Management's Discussion and Analysis Overview For 2Q06, the Group reported total of 17,317,900 mobile phone subscribers, comprising of 1,911,900 postpaid subscribers (GSM Advance and GSM 1800) and 15,406,000 prepaid (One-2-Call!) subscribers. This represented an increase of 684,000 subscribers during the period, compared to net increase of 225,000 subscribers in 1Q06. The substantial increase in subscribers was a result of the Group's aggressive promotions to attract and retain subscribers after an ease of pressure from political activities in 1Q06. Service revenues in 2Q06 were Baht 18,422 million, decreased 6.9% y-o-y and 13.4% q-o-q due to seasonality and low tariffs offered during the period. Of total service revenues in 2Q06, approximately 65% represented revenues from prepaid services, 28% from postpaid services, 4% from international roaming and 3% from other services. Revenue from sales showed a significant growth to Baht 4,086 million in 2Q06 compared to Baht 3,421 million in 1Q06, representing an increase of 61.7% y-o-y and 19.4% q-o-q. As a result, the Group generated total revenues of Baht 22,508 million, increased 0.9% y-o-y but decreased 8.8% q-o-q. Earnings before interest, tax, depreciation and amortization (EBITDA) was Baht 10,496 million in 2Q06 compared to Baht 12,364 million in 1Q06. This represented an EBITDA margin of 46.6% in 2Q06 compared to 50.1% in 1Q06. The decline in EBITDA in 2Q06 was due to increased marketing expenses and higher proportion of handset sales which generated lower margin than services. The Group reported a net profit of Baht 4,126 million in 2Q06, declined 5.1% y-o-y and 22% q-o-q. For the first six-month period of 2006 (1H06), the Group generated total revenues of Baht 47,196 million, represented a growth of 2.5% from Baht 46,030 million in the same period of last year. Net profit was Baht 9,415 million, declined 5.2% compared to Baht 9,930 million in 1H05. Results of operations - Quarterly Comparison Million Baht 2Q06 1Q06 % 2Q05 % change restated change q-o-q y-o-y Service revenue 18,422 21,267 (13.4%) 19,781 (6.9%) Sales revenue 4,086 3,421 19.4% 2,527 61.7% Total revenue 22,508 24,688 (8.8%) 22,308 0.9% Total cost 13,968 14,123 (1.1%) 13,035 7.1% Gross profit 8,540 10,565 (19.2%) 9,273 (7.9%) SG&A 2,559 2,817 (9.2%) 2,653 (3.5%) Earnings before tax 5,919 7,708 (23.2%) 6,338 (6.6%) Net profit 4,126 5,290 (22.0%) 4,345 (5.1%) 1H06 (6-mths)1H05 (6-mths) restated% change y-o-y Service revenue 39,689 40,967 (3.1%) Sales revenue 7,507 5,063 48.2% Total revenue 47,196 46,030 2.5% Total cost 28,091 26,029 7.9% Gross profit 19,106 20,002 (4.5%) SG&A 5,376 5,035 6.8% Earnings before tax 13,626 14,459 (5.8%) Net profit 9,415 9,930 (5.2%) Revenues & Profitability Total Revenue The Group reported the service revenues of Baht 18,422 million in 2Q06, a fall of 6.9% y-o-y and 13.4% q-o-q due to seasonal effect and low tariff package offerings. As the competition in the market remained intense, the Group had launched low tariff offerings to retain its subscriber base, which led to service revenues decline in this quarter. Revenues from handset and SIM card sales were Baht 4,086 million in 2Q06, represented a growth of 61.7% y-o-y and 19.4% q-o-q. The substantial growth in sales revenues were driven by a significant increase in unit sale due to a change in distribution strategy during the quarter. As a result, total revenues were posted at Baht 22,508 million in 2Q06, decreased 8.8% from Baht 24,688 million in 1Q06. For the first six month period ended June 2006, the Group generated total revenues of Baht 47,196 million, increased 2.5% from Baht 46,030 million in the same period of last year. The revenue increase was mainly because of higher handset sales. Total Cost Total cost includes cost of services and equipment rentals, concession fee and excise tax, and cost of sales. In 2Q06 The Group incurred Baht 13,968 million of total cost, increased 7.2% y-o-y but declined 1.1% q-o-q. Cost of services and equipment rentals remained relatively stable q-o-q at Baht 5,762 million in this quarter compared to Baht 5,876 million in 1Q06, but declined 5% y-o-y compared with Baht 6,064 million in 2Q05 due mainly to lower amortization as some portion of assets under concession agreement had been fully amortized. The concession fee and excise tax were Baht 4,546 million, decreased 2.3% y-o-y and 13.4% q-o-q attributed to lower service revenues during the period. This represented an effective concession fee and excise tax of 25% to service revenue. During the period, the rate of combined concession fee and excise tax was 30% for postpaid service and 20% for prepaid. Cost of sales increased to Baht 3,660 