AIS Final Final Final

THAMMASAT CONSULTING
Anytime Anywhere Everyone
Agenda
• Company Profile
• Situation Analysis
• Issue Identification and Objectives
• Recommendation
• Financial Justifications
• Key Success Factor
• Conclusions
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
Situation Analysis
GROWING MARKET INTENSE COMPETITION
Thailand Mobile Service Market

POSTPAID: 44% Growth
10000000 PREPAID: 210% Growth
8000000
6000000 92% Growth in Combined

2001
4000000 Postpaid
Prepaid
2000000
Fast Growing Market
Prepaid: 14% of
0
• Lower Handset Prices Total Market
• Lower Airtime
2000 Charge 2001 2002 2003
• 2006  Full Liberalization
Situation Analysis
Price
AIS
DPC
ORANGE
Quality
Situation Analysis
Market Share 57% 38%
Financial Situation Solid Overleveraged
Marketing Position Superior Service Value Alternative
Network Coverage Leader Follower
Pricing Standard Flexible D-Max

D-Medium
D-Lite
Issue Identification
Current Situation Goal
To Maintain
Leader in Thai Leading Position
GROWING MARKET
Mobile Phone and Level of
Market with the Market Share and
Revenue of Bht 26 INTENSE Achieve Revenue
Billion COMPETITION of 84 Billion in the
next years
How can AIS Capitalize on the Growing Market amid

this Intense Competition
Strengthen Our Leadership Position
Service
CORE
Standard
Value-Added
Marketing
Strategies
Network Coverage and Quality

Goal: Network Expansion :
Service 2,975  9,512 Base Stations
CORE
Standard in the next 3 yrs
Value-Added
How:
• Acquire DPC
Marketing
Strategies
• In-House Expansion
Supplement Services
“Always One Step AHEAD”
Service
CORE
Standard
Non-Voice Features
Value-Added
“Variety”
Technology
Marketing
“Innovative”
Strategies
Customer Service
“Customer Intimacy”
- High Quality
- Easily Reached
Better
Service
Standard CORE +
Supplement Services
Value-Added
=
Marketing
Strategies Enhance AIS
Competitive Edge
Competitive
Service Strength
Standard HIGH
MEDIUM
Marketing
Strategies LOW
LOW MEDIUM HIGH

Market Attractiveness
Capitalize on Market Growth
PRE-PAID Service
Service Rapidly Growing Prepaid

Standard
7000000 Market
6000000
5000000
4000000
Prepaid
3000000
Marketing Postpaid
2000000
Strategies Objective: 210%
To Increase Growth
Number of Prepaid
1000000
0 Subscribers by 400% within 3 yrs
2000 2001 2002 2003 2004 2005
Capitalize on this Growth
PRE-PAID Service
Target Focus
Service •Budget Control
Standard Teenagers Ride on• the
Low Usage
Position Rapid Growth
• Easy Registration
Trendy + WaveInfo
• Personal
Communication Conceal
Message
Reasonable Price
1-2-Call,
Marketing Offerings
Strategies • Competitive Pricing Smart Choice

• Superior Quality
• Attractive Promotion & Increase Number of
Privileges Subscribers
• Special Offers within
by 400%
1-2-Call Customer Group
POST-PAID Service
Service
Standard Large Customer Base
& Growing Market
Marketing Increase Usage

Increase Number
Strategies of Existing
of Subscribers
Customers
Number of Added RPC Increase
Subscribers = 4 5% per year for
millions within 3 yrs the next 3 yrs
POST-PAID Service
Service
Standard
Current Package Standardized
Inflexible Pricing
Marketing
Strategies Proposing Package Personalized
• Customer- Oriented Service
• Strengthen Competitive Position
Under Price Pressure
Capitalize on Market Growth Increase Number
of Subscribers
POST-PAID Service
Target Focus
Service To capitalize on
Standard • Large
Provincial Users ourPortion
superior
Communication Message
• Untapped Market
network coverage
Position “GSM Sawasdee”
Superior Quality To gain first
Marketing mover’s
Strategies • Generate Primary
Additional Offerings advantage
• Demand
First Time
Increase Userof
Number
Cheaper Handsets
• •Create
Limited Budget
Subscribers
Awareness
1.76
of M  4.9 M
GSM
Capitalize on Market Growth Increase Usage of
Existing
Customers
POST-PAID Service
Target Focus
Service
Standard Bangkok Users Capitalize on our
Existing Customers
Advance Technology
Position
Communication Message
Superior Quality
Increase
“City LifeCustomer
with AIS”
Additional Offerings Loyalty
Marketing
Strategies
• Mileage Program
Increase RPC
• Mobile Internet 8,600 B  9,500
Promotion Package B
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
Financial Justification
2000 2001F 2002F 2003F 2004F 2005F

