FAQ

China Wi-Max Communications, Inc. Frequently Asked Questions

1. What is the competitive advantage of China Wi-MAX?

The principle competitive advantage is owning and operating network assets, fiber and licensed wireless spectrum, inclusive of direct connection to commercial buildings, thereby bypassing the local private/state owned telecom monopolies in China. The second major advantage is using best practices, from the Company’s experienced US telecom and Internet executives; CHWM is building a higher quality of service than the monopoly carriers or other nascent competitors.

2. What structure is necessary for operating in China?

Foreign investors may own up to 49% in basic telecommunication enterprises and up to 50% of value-added telecommunication enterprises. Where a US company (CHWM) controls 100% of a Wholly Owned Foreign Entity (WOFE) that operates through a 49% or 50% ownership of Chinese Companies. It is important to understand that China Wi-MAX operates with full control of the services it offers in China.

Da Chuan and Shi Dai are wholly owned foreign entities and will each have a contractual relationship with Goa Da, which will be 50% owned, directly or indirectly, by China Wi-MAX. In addition, Goa Da’s board of directors will be comprised of three persons, two of whom will be the Chairman and CEO of China Wi-MAX. Goa Da will enter into “exclusive” contracts with each wholly owned foreign investment so that the benefits it gains or receives in any agreements it enters into (in a joint venture capacity, for example) will be for the benefit of one or both of the wholly owned foreign entities.

China Wi-Max maintains operational control through permitted percentages of ownership and contractual agreements while meeting People’s Republic of China foreign investment guidelines. In combination with strict adherence to GAAP, CHWM maximizes recognition of revenue.

3. What has happened competitively since 2001?

Since 2001 the Peoples Republic of China (PRC) has provided near monopoly protection of China Telecom and China Unicom. The PRC has really postured openness through the WTO through small wholly owned foreign entities such as China Wi-MAX or ChinaTel Group (CHTL) while attempting to strengthen its state owned monopolies through consolidations and restructuring. In terms of China Wi-MAX’s status, we know that right people and methods of doing business, with the encouragement of the PRC. China Wi-MAX is sighted to the WTO by the PRC as evidence of the openness of the telecom market in China

4. What Wi-Max technology is being licensed?

WiMax, also known as IEEE 802.16, has been established as a worldwide standard for wireless “metropolitan area networks”. Wi-Max operates on both licensed and non-licensed frequency spectrums. Licensed spectrum provides a regulated, protected use, environment enabling a sustainable business model for CHWM. In China, the 5.8 GHz spectrum is regulated and “Licensed”. Gao Da Yang Guang Communications Technology, China Wi-MAX’s partner, at the present time, is the only company in Beijing that we are aware of with more than 20 MHz bandwidth within the 5.8GHz spectrum, a significant market advantage for China Wi-MAX.

5. Are wireless licenses exclusive, what sort of cancellation policies do they include and at whose option?

China Wi-MAX, through Gao Da Yang Guang Communications Technology, has a general (non-exclusive) license to operate in the 5.8 GHZ spectrum defined as 5725MHZ – 5850MHZ in Beijing, and Shanghai. Based on the general license, China Wi-MAX holds exclusive licenses for bands of 20MHZ – 30MHZ in each market. Additional bands can be added at will based on the general license pending testing and registration. The licenses are for a period of one or two years and renew for a nominal fee. As in the United States, licenses are considered perpetual once granted and maintained in use.

6. How much does the bandwidth licensing cost annually?

China Wi-MAX wireless licenses have no significant annual or other renewal costs. Annual fees are relatively modest and vary depending upon location and local rules and customs.

7. There are already companies doing this in China – what sets China Wi-Max apart?

China Wi-Max has taken a thoughtful and cost effective approach where others have spent literally hundreds of millions of dollars and achieved less than CHWM has accomplished with less than $4.5M invested to date. China Wi-MAX has acquired a fiber and wireless network in Beijing, a fiber network in Hangzhou, a wireless network in Shanghai, and has optioned the purchase of an additioanl fiber network in Shanghai. With the right contacts coupled with understanding the method of business, as it is done in China, the Company is far ahead of even large international telecom companies.

