網通戰略咨詢報告2024/3/25網通戰略咨詢報告AGENDABusinessModelsDomesticandinternationallong-distancevoiceWholesale/carrierEnterprisesolutionsIssuesgoingforward網通戰略咨詢報告EconomicmodelingChoiceofbusinessmodelstopursueandtimingRoadmapforpursuingbusinessmodelsandexpectedfinancialperformanceIntegratedapproachtoCNCbusinessplanMajor

issuesExpected

outputHowdothemarketsizingandshareassumptionstranslateintooveralltoplinerevenueforCNC?Whatcapitalinvestmentswillbenecessarytobuildoutmetroandlonghaulfibernetworks?PredictedcashflowprofilebybusinessmodelandselectedscenariosAssessmentofmarketopportunitiesHowwillChinadatacommarketdevelop?Howlargeistheoverallopportunityforanewentrant?OverallmarketsizingandrevenueforecastbyproductareaRegulatoryandcompetitiveanalysisWhattypeofregulatoryenvironmentwillevolveinChina?Willequalaccessforvoiceanddatabegrantedandwhen?WhateffectwillWTOhave?RegulatorymappingandCNCsharepredictionsacrossscenariosStrategicimplicationsandcapabilitiesassessmentMETHODOLOGYBEINGUSEDTODEVELOPBUSINESSMODELSANDOVERALLSTRATEGY-Currentareasoffocus網通戰略咨詢報告CNCATACRITICALSTRATEGICCROSSROADSPreliminaryConclusionsRecommendations/DecisionstobeMadeOffnetVOIPpredictedtogeneratetoprovidebreakeveneconomicsforbuildingbackbone1

WholesalerevenueprovidessignificantupsidepotentialMajorityofwholesalerevenuereliesonaccesstomobilecarriersEnterprisesolutionseconomicsveryattractive,butsubstantialcomplexityandresourcesinvolvedHigh-bandwidthinternationalgatewaycriticaltosuccessinbothwholesaleandenterpriseEconomicpredictionshighlysensitivetoasetofkeyassumptionsAcceleratevendorselectionandbackboneconstruction;timetomarketcriticalCommitmenttoutilizingIP/DWDMinvlolvesrisktomobilecarrierbusinessRFPtovendorsshouldbebasedonproductrequirementsvs.technologyStagingofinvestmentsandservicelaunchmustconsidertradeoffbetweenqualityofserviceandcoveragePreliminarytalkswithinternationalcarriersshouldbeginASAPScenariomodelingwillhelpusdecidewheretofocusOverarchingquestion:CanCNCsuccessfullypursueallopportunitiesoutlinedintheshort/mediumterm?(1)Assumingsettlementfeesof10%ofrevenue網通戰略咨詢報告OverallapproachWhereHowBUSINESSMODELSSUMMARY:THREECOREELEMENTSEnterpriseSolutionsCapturedatacomgrowthinkeybusinesscenterswithleading-edgeproductsandsuperiorcustomerserviceTopbusinessdistrictsinmajorurbanareas;onlythemostdenseareasinshorttermFocusedDeploymentLeverageexistingconduitstolayinmajorurbanareasSuperiorserviceandbandwidthTargetCT’sweaknessinserviceandbandwidthUtilizeLMDSinintermediatecitiesandareaswheretimetomarketiscriticalWholesale/CarrierTargetmobilecarriersandISPswithbackbonetransport;considersupplyingfixed-lineincumbentsCoverPOPsinallmajorcallingzones;developlocalleasedlinesnetworkinkeylocationsAggressivedeploymentofbackboneinfrastructuretoprovideunparalleledbandwidthEstablishhighbandwidthinternationalgatewaytodifferentiateinternetaccessSuperiorservicewithclearpositioning“TheclearalternativetoCT”ISPLongdistancevoiceCaptureearlyrevenuefromtofunddevelopmentofsubsequentbusinessmodelsTop60POPsbyendofyear2000utilizingmixofleasedlinesfromCTandCNCnetworkPositionoffnetvoiceasfirstproductfrom“China’sfirstdatacomcarrier”DonotoverextendresourcesinVOIPasitdoesnotfitCNC’slongtermstrategyCreate“dial-around”solutionsforbusinessandinterconnectterms-17930-網通戰略咨詢報告EnterprisesolutionsPOTENTIALBUSINESSMODELSCOVERWIDERANGEOFPRODUCT/MARKETALTERNATIVESOpportunityforgrowthCurrentmarketsizeWholesale/carrierConsumerISP?DomesticandInternationalLongDistanceVoiceResidentialMed/largeenterprisecustomersCarriersPotentialtrafficperconsumerProductsEmergingdatacomDataVoiceEmergingdataniche網通戰略咨詢報告AGENDABusinessModelsDomesticandinternationallong-distancevoiceWholesale/carrierEnterprisesolutionsIssuesgoingforward網通戰略咨詢報告APPROACHTODOMESTICANDINTERNATIONALVOICEBUSINESSMODELObjectivesHypothesizedApproachCaptureearlyrevenuefromlaunchofprepaidIPcallingcards“Cashcow”forfundingotherbusinessmodeldevelopmentPursueprefixandequalaccesslongdistanceforbusinesscustomersassoonaspossibletobeginestablishingrelationshipsManagepricingandproductlifecycleeffectivelytomaximizetotalmarginandavoidinvestingindecliningproductsDonotoverextendourselvesnorblurour“datacom”imageFighttheregulatorybattletoensurefavorableapproachestoequalaccessandinterconnectMarketcallingcardstobusinesscustomersintheshorttermfortravellingpersonnelEmphasizequalityimage/brandtodistinguishfromCTandUnicom--positioncallingcardasfirststepinbecominganextgenerationfullservicesproviderEstablishmechanismstolinkmarketingexpenditureswithrevenueandmargingrowthbyproducttoensureeffectiveinvestmentEmphasizelowcosttargetedmarketingandloyaltyprogramsDonotoverextendAlwaysemphasizeadvancedtechnologyandevolutiontofullservicesprovision網通戰略咨詢報告DOMESTICANDINTERNATIONALVOICESUMMARYPreliminaryEconomicsPhaseICapEx(2000,2001):~3.8BRMBFiber/construction:~2.4BRMBIP/DWDMequipment:~720MRMBPOP/VOIP:~530MRMBOSS/Networkmanagementsystem:~100MRMBOpExexpectedtobe~30%ofrevenueby2002Marketshareandrevenueestimates-2002OffnetDLD:30%OffnetILD:30% ~$2BRMBIPIntl.termination:27%5yearNPV:Essentiallybreakevenconsideringoffnetvoicealone1KeyIssuestobeAddressedInterconnectagreementswithlocalPTA’s;attempttoobtainblanketpolicyfromMIIInternationalgatewaylicenseandconnectivitySettlementchargescommensuratewithVOIPpricingDevelopmentofbusinessoffnetstrategyScalable“dial-around”solutionsinshorttermEqualaccesslongertermQualityofserviceforvoice,mustapproachswitchedqualityrapidlyPointofdiminishingreturnsforaddingVOIPgatewaysvs.strategicvalueofprovidingcoverage(1)Highlysensitivetosettlementfees網通戰略咨詢報告LARGEMARKETWITHPOTENTIALTOGAINSHAREQUICKLYNewentrantstypicallygainsharequicklyExample:IDDandDLDservicesMarketsizeable-off-nettrafficaccountsfor~15%oftotalDLD/ILDrevenueby2004Source:ChinaTelecomannualreports;