresh opportunities for sales, instead of competing over existing businessApproach proact

328、ively with new products, instead of waiting for customers to initiate sales processCreatively identify new marketsI.e. market for companies requiring very rapid provisioning or customized productsBecome the only choice for these companiesLobby the government to support more e-commerce and informatio

329、n industries growthCTCNCUnicomJitongCT is likely to be unable to meet growing demand aloneTraditional, narrow viewNew approaches to growing salesTOTAL GDP VS. GDP/CAPITA IS A PRELIMINARY INDICATOR FOR ATTRACTIVE LOCAL ACCESS MARKETSExample: 15 Initial Cities with POPs on CNC NetworkShanghaiBeijingGu

330、angzhouTianjinHangzhouWuhanNanjingJinanShijiazhuangZhenzhouChangshaXuzhouXiamenFuzhouShenzhenExamples of additional cities not in initial 15 designated for CNC POPsHypothetical breakeven curve for building local accessSuzhouWuxiTotal GDP (k RMB)GDP/cap (k RMB)VERY DENSE MARKETS SUCH AS SHANGHAI BEST

331、 SERVED BY METRO FIBER RINGSMPOP/rail stationHong Qiao Development AreaPeoples parkHuai Hai RoadXujiahuiPudong Financial ZoneFiber length:Along subway:Along elevated ring road:Along road:17000m9000m8000m# of major businessbuildings accessed:200Fibers alongSubway in constructionSubwayElevated ring ro

332、adRoad (dig required)Dense Business Area servedMetro stationsMMMSHANGHAI ECONOMICS 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 backboneID

333、DEmerging data(3)DLDData servicesSONET/switching equipmentOSSAllocated backbone(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 es

334、tate agency interviews; field analysisPower provisioning, etc.Fiber constructionRight of wayPresent value of cash flowsMEDIUM SIZED CITIES WITH HIGH GDP/CAPITA SUCH AS FUZHOU BEST SERVED WITH LMDS SOLUTIONFiber length:Along road:# LMDS station: 5000M1Area served(1):# of major businessbuildings cover

335、ed: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 buildings are prime business buildings for econ

336、omic modelingSRPRELIMINARY FUZHOU ECONOMICS UTILIZING LMDS VERY FAVORABLE5 year PV(1) (M RMB)CapEXOpExRevenue5 year NPV15%:20M RMB5 year IRR:60%LMDS solutions for medium sized cities will play a critical role in developing enterprise solutionsSG & APower, provisioning, etc.IDDEmerging data servicesD

337、LDData servicesBase stationCPE(1) Assuming 15% cost of capitalSource: BCG benchmark database; industry interviews; BCG analysis; real estate agency provided dataBldg equipmentSpectrum feesFiber to POPPresent value of cash flowsOTHER CITIES OF SIZEABLE POPULATION BUT RELATIVELY LOW GDP/CAPITA MAY NOT

338、 WARRANT INVESTMENTExample: 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 po

339、sitioning; assumes 3.5 km radius for LMDS area(2) Assume half of the buildings are prime business buildings for economic modelingOVERALL ECONOMICS APPEAR MARGINAL FOR SHIJIAZHUANG5 year PV(1) (M RMB)CapEXOpExRevenue5 year NPV15%: -3M RMB5 year IRR:5%Cities without dense business districts may not be

340、 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; industry interviews; BCG analysis; real estate agency provided dataSpectrum CPEBldg. equipmentPr

341、esent value of cash flowsOVERALL REVENUE AND MARKET SHARE EXPECTATIONS: ENTERPRISE SOLUTIONSPredominately 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 Ho

342、sting / CollocationSource: CNC team inputs; foreign benchmarks; BCG analysis19993%80%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

343、 CNCCNC share within coverageInternet AccessBroadbandNarrowband / Dial-UpWeb Hosting / 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%

344、21%0%13%6%OVERALL 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 NPV: 620M RMB5 year IRR: 44%Source:

