BCG中国网通战略咨询的报告完整版教学课件

1、CONTENTKey strategic principlesRegulatory overviewMarket overviewCompetition overviewBusiness modelsNext steps第1页，共52页。AGENDABusiness ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forward第2页，共52页。Economic modelingChoice of business modelsto pur

2、sue 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 will be necessary to build out

3、 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 forecast by product areaRegulatory

4、 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 assessmentMETHODOLOGY BEING USED T

5、O DEVELOP BUSINESS MODELS AND OVERALL STRATEGY- Current areas of focus第3页，共52页。CNC AT A CRITICAL STRATEGIC CROSSROADSPreliminary ConclusionsRecommendations/Decisions to be MadeOffnet VOIP predicted to generate to provide breakeven economics for building backbone1 Wholesale revenue provides significa

6、nt upside 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

7、sensitive to a set of key assumptionsAccelerate 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 m

8、ust consider tradeoff between quality of service and coveragePreliminary talks with international carriers should begin ASAPScenario modeling will help us decide where to focusOverarching question: Can CNC successfully pursue all opportunities outlined in the short/medium term? (1) Assuming settleme

9、nt fees of 10% of revenue第4页，共52页。Overall approachWhere HowBUSINESS MODELS SUMMARY: THREE CORE ELEMENTSEnterprise SolutionsCapture 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

10、short termFocused Deployment 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/CarrierTarget mobile carriers and ISPs with backbone

11、transport; consider 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 acce

12、ssSuperior service with clear positioning “The clear alternative to CT”ISPLong distance voiceCapture 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 “C

13、hinas first datacom carrier”Do not overextend resources in VOIP as it does not fit CNCs long term strategyCreate “dial-around” solutions for business and interconnect terms- 17930 -第5页，共52页。Enterprise solutionsPOTENTIAL BUSINESS MODELS COVER WIDE RANGE OF PRODUCT/MARKET ALTERNATIVESOpportunity for g

14、rowthCurrent market sizeWholesale/carrierConsumer ISP?Domestic and International Long Distance VoiceResidentialMed/large enterprise customersCarriersPotential traffic per consumerProductsEmerging datacomDataVoiceEmerging data niche第6页，共52页。AGENDABusiness ModelsDomestic and international long-distanc

15、e voiceWholesale/carrierEnterprise solutionsIssues going forward第7页，共52页。APPROACH 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 equ

16、al 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 avoid investing in declining productsDo not overextend ourselves nor blur our “datacom” imageFight the regulatory battl

17、e to ensure favorable approaches 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 provid

18、erEstablish mechanisms 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 technology and evolution to full services provision第8页，共52页。DOMESTIC AND

19、INTERNATIONAL VOICE SUMMARYPreliminary EconomicsPhase I CapEx (2000,2019): 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 2019Market share and revenue estimates - 2019Offnet DLD: 30%Of

20、fnet ILD: 30% $2 B RMBIP 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 connectivitySettlement charges commensurate w

21、ith VOIP pricingDevelopment of business offnet strategyScalable “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 s

22、ensitive to settlement fees第9页，共52页。LARGE MARKET WITH POTENTIAL TO GAIN SHARE QUICKLYNew entrants typically gain share quicklyExample: IDD and DLD servicesMarket sizeable - off-net traffic accounts for 15% of total DLD/ILD revenue by 2019Source: China Telecom annual reports; CNCs team inputs; BCG su

23、rveys, analysis & benchmarkingYear after entryOptus (DLD)Tele 2 (DLD)Mercury(DLD)Hong Kong (IDD)Japan (IDD)US (IDD)(RMB BN)DLD On-NetDLD Off-NetILD On-NetILD Off-Net(%)第10页，共52页。CAREFUL MANAGEMENT OF PRE-PAID CALLING CARD BUSINESS NECESSARY TO ALIGN WITH LONG TERM STRATEGY Prepaid calling cards call

24、 for different capability set 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 needsThree factors important to

25、consider in managing prepaid 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 relationshipsCare

26、fully manage product life cycle to begin pulling back marketing investment as wholesale and enterprise business models grow第11页，共52页。CNC VOIP REVENUE AND MARKET SHARE EXPECTATIONSSource: CNCs team inputs; various benchmarks; BCG analysisVoice revenueShare assumptionsCNC Revenue(RMB BN)Off-Net DLD% o