CNC’steaminputs;BCGsurveys,analysis&benchmarkingYearafterentryOptus(DLD)Tele2(DLD)Mercury(DLD)HongKong(IDD)Japan(IDD)US(IDD)(RMBBN)DLDOn-NetDLDOff-NetILDOn-NetILDOff-Net(%)網通戰略咨詢報告CAREFULMANAGEMENTOFPRE-PAIDCALLINGCARDBUSINESSNECESSARYTOALIGNWITHLONGTERMSTRATEGYPrepaidcallingcardscallfordifferentcapabilitysetandtargetcustomersthanlongertermbusinessmodelsFocusonconsumerswillnotcomplementlongtermvisionofprovidingenterprisesolutionsMassadvertisingandmarketingaroundalow-costpositionmaynotfitimagerequiredforfutureneedsThreefactorsimportanttoconsiderinmanagingprepaidcallingcardbusinessAttempttopositioncardsinmarketingmessagesasthefirstproductfromacompanythatisbuildingthemostadvancednetworkinPRCConsidersellingcardstobusinessesfortheirtravelingpersonneltobeginestablishingenterpriserelationshipsCarefullymanageproductlifecycletobeginpullingbackmarketinginvestmentaswholesaleandenterprisebusinessmodelsgrow網通戰略咨詢報告CNCVOIPREVENUEANDMARKETSHAREEXPECTATIONSSource:CNC’steaminputs;variousbenchmarks;BCGanalysisVoicerevenueShareassumptionsCNCRevenue(RMBBN)Off-NetDLD%oftotalCNCrevenue100%76%37%30%23%16%Off-NetILDInternationalTermination19993%80%1%3%80%1%5%80%0%Off-NetDLDOff-netshareoftotalDLDGeographiccoverageofCNCCNCsharewithincoverageOff-NetILDOff-netshareoftotalILDGeographiccoverageofCNCCNCsharewithincoverageInternationalTerminationIPshareoftotalGeographiccoverageofCNCCNCsharewithincoverage200010%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%網通戰略咨詢報告PRELIMINARYECONOMICSFORLONGDISTANCEVOICEMODEL(PHASEIBUILDOUT)

VOIPRevenueAloneJustifiesBuildingBackbone5yearPV(1)(MRMB)CapEXOpExRevenue5yearNPV@15%:~-500MRMB5yearIRR:~12%EssentiallybreakeveneconomicsforoperatingbackboneforVOIPonlyVOIP(2)BackboneconstructionBackboneInternationalterminationIDDDLDIPPOP/AccessplatformOSSPresentvalueofcashflows(1)Assuming15%costofcapital(2)Includingsettlementchargesestimatedat10%ofVOIPrevenue,andmarketing/salesat10%ofrevenue(3)BackboneOpExchargesallocated1/3eachtoVOIP,wholesale,andenterprisebusinessmodeleconomicsSource:BCGbenchmarkdatabase;industryinterviews;BCGanalysis網通戰略咨詢報告AGENDABusinessModelsDomesticandinternationallong-distancevoiceWholesale/carrierEnterprisesolutionsIssuesgoingforward網通戰略咨詢報告APPROACHTOWHOLESALE/CARRIERBUSINESSMODELObjectivesHypothesizedApproachDevelopwholesalebusinessastrafficgeneratortoimproveeconomicsofbackbonethroughhigherutilizationBecomethewholesalecarrierofchoicewithtechnologicallysuperiorserviceofferingsincludinghighbandwidthinternationalgatewayconnectivityConsiderwholesalingaccesstoCT,Unicom,andJitongdependingoncompetitiveimplicationsSuperiorcustomerservicewithclearpositioning“TheclearalternativetoCT”AggressivedeploymentofbackboneinfrastructureConnectingtop15citiesbyendof2000andexpandingtotop50citiesby2002Seekpartnershipstoestablishhighbandwidthinternationalgatewayconnectivity--absolutelyessentialfordifferentiatingCNCofferingDevelopinterconnectioncapabilitiesinallmajorPOPsandmobilebasestationsinkeygeographicallocationsWholesaleaccesstoincumbentproviderswherefeasible,butdonotwholesalesourcesofcompetitiveadvantage(e.g.,enhanceddataservicessuchasIPVPNs)RolloutproductofferinginstagedmannertoensurequalityofserviceInternetconnectivityMobileinterconnectAccessportstobackbone網通戰略咨詢報告WHOLESALE/CARRIERSUMMARYPreliminaryEconomicsPhaseICapEx(2000,2001):~100MRMBISPaccessplatform:~50MRMBOSS/Provisioningsystems:~50MRMBOpExexpectedtobe~10%ofrevenueby20021Marketshareandrevenueestimates-2002Mobile(backbone):15%ISPs:9% ~1.1BRMBAccessports:100%2Darkfiber:100%25yearNPV:~$2.1BRMBAssumeslaunchdateof3Q2000forleasedlinesandrelativelyaggressivemobilesharesPotentiallytoooptimisticKeyIssuestobeAddressedBackbonetechnologyplatform-QOSforvoicevs.lowercostdeployment?High-bandwidthinternationalgatewayparamounttodifferentiatingISPaccessFavorableregulatorybackingforcourtingregionalCTmobilecarriersEnsuringexistingVOIPgatewayscanservewholesaleneedsRevenueopportunityofwholesalingdarkfibervs.enablingcompetitionOrganizationalchallenges(1)IncludingallocationofbackboneOpEx(2)MarketestimatesbasedonrevenuegenerationbyCNCalone網通戰略咨詢報告POTENTIALWHOLESALECUSTOMERSINCLUDEISPs,MOBILEOPERATORS,ANDFIXEDLINECARRIERSISPsoffersignificantpotentialifCNCcanprovidesuperiorbandwidthaccessandtointernationalgatewayCurrentsatisfactionamongregionalISPsverylowInternationalgatewaylicenseinconjunctionwithhighbandwidthtrans-oceaniccarrieralliancecouldprovidevastlysuperiorserviceMobilecarrierswillbesearchingforlowercostalternativestocarrylongdistancetrafficduetointensifyingcompetitionCNC’snewhighcapacityVoIPnetworkandinternationalgatewaylikelytoyieldlowercostsFixedlinecarrierspotentiallylookingforalternativesExistinglong-haultransportinfrastructurelimitedChinaTelecomcouldevenbeapossiblecustomergivencurrentfocusonincreasingresidentialteledensity網通戰略咨詢報告OVERALLWHOLESALEMARKETSIZEISSUBSTANTIAL

ANDGROWINGATAMODESTRATE

AnticipatedPriceDecreaseinLeasedLinesLimitsOverallRevenueGrowthLeasedLines-ISPMarketSize(RMBB)15TotalLeasedLines-Mobile99’-04’CAGRAccessPortsLeasedLines-Paging1818202226284%41%1%152%(1)9%(1)01’-04’CAGRSource:CNCteaminputs;foreignbenchmarks;BCGanalysisDarkFiber68%(1)網通戰略咨詢報告CARRIERSSEEKINGALTERNATIVES...ISPsdefinitelyseekingalternativestoCTMobilecarrierslikelytofollow“Weneedatelecomserviceproviderthatisnotourcompetitor.”- Founder,Eastnet“ChinaTelecom,withtheirownnetworkdevelopmentplans,tendstostarveusoncapacityortoforceustopayinadvanceforexcesscapacity.”- Manager,Infohighway“ThefactthatittakesChinaTelecomtwomonthseverytimeweneedanextralinemakesitverydifficulttohaveourowncustomers.Wewantanotheroperatorwhocangetusleasedlinesfast.”