Ais Final Final Final
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THAMMASAT CONSULTING
Anytime Anywhere Everyone
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 INTENSE COMPETITION
GROWING MARKET
Thailand Mobile Service Market
POSTPAID: 44% Growth PREPAID: 210% Growth
10000000 8000000 6000000 4000000
Combined
92% Growth in 2001
2000000 Fast Growing Market 0 • Lower Handset Prices • Lower Airtime 2000 Charge 2001 • 2006 Full Liberalization
THAMMASAT CONSULTING
Postpaid Prepaid Prepaid: 14% of Total Market
2002
2003
Situation Analysis GROWING MARKET
INTENSE COMPETITION
Price
AIS DPC
ORANGE Quality
THAMMASAT CONSULTING
Situation Analysis GROWING MARKET
INTENSE COMPETITION
Market Share
57%
38%
Financial Situation
Solid
Overleveraged
Marketing Position
Superior Service
Value Alternative
Network Coverage
Leader
Follower
Standard
Flexible
Pricing
D-Max D-Medium
THAMMASAT CONSULTING
D-Lite
Issue Identification Current Situation
Goal
Leader in Thai Mobile Phone Market with the Revenue of Bht 26 Billion
To Maintain Leading Position and Level of Market Share and Achieve Revenue of 84 Billion in the next years
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
Value-Added
Marketing Strategies
THAMMASAT CONSULTING
Goal: Network Expansion : 2,975 9,512 Base Stations in the next 3 yrs How:
• Acquire DPC • In-House Expansion
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
Marketing Strategies
THAMMASAT CONSULTING
= Enhance AIS Competitive Edge
Service Standard
Competitive Strength HIGH
MEDIUM
Marketing Strategies
LOW LOW
MEDIUM
Market Attractiveness
THAMMASAT CONSULTING
HIGH
Capitalize on Market Growth PRE-PAID Service Service Standard
Rapidly Growing Prepaid 7000000 Market 6000000 5000000 4000000
Marketing Strategies
Prepaid
3000000
Postpaid
2000000
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
• Competitive Pricing • Superior Quality • Attractive Promotion & Privileges • Special Offers within 1-2-Call Customer Group
THAMMASAT CONSULTING
•Budget Control Ride on• the Low Usage Rapid Growth • Easy Registration • Personal WaveInfo Conceal Communication Message
1-2-Call, Smart Choice Increase Number of Subscribers by 400%
Capitalize on Market Growth POST-PAID Service Service Standard
Marketing Strategies
Large Customer Base & Growing Market
Increase Number of Subscribers
Increase Usage of Existing Customers
Number of Added Subscribers = 4 millions within 3 yrs
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
Increase Number of Subscribers
POST-PAID Service Service Standard
Target Focus
Provincial Users Position
Marketing Strategies
Superior Quality Additional Offerings
Cheaper Handsets
THAMMASAT CONSULTING
To capitalize on • Large Communication Message ourPortion superior • Untapped Market network coverage
“GSM Sawasdee” To gain first mover’s • Generate Primary advantage • Demand First Time Userof Increase Number Limited Budget Subscribers • •Create Awareness 1.76 M 4.9 M of GSM
Increase Usage of Existing Customers
Capitalize on Market Growth POST-PAID Service Target Focus
Service Standard
Bangkok Users
Capitalize on our Existing Customers Advance Technology
Position
Communication Message Superior Quality
Marketing Strategies
Additional Offerings
• Mileage Program • Mobile Internet Promotion Package
THAMMASAT CONSULTING
Increase “City LifeCustomer with AIS” Loyalty
Increase RPC 8,600 B 9,500 B
Activities 2001
Network Expansion Acquire DPC In-House Expansion Supplement Services Setting and Training Testing Fully - Functional Marketing Campaigns Preparation Launch Follow-Up
THAMMASAT CONSULTING
2002
2003
2004
2005
