【正文】 r 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。 CNC’s team inputs。 time to market critical Commitment to utilizing IP/DWDM invlolves risk to mobile carrier business ? RFP to vendors should be based on product requirements vs. technology Staging of investments and service launch must consider tradeoff between quality of service and coverage Preliminary talks with international carriers should begin ASAP Scenario modeling will help us decide where to focus Overarching question: Can CNC successfully pursue all opportunities outlined in the short/medium term? (1) Assuming settlement fees of 10% of revenue 5 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI Overall approach Where How BUSINESS MODELS SUMMARY: THREE CORE ELEMENTS Enterprise Solutions Capture data growth in key business centers with leadingedge products and superior customer service Top business districts in major urban areas。 various benchmarks。 3 times Fuzhou estimate for cities 510 (2) Assumes no local voice revenue through 2021 25 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI ENTERPRISE 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 challenge ? Operating expenses required dwarfs long haul work costs on a per city basis ? Complexity in obtaining nightofway varies by districts within each city ? Designing fiber route and work configuration requires significant experience Converting customers to full CNC service may not be as easy as it seems on surface ? Initial risk for panies utilizing new entrant ? Coverage issues for offering service to all business locations ? Experienced salesforce with established relationships a must 26 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI … BUT COMPRISES TREMENDOUS UPSIDE POTENTIAL 0204060801001201401601802001998 2021 2021Inter Access Leased Lines ILD DLD Local 051015202530352021 2021Other Portal Broadband Content Web Hosting/ Collocation Existing Services Emerging Services 9804 CAGR 124% 40% 10% 7% 11% IP VPN Broadband Network Applications 71% 83% 186% 98% 111% 286% 0004 CAGR Market size (RMB BN) Market size (RMB BN) 78 96 187 Overall 16% Overall 86% 3 32 Source: CNC team inputs。 BCG analysis。 BCG analysis 28 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI STAGED PRODUCT INTRODUCTION NECESSARY TO MANAGE QUALITY Hypothesized Product Introductions Voice Data 2021 2021 2021 2021 2021 2021 Phase I amp。 foreign benchmarks。 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 2021 Source: China Tele annual reports。 only the most dense areas in short term Fo