- Manager,InfohighwayMobilecarriersmightconsiderdivertingpartoftheirtraffictoalternativeserviceproviderswith:moreattractivepricinghigherqualityservicehigherbandwidthInterviewswithregionalmobilecarriersandUnicomneedtobeconductedtoverifypotential網通戰略咨詢報告…BUTTECHNOLOGICALLIMITATIONSANDCOMPETITIVECHALLENGEAREIMPORTANTFACETSTOMANAGECompetitiveChallengeTechnologicalLimitationsMobilecarriersmaybehesitanttouseVOIPtechnologyforprimaryapplicationsCarrierscurrentlyaddressingsoundqualityasamajorimprovementinitiativeVOIPhasyettodelivertoll-qualityvoicetransmission,evenonlandlineMobilecarriersmaytakeviewthatVOIPcouldfurtherdegradevoicequalityChinaTelecomlikelytohaveadvantageincompetingshareofCTMobile’sbusinessStrongformerintra-CTconnectionevenaftersplitExtensivebackbonecoverageandlargeTDMbasedcapacityUnicomMobileServices’businessastoughtargetBuildpresencebyofferinglow-costtrialsandbackupcapacityLobbyforclearregulationfromMIIonfreedomofchoiceforcarriers網通戰略咨詢報告PREDICTEDWHOLESALEECONOMICSADDSIGNIFICANTVALUETOVOIPBUSINESSMODEL

AdditionalCapExandOpExMinimal5yearPV(1)(MRMB)CapEXOpExRevenue5yearNPV@15%:~2.1BRMB5yearIRR:~40%WholesalecriticaltoenhancingprofitabilityofbackboneVOIPBackboneallocationDarkFiberAccessportsISPsMobileoperatorsVOIPVOIPISPaccessOSS(1)Assuming15%costofcapitalSource:BCGbenchmarkdatabase;industryinterviews;BCGanalysisOSS/provisioningPresentvalueofcashflows8,0007,0005,0001,0006,000-3,000-4,000網通戰略咨詢報告AGENDABusinessModelsDomesticandinternationallong-distancevoiceWholesale/carrierEnterprisesolutionsIssuesgoingforward網通戰略咨詢報告APPROACHTOENTERPRISESOLUTIONSBUSINESSMODELObjectivesHypothesizedApproachCapturestrongshareamongmedium/largebusinessbyofferingenhanceddatacomsolutionsGoaltoestablishclearpositionasbestservice/qualityproviderinmajormarketsUtilizemostcosteffectivedeploymenttechnologiestocovermajormetroareasMinimizehead-to-headcompetitionbyofferingdifferentiated,data-centricproducts--attempttodrivedatacommarketDevelopimageasfast,responsivesolutionsproviderEnablecompetitiveadvantageforbusinesscustomersthroughdatacomForbuildingmanagers:maketheirbuildingsmoreattractivetotenantsDeploymenttotargetkeybuildingsinmajormetropolitanareasFourcitiesbyyear2000/01Top15citiesby2001Fiberinmostdenseurbanhi-riseareasandLMDStocomplementandservelessdenseareasInitialleadproductswillbelowcostvoiceoverIPandhighbandwidthinternetaccessMigrationtofulldatacomsolutionsascustomerbaseandcapabilitiesgrowQualitycustomerservicemoreimportantshorttermthanfullproductofferingEmphasisoneaseofuseandfastprovisioningversuscompetitors--exploitCT’sweaknessesEducationofcustomersonuseofdatacomproductsascompetitiveweaponsMarketingpartnerwithkeybuildingmanagers網通戰略咨詢報告ENTERPRISESOLUTIONSSUMMARYPreliminaryEconomicsPhaseICapitalInvestment(2000,2001):~1.1BRMBFirstfourcities(assumingfiber):~650MRMBAdditional11cities1:~400MRMBOpExexpectedtobe~40%ofrevenueby2002Marketshareandrevenueestimates-2002OffnetVoice2:~20%Existingdata:~10% ~1.1BRMBEmergingdata:~5%5yearNPV:Roughly1.2BRMBAssumeslaunchdateof3Q2000fordataservicesLikelytoooptimisticKeyIssuestobeAddressedRightofwayforexistingductsanddiggingPartnershipstrategyforhighbandwidthIGWRightstoLMDSfrequencyspectrumArethe15citiesdesignatedforPhaseIbuildouttheright15citiesforlocalaccess?Tradeoffbetweenpureeconomicsbycityvs.strategicvalueofprovidingend-to-endconnectivityWhatisarealistictimeframeforlaunch?Magnitudeoforganizationalandhumanresourcerequirements(1)AssumingLMDScapitalandrevenue2timesFuzhouestimateforcities11-15;3timesFuzhouestimateforcities5-10(2)Assumesnolocalvoicerevenuethrough2004網通戰略咨詢報告ENTERPRISESOLUTIONSBUSINESSMODELMOSTCOMPLEXWITHHIGHCAPEXANDOPEXREQUIREMENTS...BuildingmetropolitanfiberringstoofferaccesstomediumandlargebusinessesposessignificantchallengeOperatingexpensesrequireddwarfslonghaulnetworkcostsonapercitybasisComplexityinobtainingnight-of-wayvariesbydistrictswithineachcityDesigningfiberrouteandnetworkconfigurationrequiressignificantexperienceConvertingcustomerstofullCNCservicemaynotbeaseasyasitseemsonsurfaceInitialriskforcompaniesutilizingnewentrantCoverageissuesforofferingservicetoallbusinesslocationsExperiencedsales-forcewithestablishedrelationshipsamust網通戰略咨詢報告…BUTCOMPRISESTREMENDOUSUPSIDEPOTENTIALInternetAccessLeasedLinesILDDLDLocalOtherPortalBroadbandContentWebHosting/CollocationExistingServicesEmergingServices98-04CAGR124%40%-10%7%11%IPVPNBroadbandNetworkApplications71%83%186%98%111%286%00-04CAGRMarketsize(RMBBN)Marketsize(RMBBN)7896187Overall16%Overall86%332Source:CNCteaminputs;foreignbenchmarks;BCGanalysis網通戰略咨詢報告CUSTOMERNEEDSEXISTTHRUGHOUTTHEVALUECHAIN

CT’sOfferingYieldsSignificantGapsLearnBuyGetUse/supportPayCustomervaluechainNeedsidentifiedHowdatacomservicescanhelptheirbusinessAssistancedeployingsolutionsQuickerandmoreconvenientapplicationchannelsRapidandreliableprovisioningFaster,reliablerepairservicesPrompt,customizedbillingLackcustomerfocusSolutionsvirtuallynon-existentMostlyone-wayproductmarketingNocustomerinputforprovisioningCTdeterminesqueuewithoutspecifictimingNopenaltiesformissedappointmentsNegligentrepairserviceSlowfulfillment&technicalsupportresponsePoorresponsetocustomersLimitedbillcustomizationCTapproachSignificantopportunityforCNCestablishpositionincustomersolutions,easeofuse,andresponsiveserviceAreashighlightedmostincustomerinterviewsSource:Customerinterviews;BCGanalysis網通戰略咨詢報告STAGEDPRODUCTINTRODUCTIONNECESSARYTOMANAGEQUALITY

HypothesizedProductIntroductionsVoiceData200020012002200320042008PhaseI&IIPhaseIIIPhaseIVLeasedLinesMobilecarriersEneterpriseHighbandwidthdedicatedinternetaccessforbusinessesandISPsAccessPortsVPNBasicenterpriseBroadbandapplicationsPlatformstoenableVOD,etc...WebHostingDarkFiberResidentialISP?AdvancedVPNExtranetVoice,videoQoSguaranteesIndustryspecificofferingsOtheremergingservices(e.g.e-Commerce)IP-phonevoicePrefix“Dial-around”solutionsEqualaccessvoice?On