[ Nature of Business ]

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1 60 [ Nature of Business ] Wireless Communications Business The wireless communications business encompasses mobile phone network operation, the distribution of mobile handsets and accessories, and payments via mobile phone. Advanced Info Service Public Company Limited (AIS), its affiliates and subsidiaries operate a mobile phone network on two frequencies (900 MHz and 1800 MHz) as described below. AIS operates on the 900 MHz frequency under a Build-Transfer-Operate (BTO) concession granted by TOT Public Company Limited (TOT) for 25 years, from 1990 to Currently, AIS provides service by using Digital GSM system with GPRS and EDGE technology to enhance capability which increase data transfer rate. Digital Phone Company Limited (DPC) provides service on the 1800 MHz frequency under a 16-year-BTO concession granted by CAT Telecom Public Company Limited (CAT) in The concession expires in Under the BTO agreements, AIS and DPC are required to build and raise capital for investment in cellular network, transfer the network ownership to the concession providers, and have the right to commercial operation. In compensation to such economic use, AIS is entitled to share its revenue from service to TOT. Currently, AIS pays revenue share to TOT plus excise tax to a total of 30% of its postpaid revenue and 20% of its prepaid service revenue. Meanwhile, DPC is currently paying revenue share to CAT and excise tax to a total of 25% of its revenue from mobile phone operation. Products and services In 2006, AIS has continued to focus on developing new service dimension based on network quality in order to bring more service variety to meet customers requirements and lifestyles, giving them better quality of life. AIS s services are: Postpaid and prepaid subscription service AIS offers a postpaid subscription service under the brand GSM Advance and GSM 1800, and the prepaid subscription for One-2-Call and Sawasdee. In 2006, three main sales and marketing strategies have been adopted namely 1) network development 2) service development 3) strengthening brand value by focusing on Emotional Marketing or in other word creating good customers feeling towards the brand. Products distributed by AIS include SIM Card, debit card, supplementary and other services for both individual and SMEs customers via 355 Telewiz outlets and over 280 Telewiz Express outlets as well as AIS agents, which include DPC, Samart and M-link. There are also over 500 main dealers located around Thailand and other distribution channels such as Jay Mart, Blisstel, IEC and TG. AIS has also expanded its sales distribution channels for the prepaid card which is now available at various locations such as convenient store, shopping mall, super store, gas station, book shop, post office, bank, ATM kiosk and mpay service. Wireless/Non-voice communication service In 2006, AIS still secured its position as the leader in the supplementary service market judging from a constant rise in revenue of both existing and new supplementary services. The main services that helped generate income for the AIS were SMS, calling melody and data & GPRS. This service was made more accessible to AIS customers through introduction of mobilelife Plaza (AIS Wap Portal) that has been arranged and simplified with Content Centric. Enterprise business service AIS Smart Solution an enterprise business service provider plays an important role in strengthening competitive ability for both corporate and SME customers. In 2006, AIS Smart Solution adopted strategies to help maintain and expand customer base via product development to further improve its effectiveness while differentiate AIS from other competitors, strengthening the Company s ability to respond to customers needs beyond their expectation. Activities besides pricing competition were organized to help develop a closer tie between AIS Smart Solution and customers.

