Building "@Home" Plus Business in China

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An old education material for China MII (Ministry of Industry and Information Technology) and SARFT (State Administration of Radio, Film and Television).

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  • Chicagoland 1 master and 1 backup headend 1 off-air receive site (Sears Tower) 8 primary hubs 2 distribution hubs 1 newly acquired headend (will become primary hub)
  • Building "@Home" Plus Business in China

    1. 1. INCHINA 1
    2. 2. BUILDING “@HOME” PLUS BUSINESS IN CHINA Xiaolin Lu February 12, 2004 Property of Morning ForestTM LLC 2
    3. 3. What is this all about? Early 21 century China started the final stage of “commercialization” – State Owned Enterprise (SOE), including cable industry. MII and SARFT are fighting to get the ownership- control. This is an advisory suggestion with some designs to both sides for a profitable business BUT, this is China and it is not about business and technology…. the war has been and will be going on forever…Proprietary Information Property of Morning ForestTM LLC 3
    4. 4. BUSINESS COMPARISON Comcast x Cox x Gehua Subscriber (M) 21.0 4.2 6.1 1.2 5.0 Revenue ($M) 8,079.0 169.0 5,038.6 105.4 47.8 Operation Cost ($M) 3,511.0 131.7 2,130.9 80.0 26.7 Gross Margin 57% 58% 44% EBITDA Margin 35% 35% 24% Revenue/Sub ($) 384.7 40.2 826.0 86.4 9.6 EBITDA/Sub ($) 134.9 43.9 291.7 94.9 3.1Proprietary Information Property of Morning ForestTM LLC 4
    5. 5. OPPORTUNITIES AND ISSUES US China Telephony: $25 HSD: $52.95 VOD& DVR: $9.95 HDTV: extra $5 Digital Tier $50.44, $60.44, $68.44, $78.99, $93.99 Ext Basic: $40.49 HSD: $15 Basic: $13.44 Basic: $2.5 US China Network/HHP $175 $175 CMTS/Sub $8 $35 CM/Sub $40 $100Proprietary Information Property of Morning ForestTM LLC 5
    6. 6. BUSINESS VALUATION US x China ARPU/month 57.34 3.8 15.00 Gross Margin 57% 44% EBITDA Margin 35% 1.5 24% Multiple 16 1.6 10 Value/Sub ($) 3,853.2 8.92 432.0 EBITDA/Sub 150.00 88.2 1.70 Debt/EBITDA 4 4 Debt/Sub 600.00 88.2 6.80Proprietary Information Property of Morning ForestTM LLC 6
    7. 7. WHAT DOES IT MEAN Value Time Finance Resource Value Time Finance ResourceProprietary Information Property of Morning ForestTM LLC 7
    8. 8. KEY ISSUES Business Opportunities Operations Reality Regulatory Environment Cost Structure ( technology platform)Proprietary Information Property of Morning ForestTM LLC 8
    9. 9. SOLUTIONS: NETWORKSRegional Centralize all the Regional Data Data processing for scale, Center Center efficiency, & low-cost SDH Metro Rigid Flexible DWDM Ring SDH DWDM Metro Ring Router Simple Primary Everywhere Headend CMTS Hub Digital DWDM Transport Ring Headend Secondary Manned Passive Hub Headend DWDM Traditional Traditional Active Passive mFN mFN HFC HFC HFC HFC HFC HFC Proprietary Information Property of Morning ForestTM LLC 9
    10. 10. mFN SH mFN mFNPHCMTS SH S mFN mFN SH XTR XTR XTR Daisy Chaining mFNs Spur WDM PON  Distributed optical add/drop  Reduced fiber management & labor  Provisioning for growth Proprietary Information Property of Morning ForestTM LLC 10
    11. 11. mFN HFC: Value  Current Network: 5.5 actives/mileProprietary Information Property of Morning ForestTM LLC 11
    12. 12. mFN HFC: Value  61% reduction in active components  21+% improvement in reliabilityProprietary Information Property of Morning ForestTM LLC 12
    13. 13. COST COMPARISONCategory Fiber Deep 860 Fiber Deep 600 HFCHeadend/Hub Optronics $3 $3 $3Field Optronics $6 $6 $6Pow er Supplies w ith Pow er Coax $1 $1 $2Actives $0 $0 $6Passives $7 $7 $7Coax $20 $20 $20Hardw are $0 $0 $0Splice & Activate Coax $2 $2 $2Turn up and Test $1 $1 $2Project Mgmt & Design Engineering $1 $1 $1Taxes & Freight $1 $1 $2Labor $23 $23 $25Material $19 $19 $26Cost Total $42 $42 $51Saving 17% 18% Proprietary Information Property of Morning ForestTM LLC 13