Financial Justification 2000 Service Revenue Growth (Billions Baht)
26.2
2001F 38.71
2002F
2003F
62.21
2004F
83.76 105.52
2005F 123.56
Service Revenue Growth 140,000,000,000 120,000,000,000
372% Growth over 5 years
100,000,000,000
Quality Superiority
80,000,000,000 60,000,000,000
Increase RPC
40,000,000,000
Industry Growth
20,000,000,000 0 2000
2001F
THAMMASAT CONSULTING
2002F
2003F
2004F
2005F
Financial Justification 2000 Net Income Growth (Billions Baht)
2001F
6.6
2002F
8.7
2003F
12.3
15.75
2004F
2005F
19.39
22.57
Net Income Growth (Baht) 25,000,000,000
20,000,000,000
277% Growth over 5 years
15,000,000,000
Economy of Scale
10,000,000,000
Growth in Sales
5,000,000,000
0 2000
2001F
THAMMASAT CONSULTING
2002F
2003F
2004F
2005F
Cost Estimation & ROI Capital Investment
Long-Term Obligations
Increase in Network Coverage
10 Billions Baht
Investment in Cell phone Agreements
76.5 Billions Baht
Expansion of Capacity (Includes DPC)
9.5 Billions Baht
7 Billions Baht
Total Capital Investment (5 years) = 93.5 Billions Baht
On-Going Expenses Technological Improvement
70 Millions / Year
Employee Training
20 Millions / Year
Incremental Marketing Expenses
80 Millions / Year
Quality Maintenance Improvement
30 Millions / Year
The rest can be financed by Internal generated fund
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
THAMMASAT CONSULTING
Value-Added Service
Conclusions
CORE
Service Standard
Supplementary
Marketing Strategies
1-2-Call Teenagers GSM 2 Watt Provincial User
To Strengthen Leadership Position
To Capitalize on Market Growth
Bangkok User
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
Goal: Network Expansion : 2,975 9,512 Base Stations in the next 3 yrs
System that HIGHBest Satisfies the Users’ Need
MEDIUM NMT GSM
ly A ug
S ep t O ct N ov D Ja ec n 20 01 Fe b M ar A pr il M ay Ju ne
Ju
ne 20
00
2000000 1800000 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0
Ju
Number of subscribers
Subscribers Marketing Strategies
LOW
Months
NMT as a Dying Technology
THAMMASAT CONSULTING
X LOW
X MEDIUM
Market Attractiveness
HIGH
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
• Gold – Medium users
• Silver – Light users
• Lifestyle – Match with customer every activity • Classic – Offer simple voice service – Minimize technology feature
• Hip – Focus entertainment, shopping, news update
• 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)
Benefit company –
More effective resource utilization
THAMMASAT CONSULTING
Back Up
Brand Portfolio AIS: Digital System that HIGHBest Satisfies the Users’ Need
Competitive Strength Quality
MEDIUM NMT GSM
ly A ug
S ep t O ct N ov D Ja ec n 20 01 Fe b M ar A pr il M ay Ju ne
Ju
ne
20
00
2000000 1800000 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0 Ju
Number of subscribers
Subscribers
LOW
Months
NMT as a Dying Technology
THAMMASAT CONSULTING
X LOW
X MEDIUM
Market Attractiveness
HIGH
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 2001
2002
2003
2004
2005
7,220,000
11,050,000
14,170,000
17,000,000
18,959,000
AIS of Customer
Jun-01 5,315,0 89 3,029,3 00
4,476,400
6,851,000
8,785,400
10,540,000
11,754,580
AIS Market Share
56.99%
0.62
0.62
0.62
0.62
0.62
8,648 38,711,90 7,200
9,080 62,209,820, 400
9,534 83,763,693, 468
10,011 105,517,426, 140
10,512 123,560,59 5,665
91.84%
53.05%
28,24%
19.97%
11.52%
48%
61%
35%
26%
17%
Number of Customer
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
2001
2002
2003
2004 2005
AIS Market Share
57%
62%
62%
62%
62% 62%
Dtac Market Share
38%
38%
37%
35%
32% 28%
0%
0%
1%
3%
6% 10%
Orange Market Share
• 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.
