chinatel presentation - rodman & renshaw - 09.2010
DESCRIPTION
ChinaTel Group (CHTL) investor presentation from Rodman & Renshaw Show in New York City, 09.2010. George Alvarez, ChinaTelTobin Smith, Next Big Thing GroupTRANSCRIPT
Deploying The Largest Broadband
Network in The World!
ChinaTel Group, Inc. History
• In June of 2008 ChinaTel Group entered into Agreements to purchase 49% of CECT- Chinacomm– ChinaTel also entered into Service and Equipment Agreements– CECT-Chinacomm owns 3.5GHz Spectrum in 29 of China’s Largest
Metropolitan Cities• In July of 2008 ChinaTel financed and launched a WIFI Mesh
network in Beijing– This allowed CECT to renew 3.5GHz Spectrum in 29 of China’s Largest
Metropolitan Cities• In March of 2009 ChinaTel acquires Perusat, which owns 2.5 GHz
Spectrum in Peru• In May of 2010 ChinaTel entered into Stock Purchase Agreement
with Isaac Organization for up to $640 million in stock and warrants• In August of 2010 ZTE and China Tel sign Memorandum of
Understanding for global strategic partnership
Corporate Structure
Financial Structure
ChinaTel’s WiMAX Evolution Route
ChinaTel’s LTE Evolution Route
Market Opportunity in China
Sources: CIA, EIU, City Mayor Statistics, and IMF
PopulationPopulation
2001-2006 GDP CAGR
2001-2006 GDP CAGR
GDPGDP
2006-2010E CAGR
2006-2010E CAGR
($ in trillions)
CECT Chinacomm Deployment Plan
• Network Feasibility for all 12 cities• Radio Frequency (RF) Engineering for all 12 cities
– Topographical and geographical coverage completed• Site Acquisition for all 12 cities
– 3 sites per search ring (Primary, B candidate, and C candidate)– Lease templates for primary candidates completed
• Construction Drawings for all 12 cities– Templates for all Primary candidates completed
• 2 Completed NOC(Network Operation Centers) in Beijing & Shanghai
• Switches and Data Centers are engineered but not built for all 12 cities
12 City (Phase I) Deployment Update for
CECT Chinacomm
12 City Deployment Completion Schedule
2010 2011 2012 2013 2014
Subscriber Revenue 0 63,638,400 192,231,360 270,804,600 367,836,000
Government Projects 0 6,000,000 20,000,000 30,000,000 40,000,000
Corporate Customers 0 7,500,000 20,000,000 30,000,000 40,000,000
12 City Deployment Revenues
2010e 2011e 2012e 2013e 2014e
(Users) (Users) (Users) (Users) (Users)
Phase 1
Beijing 0 142,000 351,000 480,000 656,000
ShangHai 0 162,000 400,000 546,000 747,000
ShenZhen 0 74,000 182,000 249,000 340,000
GuangZhou 0 87,000 216,000 295,000 404,000
NanJing 0 64,000 159,000 218,000 298,000
Sub Total 0 529,000 1,308,000 1,788,000 2,445,000
WuHan 0 72,000 178,000 244,000 333,000
ChongQing 0 47,000 117,000 159,000 218,000
Harbin 0 86,000 212,000 290,000 397,000
Xian 0 72,000 179,000 244,000 334,000
XiaMen 0 21,000 52,000 71,000 98,000
Sub Total 0 298,000 738,000 1,008,000 1,380,000
QingDao 0 66,000 163,000 223,000 305,000
KunMing 0 54,000 133,000 182,000 249,000
Sub Total 0 120,000 296,000 405,000 554,000
Total 0 947,000 2,342,000 3,201,000 4,379,000
12 City Deployment Subscribers
2010 2011 2012 2013 2014
Subscriber Revenues $0 $63,638,400 $192,231,360 $270,804,600 $367,836,000
Government Projects $0 $6,000,000 $20,000,000 $30,000,000 $40,000,000
Corporate Customers $0 $7,500,000 $20,000,000 $30,000,000 $40,000,000
