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1、,CONTENT,Key strategic principlesRegulatory overviewMarket overviewCompetition overviewBusiness modelsNext steps,AGENDA,Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forward,Economic modeling,Choice of business modelsto pursue and timi
2、ng,Roadmap for pursuing business models and expected financial performanceIntegrated approach to CNC business plan,Majorissues,Expectedoutput,How 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 a
3、nd long haul fiber networks?Predicted cash flow profile by business model and selected scenarios,Assessment of market opportunities,How will China datacom market develop?How large is the overall opportunity for a new entrant?Overall market sizing and revenue forecast by product area,Regulatory and c
4、ompetitive analysis,What 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 scenarios,Strategic implications and capabilities assessment,METHODOLOGY BEING USED TO D
5、EVELOP BUSINESS MODELS AND OVERALL STRATEGY,-Current areas of focus,CNC AT A CRITICAL STRATEGIC CROSSROADS,Preliminary Conclusions,Recommendations/Decisions to be Made,Offnet VOIP predicted to generate to provide breakeven economics for building backbone1 Wholesale revenue provides significant upsid
6、e potential Majority of wholesale revenue relies on access to mobile carriersEnterprise solutions economics very attractive,but substantial complexity and resources involvedHigh-bandwidth international gateway critical to success in both wholesale and enterprise Economic predictions highly sensitive
7、 to a set of key assumptions,Accelerate vendor selection and backbone construction;time to market criticalCommitment to utilizing IP/DWDM invlolves risk to mobile carrier businessRFP to vendors should be based on product requirements vs.technologyStaging of investments and service launch must consid
8、er tradeoff between quality of service and coveragePreliminary talks with international carriers should begin ASAPScenario modeling will help us decide where to focus,Overarching question:Can CNC successfully pursue all opportunities outlined in the short/medium term?,(1)Assuming settlement fees of
9、10%of revenue,Overall approachWhere How,BUSINESS MODELS SUMMARY:THREE CORE ELEMENTS,Enterprise Solutions,Capture datacom growth in key business centers with leading-edge products and superior customer serviceTop business districts in major urban areas;only the most dense areas in short termFocused D
10、eployment Leverage existing conduits to lay in major urban areasSuperior service and bandwidthTarget CTs 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;consider
11、 supplying fixed-line incumbentsCover POPs in all major calling zones;develop local leased lines network in key locationsAggressive deployment of backbone infrastructure to provide unparalleled bandwidthEstablish high bandwidth international gateway to differentiate internet accessSuperior service w
12、ith clear positioning“The clear alternative to CT”,Long distance voice,Capture early revenue from to fund development of subsequent business modelsTop 60 POPs by end of year 2000 utilizing mix of leased lines from CT and CNC networkPosition offnet voice as first product from“Chinas first datacom car
13、rier”Do not overextend resources in VOIP as it does not fit CNCs long term strategyCreate“dial-around”solutions for business and interconnect terms,-17930-,Enterprise solutions,POTENTIAL BUSINESS MODELS COVER WIDE RANGE OF PRODUCT/MARKET ALTERNATIVES,Opportunity for growth,Current market size,Wholes
14、ale/carrier,Consumer ISP?,Domestic and International Long Distance Voice,Residential,Med/large enterprise customers,Carriers,Potential traffic per consumer,Products,Emerging datacom,Data,Voice,Emerging data niche,AGENDA,Business ModelsDomestic and international long-distance voiceWholesale/carrierEn
15、terprise solutionsIssues going forward,APPROACH TO DOMESTIC AND INTERNATIONAL VOICE BUSINESS MODEL,Objectives,Hypothesized Approach,Capture early revenue from launch of prepaid IP calling cards“Cash cow”for funding other business model developmentPursue prefix and equal access long distance for busi
16、ness 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“datacom”image,Fight the regulatory battle to ensure favorable approaches
17、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 Unicom-position calling card as first step in becoming a next generation full services providerEstablish mechanisms to link ma
