174波士頓--中國(guó)戰(zhàn)略咨詢報(bào)告完整版2

1、,CONTENT,Key strategic principlesRegulatory overviewMarket overviewCompetition overviewBusiness modelsNext steps,AGENDA,,Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterpri

2、se solutionsIssues going forward,Economic modeling,,Choice of business modelsto pursue and timing,Roadmap for pursuing business models and expected financial performanceIntegrated approach to CNC business plan,Major

3、issues,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 and long haul fiber networks?Pre

4、dicted 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

5、 sizing and revenue forecast by product area,,Regulatory and competitive analysis,What type of regulatory environment will evolve in China?Will equal access for voice and data be granted and when?What effect will WT

6、O have?Regulatory mapping and CNC share predictions across scenarios,,,,Strategic implications and capabilities assessment,METHODOLOGY BEING USED TO DEVELOP BUSINESS MODELS AND OVERALL STRATEGY,,- Current areas of f

7、ocus,,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 prov

8、ides significant upside potential Majority of wholesale revenue relies on access to mobile carriersEnterprise solutions economics very attractive, but substantial complexity and resources involvedHigh-bandwidth int

9、ernational gateway critical to success in both wholesale and enterprise Economic predictions highly sensitive to a set of key assumptions,Accelerate vendor selection and backbone construction; time to market critical

10、Commitment 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 consider tradeoff between qu

11、ality 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 ou

12、tlined in the short/medium term?,(1) Assuming settlement fees of 10% of revenue,,,,,,,Overall approachWhere How,BUSINESS MODELS SUMMARY: THREE CORE ELEMENTS,Enterprise Solutions,Capture datacom gro

13、wth 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 Deployment Leverage existing conduits

14、 to lay in major urban areasSuperior service and bandwidthTarget CT’s weakness in service and bandwidth Utilize LMDS in intermediate cities and areas where time to market is critical,,Wholesale/Carrier,,Target mobi

15、le carriers and ISPs with backbone transport; consider supplying fixed-line incumbentsCover POPs in all major calling zones; develop local leased lines network in key locationsAggressive deployment of backbone inf

16、rastructure to provide unparalleled bandwidthEstablish high bandwidth international gateway to differentiate internet accessSuperior service with clear positioning “The clear alternative to CT”,,Long distance voice,

17、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 “China’s

18、 first datacom carrier”Do not overextend resources in VOIP as it does not fit CNC’s long term strategyCreate “dial-around” solutions for business and interconnect terms,,- 17930 -,Enterprise solutions,POTENTIAL BUSIN

19、ESS MODELS COVER WIDE RANGE OF PRODUCT/MARKET ALTERNATIVES,,,Opportunity for growth,Current market size,,,,,Wholesale/carrier,Consumer ISP?,Domestic and International Long Distance Voice,Residential,Med/large enterprise

20、 customers,Carriers,Potential traffic per consumer,Products,Emerging datacom,Data,Voice,Emerging data niche,AGENDA,,,Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutions

21、Issues 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

22、 developmentPursue prefix and equal access long distance for business customers as soon as possible to begin establishing relationshipsManage pricing and product life cycle effectively to maximize total margin and av

23、oid investing in declining productsDo not overextend ourselves nor blur our “datacom” image,Fight the regulatory battle to ensure favorable approaches to equal access and interconnectMarket calling cards to business

24、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 m

25、echanisms to link marketing expenditures with revenue and margin growth by product to ensure effective investmentEmphasize low cost targeted marketing and loyalty programsDo not overextendAlways emphasize advanced te

26、chnology and evolution to full services provision,,,DOMESTIC AND INTERNATIONAL VOICE SUMMARY,Preliminary Economics,Phase I CapEx (2000,2001): ~3.8 B RMBFiber/construction: ~2.4 B RMBIP/DWDM equipment: ~720 M RMBPOP/VO

27、IP: ~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%

28、5 year NPV: Essentially breakeven considering offnet voice alone1,Key Issues to be Addressed,Interconnect agreements with local PTA’s; attempt to obtain blanket policy from MII International gateway license and connect

29、ivitySettlement charges commensurate with VOIP pricingDevelopment of business offnet strategyScalable “dial-around” solutions in short termEqual access longer termQuality of service for voice, must approach switc

30、hed 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 TO GAIN SHARE QUICKLY,New entran

31、ts 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; CNC’s team inputs; BCG surveys, a

32、nalysis & benchmarking,Year after entry,Optus (DLD),Tele 2 (DLD),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 CALLIN

33、G CARD BUSINESS NECESSARY TO ALIGN WITH LONG TERM STRATEGY,Prepaid calling cards call for different capability set and target customers than longer term business modelsFocus on consumers will not complement long term vi