27、f total CNC revenue100%76%37%30%23%16%Off-Net ILDInternational Termination20193%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 Termination

28、IP share of totalGeographic coverage of CNCCNC share within coverage200010%60%25%11%60%25%11%60%20%201917%75%29%18%75%29%18%75%25%201923%90%33%26%90%33%24%90%30%201930%100%30%33%100%30%30%100%30%201932%100%28%35%100%28%35%100%31%第12页，共52页。PRELIMINARY ECONOMICS FOR LONG DISTANCE VOICE MODEL (PHASE I

29、BUILDOUT)VOIP Revenue Alone Justifies Building Backbone5 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 valu

30、e of cash flows(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 inte

31、rviews; BCG analysis第13页，共52页。AGENDABusiness ModelsDomestic and international long-distance voiceWholesale/carrierEnterprise solutionsIssues going forward第14页，共52页。APPROACH TO WHOLESALE/CARRIER BUSINESS MODELObjectivesHypothesized ApproachDevelop wholesale business as traffic generator to improve ec

32、onomics of backbone through higher utilizationBecome the wholesale carrier of choice with technologically superior service offerings including high bandwidth international gateway connectivityConsider wholesaling access to CT, Unicom, and Jitong depending on competitive implicationsSuperior customer

33、 service with clear positioning “The clear alternative to CT”Aggressive deployment of backbone infrastructure Connecting top 15 cities by end of 2000 and expanding to top 50 cities by 2019 Seek partnerships to establish high bandwidth international gateway connectivity-absolutely essential for diffe

34、rentiating 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 sources of competitive advantage (e.g., enhanced data services such as IP VPNs) Rollout prod

35、uct offering in staged manner to ensure quality of serviceInternet connectivityMobile interconnectAccess ports to backbone第15页，共52页。WHOLESALE/CARRIER SUMMARYPreliminary EconomicsPhase I CapEx (2000,2019): 100 M RMBISP access platform: 50 M RMBOSS/Provisioning systems: 50 M RMBOpEx expected to be 10%

36、 of revenue by 20191Market share and revenue estimates - 2019Mobile (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 sharesPotentially too optimisticKey Issues to be AddressedBa

37、ckbone technology platform - QOS 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 wholes

38、aling dark fiber vs. enabling competitionOrganizational challenges(1) Including allocation of backbone OpEx(2) Market estimates based on revenue generation by CNC alone第16页，共52页。POTENTIAL WHOLESALE CUSTOMERS INCLUDE ISPs, MOBILE OPERATORS, AND FIXED LINE CARRIERS ISPs offer significant potential if

39、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 vastly superior serviceMobile carriers will be searching for lower cost

40、 alternatives to carry long distance traffic due to intensifying competition CNCs new high capacity VoIP network and international gateway likely to yield lower costsFixed line carriers potentially looking for alternativesExisting long-haul transport infrastructure limitedChina Telecom could even be

41、 a possible customer given current focus on increasing residential teledensity第17页，共52页。OVERALL WHOLESALE MARKET SIZE IS SUBSTANTIAL AND GROWING AT A MODEST RATEAnticipated Price Decrease in Leased Lines Limits Overall Revenue GrowthLeased Lines - ISPMarket Size (RMB B)15TotalLeased Lines - Mobile99

42、-04CAGRAccess PortsLeased Lines - Paging1818202226284%41%1%152%(1)9%(1) 01-04 CAGRSource: CNC team inputs; foreign benchmarks; BCG analysisDark Fiber68%(1)第18页，共52页。CARRIERS SEEKING ALTERNATIVES.ISPs definitely seeking alternatives to CTMobile carriers likely to follow“We need a telecom service prov

43、ider 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 line make

44、s 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 pricinghigher quality servicehigher bandwidthInterviews

45、 with regional mobile carriers and Unicom need to be conducted to verify potential第19页，共52页。BUT TECHNOLOGICAL LIMITATIONS AND COMPETITIVE CHALLENGE ARE IMPORTANT FACETS TO MANAGECompetitive ChallengeTechnological LimitationsMobile carriers may be hesitant to use VOIP technology for primary applicati

