THAMMASAT CONSULTING

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THAMMASAT CONSULTING

Agenda
• • • • • • • Company Profile Situation Analysis Issue Identification and Objectives Recommendation Financial Justifications Key Success Factor Conclusions

THAMMASAT CONSULTING

Company Profile
• • • Establish in 1993 Largest Mobile Phone Operator in Thailand Brand Portfolio

18% 59%

23%

• •

Plan to Acquire DPC at the end of 2001 Strong financial status

THAMMASAT CONSULTING

Situation Analysis
GROWING MARKET
INTENSE COMPETITION

Thailand Mobile Service Market
10000000 8000000 6000000 4000000
92% Growth in 2001

POSTPAID: 44% Growth PREPAID: 210% Growth

Combined Postpaid Prepaid
Prepaid: 14% of Total Market

2000000 Fast Growing Market 0 • Lower Handset Prices • Lower Airtime Charge 2000 2001 • 2006  Full Liberalization

2002

2003

THAMMASAT CONSULTING

Situation Analysis
GROWING MARKET

INTENSE COMPETITION

Price

AIS
DPC

ORANGE
Quality

THAMMASAT CONSULTING

Situation Analysis
GROWING MARKET

INTENSE COMPETITION

Market Share Financial Situation Marketing Position Network Coverage Pricing
THAMMASAT CONSULTING

57% Solid Superior Service Leader Standard

38% Overleveraged Value Alternative Follower Flexible
D-Max D-Medium D-Lite

Issue Identification
Current Situation Goal To Maintain Leading Position and Level of Market Share and Achieve Revenue of 84 Billion in the next years

Leader in Thai Mobile Phone Market with the Revenue of Bht 26 Billion

GROWING MARKET

INTENSE COMPETITION

How can AIS Capitalize on the Growing Market amid this Intense Competition
THAMMASAT CONSULTING

Strengthen Our Leadership Position

Service Standard

CORE

Value-Added

Marketing Strategies

THAMMASAT CONSULTING

Strengthen Our Leadership Position
Network Coverage and Quality Service Standard
CORE

Goal: Network Expansion : 2,975  9,512 Base Stations in the next 3 yrs How:

Value-Added

Marketing Strategies

• Acquire DPC • In-House Expansion

THAMMASAT CONSULTING

Strengthen Our Leadership Position
Supplement Services Service Standard “Always One Step AHEAD”
CORE

Value-Added

Non-Voice Features “Variety” Technology

Marketing Strategies

“Innovative” Customer Service “Customer Intimacy” - High Quality - Easily Reached

THAMMASAT CONSULTING

Strengthen Our Leadership Position Better
Network Coverage and Quality Service Standard
CORE

+
Supplement Services

Value-Added

=
Enhance AIS Competitive Edge

Marketing Strategies

THAMMASAT CONSULTING

Service Standard

Competitive Strength
HIGH

MEDIUM

Marketing Strategies

LOW LOW MEDIUM HIGH

Market Attractiveness

THAMMASAT CONSULTING

Capitalize on Market Growth
PRE-PAID Service
Service Standard

Rapidly Growing Prepaid 7000000 Market
6000000 5000000 4000000 3000000 2000000 Prepaid Postpaid

Marketing Strategies

210% Growth Objective: To Increase Number of Prepaid 1000000 Subscribers by 400% within 3 yrs 0
2000 2001 2002 2003 2004 2005

Capitalize on this Growth

THAMMASAT CONSULTING

Capitalize on Market Growth
PRE-PAID Service
Service Standard
Target Focus

Teenagers
Position

Trendy + Reasonable Price
Marketing Strategies
Offerings

•Budget Control Ride on• the Usage Low Rapid Growth • Easy Registration • Personal Info Conceal Wave Communication Message

• Competitive Pricing • Superior Quality • Attractive Promotion & Privileges • Special Offers within 1-2-Call Customer Group

1-2-Call, Smart Choice
Increase Number of Subscribers by 400%

THAMMASAT CONSULTING

Capitalize on Market Growth
POST-PAID Service
Service Standard

Large Customer Base & Growing Market

Marketing Strategies

Increase Number of Subscribers Number of Added Subscribers = 4 millions within 3 yrs

Increase Usage of Existing Customers RPC Increase 5% per year for the next 3 yrs

THAMMASAT CONSULTING

POST-PAID Service
Service Standard

Current Package

Standardized
Inflexible Pricing

Marketing Strategies

Proposing Package

Personalized

• Customer- Oriented Service • Strengthen Competitive Position Under Price Pressure
THAMMASAT CONSULTING

