1、TODAYS OBJECTIVESvReview the overall analysis of regulation,competition,and market developmentDiscuss the specific implications for CNC strategyvReview the specific draft business models for CNC How we might attack the business,carrier,and IDD/DLD marketsWhat key trade-offs we need to makeWhat are t
2、he key success factors and assumptions?vDiscuss the initial economics of these business models,and of CNC overallvDiscuss the specific next steps in two key areas:How to finalize and endorse the overall CNC business modelHow to move forward with the refined financials,organization design,and the pla
3、n for implementationCONTENTvKey strategic principlesvRegulatory overviewvMarket overviewvCompetition overviewvBusiness modelsvNext stepsKEY CNC STRATEGIC PRINCIPLESvThe objective of these principles is to provide further clarity in the development and evaluation of the CNC business modelvThese will
4、be revisited and refined as the project progressesOur development of business models will seek to be aligned with the principlesvStrategic principles and key assumptions will be considered in the following aspectsCNC shareholdersBackbone businessLocal access businessInternational gateway businessReg
5、ulatory strategyCompetitive strategyMarketing strategyCNC SHAREHOLDERSvPrinciples:Leverage shareholders concerted vision in creating a new generation IP broadband communication infrastructure and a profitable,successful companyLeverage shareholders existing backbone assets,local access assets,resear
6、ch capabilities and local government relationships to secure time-to-market and create competitive advantageSet a model of a new type of“SOE”,as efficient as the best of the FIE/private companies;beat shareholders expectations by delivering high returnvAssumptions:CAS:strong interest in seeing CNC s
7、uccessful and profitable quickly,stands ready for favorable regulatory influence and research support;wants opportunities for networking R&DMOR and SARFT:extensive backbone and access assets and ROWvmain focus on using MOR for right of way,helping them participate in telecomvwill not use SARFT local
8、 CATV in the near term,but they are a key user of the backboneLeverage CATVs city backbonevMOR will continue to favor CNC over Unicom,provided CNC meets the expectation as a profit center for MORShanghai Municipal Govt:Eager to make Shanghai as Chinas test ground for building high-tech infrastructur
9、e(e.g.the integration of telecom,CATV,Internet)vin particular,testing HFC to deliver broadband internetvone issue:SPT and ATT JV;how to handle?BACKBONE BUSINESSvPrinciples:Target advanced backbone among 15 key cities in Eastern China;start with 2 cores from shareholders but quickly build own network
10、Use backbone for a variety of wholesale and retail voice and data servicesMaintain the leading edge IP/packet network,both for technological superiority and to fulfill shareholder missionMaintain the best cost position,using ROWs,purchasing clout,right technologyBuild reserve capacity/conduit to det
11、er othersvAssumptions:The costs of construction and ROW will be the majority of new network costsvvirtually all of the network will use MOR or SARFT right of wayNetwork will be IP or packet in natureDeployment plan will keep costs low,build out quickly,and create good positionvlay large number of co
12、nduits in one timevlater fill,light up,and color fiber strandsvlease out conduit/fiber/bandwidth to maximize return(utilization)LOCAL ACCESS BUSINESSvPrinciples:Be very focused in local deployment,targeting priority business areas onlyEmphasize broadband to the customer,using FTTB and LMDS where log
13、icalSeek strong local market share,especially in new data services growth areasDifferentiate from China Telecom by superior services,quality,responsiveness vBuild strong local team to enable fast service responsevEmphasize“end to end”network ownership and managementvAssumptions:SH,BJ,GZ,and SZ busin
14、ess districts as targets for the near termvThese account for the vast majority of business telecom demandvNeed to set specific estimates for timing and sequence of deploymentAssume that CNC will have access to key city ROW,such as subway systemsWill need specific assumptions about the ease and cost
15、of hooking up buildingsAssume that primary emphasis will be on FTTB,but that LMDS can play an important role,especially in initial deployment and in secondary citiesWill need specific assumptions about timing of adding secondary citiesINTERNATIONAL GATEWAY BUSINESSvPrinciples:CNC will be one of few
16、players with a full international licenseVital to enable CNC to provide end-to-end services,global data services,and higher margin IDD serviceHK gateway link may be strategically importantvAssumptions:HK as one of the key location for international connectionva major traffic destinationva major rela
17、y locationInternational voice remains highly profitable segment in medium term futureExpect high growth together with steep price drop in international servicesActively plan ahead for joining international sub-oceanic cable consortiumREGULATORY STRATEGYvPrinciples:Must actively lobby for favorable r
