1、CHINA NETCOM BUSINESS PLAN UPDATEDecember 14, 1999 - BeijingTODAYS OBJECTIVES Review the overall analysis of regulation, competition, and market developmentDiscuss the specific implications for CNC strategy Review the specific draft business models for CNC How we might attack the business, carrier,
2、and IDD/DLD marketsWhat key trade-offs we need to makeWhat are the key success factors and assumptions? Discuss the initial economics of these business models, and of CNC overall Discuss the specific next steps in two key areas:How to finalize and endorse the overall CNC business modelHow to move fo
3、rward with the refined financials, organization design, and the plan for implementationCONTENT Key strategic principles Regulatory overview Market overview Competition overview Business models Next stepsKEY CNC STRATEGIC PRINCIPLES The objective of these principles is to provide further clarity in t
4、he development and evaluation of the CNC business model These will be revisited and refined as the project progressesOur development of business models will seek to be aligned with the principles Strategic principles and key assumptions will be considered in the following aspectsCNC shareholdersBack
5、bone businessLocal access businessInternational gateway businessRegulatory strategyCompetitive strategyMarketing strategyCNC SHAREHOLDERS Principles:Leverage shareholders concerted vision in creating a new generation IP broadband communication infrastructure and a profitable, successful companyLever
6、age shareholders existing backbone assets, local access assets, research 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
7、by delivering high return Assumptions:CAS: strong interest in seeing CNC successful 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 ROW-main focus on using MOR
8、for right of way, helping them participate in telecom-will not use SARFT local CATV in the near term, but they are a key user of the backboneLeverage CATVs city backbone-MOR will continue to favor CNC over Unicom, provided CNC meets the expectation as a profit center for MORShanghai Municipal Govt:
9、Eager to make Shanghai as Chinas test ground for building high-tech infrastructure (e.g. the integration of telecom, CATV, Internet)-in particular, testing HFC to deliver broadband internet-one issue: SPT and ATT JV; how to handle?BACKBONE BUSINESS Principles:Target advanced backbone among 15 key ci
10、ties in Eastern China; start with 2 cores from shareholders but quickly build own networkUse 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
11、position, using ROWs, purchasing clout, right technologyBuild reserve capacity/conduit to deter others Assumptions:The costs of construction and ROW will be the majority of new network costs-virtually all of the network will use MOR or SARFT right of wayNetwork will be IP or packet in natureDeployme
12、nt plan will keep costs low, build out quickly, and create good position-lay large number of conduits in one time-later fill, light up, and color fiber strands-lease out conduit/fiber/bandwidth to maximize return (utilization)LOCAL ACCESS BUSINESS Principles:Be very focused in local deployment, targ
13、eting priority business areas onlyEmphasize broadband to the customer, using FTTB and LMDS where logicalSeek strong local market share, especially in new data services growth areasDifferentiate from China Telecom by superior services, quality, responsiveness -Build strong local team to enable fast s
14、ervice response-Emphasize “end to end” network ownership and management Assumptions:SH, BJ, GZ, and SZ business districts as targets for the near term-These account for the vast majority of business telecom demand-Need to set specific estimates for timing and sequence of deploymentAssume that CNC wi
15、ll have access to key city ROW, such as subway systemsWill need specific assumptions about the ease and cost 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 assum
16、ptions about timing of adding secondary citiesINTERNATIONAL GATEWAY BUSINESS Principles:CNC will be one of few 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 importan
17、t Assumptions:HK as one of the key location for international connection-a major traffic destination-a major relay locationInternational voice remains highly profitable segment in medium term futureExpect high growth together with steep price drop in international servicesActively plan ahead for joi
18、ning international sub-oceanic cable consortiumREGULATORY STRATEGY Principles:Must actively lobby for favorable regulatory decisions, together with shareholders-provide regulators with international benchmarking for best practices-align CNC objectives with fair competition, and public interests-have
19、 effective senior management focus on lobbying issuesBe careful about committing investment if regulatory issues too uncertainEnsure CNC strategy addresses national economic development prioritiesPay careful attention to managing relations with China TelecomExpected WTO in 2000 will imply greater op
20、ening of the market in the future Assumptions:At least a 2-3 year window when CNC can continue to enjoy favorable policy 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
21、 to make specific assumptions on a number of regulatory issues, and develop several scenariosAssume that CT and Unicom 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 l
22、imited competition) until 2004/5-may be opportunity for some form of partnership with foreign telcosCOMPETITIVE STRATEGY Principles:Focus on the best service quality, supply what customers need, avoid competing on priceBuild both “highways” and “tollbooths”Prepare for rapidly changing industry struc
23、tureBe careful in positioning toward China Telecom: -complementary and addressing unmet needs-growing the whole marketThe only viable alternative to China Telecom for carriersThe only true “end to end” network across China, with clear central management Assumptions:Technology leads to continual chan
24、ge in industry structureThe decentralized nature and business oriented behaviors of China Telecom enables CNC to partner at the local 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,
25、 more threat than (carrier) opportunity for CNCMARKETING STRATEGY Principles:For local access, will target medium and large businesses in targeted buildingsFor backbone, provide carrier services For international, support other businesses and also offer IDD and refiling, etc.In all areas, emphasize
