【正文】 te of 3Q 2021 for leased lines and relatively aggressive mobile shares ? Potentially too optimistic Key Issues to be Addressed Backbone technology platform QOS for voice vs. lower cost deployment? Highbandwidth international gateway paramount to differentiating ISP access Favorable regulatory backing for courting regional CT mobile carriers Ensuring existing VOIP gateways can serve wholesale needs Revenue opportunity of wholesaling dark fiber vs. enabling petition Organizational challenges (1) Including allocation of backbone OpEx (2) Market estimates based on revenue generation by CNC alone 17 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI POTENTIAL WHOLESALE CUSTOMERS INCLUDE ISPs, MOBILE OPERATORS, AND FIXED LINE CARRIERS ISPs offer significant potential if CNC can provide superior bandwidth access and to international gateway ? Current satisfaction among regional ISPs very low ? International gateway license in conjunction with high bandwidth transoceanic carrier alliance could provide vastly superior service Mobile carriers will be searching for lower cost alternatives to carry long distance traffic due to intensifying petition ? CNC’s new high capacity VoIP work and international gateway likely to yield lower costs Fixed line carriers potentially looking for alternatives ? Existing longhaul transport infrastructure limited ? China Tele could even be a possible customer given current focus on increasing residential teledensity 18 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI OVERALL WHOLESALE MARKET SIZE IS SUBSTANTIAL AND GROWING AT A MODEST RATE Anticipated Price Decrease in Leased Lines Limits Overall Revenue Growth 0510152025301998 1999 2021 2021 2021 2021 2021 Leased Lines ISP Market Size (RMB B) 15 Total Leased Lines Mobile 99’ 04’ CAGR Access Ports Leased Lines Paging 18 18 20 22 26 28 4% 41% 1% 152% (1) 9% (1) 01’ 04’ CAGR Source: CNC team inputs。 BCG analysis Voice revenue Share assumptions 012341999 2021 2021 2021 2021 2021CNC Revenue (RMB BN) OffNet DLD % of total CNC revenue 100% 76% 37% 30% 23% 16% OffNet ILD International Termination 1999 3% 80% 1% 3% 80% 1% 5% 80% 0% OffNet DLD Off share of total DLD Geographic coverage of CNC CNC share within coverage OffNet ILD Off share of total ILD Geographic coverage of CNC CNC share within coverage International Termination IP share of total Geographic coverage of CNC CNC share within coverage 2021 10% 60% 25% 11% 60% 25% 11% 60% 20% 2021 17% 75% 29% 18% 75% 29% 18% 75% 25% 2021 23% 90% 33% 26% 90% 33% 24% 90% 30% 2021 30% 100% 30% 33% 100% 30% 30% 100% 30% 2021 32% 100% 28% 35% 100% 28% 35% 100% 31% 13 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI PRELIMINARY ECONOMICS FOR LONG DISTANCE VOICE MODEL (PHASE I BUILDOUT) VOIP Revenue Alone Justifies Building Backbone 2 3 0 0 1 4 0 03700 7 0 0740 5 0 0570 1 0 0 4 9 0 5 0 0 0 4 0 0 0 3 0 0 0 2 0 0 0 1 0 0 00100020213000400050005 year PV(1) (M RMB) CapEX OpEx Revenue 5 year NPV15%: ~ 500M RMB 5 year IRR: ~12% Essentially breakeven economics for operating backbone for VOIP only VOIP(2) Backbone construction Backbone International termination IDD DLD IP POP/Access platform OSS Present value of cash flows (1) Assuming 15% cost of capital (2) Including settlement charges estimated at 10% of VOIP revenue, and marketing/sales at 10% of revenue (3) Backbone OpEx charges allocated 1/3 each to VOIP, wholesale, and enterprise business model economics Source: BCG benchmark database。 benchmarking 010203040500 1 2 3 4 5 6 7Year after entry Optus (DLD) Tele 2 (DLD) Mercury (DLD) Hong Kong (IDD) Japan (IDD) US (IDD) 0204060801001998 2021 2021(RMB BN) DLD OnNet DLD OffNet ILD OnNet ILD OffNet (%) 11 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI CAREFUL MANAGEMENT OF PREPAID CALLING CARD BUSINESS NECESSARY TO ALIGN WITH LONG TERM STRATEGY Prepaid calling cards call for different capability set and target customers than longer term business models ? Focus on consumers will not plement long term vision of providing enterprise solutions ? Mass advertising and marketing around a lowcost position may not fit image required for future needs Three factors important to consider in managing prepaid calling card business ? Attempt to position cards in marketing messages as the first product from a pany that is building the most advanced work in PRC ? Consider selling cards to businesses for their traveling personnel to begin establishing enterprise relationships ? Carefully manage product life cycle to begin pulling back marketing investment as wholesale and enterprise business models grow 12 China Net The Boston Consulting Group ConfidentialDestroy by Shredding 4503405Interim14Dec99TZDgxSHI CNC VOIP REVENUE AND MARKET SHARE EXPECTATIONS Source: CNC’s team inputs。 CNC’s team inputs。 develop local