【正文】 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHILEASED LINE COST HIGHEST AMONG INTERCONNECT COSTSApproximately RMB 134K/month to Link up One CityItem Cost per month (in RMB1,000)Leased line to local PTA? Capacity: 2 M bps? Number of channels: 30Domestic LD transport(1)Total for connecting up one cityLeased line to international gateway? E1 capacityTotal for IDD from one city9100150109 159 222?！?CNC must fight aggressively for them 14 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHIKEY REGULATORY ISSUES AND IMPLICATIONSService licensesFull Service license interpretationInterconnect enforcementAccount settlementPricing and rebalancingROW and access Frequency spectrum allocation and feesUniversal Service ObligationEqual AccessNumbering and portabilityIGW license important to petitiveness,size of customer base and of partnersMII notification on each instance adds delay to CNC local interconnectionTime to market in each city affected, detract CNC resourcesFuture Interconnect economicsFuture price petitiveness vs. other players (. CT)economics。 beat shareholders’ expectations by delivering high return Assumptions:? CAS: strong interest in seeing CNC successful and profitable quickly, stands ready for favorable regulatory influence and research support。 1 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHICHINA NETCOM BUSINESS PLAN UPDATEDecember 14, 1999 Beijing 2 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHITODAY’S OBJECTIVES Review the overall analysis of regulation, petition, and market development? Discuss the specific implications for CNC strategy Review the specific draft business models for CNC ? How we might attack the business, carrier, and IDD/DLD markets? What key tradeoffs we need to make? What are the key success factors and assumptions? Discuss the initial economics of these business models, and of CNC overall Discuss the specific next steps in two key areas:? How to finalize and endorse the overall CNC business model? How to move forward with the refined financials, anization design, and the plan for implementation 3 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHICONTENT Key strategic principles Regulatory overview Market overview Competition overview Business models Next steps 4 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHIKEY CNC STRATEGIC PRINCIPLES The objective of these principles is to provide further clarity in the development and evaluation of the CNC business model These will be revisited and refined as the project progresses? Our development of business models will seek to be aligned with the principles Strategic principles and key assumptions will be considered in the following aspects Marketing strategy 5 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHICNC SHAREHOLDERS Principles:? Leverage shareholders’ concerted vision in creating a new generation IP broadband munication infrastructure and a profitable, successful pany? Leverage shareholders’ existing backbone assets, local access assets, research capabilities and local government relationships to secure timetomarket and create petitive advantage? Set a model of a new type of “SOE”, as efficient as the best of the FIE/private panies。 number portability may take another 12 years at least? CNC will have LMDS spectrum CNC anticipates a wellintentioned regulator, with varied degrees of control over local incumbent practice None of these assumptions are “guaranteed。 parallel processing to minimize time needed and clear bottleneckBACKUP 20 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHITHE PROCESS OF LOCAL INTERCONNECT IS GENERALY SMOOTH But There’s Great Difficulty in Some CitiesInterconnect in major cities is smooth? . BJ, SH, GZGreat difficulty in some cities ? . Wuhan? Fast agreement reached? From negotiation to implementation usually takes 23 weeks? Takes 46 month to plete negotiation ? Issues: local CT branch attempted to curtail CNC by forbidding connections of multiple lines at CNC level? Resolution: resort to regulatory provision to reach IP phone interconnect agreement push off multiple line issue as future negotiation agendaBACKUP 21 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHITERMINATION SETTLEMENT MAY REDUCE CNC MARGIN (I)CurrentLikely scenarios for Y2023End user? Customer pays local PTA for PSTN usage? . RMB every 3 min to PTA? No settlement paid by CNC to PTA? Customer pays local PTA for PSTN usage? . RMB every 3 min to PTA? No settlement paid by CNC to PTA? CNC pays PTA for both origination and termination? CNC charges customer IPphone carrier rate ? . RMB to CNC (debit from prepaid IP phone card)? CNC charges customer IPphone carrier rate ? . RMB ? Per minute IP rate 165。 BCG analysis 16 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHIKEY LICENSE ASPECTS AND IMPLICATION TO CNCFull Service and InternationalValue added servicesownershipGeographic scopeDurationlicense feesPerformance targetsTechnologyKey Aspects? Number of licenses tightly controlled: at most 3 in 2023, including CNC? CNC full service license expected 1Q 2023? I