18、rketing expenditures with revenue and margin growth by product to ensure effective investmentEmphasize low cost targeted marketing and loyalty programsDo not overextendAlways emphasize advanced technology and evolution to full services provision,DOMESTIC AND INTERNATIONAL VOICE SUMMARY,Preliminary E
19、conomics,Phase I CapEx(2000,2001):3.8 B RMBFiber/construction:2.4 B RMBIP/DWDM equipment:720 M RMBPOP/VOIP:530 M RMBOSS/Network management system:100 M RMBOpEx expected to be 30%of revenue by 2002Market share and revenue estimates-2002Offnet DLD:30%Offnet ILD:30%$2 B RMBIP Intl.termination:27%5 year
20、 NPV:Essentially breakeven considering offnet voice alone1,Key Issues to be Addressed,Interconnect agreements with local PTAs;attempt to obtain blanket policy from MII International gateway license and connectivitySettlement charges commensurate with VOIP pricingDevelopment of business offnet strate
21、gyScalable“dial-around”solutions in short termEqual 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,LARGE MARKET WITH POTENTIAL T
22、O GAIN SHARE QUICKLY,New entrants typically gain share quickly,Example:IDD and DLD services,Market sizeable-off-net traffic accounts for 15%of total DLD/ILD revenue by 2004,Source:China Telecom annual reports;CNCs team inputs;BCG surveys,analysis&benchmarking,Year after entry,Optus(DLD),Tele 2(DLD),
23、Mercury(DLD),Hong Kong(IDD),Japan(IDD),US(IDD),(RMB BN),DLD On-Net,DLD Off-Net,ILD On-Net,ILD Off-Net,(%),CAREFUL MANAGEMENT OF PRE-PAID CALLING CARD BUSINESS NECESSARY TO ALIGN WITH LONG TERM STRATEGY,Prepaid calling cards call for different capability set and target customers than longer term busi
24、ness modelsFocus on consumers will not complement long term vision of providing enterprise solutionsMass advertising and marketing around a low-cost position may not fit image required for future needsThree factors important to consider in managing prepaid calling card businessAttempt to position ca
25、rds in marketing messages as the first product from a company that is building the most advanced network in PRCConsider selling cards to businesses for their traveling personnel to begin establishing enterprise relationshipsCarefully manage product life cycle to begin pulling back marketing investme
26、nt as wholesale and enterprise business models grow,CNC VOIP REVENUE AND MARKET SHARE EXPECTATIONS,Source:CNCs team inputs;various benchmarks;BCG analysis,Voice revenue,Share assumptions,CNC Revenue(RMB BN),Off-Net DLD,%of total CNC revenue,100%,76%,37%,30%,23%,16%,Off-Net ILD,International Terminat
27、ion,19993%80%1%3%80%1%5%80%0%,Off-Net DLDOff-net share of total DLDGeographic coverage of CNCCNC share within coverageOff-Net ILDOff-net share of total ILDGeographic coverage of CNCCNC share within coverageInternational TerminationIP share of totalGeographic coverage of CNCCNC share within coverage,
28、200010%60%25%11%60%25%11%60%20%,200117%75%29%18%75%29%18%75%25%,200223%90%33%26%90%33%24%90%30%,200330%100%30%33%100%30%30%100%30%,200432%100%28%35%100%28%35%100%31%,PRELIMINARY ECONOMICS FOR LONG DISTANCE VOICE MODEL(PHASE I BUILDOUT)VOIP Revenue Alone Justifies Building Backbone,5 year PV(1)(M RMB
29、),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 terminationIDDDLD,IPPOP/Access platformOSS,Present value of cash flows,(1)Assuming 15%cost of capital(2)Including se
30、ttlement 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;industry interviews;BCG analysis,AGENDA,Business ModelsDomestic and international lo
31、ng-distance voiceWholesale/carrierEnterprise solutionsIssues going forward,APPROACH TO WHOLESALE/CARRIER BUSINESS MODEL,Objectives,Hypothesized Approach,Develop wholesale business as traffic generator to improve economics of backbone through higher utilizationBecome the wholesale carrier of choice w
32、ith technologically superior service offerings including high bandwidth international gateway connectivityConsider wholesaling access to CT,Unicom,and Jitong depending on competitive implicationsSuperior customer service with clear positioning“The clear alternative to CT”,Aggressive deployment of ba
33、ckbone infrastructure Connecting top 15 cities by end of 2000 and expanding to top 50 cities by 2002 Seek partnerships to establish high bandwidth international gateway connectivity-absolutely essential for differentiating CNC offeringDevelop interconnection capabilities in all major POPs and mobile
34、 basestations in key geographical locationsWholesale access to incumbent providers where feasible,but do not wholesale sources of competitive advantage(e.g.,enhanced data services such as IP VPNs)Rollout product offering in staged manner to ensure quality of serviceInternet connectivityMobile interc
