【正文】 rve less dense areas Initial lead products will be low cost voice over IP and high bandwidth inter access ? Migration to full data solutions as customer base and capabilities grow ? Quality customer service more important short term than full product offering Emphasis on ease of use and fast provisioning versus petitorsexploit CT’s weaknesses Education of customers on use of data products as petitive weapons Marketing partner with key building managers 24 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI ENTERPRISE SOLUTIONS SUMMARY Preliminary Economics Phase I Capital Investment (2021,2021): ~ B RMB ? First four cities (assuming fiber): ~650 M RMB ? Additional 11 cities1: ~400 M RMB OpEx expected to be ~ 40% of revenue by 2021 Market share and revenue estimates 2021 ? Off Voice2: ~20% ? Existing data: ~10% ~ B RMB ? Emerging data: ~ 5% 5 year NPV: Roughly B RMB Assumes launch date of 3Q 2021 for data services ? Likely too optimistic Key Issues to be Addressed Right of way for existing ducts and digging Partnership strategy for high bandwidth IGW Rights to LMDS frequency spectrum Are the 15 cities designated for Phase I buildout the right 15 cities for local access? Tradeoff between pure economics by city vs. strategic value of providing endtoend connectivity What is a realistic time frame for launch? Magnitude of anizational and human resource requirements (1) Assuming LMDS capital and revenue 2 times Fuzhou estimate for cities 1115。 industry interviews。 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 Development Area People’s park Huai Hai Road Xujiahui Pudong Financial Zone Fiber length: Along subway: Along elevated ring road: Along road: 17000m 9000m 8000m of major business buildings accessed: ~200 Fibers along Subway in construction Subway Elevated ring road Road (dig required) Dense Business Area served Metro stations M M M 32 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI SHANGHAI ECONOMICS VERY ATTRACTIVE DUE TO HIGH BUILDING AND BUSINESS DENSITY 2 4 8705133 1 0 6789 5 4 1 4 2 4 6 1 445 3 1 6 0 0 5 0 0 4 0 0 3 0 0 2 0 0 1 0 0010020030040050060070080090010005 year PV(1) (M RMB) CapEX OpEx Revenue 5 year NPV15%: ~310M RMB 5 year IRR: ~70% Shanghai presents most attractive enterprise solutions market SG amp。 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 anothe