2 61 Customer Relation Management AIS Plus program has been developed to provide special discounts and privileges from more than 12,000 shops nationwide. A range of campaigns and activities were organized through joint cooperation with business partners to respond to the daily lifestyle of those customers living in Bangkok as well as provincial areas. Industry Outlook and Competition In 2006, the mobile phone subscribers grew 32% from 30 million at the end of 2005, to 40 million, with penetration rate of 62%. AIS, DTAC, and TRUE MOVE are the major operators with total market share of 98%. In the first half of 2006, the competition was mainly pricing which created network congestion in the second quarter, especially, during peak hours. As price competition deteriorated both quality of services and revenues, the operators turned to improve their brands and service quality. They also focused on market segmentation, such as special rate for calling within the networks or the group, rather than mass market. This strategy was also used in the provincial areas, especially in the northeastern region. Trend of Mobile Phone Market in 2007 The mobile phone in 2007 will be comprised of saturated market and unsaturated market. Saturated market has high penetration rate, which are city areas, especially Bangkok. There are fierce price competitions among operators to grab market share. Due to low brand loyalty and price sensitive, customers change their service frequently. Multi SIM users are expected to increase due to the attractive promotions such as free SIM cards or bundling services. However, pricing structure should be changed when the Interconnection Charge is implemented. It is expected that the operators should create promotions supporting Interconnection Charge and promoting using within their networks. Unsaturated market has high growth potential, which are rural and provincial areas. Nationwide coverage is the most important factor of selecting the service. As a result, the operators have been investing in networks in order to support customers needs. Satellite and International Business Shin Satellite Public Company Limited (SATTEL), its subsubsidiaries and associated companies operate four types of business - satellite transponder leasing and related services, Internet-related services, telephone-related services, and telephone directories and distribution. Satellite Transponder Leasing and Related Services SATTEL has a 30-year concession from the Ministry of Information and Communication Technology (MICT or the ICT Ministry), expiring in 2021, to operate the national satellite communications project. Currently, SATTEL operates four satellites including Thaicom 1A, Thaicom 2, Thaicom 5, and IPSTAR. Thaicom 1A, 2, and 5 are termed conventional satellites, providing broadcasting and telecommunications services over a wide coverage area stretching from Europe to Australia. These satellites are used for free-to-air television broadcasting, Direct-to-Home (DTH) broadcasting, and telecommunication services. IPSTAR, which is the first broadband satellite in Asia-Pacific region, launched into the orbit in August 2005, offers a variety of the high-speed broadband satellite solutions via Internet Protocol (IP) network throughout the Asia Pacific Region. Such services include voice, data, and video applications for corporate and end users at the affordable prices. SATTEL has started its marketing activities on IPSTAR since It has provided the first generation service with Thaicom and other satellites. With the new technology, the capability of transferring data is improved significantly as well as reducing cost of service. After the success of IPSTAR launch, SATTEL has provided the full service with IPSTAR gateways and the satellite, which much help improve efficiency. Since IPSTAR uses the cellular technology which the frequency can be reused, its capacity is as much as 45 Gbps, or 20 times more than conventional satellites. Moreover, it is able to serve broadband Internet for millions of users for both individuals and organization.

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4 63 Media and Advertising Business The Media and advertising business comprises ITV Public Company Limited (ITV), a television station, and SC Matchbox Company Limited (SMB), an advertising production house. Products and services Television station Prior to March 7, 2007, ITV operated Thailand s first UHF master station and a nationwide network of relay broadcast stations under the name ITV. ITV was granted a BTO concession agreement by the Office of the Permanent Secretary to the Prime Minister s Office ( the Prime Minister s Office ) on July 3, 1995, whereby ITV has entered into the UHF radio-television broadcasting agreement (hereinafter referred to as the ITV Concession Agreement ), to build, transfer and operate a UHF master station for a concessionary period of 30 years, expiring on July 3, Under the ITV Concession Agreement, ITV shares its revenue with the Prime Minister s Office at the rates specified therein from the total revenue received by ITV. However, ITV s operation ceased on March 7, ITV attempted on several occasions, unsuccessfully, to negotiate amendments to the ITV Concession Agreement in order to amend the programming mix provisions and to lower its annual concession