Management's Discussion and Analysis Overview For the 1Q07, AIS and its subsidiaries ("The Group") added in total 1.57 million subscribers, representing an 8% growth from the end of year 2006, of which 1.18 millions were prepaid subscribers and 0.38 millions postpaid subscribers. Subscriber growth was mainly contributed by promotions such as "Aow Pai Leay Bt1 per call", "Aow Pai Leay Bt0.25", "GSM S package" and "GSM S Plus". The subscriber base reached 21.1 millions, comprising of 2.6 million postpaid subscribers and 18.5 million prepaid subscribers. Total revenues in 1Q07 were Bt23,498 million, declined 4.8% yoy from Bt24,688 million in 1Q06 but improved 5.2% over 4Q06. Service revenues in 1Q07 declined 8.3% yoy to Bt19,493 million as average tariffs and ARPU (Average revenue per user) in 1Q06 were relatively high. On the other hand, the service revenues improved 6.4% from the previous quarter on the back of strong subscriber growth and relatively stable tariffs. Sales revenue increased 17% yoy to Bt4,006 million from higher units sales of handset. Sales were stable compared to the previous quarter. Total cost slightly increased 1.2% yoy to Bt14,293 million in 1Q07, due to higher cost of sales which grew 22.5% yoy to Bt3,676 million, while cost of service slightly declined 1.2% yoy to Bt5,802 million and concession fee declined 8.2% yoy in proportionate to revenue decline. Total cost increased 2.2% from 4Q06 as both cost of service and cost of sales grew at about the same rates. SG&A expenses were Bt3,126 million, increased 11.0% yoy from higher marketing expenses as 1Q06 spending was unusually low. SG&A fell 8.7% as very high marketing activities in 4Q06 returned to a rather normal pace in 1Q07. Interest expense increased 36.3% yoy to Bt448 million as the Group's total outstanding debt in 1Q07 increased to Bt28,402 million from Bt23,963 million in 1Q06. Interest expense was higher in 4Q06 during the period of refinancing debts. The Group recorded net profit of Bt3,984 million for the period, a 24.7% decline from Bt5,290 million in 1Q06 but improved 25.0% from Bt3,187m in 4Q06. % % (Bt million) 1Q07 1Q06 change 4Q06 change yoy qoq Service revenue 19,493 21,267 -8.3% 18,317 6.4% Sales revenue 4,006 3,421 17.1% 4,011 -0.1% Total revenue 23,498 24,688 -4.8% 22,328 5.2% Total cost 14,293 14,123 1.2% 13,989 2.2% Gross profit 9,206 10,565 -12.9% 8,340 10.4% SG&A 3,126 2,817 11.0% 3,424 -8.7% Earnings before interest and tax 6,269 8,036 -22.0% 5,160 21.5% Net profit 3,984 5,290 -24.7% 3,187 25.0% Revenues & Profitability Total Revenue In 1Q07, total revenues consist of (1) 83.0% service revenues and rentals (2) 17.0% sales of handsets and SIM cards. Total revenues in 1Q07 were Bt23, 498 million, declined 4.8% yoy from Bt24,688 million in 1Q06 as a result of a decline in service revenues. Compared to the previous quarter, total revenues however increased 5.2% qoq from Bt22,328 million in 4Q06 due to an increase in service revenue. (1) Service revenues were Bt19,493 million in 1Q07, declined 8.3% yoy from Bt21,267 million in 1Q06 when average tariffs and ARPU were relatively high. 1Q06 was a strong quarter, compared to 1Q07 and also the rest of 2006, in term of average tariffs, ARPU, and service revenue due to tariffs increase for the low-price promotions at the beginning of year 2006. Compared to 4Q06, service revenue in 1Q07 increased 6.4% qoq due to strong growth in subscriber base and relatively stable tariffs during the quarter. (2) Sales revenue increased 17.1% yoy to Bt4,006 million from higher units sales of handset, but was relatively flat compared to 4Q06 due to lower average price of handsets albeit at higher units sold. Total Cost Total cost comprises of (1) cost of services and equipment rentals, (2) concession fee and excise tax, and (3) cost of sales. For the 1Q07, the Group incurred total cost of Bt14,293 million, which increased 1.2% y-o-y from Baht 14,123 million in 1Q06, and increased 2.2% qoq from Bt13,989 million in 4Q06. (1) Cost of services and equipment rentals in 1Q07 were Bt5,802 million, slightly decreased 1.2% yoy from Bt 5,876 million in 1Q06 when amortization cost was relatively high. However, when compared to the previous quarter, cost of services increased 2.3% qoq from