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A_W AR AIS 2 Color _Eng_ - AIS Investor Relations

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A_W AR AIS 2 Color _Eng_ - AIS Investor Relations Powered By Docstoc
					    Nature of Business Operations



Overview
The core business of Advanced Info Service Plc. (AIS) and its subsidiaries is the operation of cellular networks in the 900MHz and
1800MHz frequency spectrum under the Build-Transfer-Operate (BTO) concession agreements and the import and distribution of
cellular phones and accessories.


AIS was awarded a 20-year BTO concession in 1990 by the former Telephone Organization of Thailand* (TOT) to operate a nationwide
900MHz cellular network and provide integrated after-sale services. In 1994, the concession added Digital GSM Network. Subsequently,
in 1996, the concession was extended to 25 years.


Digital Phone Co., Ltd. (DPC), a subsidiary of AIS, was also awarded a BTO concession in 1996 to operate a nationwide 1800MHz
cellular network by the Communication Authority of Thailand (CAT).


Under the BTO concession agreements, AIS and DPC are to build the cellular networks, then transfer the network ownerships to the
respective concession providers, and then operate the networks by sharing the revenues with the respective concession providers. The
companies are responsible for all aspects including network engineering, financing, and service commercialization. The engineering
aspect includes network planning, equipment procurement and installation, network rollout, as well as network operations and
maintenance. The companies are to seek the necessary sources for funds and capital to finance all of the network engineering processes
as well as the commercial activities. Currently AIS shares 25% of its revenue from postpaid services with the TOT and 20% of its revenue
from prepaid services. DPC shares 20% of its service revenue with the CAT.


During 2002, AIS experienced a substantial growth in its subscriber base. The combined subscribers of both the 900MHz and 1800MHz
networks, as of December 31, 2002, totaled 10.66 million subscribers. Of this amount, about 5.46 million subscribers had signed up
in 2002, equivalent to approximately 105% growth in only one year. This phenomenal increase can be attributed to both external and
internal factors. Externally, the mobile phone market had been strongly stimulated by the entry of a new cellular operator in the first
quarter of the year. Low-priced strategies and tactics were employed to attract new subscribers. Heavy airtime promotions and handset
liberalization had all contributed to making mobile phone subscription more affordable to a much wider group of people than ever before.
Internally, AIS' business principle has always been to ensure superior quality in all aspects of service provisioning, not only in network
operation, but also in customer care and services. As a result, it is strongly believed that AIS' premium quality has proven once
again to be the most important key to its success, not only in terms of subscriber retention but also in the acquisition of value-accretive,
quality-conscious subscribers.


Other than the network operator business, AIS also had a subsidiary called Advanced Wireless Marketing Co., Ltd. (AWM) which was an
importer and distributor of cellular phones and accessories to be used in 900MHz and 1800 MHz networks. However, to enhance
efficiency of the overall business, the import and distribution business was restructured in December 2002. AWM's operation has now
been merged with that of DPC.


* The Telephone Organization of Thailand has been privatized in 2002 and is now known as TOT Corporation Plc.




                                                                                                                            ..27
During the first half of 2002, AIS had another subsidiary called Advanced Paging Co., Ltd. (APG). APG was granted a concession by
the TOT to provide a digital paging service under the trade name of "Phonelink." However, due to the fact that paging services were
becoming obsolete whilst cellular phones were becoming more affordable, APG's operation was discontinued. The concession was then
returned to the TOT in June 2002. Subsequently APG was sold to a third party in September 2002 and ceased to be a subsidiary of AIS.

Moreover, two other subsidiaries, Advanced DataNetwork Communications Co., Ltd (ADC) and DataNetwork Solutions Co., Ltd (DNS)
together provide voice/data communications via a nationwide telephone line network. Lastly, Advanced Contact Center Co., Ltd. (ACC)
began it operations in September 2002 and now provides call center services for AIS and DPC as well as for other companies that wish
to outsource such functions.




Revenue Structure
Revenues gained from products and services provided to third parties by the Company and its subsidiaries, during the past two years and the year ending 31 December 2002, are as follows:
- - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - -
 Products/Services                     Operating companies                                       Company's Percentage                      2000                        2001                        2002
                                                                                              2001 Before Retroactive        Revenue                   %   Revenue                %    Revenue               %