Service Revenue 26.2 38.71 62.21 83.76 105.52 123.56
Growth (Billions Baht)
Service Revenue Growth
140,000,000,000
120,000,000,000
372% Growth over 5 years
100,000,000,000
80,000,000,000
Quality Superiority
60,000,000,000
Increase RPC
40,000,000,000
20,000,000,000 Industry Growth

0
2000 2001F 2002F 2003F 2004F 2005F
Financial Justification
2000 2001F 2002F 2003F 2004F 2005F

Net Income Growth 6.6 8.7 12.3 15.75 19.39 22.57
(Billions Baht)
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
5,000,000,000 Growth in Sales
0
2000 2001F 2002F 2003F 2004F 2005F
Cost Estimation & ROI
Capital Investment Long-Term Obligations

Increase in Network Coverage 10 Billions Baht
9.5 Billions Baht
Investment in Cell phone Agreements 76.5 Billions Baht
Expansion of Capacity (Includes DPC) 7 Billions Baht

The rest can be financed by
Total Capital Investment (5 years) = 93.5 Billions Baht Internal generated fund
NPV = 13.91 Billions

On-Going Expenses
Technological Improvement 70 Millions / Year
IRR = 12.04%
Employee Training 20 Millions / Year
Incremental Marketing Expenses 80 Millions / Year PI = 1.18
Quality Maintenance Improvement 30 Millions / Year
PBP = 3.83 Years
Total On-Going Expenses = 200 Millions per Year
Key Success Factor
Innovative
Marketing
Strategies
Competitive Value-Added
Pricing Service
Conclusions
Service CORE To Strengthen

Standard Supplementary Leadership Position
Marketing 1-2-Call
Strategies Teenagers
To Capitalize on
GSM 2 Watt Market Growth
Provincial User
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
Advance Info Service
Public Company Limited
Chananun - Panthira - Pantharee - Tanwa
Backup

Goal: Network Expansion :
Service 2,975  9,512 Base Stations
CORE
Standard in the next 3 yrs
Competitive AIS:
Value-Added
Quality
Strength Digital
System
that
HIGHBest Satisfies the
Users’ Need
MarketingSubscribers
Number of subscribers
Strategies
2000000 MEDIUM
1800000
1600000
1400000
1200000
1000000 NMT
800000 GSM
X
600000
X
400000
200000
0
00
01
ne
ly
ov
ar
ug
t
ct
ay
il
b
Ja ec
ep
LOW
pr
Fe
Ju
O
20
M
20
Ju
N
M
A
D
S
A
ne
n
Ju
Months
LOW MEDIUM HIGH

NMT as a Dying Technology
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
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
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
Back Up
Proposed Personalized
GSM customers package
• Usage • Lifestyle
– The more the – Match with customer every
activity
customers use the • Classic
less they pay – Offer simple voice
• Platinum service
– Heavy users – Minimize technology
feature
• Gold • Hip
– Medium users – Focus entertainment,
• Silver shopping, news update
– Light users • Business
– GPRS, news update,
Mobile banking
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
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
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
Back Up
Advantages for acquiring DPC
• Maintain leading position

• Increase network coverage
• Increase subscribers
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
Back Up
Brand Portfolio
Competitive AIS:
Quality
Strength Digital System
that
HIGHBest Satisfies the
Users’ Need
Subscribers
Number of subscribers
2000000 MEDIUM
1800000
1600000
1400000
1200000
NMT
1000000
800000 GSM
X
600000
X
400000
200000
0
00
01
ne
ly
ov
ug
ct
ay
t
ar
il
b
Ja ec
ep
pr
LOW
Fe
Ju
O
20
M
20
Ju
N
M
A
D
S
A
ne
n
Ju
Months
LOW MEDIUM HIGH