Total Revenue $0 $77,138,400 $232,231,360 $330,804,600 $447,836,000
% Growth 201.06% 42.45% 35.38%
Operating Expenses
Cost of Service (IDC Costs and Technology-related Costs)
$2,490,000 $16,280,000 $17,304,000 $18,668,000 $20,716,000
Salaries & Non-wage Labor Costs $1,707,300 $22,302,216 $31,625,245 $45,932,942 $60,115,313
Direct Marketing & Sales Expense $318,192 $15,909,600 $48,057,840 $67,701,150 $91,959,000 Reseller Program Commissions $164,187 $16,418,707 $67,088,745 $86,386,667 $128,006,928 User Device Promotion Costs $296,300 $3,555,600 $3,555,600 $3,555,600 $3,555,600 Rental Expenses $670,000 $2,225,000 $3,024,000 $4,199,000 $5,660,000 Implementation Costs $28,762,091 $24,501,041 $0 $0 $0 Office Administration Expense $170,730 $2,230,222 $3,162,524 $4,593,294 $6,011,531 Sales Related Expense $108,000 $360,000 $360,000 $360,000 $360,000 Rent BTS/NOC $993,600 $2,016,000 $2,016,000 $2,016,000 $2,016,000 Other Operating Expense $1,512,000 $2,633,000 $2,338,000 $3,130,000 $3,693,000
Costs Before D&A $37,192,400 $108,431,385 $178,531,954 $236,542,653 $322,093,373 EBITDA ($37,192,400) ($31,292,985) $53,699,406 $94,261,947 $125,742,627 EBITDA Margin -40.6% 23.1% 28.5% 28.1%Depreciation & Amortization $7,908,355 $9,121,367 $9,121,367 $10,555,332 $12,108,795 % of Revenues 11.8% 3.9% 3.2% 2.7%Operating Income (EBIT) ($45,100,755) ($40,414,353) $44,578,039 $83,706,614 $113,633,833 Operating Margin -52.4% 19.2% 25.3% 25.4%
Interest Expense $4,500,000 $4,500,000 $4,500,000 $3,500,000 $2,500,000 Income Before Income Taxes ($49,600,755) ($44,914,353) $40,078,039 $80,206,614 $111,133,833 % of Revenues -58.2% 17.3% 24.2%
Income Tax Expense $0 $0 $0 $6,442,386 $27,783,458
Income Tax Rate 25% 25% 25% 25% 25%
Income Before Dividends and Extraordinary Items ($49,600,755) ($44,914,353) $40,078,039 $73,764,228 $83,350,375 % of Revenues (58.2%) 17.3% 22.3% 18.6%
Net Income Available to Shareholders ($49,600,755) ($44,914,353) $40,078,039 $73,764,228 $83,350,375 % of Revenues -58.2% 17.3% 22.3% 18.6% % Growth (189.2%) 84.1% 13.0%
12 City Deployment Income Statement
12 City Deployment CAPEX2010 2011 2012 2013 2014
1.BTS (960 sites, 1980 sectors)
$26,452,800 $0 $0 $0 $0
2.CPE (10440 units - Indoor & Outdoor)
$4,392,776 $3,714,224 $0 $0 $0
3.Backhaul (576 pairs) $2,218,715 $0 $0 $0 $0
4.ASN (12 Units) $1,558,119 $0 $0 $0 $0
5.AAA (650K users, 4 sites)
$1,253,801 $221,259 $0 $0 $0
6.Subscriber License (650K users, 4 sites)
$780,576 $137,749 $0 $0 $0
7.Network Management System (4 sites)
$1,624,565 $286,688 $0 $0 $0
8.Core Network $8,208,238 $0 $0 $0 $0
9.System Integration $9,532,480 $0 $0 $0 $0
10.Installed Material $4,767,680 $0 $0 $0 $0
11.Network Operation Center (4 sites)
$677,861 $406,717 $0 $0 $0
12 AP Manager(For CPE)
$1,000,000 $0 $0 $0 $0
13 Optical Layer Equipment
$13,524,053 $5,863,483 $0 $0 $0
14 Call Center $2,500,000 $1,500,000 $0 $0 $0
18 Spares $591,889 $0 $0 $0 $0
19 Network Maintence $14,339,651 $15,534,622
Annual CapEx $79,083,552 $12,130,120 $0 $14,339,651 $15,534,622
Perusat Deployment Plan
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7Ending Subscribers 5,000 38,650 192,331 400,655 616,642 833,630 1,025,689
% Growth 673% 398% 108% 54% 35% 23%