                                                                                                       as at 31 Dec.02
- - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - -
Mobile phone
Mobile phone services                  Advanced Info Service PCL.                                                   -       24,622.03             64.90    39,122.91           64.48   55,371.69          68.04
 Mobile phone services                 Digital Phone Co., Ltd.                                                  98.55               -                 -     1,397.68            2.30    4,736.36           5.82
 Service & sales of mobile phones      Advanced Wireless Marketing Co., Ltd.                                    99.99       10,718.97             28.25    17,635.47           29.07   17,790.54          21.86
 Mobile phone sales & rental           Digital Phone Co., Ltd.                                                  98.55               -                 -        86.71            0.14    1,880.96           2.31
 Total                                                                                                              -       35,341.00             93.16    58,242.77           96.00   79,779.55          98.03
- - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - -
Paging services

 Paging services                       Advanced Paging Co., Ltd.                                                    -        1,144.32              3.02      537.45             0.89      72.45            0.09
 Paging rental fees                    Advanced Paging Co., Ltd.                                                    -            3.59              0.01        1.10             0.00          -               -
 Paging sales                          Advanced Paging Co., Ltd.                                                    -          193.92              0.51       70.05             0.12       6.81            0.01
    Total                                                                                                           -        1,341.83              3.54      608.60             1.00      79.25            0.10
- - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - -
Data transmission                      Advanced Data Network                                                    67.95          209.06              0.55      293.80             0.48     357.57            0.44
via telephone lines                    Communications Co., Ltd.
                                       Datanetwork Solution Co., Ltd.                                           49.00           66.75              0.18       44.59             0.07      30.19            0.04
 Total                                                                                                              -          275.81              0.73      338.39             0.56     387.77            0.48
- - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - -
Call center                            Advanced Contact Center Co., Ltd.                                        99.99               -                 -            -               -        4.83           0.01
 Total                                                                                                              -               -                 -            -               -        4.83           0.01
Others                                                                                                                         978.78              2.58     1,480.79            2.44    1,114.96           1.37
- - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - -
                                       Grand Total                                                                          37,937.42           100.00     60,670.55          100.00   81,366.36      100.00
- - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - -

Remark : 1) The Company sold fully investment in subsidiary - Advanced Paging Co., Ltd. to third party in September 2002
            2) In August 2002, Shin Digital Co., Ltd. had changed its name to Advanced Contact Center Co., Ltd. by enganged in Call Center Business.

            3) The Company held 98.17 % shares of Digital Phone Co., Ltd. in December 2001, and additional investment to 98.55% in October 2002.
            4) Other revenues are interest income and others exclude gains from exchange rate.




..28
Products & Services
AIS products can be broadly categorized into postpaid and prepaid.


Postpaid products are a contractual cellular phone subscription service for which customers are required to register and pay some sort
of monthly subscription fee and per-minute usage. The payment for the monthly subscription fee and usage charge is made at the end
of every month. Postpaid products include:

    - Cellular 900 - an analog cellular phone service deploying NMT technology. "Cellular 900" has, up to the year 2002, been positioned
      for basic analog users who require only voice communications with extensive nationwide coverage. However, today NMT
      technology has lost its popularity to newer and more-advanced digital technologies, namely GSM. A large number of "Cellular 900"
      subscribers migrated to AIS' own GSM networks during 2002. As such, the number of remaining "Cellular 900" subscribers at the
      end of 2002 was almost negligible and AIS has since stopped promoting this product.
    - GSM advance - a digital cellular phone service deploying GSM 900MHz technology. "GSM advance" appeals to more sophisticated
      user segments that require more than basic voice communications. Being a more-efficient, digital service, "GSM advance" features
      a variety of value-added services and other non-voice services. All of which have been designed to help subscribers live more
      fulfilling personal and professional lives.
    - GSM 1800 - a digital cellular phone service deploying GSM 1800MHz technology, operated by DPC. "GSM 1800" is positioned for
      basic users who prefer the postpaid method of payment, signing contracts at registration and paying after they use it.


Prepaid products require neither registration nor the payment of a monthly subscription fee. Immediately after purchase, subscribers can
activate their numbers and use the phone. Once the prepaid balance is spent, top-up can be done either by purchasing refill cards at
numerous outlets around the country or by electronic refill service at almost all ATM machines. The prepaid product is offered under the
brand of "One-2-Call!", the selling point for which is "Freedom." Users have the freedom to manage their own expenditure and usage.


Corporate Objective
AIS key objective is to enhance shareholder value. The business philosophy adopted as the guide to enhance shareholder value
involves excelling in four key areas:


    - Network Excellence:
      Discreet network engineering to achieve superior network quality,
    - Service Excellence:
      Courteous service provision to achieve superior service quality,
    - Technology Excellence:
      Prudent technology deployment that meets the needs and requirements of the customer,
    - People Excellence:
      Ongoing human resource development to improve competency and productivity.


Excellence in these four areas has contributed significantly to shareholder value enhancement over the years. New, value-accretive
subscribers have continued to register for AIS superior-quality networks.