    14. 14. Network Comparison 20,000 Home Example Item Traditional mFN Network Reliability Power Supplies 60 19 100.000% 99.995% RF Amplifiers 905 0 99.990% 99.985% Optical Nodes 42 225 99.980% 99.975% Total Active Devices 1,007 244 99.970% Traditional mFN Active Per Mile >4 <1 Cascaded RF 10 Year Operating Costs ($M) 5 0 Amplifiers $6.00 Network Reliability 99.98% 99.999% $5.00 $4.00 Power Cost 10 Years $762,260 $244,680 $3.00 Maintenance Cost 10 $2.00 Years $4,693,333 $1,173,333 $1.00 $0.00 Traditional mFNProprietary Information Property of Morning ForestTM LLC 14
    15. 15. DISTRIBUTED HEAD-END HE FNPrimary Primary Hub HE Ring FN HE  Operation complexity  Cost of CMTS at lower take rate Proprietary Information Property of Morning ForestTM LLC 15
    16. 16. CMTS SCALABILITY ADC Arris Cisco Motorola Juniper Terayon 850 Minimum Medium Maximum  Chassis-based CMTS has 750 the most advanced 650 features & can simplify the 550 metro routing architecture $$/Mbps 450  Desired configuration favor centralized approach 350 250 150 2 LCs Chassis Rack 80-400Mbps 400-1600Mbps 1200-3840Mbps* Cost is calculated based on combined upstream and downstream capacity, and core-redundancy configuration Proprietary Information Property of Morning ForestTM LLC 16
    17. 17. DWDM TRUNK SH FNPrimary Primary Hub SH Ring FN SH  DWDM transport for end-to-end transparency  Route diversity for service protection  Consolidate high-end terminals (CMTS) Proprietary Information Property of Morning ForestTM LLC 17
    18. 18. DWDM TO CONSOLIDATE HEADEND Super CO or HE Secondary Hub l 1 x 8 DWDM 1 x 8 DWDM lCMTS & QAM RF l . . . . . . DWDM Fiber Node RCV Ring XTR l RCV 1 x 8 DWDM 1 x 8 DWDM RCV RCV l RF RCV . . . . . .l ITU laser, per PON EDFA (optional) Proprietary Information Property of Morning ForestTM LLC 18
    19. 19. TRADITIONAL HFC INTERCONNECTION 64 SYSTEM HEADENDS 4 PRIMARY HUBS 0 SECONDARY HUBSProprietary Information Property of Morning ForestTM LLC 19
    20. 20. SECONDARY RING HFC INTERCONNECT 2 MASTER HEADENDS 9 PRIMARY HUBS 56 SECONDARY HUBS Proprietary Information Property of Morning ForestTM LLC 20
    21. 21. INTELLEGENT METRO NETWORK Insufficient Bandwidth Split into twoMust Dilate Pipe logical network SONET/SDH WDM Layer Layer Proprietary Information Property of Morning ForestTM LLC 21
    22. 22. CREATING A EFFECIENT VALUE CHAIN ISP ICP Content ISP Service Packaging Backbone ICPRDC City #2 DWDM Service Aggregation Metro Ring and management RDC City #1 mFN mFN HFC HFC Low-cost and consolidated Networks Proprietary Information Property of Morning ForestTM LLC 22
    23. 23. REDEFINE VOICE SERVICE Average Monthly Phone Bill: Constant $ Vertical Services CallerID, VoiceMail, Access to voiceIntegration, etc.Price competition network Product Differentiation (Local, Toll, LD, etc) Time VoIP  Low-cost bundled offering  Web based provisioning  Persistent voice Benefit to Consumer Benefit to Cable  Convenient  Differentiation  Lower cost  Customer retention  More service value  Additional revenue Proprietary Information Property of Morning ForestTM LLC 23
    24. 24. CREATING SYNERGY-BASED TRIPLE-PLAY Circuit IP5ESS ISP SDH ICP GW RDC City #2 DWDM City #3 Metro Ring City #1  Integrated voice and data over HFC network  Utilize 5ESS platform for mFN mFN HFC HFC voice interconnect & features Proprietary Information Property of Morning ForestTM LLC 24