Capitalize on Market Growth
POST-PAID Service
Service Standard
Target Focus

Increase Number of Subscribers

Provincial Users
Position

To capitalize on • Large Portion Communication Message our superior • Untapped Market network coverage

“GSM Sawasdee”
To gain first mover’s • Generate Primary advantage • Demand User First Time Increase Number of Limited Budget Subscribers • •Create Awareness 1.76 M of GSM 4.9 M

Marketing Strategies

Superior Quality
Additional Offerings

Cheaper Handsets

THAMMASAT CONSULTING

Capitalize on Market Growth
POST-PAID Service
Target Focus

Increase Usage of Existing Customers

Service Standard

Bangkok Users
Position

Capitalize on our Existing Customers Advance Technology
Communication Message

Superior Quality

Marketing Strategies

Additional Offerings

Increase with AIS” “City LifeCustomer Loyalty

• Mileage Program • Mobile Internet Promotion Package

Increase RPC 8,600 B  9,500 B

THAMMASAT CONSULTING

Activities
2001 2002 2003 2004 2005

Network Expansion Acquire DPC In-House Expansion Supplement Services Setting and Training Testing Fully - Functional Marketing Campaigns Preparation Launch Follow-Up

THAMMASAT CONSULTING

Financial Justification
2000
Service Revenue Growth (Billions Baht)

2001F 38.71

2002F 62.21

2003F

2004F

2005F 123.56

26.2

83.76 105.52

Service Revenue Growth
140,000,000,000 120,000,000,000 100,000,000,000 80,000,000,000 60,000,000,000 40,000,000,000 20,000,000,000 0 2000 2001F 2002F 2003F 2004F 2005F

372% Growth over 5 years Quality Superiority Increase RPC Industry Growth

THAMMASAT CONSULTING

Financial Justification
2000
Net Income Growth (Billions Baht)

2001F 8.7

2002F 12.3

2003F 15.75

2004F 19.39

2005F 22.57

6.6

Net Income Growth (Baht)
25,000,000,000

20,000,000,000

277% Growth over 5 years Economy of Scale

15,000,000,000

10,000,000,000

5,000,000,000

Growth in Sales
2000 2001F 2002F 2003F 2004F 2005F

0

THAMMASAT CONSULTING

Cost Estimation & ROI
Capital Investment Increase in Network Coverage Investment in Cell phone Agreements Expansion of Capacity (Includes DPC) 10 Billions Baht 76.5 Billions Baht 7 Billions Baht

Long-Term Obligations 9.5 Billions Baht The rest can be financed by Internal generated fund

Total Capital Investment (5 years) = 93.5 Billions Baht

On-Going Expenses Technological Improvement Employee Training Incremental Marketing Expenses Quality Maintenance Improvement 70 Millions / Year 20 Millions / Year 80 Millions / Year 30 Millions / Year

NPV = 13.91 Billions IRR = 12.04% PI = 1.18 PBP = 3.83 Years

Total On-Going Expenses = 200 Millions per Year

THAMMASAT CONSULTING

Key Success Factor
Innovative Marketing Strategies

Competitive Pricing

Value-Added Service

THAMMASAT CONSULTING

Conclusions

Service Standard

CORE Supplementary

To Strengthen Leadership Position

Marketing Strategies

1-2-Call Teenagers GSM 2 Watt Provincial User Bangkok User

To Capitalize on Market Growth

To Maintain Leading Position and Level of Market Share Amid this Intense Competition and Achieve Revenue of 84 Billion in the next 3 years
THAMMASAT CONSULTING

Advance Info Service
Public Company Limited
Chananun - Panthira - Pantharee - Tanwa

THAMMASAT CONSULTING

Backup

THAMMASAT CONSULTING

Strengthen Our Leadership Position
Network Coverage and Quality Service Standard
CORE

AIS: Competitive Value-Added Strength Quality Digital
Subscribers Marketing Strategies
2000000 1800000 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0

Goal: Network Expansion : 2,975  9,512 Base Stations in the next 3 yrs

System that Best Satisfies the HIGH Users’ Need

Number of subscribers

MEDIUM
NMT GSM

Ju

LOW

Months

NMT as a Dying Technology

X
LOW

X
MEDIUM HIGH

00

S ep t O ct N ov D Ja ec n 20 01 Fe b M ar A pr il M ay Ju ne

ne 20

ly A ug

Ju

Market Attractiveness

THAMMASAT CONSULTING

Backup Navigator
Pre-paid • 1-2-Call: Smart Choice Post-paid • GSM 2 Watt : Proposed Personalized GSM customers package • GSM: City-life • GSM Sawasdee • Customer retention program (Post paid) • DPC/GSM 1800 : Advantages for acquiring DPC • Why Convert GSM 1800 to GSM 2 WATT? • Cellular 900: Why divest Cellular 900? • Exit Strategy for Cellular 900 Competitive Environment • Competitive Landscape after 2006 • Price war? • Price war • During Price War