Net Income Growth
THAMMASAT CONSULTING
2001
2002
2003
2004 2005
32%
41%
28%
23%
17%
Back Up Capital Expenditures 2001
2002
2003
2004
2005
Increase in PPE
1.8B
3.1B
3.5B
4.2B
4.3B
Investment in Cellphone Agreement
9.0B
11.4B
14.5B 18.3B
23.2B
• 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
2002
2003
2004
2005
Capital Needed
10.8B
14.5B
18B
22.4B
27.5B
OCF
10.4B
14.6B
18,6B
22.8B
26.5B
1.7B
1.8B
1.8B
1.9B
1.8B
Cash needed to support operation
• 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
2000
2001F
2002F
2003F
2004F
2005F
Liquidity Current Ratio
0.87
1.22
1.30
1.42
1.50
1.57
1.62
Quick Ratio
0.79
1.11
1.16
1.22
1.27
1.31
1.35
A/R Turnover
6.55
6.79
6.15
5.64
5.43
5.30
5.23
A/P Turnover
6.92
4.87
4.36
3.94
3.77
3.67
3.61
Inv Turnover
17.13
11.37
10.07
9.03
8.54
8.22
8.01
TA Turnover
0.63
0.62
0.67
0.76
0.79
0.79
0.76
Leverage
Debt Ratio
46.00%
52.47%
50.22%
48.58%
45.61%
42.66%
39.95%
Equity Ratio
54.00%
47.53%
49.78%
51.42%
54.39%
57.34%
60.05%
7.63
15.92
19.10
24.73
30.00
34.70
36.45
TIE
ROI
Gross Margin
37.88%
42.97%
43.54%
44.11%
44.68%
45.25%
45.82%
Net operating profit margin
21.75%
31.42%
30.58%
28.93%
28.43%
28.32%
28.49%
ROA
6.90%
11.15%
11.75%
12.86%
13.21%
13.20%
12.69%
ROE
12.78%
23.46%
23.61%
25.02%
24.29%
23.02%
21.13%
THAMMASAT CONSULTING
Back Up Return on Investment • Using the FCFF Approach 2001F
2002F
2003F
2004F
2005F
10,422,158,231
14,618,336,462
18,642,963,778
22,846,347,261
26,485,346,962
2,127,258,384
4,016,971,301
3,769,414,880
3,879,439,914
3,312,738,917
Total Cash Inflows
12,549,416,615
18,635,307,763
22,412,378,658
26,725,787,174
29,798,085,879
Changes in Investment
10,827,766,205
14,535,822,481
18,012,296,822
22,440,030,508
27,549,051,923
Free Cash Flows for the Firm
1,721,650,409
4,099,485,282
4,400,081,836
4,285,756,666
2,249,033,956
Operating Cash Flows Change in NWC
• Discounted Cash Inflows = 89,73B • Discounted Cash Outflows = 75.82B • WACC = 6.34%
THAMMASAT CONSULTING
• NPV = 13.91B • IRR = 12.04% • PBP = 3.83 Yrs • PI = 1.18
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
2002
2003
2004
2005
Pre-Paid
17.93%
22.37%
28.26%
35.32%
41.21%
44.74%
Post-Paid
82.07%
77.63%
71.74%
64.68%
58.79%
55.26%
• 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
Anytime Anywhere Everyone
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 INTENSE COMPETITION
GROWING MARKET
Thailand Mobile Service Market
POSTPAID: 44% Growth PREPAID: 210% Growth
10000000 8000000 6000000 4000000
Combined
92% Growth in 2001
2000000 Fast Growing Market 0 • Lower Handset Prices • Lower Airtime 2000 Charge 2001 • 2006 Full Liberalization
THAMMASAT CONSULTING
Postpaid Prepaid Prepaid: 14% of Total Market
2002
2003
Situation Analysis GROWING MARKET
INTENSE COMPETITION
Price
AIS DPC
ORANGE Quality
THAMMASAT CONSULTING
Situation Analysis GROWING MARKET
INTENSE COMPETITION
Market Share
57%
38%
Financial Situation
Solid
Overleveraged
Marketing Position
Superior Service
Value Alternative
Network Coverage
Leader
Follower
Standard
Flexible
Pricing
D-Max D-Medium
THAMMASAT CONSULTING
D-Lite
Issue Identification Current Situation
Goal
Leader in Thai Mobile Phone Market with the Revenue of Bht 26 Billion
To Maintain Leading Position and Level of Market Share and Achieve Revenue of 84 Billion in the next years
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
Value-Added
Marketing Strategies
THAMMASAT CONSULTING
Goal: Network Expansion : 2,975 9,512 Base Stations in the next 3 yrs How:
• Acquire DPC • In-House Expansion
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
Marketing Strategies
THAMMASAT CONSULTING
= Enhance AIS Competitive Edge
Service Standard
Competitive Strength HIGH
MEDIUM
Marketing Strategies
LOW LOW
MEDIUM
Market Attractiveness
THAMMASAT CONSULTING
HIGH
Capitalize on Market Growth PRE-PAID Service Service Standard
Rapidly Growing Prepaid 7000000 Market 6000000 5000000 4000000
Marketing Strategies
Prepaid
3000000
Postpaid
2000000
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
• Competitive Pricing • Superior Quality • Attractive Promotion & Privileges • Special Offers within 1-2-Call Customer Group
THAMMASAT CONSULTING
•Budget Control Ride on• the Low Usage Rapid Growth • Easy Registration • Personal WaveInfo Conceal Communication Message
1-2-Call, Smart Choice Increase Number of Subscribers by 400%
Capitalize on Market Growth POST-PAID Service Service Standard
Marketing Strategies
Large Customer Base & Growing Market
Increase Number of Subscribers
Increase Usage of Existing Customers
Number of Added Subscribers = 4 millions within 3 yrs
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
Increase Number of Subscribers
POST-PAID Service Service Standard
