BCG-中国网通战略咨询报告完整版01.ppt

CHINANETCOMBUSINESSPLANUPDATE December14 1999 Beijing TODAY SOBJECTIVES Reviewtheoverallanalysisofregulation competition andmarketdevelopmentDiscussthespecificimplicationsforCNCstrategyReviewthespecificdraftbusinessmodelsforCNCHowwemightattackthebusiness carrier andIDD DLDmarketsWhatkeytrade offsweneedtomakeWhatarethekeysuccessfactorsandassumptions Discusstheinitialeconomicsofthesebusinessmodels andofCNCoverallDiscussthespecificnextstepsintwokeyareas HowtofinalizeandendorsetheoverallCNCbusinessmodelHowtomoveforwardwiththerefinedfinancials organizationdesign andtheplanforimplementation CONTENT KeystrategicprinciplesRegulatoryoverviewMarketoverviewCompetitionoverviewBusinessmodelsNextsteps KEYCNCSTRATEGICPRINCIPLES TheobjectiveoftheseprinciplesistoprovidefurtherclarityinthedevelopmentandevaluationoftheCNCbusinessmodelThesewillberevisitedandrefinedastheprojectprogressesOurdevelopmentofbusinessmodelswillseektobealignedwiththeprinciplesStrategicprinciplesandkeyassumptionswillbeconsideredinthefollowingaspectsCNCshareholdersBackbonebusinessLocalaccessbusinessInternationalgatewaybusinessRegulatorystrategyCompetitivestrategyMarketingstrategy CNCSHAREHOLDERS Principles Leverageshareholders concertedvisionincreatinganewgenerationIPbroadbandcommunicationinfrastructureandaprofitable successfulcompanyLeverageshareholders existingbackboneassets localaccessassets researchcapabilitiesandlocalgovernmentrelationshipstosecuretime to marketandcreatecompetitiveadvantageSetamodelofanewtypeof SOE asefficientasthebestoftheFIE privatecompanies beatshareholders expectationsbydeliveringhighreturnAssumptions CAS stronginterestinseeingCNCsuccessfulandprofitablequickly standsreadyforfavorableregulatoryinfluenceandresearchsupport wantsopportunitiesfornetworkingRhowtohandle BACKBONEBUSINESS Principles Targetadvancedbackboneamong15keycitiesinEasternChina startwith2coresfromshareholdersbutquicklybuildownnetworkUsebackboneforavarietyofwholesaleandretailvoiceanddataservicesMaintaintheleadingedgeIP packetnetwork bothfortechnologicalsuperiorityandtofulfillshareholdermissionMaintainthebestcostposition usingROWs purchasingclout righttechnologyBuildreservecapacity conduittodeterothersAssumptions ThecostsofconstructionandROWwillbethemajorityofnewnetworkcostsvirtuallyallofthenetworkwilluseMORorSARFTrightofwayNetworkwillbeIPorpacketinnatureDeploymentplanwillkeepcostslow buildoutquickly andcreategoodpositionlaylargenumberofconduitsinonetimelaterfill lightup andcolorfiberstrandsleaseoutconduit fiber bandwidthtomaximizereturn utilization LOCALACCESSBUSINESS Principles Beveryfocusedinlocaldeployment targetingprioritybusinessareasonlyEmphasizebroadbandtothecustomer usingFTTBandLMDSwherelogicalSeekstronglocalmarketshare especiallyinnewdataservicesgrowthareasDifferentiatefromChinaTelecombysuperiorservices quality responsivenessBuildstronglocalteamtoenablefastserviceresponseEmphasize endtoend networkownershipandmanagementAssumptions SH BJ GZ andSZbusinessdistrictsastargetsfortheneartermTheseaccountforthevastmajorityofbusinesstelecomdemandNeedtosetspecificestimatesfortimingandsequenceofdeploymentAssumethatCNCwillhaveaccesstokeycityROW suchassubwaysystemsWillneedspecificassumptionsabouttheeaseandcostofhookingupbuildingsAssumethatprimaryemphasiswillbeonFTTB butthatLMDScanplayanimportantrole especiallyininitialdeploymentandinsecondarycitiesWillneedspecificassumptionsabouttimingofaddingsecondarycities INTERNATIONALGATEWAYBUSINESS Principles CNCwillbeoneoffewplayerswithafullinternationallicenseVitaltoenableCNCtoprovideend to endservices globaldataservices