    25. 25. VALUE OF CONSOLIDATRION MSO #1 MSO #2 MSO #3 MSO #4 Revenue • Basic video • Basic HSD Revenue Revenue Revenue Revenue Cost • Network • Platform Cost Cost Cost Cost • Operation • Interconnect Revenue • Tiered video 1+1>2 • Tiered HSD Revenue • Bundled phone Cost • Low-cost 1+1<2 network/platform Cost • Cost sharing Revenue • Basic phone Revenue Revenue Revenue • Basic HSD Cost • Network Cost • Platform Cost Cost • Operation • Interconnect Telco #1 Telco #2 Telco #3Proprietary Information Property of Morning ForestTM LLC 25
    26. 26. MORE ON SHARED VALUE MSO Only for a 50K HHP City Telco Only for a 50K HHP City 100.00 200.00 80.00 150.00 60.00 100.00 40.00 20.00 50.00MN RMB MN RMB Revenue Revenue 0.00 Cos t Cos t 1 2 3 4 5 6 7 8 9 10 Net CF Net CF 0.00 (20.00) 1 2 3 4 5 6 7 8 9 10 (40.00) (50.00) (60.00) (100.00) (80.00) (100.00) (150.00) Year Year 10 Year NPV= -82.42 M RMB 10 Year NPV= 19.43 M RMB 400.00 300.00 200.00 100.00 MN RMB Revenue Cos t Net CF 0.00 1 2 3 4 5 6 7 8 9 10 (100.00)  10 Year NPV= 262.96 M RMB  262.96M RMB = 3 x 87.65M RMB (200.00) (300.00) Year Proprietary Information Property of Morning ForestTM LLC 26
    27. 27. SCALE UP One 50K HHP City Ten 50K HHP City 400.00 4,000.00 300.00 3,000.00 200.00 2,000.00 100.00 mm RMB RevenueMN RMB Revenue Cost 1,000.00 Cost Net CF Net CF 0.00 1 2 3 4 5 6 7 8 9 10 0.00 1 2 3 4 5 6 7 8 9 10 (100.00) (1,000.00) (200.00) (300.00) (2,000.00) Year Year 10 Year NPV = 262.96 M RMB 10 Year NPV = 3,724.13 M RMB Proprietary Information Property of Morning ForestTM LLC 27
    28. 28. SHARED VALUE Tiered VoIP Advanced Video HSD BasicMSO/Telco Operation Cost Value-added Volume efficiency Shared services Solution Fee Revenue Lower cost based on scale & efficiency Volume & LT commitments Our JV BasicVendors Cost Local Manufacture Local support Proprietary Information Property of Morning ForestTM LLC 28
    29. 29. SHARING REVENUE & COST Install Install Video 1% 1% 11% Network 31% Voice 48% CPE 54% Data Platform 40% 10% OSS/BSS 3% Interconnect 1% MSO Telco JV Revenue Video, HSD, VoIP Video, HSD, VoIP Video, HSD, VoIP Network, Platform, CPE, CPE, Platform, Platform, OSS/BSS, Cost Install Interconnect OperationProprietary Information Property of Morning ForestTM LLC 29
    30. 30. BENEFIT ALL Revenue Voice 263.86 HSD 215.70 Video 61.03 Total 540.59 Cost Network 22.99 Platform 7.69 OSS/BSS 2.47 Interconnet 0.48 CPE 39.18 Install 0.92 Total 73.73 Net 466.86Revenue Voice 52.77 Revenue Voice 158.32 Revenue Voice 52.77 HSD 64.71 HSD 64.71 HSD 86.28 Video 36.62 Video - Video 24.41 Total 154.10 Total 223.03 Total 163.46Cost Network 22.99 Cost Network 0.00 Cost Network 0.00 Platform 3.84 Platform 1.54 Platform 2.31 OSS/BSS 0.00 OSS/BSS 0.00 OSS/BSS 2.47 Interconnet 0.00 Interconnet 0.48 Interconnet 0.00 CPE 19.59 CPE 19.59 CPE 0.00 Install 0.46 Install 0.46 Install 0.00 Total 46.88 Total 22.07 Total 4.78Net 107.22 Net 200.96 Net 158.68 MSO Telco JV Proprietary Information Property of Morning ForestTM LLC 30
    31. 31. LONG TERM BUSINESS Foreign Local ISPs Production Production China content, Content aggregation service, goods & packaging in US Service Service Aggregation & Aggregation & Management Operation and Management Management• New development• Resorts System Integration China Broadband Net• Hotel Technology development China Broadband LabProprietary Information Property of Morning ForestTM LLC 31
    32. 32. BUSINESS SOLUTIONSEfficient content aggregation Local Content aggregation Production & packaging Foreign Production Telecom & CBN Stations ISPs networks GW Service Aggregation • Scale-based operation • Enable triple-play & Management RDC System Integration Low-cost solution City Ring HFC HFC vendorvendor vendorvendor HFC HFC HFC Volume purchasing MSO #1 MSO #2 MSO #3 Proprietary Information Property of Morning ForestTM LLC 32
    33. 33. Thank You 33

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