Target Focus
Provincial Users Position
Marketing Strategies
Superior Quality Additional Offerings
Cheaper Handsets
THAMMASAT CONSULTING
To capitalize on • Large Communication Message ourPortion superior • Untapped Market network coverage
“GSM Sawasdee” To gain first mover’s • Generate Primary advantage • Demand First Time Userof Increase Number Limited Budget Subscribers • •Create Awareness 1.76 M 4.9 M of GSM
Increase Usage of Existing Customers
Capitalize on Market Growth POST-PAID Service Target Focus
Service Standard
Bangkok Users
Capitalize on our Existing Customers Advance Technology
Position
Communication Message Superior Quality
Marketing Strategies
Additional Offerings
• Mileage Program • Mobile Internet Promotion Package
THAMMASAT CONSULTING
Increase “City LifeCustomer with AIS” Loyalty
Increase RPC 8,600 B 9,500 B
Activities 2001
Network Expansion Acquire DPC In-House Expansion Supplement Services Setting and Training Testing Fully - Functional Marketing Campaigns Preparation Launch Follow-Up
THAMMASAT CONSULTING
2002
2003
2004
2005
Financial Justification 2000 Service Revenue Growth (Billions Baht)
26.2
2001F 38.71
2002F
2003F
62.21
2004F
83.76 105.52
2005F 123.56
Service Revenue Growth 140,000,000,000 120,000,000,000
372% Growth over 5 years
100,000,000,000
Quality Superiority
80,000,000,000 60,000,000,000
Increase RPC
40,000,000,000
Industry Growth
20,000,000,000 0 2000
2001F
THAMMASAT CONSULTING
2002F
2003F
2004F
2005F
Financial Justification 2000 Net Income Growth (Billions Baht)
2001F
6.6
2002F
8.7
2003F
12.3
15.75
2004F
2005F
19.39
22.57
Net Income Growth (Baht) 25,000,000,000
20,000,000,000
277% Growth over 5 years
15,000,000,000
Economy of Scale
10,000,000,000
Growth in Sales
5,000,000,000
0 2000
2001F
THAMMASAT CONSULTING
2002F
2003F
2004F
2005F
Cost Estimation & ROI Capital Investment
Long-Term Obligations
Increase in Network Coverage
10 Billions Baht
Investment in Cell phone Agreements
76.5 Billions Baht
Expansion of Capacity (Includes DPC)
9.5 Billions Baht
7 Billions Baht
Total Capital Investment (5 years) = 93.5 Billions Baht
On-Going Expenses Technological Improvement
70 Millions / Year
Employee Training
20 Millions / Year
Incremental Marketing Expenses
80 Millions / Year
Quality Maintenance Improvement
30 Millions / Year
The rest can be financed by Internal generated fund
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
THAMMASAT CONSULTING
Value-Added Service
Conclusions
CORE
Service Standard
Supplementary
Marketing Strategies
1-2-Call Teenagers GSM 2 Watt Provincial User
To Strengthen Leadership Position
To Capitalize on Market Growth
Bangkok User
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
Goal: Network Expansion : 2,975 9,512 Base Stations in the next 3 yrs
System that HIGHBest Satisfies the Users’ Need
MEDIUM NMT GSM
ly A ug
S ep t O ct N ov D Ja ec n 20 01 Fe b M ar A pr il M ay Ju ne
Ju
ne 20
00
2000000 1800000 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0
Ju
Number of subscribers
Subscribers Marketing Strategies
LOW
Months
NMT as a Dying Technology
THAMMASAT CONSULTING
X LOW
X MEDIUM
Market Attractiveness
HIGH
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
• Gold – Medium users
• Silver – Light users
• Lifestyle – Match with customer every activity • Classic – Offer simple voice service – Minimize technology feature
• Hip – Focus entertainment, shopping, news update
• 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)
Benefit company –
More effective resource utilization
THAMMASAT CONSULTING
Back Up
Brand Portfolio AIS: Digital System that HIGHBest Satisfies the Users’ Need
Competitive Strength Quality
MEDIUM NMT GSM
ly A ug
S ep t O ct N ov D Ja ec n 20 01 Fe b M ar A pr il M ay Ju ne
Ju
ne
20
00
2000000 1800000 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0 Ju
Number of subscribers
Subscribers
LOW
Months
NMT as a Dying Technology
THAMMASAT CONSULTING
X LOW
X MEDIUM
Market Attractiveness
HIGH
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 2001
2002
2003
2004
2005
7,220,000
11,050,000
14,170,000
17,000,000
18,959,000
AIS of Customer
Jun-01 5,315,0 89 3,029,3 00
4,476,400
6,851,000
8,785,400
10,540,000
11,754,580
AIS Market Share
56.99%
0.62
0.62
0.62
0.62
0.62
8,648 38,711,90 7,200
9,080 62,209,820, 400
9,534 83,763,693, 468
10,011 105,517,426, 140
10,512 123,560,59 5,665
91.84%
53.05%
28,24%
19.97%
11.52%
48%
61%
35%
26%
17%
Number of Customer
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
2001
2002
2003
2004 2005
AIS Market Share
57%
62%
62%
62%
62% 62%
Dtac Market Share
38%
38%
37%
35%
32% 28%
0%
0%
1%
3%
6% 10%
Orange Market Share
• 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.