million in 2Q06 from Baht 3,000 million in 1Q06 due to higher volume sales but lower handset and SIM card margins. Sales margin were usually fluctuated from quarter to quarter. In 2Q06, sales margin dropped to 10.4% compared to 12.3% in the previous quarter. Selling and administrative expenses were Baht 2,559 million in 2Q06, a fall of 3.5% y-o-y and 9.2% q-o-q, despite an increase in marketing expense. This was attributed to lower bad debt expenses and effective operating cost control. Net Profit The Group posted a net profit of Baht 4,126 million in 2Q06, a fall of 5.1% y-o-y and 22% q-o-q. For the six-month period, net profit was Baht 9,415 million, declined 5.2% compared to Baht 9,930 million in 1H05. Liquidity During the first six month period of 2006, current ratio slightly decreased to 54% as at end of June 2006 from 71% as at end of March 2006. This was resulted from lower amount of cash and cash equivalents from Baht 20,059 million in 1Q06 to Baht 13,817 million in 2Q06 after the Group paid dividend of Baht 3.30 per share or Baht 9,765 million on 8 May 2006. Current assets As of 30 June 2006, the Group's current assets was Baht 22,962 million, decreased by Baht 6,332 million or 21.6% from Baht 29,294 million as of 31 March 2006. The main reason was a decrease in cash and cash equivalents which were used to support a dividend payment in this period. Current liabilities Current liabilities was Baht 42,266 million as of the end of June 2006, increased from Baht 41,507 million at the end of March 2006 primarily due to increase in trade accounts payable. As of 30 June 2006, the current portion of long-term debts and debentures increased slightly to Baht 16,499 million from Baht 16,495 million as of 31 March 2006. 30 June 2006 31 March 2006 Million % Total Million % Total Baht Liabilities Baht Liabilities Trade accounts payable 5,794 11.9% 3,991 8.1% Current portion of long-term borrowings & debentures 16,499 33.8% 16,495 33.6% Concession right payable, accrued concession fee and excise tax 8,284 17.0% 7,968 16.3% Other current liabilities 11,689 24.0% 13,053 26.6% Assets As of 30 June 2006, total assets amounted to Baht 128,422 million, a decrease of 4.4% from Baht 134,302 million as of 31 March 2006. The reason was a decrease in cash and cash equivalents. Assets under concession agreement increased to Baht 74,716 million as of 30 June 2006 from Baht 73,610 million as of 31 March 2006 following investment in network quality and coverage expansion. Current assets accounted for 17.9% of total assets while non-current assets stood at 82.1%. Details of major items were as follows. 30 June 2006 31 March 2006 Million % of Million % of Baht Total Baht Total assets assets Current assets 22,962 17.9% 29,294 21.8% Property, plant and equipment, net 9,172 7.2% 9,581 7.1% Asset under concession agreement, net 74,716 58.2% 73,610 54.8% Deferred tax asset 9,266 7.2% 9,089 6.8% Other non-current assets 12,306 9.6% 12,728 9.5% Capital structure The Group's balance sheet remained healthy with strong capital structure. Total liabilities to equity increased to 61% as of 30 June 2006 from 58% as of 31 March 2006. Net debt (Total debentures and long-term borrowings minus cash) to equity increased to 11.5% as of 30 June 2006 compared to 4.6% as of 31 March 2006 after the dividend payment in the period. Debentures and Loans Debentures and loans were Baht 22,968 million as of 30 June 2006, decreased from Baht 23,963 million as of 31 March 2006. The company repaid long-term debentures and financial lease of Baht 1,003 million in this quarter. For the first six month period ended June 2006, the company had repaid long-term debentures and financial lease for the total amount of Baht 2,508 million. 30 June 2006 31 March 2006 Million % Total Million % Total Baht Liabilities Baht Liabilities Current portion of long-term borrowings & debentures 16,499 33.8% 16,495 33.6% Long-term borrowings 24 0.05% 25 0.1% Long-term debentures 6,445 13.2% 7,443 15.2% Total long-term borrowings 22,968 47.1% 23,963 48.9% Shareholders'equity The Group's shareholders' equity decreased from Baht 85,260 million as of 31 March 2006 to Baht 79,635 million as of 30 June 2006, mainly due to a dividend payment of total Baht 9,765 million. Cash Flow The Group has strong and steady cash flow attributed to its profitable operations. For the first six month period of 2006, the Group generated an operating cash flow of Baht 19,696 million, which was abundant to support investment activities, reduce long-term debentures and pay a dividend in this period. An increase in cash of Baht 2,156 million was kept on the balance sheet, reserving for future operating and investment activities.