【正文】 H TO DOMESTIC AND INTERNATIONAL VOICE BUSINESS MODEL Objectives Hypothesized Approach Capture early revenue from launch of prepaid IP calling cards ? “Cash cow” for funding other business model development Pursue prefix and equal access long distance for business customers as soon as possible to begin establishing relationships Manage pricing and product life cycle effectively to maximize total margin and avoid investing in declining products Do not overextend ourselves nor blur our “data” image Fight the regulatory battle to ensure favorable approaches to equal access and interconnect Market calling cards to business customers in the short term for travelling personnel Emphasize quality image/brand to distinguish from CT and Uniposition calling card as first step in being a next generation full services provider Establish mechanisms to link marketing expenditures with revenue and margin growth by product to ensure effective investment Emphasize low cost targeted marketing and loyalty programs ? Do not overextend ? Always emphasize advanced technology and evolution to full services provision 9 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI DOMESTIC AND INTERNATIONAL VOICE SUMMARY Preliminary Economics Phase I CapEx (20xx,20xx): ~ B RMB ? Fiber/construction: ~ B RMB ? IP/DWDM equipment: ~720 M RMB ? POP/VOIP: ~530 M RMB ? OSS/Network management system: ~100 M RMB OpEx expected to be ~30% of revenue by 20xx Market share and revenue estimates 20xx ? Off DLD: 30% ? Off ILD: 30% ~ $2 B RMB ? IP Intl. termination: 27% 5 year NPV: Essentially breakeven considering off voice alone1 Key Issues to be Addressed Interconnect agreements with local PTA’s。 attempt to obtain blanket policy from MII International gateway license and connectivity Settlement charges mensurate with VOIP pricing Development of business off strategy ?Scalable “dialaround” solutions in short term ? Equal access longer term Quality of service for voice, must approach switched quality rapidly Point of diminishing returns for adding VOIP gateways vs. strategic value of providing coverage (1) Highly sensitive to settlement fees 10 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI LARGE MARKET WITH POTENTIAL TO GAIN SHARE QUICKLY New entrants typically gain share quickly Example: IDD and DLD services Market sizeable off traffic accounts for ~15% of total DLD/ILD revenue by 20xx Source: China Tele annual reports。 CNC’s team inputs。 BCG surveys, analysis amp。 benchmarking 010203040500 1 2 3 4 5 6 7Year after entry Optus (DLD) Tele 2 (DLD) Mercury (DLD) Hong Kong (IDD) Japan (IDD) US (IDD) 0204060801001998 20xx 20xx(RMB BN) DLD OnNet DLD OffNet ILD OnNet ILD OffNet (%) 11 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI CAREFUL MANAGEMENT OF PREPAID 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 models ? Focus on consumers will not plement long term vision of providing enterprise solutions ? Mass advertising and marketing around a lowcost position may not fit image required for future needs Three factors important to consider in managing prepaid calling card business ? Attempt to position cards in marketing messages as the first product from a pany that is building the most advanced work in PRC ? Consider selling cards to businesses for their traveling personnel to begin establishing enterprise relationships ? Carefully manage product life cycle to begin pulling back marketing investment as wholesale and enterprise business models grow 12 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI CNC VOIP REVENUE AND MARKET SHARE EXPECTATIONS Source: CNC’s team inputs。 various benchmarks。 BCG analysis Voice revenue Share assumptions 012341999 20xx 20xx 20xx 20xx 20xxCNC Revenue (RMB BN) OffNet DLD % of total CNC revenue 100% 76% 37% 30% 23% 16% OffNet ILD International Termination 1999 3% 80% 1% 3% 80% 1% 5% 80% 0% OffNet DLD Off share of total DLD Geographic coverage of CNC CNC share within coverage OffNet ILD Off share of total ILD Geographic coverage of CNC CNC share within coverage International Termination IP share of total Geographic coverage of CNC CNC share within coverage 20xx 10% 60% 25% 11% 60% 25% 11% 60% 20% 20xx 17% 75% 29% 18% 75% 29% 18% 75% 25% 20xx 23% 90% 33% 26% 90% 33% 24% 90% 30% 20xx 30% 100% 30% 33% 100% 30% 30% 100% 30% 20xx 32% 100% 28% 35% 100% 28% 35% 100% 31% 13 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI PRELIMINARY ECONOMICS FOR LONG DISTANCE VOICE MODEL (PHASE I BUILDOUT) VOIP Revenue Alone Justifies Building Backbone 2 3 0 0 1 4 0 03700 7 0 0740 5 0 0570 1 0 0 4 9 0 5 0 0 0 4 0 0 0 3 0 0 0 2 0 0 0 1 0 0 00100020xx3000400050005 year PV(1) (M R