Bt5,675 million in 4Q06 as amortization cost and other network-related cost starts to pick up following network investment spent last year. (2) Concession fee and excise tax were Bt 4,814 million in 1Q07, declined 8.2% yoy from Bt 5,247 million in 1Q06 and increased 5.8% qoq from Bt4,550 million in 4Q06 following proportionate decline/increase in service revenues. Starting from 27 February 2007, following the Ministerial Notification from Ministry of Finance and the Cabinet approval, excise tax on telecommunications service has been reduced to zero percent. As a result, instead of previous practice of deducting 10% excise tax from revenue share paid to TOT, the Group currently pays a full amount of revenue share to TOT. Concession fee and excise tax as percentage of service revenue remains the same at 24.7% in 1Q07, compared to 24.7% in 1Q06 and 24.8% in 4Q06. (3) Cost of sales in 1Q07 was Bt 3,676 million, increased 22.5% yoy from Bt3,000 million in 1Q06 following higher unit sales of handsets. Compared to the previous quarter, cost of sales declined 2.3% qoq from Bt3,764 million in 4Q06 from lower average price of handsets despite unit sold was increased. Sales margin in 1Q07 was 8.2% compared to 12.3% in 1Q06 and 6.2% in 4Q06; this is usually fluctuated from quarter to quarter depending on different margins from different handset models sold in each period. Selling and administrative expenses (SG&A) SG&A expenses were Bt 3,126 million in 1Q07, represented an 11.0% yoy increase from Bt 2,817 million in 1Q06 but declined 8.7% qoq from Bt3,424 million in 4Q06 due to marketing expenses. Marketing spending in 1Q07, the same level to spending for the full year 2006, was 3.7% of total revenues, compared to the unusually low at 2.2% of total revenues in 1Q06 when marketing activities were slowed down. On contrary, the qoq decline was a result of the significant high spending in brand and distribution at 6.0% of total revenues in 4Q06. Interest expense Interest expense increased 36.3% yoy to Bt448 million as the Group's total outstanding debt in 1Q07 increased to Bt28,402 million from Bt23,963 million in 1Q06. Compared to the previous quarter, interest expense declined 12.5% qoq from the unusually high Bt511 million in 4Q06 due to drawdown of Bt11,427 million new debenture in late 3Q06 before repayment of the old Bt10,000 million later in November 2006. Net Profit The Group recorded net profit of Bt3,984 million for the period, a 24.7% decline from Bt5,290 million in 1Q06 but improved 25.0% from Bt3,187m in 4Q06. Liquidity At the end of 1Q07, current ratio improved to 81% from 74% at the end of 4Q06 due to increase in VAT receivables, trade receivables, and cash. Current assets The Group's current assets as of 31 March 2007 were Bt 25,150 million, an increase of 9.9% from Bt22,893 million at the end of 4Q06 as a result of increase in VAT receivables, trade receivables, and cash. Cash and cash equivalents represent 53% of current assets. 31 March 2007 31 December 2006 Million % Total Million % Total Baht assets Baht assets Cash and cash equivalents 13,248 9.6% 12,742 9.5% Trade receivables 5,543 4.0% 4,898 3.6% VAT receivables 1,806 1.3% 464 0.3% Inventories for network spare part 1,531 1.1% 2,055 1.5% Other current assets 3,022 2.2% 2,733 2.0% Total current assets 25,150 18.3% 22,893 17.0% Current liabilities Current liabilities slightly increased to Bt31,205 million from Bt 31,039 million at the end of 4Q06, despite of repayment of short-term loan and current portion of long-term debt, due to increase in trade payable, accrued concession fee and excise tax, and income tax payable. 31 March 2007 31 December 2006 Million % Total Million % Total Baht Liabilities Baht Liabilities Short term loans - - 1,000 1.8% Trade payable 6,671 11.9% 5,760 10.2% ortion of long-term debt due in 1 year 3,509 6.3% 6,507 11.5% Concession right payable, accrued concession fee and excise tax 8,045 14.3% 7,155 12.6% Unearned income 3,724 6.6% 3,659 6.5% Income tax payable 4,613 8.2% 2,963 5.2% Other current liabilities 4,644 8.3% 3,994 7.0% Total current liabilities 31,205 55.6% 31,039 54.7% Assets Total assets as of 31 March 2007 was Bt137,742 million, grew by Bt3,441 million from Bt 134,301 million as of 31 December 2006, The increase mainly came from rises in current assets and asset under concession agreement as the Group continued to invest in network capacity and quality. Fixed assets including Property Plant and Equipment and assets under concession, which mainly utilized to operate mobile network, represented 65.5% of total assets. 