                                                                                                                        ..29
Industry & Competition
Thailand's cellular phone operator industry during 2002 could be described as one of the most competitive markets in the region. Three
new operators - TA Orange (TAO), Thai Mobile, and Hutchison CAT Wireless Multimedia Ltd. (HUTCH) - had either staged their full official
entry into the market or soft-launched or re-launched their products to join the two incumbents - AIS and Total Access Communications
Plc. (DTAC) - in the development of the Thai cellular phone industry. By the end of the year, the industry had witnessed a phenomenal
growth in the subscriber base of approximately 120%. Nonetheless, the market was still dominated by the two incumbents, which
continued to command over 90% of the total market share.



                   25.0                                                                                                           30 %
                                                                                                                  27 %
                                                                                                                                  25 %
                   20.0

                                                                                                                                  20 %
                   15.0
                                                                                                                                  15 %
                   10.0                                                   13 %
                                                                                                                  17.5 m          10 %
                                                December 2001




                                                                                               December 2002
                              Million subs




                     5.0
                                                                          8.0 m                                                   5%

                     0.0                                                                                                          0%


                        AIS                             TAC           TAO                            Other     Penetration rate


                   Source: Data from corporate websites where available, otherwisr estimated




Of the three new operators, TAO had played the most critical role in shifting the face of the competitive landscape in 2002. Upon the
entry of TAO during the first quarter of the year, most of the strategies and tactics employed by operators to compete centered on pricing.
A price war erupted when a form of handset subsidy was introduced into the Thai market for the first time. To counteract this, one
operator almost immediately initiated handset liberalization by unlocking IMEI, thereby allowing any handset, regardless of where it was
purchased, to be used with its network. Moreover, low-priced SIM packages were introduced as an alternative for new users who did
not wish to purchase SIM-handset bundled packages. At the same time, heavy airtime promotions were offered along with both
SIM-handset bundled packages and SIM-only packages. All of these activities made a tremendous impact on the affordability of mobile
phone subscription to a much wider group of people. The popularity of cellular phones spilled over into rural areas all over the country,
prompting competition to widen from the nearly saturated Bangkok market.


Not until the third quarter of the year, did operators begin to experience the negative consequences of cutthroat pricing. By that time every
operator had achieved an impressive number of new registrations. However, margins began to deteriorate as a result of dramatic price
reductions. At that point, the operators were beginning to shift focus and put more emphasis on increasing revenues and margins.
To curve the sharp downtrend in ARPU, for example, efforts to champion the more lucrative enterprise market were starting to surface.
Capitalizing on new and readily available high-speed data transmission technology, namely GPRS, some operator had also been gearing
towards digital convergence and the development of other wireless communications services such as mobile data, multimedia, etc.


By the end of the year competitive pricing had largely run its course and, although the handset market remained liberalized, airtime
promotions had become noticeably less aggressive. Low prices on SIM packages were adjusted upwards. In spite of less attractive offers,
subscriber growth (though was not as strong as the first three quarters of the year) still continued at a significant rate, suggesting that
the saturation point for Thailand was yet to be reached.




..30
In spite of the sharp increase in the total market subscriber base, Thailand's cellular phone industry ended the year 2002 with about
a 27% penetration rate. Although penetration has more than doubled from the 13% at the end of the previous year, the opportunity for
market growth should remain strong as Thailand is still ranked as one of the under-penetrated markets amongst its regional peers. If the

country's economics condition continues on its path to recovery and as long as new operators continue to make their presence felt in
the industry, the market should continue to grow. However, a chance for the industry to experience more than 100% subscriber growth
is considered unlikely.


Other major developments that took place in 2002 and altered the industry on the regulatory front were the privatization of the two
telecommunications state enterprises and the establishment of a new ministry to govern the telecommunications industry. As part of the
preparation for industry liberalization, the Ministry of Information and Communications Technology (ICT) was successfully established,

one of whose key tasks is to administer the telecommunications industry as well as preparing it for liberalization. Meanwhile the Telephone
Organization of Thailand was privatized and registered as a public company as the TOT Corporation Public Company Limited, while the
Communication Authority of Thailand Plc. is currently in the process of being privatized.


One setback to regulatory development was the ruling by the Supreme Administrative Court that the selection process of the National

Telecommunications Commission (NTC) was unconstitutional. The ruling has prompted a number of members of the selection committee
to resign, stalling the formation of the NTC. In the absence of the NTC, the privatization of the two state enterprises has prompted the
ICT to propose a new revenue-sharing scheme whereby the concessionaries would share some of the revenue generated from their

networks with the Ministry of Finance in the form of an excise tax. As of December 31, 2002, however, no concrete formula for the
telecommunications excise tax or for the TOT and CAT compensation has been released.


