【正文】 obile carriers and ISPs with backbone transport。 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。 foreign benchmarks。 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 20xx 20xx 20xx 20xx 20xx 20xx Phase I amp。 3 times Fuzhou estimate for cities 510 (2) Assumes no local voice revenue through 20xx 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 20xx 20xxInter Access Leased Lines ILD DLD Local 0510152025303520xx 20xxOther 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。 various benchmarks。 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。 CNC’s team inputs。 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 f