Management Discussion & Analysis 1Q08 OPERATIONAL HIGHLIGHTS - Subscriber reached 25.1m with improving quality net additions of 982k for 1Q08 - ARPU and MOU rose q-o-q from higher usage - RPM continued downward trend from off-peak usage Subscriber as of March 2008 was 25.1m. Net additions for 1Q08 were 982k,increased from 901k in 4Q07. Subscriber growth remained strong particularly from the northeast area. New acquisition was strong on prepaid while postpaid continued to improve on quality acquisition. Prepaid subscribers grew 943k for the quarter, compared to 1m in 4Q07. While new acquisition continued to be strong, churn also rose to 4.4% from 3.9% in 4Q07. The prepaid churn rate has been trending upward since 2H07 following the growth of multiple SIM in the industry. In fact,high churn rate reflects certain limit to the proliferation of multiple SIM and hence slowdown ARPU dilution. On q-o-q basis, ARPU and MOU continued to increase following higher usage. Prepaid ARPU excl. IC increased 1.8% q-o-q while MOU rose 8.8% q-o-q. Overall prepaid outgoing minute traffic grew 14% q-o-q mainly from higher usage on off-peak packages (e.g.10pm-10am, 6am-6pm) which continued to pressure revenue per minute. RPM declined to Bt0.90 from Bt0.95 in 4Q07. Postpaid net additions turned positive for 1Q08 amounted to 39k due to significantly lower churn rate which declined to 1.9% from 4.7% in 4Q07. The lower churn reflects (1) improving of overall quality of subscriber base as well as healthy new subscriber acquisition during the previous quarter, and (2) the ending of the clean-up exercise of low-quality subscribers, which was the problem of bad debt last year. Postpaid ARPU excl. IC rose 1.7% q-o-q from higher usage as MOU rose 3.7% q-o-q.New tariff plans in the 1Q08 focused on selling off-peak minutes at discount to the peak hours.This resulted in (1) better utilization of traffic at different hours in a day, (2) higher outgoing traffic relative to incoming traffic, and (3) incremental revenue on under-utilized capacity. CHANGE IN ACCOUNTING STANDARD TAS 43 Business Combinations (impact to goodwill amortization) During 2007, the Federation of Accounting Professions issued Thai Accounting Standard (TAS) 43 (revised 2007) "Business Combinations" which is effective for accounting periods beginning on or after 1 January 2008. Since 1 January 2008 the Group has prospectively applied change in accounting policy for goodwill as the followings: - From the beginning of the first annual period beginning on or after 1 Jan 2008, discontinue amortizing such goodwill - From the beginning of the first annual period beginning on or after 1 Jan 2008, test the goodwill for impairment in accordance with relevant Thai Accounting Standards.. The effect of the change in accounting policy on the Group's consolidated financial statements for the three-month period ended 31 March 2008 is to discontinue amortizing goodwill by Baht 292.02 million. As at 31 March 2008, the Group has impairment for goodwill as Baht 15.14 million. FINANCIAL RESULTS - Continued growth momentum of 9.9% y-o-y underlying service revenue - Growth drivers were from prepaid, non-voice, and international call - Non-voice revenue contributed 12.5% of service revenue from 11% in FY07 Service revenue (Bt million) Service revenue excluding IC 1Q08 1Q07 4Q07 y-o-y q-o-q Postpaid (voice + data) 4,900 22.9% 5,489 28.2% 4,847 24.1% -10.7% 1.1% Prepaid (voice + data) 14,111 65.9% 12,203 62.6% 13,350 66.4% 15.6% 7% International roaming 1,147 5.4% 1,009 5.2% 1,025 5.1% 13.7% 11.9% Others (IDD, other fees) 1,268 5.9% 792 4.1% 890 4.4% 60.2% 2.5% 21,426 100% 19,493 100% 20,112 100% 9.9% 6.5% Service revenue excluding interconnection revenue for 1Q08 were Bt21,426m, grew 9.9% y-o-y and 6.5% q-o-q due to strong growth on prepaid, non-voice and international call. Prepaid revenue (voice and non-voice), which represents 66% of service revenue (excl. IC) compared to 63% in 1Q07, grew 15.6% y-o-y and 5.7% q-o-q from strong subscriber growth and higher usage across all regional segments. Growth in the northeast area was relatively outperforming other regions. The off-peak packages despite pressuring RPM also contributed higher revenue both y-o-y and q-o-q. Postpaid revenue declined 10.7% y-o-y due to lower postpaid subscribers following clean-up of low-quality subscribers acquired in early 2007. On q-o-q basis, revenue was