【正文】 05Interim14Dec99TZDgxSHILARGE MARKET WITH POTENTIAL TO GAIN SHARE QUICKLYNew entrants typically gain share quicklyExample: IDD and DLD servicesMarket sizeable off traffic accounts for ~15% of total DLD/ILD revenue by 2023Source: China Tele annual reports。 BCG surveys, analysis benchmarkingYear after entryOptus (DLD)Tele 2 (DLD)Mercury(DLD)Hong Kong (IDD)Japan (IDD)US (IDD)(RMB BN)DLD OnNetDLD OffNetILD OnNetILD OffNet(%) 11 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHICAREFUL 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 GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHICNC VOIP REVENUE AND MARKET SHARE EXPECTATIONSSource: CNC’s team inputs。 BCG analysisVoice revenue Share assumptionsCNC Revenue(RMB BN)OffNet DLD% of total CNC revenue 100% 76% 37% 30% 23% 16%OffNet ILDInternational Termination19993%80%1%3%80%1%5%80%0%OffNet DLDOff share of total DLDGeographic coverage of CNCCNC share within coverageOffNet ILDOff share of total ILDGeographic coverage of CNCCNC share within coverageInternational TerminationIP share of totalGeographic coverage of CNCCNC share within coverage202310%60%25%11%60%25%11%60%20%202317%75%29%18%75%29%18%75%25%202323%90%33%26%90%33%24%90%30%202330%100%30%33%100%30%30%100%30%202332%100%28%35%100%28%35%100%31% 13 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHIPRELIMINARY ECONOMICS FOR LONG DISTANCE VOICE MODEL (PHASE I BUILDOUT)VOIP Revenue Alone Justifies Building Backbone5 year PV(1) (M RMB)CapEX OpExRevenue5 year NPV15%:~ 500M RMB5 year IRR: ~12%Essentially breakeven economics for operating backbone for VOIP onlyVOIP(2)Backbone constructionBackboneInternational terminationIDDDLDIPPOP/Access platformOSSPresent 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 economicsSource: BCG benchmark database。 BCG analysis 14 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHIAGENDA Business Models? Domestic and international longdistance voice? Wholesale/carrier? Enterprise solutions? Issues going forward 15 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHIAPPROACH TO WHOLESALE/CARRIER BUSINESS MODELObjectives Hypothesized ApproachDevelop wholesale business as traffic generator to improve economics of backbone through higher utilizationBee the wholesale carrier of choice with technologically superior service offerings including high bandwidth international gateway connectivityConsider wholesaling access to CT, Uni, and Jitong depending on petitive implicationsSuperior customer service with clear positioning ? “The clear alternative to CT”Aggressive deployment of backbone infrastructure ? Connecting top 15 cities by end of 2023 and expanding to top 50 cities by 2023 Seek partnerships to establish high bandwidth international gateway connectivityabsolutely essential for differentiating CNC offeringDevelop interconnection capabilities in all major POPs and mobile basestations in key geographical locationsWholesale 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 GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHIWHOLESALE/CARRIER SUMMARYPreliminary EconomicsPhase I CapEx (2023,2023): ~100 M RMB?ISP access platform: ~50 M RMB?OSS/Provisioning systems: ~50 M RMBOpEx expected to be ~ 10% of revenue by 20231Market share and revenue estimates 2023?Mobile (backbone): 15%?ISPs: 9% ~ B RMB?Access ports: 100%2?Dark fiber: 100%25 year NPV: ~ $ B RMBAssumes launch date of 3Q 2023 for leased lines and relatively aggressive mobile shares?Potentially too optimisticKey Issues to be AddressedBackbone technology platform QOS for voice vs. lower cost deployment?Highbandwidth international gateway paramount to differentiating ISP accessFavorable regulatory backing for courting regional CT mobile carriersEnsuring existing VOIP gateways can serve wholesale needsRevenue opportunity of wholesaling dark fiber vs. enabling petitionOrganizational challenges(1) Including allocation of backbone OpEx(2) Market estimates based on revenue generation by