THAMMASAT CONSULTING

Finance Back up
– – – – – – – – – – – – Sales Growth Justification Market Share Projection Net Income Justification Capital Expenditures Logic of the financing alternatives Long-term obligations Justification Important Ratios Return on Investment Merger with DPC – Financial Perspective Dtac Financial Situation Revenue Structure by Geography Number of Subscriber Structure between Pre and Post paid

THAMMASAT CONSULTING

Back Up

1-2-Call: Smart Choice
• Offerings
– Attractive Promotion and Privileges

• Promotion: Shop Discounts • Privileges: Unique promotion to access certain GSM-2-WATT Technology Services

– Special Offers within 1-2-call Customer Group

• Lower Airtime and SMS within the same network • Referral Bonus Point  Airtime Bonus

THAMMASAT CONSULTING

Back Up Proposed Personalized GSM customers package

• Usage – The more the customers use the less they pay
• Platinum
– Heavy users

• Lifestyle
– Match with customer every activity
• Classic
– Offer simple voice service – Minimize technology feature

• Gold
– Medium users

• Hip
– Focus entertainment, shopping, news update

• Silver
– Light users

• Business
– GPRS, news update, Mobile banking

THAMMASAT CONSULTING

Mix and match usage and lifestyle

Back Up

GSM: City-life
Communication strategy • Target  Bangkok people • Message  “city life by AIS” • Communication channel Newsletter, Web-site, Billboard, BTS • Offer  GPRS, Shopping on-line, mobile banging, news update

THAMMASAT CONSULTING

Back Up

GSM Sawasdee
• • • • • Generate primary demand Partnership with Nokia to provides cheaper handset Increase dealership through Modern trade Focus on core service and simplicity Criteria in prioritizing
– Number of Population – Mobile phone usage growth

• Marketing channel
– Event marketing (Fun Fair) – Sponsorship
THAMMASAT CONSULTING

Back Up Customer retention program (Post paid)

• Mileage program
– Redeem point for AIS special gift

• AIS family program
– Special promotion for old customers – Get to join special that AIS set up

• AIS membership card
– Discount with partner stores – Special privilege

THAMMASAT CONSULTING

Back Up

Advantages for acquiring DPC
• Maintain leading position • Increase network coverage • Increase subscribers

THAMMASAT CONSULTING

Back Up Why Convert GSM 1800 to GSM 2 WATT?

• Low brand equity
• Irrelevant image to premium image of AIS (GSM 2 WATT, 1-2-Call)

perceptual map
• Benefit to prior GSM 1800 customers
– – Better quality of voice transmitted Value added service from established technology of GSM 2 WATT (GPRS) More effective resource utilization

Benefit company

THAMMASAT CONSULTING

Back Up

Brand Portfolio
Competitive Strength Quality

AIS: Digital System that Best Satisfies the HIGH Users’ Need

Subscribers
Number of subscribers 2000000 1800000 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0
00 ly A ug ne 20 Ju

MEDIUM
NMT GSM

Ju

LOW

Months

NMT as a Dying Technology

X
LOW

X
MEDIUM HIGH

S ep t O ct N ov D Ja ec n 20 01 Fe b M ar A pr il M ay Ju ne

Market Attractiveness

THAMMASAT CONSULTING

Back Up Exit Strategy for Cellular 900

• • •

Majority = provincial users Fit well with our proposed GSM 2 WATT campaign Strategy: Transfer Cellular 900 customer to GSM 2 WATT customer
– 1st step – communicate the “Better Service Offer” of the new system + create GSM 2 WATT brand awareness through mailing brochure – 2nd – Provide alternatives of keeping the same promotion package or the new package offered to existing GSM 2 WATT customers – 3rd – Divest Asset

Time estimation: 2 years

THAMMASAT CONSULTING

Back Up

Competitive Landscape after 2006
• 2006 = Full Liberalization • More Players Both Domestically and Internationally • Decreasing in Airtime Rate • Advantage to Consumers • Price = Unavoidable tool to compete
– Therefore, Benefits to AIS in terms of low-cost operation that stems from its economy of scale