andhighermarginIDDserviceHKgatewaylinkmaybestrategicallyimportantAssumptions HKasoneofthekeylocationforinternationalconnectionamajortrafficdestinationamajorrelaylocationInternationalvoiceremainshighlyprofitablesegmentinmediumtermfutureExpecthighgrowthtogetherwithsteeppricedropininternationalservicesActivelyplanaheadforjoininginternationalsub oceaniccableconsortium REGULATORYSTRATEGY Principles Mustactivelylobbyforfavorableregulatorydecisions togetherwithshareholdersprovideregulatorswithinternationalbenchmarkingforbestpracticesalignCNCobjectiveswithfaircompetition andpublicinterestshaveeffectiveseniormanagementfocusonlobbyingissuesBecarefulaboutcommittinginvestmentifregulatoryissuestoouncertainEnsureCNCstrategyaddressesnationaleconomicdevelopmentprioritiesPaycarefulattentiontomanagingrelationswithChinaTelecomExpectedWTOin2000willimplygreateropeningofthemarketinthefutureAssumptions Atleasta2 3yearwindowwhenCNCcancontinuetoenjoyfavorablepolicytreatment whilealsoworkingtostraightenoutregulatoryissuesatlocallevelManykeyregulationsremainingreyareas whereCNCcanplayaroleinshapingthepolicyWillneedtomakespecificassumptionsonanumberofregulatoryissues anddevelopseveralscenariosAssumethatCTandUnicomaretheonlyfullservicecompetitors butseveralnicheplayersWTOwillintroduceFDIintoChina stelecommarketby2002 butinfrastructureplayremaintightlycontrolled stilllimitedcompetition until2004 5maybeopportunityforsomeformofpartnershipwithforeigntelcos COMPETITIVESTRATEGY Principles Focusonthebestservicequality supplywhatcustomers need avoidcompetingonpriceBuildboth highways and tollbooths PrepareforrapidlychangingindustrystructureBecarefulinpositioningtowardChinaTelecom complementaryandaddressingunmetneedsgrowingthewholemarketTheonlyviablealternativetoChinaTelecomforcarriersTheonlytrue endtoend networkacrossChina withclearcentralmanagementAssumptions TechnologyleadstocontinualchangeinindustrystructureThedecentralizednatureandbusinessorientedbehaviorsofChinaTelecomenablesCNCtopartneratthelocallevelHighopportunityforCNCtofillChinaTelecomproduct servicebacklogUnicomwillbeathreattostarta pricewar Variousnicheplayersemergeinlateryears morethreatthan carrier opportunityforCNC MARKETINGSTRATEGY Principles Forlocalaccess willtargetmediumandlargebusinessesintargetedbuildingsForbackbone providecarrierservicesForinternational supportotherbusinessesandalsoofferIDDandrefiling etc Inallareas emphasizequality service endtoend etc Getafewkeycustomersearly proveourselvesandthenbuildfurtherAssumptions Carrierandlargeandmediumsizedcorporationsarethekeyfocusespeciallythoseintelecom intensiveindustriesAssumeagrowingdemandforbusinesstelecomserviceswillneedbothhighandlowgrowthscenariosNeedtovalidatethewillingnessofkeycustomerstoswitch andtheiranticipatedareasoffuturedemandgrowthIPphonestillthesourceofrevenueinthenearfutureDial upISP 171 mayconflictwithISPcarrierinterests butcouldalsoserveasstrategicinroadforfuture3G 1 1 Notinscopeofthisproject CONTENT KeystrategicprinciplesRegulatoryoverviewMarketoverviewCompetitionoverviewBusinessmodelsNextsteps REGULATORYHIGHLIGHTS Ourkeyassumptions MIIregardsCNC sIP basedlicenseasFullServicelicense butlacksclearregulatorydocumentation Incaseoflocalinterpretationdifference MIIiswillingtoclarifyonbehalfofCNCe g ambiguityonlocalfixedline CNCnumber CNCwillbegrantedInternationalGatewaylicenseby1Q2000CNCIPnetworkprotectedbythecurrentfixed mobileinterconnectregulationCNCnotrequiredtomeetspecificcoveragetargetsforthenearfuture 2 3years Themarketwillbeopenedupgradually withFDIincreasing morevalueaddedserviceprovidersby2003moreI Phoneprovidersby2001nonewFullServiceproviderstill2004 