18、egulatory decisions,together with shareholdersvprovide regulators with international benchmarking for best practicesvalign CNC objectives with fair competition,and public interestsvhave effective senior management focus on lobbying issuesBe careful about committing investment if regulatory issues to
19、o uncertainEnsure CNC strategy addresses national economic development prioritiesPay careful attention to managing relations with China TelecomExpected WTO in 2000 will imply greater opening of the market in the futurevAssumptions:At least a 2-3 year window when CNC can continue to enjoy favorable p
20、olicy treatment,while also working to straighten out regulatory issues at local levelMany key regulations remain in grey areas,where CNC can play a role in shaping the policyWill need to make specific assumptions on a number of regulatory issues,and develop several scenariosAssume that CT and Unicom
21、 are the only full service competitors,but several niche playersWTO will introduce FDI into Chinas telecom market by 2002,but infrastructure play remain tightly controlled(still limited competition)until 2004/5vmay be opportunity for some form of partnership with foreign telcosCOMPETITIVE STRATEGYvP
22、rinciples:Focus on the best service quality,supply what customers need,avoid competing on priceBuild both“highways”and“tollbooths”Prepare for rapidly changing industry structureBe careful in positioning toward China Telecom:vcomplementary and addressing unmet needsvgrowing the whole marketThe only v
23、iable alternative to China Telecom for carriersThe only true“end to end”network across China,with clear central managementvAssumptions:Technology leads to continual change in industry structureThe decentralized nature and business oriented behaviors of China Telecom enables CNC to partner at the loc
24、al levelHigh opportunity for CNC to fill China Telecom product/service backlog Unicom will be a threat to start a“price war”Various niche players emerge in later years,more threat than(carrier)opportunity for CNCMARKETING STRATEGYvPrinciples:For local access,will target medium and large businesses i
25、n targeted buildingsFor backbone,provide carrier services For international,support other businesses and also offer IDD and refiling,etc.In all areas,emphasize quality,service,end to end,etc.Get a few key customers early;prove ourselves and then build furthervAssumptions:Carrier and large and medium
26、 sized corporations are the key focusvespecially those in telecom-intensive industriesAssume a growing demand for business telecom servicesvwill need both high and low growth scenariosNeed to validate the willingness of key customers to switch,and their anticipated areas of future demand growthIP ph
27、one still the source of revenue in the near futureDial-up ISP(171)may conflict with ISP carrier interests,but could also serve as strategic inroad for future 3G(1)(1)Not in scope of this project CONTENTvKey strategic principlesvRegulatory overviewvMarket overviewvCompetition overviewvBusiness models
28、vNext stepsREGULATORY HIGHLIGHTSvOur key assumptions:MII regards CNCs IP-based license as Full Service license,but lacks clear regulatory documentation.In case of local interpretation difference,MII is willing to clarify on behalf of CNCve.g.ambiguity on local fixed line(CNC number)CNC will be grant
29、ed International Gateway license by 1Q 2000CNC IP network protected by the current fixed/mobile interconnect regulation CNC not required to meet specific coverage targets for the near future(2-3 years)The market will be opened up gradually,with FDI increasing:vmore value added service providers by 2
30、003vmore I-Phone providers by 2001vno new Full Service providers till 2004/2005Account settlement specific for I-Phone will be regulated after the trial stage ends.It will be lower than the RMB0.14/min rate for basic telecom networks on a per call basisEqual access by prefix/pre-select in 1 year;num
31、ber portability may take another 1-2 years at leastCNC will have LMDS spectrumvCNC anticipates a well-intentioned regulator,with varied degrees of control over local incumbent practice vNone of these assumptions are“guaranteed;”CNC must fight aggressively for themKEY REGULATORY ISSUES AND IMPLICATIO
32、NSService licensesFull Service license interpretationInterconnect enforcementAccount settlementPricing and rebalancingROW and access Frequency spectrum allocation and feesUniversal Service ObligationEqual AccessNumbering and portabilityIGW license important to competitiveness,size of customer base a
33、nd#of partnersMII notification on each instance adds delay to CNC local interconnectionTime to market in each city affected,detract CNC resourcesFuture Interconnect economicsFuture price competitiveness vs.other players(e.g.CT)economics;price competitiveness vs.CTCase-by-case local coordination and