34、sion 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 business

35、Attempt to position cards 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 establishi

36、ng enterprise relationshipsCarefully manage product life cycle to begin pulling back marketing investment as wholesale and enterprise business models grow,,,,CNC VOIP REVENUE AND MARKET SHARE EXPECTATIONS,Source: CNC’s

37、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 Termination,19993%80%1%

38、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 coverageI

39、nternational TerminationIP share of totalGeographic coverage of CNCCNC share within coverage,200010%60%25%11%60%25%11%60%20%,200117%75%29%18%75%29%18%75%25%,20022

40、3%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 (PH

41、ASE I BUILDOUT)VOIP Revenue Alone Justifies Building Backbone,5 year PV(1) (M RMB),CapEX,OpEx,Revenue,5 year NPV@15%:,~ -500M RMB,5 year IRR:,~12%,,,Essentially breakeven economics for operating backbone for VOIP only,V

42、OIP(2),Backbone construction,Backbone,International terminationIDDDLD,IPPOP/Access platformOSS,Present value of cash flows,(1) Assuming 15% cost of capital(2) Including settlement charges estimated at 10% of VO

43、IP 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 analys

44、is,AGENDA,,,Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forward,APPROACH TO WHOLESALE/CARRIER BUSINESS MODEL,Objectives,Hypothesized Approach,,,Devel

45、op wholesale business as traffic generator to improve economics of backbone through higher utilizationBecome the wholesale carrier of choice with technologically superior service offerings including high bandwidth inte

46、rnational gateway connectivityConsider wholesaling access to CT, Unicom, and Jitong depending on competitive implicationsSuperior customer service with clear positioning “The clear alternative to CT”,Aggressive depl

47、oyment of backbone 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 f

48、or 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

49、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 interconnectAccess ports to backbone,

50、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 re

51、venue estimates - 2002Mobile (backbone): 15%ISPs: 9% ~ 1.1 B RMBAccess ports: 100%2Dark fiber: 100%25 year NPV: ~ $2.1 B RMBAssumes launch date of 3Q 2000 for leased lines and relatively aggressive mobile sh

52、aresPotentially too optimistic,Key Issues to be Addressed,Backbone technology platform - QOS for voice vs. lower cost deployment?High-bandwidth international gateway paramount to differentiating ISP accessFavorable

53、regulatory backing for courting regional CT mobile carriersEnsuring existing VOIP gateways can serve wholesale needsRevenue opportunity of wholesaling dark fiber vs. enabling competitionOrganizational challenges,,(

54、1) Including allocation of backbone OpEx(2) Market estimates based on revenue generation by CNC alone,,POTENTIAL WHOLESALE CUSTOMERS INCLUDE ISPs, MOBILE OPERATORS, AND FIXED LINE CARRIERS,ISPs offer significant potenti

55、al if CNC can provide superior bandwidth access and to international gatewayCurrent satisfaction among regional ISPs very lowInternational gateway license in conjunction with high bandwidth trans-oceanic carrier allian

56、ce could provide vastly superior serviceMobile carriers will be searching for lower cost alternatives to carry long distance traffic due to intensifying competition CNC’s new high capacity VoIP network and internation

57、al 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

58、increasing residential teledensity,OVERALL WHOLESALE MARKET SIZE IS SUBSTANTIAL AND GROWING AT A MODEST RATEAnticipated Price Decrease in Leased Lines Limits Overall Revenue Growth,Leased Lines - ISP,Market Size (RMB

59、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’ CAGRSource: CNC team inputs; foreign benchmarks; BCG analysis,,,Dark Fiber,68%,(1)

60、,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 th

61、eir own network 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 Telecom two months every time we need an extr

62、a 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

63、 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 CO

64、MPETITIVE CHALLENGE ARE IMPORTANT FACETS TO MANAGE,Competitive Challenge,Technological Limitations,,,Mobile carriers may be hesitant to use VOIP technology for primary applicationsCarriers currently addressing sound qua

65、lity as a major improvement initiativeVOIP has yet to deliver toll-quality voice transmission, even on landlineMobile carriers may take view that VOIP could further degrade voice quality,China Telecom likely to have ad

66、vantage in competing share of CT Mobile’s businessStrong former intra-CT connection even after splitExtensive backbone coverage and large TDM based capacityUnicom Mobile Services’ business as tough target,Build prese

67、nce 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

68、 OpEx Minimal,5 year PV(1) (M RMB),CapEX,OpEx,Revenue,5 year NPV@15%:,~2.1B RMB,5 year IRR:,~ 40%,,,Wholesale critical to enhancing profitability of backbone,VOIP,Backbone allocation,Dark FiberAccess portsISPsMobile