2005AccountsettlementspecificforI Phonewillberegulatedafterthetrialstageends ItwillbelowerthantheRMB0 14 minrateforbasictelecomnetworksonapercallbasisEqualaccessbyprefix pre selectin1year numberportabilitymaytakeanother1 2yearsatleastCNCwillhaveLMDSspectrumCNCanticipatesawell intentionedregulator withvarieddegreesofcontroloverlocalincumbentpracticeNoneoftheseassumptionsare guaranteed CNCmustfightaggressivelyforthem KEYREGULATORYISSUESANDIMPLICATIONS ServicelicensesFullServicelicenseinterpretationInterconnectenforcementAccountsettlementPricingandrebalancingROWandaccessFrequencyspectrumallocationandfeesUniversalServiceObligationEqualAccessNumberingandportability IGWlicenseimportanttocompetitiveness sizeofcustomerbaseand ofpartnersMIInotificationoneachinstanceaddsdelaytoCNClocalinterconnectionTimetomarketineachcityaffected detractCNCresourcesFutureInterconnecteconomicsFuturepricecompetitivenessvs otherplayers e g CT economics pricecompetitivenessvs CTCase by caselocalcoordinationandnegotiationdelaylocalaccessbuild out mayalsobeexpensivetoobtainTimetomarketforlocalaccessbuild outbyLMDSaccesssolutionsSubsidizingincumbentforUSOaffectcoststructureofnewentrantsUnabletoreachCTlocallinecustomerMediumtermimplication on netvoicenottargetedforthenear4 5years 3fullservicecarrierincludingCNCMorelicensesforvalue addedserviceproviders typeII MIIsupportsCNCIPbasedlicenseasFullServiceLicenseButlackofcleardocumentationmaycauseconfusionatlocallevelBasedoncooperationofcarriersArbitration settlementprocessexistbuttimeconsumingMildpunishment lawsuitaslastresortForcurrentIP phonetrial feesnotsettledLikelyfuturesettlement LDcarrierpayslocalPSTNoperatorRMB0 14 minPricefloorlikelyspecifiedforincumbentbyregulationNoimminentinitiativeforrebalancingLegallyfeasibleforpublictelecomcarrier e g CNC PracticewillhavetocoordinatewithmunicipalitiesandinfrastructurebuildingControlledbyMIIinco ordinationwithPTAsFrequencynotlikelytobeauctionedUSOforincumbentwithcontributionfromnewentrant2 3yearsbeforetransparentandequitableapproachPrefixbasedsolutionprovidedbyregulationin1yearNumberasnationalresourcescontrolledcentrallyFeewillbecollectedforoccupationofnumberresource2 3yearsbeforeportabilityregulations ImpactonCNC Highest Immediate High MediumTerm Keyissues Assumption ImplicationtoCNC KEYREGULATORYBODIESANDRESPONSIBILITIES Otherdepts e gSETC Variouslawmakingbodies NPC StateCouncil Dept ofRadioFrequencyAdministration TelecomAdministrationBureau Otherdepts ProvincialTelecomAdministrationBureau ChinaTelecomNationalCompany MunicipalLevelTelecomAdministrationBureau TelecomOperatingEntities e g CTfixedline Provincialgovernment MII Administration Operations National Provincial Municipality Drafting passingoftelecomlawsandstatues e g ChinaTelecomsLawInternational NationalandInter ProvincialscopelicensegrantingHighestlevelofregulatoryenforcement arbitrationInternationalGatewayadministrationNationalleveltelecomresourcescontrol e g numbers frequencyspectrums ProvincialleveltelecomadministrationProvinciallevellicensegrantingProvinciallevelregulatoryenforcementfocusoncoordinationIntheprocessofsplittingoperationandadministrationAnumberofMunicipalLevelTABsareyettobecreatedLimitedenforcementpowerOperationandadministrationnotseparateSettleinterconnectandotherdisputesWhennotsettledbyprovincial municipalcoordination propagateuptoprovinciallevelandMII PTAs PTB Source PyramidResearch BCGanalysis KEYLICENSEASPECTSANDIMPLICATIONTOCNC FullServiceandInternationalValueaddedservicesownershipGeographicscopeDurationlicensefeesPerformancetargetsTechnology KeyAspects Numberoflicensestightlycontrolled atmost3in2003 