MANAGEMENT DISCUSSION AND ANALYSIS 1 OPERATION HIGHLIGHTS EARNINGS RECOVERY FROM LAST QUARTER Net income of the Company and its subsidiaries was Baht 2,929 million for the third quarter, a growth of 91.9% when compared with last quarter. The substantial improvement was due to the significantly lower provision for doubtful accounts and bad debt as well as extraordinary expenses. When compared with the same quarter of the prior year, net income of the Company and its subsidiaries increased 165.2%, primarily due to the substantial growth of the subscriber base. DIVESTMENT IN SUBSIDIARY In June, 2002 the company's subsidiary, Advance Paging Co., Ltd. (APG), returned the concession to TOT and in September, the Company realized, under equity method, Baht 25 million gain from divestment of APG. 2 ANALYSIS OF OPERATION RESULTS 2.1 CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE-MONTH ENDED 30 SEPTEMBER 2002 (3Q02) COMPARED WITH THE THREE-MONTH ENDED 30 JUNE 2002 (2Q02) The primary source of revenue of the Company and subsidiaries comprises of revenue from service and equipment rental and revenue from sales, deriving mainly from the Company's mobile phone business, data communication service business, and call center business. Revenue from service and equipment rental In 3Q02, revenue from service and equipment rental grew to Baht 15,024 million, an increase of Baht 678 million or 4.7% from 2Q02. The substantial growth of the subscriber base, especially pre-paid service users, sufficient to offset the effect of a decline in the average revenue per user (ARPU). The Company's mobile phone subscriber base grew from 7,836,710 subscribers in 2Q02 to 9,752,000 subscribers in 3Q02. The main factor was the high growth in the pre-paid phone service under the "One-2-Call!" brand, given the lower handset price, marketing and promotion activities. Subscribers of the prepaid service increased from 5,023,500 subscribers in 2Q02 to 7,040,200 subscribers in 3Q02. ARPU of GSM Advance and One-2-Call!, the main products of the Company, were Baht 1,131 and Baht 314 in 3Q02, down 5.8% and 11.5% from 2Q02. The declines were primarily due to continuing competitive promotion campaign, as well as due to the Company's larger and wider subscriber base. Revenue from sales Revenue from sales was Baht 4,537 million in 3Q02, a slight decline when compared with last quarter. Despite of the unlocking IMEI which resulting in lower handset selling price, the sale revenue remains stable. This is due to drastic increase in sales volume compensating the lower handset price. Cost of service and equipment rental Cost of service and equipment rental was Baht 7,498 million in 3Q02, increased Baht 203 million or 2.8% from 2Q02, due to the higher amortization costs of the mobile phone network hich was in-line with the continual expansion of the network. Cost of sales The intense competition in the mobile phone market affected the subsidiary company's sale and cost of sales, which increased 3.7% from Baht 3,237 million in 2Q02 to Baht 3,357 million in 3Q02. Selling and administration expenses The Company and subsidiaries' selling and administration expenses, excluding impact from foreign exchange, increased 3.6% from Baht 3,829 million in 2Q02 to Baht 3,968 million in 3Q02. This increase was primarily due to: * Additional staff incentive of Baht 160 million was accrued in-line with expected corporate performance. * NMT migration expense of Baht 528 million. * Loss from unwinding forward contract increased by Baht 106 million. * Decline in provision for doubtful accounts by Baht 886 million from previous quarter. Operating profit Operating profit, excluding gain or loss from foreign exchange, was Baht 4,738 million in 3Q02, an increase of 4.7% from Baht 4,524 million in 2Q02. However, if exclude extraordinary expenses of 1) NMT migration campaign totaling of Baht 528 million, and 2) Accelerated amortization of the NMT network in both 3Q02 and 2Q02 in the amount of Baht 161 million per quarter, the normalized operating profit of the Company in 3Q02 would be Baht 5,427 million, an increase of 15.6% from Baht 4,694 million in 2Q02. Gain (Loss) on Foreign Exchanges The Company and subsidiaries reported Baht 248 million in foreign exchange gain in 3Q02, as the Company's foreign currency deposit benefited from the depreciation of Baht in this quarter. Corporate income tax In 3Q02, the corporate income was Baht 1,515 million, Baht 287 million lower than previous quarter. This is due to loss on sale of investment in subsidiary "APG" of Baht 1,447 million, under the cost method, with the original cost of investment of Baht 1,703 million at selling price of Baht 256 million. 2.2 CONSOLIDATED FINANCIAL STATEMENT FOR THE THREE-MONTH ENDED 30 SEPTEMBER 2002 COMPARED WITH THE THREE-MONTH ENDED 30 SEPTEMBER 2001. Revenue from service and equipment rental In the third of quarter of this year revenue from service and equipment was 15,024 million, increase by Baht 4,429 million, or 41.8%, compared with the same quarter prior year, as a result of dramatic growth in the subscriber base. Prepaid subscribers grew from 1,438,300 subscribers at the end of third quarter prior year, to 7,040,200 subscribers as of the end of this quarter. Revenue from sales Income from sales was Baht 4,537 million in 3Q02, 0.2% lower compared to the same quarter prior year. Despite of the unlocking IMEI which resulting in lower handset selling price, the sale revenue remains stable. This is due to drastic increase in sales volume to compensate the lower handset price. Cost of service & rentals In 3Q02, cost of service & rentals of the Company and subsidiaries was Baht 7,498 million, increased by Baht 1,532 million or 25.7% compared to the same quarter prior year. The increase was a result of the increase in mobile phone network amortization as well as increase in revenue sharing with TOT Corporation Plc. in relation with the increase in service revenue. Cost of sales Cost of sales decreased from Baht 3,416 million in 3Q01 to Baht 3,357 million or 1.7% in 