-netvoice?FocusonqualityoverquantityMarketasintegratedproductsStressCNCroleasintegrateddatacomplayerPositioningIssues網通戰略咨詢報告CNCSHOULDUSECREATIVEWAYSTOGROWTHEMARKET,AVOIDHEADTOHEADCOMPETITIONCompetitorsallfocusonthesamedemandfromthesamecustomersSavagelycompeteonpriceReactivelywaitforcustomerstoidentifyneed,requestproductsPursuegrowingcustomers-dataintensiveenterprisesFreshopportunitiesforsales,insteadofcompetingoverexistingbusinessApproachproactivelywithnewproducts,insteadofwaitingforcustomerstoinitiatesalesprocessCreativelyidentifynewmarketsI.e.marketforcompaniesrequiringveryrapidprovisioningorcustomizedproductsBecometheonlychoiceforthesecompaniesLobbythegovernmenttosupportmoree-commerceandinformationindustriesgrowthCTCNCUnicomJitongCTislikelytobeunabletomeetgrowingdemandaloneTraditional,narrowviewNewapproachestogrowingsales網通戰略咨詢報告TOTALGDPVS.GDP/CAPITAISAPRELIMINARYINDICATORFORATTRACTIVELOCALACCESSMARKETS

Example:15InitialCitieswithPOPsonCNCNetworkShanghaiBeijingGuangzhouTianjinHangzhouWuhanNanjingJinanShijiazhuangZhenzhouChangshaXuzhouXiamenFuzhouShenzhenExamplesofadditionalcitiesnotininitial15designatedforCNCPOPsHypotheticalbreakevencurveforbuildinglocalaccessSuzhouWuxiTotalGDP(kRMB)GDP/cap(kRMB)網通戰略咨詢報告VERYDENSEMARKETSSUCHASSHANGHAIBESTSERVEDBYMETROFIBERRINGSMPOP/railstationHongQiaoDevelopmentAreaPeople’sparkHuaiHaiRoadXujiahuiPudongFinancialZoneFiberlength:Alongsubway:Alongelevatedringroad:Alongroad:17000m9000m8000m#ofmajorbusinessbuildingsaccessed:~200FibersalongSubwayinconstructionSubwayElevatedringroadRoad(digrequired)DenseBusinessAreaservedMetrostationsMMM網通戰略咨詢報告SHANGHAIECONOMICSVERYATTRACTIVEDUETOHIGHBUILDINGANDBUSINESSDENSITY5yearPV(1)(MRMB)CapEXOpExRevenue5yearNPV@15%:~310MRMB5yearIRR:~70%ShanghaipresentsmostattractiveenterprisesolutionsmarketSG&AAllocatedbackboneIDDEmergingdata(3)DLDDataservicesSONET/switchingequipmentOSSAllocatedbackbone(2)(1)Assuming15%costofcapital(2)CostofprovidingF/RandATMserviceonbackboneallocatedoverfirst4cities(3)WebhostingIPVPNS,etc.Source:BCGbenchmarkdatabase;industryinterviews;BCGanalysis;realestateagencyinterviews;fieldanalysisPowerprovisioning,etc.FiberconstructionRightofwayPresentvalueofcashflows網通戰略咨詢報告MEDIUMSIZEDCITIESWITHHIGHGDP/CAPITASUCHASFUZHOUBESTSERVEDWITHLMDSSOLUTIONFiberlength:Alongroad:#LMDSstation:5000M1Areaserved(1):#ofmajorbusinessbuildingscovered:~40km2~40(2)LakeFiberalongroadRailwayRailwaystationRoadLMDSstationMajorbuildingsAreaservedRS(1)MoredetailedfieldanalysisrequiredtomapbuildingsandmosteffectiveLMDSpositioning;assumes3.5kmradiusforLMDSarea(2)AssumehalfofthebuildingsareprimebusinessbuildingsforeconomicmodelingSR網通戰略咨詢報告PRELIMINARYFUZHOUECONOMICSUTILIZINGLMDSVERYFAVORABLE5yearPV(1)(MRMB)CapEXOpExRevenue5yearNPV@15%:~20MRMB5yearIRR:~60%LMDSsolutionsformediumsizedcitieswillplayacriticalroleindevelopingenterprisesolutionsSG&APower,provisioning,etc.IDDEmergingdataservicesDLDDataservicesBasestationCPE(1)Assuming15%costofcapitalSource:BCGbenchmarkdatabase;industryinterviews;BCGanalysis;realestateagencyprovideddataBldgequipmentSpectrumfeesFibertoPOPPresentvalueofcashflows網通戰略咨詢報告OTHERCITIESOFSIZEABLEPOPULATIONBUTRELATIVELYLOWGDP/CAPITAMAYNOTWARRANTINVESTMENT