includingCNCCNCfullservicelicenseexpected1Q2000Internationallicensestightlycontrolled atmost4in2003 includingCNCCNCIGWlicenseexpectedbyEOY1999Morethan4value addedservicelicensespossibleControl shareforeignownershipnotallowedinbasictelecomandpublicdatatransportservicesUpto50 ofFDIinvalueaddedserviceprovidersIntraprovincialservicesundercontrolofprovincialTABsNolimitRegulationwillrequirelicensefeesRegulationwillspecifyclearservicebuildouttargetsRegulationswillbetechnologyneutralButwillgivepreferencetonewtechnology Assumptions Currentregulationonlycoverinterconnectionbetween7typesoflicensedbasictelecomcarriers e g NLD local wireless international WithIP phonelicense CNCneedstonegotiatewithCTlocalbranchescitybycityCNCIPbasedbandwidthwholesaleservicenotcoveredinpublishedregulation addsdelayinlocalnegotiationNumberofpotentialcustomersforcarrier scarrierservicesSpeedofestablishmentandcoverageoftargetedcustomerforcarrier scarrierserviceFinancialstrengthofnewentrantcustomersIntra provincialLMDSservicerequireapplicationineachtargetedareaCompetitor sabilitytolockoutkeyserviceareasLimiteddegreeofimpactoneconomicsAddsplanningandlocalcoordinationpressuretoCNClocalaccesssolutionsCNCIP DWDMbackbonereceivepositiveinfluence ImplicationtoCNC NATURE SCOPEANDNUMBEROFLICENSES Source BCGanalysis VSATtransportservice International NLD On netvoice IPbackbone IP phone includinginternational Wireless Paging VAS e g ISP VPN Servicenature OwningsatelliteMaintainsatellitechannelVSATbasestations Ownership operationofinternationalgatewaysInterconnectwithforeigncarriersLeasingIDDchannelsandlines Building operatingofnationalswitchesandtrunklinesMaintainingPOPisnationwideProvidebasicvoice datanationaltransport Ownership operationoflocalaccessnetworksOwnershipoflastmileProvidebasiclocalvoice datatransportandaccesstoNLD IDD BuildingandleasingofbroadbandIPbasedbackbonetransportcapacity ProvideIPbasedvoiceserviceNorequirementininfrastructurebuildingIncludinginternationalIPbasedLD Building operationoflocalBSCnetworkProvidewirelessvoiceservicesInterconnectwithnationaltransportcarrier Building operationofLocalPagingNetworksInterconnectwithnationaltransportcarrier Withorwithoutbuilding operationoflocalnetworkOfferweb hosting VPN callcenterservices etc Scope Nationalcoverage CrossinternationalpointofpresenceServicenationaltransportcarriers CrossprovincialboardersHaveaccesstointernationalPOconnectsServicelocalPSTNs Coverslocalserviceareas e g citiesmunicipalities CrossprovincialboardersAccesstointernationalpointsofconnect Covers12 25trailcitiesAccesstointernationalpointsofconnect Coverslocalserviceareas citiesmunicipalities Majorityinlocalscope4nationalcoverage Primarilyinlocalscope No offuturelicenses Remain3forthenext6years CT Unicom andCNC 3Inthenext6years CT Unicom CNC 3Inthenext6years CT Unicom CNC 4 5in1 2years 5 6possibleinthenext1 2years Multiplelicensespossibleinthenext4 5years Numerousnationalscopelicensespossibleinthenext2years Numerousmorelicenses withFDI possibleinthenext2years Licensecontrolledby MII MII MII MII MII MII MII Primarilybyprovincialgovernment Provincialgovernment No ofcurrentlicenses 1 3 2 2 3 CT Unicom CNC 4Trailstage 2 2nationalscope multiplelocal Unlimited Basictelecomservices Remain1forthenext6years INTERCONNECTIONISSUESANDIMPLICATIONTOCNC KeyIssues Assumptions ImplicationtoCNC Obligationclearlyspecifiedbyregulationforinterconnectionbetween7typesoftelecomnetworklicensedoperatorsCNC sIPbroadbandnetworkreceiveequivalentprotectionMIIsetstechnicalspecificationofinterconnectsolutionsClearprovisiononcostandownershipoftechnicalassetFromtimeofwrittenrequest