Net Income Growth
THAMMASAT CONSULTING
2001
2002
2003
2004 2005
32%
41%
28%
23%
17%
Back Up Capital Expenditures 2001
2002
2003
2004
2005
Increase in PPE
1.8B
3.1B
3.5B
4.2B
4.3B
Investment in Cellphone Agreement
9.0B
11.4B
14.5B 18.3B
23.2B
• 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
2002
2003
2004
2005
Capital Needed
10.8B
14.5B
18B
22.4B
27.5B
OCF
10.4B
14.6B
18,6B
22.8B
26.5B
1.7B
1.8B
1.8B
1.9B
1.8B
Cash needed to support operation
• 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
2000
2001F
2002F
2003F
2004F
2005F
Liquidity Current Ratio
0.87
1.22
1.30
1.42
1.50
1.57
1.62
Quick Ratio
0.79
1.11
1.16
1.22
1.27
1.31
1.35
A/R Turnover
6.55
6.79
6.15
5.64
5.43
5.30
5.23
A/P Turnover
6.92
4.87
4.36
3.94
3.77
3.67
3.61
Inv Turnover
17.13
11.37
10.07
9.03
8.54
8.22
8.01
TA Turnover
0.63
0.62
0.67
0.76
0.79
0.79
0.76
Leverage
Debt Ratio
46.00%
52.47%
50.22%
48.58%
45.61%
42.66%
39.95%
Equity Ratio
54.00%
47.53%
49.78%
51.42%
54.39%
57.34%
60.05%
7.63
15.92
19.10
24.73
30.00
34.70
36.45
TIE
ROI
Gross Margin
37.88%
42.97%
43.54%
44.11%
44.68%
45.25%
45.82%
Net operating profit margin
21.75%
31.42%
30.58%
28.93%
28.43%
28.32%
28.49%
ROA
6.90%
11.15%
11.75%
12.86%
13.21%
13.20%
12.69%
ROE
12.78%
23.46%
23.61%
25.02%
24.29%
23.02%
21.13%
THAMMASAT CONSULTING
Back Up Return on Investment • Using the FCFF Approach 2001F
2002F
2003F
2004F
2005F
10,422,158,231
14,618,336,462
18,642,963,778
22,846,347,261
26,485,346,962
2,127,258,384
4,016,971,301
3,769,414,880
3,879,439,914
3,312,738,917
Total Cash Inflows
12,549,416,615
18,635,307,763
22,412,378,658
26,725,787,174
29,798,085,879
Changes in Investment
10,827,766,205
14,535,822,481
18,012,296,822
22,440,030,508
27,549,051,923
Free Cash Flows for the Firm
1,721,650,409
4,099,485,282
4,400,081,836
4,285,756,666
2,249,033,956
Operating Cash Flows Change in NWC
• Discounted Cash Inflows = 89,73B • Discounted Cash Outflows = 75.82B • WACC = 6.34%
THAMMASAT CONSULTING
• NPV = 13.91B • IRR = 12.04% • PBP = 3.83 Yrs • PI = 1.18
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
2002
2003
2004
2005
Pre-Paid
17.93%
22.37%
28.26%
35.32%
41.21%
44.74%
Post-Paid
82.07%
77.63%
71.74%
64.68%
58.79%
55.26%
• 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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