Example:ShijiazhuangNofiberconnectionrequired,assumerailstationisLMDSbase1Areaserved(1):#ofmajorbusinessbuildingscovered:~40km2~20(2)RailwayRoadLMDSstationMajorbuildingsAreaservedSS(1)MoredetailedfieldanalysisrequiredtomapbuildingsandmosteffectiveLMDSpositioning;assumes3.5kmradiusforLMDSarea(2)Assumehalfofthebuildingsareprimebusinessbuildingsforeconomicmodeling網通戰略咨詢報告OVERALLECONOMICSAPPEARMARGINALFORSHIJIAZHUANG5yearPV(1)(MRMB)CapEXOpExRevenue5yearNPV@15%:~-3MRMB5yearIRR:~5%CitieswithoutdensebusinessdistrictsmaynotbeattractiveenterprisemarketsregardlessofoverallsizeSG&APower,provisioning,etc.IDDEmergingdataservicesDLDDataservicesBasestation(1)Assuming15%costofcapitalSource:BCGbenchmarkdatabase;industryinterviews;BCGanalysis;realestateagencyprovideddataSpectrumCPEBldg.equipmentPresentvalueofcashflows網通戰略咨詢報告OVERALLREVENUEANDMARKETSHAREEXPECTATIONS:ENTERPRISESOLUTIONSPredominatelyvoice(DLD/ILD)revenueinthefirsttwoyears;migratingtodataandInternetservicesby2002CNCrevenue(RMBBN)InternetAccessLeasedLinesILDDLDShareassumptionsOtherEmergingServicesWebHosting/CollocationSource:CNCteaminputs;foreignbenchmarks;BCGanalysis19993%80%1%3%80%1%0%0%0%0%0%0%DLDOff-netshareoftotalDLDGeographiccoverageofCNCCNCsharewithincoverageILDOff-netshareoftotalILDGeographiccoverageofCNCCNCsharewithincoverageLeasedLinesGeographiccoverageofCNCCNCsharewithincoverageInternetAccessBroadbandNarrowband/Dial-UpWebHosting/CollocationOtherEmergingServices200010%60%25%11%60%25%30%2%2%0%0%0%200117%75%29%18%75%29%47%10%10%0%5%1%200223%90%33%26%90%33%63%14%14%0%8%2%200330%100%30%33%100%30%80%18%18%0%10%4%200432%100%28%35%100%28%82%21%21%0%13%6%網通戰略咨詢報告OVERALLECONOMICSATTRACTIVEFORPHASEIBUILDOUTINTOPFOURCITIES5yearPVs(MRMB)CapExOpExRevenue5yearcityNPV5yearIRRShanghaiBeijingGuangzhouShenzhenTotal1451491579554650444740033216839607686404802848311172835370%45%30%28%OverallPhaseI5yearNPV:~620MRMB5yearIRR:~44%Source:BCGbenchmarkdatabase;industryinterviews;BCGanalysis網通戰略咨詢報告GOINGFORWARD,CITIESWILLNEEDTOBEANALYZEDONACASEBYCASEBASISDeploymenttechnologywillplayacriticalroleMethodology/criteriaforchoosinglocalaccessmarketsInitialprioritizationbytotalGDPvs.GDP/capitaRelevanceandproximitytoCNCnetworkMapurbanareabybiggestbuildingsandavailabilityofexistingconduitsDetermineifdensityfallsintooneofthethreedensitycategoriesEstimatecostsandrevenueassociatedwithbuildout1.2.3.4.5.Goornogo!CosttodeliverenterprisesolutionsIncreasingbusinessdensityandareaIntermediatedensitybestservedbyLMDSVerydenseandlargeareabestservedbyfiberToocostlytoserv