AIS has a clear vision to become the “Digital Life Service Provider”. We will focus on three core businesses: mobile, fixed broadband, and digital content. The mobile business will remain an essential part on company’s consolidated portfolio with more new technologies of 4G and 5G in the longer run, which will enable us to monetize data consumption effectively.
As customer’s behavior is changing rapidly, everyone would like to be connected all the time both outside and inside of his or her home. With currently low penetration, fixed broadband business will be another important part to help service AIS’s customers everywhere. Our strategy on new technology of FTTx and high quality service is being focused. We target to be one of the main fixed broadband players in five years.
Also, in the near future services will not be limited only to voice minutes and megabytes, but many more will come from new contents such as e-book purchases, mobile banking transaction fees, movies on the go, etc. It is very important for AIS to be ready to serve potentially strong demand of contents and to stay competitive in the digital era. Our emphasis on digital content is on five areas namely video, game, mobile banking, cloud computing, and M2M.
Please visit our vision & mission for more information.
Revenues of AIS come from services and handset sales. The majority, representing approximately 70-80% of total revenues, is service revenue comprising voice, non-voice, international roaming and other revenues. Currently, non-voice revenue is more than voice revenue because consumer behavior has shifted to using data on mobile such as chat, video call, gaming, movie and TV on mobile, rather than making usual phone calls. Growth of smartphone penetration is also another factor accelerating data usage. In addition, currently the revenue from the fixed broadband business is under other revenues and growing fast. As of 1H16, fixed broadband revenue contributed less than 1% of service revenue but it is growing quickly as we continue to expand fixed broadband coverage and subscriber base. Interconnection revenue is received from other operators on inter-network call termination. The rate for interconnection is set by the regulator, which today is at Bt0.34/minute.
Please see revenue breakdown in 1H16 below.
Costs of AIS comprise cost of handsets, costs of service, and SG&A.
Handset sales and cost will reflect handset margin. Today, handset’s capability has significantly improved and customers look for the best affordable phones with the best offerings. Operators at the same time will use a handset strategy so as to acquire and retain subscribers whereas during intense competition handset margin can become negative. For example, handset margin in 2013, 2014, and 2015 were at 6.5%, 0.8%, -0.8%, respectively.
Costs of service, contributing around 70% of total cost, comprise interconnection cost, regulatory cost, network operating cost, depreciation and amortization cost, and other cost of service.
The interconnection cost is the cost AIS pays to other operators for inter-network call termination, which currently is set at Bt0.34/minute. The regulatory cost in the past was the fee paid to TOT under concession and to the NBTC under license. From 3Q16 onward, with no longer concession, regulatory cost will be around 5.25% of service revenue ex. IC. Network operating cost mainly comprises utilities, network maintenance, land rent and transmission, which normally grows with network expansion, while D&A cost consists of both license and network D&A. Other cost of service is mainly commission for prepaid and call center cost.
SG&A expenses, contributing around 20% of total cost, consist of marketing spending, admin expense, bad debt provision, and depreciation of shops and other fixed assets.
Please see cost breakdown in 1H16 below.
As of 2Q16, AIS has 40MHz of spectrum licenses: 2100MHz (15MHz), 1800MHz (15MHz), and 900MHz (10MHz). Different bandwidths are deployed for different technologies depending on standard technology application and customer demand.
In addition, AIS is in discussion with TOT in a deal to utilize 15MHz of 2100MHz spectrum of TOT.
The 2100MHz license was fully paid since December 2015. For the 1800MHz and 900MHz licenses, the payment schedule is as follows.
|License payment schedule|
For mobile, AIS provides postpaid service under the brand "AIS Postpaid", and prepaid service under "AIS One-2-Call". We also provide "International roaming" service for AIS' customers to use local operator's service abroad, which we have partners in 229 countries globally. AIS’ mobile customers and fixed line users can also call abroad through our “International Direct Dialing” service. Additionally, we have a co-brand handset under a marketing name “AIS Super Combo”.
For fixed broadband, AIS is offering high-speed residential internet service under the brand "AIS Fibre" since April 2015. We are providing the latest FTTx (Fibre to premise) technology starting with a package of Bt590/month for 20/7 Mbps. In addition, we also provide "AIS PLAYBOX", an on-demand TV platform full of multimedia contents.
For digital content, early 2016 we launched a mobile application called "AIS PLAY", a video platform with increasing popularity. AIS PLAY was the only one who received the right to broadcast the RIO 2016 Olympics & Paralympics on mobile. AIS also has "mPAY" as a subsidiary and product name to provide mobile payment service with currently more than 400,000 active users. In addition, in July 2016, AIS launched "AIS Business Cloud" for local enterprises with differentiated Tier-4 data centers and 24x7 managed services.
For more information, please see the topic "Products and Services" in the Annual Report.
Fixed Broadband Business
AIS Fibre offers broadband internet service with fibre optic technology that yields higher speed, upto 1Gbps, and better stability when compared to old ADSL technology. The higher speed can support beyond general internet usage, such as website browsing, email, and social media. A higher speed package can support bandwidth-consuming use, such as video streaming, multi-device, online gaming and high definition CCTV.
The package are PowerHome for home use and PowerPro mainly for business use, ranging from speed of 20/7Mbps at 590 baht/month to 1,000/200Mbps at 19,990 baht/month.
AIS Fibre also offers AIS PLAYBOX to enjoy home entertainment, namely TV, movies, series and Karaoke with high definition quality.
For more information about AIS Fibre, please visit www.ais.co.th/fibre.
As for our mid to long-term target, in 3-5 years, we target to be one of major players in fixed broadband market.
Generally, fixed broadband is a capital-intensive business. Our fixed broadband business is still in an early stage that coverage expansion and subscriber acquisition are the key focuses. It is too early to share detailed target on revenue and profit.