Net Adds 5,000 33,650 153,681 208,324 215,987 216,988 192,058Monthly ARPU Net Subscriber $15.22 $15.91 $16.07 $21.23 $22.12 $21.23 $20.46
% YOY Change 4.5% 1.1% 32.1% 4.2% (4.0%) (3.7%)
EBITDA/Sub. ($) ($1,152.13) ($218.66) ($31.60) $97.04 $132.53 $135.09 $132.42
Cum. CapEx/Sub.($)
($894.34) ($427.07) ($149.22) ($100.96) ($81.25) ($73.31) ($68.30)
Perusat Financial Forecast
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Subscriber Revenues $913,461 $7,377,515 $37,098,561 $102,052,276 $163,707,314 $212,410,097 $251,806,200
Total Revenue $913,461 $7,377,515 $37,098,561 $102,052,276 $163,707,314 $212,410,097 $251,806,200
% Growth 707.6% 402.9% 175.1% 60.4% 29.7% 18.5%
Operating Expenses
Cost of Service (IDC Costs and Technology-related Costs) $1,468,699 $7,531,871 $29,990,062 $47,212,230 $61,585,151 $75,692,107 $88,456,154
Salaries & Non-wage Labor Costs$697,554 $1,085,886 $1,961,600 $2,033,409 2,043,917
$2,043,917 $2,043,917
Direct Marketing & Sales Expense$2,235,000 $3,924,313 $3,762,000 $3,694,800 $4,732,000 $5,163,000 $5,535,000
Reseller Program Commissions $114,016 $703,420 $3,017,160 $2,975,260 $3,192,298 $2,950,923 $2,707,759
Promotion Costs $562,000 $656,000 $656,000 $721,600 $793,760 $873,136 $960,450
Rental Expenses $453,000 $540,000 $632,000 $732,000 $878,400 $1,054,080 $1,264,896
Implementation Costs $326,000 $324,000 $356,400 $392,040 $431,244 $474,368 $521,805
Other SG&A Expense $835,844 $1,063,279 $2,801,511 $5,410,103 $8,329,480 $11,540,044 $14,490,227Other Operating Expense (One-time Expenses)
$0 $0 $0 $0 $0 $0 $0
Costs Before D&A $6,674,113 $15,828,768 $43,176,733 $63,171,441 $81,986,251 $99,791,575 $115,980,208
EBITDA ($5,760,652) ($8,451,253) ($6,078,172) $38,880,835 $81,721,063 $112,618,522 $113,825,992
EBITDA Margin -630.6% -114.6% -16.4% 38.1% 49.9% 53.0% 53.9%
Depreciation & Amortization $223,585 $1,026,542 $2,135,284 $3,118,952 $3,877,178 $4,522,643 $5,067,757
% of Revenues 24.5% 13.9% 5.8% 3.1% 2.4% 2.1% 2.0%
Operating Income (EBIT) ($5,984,237) ($9,477,795) ($8,213,456 $35,761,883 $77,843,885 $108,095,879 $130,758,235
Operating Income Margin -655.1% -128.5% -22.1% 35.0% 47.6% 50.9% 51.9%
Interest Expense/Financing $1,567,711 $824,169 $729,098 $888,498 $1,030,246 $1,204,580 $1,239,007 Total Other Expense (Income) $1,567,711 $824,169 $729,098 $888,498 $1,030,246 $1,204,580 $1,239,007 % of Revenues 171.6% 11.2% 2.0% 0.9% 0.6% 0.6% 0.5%
Income Tax Expense $0 $0 $0 $0 $3,584,764 $20,171,748 $25,477,877
Income Tax Rate 30% 30% 30% 30% 30% 30% 30%
Income Before Dividends and Extraordinary Items
($7,551,948) ($10,301,963) ($8,942,554) $34,873,386 $73,228,875 $86,719,550 $104,041,350
% of Revenues -826.7% -139.6% -24% 34.2% 44.7 % 40.8% 41.3%Net Income Available to Shareholders
($7,551,948) ($10,301,963) ($8,942,554) $34,873,386 $73,228,875 $86,719,550 $104,041,350
% of Revenues -826.7% -139.6% -24.1% 34,2% 44.7% 40.8% 41.3%
Net Income Available to Shareholders
($7,551,948) ($10,301,963) ($8,942,554) $34,873,386 $73,228,875 $86,719,550 $104,041,350
% of Revenues -826.7% -139.6% -24.1% 34.2% 44.7% 40.8% 41.3%
% Growth 110.0% 18.4% 20.0%
Perusat Income Statement
2010 2011 2012 2013 2014 2015 2016BTS-Equipment, Install, RF Planning (727sites)
