Management's Discussion and Analysis Overview As at end of December 2006, AIS and its subsidiaries ("The Group") had a total of 19.5 million mobile subscribers, comprising of 2.2 million postpaid subscribers (GSM Advance and GSM 1800) and 17.3 million prepaid (One-2-Call!) subscribers. This represented net additions of 3.1 million in 2006 or 19% subscriber growth from last year. For 4Q06, the Group added a total of 1.8 million subscribers, increased from 1.3 million for the nine-month period of 2006 (9M06) and 315,700 in 4Q05. Total revenues were Baht 91,428 million in 2006, a decline of 1.2% y-o-y from Baht 92,517 million in 2005. Service revenues were Baht 76,053 million in 2006, decreased 5.6% year-on-year (y-o-y) from Baht 80,534 million in 2005 due to aggressive market competitions. Sales revenues improved 28.3% y-o-y to Baht 15,375 million in 2006, from Baht 11,983 million in 2005, resulted from strong growth in handset sales. For 4Q06, the Group reported total revenues of Baht 22,328 million, a fall of 8% y-o-y but increased 1.9% quarter-on- quarter (q-o-q). Historically, service revenues in the fourth quarter are usually the highest of the year as it is a festive season with the highest usage. Nevertheless, service revenues in 4Q06 were relatively flat compared to 3Q06 due to relatively low usage during October to November. This could be a result of floods in many areas of Thailand since 3Q06. The Group incurred higher total cost of Baht 55,956 million in 2006, represented a 3.2% y-o-y increase from Baht 54,198 million in 2005 due mainly to higher cost of sales. Concession fee and excise tax as percentage to service revenues were 24.7% in 2006, increased from 23.9% in 2005 as a result of a full year impact from an increase in regulatory fee on postpaid service. SG&A expenses were Baht 11,421 million in 2006, increased 13.4% y-o-y from Baht 10,067 million in 2005 because of higher marketing expenses, administrative expenses and staff costs. In this period, the Group recorded other income of Baht 1,015 million, increased 74.1% y-o-y from Baht 583 million in 2005 mainly from interest income. Net profit was Baht 16,256 million in 2006, declined 13.2% from Baht 18,725 million in 2005. Results of operations - yearly comparison Million Baht FY2006 FY2005 % change Restated y-o-y Service revenue 76,053 80,534 (5.6%) Sales revenue 15,375 11,983 28.3% Total revenue 91,428 92,517 (1.2%) Total cost 55,956 54,198 3.2% Gross profit 35,473 38,318 (7.4%) SG&A 11,421 10,067 13.4% Earnings before tax 23,568 27,339 (13.8%) Net profit 16,256 18,725 (13.2%) Revenues & Profitability Total Revenue Total revenues were Baht 91,428 million in 2006, a decline of 1.2% y-o-y from Baht 92,517 million in 2005. Of total revenues, 83.2% represented revenues from mobile services and the rest 16.8% was from handset and SIM card sales. Service revenues were Baht 76,053 million in 2006, decreased 5.6% y-o-y from Baht 80,534 million in 2005 despite of 19% subscriber growth due mainly to aggressive tariff plans in tough competitive environment during 2006. In 4Q06, the Group reported total revenues of Baht 22,328 million, a fall of 8% y-o-y but increased 1.9% quarter-on-quarter (q-o-q). Historically, service revenues in the fourth quarter are usually the highest of the year as it is a festive season with the highest usage. Nevertheless, service revenues in 4Q06 were relatively flat compared to 3Q06 due to relatively low usage during October to November. This could be a result of floods in many areas of Thailand since 3Q06. Sales revenues increased 28.3% y-o-y to Baht 15,375 million in 2006 from Baht 11,983 million in 2005 attributed to strong growth in handset sales. Sales revenue represented 16.8% of total revenue, increased from 13% in 2005. Total Cost Total cost includes cost of services and equipment rentals, concession fee and excise tax, and cost of sales. In 2006 The Group incurred Baht 55,956 million of total cost, increased 3.2% y-o-y from Baht 54,198 million in 2005. Cost of services and equipment rentals were Baht 23,139 million in 2006, decreased 4.4% y-o-y from Baht 24,205 million in 2005 attributed to a fall of network amortization cost as some assets under concession agreement had been fully amortized. In 2006, the Group started to book a numbering fee to the National Telecommunications Commission (NTC) at Baht1/number/month for existing number received before September 2006 and at Baht2/number/month for new number granted by NTC. The concession fee and excise tax were Baht 18,754 million in 2006, decreased 2.4% y-o-y from Baht 19,215 million in 2005. Concession fee and excise tax as percentage of service revenue in 2006 was 24.7%, increased from 23.9% in 2005 as a result of a full year impact from an increase in regulatory fee on postpaid service. Regulatory fee for GSM Advance increased from 25% to the highest step of 30% since October 2005 while that of GSM 1800 increased from 20% to 25% since September 2006. Cost of sales were Baht 14,063 million in 2006 increased 30.5% y-o-y from Baht 10,778 million in 2005. This represented sales margin of 8.5% in 2006 compared to 10% in 2005 due to pressured handset margin in the market and a clearance of stock at year-end. Selling and administrative expenses were Baht 11,421 million in 2006, represented an increase of 13.4% y-o-y from Baht 10,067 million in 2005 due to higher marketing expenses, administrative expenses and staff costs. In 2006, marketing expenses to total revenues grew to 3.7% from 2.9% in 2005 due to increasing marketing activities and spending on refreshments of the Group's three brands - GSM Advance, One-2-call! and Sawasdee. Staff costs rose 26% as the group has under provided staff bonus for FY05. This caused lower-than-usual staff expense in FY05 but higher-than-usual staff expense in FY06. The Group incurred a slight increase of interest expenses of Baht 1,538 million in 2006, increased slightly from Baht 1,529 million in 2005 despite of higher borrowings because new debenture and syndicated loan were borrowed during the end of the year. The Group issued long-term debentures of total Baht 11,427 million around end of 3Q06 and borrowed a JPY-denominated syndicated loan which was fully-swap into Thai Baht in total of Baht 9,485 million in 4Q06. The purpose of borrowing was to finance capital expenditure, refinance matured debts and support its operations. Net Profit The Group posted a net profit of Baht 16,256 million in 2006, a fall of 13.2% y-o-y from Baht 18,725 million in 2005. Liquidity As at end of December 2006, current ratio improved to 74% from 55% as of December 2005. This was resulted from an increase in amount of cash and cash equivalents, handset inventories and prepaid expenses for refill card. Current assets As of 31 December 2006, the Group's current assets was Baht 22,893 million, increased 12.5% from Baht 20,347 million as of 31 December 2005 due to increase in cash, handset inventories and prepaid expenses for refill card. Current liabilities Total current liabilities decreased to Baht 31,039 million as at end of December 2006 from Baht 36,734 million at the end of December 2005 due to decrease in current portion of long-term debt. 31 December 2006 31 December 2005 Million Baht % Total Million Baht % Total Liabilities Liabilities Short term loans from financial institution 1,000 1.8% - - Trade accounts payable 5,760 10.2% 4,520 9.4% Current portion of long-term debentures, net, and long-term borrowings 6,507 11.5% 14,241 29.7% Concession right payable, accrued concession fee and excise tax 7,155 12.6% 7,354 15.3% Other current liabilities 10,616 18.7% 10,619 22.1% Assets Total assets, as of 31 December 2006 was Baht 134,301 million, grew by Baht 6,341 million from Baht 127,960 million as of 31 December 2005. The increase came from increases in cash & cash equivalents and asset under concession agreement as the Company continued to invest in network capacity and quality. Current assets accounted for 17.0% of total assets. Details of major items were as follows. 31 December 2006 31 December 2005 Million Baht % of Total Million Baht % of Total Assets Assets Current assets 22,893 17.0% 20,347 15.9% Property, plant and equipment, net 7,797 5.8% 8,259 6.5% Asset under concession agreement, net 81,096 60.4% 75,843 59.3% Deferred tax assets 9,763 7.3% 8,946 7.0% Other non-current assets 12,752 9.5% 14,565 11.4% Capital structure The Group's balance sheet and capital structure remained strong which support company's ability to continue high dividend payout. The strong capital structure reflected in low total liabilities to equity at 73% as of 31 December 2006, compared to 60% as of 31 December 2005. The increase in ratio was a result of an increase in total borrowings in this period. Net debt to equity (Net debt = total debentures and borrowings minus cash) also increased to 26% as of 31 December 2006 from 18% as of 31 December 2005. Despite of increased leverage, the Group has its credit rating maintained at AA from TRIS and A- from S&P. This also supports the company to continue paying high dividend. Debentures and Loans As at end of December 2006, the Group had total debentures and borrowings of Baht 33,149 million, rising from Baht 25,451 million in 2005. In 3Q06, the Group issued long-term debentures of Baht 11,427 million and in 4Q06 borrowed a JPY-denominated syndicated loan which was fully-swap into Thai Baht in total of Baht 9,485 million. The purpose of borrowings was to finance capital expenditure, refinance matured debts and support its operations. The issued debentures have 3-7 years of maturity with an average interest rate of 5.90% per annum. Syndicated loan has a 5-year maturity with a bullet payment and average interest rate of ~5.4-5.6% per annum. 31 December 2006 31 December 2005 Million Baht % Total Million Baht % Total Liabilities Liabilities Short term borrowing 1,000 1.8% - - Current portion of long-term debentures, net, and long-term borrowings 6,507 11.5% 14,241 29.7% Long-term debentures, net, and long-term borrowings 25,642* 45.2% 11,210 23.3% Total interest bearing debts 33,149 58.5% 25,451 53.0% * JPY-denominated syndicated loan swap into Thai Baht in total of Baht 9,485 million Shareholders' equity The Group's shareholder's equity decreased to Baht 77,599 million as of 31 December 2006 from Baht 79,935 million as of 31 December 2005, mainly due to dividend payment of total Baht 18,669 million. Cash Flow In 2006, cash flow position remained strong. The Group generated net cash flow from operations (after interest, tax, and changes in working capital) of Baht 35,026 million and had proceed from short term loan, new debentures and borrowings of Baht 21,895 million. The use of funds was to spend on capital expenditure of Baht 20,097 million, repay long term debenture of Baht 14,250 million, repay financial lease of Baht 16.5 million, and dividend payment of Baht 18,669 million. The rest amount was kept as cash on hand.