35、onnectAccess ports to backbone,WHOLESALE/CARRIER SUMMARY,Preliminary Economics,Phase I CapEx(2000,2001):100 M RMBISP access platform:50 M RMBOSS/Provisioning systems:50 M RMBOpEx expected to be 10%of revenue by 20021Market share and revenue estimates-2002Mobile(backbone):15%ISPs:9%1.1 B RMBAccess po
36、rts:100%2Dark fiber:100%25 year NPV:$2.1 B RMBAssumes launch date of 3Q 2000 for leased lines and relatively aggressive mobile sharesPotentially too optimistic,Key Issues to be Addressed,Backbone technology platform-QOS for voice vs.lower cost deployment?High-bandwidth international gateway paramoun
37、t 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 competitionOrganizational challenges,(1)Including allocation of backbone OpEx(2)Marke
38、t estimates based on revenue generation by CNC alone,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 gatewayCurrent satisfaction among regional ISPs very lowInternat
39、ional gateway license in conjunction with high bandwidth trans-oceanic carrier alliance could provide vastly superior serviceMobile carriers will be searching for lower cost alternatives to carry long distance traffic due to intensifying competition CNCs new high capacity VoIP network and internatio
40、nal gateway likely to yield lower costsFixed line carriers potentially looking for alternativesExisting long-haul transport infrastructure limitedChina Telecom could even be a possible customer given current focus on increasing residential teledensity,OVERALL WHOLESALE MARKET SIZE IS SUBSTANTIAL AND
41、 GROWING AT A MODEST RATEAnticipated Price Decrease in Leased Lines Limits Overall Revenue Growth,Leased Lines-ISP,Market Size(RMB B),15,Total,Leased Lines-Mobile,99-04CAGR,Access Ports,Leased Lines-Paging,18,18,20,22,26,28,4%,41%,1%,152%,(1),9%,(1)01-04 CAGRSource:CNC team inputs;foreign benchmarks
42、;BCG analysis,Dark Fiber,68%,(1),CARRIERS SEEKING ALTERNATIVES.,ISPs definitely seeking alternatives to CT,Mobile carriers likely to follow,“We need a telecom service provider that is not our competitor.”-Founder,Eastnet“China Telecom,with their own network development plans,tends to starve us on ca
43、pacity or to force us to pay in advance for excess capacity.”-Manager,Infohighway“The fact that it takes China Telecom 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
44、carriers might consider diverting part of their traffic to alternative service providers with:more attractive pricinghigher quality servicehigher bandwidthInterviews with regional mobile carriers and Unicom need to be conducted to verify potential,BUT TECHNOLOGICAL LIMITATIONS AND COMPETITIVE CHALLE
45、NGE ARE IMPORTANT FACETS TO MANAGE,Competitive Challenge,Technological Limitations,Mobile carriers may be hesitant to use VOIP technology for primary applicationsCarriers currently addressing sound quality as a major improvement initiativeVOIP has yet to deliver toll-quality voice transmission,even
46、on landlineMobile carriers may take view that VOIP could further degrade voice quality,China Telecom likely to have advantage in competing share of CT Mobiles businessStrong former intra-CT connection even after splitExtensive backbone coverage and large TDM based capacityUnicom Mobile Services busi
47、ness as tough target,Build presence by offering low-costtrials and backup capacity,Lobby for clear regulation from MII on freedom of choice for carriers,PREDICTED WHOLESALE ECONOMICS ADD SIGNIFICANT VALUE TO VOIP BUSINESS MODELAdditional CapEx and OpEx Minimal,5 year PV(1)(M RMB),CapEX,OpEx,Revenue,
48、5 year NPV15%:,2.1B RMB,5 year IRR:,40%,Wholesale critical to enhancing profitability of backbone,VOIP,Backbone allocation,Dark FiberAccess portsISPsMobile operatorsVOIP,VOIPISP accessOSS,(1)Assuming 15%cost of capitalSource:BCG benchmark database;industry interviews;BCG analysis,OSS/provisioning,Pr
49、esent value of cash flows,8,000,7,000,5,000,1,000,6,000,-3,000,-4,000,AGENDA,Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forward,APPROACH TO ENTERPRISE SOLUTIONS BUSINESS MODEL,Objectives,Hypothesized Approach,Capture strong share am
50、ong medium/large business by offering enhanced datacom solutionsGoal to establish clear position as best service/quality provider in major marketsUtilize most cost effective deployment technologies to cover major metro areasMinimize head-to-head competition by offering differentiated,data-centric pr