interconnectcompletewithin 2monthsifonlyCOdatamodificationisinvolved4monthsifcapacityexpansionneeded7monthsifnewPOI 1 neededTimeframenotstrictlyadheredto variesfrom4 6monthsDisputesettledprimaryviacoordinationArbitratedbyMIIandlocalgovernmentViolationfineisverylow 30 000RMBmaxperoffense Possibletoclaimforcompensationduetonon cooperationofincumbents thelastresort RMB0 07 minforPSTNaccessofeachendofcallpathSettlementforIPbasedwillfollowschemewhentrialfinishesIncumbentsprovidecabinetroomandconduitaccessIncasethere snoexcessconduitcapacity incumbenthastoprovidefeasibleexpansionplanLocalpracticewillvaryIncumbentchargesrentalfeeforconduitaccessIncumbentchargesforleasedlineneededforinterconnectInfrastructureandnetworkinvestmentrelatedtointerconnectareresponsibilityofbothparties separatedfromPOI IncumbentobligationtointerconnectInterconnecttimeframeEnforcementAccountsettlementAccessandcollocationChargesandfees IfCNCnetworkisnotcoveredbyregulation localnegotiationwillleaveloopholeforincumbentandadddelayIncumbentlocalpracticevaries addcomplexityanddelaytoprojectIncumbentcantakeadvantageoftimeframeloopholes adddelaysatlocallevelCentralcontroloverlocalTAB 2 variesduetovarieddegreeofseparation leadtodifferentdegreeofjustandresolutiontimeframeUpwardpropagationtoMIItimeconsuming addingdelaystoresolutionFutureeconomics upto30 ofrevenuepaidtoPSTNbasedon0 30 minIPrateIncumbentcantakeadvantageofcapacityconstraintstodelayinterconnectatlocallevelSomeincumbentlocalbranchesrequireCNCtopayforinvestment ownershipgoestoincumbent addscosttoCNCservice Note1 PointOfInterconnect2 TelecommunicationsAdministrationBureau CLEARGUIDANCEFORINTERCONNECTALREADYPUBLISHED LOCALPTAOBLIGEDTOFOLLOW LocalPTAcanberesistant alsoitsorganizationnotsuitableforquickexecutionThepolicydecisionrequestinglocalPTAstocorporatewithinterconnectiontricklesfromtopdown thecentral provincialPTA cityPTACityPTAbeforeimplementationwillgenerallyaskforleadtimeforverificationwithupperlevels E g insomecasesnewentranthastowaitforextendedtimeperiodforthisprocessUndertheMarketDepartment scoordination thereareupto18independentdepartmentswithineachcityPTAtocooperatefortheexecutionandresourceplanningofinterconnectEachofthesedepartmentcanadddelaytotheprocess leadtimesaddupIncaseofinsufficientresource therequestingandapprovalprocessforexpansion upgradeisevenlongerLocalPTAcaneasilyuseresourceconstraintasanexcusefordelayininterconnection ButinterconnectionisfeasibleCNChassofarbeenabletoreachinterconnectcontractatprovinciallevelsMostPTAsinCNC stargetcitiesdisplayedtimelycooperationInordertoensurequickexecution CNCshouldUnderstandandincorporateintoplanningprocessthestatusofincumbentnetworkresourcesGiveleadtimeinplanningandcommunicatingintentiontointerconnectwiththeincumbentBuildstrongcommunicationchannelwithalllevelsofPTAsCo ordinateforgoodtimingacrossalllevels parallelprocessingtominimizetimeneededandclearbottleneck BACKUP THEPROCESSOFLOCALINTERCONNECTISGENERALYSMOOTHButThere sGreatDifficultyinSomeCities Interconnectinmajorcitiesissmoothe g BJ SH GZGreatdifficultyinsomecitiese g Wuhan FastagreementreachedFromnegotiationtoimplementationusuallytakes2 3weeksTakes4 6monthtocompletenegotiationIssues localCTbranchattemptedtocurtailCNCbyforbiddingconnectionsofmultiplelinesatCNClevelResolution resorttoregulatoryprovisiontoreachIPphoneinterconnectagreement pushoffmultiplelineissueasfuturenegotiationagenda BACKUP TERMINATIONSETTLEMENTMAYREDUCECNCMARGIN I Current LikelyscenariosforY2000 Enduser CustomerpayslocalPTAforPSTNusagee g RMB0 1every3mintoPTANosettlementpaidbyCNCtoPTACustomerpayslocalPTAforPSTNusagee g RMB0 1every3mint