某咨询为某电信企业制作：战略咨询报告完整版REPORT2

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1、-1-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHICONTENT Key strategic principles Regulatory overview Market overview Competition overview Business models Next steps-2-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shr

2、edding-45034-05-Interim-14Dec99-TZD-gx-SHIAGENDA Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forward-3-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIEconomic modelingCho

3、ice of business modelsto pursue and timingRoadmap for pursuing business models and expected financial performanceIntegrated approach to CNC business planMajorissuesExpectedoutputHow do the market sizing and share assumptions translate into overall top line revenue for CNC?What capital investments wi

4、ll be necessary to build out metro and long haul fiber networks?Predicted cash flow profile by business model and selected scenariosAssessment of market opportunitiesHow will China datacom market develop?How large is the overall opportunity for a new entrant?Overall market sizing and revenue forecas

5、t by product areaRegulatory and competitive analysisWhat 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 scenariosStrategic implications and capabilities assessm

6、entMETHODOLOGY BEING USED TO DEVELOP BUSINESS MODELS AND OVERALL STRATEGY-Current areas of focus-4-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHICNC AT A CRITICAL STRATEGIC CROSSROADSPreliminary ConclusionsRecommendations/Decisions to b

7、e MadeOffnet VOIP predicted to generate to provide breakeven economics for building backbone1 Wholesale revenue provides significant upside potential Majority of wholesale revenue relies on access to mobile carriersEnterprise solutions economics very attractive,but substantial complexity and resourc

8、es involvedHigh-bandwidth international gateway critical to success in both wholesale and enterprise Economic predictions highly sensitive to a set of key assumptionsAccelerate vendor selection and backbone construction;time to market criticalCommitment to utilizing IP/DWDM invlolves risk to mobile

9、carrier business RFP to vendors should be based on product requirements vs.technologyStaging of investments and service launch must consider tradeoff between quality of service and coveragePreliminary talks with international carriers should begin ASAPScenario modeling will help us decide where to f

10、ocusOverarching question:Can CNC successfully pursue all opportunities outlined in the short/medium term?(1)Assuming settlement fees of 10%of revenue-5-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHI Overall approach Where HowBUSINESS MO

11、DELS SUMMARY:THREE CORE ELEMENTS Enterprise Solutions Capture datacom growth in key business centers with leading-edge products and superior customer service Top business districts in major urban areas;only the most dense areas in short term Focused Deployment Leverage existing conduits to lay in ma

12、jor urban areasSuperior service and bandwidth Target 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 supplying fixed-line incumbents Cover POPs in a

13、ll major calling zones;develop local leased lines network in key locations Aggressive deployment of backbone infrastructure to provide unparalleled bandwidth Establish high bandwidth international gateway to differentiate internet access Superior service with clear positioning “The clear alternative

14、 to CT”ISP Long distance voice Capture early revenue from to fund development of subsequent business models Top 60 POPs by end of year 2000 utilizing mix of leased lines from CT and CNC network Position offnet voice as first product from“Chinas first datacom carrier”Do not overextend resources in VO

15、IP as it does not fit CNCs long term strategy Create“dial-around”solutions for business and interconnect terms-17930-6-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIEnterprise solutionsPOTENTIAL BUSINESS MODELS COVER WIDE RANGE OF PRODU

16、CT/MARKET ALTERNATIVESOpportunity for growthCurrent market sizeWholesale/carrierConsumer ISP?Domestic and International Long Distance VoiceResidentialMed/large enterprise customersCarriersPotential traffic per consumerProductsEmerging datacomDataVoiceEmerging data niche-7-China Netcom-The Boston Con

17、sulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIAGENDA Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forward-8-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Inter

18、im-14Dec99-TZD-gx-SHIAPPROACH TO DOMESTIC AND INTERNATIONAL VOICE BUSINESS MODELObjectivesHypothesized ApproachCapture early revenue from launch of prepaid IP calling cards“Cash cow”for funding other business model developmentPursue prefix and equal access long distance for business customers as soo

19、n 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”imageFight the regulatory battle to ensure favorable approaches to equal access and in

20、terconnectMarket 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 marketing expenditures w

21、ith 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-9-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding

22、-45034-05-Interim-14Dec99-TZD-gx-SHIDOMESTIC AND INTERNATIONAL VOICE SUMMARYPreliminary EconomicsPhase I CapEx(2000,2001):3.8 B RMB Fiber/construction:2.4 B RMB IP/DWDM equipment:720 M RMB POP/VOIP:530 M RMB OSS/Network management system:100 M RMBOpEx expected to be 30%of revenue by 2002Market share

23、 and revenue estimates-2002 Offnet DLD:30%Offnet ILD:30%$2 B RMB IP Intl.termination:27%5 year NPV:Essentially breakeven considering offnet voice alone1Key Issues to be AddressedInterconnect agreements with local PTAs;attempt to obtain blanket policy from MII International gateway license and connec

24、tivitySettlement charges commensurate with VOIP pricingDevelopment of business offnet strategy Scalable“dial-around”solutions in short term Equal access longer termQuality of service for voice,must approach switched quality rapidlyPoint of diminishing returns for adding VOIP gateways vs.strategic va

25、lue of providing coverage(1)Highly sensitive to settlement fees-10-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHILARGE MARKET WITH POTENTIAL TO GAIN SHARE QUICKLYNew entrants typically gain share quicklyExample:IDD and DLD servicesMarke

26、t sizeable-off-net traffic accounts for 15%of total DLD/ILD revenue by 2004Source:China Telecom annual reports;CNCs team inputs;BCG surveys,analysis&benchmarking0102030405001234567Year after entryOptus(DLD)Tele 2(DLD)Mercury(DLD)Hong Kong(IDD)Japan(IDD)US(IDD)020406080100199820002004(RMB BN)DLD On-N

27、etDLD Off-NetILD On-NetILD Off-Net(%)-11-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHICAREFUL MANAGEMENT OF PRE-PAID CALLING CARD BUSINESS NECESSARY TO ALIGN WITH LONG TERM STRATEGY Prepaid calling cards call for different capability s

28、et and target customers than longer term business 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 needs Three factors important to consider in managing prepa

29、id calling card businessAttempt 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 establishing enterprise relationshipsCarefully manage product life

30、cycle to begin pulling back marketing investment as wholesale and enterprise business models grow-12-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHICNC VOIP REVENUE AND MARKET SHARE EXPECTATIONSSource:CNCs team inputs;various benchmarks;

31、BCG analysisVoice revenueShare assumptions01234199920002001200220032004CNC Revenue(RMB BN)Off-Net DLD%of total CNC revenue100%76%37%30%23%16%Off-Net ILDInternational Termination19993%80%1%3%80%1%5%80%0%Off-Net DLDOff-net share of total DLDGeographic coverage of CNCCNC share within coverageOff-Net IL

32、DOff-net share of total ILDGeographic coverage of CNCCNC share within coverageInternational TerminationIP share of totalGeographic coverage of CNCCNC share within coverage200010%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%20

33、0432%100%28%35%100%28%35%100%31%-13-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIPRELIMINARY ECONOMICS FOR LONG DISTANCE VOICE MODEL(PHASE I BUILDOUT)VOIP Revenue Alone Justifies Building Backbone-2300-14003700-700740-500570-100-490-50

34、00-4000-3000-2000-10000100020003000400050005 year PV(1)(M RMB)CapEXOpExRevenue5 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 flow

35、s(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;industry interviews;BCG analysis-14-Ch

36、ina Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIAGENDA Business ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forward-15-China Netcom-The Boston Consulting Group-Confidential-Destroy b

37、y Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIAPPROACH TO WHOLESALE/CARRIER BUSINESS MODELObjectivesHypothesized ApproachDevelop wholesale business as traffic generator to improve economics of backbone through higher utilizationBecome the wholesale carrier of choice with technologically superior se

38、rvice 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 backbone infrastructure Connecting

39、 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 basestations in key geographica

40、l 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 interconnectAccess ports to backbone-1

41、6-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIWHOLESALE/CARRIER SUMMARYPreliminary EconomicsPhase I CapEx(2000,2001):100 M RMB ISP access platform:50 M RMB OSS/Provisioning systems:50 M RMBOpEx expected to be 10%of revenue by 20021Mar

42、ket share and revenue estimates-2002 Mobile(backbone):15%ISPs:9%1.1 B RMB Access ports:100%2 Dark fiber:100%25 year NPV:$2.1 B RMBAssumes launch date of 3Q 2000 for leased lines and relatively aggressive mobile shares Potentially too optimisticKey Issues to be AddressedBackbone technology platform-Q

43、OS for voice vs.lower cost deployment?High-bandwidth 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 co

44、mpetitionOrganizational challenges(1)Including allocation of backbone OpEx(2)Market estimates based on revenue generation by CNC alone-17-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIPOTENTIAL WHOLESALE CUSTOMERS INCLUDE ISPs,MOBILE OP

45、ERATORS,AND FIXED LINE CARRIERS ISPs offer significant potential 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 alliance could provide vas

46、tly superior service Mobile carriers will be searching for lower cost alternatives to carry long distance traffic due to intensifying competition CNCs new high capacity VoIP network and international gateway likely to yield lower costs Fixed line carriers potentially looking for alternativesExisting

47、 long-haul transport infrastructure limitedChina Telecom could even be a possible customer given current focus on increasing residential teledensity-18-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIOVERALL WHOLESALE MARKET SIZE IS SUBST