345、 BCG benchmark database; industry interviews; BCG analysisGOING FORWARD, CITIES WILL NEED TO BE ANALYZED ON A CASE BY CASE BASISDeployment technology will play a critical roleMethodology/criteria for choosing local access marketsInitial prioritization by total GDP vs. GDP/capitaRelevance and proximi

346、ty to CNC networkMap urban area by biggest buildings and availability of existing conduitsDetermine if density falls into one of the three density categoriesEstimate costs and revenue associated with buildout1.2.3.4.5.Go or no go!Cost to deliver enterprise solutionsIncreasing business density and ar

347、eaIntermediate density best served by LMDSVery dense and large area best served by fiberToo costly to serveFiberLMDSRECAP 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

348、 economics for 15 cities vs. connectivity 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/connectivit

349、y Managing life cycle Business 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 bui

350、ldout to top 15 cities(3) Assuming 15% cost of capitalAGENDA Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forwardEMERGING OPPORTUNITIES EXIST FOR CONSUMER ISP AND ADVANCED DATA SERVICES Residential ISPCNC may be in unique position to

351、offer true broadband internet access due to IP network and international gatewayWhat strategies 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 mo

352、delWill opportunities develop in the near term for China and could CNC supply resources necessary? 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? Datacom services explosio

353、n 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 (Supply side)ENVIRONMENTAL

354、UNCERTAINTIES LEAD TO THREE BASIC SCENARIOS TO BE ANALYZEDGrowth in existing data and and emerging datacom services (as expected)MONTE CARLO SIMULATION WILL ALLOW FOR GAUGING THE EFFECTS OF UNCERTAINTIES IMPLIED IN SCENARIOSExample: Effect of Average Building Size, Tier 1 Business Proportion & Spend

355、ing 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%15.0%18.8%22.5% Tier 1 businessesMinMost likelyMax300.00350.00400.00450.00500.00Average spending/sq m for Tier 1 (RMB)MinMost likelyMaxProba

356、bilityMonte Carlo simulation of 1000 trials with 5 year NPV as forecast outputFrequency ChartCertainty is 95.00% from $238,500 to $558,816 000 RMBMean = $381,016.000.023.046.068.091022.7545.568.2591$150,000$262,500$375,000$487,500$600,0001,000 Trials 6 OutliersForecast: 5 YR NPVResulting forecastMON

357、TE CARLO SIMULATION PROVIDES VERY USEFUL 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

358、 to effects of variable inputs A sensitivity 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 clarifyingCONTENT Key strategic principles Regulatory overview Market overview Competiti

359、on overview Business models Next stepsNEXT STEPS Agree on business mix assumptions Develop organization structureAgree on key principles and objectivesTimeline, key milestones Develop implementation action planHigh level plan (by quarters) till Jan 2002Detailed plan (by month) Jan-Jul 2000Key milest

360、ones, process control Integrate and refine overall CNC financialObjectives and assumptions for financial modelScenarios / sensitivitiesORGANIZATION DESIGN METHODOLOGYDefine principles & objectivesKey criteriaDesign organization structurePossibility of combination/hybrid modelsDefine job responsibili

361、ty/accountability corresponding to organization structureExample for process flow (how each function interacts)Example for KPI, principles for KPISelect models to testMAJOR OUTPUTS: ORGANIZATION DESIGNKey principles for KPIWith examplesDivision/accountability“Internal market” as cross-dept incentive

362、Organization chartDotted line vs. solid lineReporting/accountabilityRationale/methodologyIMPLEMENTATION PLAN DESIGN METHODOLOGYObjective/target scheduleMajor function/module working backwardDetailed work and cycle time for module/sub-module refine timelineDraft implementation timelineKey checklist &

363、 mile stones per divisionKey process for rollout (across divisions)Product rolloutGeographic rolloutRevise target if necessaryIdentify bottleneck, refine scheduleSegmented view of implementationKey cross-functional coordination process flowExamplesMAJOR OUTPUTS: IMPLEMENTATION PLANKey rollout plan exampleProduct CityMS project time-line/milestonesOverallBy divisionHighlightsMajor milestones resource planningWORKPLAN(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