46、onsCarriers currently addressing sound quality 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 qualityChina Telecom likely to have advantage in competing share of CT Mobiles

47、businessStrong former intra-CT connection even after splitExtensive backbone coverage and large TDM based capacityUnicom Mobile Services business as tough targetBuild presence by offering low-costtrials and backup capacityLobby for clear regulation from MII on freedom of choice for carriers第20页，共52页

48、。PREDICTED WHOLESALE ECONOMICS ADD SIGNIFICANT VALUE TO VOIP BUSINESS MODELAdditional CapEx and OpEx Minimal5 year PV(1) (M RMB)CapEXOpExRevenue5 year NPV15%:2.1B RMB5 year IRR: 40%Wholesale critical to enhancing profitability of backboneVOIPBackbone allocationDark FiberAccess portsISPsMobile operat

49、orsVOIPVOIPISP accessOSS(1) Assuming 15% cost of capitalSource: BCG benchmark database; industry interviews; BCG analysisOSS/provisioningPresent value of cash flows8,0007,0005,0001,0006,000-3,000-4,000第21页，共52页。AGENDABusiness ModelsDomestic and international long-distance voiceWholesale/carrierEnter

50、prise solutionsIssues going forward第22页，共52页。APPROACH TO ENTERPRISE SOLUTIONS BUSINESS MODELObjectivesHypothesized ApproachCapture strong share among medium/large business by offering enhanced datacom solutionsGoal to establish clear position as best service/quality provider in major marketsUtilize

51、most cost effective deployment technologies to cover major metro areasMinimize head-to-head competition by offering differentiated, data-centric products-attempt to drive datacom marketDevelop image as fast, responsive solutions providerEnable competitive advantage for business customers through dat

52、acomFor building managers: make their buildings more attractive to tenantsDeployment to target key buildings in major metropolitan areasFour cities by year 2000/01Top 15 cities by 2019Fiber in most dense urban hi-rise areas and LMDS to complement and serve less dense areasInitial lead products will

53、be low cost voice over IP and high bandwidth internet accessMigration to full datacom solutions as customer base and capabilities growQuality customer service more important short term than full product offeringEmphasis on ease of use and fast provisioning versus competitors-exploit CTs weaknessesEd

54、ucation of customers on use of datacom products as competitive weaponsMarketing partner with key building managers 第23页，共52页。ENTERPRISE SOLUTIONS SUMMARYPreliminary EconomicsPhase I Capital Investment (2000,2019): 1.1 B RMBFirst four cities (assuming fiber): 650 M RMBAdditional 11 cities1: 400 M RMB

55、OpEx expected to be 40% of revenue by 2019Market share and revenue estimates - 2019Offnet Voice2: 20%Existing data: 10% 1.1 B RMBEmerging data: 5%5 year NPV: Roughly 1.2 B RMBAssumes launch date of 3Q 2000 for data servicesLikely too optimisticKey Issues to be AddressedRight of way for existing duct

56、s and diggingPartnership strategy for high bandwidth 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 fr

57、ame for launch?Magnitude of organizational and 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 2019第24页，共52页。ENTERPRISE SOLUTIONS BUSINESS MODEL MOST COMPLEX W

58、ITH HIGH CAPEX AND OPEX REQUIREMENTS.Building metropolitan fiber rings to offer access to medium and large businesses poses significant challengeOperating expenses required dwarfs long haul network costs on a per city basisComplexity in obtaining night-of-way varies by districts within each cityDesi

59、gning fiber route and network configuration requires significant experience Converting customers to full CNC service may not be as easy as it seems on surfaceInitial risk for companies utilizing new entrant Coverage issues for offering service to all business locationsExperienced sales-force with es

60、tablished relationships a must第25页，共52页。BUT COMPRISES TREMENDOUS UPSIDE POTENTIALInternet AccessLeased LinesILDDLDLocalOtherPortalBroadband ContentWeb Hosting/ CollocationExisting ServicesEmerging Services98-04CAGR124%40%-10%7%11%IP VPNBroadband Network Applications71%83%186%98%111%286%00-04CAGRMark