8. How much Fiber bandwidth is presently located in major Chinese cities?

In general, most fiber in China dates from ten years ago, originally built by US Contractors, for the PRC/Army. Most of the initial builds were 96 or 144 strand fiber. Laterals are usually 12 to 24 strands, built and owned by smaller authorized telecom fiber builders.

It is important to understand that a fiber network ring typically requires two pair (4 fibers) capable of supporting from 1Gbs, 10Gbps, 40Gbs, and soon 100Gbs, per pair or per wave with multiplexing – up to 120 waves with DWDM. The more important bandwidth consideration is the utilization of backbone fiber to lateral distribution points. Backbone fiber networks cannot be build with large number of directly accessed/tapped points on the fiber. Further use of backbone fiber to build access networks (interconnecting rings) significantly reduce fiber availability.

9. What is the build out time line, by whom and what is the lead time?

To our knowledge there has been no significant build out since that time – other than building the laterals from the backbone fibers to distribution points to existing and new building construction. In the later case (last mile) the builds are convoluted with a number of small construction companies or in some cases small ISPs with exclusive laterals to sections of the city and buildings have gained contracts from incumbents such as China Telecom or China Unicom. In fact, owners of last mile fiber are potential partners of China Wi-MAX or candidates for acquisition.

The time to build and difficulty in building a full network inclusive of backbone and laterals is formidable. This is why CHWM strategy includes partnerships or acquisitions of local lateral providers or deploys 5.8 GHZ wireless network extensions to rapidly build or service buildings.

10. What barriers to entry are present that would prevent potential competitors from entering the market?

The importance of the regulatory regime cannot be underestimated in China, where political and commercial considerations are closely intertwined. China Wi-Max has the necessary assets, subsidiaries, licenses, contracts and agreements to be a leading Chinese value added telecommunications provider. Lacking the knowledge, contacts, and experience in China of China Wi-MAX’s executive team, is the single greatest barrier for potential competitors.

11. Does CHWM have any notable IP or proprietary technology?

No. However, the Company has hired and retained an extremely experienced group of U.S.-based senior executives. China Wi-MAX is building a higher quality of service than the monopoly carriers in China based on expertise of best practices and innovation in a developing environment. Key executives bring nearly 150 years of telecom experience.

12. What is Wi-MAX and Why Does it Matter?

Wi-MAX hs the potential to radically change data transfer, which comprises everything apart from voice and text messages. Wi-MAX is signficantly faster than the 2G and 3G systems. Wi-Max represents a new class of data transfer. In the United States Sprint has only recently launched Wi-MAX services in seven metropolitan areas across New York and California, Oregon and Washington. The opportunity to deliver Wi-MAX in China in the same time frame that it is delivered in the United States gives China Wi-MAX a crucial advantage. Businesses are anticipated to be able to leverage increased speeds of up to 200 – 500% faster with Wi-MAX. The ability to handle both 3G and 4G seamlessly is crucial for applications such as video conferencing, video surveillance, Voice over IP, with advanced speeds, features and at a reduced cost.

Russia has 3G technology. With the recent implementation of 4G an addition of 400,000 subscribers were added within six months. The vast potential in terms of the scale of customers in China is anticipated to lead to a price advantage for Wi-MAX. Broadband penetration is typically accompanied by a rise in GDP.

13. Is China ready for Wi-MAX?

China’s unprecedented middle class growth has created solid demand. The middle class was virtually non-existent in 1995 and now represents and estimated 87 million. It is estimated that by 2015 the middle class will expand to 315 million.

Approximately 35 million urban households or roughly twenty percent reported incomes ranging from $6,000 to $25,000 USD. By 2015 it is predicted that group will expand to 101 million urban households.

Today the middle class represents 27% of China’s total urban disposable income and this is anticipated to rise to 40% by 2015.