3Q02. Selling and administration expenses The Company and subsidiaries' selling and administration expenses, excluded gain or loss on exchange rate, increased from Baht 2,551 million in the 3Q01 to Baht 3,968 million in this quarter, or 55.5%. This increase was primarily came from followings: * Additional staff incentive of Baht 110 million was accrued in-line with expected corporate performance. * NMT migration expense of Baht 528 million. * Other marketing expenses increased by Baht 140 million. * Loss from unwinding forward contract increased by Baht 126 million. * Provision for doubtful accounts increased by Baht 209 million. * Collecting expenses increased by Baht 100 million. Interest expense Interest expense rose from Baht 412 million in 3Q01 to Baht 796 million in this quarter, as a result of the Company additional debenture issuances to finance its network expansion. Net profit Consequently, the Company and its subsidiaries have net profit of Baht 2,929 million in this quarter increased by Baht 1,825 million from 3Q01, or 165.31%. 3 ANALYSIS OF FINANCIAL POSITION 3.1 ANALYSIS OF ASSETS Cash on Hand and at Banks and Short-Term Investments At the end of the year 2001, the Company's cash on hand and at banks was Baht 15,284 million, and short-term investments was Baht 88 million (after reclassification). While at 30 September 2002, the amount of cash on hand and at banks was Baht 8,550 million, and short-term investments were Baht 63 million. The decrease was primarily due to the Company's continuing network investments. Trade Accounts Receivable - Net Net trade accounts receivable decreased from Baht 7,674 million in 2001 to Baht 6,759 million at the end of September 2002 as a result of higher proportion of prepaid revenues. Trade A/R turnover stood at 9.03 times in 2001, or an average debt collection period of 40 days, when compared with the trade A/R turnover of 11.91 times and the average debt collection period of 30 days in 2002. Besides, the Company has revised the service suspension criteria according to customer segments while the fraud control is more stringent. An intelligent database system is employed to enhance customer segmentation and asset management. For instance, a payment overdue warning is sent out to the customer who fails to make payment by the due date prior to the disconnection. Net Inventories Net inventories increased from Baht 2,238 at the end of the year 2001, went up to Baht 3,041 million at the end of September 2002. This rise reflects the continued growth in the sale of mobile handsets. Advance Payment to Suppliers Advance payment to suppliers for mobile phone network equipments increased from Baht 3,169 million at the end of the year 2001 to Baht 5,706 million at the end of September 2002. The Company has entered into negotiation with selected suppliers for advance payment to receive a cash discount and manage foreign exchange risks. The Company has entered into network equipment purchasing contracts with well-known, long-established relationship and financially sound suppliers under advance payment term. The Cost of Mobile Phone and Pager Networks and the Cost of Tools and Equipment for the Operation of Data Net Under the Joint Venture Agreement Net The net cost of mobile phone and pager networks and cost of tools and equipment for the operation of DataNet, under the joint venture agreement, rose from Baht 57,775 million at the end of the year 2001 to Baht 71,865 million at the end of September 2002. This is due to the Company's network expansion of the digital GSM system in Bangkok and the provinces. 3.2 ANALYSIS OF LIABILITIES Trade Accounts Payable Trade accounts payable, at the end of 2001, stood at Baht 10,701 million, or an average debt repayment period of 131 days. At the end of September 2002, trade accounts payable dropped to Baht 7,713 million, or an average debt repayment period of 103 days. The shorter debt repayment period, achieved by the advance payments to the suppliers for cash discount entitlement, has resulted in the decrease in trade A/P even though the network expansion continued. Long-term Debentures and Long-term Loans The Company recorded long-term debentures and long-term loans totaling Baht 41,184 million. During first nine months of year 2002 the Company issued debentures amounting to Baht 9,960 million and repaid long-term debentures worth Baht 6,357 million. With additional long-term loans and repaid long-term debts amounting Baht 1,300 million and Baht 726 million, respectively, the long-term debentures and loans increased to Baht 45,376 million in 3Q02. The portion of long-term debentures, maturing within 1 year, amounted to Baht 6,972 million, while the portion of long-term loans, due within 1 year, amounted to Baht 1,442 million. Accrued Concession Fee Accrued concession fee, as of the end of September 2002, was Baht 13,327 million, increasing from Baht 6,064 million at the end of 2001. An increase in total service revenue led to annual revenue sharing increase.Normally, the Company pays a minimal amount as set by the TOT in the concession agreements. The payment is made in 4 equal installments in January, April, July and October each year. The remaining payment beyond the minimum will be paid in November of that year. 3.3 ANALYSIS OF LIQUIDITY As part of the network coverage expansion as well as adding capacity, the Company continued to invest to cater high-quality service to its customers. As a result of strong subscriber growth, the Company's net cash flow from operating activities, during the first 9 months of this year was Baht 16,736 million. With 1) Baht 9,960 million proceeds from long-term debentures, 2) Baht 1,320 million from increase from financial leases and short-term loans drawdown, 3) Baht 8,089 million short-term & long-term debt repayments, 4) Baht 1,151 million payments of dividend, net cash receipts from financing activities stood at Baht 2,040 million. The net cash payments to investing activities were Baht 25,514 million. As a result, the net cash decreased by Baht 6,734 million. - 6 -