【正文】 14Dec99TZDgxSHI 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。 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。 BCG analysis 14 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI AGENDA Business Models ? Domestic and international longdistance voice ? Wholesale/carrier ? Enterprise solutions ? Issues going forward 15 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI APPROACH TO WHOLESALE/CARRIER BUSINESS MODEL Objectives Hypothesized Approach Develop wholesale business as traffic generator to improve economics of backbone through higher utilization Bee the wholesale carrier of choice with technologically superior service offerings including high bandwidth international gateway connectivity Consider wholesaling access to CT, Uni, and Jitong depending on petitive implications Superior customer service with clear positioning ? “The clear alternative to CT” Aggressive deployment of backbone infrastructure ? Connecting top 15 cities by end of 2021 and expanding to top 50 cities by 2021 Seek partnerships to establish high bandwidth international gateway connectivityabsolutely essential for differentiating CNC offering Develop interconnection capabilities in all major POPs and mobile basestations in key geographical locations Wholesale access to incumbent providers where feasible, but do not wholesale sources of petitive advantage (., enhanced data services such as IP VPNs) Rollout product offering in staged manner to ensure quality of service ? Inter connectivity ? Mobile interconnect ? Access ports to backbone 16 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI WHOLESALE/CARRIER SUMMARY Preliminary Economics Phase I CapEx (2021,2021): ~100 M RMB ? ISP access platform: ~50 M RMB ? OSS/Provisioning systems: ~50 M RMB OpEx expected to be ~ 10% of revenue by 20211 Market share and revenue estimates 2021 ? Mobile (backbone): 15% ? ISPs: 9% ~ B RMB ? Access ports: 100%2 ? Dark fiber: 100%2 5 year NPV: ~ $ B RMB Assumes launch da