$2,378,517 $7,135,551 $6,184,144 $5,042,456 $4,519,182 $5,470,589 $3,853,198
CPE Units $531,000 $3,870,000 $16,956,000 $22,311,000 $19,690,000 $17,130,000 $16,386,000
Local Microwave-Equipment, Install, Design (909 radios) $629,313 $1,887,938 $1,636,213 $1,334,143 $1,195,694 $1,447,418.75 $1,019,486.25
WIMAX System Equipment-Core, Billing, Spares, Warranty $1,353,863 $1,286,131 $2,692,946 $3,499,014 $3,911,937 $4,043,035.15 $4,013,040.47
Offices and Data Center $0 $1,500,000 $1,680,000 $1,800,000 $0 $0 $0
Vehicles$75,000 $225,000 $0 $75,000 $25,000 $50,000 $50,000
Frequency Acquisitions $0 $5,000,000 $0 $0 $0 $0 $0
Annual CapEx+CPE Terminals $4,967,693 $20,904,62
0 $29,149,302 $34,061,612 $29,341,813 $28,141,843 $25,321,724
Projected Capital Expenditures + CPE Terminals
Strategic Partnerships
Summary• CECT-Chinacomm has both the 3.5GHz
spectrum licenses and the business license to
deploy fixed Broadband technology in 29 cities
in China representing 50% of Chinese GDP
• ChinaTel through Perusat owns 2.5GHz
spectrum licenses for 7 cities in Peru
• 4th Generation Broadband presents an
opportunity for investors to ride the next wave
of capital investment that service providers
will deploy globally
• The Broadband market in China is projected to
grow almost seven-fold and three-fold in Latin
America between 2009 and 2011.
Disclaimer
China Tel Group, Inc (the “Company”) is an emerging growth company
involved in the planned development and deployment of
telecommunications infrastructure. This presentation covers a number
of aspects of the business with which they are currently engaged. This
presentation is for informational purposes only and does not
constitute an offer or solicitation. Furthermore, all information
contained in this presentation is believed to be accurate and
constitutes confidential information of the Company. Any
reproduction or distribution of this presentation, in whole or in part,
or the divulgence of any of its contents without the written consent of
the company is strictly prohibited.
Safe Harbor Statement
This presentation may contain forward-looking statements or information. Forward- looking statements
or information include statements regarding the expectations and beliefs of management. Forward-
looking statements or information include, but are not limited to, statements or information with respect
to known or unknown risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking statements or information.
Forward-looking statements or information are subject to a variety of risks and uncertainties which could
cause actual events or results to differ from those reflected in the forward-looking statements or
information, including, without limitation, risks and uncertainties relating to obtaining financing to meet
the Company’s current or future plans and other risks and uncertainties. Accordingly, readers are advised
not to place undue reliance on forward-looking statements or information. The Company does not
undertake any obligation to release publicly revisions to any “forward-looking statement,” to reflect event
or circumstances after the date of this presentation, or to reflect the occurrence of unanticipated events,
except as is required under applicable securities laws.