34、negotiation delay local access build-out;may also be expensive to obtainTime to market for local access build-out by LMDS access solutionsSubsidizing incumbent for USO affect cost structure of new entrantsUnable to reach CT local line customerMedium term implication:on-net voice not targeted for the
35、 near 4-5 years3 full service carrier including CNCMore licenses for value-added service providers(type II)MII supports CNC IP based license as Full Service LicenseBut lack of clear documentation may cause confusion at local levelBased on cooperation of carriersArbitration/settlement process exist b
36、ut time consumingMild punishment,law suit as last resortFor current IP-phone trial,fees not settledLikely future settlement:LD carrier pays local PSTN operator RMB0.14/minPrice floor likely specified for incumbent by regulationNo imminent initiative for rebalancingLegally feasible for public telecom
37、 carrier(e.g.CNC)Practice will have to coordinate with municipalities and infrastructure buildingControlled by MII in co-ordination with PTAsFrequency not likely to be auctionedUSO for incumbent with contribution from new entrant2-3 years before transparent and equitable approachPrefix based solutio
38、n provided by regulation in 1 yearNumber as national resources controlled centrallyFee will be collected for occupation of number resource2-3 years before portability regulationsImpact on CNCHighest/ImmediateHigh/Medium TermKey issuesAssumptionImplication to CNCKEY REGULATORY BODIES AND RESPONSIBILI
39、TIESOther depts,e.g SETCVarious law making bodiesNPCState CouncilDept.of Radio Frequency AdministrationTelecom Administration BureauOther depts.Provincial Telecom Administration BureauChinaTelecomNationalCompanyMunicipal Level Telecom Administration BureauTelecom Operating Entities:e.g.CT fixed line
40、Provincial governmentMIIAdministrationOperationsNationalProvincialMunicipalityDrafting,passing of telecom laws and statues,e.g.China Telecoms LawInternational,National and Inter-Provincial scope license grantingHighest level of regulatory enforcement/arbitrationInternational Gateway administrationNa
41、tional level telecom resources control(e.g.numbers,frequency spectrums)Provincial level telecom administrationProvincial level license grantingProvincial level regulatory enforcement focus on coordinationIn the process of splitting operation and administrationA number of Municipal Level TABs are yet
42、 to be createdLimited enforcement powerOperation and administration not separateSettle interconnect and other disputesWhen not settled by provincial&municipal coordination,propagate up to provincial level and MIIPTAsPTBSource:Pyramid Research;BCG analysisKEY LICENSE ASPECTS AND IMPLICATION TO CNCFul
43、l Service and InternationalValue added servicesownershipGeographic scopeDurationlicense feesPerformance targetsTechnologyKey Aspects Number of licenses tightly controlled:at most 3 in 2003,including CNC CNC full service license expected 1Q 2000 International licenses tightly controlled:at most 4 in
44、2003,including CNC CNC IGW license expected by EOY1999 More than 4 value-added service licenses possible Control-share foreign ownership not allowed in basic telecom and public data transport services Up to 50%of FDI in value added service providers Intra provincial services under control of provinc
45、ial TABs No limit Regulation will require license fees Regulation will specify clear service buildout targets Regulations will be technology neutral But will give preference to new technologyAssumptions Current regulation only cover interconnection between 7 types of licensed basic telecom carriers(
46、e.g.NLD,local,wireless,international)With IP-phone license,CNC needs to negotiate with CT local branches city by city CNC IP based bandwidth wholesale service not covered in published regulation,adds delay in local negotiation Number of potential customers for carriers carrier services Speed of esta
47、blishment and coverage of targeted customer for carriers carrier service Financial strength of new entrant customers Intra-provincial LMDS service require application in each targeted area Competitors ability to lockout key service areas Limited degree of impact on economics Adds planning and local
48、coordination pressure to CNC local access solutions CNC IP/DWDM backbone receive positive influenceImplication to CNCNATURE,SCOPE AND NUMBER OF LICENSESSource:BCG analysisVSAT transport serviceInternationalNLDOn-net voiceIP backboneIP-phone(including international)WirelessPagingVAS(e.g.ISP,VPN)Servi
49、ce nature Owning satellite Maintain satellite channel VSAT base stations Ownership&operation of international gateways Interconnect with foreign carriers Leasing IDD channels and lines Building&operating of national switches and trunk lines Maintaining POP is nationwide Provide basic voice&data nati
50、onal transport Ownership&operation of local access networks Ownership of last mile Provide basic local voice/data transport and access to NLD/IDD Building and leasing of broadband IP based backbone transport capacity Provide IP based voice service No requirement in infrastructure building Including