increased 1.1% from higher subscriber and increased ARPU. As of 1Q08 postpaid portion shared less contribution of 23% to service revenue, compared to 28% in 1Q07. Non-voice revenue grew 26% y-o-y to Bt2,674m, represented 12.5% of service revenue (excl.IC) compared to 10.9% in 1Q07. Key growth areas were from EDGE-data usage such as mobile internet, downloads and MMS which grew 73% y-o-y while SMS grew 24% y-o-y following strong subscriber growth. International call represented 3.6% of service revenue (excl. IC), compared to 1.1% in 1Q07 and 1.7% in 4Q07. The larger contribution was due to the full service on AIN internationaltelephone gateway which currently transports all the traffic dialed via the default (+) sign for both AIS subscribers and foreign roamers. Interconnection revenue/cost Interconnection (Bt million) 1Q07 2Q07 3Q07 4Q07 1Q08 Revenue 2,656 5,217 4,357 4,301 4,256 Cost 2,154 4,101 3,842 3,956 4,139 Net interconnection 501 1,116 515 345 117 * Recognition of IC in 2007 was fully realized only in 4Q07 Interconnection (IC) revenue for 1Q08 was Bt4,256m while interconnection cost was Bt4,139m,netting to the amount of Bt117m of net IC revenue for the quarter. AIS has been pushing more outgoing minutes off network through the flat-rate tariff plans (Bt3 for 1st minute, Bt0.50/minute for 2nd minute onward) while the incoming traffic was relatively flat. Sales revenues declined 26% y-o-y and 8.1% q-o-q due to lower unit sales of handset from 0.9m in 4Q07 to 0.8m in 1Q08. Meanwhile average handset price was relatively stable. Sales margin declined to 7.6% from 8.3% in 4Q07. Cost of service Cost of service excl. IC (Bt million) 1Q08 1Q07 4Q07 y-o-y q-o-q Amortization 4,380 3,905 4,377 12.2% 0.1% Base station- rental & utility 611 559 583 9.1% 4.7% Maintenance 425 464 478 -8.3% -11.1% Others 946 874 888 8.2% 6.5% 6,362 5,802 6,326 9.6% 0.6% Cost of service excluding IC cost increased 9.6% y-o-y mainly from higher amortization which rose 12.2% y-o-y as the amortization period becomes shorter according to the remaining concession life. Cost of international telephone gateway also increased y-o-y following higher traffic. Concession fee (Bt million) 1Q08 1Q07 4Q07 y-o-y q-o-q Concession fee 5,157 4,814 5,412 7.1% -4.7% % of service revenue 24.1% 24.7% 26.9% excl. IC Concession fee was 24% of service revenue excluding IC, compared to 24.7% in 1Q07 as revenue proportion from postpaid was smaller. On q-o-q basis, concession fee as % of service revenue declined due to booking of revenue share on full year of net IC revenue in 4Q07. SG&A (Bt million) 1Q08 1Q07 4Q07 % marketing expense to total revenue (excl. IC) 2.6% 3.7% 4.5% % bad debt to postpaid revenue 2.5% 6.6% 4.1% SG&A declined 17.3% y-o-y and 23.6% q-o-q due to less marketing spending, no amortization of goodwill, and lower bad debt provision. Marketing spending for 1Q08 was 2.6% of total revenue excluding IC, compared to 4.5% in 4Q07 and 3.7% in 1Q07. Marketing expense is usually low during 1Q of the year and is highest in 4Q. Bad debt continued to improve in this quarter, representing 2.5% of postpaid revenue, declined from 4.1% in 4Q07. This showed the improved quality of postpaid subscribers from the previous year as the acquisition strategy of postpaid subscriber has been realigned to balance between revenue growth from low-quality subscribers and risk of bad debt expense. EBITDA margin was 42.9%, improved from 31.8% in 4Q07 due to the impact of IC recognition.Excluding IC, EBITDA margin improved q-o-q to 49.9% from 45.8% due to revenueimprovement and lower marketing expense and bad debt. EBITDA (Bt million) 1Q08 1Q07 4Q07 Operating profit 7,664 6,079 7,736 Depreciation PPE 755 740 958 Amortization of computer software 94 117 98 Amortization of asset under concession 3,638 3,158 3,501 Amortization of concession right 114 114 114 Amortization of goodwill - 292 292 Impairment loss on goodwill 15 - - EBITDA 12,280 10,500 12,698 EBITDA margin 42.9% 44.7% 31.8% IC revenue 4,256 - 16,530 IC cost 4,139 - 14,054 Revenue share on IC and other cost 1 - 461 EBITDA excl. IC 12,164 10,500 10,682 EBITDA margin excl. IC 49.9% 44.7% 45.8% Exchange gain / loss for 1Q08 amounted to Bt134m, increased from Bt9m in 1Q07 and Bt28m in 4Q07 as a result of Bath appreciation impact on foreign currency deposit as well as revenue and receivable on international roaming. Net profit for 1Q08 was