26、quality, service, end to end, etc.Get a few key customers early; prove ourselves and then build further Assumptions:Carrier and large and medium sized corporations are the key focus-especially those in telecom-intensive industriesAssume a growing demand for business telecom services-will need both h
27、igh and low growth scenariosNeed to validate the willingness of key customers to switch, and their anticipated areas of future demand growthIP phone 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 f
28、uture 3G(1)(1) Not in scope of this project CONTENT Key strategic principles Regulatory overview Market overview Competition overview Business models Next stepsREGULATORY HIGHLIGHTS Our key assumptions:MII regards CNCs IP-based license as Full Service license, but lacks clear regulatory documentatio
29、n. In case of local interpretation difference, MII is willing to clarify on behalf of CNC-e.g. ambiguity on local fixed line (CNC number)CNC will be granted International Gateway license by 1Q 2000CNC IP network protected by the current fixed/mobile interconnect regulation CNC not required to meet s
30、pecific coverage targets for the near future (2-3 years)The market will be opened up gradually, with FDI increasing:-more value added service providers by 2003-more I-Phone providers by 2001-no new Full Service providers till 2004/2005Account settlement specific for I-Phone will be regulated after t
31、he 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; number portability may take another 1-2 years at leastCNC will have LMDS spectrum CNC anticipates a well-intentioned regulator, with varied degre
32、es of control over local incumbent practice None of these assumptions are “guaranteed;” CNC must fight aggressively for themKEY REGULATORY ISSUES AND IMPLICATIONSService licensesFull Service license interpretationInterconnect enforcementAccount settlementPricing and rebalancingROW and access Frequen
33、cy spectrum allocation and feesUniversal Service ObligationEqual AccessNumbering and portabilityIGW license important to competitiveness,size of customer base and # of partnersMII notification on each instance adds delay to CNC local interconnectionTime to market in each city affected, detract CNC r
34、esourcesFuture Interconnect economicsFuture price competitiveness vs. other players (e.g. CT)economics; price competitiveness vs. CTCase-by-case local coordination and negotiation delay local access build-out; may also be expensive to obtainTime to market for local access build-out by LMDS access so
35、lutionsSubsidizing incumbent for USO affect cost structure of new entrantsUnable to reach CT local line customerMedium term implication: on-net voice not targeted for the near 4-5 years3 full service carrier including CNCMore licenses for value-added service providers (type II)MII supports CNC IP ba
36、sed license as Full Service LicenseBut lack of clear documentation may cause confusion at local levelBased on cooperation of carriersArbitration/settlement process exist but time consumingMild punishment, law suit as last resortFor current IP-phone trial, fees not settledLikely future settlement: LD
37、 carrier pays local PSTN operator RMB0.14/minPrice floor likely specified for incumbent by regulationNo imminent initiative for rebalancingLegally feasible for public telecom carrier (e.g. CNC)Practice will have to coordinate with municipalities and infrastructure buildingControlled by MII in co-ord
38、ination with PTAsFrequency not likely to be auctionedUSO for incumbent with contribution from new entrant2-3 years before transparent and equitable approachPrefix based solution provided by regulation in 1 yearNumber as national resources controlled centrallyFee will be collected for occupation of n
39、umber resource2-3 years before portability regulationsImpact on CNCHighest/ImmediateHigh/Medium TermKey issuesAssumptionImplication to CNCKEY REGULATORY BODIES AND RESPONSIBILITIESOther depts, e.g SETCVarious law making bodiesNPCState CouncilDept. of Radio Frequency AdministrationTelecom Administrat
40、ion BureauOther depts.Provincial Telecom Administration BureauChinaTelecomNationalCompanyMunicipal Level Telecom Administration BureauTelecom Operating Entities: e.g. CT fixed lineProvincial governmentMIIAdministrationOperationsNationalProvincialMunicipalityDrafting, passing of telecom laws and stat
41、ues, e.g. China Telecoms LawInternational, National and Inter-Provincial scope license grantingHighest level of regulatory enforcement/ arbitrationInternational Gateway administrationNational level telecom resources control (e.g. numbers, frequency spectrums)Provincial level telecom administrationPr
42、ovincial level license grantingProvincial level regulatory enforcement focus on coordinationIn the process of splitting operation and administrationA number of Municipal Level TABs are yet to be createdLimited enforcement powerOperation and administration not separateSettle interconnect and other di
43、sputesWhen not settled by provincial & municipal coordination, propagate up to provincial level and MIIPTAsPTBSource: Pyramid Research; BCG analysisKEY LICENSE ASPECTS AND IMPLICATION TO CNCFull Service and InternationalValue added servicesownershipGeographic scopeDurationlicense feesPerformance tar
44、getsTechnologyKey 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 2003, including CNC CNC IGW license expected by EOY1999 More than 4 value-added service licenses possibl
45、e 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 provincial TABs No limit Regulation will require license fees Regulation will specify clear service buildout
46、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 (e.g. NLD, local, wireless, international) With IP-phone license, CNC needs to negotiate with CT local
47、 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 establishment and coverage of targeted customer for carriers carrier service Financial strength of
48、 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 coordination pressure to CNC local access solutions CNC IP/DWDM backbone receive positive infl
49、uenceImplication to CNCNATURE, SCOPE AND NUMBER OF LICENSESSource: BCG analysisVSAT transport serviceInternationalNLDOn-net voiceIP backboneIP-phone (including international)WirelessPagingVAS(e.g.ISP,VPN)Service nature Owning satellite Maintain satellite channel VSAT base stations Ownership & operat
50、ion 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 national transport Ownership & operation of local access networks Ownership of last mile
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