Nonetheless, the ICT has reiterated its belief that the telecommunications industry must be liberalized and that the concession and

revenue-sharing scheme must be adjusted to pave the way for fairer competition for new operators as well as for incumbents. 2003
may well be the year that the NTC is successfully established, enabling the CAT & TOT to become pure operators.


Network Procurement & Service Provisioning
Network equipment is primarily imported directly from leading telecommunications technology suppliers around the world. Ericsson,
Nokia, NEC, Siemens, Nortel, DMC, and Huawei are the major brands of network equipment that AIS has procured. A team of

experienced telecommunications and communications engineers selects appropriate technology and network components to be
installed and configured to achieve the highest level of network quality and optimization.


The overall network is divided into geographical regions. Principally, two or more network equipment vendors supply equipment to be

installed in one region. For the entire country, AIS thus has multiple vendors supplying equipment for the network in any given region:
the "Multi-vendor Approach." This network engineering approach is implemented to achieve optimization of investment costs. The benefit
of this approach is to safeguard dominance of any particular supplier, not only in technological terms, but also with regards to pricing

- all of which should contribute to a higher return on invested capital.




                                                                                                                           ..31
AIS-DPC combined digital network information as compared to the cumulative digital subscribers as follows:



                    12.0
                                                                                                                                   11.2*
                    10.0

                     8.0
                                                                                   6.8                                             8.1
                     6.0

                     4.0                                December 2001              2.3




                                                                                                       December 2002
                                                                                   0.4
                                                                                                                                   0.3
                              Million subs




                     2.0
                                                                                   2.3                                             2.2
                     0.0




                        GSM advance                                     GSM 1800         One-2-Call!                   Capacity*


                    * Optimized dual-band GSM network capacity




Research & Development
As a user of technology, the research & development function at AIS revolves around mapping new, readily available technology to the
customers' needs and requirements. AIS has always been keen on bringing applicable, leading-edge technology to its customers in the
form of services that the customers can relate to.


When value-accretive technology is identified, new services are brainstormed by a team of experts equipped with expertise in engineering,
marketing, and finance. The viable, new services will then be passed onto another business analysis team who will carefully scrutinize
the feasibility of the new services as well as ascertaining that they will fit into the corporate service roadmap and be align with corporate
strategic direction. The new services are then subjected to a thorough testing process by a focus group to ensure its commercial viability.
In the implementation phase, the rollout is usually confined to the areas where the target groups are densely populated, then slowly
expanded out nationwide if the services show a high commercial potential and momentum.


The research and development process is necessary to ensure shareholders' value enhancement. The key success factor to maximize
return on investment is prudent technology deployment process in a timely manner.




..32
For AIS, network quality is defined in terms of the customer and is divided into three major elements: Coverage, Accessibility and
Reliability. The most important of these in the mobile telephone network is "coverage", which by the end of 2002 extended to more than
80% of populated areas. Further, AIS aims to continually expand both its outdoor and in-building network coverage in order to maintain
its leadership and successfully meet the continually evolving needs of its customers.

"Accessibility" is the ability of customers to access the AIS network and is measured as the maximum number of customers in relation
to an acceptable blocking rate. It is also focused on compliance with international quality engineering standards.

The last element, "reliability", is concerned with the provision of good voice quality and continuity throughout call conversations.

The AIS Engineering Division cascades those three quality elements into Engineering Key Performance Indicators (KPI), by defining and
distributing targets to all engineering functions. This enables them to create their own initiatives and action plans in order to achieve
committed targets.




    A IS Networ k Q ua li t y

KPI will be aligned with the Customer Satisfaction Survey (CSI) as well as customer complaints reports, to ensure that all KPI will be driven
in the same direction towards the highest level of customer satisfaction. In order to optimize investment, Quality KPI will also be balanced
with financial KPI such as Investment Cost Per Subscriber and Equipment Utilization.

Routine Network Quality Benchmarking has been performed by AIS against other mobile phone operators in Thailand and six further
operators throughout Asia and Australia. The main objective of benchmarking is to monitor AIS network quality positioning and take any
necessary steps to maintain its national and regional leadership.

AIS has commenced development of a Network Quality Assurance process. Working on Quality Planning, Controlling and Improvement,
the primary goal is to achieve the highest Network Quality that will meet customers' needs, comply with designated specifications and
achieve optimum functional efficiency.

The benefit of AIS Network Quality Management will be significantly greater customer satisfaction and more efficient network cost
management that will satisfy all stakeholders in the value chain, as well as ensuring the continuous development of a quality network and
long-term stability.




                                                                                                                             ..33

				
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