ArianeCorp is an independent provider of ultra high-capacity data networks  to service providers and large business users in China's fast growing telecoms and data markets.

In step with its strategic intent to enter a new core high growth business, ArianeCorp ("AC") completed the acquisition of a Chinese fibre network business in July 2004. The acquisition of this business marks AC's first step towards re-igniting growth via exposure to a rapidly growing industry underpinned by strong economic growth in Eastern China and a substantive shift towards the use of Internet Protocol (IP) fibre backbone for data, voice and video transmissions.

The acquisition came at a time when China's data market has been growing at double-digit rates, reflecting strong economic growth in China and an upsurge in IP-based data communication between China and the rest of the world. Yet the China market is still in its infancy and offers immense growth potential as internet penetration grows from a low current base of 4% and demand for broadband services continues to accelerate.

The consideration paid for the acquisition represents a fraction of the estimated replacement cost of the network, enabling the group to offer competitive pricing as it enters the market.

Key Features :

• Among the first independent provider of ultra high capacity networks to service providers and large business users in China telecom markets.
  
  
• Our business offers tailored, low cost, comprehensive pan-China and global data transport solutions at wholesale prices to large business customers, a niche not targeted by incumbent telcos in China who are focused on mass markets and end user services.
  
  
• Comprehensive connectivity is achieved through inter-connecting its trunk (inter-city) networks with global (international) networks through Global Crossing's fibre cables and with metropolitan area (intra city) networks integrated within the same ducting system to reach target customers in business and industrial centres of 163 cities throughout China.
  
  
• Initial goals already achieved with key partnerships in place with Chinese Citic and American United Fibernet, Japanese Universal Data Telecoms / Mobile Pro Corp.
  
  
• Low acquisition cost, low-cost outsourced operating model and partnership model offer competitive advantages, permitting rapid and cost effective market penetration.
  
  
• Conditional revenue contracts of US$11.5m signed. Business expect to generate positive returns from first year of operation / substantial room for aggressive growth.

The Pan-China Network with its Global and Last Mile Inter Connections

The fibre network business controls and operates an 11,119km two-core high bandwidth trunk optical network (“China Fibre Network”) covering 13 provinces and 74 principal cities in rapidly growing eastern China (including Shanghai, Beijing, Guangzhou, Shenzen, Harbin, Changchun, Shenyang, Shijiazhuang, Jinan, Zhengzhou, Wuhan, Changsha, Nanjing, Heifei, Hangzhou and Fuzhou.)

The China Fibre Network is able to inter-connect with global fibre networks through a cooperative agreement between its strategic partner United Fibernet (“UFN”) and Global Crossing.

In addition, the China Fibre Network is also able to reach its target customers through near-seamless interconnection to a web of 14,584km optical Metropolitan Area Networks (MANs) situated in 163 cities across 30 provinces in China. The access to the optical MANs was made available through a cooperative agreement signed between the Company's telecom operating unit: Guangzhou Ariane Telecom Technology Co., Ltd (“GAT”) and the Guangzhou Military Telecom-Support Unit (“GMTSU”).

The interconnection between the trunk networks and the MANs is near seamless because both networks were designed and constructed as one integrated fibre system by GMTSU since 1996. The fibres of both networks were put through the same ducting system and managed by the same array of network control centres.

The design of the MANs follows the city road network within each of the 163 cities. The fibres of the MANs reach the telecom switchboxes (called Multiple Distribution Frames or MDFs) located along the major roads in Central Business Districts (“CBDs”) or industrial parks in China. Most buildings in major Chinese cities nowadays possess ready-built fibre connections to the nearest MDFs along the roads. Through interconnecting with the MANs via the roadside MDFs, GAT now has near-seamless last mile connections to corporate customers in the connected buildings. This “direct last mile” route is a highly strategic alternative, which obviates the need for the last mile routes controlled by incumbent telecom operators.

Alternatively, GAT can tap on last-mile options offered by several telecom operators (“telcos”) and choose the most cost-effective option. Under the cooperative agreement signed with GAT, GMTSU will facilitate any collaboration, if necessary, between GAT and telcos (such as China Telecoms, China Netcom, Citic Networks) to inter-connect GAT's networks with other telcos' MANs to complement the MANs provided by GMTSU. GMTSU is in a good position to facilitate such collaborations as it has established technical and business relationships with many of the major telcos in China.

Business structure & Business model

The fibre network business is operated by a local company, Guangzhou Ariane Telecom Technology Co Ltd ("GAT"), which holds legal title to the fibre network. ArianeCorp effectively controls the economic benefits of the assets held under GAT through an exclusive 20 year technical service agreement and a call option agreement with ArianeCorp's wholly owned subsidiary in China.

GAT will provide wholesale, low-cost high-speed data transport to service providers, ISPs, telcos and large corporations with own IT service unit - including Chinese and Foreign corporations and data centres operators looking to lower the deployment cost of high-speed data transmission, and foreign telcos / ISPs looking to penetrate Chinese markets using a low cost high bandwidth fibre network.

The business has adopted a low cost model, outsourcing maintenance functions and leasing rather than operating costly network operating centres . Through this, and by utilising key partners (including Citic Networks and United FiberNet ), the company has been able to lower costs and is therefore able to offer highly competitive pricing and flexible solutions to a broad range of customers differentiating the company from traditional capital-intensive fiber network owners and offering critical advantages in a market dominated by traditional state telcos offering mid-quality services and low flexibility to customers at high prices.

Business and Operations Update

The network is expected to commence service to customers in 2005. The fibre optics network will commence service to customers only after required telecommunication equipment has been installed and tested on the network. The process and time taken to activate the fibre optics network for customer services and revenue will depend on the effectiveness in collaboration between our telecommunication unit GAT and its cooperative partners as well as the time taken to gain revenue contracts for the activated fibre segments.