Bt5,124m, increased 28.6% y-o-y as a result of improving revenue and lower SG&A and discontinue of amortizing goodwill. On q-o-q basis, net profit slightly declined 0.2% due to booking of full-year interconnection in 4Q07. For comparison, the below table was developed to show the comparable net profit by quarter. Comparative net profit Consolidated (Bt million) Tax deductible Where 1Q08 1Q07 4Q07 y-o-y q-o-q Reported net income 5,124 3,984 5,132 28.6% 0.2% Add: Goodwill amortization No SG&A - 292 292 Impairment of goodwill No SG&A 15 - - (1) Net income before goodwill 5,139 4,276 5,424 20.2% -5.2% Deduct: Reported net IC after tax Yes (81) - (1,411) (2) Net income before goodwill & IC 5,058 4,276 4,013 18.3% 26.1% Add: Actual net IC by quarter Yes 81 285 206 (3) Net income before goodwill,including net IC 5,139 4,561 4,218 12.7% 21.8% Balance sheet structure Total asset was Bt132,680m as of 1Q08, increased from Bt128,942m due to higher cash outstanding reserved for the dividend payment in May. Trade account receivable as of 1Q08 decreased to Bt5,177m from Bt8,054m as of 4Q07 as the Company received payment ofinterconnection of Bt2.5bn. Net fixed asset or network-related asset (including network under concession, PPE, and computer software) represented 65% of total asset. The company continued its network investment for capacity and coverage with total investment expenditure of Bt2,111m for the period. However, the net fixed asset declined to Bt85,992m as of 1Q08 from Bt88,415m as of year-end 2007 due to larger amortization for the period than the capex. Bt million 1Q08 % of 4Q07 % of total total asset asset Current Assets 26,450 19.9% 20,586 16.0% Property and Equipment 8,265 6.2% 8,561 6.6% Networks under Concession 76,432 57.6% 78,527 60.9% Intangible asset 10,467 7.9% 10,593 8.2% Defer tax asset 10,077 7.6% 10,031 7.8% Others 989 0.7% 644 0.5% Total Assets 132,680 100.0% 128,942 100.0% Liquidity improved as current ratio was 89% as of 1Q08 compared to 73% as of year end 2007 mainly contributed by higher outstanding cash. Cash outstanding represented 56% of totalcurrent asset or amounted to Bt14,718m as of 1Q08, compared to Bt8,317m as of Dec-07.Short-term investment for the period increased to Bt1,733m from Bt123m in previous quartermainly from investment in short-term bill of exchange which had higher interest yield. Bt million 1Q08 % of 4Q07 % of total total asset asset Cash 14,718 11.1% 8,317 6.4% ST investment 1,733 1.3% 123 0.1% Trade receivable 5,177 3.9% 8,054 6.2% Inventories 2,051 1.5% 1,236 1.0% Other current assets 2,771 2.1% 2,855 2.2% Current Assets 26,450 19.9% 20,586 16.0% Capital structure remained strong with low financial leverage. As of 1Q08, total liability to equity improved to 64% from 71% as of year-end 2007 due to higher retained earnings for the period.The unappropriated retained earnings for the period was Bt55,122m, increased from Bt49,999m as of year-end 2007. At the shareholders Annual General Meeting held on 10 April 2008, the shareholders passed a resolution to approve a declaration of dividend for 2,960m shares of Baht 3.30 each, totaling Baht 9,769m. The dividend was paid to the shareholders on 8 May 2008. Net debt to equity was 14% as of 1Q08, compared to 29% in FY07 due to cash reserved for dividend. After dividend payment in May, net debt to equity should be approximately 26%. Bt million 1Q07 2Q07 3Q07 4Q07 1Q08 Total interest-bearing debt 28,402 31,321 33,600 30,349 26,105 Total liabilities 56,110 55,570 56,173 53,481 51,937 Total equity 81,632 75,556 70,308 75,461 80,743 Net debt to equity 19% 30% 37% 29% 14% Total liabilities to equity 69% 74% 80% 71% 64% Debentures and Loans As of 1Q08, total debentures and borrowings was Bt26,105m, decreased from Bt30,349m as of year-end 2007 as the Company repaid its short-term borrowing and debenture. Of the total outstanding debt, 13% remained exposed to floating interest rate, the rest was either fixed rate or engaged into fixed interest swap contract. Effective interest rate was 5.5% per annum. In April 2008, the Company has issued Bt4,000m of 5-year debenture at the interest rate of 4.0% for year 1-2 and 4.9% for year 3-5. Bt million Balance Balance Interest Repayment(1) 2007 1Q08 rate 2008 2009 2010 2011 2012 2013 Short term borrowing 3,492 - 3.9% 3,492 - - - - - Long term loan(2) 10,681 10,679 5.0% 30 59 59 9,544 59 59 Debenture 16,111 15,363 5.8% 1,500 6,627 - 4,000 - 4,000 Financial lease 64 63 9.2% 23 17 12 8 4 - Total debt 30,349 26,105 5.5% 5,045 6,703 71 13,552 63 4,059 (1) includes bond issuing cost; (2) includes swap and forward contract Cash Flow Cash flow position remained strong to support capex and debt repayment. For 1Q08, the company generated Bt14,790m of cash flow from operation, spent Bt2,111m on network investment while repaid Bt4,256m of debt. The net cash increase was Bt6,511m reserved as cash and short-term B/E. Source and use of fund: 1Q08 Source of Fund Bt million Operating CF before change in working capital 12,491 Share capital and share 228 Disposal of property and equipment 2 Interest received 59 Changes in working capital 2,299 Total 15,079 Use of Fund Bt million CAPEX & Fixed assets 2,111 Short-term investments 1,610 Repayment of LT borrowing&finance lease 756 Repayment of ST borrowing 3,500 Interest paid 464 Cash increase 6,511 Additional investment in subsidiary 126 Total 15,079 FY2008 Management outlook & strategy Market subscriber forecast 8-10m net additions for the market Market share 50% revenue market share Service revenue 5-7% service revenue growth excluding IC Marketing expense 4% of total revenue excluding IC Network amortization 10-12% rise in FY08 (network amortization and depreciation as booked under cost of service only, excluding PPE depreciation in SGA, goodwill, and amortization of concession right) EBITDA margin 45-46% excluding IC Capex Bt16-17bn cash capex for FY08 (no 3G) Net IC revenue Bt400-600m For FY08, AIS expect industry subscriber growth of 15-20% y-o-y or a total net addition of 8-10 millions. SIM penetration is expected to reach 93-96% while human penetration will be approximately 65-70% as multi-SIM phenomena remains a significant part in the industry.Pricing environment will continue to be stable or have slight improvement given each operatortends to set tariff to reflect the cost of interconnection as well as to better utilize the networkbetween peak and off-peak hours. AIS is aiming to maintain its revenue market share at 50%, and to deliver 5-7% service revenuegrowth in 2008, as well as continue to deliver EBITDA growth, as it had in the past two quarters.The key growth drivers to the revenue and EBITDA are (1) higher penetration in upcountry areas (2) continued improving voice revenue from stable pricing environment (3) strong 15-20% growth in non-voice services and (4) higher contribution from IDD business. In 2007, the launch of IDD business contributed additional 1.3% of service revenue, and is expected to growth 40-50% y-o-y in FY08. AIS targets its network expansion to reach 14,500 base stations by year end with the 2G capexbudget of Bt16-17bn focusing on (1) continued expansion into rural area to differentiate coverage gap with competitors (2) transportation route such as new roads, expressway,Bangkok transit system, (3) new residential areas, business and industrial areas, and tourist attractions. Amortization in 2008 is expected to rise 10-12% y-o-y as the network asset is amortized over the shorter remaining period of concession life which expired in 2015. As a largest-subscriber base operator with premium pricing, the traffic position is highly likely to be net IC receiver. Meanwhile, as the company's strategy targets on stabilizing revenue market share, the focus has been on maximizing revenue from the outgoing minutes rather than theincoming minutes. The company hence expects net IC for FY08 to be significantly lower than the Bt2.5bn net IC in 2007. Based on 1Q08 net interconnection revenue of 117m, the net IC for FY08 is expected to decline to Bt400-600m. FINANCIAL SUMMARY Consolidated income statement Unit: Bt. million 1Q08 1Q07 4Q07 % % y-o-y q-o-q Service revenue excl. IC 21,426 74.8% 19,493 83.0% 20,112 50.4% 9.9 6.5 IC revenue 4,256 14.9% 0 0.0% 16,530 41.5% n/a -74.3 Service revenue 25,682 89.6% 19,493 83.0% 36,642 91.9% 31.8 -29.9 Sales revenue 2,966 10.4% 4,006 17.0% 3,228 8.1%-26.0 -8.1 Total revenue 28,648 100.0% 23,498 100.0% 39,870 100.0% 21.9 -28.1 Cost of service excl. IC (6,361) -22.2% (5,802) -24.7% (6,326) -15.9% 9.6 0.5 IC cost (4,139) -14.4% 0 0.0% (14,054) -35.2% n/a n/a Cost of service (10,500) -36.7% (5,802) -24.7% (20,380) -51.1% 81.0 -48.5 Concession & excise tax (5,157) -18.0% (4,814) -20.5% ( 5,412) -13.6% 7.1 -4.7 Cost of sales (2,742) -9.6% (3,676) -15.6% (2,960) -7.4% -25.4 -7.4 (more)