【正文】 IRR: ~12% Essentially breakeven economics for operating backbone for VOIP only VOIP(2) Backbone construction Backbone International termination IDD DLD IP POP/Access platform OSS Present 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 revenue (3) Backbone OpEx charges allocated 1/3 each to VOIP, wholesale, and enterprise business model economics Source: BCG benchmark database。 BCG analysis Dark Fiber 68% (1) 19 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI CARRIERS SEEKING ALTERNATIVES... ISPs definitely seeking alternatives to CT Mobile carriers likely to follow “ We need a tele service provider that is not our petitor.” Founder, East “ China Tele, with their own work development plans, tends to starve us on capacity or to force us to pay in advance for excess capacity.” Manager, Infohighway “The fact that it takes China Tele 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, Infohighway Mobile carriers might consider diverting part of their traffic to alternative service providers with: ? more attractive pricing ? higher quality service ? higher bandwidth Interviews with regional mobile carriers and Uni need to be conducted to verify potential 20 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI … BUT TECHNOLOGICAL LIMITATIONS AND COMPETITIVE CHALLENGE ARE IMPORTANT FACETS TO MANAGE Competitive Challenge Technological Limitations Mobile carriers may be hesitant to use VOIP technology for primary applications ? Carriers currently addressing sound quality as a major improvement initiative ? VOIP has yet to deliver tollquality voice transmission, even on landline ? Mobile carriers may take view that VOIP could further degrade voice quality China Tele likely to have advantage in peting share of CT Mobile’s business ? Strong former intraCT connection even after split ? Extensive backbone coverage and large TDM based capacity Uni Mobile Services’ business as tough target Build presence by offering lowcost trials and backup capacity Lobby for clear regulation from MII on freedom of choice for carriers 21 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI PREDICTED WHOLESALE ECONOMICS ADD SIGNIFICANT VALUE TO VOIP BUSINESS MODEL Additional CapEx and OpEx Minimal 1670 1 6 06607305010 1 8 9 0 3 6 0 0 4 6 4 0 0 5 22005 year PV(1) (M RMB) CapEX OpEx Revenue 5 year NPV15%: ~ RMB 5 year IRR: ~ 40% Wholesale critical to enhancing profitability of backbone VOIP Backbone allocation Dark Fiber Access ports ISPs Mobile operators VOIP VOIP ISP access OSS (1) Assuming 15% cost of capital Source: BCG benchmark database。 foreign benchmarks。 II Phase III Phase IV Leased Lines ? Mobile carriers ? Eerprise High bandwidth dedicated inter access for businesses and ISPs Access Ports VPN ? Basic enterprise Broadband applications ? Platforms to enable VOD, etc... Web Hosting Dark Fiber Residential ISP? Advanced VPN ? Extra ? Voice, video QoS guarantees ? Industry specific offerings Other emerging services (. eCommerce) IPphone voice ? Prefix ? “Dialaround” solutions Equal access voice? On voice? Focus on quality over quantity Market as integrated products Stress CNC role as integrated data player Positioning Issues 29 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI CNC SHOULD USE CREATIVE WAYS TO GROW THE MARKET, AVOID HEAD TO HEAD COMPETITION Competitors all focus on the same demand from the same customers Savagely pete on price Reactively wait for customers to identify need, request products Pursue growing customers data intensive enterprises ? Fresh opportunities for sales, instead of peting over existing business ? Approach proactively with new products, instead of waiting for customers to initiate sales process Creatively identify new markets ? . market for panies requiring very rapid provisioning or customized products ? Bee the only choice for these panies Lobby the government to support more emerce and information industries growth CT CNC Uni Jitong CT is likely to be unable to meet growing demand alone Traditional, narrow view New approaches to growing sales 30 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI TOTAL GDP VS. GDP/CAPITA IS A PRELIMINARY INDICATOR FOR ATTRACTIVE LOCAL ACCESS MARKETS Example: 15 Initial Cities with POPs on CNC Network 1 , 0 0 0 , 0 0 06 , 0 0 0 , 0 0 01 1 , 0 0 0 , 0 0 01 6 , 0 0 0 , 0 0 02 1 , 0 0 0 , 0 0 02 6 , 0 0 0 , 0 0 03 1 , 0 0 0 , 0 0 03 6 , 0 0 0 , 0 0 00 20 40 60 80 100 120Shanghai Beijing Guangzhou Tianjin Hangzhou Wuhan Nanjing Jinan Shijiazhuang Zhenzhou Changsha Xuzhou Xiamen Fuzhou Shenzhen Examples of additional cities not in initial 15 designated for CNC POPs Hypothetical breakeven curve for building local access Suzhou Wuxi Total GDP (k RMB) GDP/cap (k RMB) 31 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI VERY DENSE MARKETS SUCH AS SHANGHAI BEST SERVED BY METRO FIBER RINGS M POP/rail station Hong Qiao Develo