fees. As a result, and in accordance with the ITV Concession Agreement, ITV began arbitration proceedings in 2002 requesting measures to compensate for ITV s damages. As a result of the arbitration award, ITV began payment of the reduced annual concession fee with effect from January 1, 2004 and began changing its programming mix with effect from April 1, However, the Prime Minister s Office instituted legal proceedings in the Central Administrative Court requesting the revocation such arbitration award. On May 9, 2006, the Central Administrative Court revoked the arbitration award. In addition, on June 7, 2006, ITV filed an appeal with the Supreme Administrative Court, but the Supreme Administrative Court upheld the verdict of the Central Administrative Court on December 13, As a result, ITV complied with the original terms and conditions as specified in Clause 5 of the ITV Concession Agreement regarding payment of the concession fee beginning in year 1996 and Clause 11 regarding the proportion of news, documentaries and socially beneficial programs to be not less than 70% of the total on-air timing, and the restriction of programs during 7.00 p.m. to 9.30 p.m. period to be solely news, documentaries and socially beneficial programs on December 14, In addition, after the verdict, the Prime Minister s Office sent a written notice to ITV requesting ITV to pay the shortfall in amount of concession fees for 2004, 2005 and 2006 amounting to an aggregate of Baht 2,210 million and to pay interest at the rate of 15% per annum from 2004 and a fine for breaching the programming mix required under the ITV Concession Agreement totaling Baht 97.8 billion. ITV believes that ITV did not breach any provisions under the ITV Concession Agreement because ITV relied on an arbitration award that was given in accordance with the dispute resolution procedures provided for in the ITV Concession Agreement. ITV is therefore not liable to pay interest (calculated from 2004) and such fine, or if ITV is liable to pay such fine, the way the Prime Minister s Office has calculated the amount of the fine is incorrect. The relevant provision in the ITV Concession Agreement (which is in the Thai language) contains wording to the effect that ITV is required to pay a fine at the rate of 10% of the concession fee for that year calculated on a daily basis. ITV s view is that calculated on a daily basis means that the concession fee (which is on a per year basis) should be divided by 365 days to obtain the concession fee per day before applying the 10% penalty rate and multiplying the resulting amount by the number of days of the breach, resulting in a fine of Baht 268 million. However, the Prime Minister s Office is of the view that calculated on a daily basis means that the fine should be calculated applying 10% of the annual concession fee amount (without dividing by 365) and multiplying the resulting amount by the number of days of the breach, resulting in a fine of Baht 97.8 billion. The Prime Minister s Office ordered ITV to pay both the concession shortfall including interest and the fine within March 6, ITV was unable to find the possible source of funds to pay such amounts of fine. As a result, the ITV Concession Agreement was revoked by the Prime Minister s office on March 7, 2007.

5 64 Advertising SMB s major businesses are advertising service and production. It produces advertising materials and coordinates with the media, which are television, newspapers, radio, advertising sign, and websites. Additionally, SMB organizes event marketing for customers in order to create impressive experience and great attitudes on the products. Budget Airline Business Thai AirAsia Company Limited (Thai AirAsia) began operating point-to-point flights from its Bangkok hub on February 3, At the end of 2006, Thai AirAsia operated 11-aircraft fleet of Boeing serving 18 destinations both domestically and internationally, which are Chiang Mai, Chiang Rai, Had Yai, Phuket, Ubon Ratchathani, Udon Thani, Narathiwat, Krabi, Surat Thani, Macau, Kuala Lumpur, Penang, Kota Kinabalu, Singapore, Xiamen, Hanoi, Phnom Penh, and Yangon. Thai AirAsia plans to expand its fleet and add more destinations in Southeast Asia and Southern China. As of today, Thai AirAsia has served more than 6 million customers. Consumer Finance Business Capital OK Company Limited (OK) began operating consumer finance business in Thailand in August Its business comprises personal loan, sales finance, credit cards, and hire purchase. In 2006, personal loan contributed around 70% of total revenues. At the end of 2006, OK s client base totaled approximately 760,000 accounts, with the loan portfolio of approximately Baht 8.6 billion In 2006, the competition in consumer finance service was fierce from many operators including banks, non-banks, and others. Moreover, since the Bank of Thailand passed a new regulation placing a ceiling on interest rate at 28% per annum on personal loan service, this materially reduce the operators revenue, while operating costs increase. In order to release the impact, OK has adjusted the strategy to focus mainly on qualification of customers, rather than customers base expansion as in the past. OK has increased the method of customer selection, which would help reduce bad debt and grow profitability in the future.