THAMMASAT CONSULTING

Back Up

Price war  Cut Price?
Price war is unavoidable • • AIS will not initiate price cut Will Make Price adjustment according to market change

Will we continue to cut price even though it is below cost? • • YES, to Keep Leadership position in terms of Market Share However, Due to DTAC’s lower Economy of Scale and Weak Financial Position, We well definitely be the sole survivor of the game

THAMMASAT CONSULTING

Back Up AIS Strategy to Cope with Price Pressure from Liberalization in 2006

Goal: Maintaining Level of Market Share despite the decreasing Revenue per Unit from Price Pressure

HOW • Maintain Superior Quality + AIS’s Customer Retention Program • Boost Revenue per Unit from Non-Voice features (Long term Plan : Starts “Now” from our strategy to create awareness+need)
– Aggressive marketing strategy of Messaging, Gaming, Shopping – Focus on value added service – Provides innovative technology

THAMMASAT CONSULTING

Back Up

Maintain Premium Image during Price War
Will it hurt our Premium Image?
Price

AIS
Quality Gap

ORANGE

Quality

No. We will maintain the “Superior” Service and Slightly Higher Price at all time.
THAMMASAT CONSULTING

Back Up Sales Growth Justification
Jun-01 5,315,0 89 3,029,3 00 56.99% 2001 7,220,000 4,476,400 0.62 8,648 38,711,90 7,200 91.84% 48% 2002 11,050,000 6,851,000 0.62 9,080 62,209,820, 400 53.05% 61% 2003 14,170,000 8,785,400 0.62 9,534 83,763,693, 468 28,24% 35% 2004 17,000,000 10,540,000 0.62 10,011 105,517,426, 140 19.97% 26% 2005 18,959,000 11,754,580 0.62 10,512 123,560,59 5,665 11.52% 17%

Number of Customer AIS of Customer AIS Market Share AIS RPC Service Revenue Industry Growth % Revenue Growth %

• The Revenue per customer will increase year by year due to our campaign to increase the frequency of the usage. • Our strategy will not have a full effect in the second half of the first year, causing our revenue growth to be lower than that of the market • However, from there on we’ll beat the market growth in the coming years

THAMMASAT CONSULTING

Back Up Market Share Projection
Jun-01 AIS Market Share Dtac Market Share Orange Market Share 57% 38% 0% 2001 62% 38% 0% 2002 62% 37% 1% 2003 62% 35% 3% 2004 2005 62% 62% 32% 28% 6% 10%

• Orange will enter the market in 2002 • We’ll be able to maintain our market share, however increasing it would be extremely difficult, due to orange. • The result will be Dtac and Orange compete with each other for a piece of the pie

THAMMASAT CONSULTING

Back Up Net Income Justification

• The growth is mainly the result from the calculation following the TR • The economy of scale will allow us to improve margin over time, however it will be offset by the competitive pricing, thus the economy of scale will not show the full effect on gross margin. • However, the net income will grow slower than the sales due to the cost of our recommendation and the incremental interest expense from our loans. 2001 Net Income Growth 32% 2002 41% 2003 28% 2004 2005 23% 17%

THAMMASAT CONSULTING

Back Up Capital Expenditures
2001 Increase in PPE
Investment in Cellphone Agreement

2002 3.1B 11.4B

2003 3.5B

2004 4.2B

2005 4.3B 23.2B

1.8B 9.0B

14.5B 18.3B

• We calculated the increase in PPE based on the percentage of 2000 sales as they say they are full capacity in 2000. So increase in PPE along with the increase in number of subscribers. • Also, more subscribers means that we have to by more signal channel from the authority. As of 2000, it is the most significant non-current asset. We believe that we must invest more in this Cellphone Agreement as our number of subscriber increase.

THAMMASAT CONSULTING

Back Up Logic of the financing alternatives
• The forecast method is based on the both the OCF and the AFN 2001 Capital Needed OCF
Cash needed to support operation

2002 14.5B 14.6B 1.8B

2003 18B 18,6B 1.8B

2004 22.4B 22.8B 1.9B

2005 27.5B 26.5B 1.8B

10.8B 10.4B 1.7B

• All in all, we’ll have about 83.92B in OCF to pay for the investment. • However, the total investment will need 93.36B to finance. • Therefore, we need about 9.45B from external financing to finance our Capital Expenditures. • From the financial point of view, the long-term obligations is the most suitable source of financing in this case.