48、ANTIAL AND GROWING AT A MODEST RATEAnticipated Price Decrease in Leased Lines Limits Overall Revenue Growth0510152025301998199920002001200220032004 Leased Lines-ISP Market Size(RMB B)15 Total Leased Lines-Mobile99-04CAGR Access Ports Leased Lines-Paging1818202226284%41%1%152%(1)9%(1)01-04 CAGRSource

49、:CNC team inputs;foreign benchmarks;BCG analysis Dark Fiber68%(1)-19-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHICARRIERS SEEKING ALTERNATIVES.ISPs definitely seeking alternatives to CTMobile carriers likely to follow“We need a teleco

50、m service provider that is not our competitor.”-Founder,Eastnet“China Telecom,with their 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 extra

51、 line makes it very difficult to have our own customers.We want another operator who can get us leased lines fast.”-Manager,InfohighwayMobile carriers might consider diverting part of their traffic to alternative service providers with:more attractive pricing higher quality service higher bandwidthI

52、nterviews with regional mobile carriers and Unicom need to be conducted to verify potential-20-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIBUT TECHNOLOGICAL LIMITATIONS AND COMPETITIVE CHALLENGE ARE IMPORTANT FACETS TO MANAGECompetiti

53、ve ChallengeTechnological LimitationsMobile carriers may be hesitant to use VOIP technology for primary applications Carriers currently addressing sound quality as a major improvement initiative VOIP has yet to deliver toll-quality voice transmission,even on landline Mobile carriers may take view th

54、at VOIP could further degrade voice qualityChina Telecom likely to have advantage in competing share of CT Mobiles business Strong former intra-CT connection even after split Extensive backbone coverage and large TDM based capacityUnicom Mobile Services business as tough targetBuild presence by offe

55、ring low-costtrials and backup capacityLobby for clear regulation from MII on freedom of choice for carriers-21-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIPREDICTED WHOLESALE ECONOMICS ADD SIGNIFICANT VALUE TO VOIP BUSINESS MODELAddi

56、tional CapEx and OpEx Minimal1670-1606607305010-1890-3600-46-400-522005 year PV(1)(M RMB)CapEXOpExRevenue5 year NPV15%:2.1B RMB5 year IRR:40%Wholesale critical to enhancing profitability of backboneVOIPBackbone allocationDark FiberAccess portsISPsMobile operatorsVOIPVOIPISP accessOSS(1)Assuming 15%c

57、ost of capitalSource:BCG benchmark database;industry interviews;BCG analysisOSS/provisioningPresent value of cash flows8,0007,0005,0001,0006,000-3,000-4,000-22-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIAGENDA Business ModelsDomestic

58、 and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forward-23-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIAPPROACH TO ENTERPRISE SOLUTIONS BUSINESS MODELObjectivesHypothesized ApproachCapture stron

59、g share among 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-

60、centric products-attempt to drive datacom marketDevelop image as fast,responsive solutions providerEnable competitive advantage for business customers through datacomFor building managers:make their buildings more attractive to tenantsDeployment to target key buildings in major metropolitan areasFou

61、r cities by year 2000/01Top 15 cities by 2001Fiber in most dense urban hi-rise areas and LMDS to complement and serve less dense areasInitial lead products will be low cost voice over IP and high bandwidth internet accessMigration to full datacom solutions as customer base and capabilities growQuali

62、ty customer service more important short term than full product offeringEmphasis on ease of use and fast provisioning versus competitors-exploit CTs weaknessesEducation of customers on use of datacom products as competitive weaponsMarketing partner with key building managers-24-China Netcom-The Bost

63、on Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIENTERPRISE SOLUTIONS SUMMARYPreliminary EconomicsPhase I Capital Investment(2000,2001):1.1 B RMB First four cities(assuming fiber):650 M RMB Additional 11 cities1:400 M RMBOpEx expected to be 40%of revenue by 20

64、02Market share and revenue estimates-2002 Offnet Voice2:20%Existing data:10%1.1 B RMB Emerging data:5%5 year NPV:Roughly 1.2 B RMBAssumes launch date of 3Q 2000 for data services Likely too optimisticKey Issues to be AddressedRight of way for existing ducts and diggingPartnership strategy for high b

65、andwidth IGW Rights to LMDS frequency spectrumAre the 15 cities designated for Phase I buildout the right 15 cities for local access?Tradeoff between pure economics by city vs.strategic value of providing end-to-end connectivityWhat is a realistic time frame for launch?Magnitude of organizational an

66、d human resource requirements(1)Assuming LMDS capital and revenue 2 times Fuzhou estimate for cities 11-15;3 times Fuzhou estimate for cities 5-10(2)Assumes no local voice revenue through 2004-25-China Netcom-The Boston Consulting Group-Confidential-Destroy by Shredding-45034-05-Interim-14Dec99-TZD-gx-SHIENTERPRISE SOLUTIONS BUSINESS MODEL MOST COMPLEX WITH HIGH CAPEX AND OPEX REQUIREMENTS.Building metropolitan fiber rings to offer access to medium and large businesses poses significant challeng