As of September 2016, AIS Fibre is available in 24 provinces in Thailand, achieving 2016 target. We expect to have a full coverage of Bangkok by the end of this year. In other provinces, main coverage is in urban areas. Plan for the rest of the year is to continue homepass expansion to reach more customers in various areas.
Apart from broadband internet, we also offer AIS PLAYBOX to enjoy home entertainment, namely TV, movies, series and Karaoke with high definition quality. Bundled AIS mobile service is yet to come in the future but currently AIS’s postpaid customers can get special discount for AIS Fibre.
Thai telecom market has three incumbents: AIS, DTAC, and TRUE. AIS has always been the market leader both in terms of revenue and subscriber market shares. The industry started with 1G and 2G technologies under concession where operators were granted the right to utilize spectrum frequencies under the Built-Transfer-Operate (BTO) contracts with state agencies.
After the NBTC was formed in 2010, the committees held the first auction on 2100MHz in 2012. This was a key industry revolution in the Thai telecom. Not only that the spectrum came under the license scheme, which aligns with the international practice that allows for fair competition and more favorable investment, but also supported operators to service new technology such as 3G and 4G responding to rising demand for mobile data.
As 2G has serviced Thai population for more than 20 years, adopting new technology of 3G needed a massive handset migration. Handset subsidy has started as a marketing tool since 2014. Today, 2G handset users remain around 15% of total mobile users and are decreasing from higher smartphone adoption. While majority of customers today use 3G, 4G device is rapidly increasing as price continues to come down and demand for faster speed increases.
4G service and competition in Thailand has become more eminent in 2015. Operators acquire and allocate more spectrum bandwidth for 4G network. The NBTC held more spectrum auctions on 1800MHz and 900MHz in November and December 2015, respectively, enhancing industry capacity to provide better 3G and 4G service. The game of fast mobile data on 4G became an acclaimed marketing voice in high-end customer segments and operators have been rolling out 4G network quickly to capture the demand in this high-ARPU market.
Although today's competition is intense in offerings for customers and subsidy campaign pressures industry margin, all operators are competing on the back of good network quality and seeking ways to monetize the high data-consumption growth.
The Thai mobile market is a three-player market with more than 120% penetration. As of 2Q16, there were 85mn mobile subscribers, of which around 85% were prepaid, from total population of 65mn. Due to the large prepaid population, price plans for prepaid are actively redesigned and launched. However, postpaid segment has also been growing fast in the past five years due to customer's desire to actively use mobile internet on a recurring basis. Postpaid customers on average generate ARPU of 3 times as much as prepaid. Majority of postpaid are non-contract while contract plan (handset bundled with price plan) is increasingly popular. Customers are able to switch to another operator anytime they wish without changing their mobile numbers under the mobile number portability system. Overall, the market environment is fairly active and competitive.
The fixed broadband market in Thailand has been developing fast, particularly in city areas. After AIS Fibre entered the market in 2015, the market has become a four-player field. As of 2Q16, there were 6.5mn households or 32% penetration connected with fixed broadband service, largely spreading among three incumbent operators (TRUE Online, 3BB, TOT) and around 115k from AIS Fibre. Majority of customers still rely on the ADSL technology, which can offer a good speed at below 20Mbps. As today’s contents such as live video streaming and HD-quality videos require higher speed and quality to play, the ADSL will not be able to serve customer demand efficiently. With the fibre technology, the provided speed can be up to 1Gbps. The market growth is increasingly driven by demand for better technology such as fibre while the need for household connectivity also rises following the urbanization trend.
There are several MVNOs in Thailand who lease the bandwidth and network equipment from the state-owned mobile network. However, MVNOs in Thailand rather targets niche market while the largest MVNO operator still has less than 1 million subscribers.
The current Telecom Act has been enforced and published in the Royal Gazette since 2001. The Thai version (no English version) of the Act can be found here. The Telecom Act explains in details about the types of licenses and criteria for a license holder, the use and connection of telecom network, standard of telecom network and equipment, rights of a license holder and customers, service contract and fee, regulation, enforcement and penalty.
Also, the regulator, NBTC, regulates the industry based on the NBTC Act which has been enforced since 2010. The unofficial English translation of the Act can be found here. The NBTC Act explains in details about the selection and roles of the NBTC, spectrum roadmap and allocation, regulations for broadcasting and telecom, the universal service obligation fund, and the NBTC office.
As Thailand is moving forward with its new economic model of Thailand 4.0, many parts of the governmental units are transforming. For telecom industry, currently a new draft of NBTC Act is being read by the National Legislative Assembly. The Thai version of the new draft can be found here. In addition, the current NBTC term will end in October 2017.
Price cap is a regulation that determines the maximum charge of service per unit that all operators are required to comply. For 4G service, the price cap of voice and data per unit must not exceed Bt0.69/minute and Bt0.26/MB, respectively. Currently, AIS' service charge already complies with the price cap.
Thai telecom has been on concession scheme since 1989 and each operator has different due of concession expiry. During concession, operators must build the network, transfer the ownership right of assets to the state, operate the business, and pay revenue sharing average of 20-30%. AIS’ concession on 1800MHz ended in September 2013 while the concession on 900MHz ended in September 2015. After the expiry of both concessions, the company stayed in the remedy period, an extended period similar to concession while auctions were to be held, until November 2015 for 1800MHz and 30 June 2016 for 900MHz. Today AIS fully runs on the license scheme regulated by the NBTC.
On the license scheme, operators can own assets and need to pay the license and USO fees of 5.25% of revenue to the NBTC. Moreover, operators are mandated to comply with the existing Telecom Act (2001), the NBTC Act (2010), and other regulations issued by the NBTC such as the single market power (SMP) regulation, price cap, and network quality control.