31 March 2007 31 December 2006 Million % of Million % of Total Total Baht assets Baht Assets Current assets 25,150 18.3% 22,893 17.0% Property, plant and equipment, net 8,369 6.1% 7,797 5.8% Asset under concession agreement, net 81,860 59.4% 81,096 60.4% Intangible assets 11,819 8.6% 12,197 9.1% Deferred tax assets 9,917 7.2% 9,763 7.3% Other non-current assets 626 0.5% 555 0.4% Total assets 137,742 100% 134,301 100% Capital structure The Group's capital structure remained strong with low leverage, as shown in three key ratios below. Total liabilities to equity at the end of 1Q07 were 69% declined from 73% at the end of 4Q06 due to repayment of debenture during the quarter. Debt to equity also declined to 35% from 43%. Net debt to equity (Net debt = total debentures and borrowings minus cash) declined to 19% from 26%. 31 March 2007 31 December 2006 Total liabilities to equity 69% 73% Debt to equity 35% 43% Net debt to equity 19% 26% Debentures and Loans As of 31 March 2007, the Group had total debentures and borrowings of Bt28,402 million, declined from Bt33,149 million at the end of 4Q06. The decline was from retirement of Bt3,750 million of long-term debentures and repayment of B1,000 million of short-term borrowing. 31 March 2007 31 December 2006 Million % Total Million % Total Baht Liabilities Baht Liabilities Short term borrowing - - 1,000 1.8% Portion of long-term debt due in 1 year 3,509 6.3% 6,507 11.5% Long-term debt 24,893* 44.4% 25,642* 45.2% Total debts 28,402 50.6% 33,149 58.5% * including swap contract payable incurred from JPY-denominated syndicated loan which was swapped into Thai Baht in total of Baht 9,485 million Shareholders' equity The Group's shareholder's equity increased to Bt81,632 million at the end of 1Q07 from Bt77,599 million at the end of 4Q06, mainly as a result of increase in retained earnings from net profit during the period of Bt3,984 million. Cash Flow For the three-month period, the Group generated Bt9,854 million of cash flow from operations (after interest, tax, and changes in working capital). Of this amount, the Group mainly spent Bt4,516 million on network investment and repaid Bt4,750 million of short-term loans and long-term debentures. The rest was kept as cash on hand. Change in accounting policy: Change from equity method to cost method for investment in subsidiary and associated companies In the 1Q07, the Company changed its accounting policy for its investment in subsidiaries from equity method to cost method in compliance to the Notification No.26/2006 issued by the Federation of Accounting Professions regarding the Accounting Standard No. 44 "Consolidated Financial Statements and Accounting for Investments in Subsidiaries" (Amendment No. 1). The Company's stand-alone financial statements for 1Q06 and the balance sheet for the year ended 2006 were restated for comparison. The change in accounting policy to cost method has no impact to the consolidated financial statement which remains unchanged. The effects of the retrospective adjustments to the Company's (stand-alone) balance sheet as of 31 December 2006 and the Company's statement of income for the three-month period ended 31 March 2006 are as follows: Balance sheets as at 31 December 2006 Restated Million Baht Decrease in investments in subsidiaries Impact from the change from equity to cost method 1,723 Impact from impairment loss to investment at cost 6,025 Decrease in investments in subsidiaries, net 7,748 Shareholders' equity Decrease in unrealised gain from dilution of investment 161 as at 1 January 2006 and 31 December 2006 Decrease in retained earnings as at 31 December 2006 7,587 Decrease in retained earnings as at 1 January 2006 8,814 Statements of income for the three-month period Restated ended 31 March 2006 Million Baht Decrease in net profit for the period 773 Decrease in basic earnings per share (Baht) 0.26 Decrease in diluted earnings per share (Baht) 0.26