THAMMASAT CONSULTING

Back Up Long-term obligations Justification
• Long-Term Obligations of 9.45 billions baht will come from: – Hire-Purchase – Lease of equipments – Construction Loans – Long-term debt instruments – Etc.

• • • •

Our debt ratio is still quite low (52.47%) with sky-high TIE ratio (15.92x) The company has been highly profitable in the past The creditors should grant us the loan without any difficulties. The call option on the debt instruments is preferable in case we have excess cash to redeem them.

THAMMASAT CONSULTING

Back Up Important Ratios
1999 Liquidity Current Ratio Quick Ratio A/R Turnover A/P Turnover Inv Turnover TA Turnover Leverage Debt Ratio Equity Ratio TIE ROI Gross Margin Net operating profit margin ROA ROE 2000 2001F 2002F 2003F 2004F 2005F

0.87 0.79 6.55 6.92 17.13 0.63   46.00% 54.00% 7.63   37.88% 21.75% 6.90% 12.78%    

1.22 1.11 6.79 4.87 11.37 0.62   52.47% 47.53% 15.92   42.97% 31.42% 11.15% 23.46%

1.30 1.16 6.15 4.36 10.07 0.67   50.22% 49.78% 19.10   43.54% 30.58% 11.75% 23.61%

1.42 1.22 5.64 3.94 9.03 0.76   48.58% 51.42% 24.73   44.11% 28.93% 12.86% 25.02%

1.50 1.27 5.43 3.77 8.54 0.79   45.61% 54.39% 30.00   44.68% 28.43% 13.21% 24.29%

1.57 1.31 5.30 3.67 8.22 0.79   42.66% 57.34% 34.70   45.25% 28.32% 13.20% 23.02%

1.62 1.35 5.23 3.61 8.01 0.76 39.95% 60.05% 36.45 45.82% 28.49% 12.69% 21.13%

THAMMASAT CONSULTING

Back Up Return on Investment
• Using the FCFF Approach
2001F Operating Cash Flows Change in NWC Total Cash Inflows Changes in Investment Free Cash Flows for the Firm 2002F 2003F 2004F 2005F

10,422,158,231  2,127,258,384  12,549,416,615  10,827,766,205  1,721,650,409 

14,618,336,462  4,016,971,301  18,635,307,763  14,535,822,481  4,099,485,282 

18,642,963,778  3,769,414,880  22,412,378,658  18,012,296,822  4,400,081,836 

22,846,347,261  3,879,439,914  26,725,787,174  22,440,030,508  4,285,756,666 

26,485,346,962  3,312,738,917  29,798,085,879  27,549,051,923  2,249,033,956 

• Discounted Cash Inflows = 89,73B • Discounted Cash Outflows = 75.82B • WACC = 6.34%

• NPV = 13.91B • IRR = 12.04% • PBP = 3.83 Yrs • PI = 1.18

THAMMASAT CONSULTING

Back Up Merger with DPC – Financial Perspective • • • The merger with DPC corporation has been included in the financial analysis already. But for the sake of simplicity, we decided to include it in the growth factor. The affect of the merger on the financial statements is very minimal.

THAMMASAT CONSULTING

Back Up Dtac Financial Situation • They are highly illiquid
– Current ratio of 0.67 (AIS = 1.22) – TA turnover of 0.35 (AIS = 0.62)

• •

They are too high leveraged (has debt up to its neck)
– TIE of 1.33x (AIS = 15.92)

They have very low NI margin
– 2.86% (AIS = 31.42%) – this can be interpreted as, they cannot cut the price too much before going negative on the NI (they can cut their gross margin by no more than 3%)

• •

They have negative Retained Earnings. All in all, they are very weak financially right now.

THAMMASAT CONSULTING

Back Up Revenue Structure by Geography • • • The increase number of subscribers will mainly from the up-country However, the increase in revenue per customer will mainly from the city-people Therefore, the revenue structure between Bangkok and up-country should be the same over the years

THAMMASAT CONSULTING

Back Up Number of Subscriber Structure between Pre and Post paid
2000 2001
22.37% 77.63%

2002
28.26% 71.74%

2003
35.32% 64.68%

2004
41.21% 58.79%

2005
44.74% 55.26%

Pre-Paid Post-Paid

17.93% 82.07%

• Since the revenue per customer vary greatly, we cannot determine exactly the service revenue structure between the prepaid and postpaid. • The number subscriber of Prepaid is increasing rapidly due to the market trend and the result of our strategy to use prepaid service to target the provincial area which has significantly more potential customer than Bangkok (which is targeted by the post-paid service)

THAMMASAT CONSULTING

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