【正文】 tance for business customers as soon as possible to begin establishing relationshipsManage pricing and product life cycle effectively to maximize total margin and avoid investing in declining productsDo not overextend ourselves nor blur our “data” imageFight the regulatory battle to ensure favorable approaches to equal access and interconnectMarket calling cards to business customers in the short term for travelling personnelEmphasize quality image/brand to distinguish from CT and Uniposition calling card as first step in being a next generation full services providerEstablish mechanisms to link marketing expenditures with revenue and margin growth by product to ensure effective investmentEmphasize low cost targeted marketing and loyalty programs? Do not overextend? Always emphasize advanced technology and evolution to full services provision 9 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHIDOMESTIC AND INTERNATIONAL VOICE SUMMARYPreliminary EconomicsPhase I CapEx (2023,2023): ~ B RMB?Fiber/construction: ~ B RMB?IP/DWDM equipment: ~720 M RMB?POP/VOIP: ~530 M RMB?OSS/Network management system: ~100 M RMBOpEx expected to be ~30% of revenue by 2023Market share and revenue estimates 2023?Off DLD: 30%?Off ILD: 30% ~ $2 B RMB?IP Intl. termination: 27%5 year NPV: Essentially breakeven considering off voice alone1Key Issues to be AddressedInterconnect agreements with local PTA’s。 only the most dense areas in short term Focused Deployment ? Leverage existing conduits to lay in major urban areasSuperior service and bandwidth? Target CT’s weakness in service and bandwidth Utilize LMDS in intermediate cities and areas where time to market is critical Wholesale/Carrier Target mobile carriers and ISPs with backbone transport。 1 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHICONTENT Key strategic principles Regulatory overview Market overview Competition overview Business models Next steps 2 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHIAGENDA Business Models? Domestic and international longdistance voice? Wholesale/carrier? Enterprise solutions? Issues going forward 3 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHIEconomic modeling Choice of business modelsto pursue and timingRoadmap for pursuing business models and expected financial performanceIntegrated approach to CNC business planMajorissuesExpectedoutputHow do the market sizing and share assumptions translate into overall top line revenue for CNC?What capital investments will be necessary to build out metro and long haul fiber works?Predicted cash flow profile by business model and selected scenariosAssessment of market opportunitiesHow will China data market develop? How large is the overall opportunity for a new entrant?Overall market sizing and revenue forecast by product areaRegulatory and petitive analysisWhat type of regulatory environment will evolve in China?Will equal access for voice and data be granted and when?What effect will WTO have?Regulatory mapping and CNC share predictions across scenariosStrategic implications and capabilities assessmentMETHODOLOGY BEING USED TO DEVELOP BUSINESS MODELS AND OVERALL STRATEGY Current areas of focus 4 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHICNC AT A CRITICAL STRATEGIC CROSSROADSPreliminary Conclusions Remendations/Decisions to be MadeOff VOIP predicted to generate to provide breakeven economics for building backbone1 Wholesale revenue provides significant upside potential ?Majority of wholesale revenue relies on access to mobile carriersEnterprise solutions economics very attractive, but substantial plexity and resources involvedHighbandwidth international gateway critical to success in both wholesale and enterprise Economic predictions highly sensitive to a set of key assumptionsAccelerate vendor selection and backbone construction。 time to market criticalCommitment to utilizing IP/DWDM invlolves risk to mobile carrier business?RFP to vendors should be based on product requirements vs. technologyStaging of investments and service launch must consider tradeoff between quality of service and coveragePreliminary talks with international carriers should begin ASAPScenario modeling will help us decide where to focusOverarching 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 GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHI Overall approach Where HowBUSINESS 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。 consider supplying fixedline incumbents Cover POPs in all major calling zones。 attempt to obtain blanket policy from MII International gateway license and connectivitySettlement charges mensurate with VOIP pricingDevelopment of business off strategy?Scalable “dialaround” solutions in short term?Equal access longer termQuality of service for voice, must approach switched quality rapidlyPoint 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 GroupConfidentialDestroy by