NMT as a Dying Technology
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
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
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
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
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.
Back Up
Sales Growth Justification
Jun-01 2001 2002 2003 2004 2005

5,315,0
Number of Customer 89 7,220,000 11,050,000 14,170,000 17,000,000 18,959,000
3,029,3
AIS of Customer 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
AIS RPC 8,648 9,080 9,534 10,011 10,512
38,711,90 62,209,820, 83,763,693, 105,517,426, 123,560,59
Service Revenue 7,200 400 468 140 5,665
Industry Growth % 91.84% 53.05% 28,24% 19.97% 11.52%
Revenue Growth % 48% 61% 35% 26% 17%
• 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
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%
Orange Market Share 0% 0% 1% 3% 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
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 2002 2003 2004 2005

Net Income Growth 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.
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
Cash needed to support operation 1.7B 1.8B 1.8B 1.9B 1.8B
• 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.
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.
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%
TIE 7.63 15.92 19.10 24.73 30.00 34.70 36.45
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%
Back Up
Return on Investment
• Using the FCFF Approach

2001F 2002F 2003F 2004F 2005F
Operating Cash Flows 10,422,158,231 14,618,336,462 18,642,963,778 22,846,347,261 26,485,346,962
Change in NWC 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
• Discounted Cash Inflows = 89,73B • NPV = 13.91B

• Discounted Cash Outflows = 75.82B • IRR = 12.04%
• PBP = 3.83 Yrs
• WACC = 6.34% • 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.
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.
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
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)

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THAMMASAT CONSULTING

Anytime Anywhere Everyone

• Largest Mobile Phone Operator in Thailand

• Plan to Acquire DPC at the end of 2001

Thailand Mobile Service Market

6000000 92% Growth in Combined

GROWING MARKET INTENSE COMPETITION

GROWING MARKET INTENSE COMPETITION

Market Share 57% 38%

Financial Situation Solid Overleveraged

Marketing Position Superior Service Value Alternative

Network Coverage Leader Follower

Pricing Standard Flexible D-Max

Current Situation Goal

How can AIS Capitalize on the Growing Market amid

Network Coverage and Quality

LOW MEDIUM HIGH

Service Rapidly Growing Prepaid

Capitalize on this Growth

Strategies • Competitive Pricing Smart Choice

Marketing Increase Usage

Setting and Training

2000 2001F 2002F 2003F 2004F 2005F

Service Revenue Growth

20,000,000,000 Industry Growth

2000 2001F 2002F 2003F 2004F 2005F

Net Income Growth (Baht)

20,000,000,000 277% Growth over 5 years

5,000,000,000 Growth in Sales

Capital Investment Long-Term Obligations

Expansion of Capacity (Includes DPC) 7 Billions Baht

NPV = 13.91 Billions

Service CORE To Strengthen

To Maintain Leading Position and Level of Market Share

Network Coverage and Quality

LOW MEDIUM HIGH

1-2-Call: Smart Choice

• Promotion: Shop Discounts

– Special Offers within 1-2-call Customer Group

• Lower Airtime and SMS within the same network

• Generate primary demand

Customer retention program (Post paid)

Advantages for acquiring DPC

• Maintain leading position

Why Convert GSM 1800 to GSM 2 WATT?

• Low brand equity

• Benefit to prior GSM 1800 customers

LOW MEDIUM HIGH

Exit Strategy for Cellular 900

• Majority = provincial users

Competitive Landscape after 2006

• 2006 = Full Liberalization

Price war  Cut Price?

Price war is unavoidable

Will we continue to cut price even though it is below cost?

AIS Strategy to Cope with Price Pressure

Goal: Maintaining Level of Market Share

Maintain Premium Image

Will it hurt our Premium Image?

Sales Growth Justification

Jun-01 2001 2002 2003 2004 2005

Market Share Projection

Jun-01 2001 2002 2003 2004 2005