2. Risk Factors

The developments in the telecommunications industry in terms of
technologies, networks and communication devices, have brought about a
very competitive and fast-changing environment which can create both
advantage and risks for the Company. To cope with such uncertainties, it
is imperative that AIS sets in place effective and proactive risk
management and business strategies to ensure that the Company continues
to be viable in both the long- and short-term.

Focusing on organisational risk management, AIS has set up the Risk
Management Committee whose 11 members include the Chairman of the
Executive Committee, who also acts as Chairman of the Risk Management
Committee; the Chief Executive Officer; and other senior executives. The
committee holds a minimum of 4 meetings per year in order to discuss and
classify the risks to the entire organisation; to rank the degree of
risk; to provide risk management guidelines; and to assign persons
responsible for arranging control measures in order to manage risks at
an acceptable level. The aim of such measures is to ensure that AIS
achieves set targets and maintains the confidence of the shareholders
and interested individuals. The committee must also take into
consideration whether there have been any changes to the identified
risks or the economic conditions that may affect AIS.

In each quarter, the Risk Management Committee has submitted the results
of its risk management analysis to the Executive Committee, the Audit
Committee, and the Board of Directors in order to closely manage and
monitor all risks to ensure they are at an acceptable level. The risk
factors which may affect the operation results of AIS are summarised as
follows:

1.  Risks on business operations

    1.  Risk in network quality as the consequent impact from the delay
        of obtaining the 2.1GHz license

The delay in the issuance of licenses for the 2.1GHz frequency may cause
impact on the launch of 3G services on the 2.1 GHz frequency which may
be effect in an opportunity and advantage of the Company and may pose a
risk in terms of managing the quality of the 900MHz and 1800MHz
frequency by the main factors as follows:

1. As AIS has currently allocated part of 900MHz as the frequency to be
used for 3G mobile devices and the increasing of customer using 2G
service, they may be affected by inadequate capacity.

2. As AIS has currently operate the roaming on 1800MHz frequency which
possesses by Digital Phone Co., Ltd., a subsidiary of AIS, thus it may
be affected on the quality of the service by the expiration and
uncertainty of the concession between DPC and CAT Telecom Public Company
Limited (CAT) which is scheduled to expire on September 2013 as the
Company shall have insufficient frequency to provide the service if AIS
delay to launch 3G service.

In managing the risk, AIS has invested and expanded 900MHz network as
well as studying the possibility of continuing the 900 MHz and 1800 MHz
operations. In addition, our proposal to continue operation of 1800 MHz
network has been prepared and ready to be submitted as required to CAT
Telecom Public Company Limited.

2.  Risks on regulatory and government Policies

2.1 The Jointly Undertaken Work Agreement between State Enterprise and
Private Sector as stated in the Act Permitting the Private Sector to
Jointly Undertake Work or to Operate the Work of State Enterprises B.E.
2535.

2.1.1 The Amendment of the Jointly Undertaken Work Agreement between
Advanced Info Service Public Company Limited (the Company) and TOT
Public Company Limited (TOT)

As the Ministry of Information Technology and Communications sent a
letter to the Council of State requesting for opinion regarding the
amendment of the Cellular Mobile Telephone Service Agreement (the
Agreement) between TOT, formerly known as the Telephone Organization of
Thailand, and The Company after the enforcement of the Act Permitting
the Private Sector to Jointly Undertake Work or to Operate the Work of
State

Enterprises B.E. 2535 came into effect whether the current amendment is
in line with the said Act and to determine what course of action should
be taken if such amendment is in breach of the said Act.

The Office of the Council of State has been of the opinion in a
memorandum regarding the enforcement of the Act Permitting the Private
Sector to Jointly Undertake Work or to Operate the Work of State
Enterprises B.E. 2535 (The case between the TOT and the Company no.
291/2550), the Office of the Council of State stated its opinion that:

“….TOT entered into the Agreement on behalf of the State by virtue of
the legal authority of the Telephone Organization of Thailand.
Therefore, the said Agreement has been executed between the State and
private sector for the assignment of the private sector to provide
public service on behalf of the State. The State is obliged to comply
with the provisions of the Agreement.

Since the amendments to the Agreement relevant to which consultation is
being sought were not legitimately carried out according to the Act
Permitting the Private Sector to Jointly Undertake the Work or Operate
the Work of State Enterprises, which was in force at the time of those
amendments, due to the lack of the submission of those amendments to the
Coordinating Committee for consideration according to Section 22 and to
the Cabinet as the authority in charge of the approval of such
amendments to the Agreement pursuant to the Act as above-concluded, the
amendments made to the Agreement with the TOT as the contracting party
were, therefore, carried out without legal authority.

However, the amendment procedures of the Agreement which represent
administrative juristic acts are capable of being separated from the
amendments to the Agreement and those amendments to the Agreement are
still in force so long as they are not rescinded or invalidated by
virtue of time or by other conditions. If the Cabinet as a lawful
authority, after having considered the causes for the rescission, the
impact and the appropriateness on the basis of the State's and the
public interest, is of the opinion that the illegitimate procedures have
caused considerable damage, the Cabinet can rescind such amendments to
the Agreement. However, if the Cabinet bases its consideration on
justification and in the light of the State's or the public interest and
the continuity of providing public services, the Cabinet may exercise
its discretion to grant approval to re-proceed the amendment procedures,
as appropriate, by the project owner and the Coordinating Committee
pursuant to Section 22 being the parties to submit the facts,
justifications and opinions for the consideration of the Cabinet.”

In addition, the Coordinating Committee according to Section 22 has
already submitted its opinion regarding the amendments of the Agreement
of the Company to the Minister of Information and Communications
Technology.

The Company firmly believes in the principles and the grounds of the
amendments of the Agreement and the Company has fully complied with the
Jointly Undertaken Work Agreement and all related laws including the
principles of good governance. Thus, the Company believes that there
shall be no material change which shall have an impact on the Company.
However, the Company cannot foresee the outcome of the consideration on
the part of the State and the cabinet in the case that the amendments of
the Agreement of the Company are revoked; this may result in a
shortening of the term of the Agreement and/or a higher prepaid revenue
share, for instance.

2.1.2 The Amendment of the Jointly Undertaken Work Agreement between
Digital Phone Company Limited (DPC), a subsidiary company of the
Company, and CAT Telecom Public Company Limited (CAT)

As the Ministry of Information Technology and Communication sent a
letter to the Council of State requesting for its opinion regarding the
amendment of the Digital PCN (Personal Communication Network) 1800
Service Agreement (the Agreement) between CAT and DPC after the
enforcement of the Act Permitting the Private Sector to Jointly
Undertake Work or to Operate the Work of State Enterprises B.E. 2535
came into effect whether the current amendment is in line with the said
Act, and to determine what course of action should be taken if such
amendment is in breach of the said Act.

The Office of the Council of State has been of the opinion in a
memorandum regarding the enforcement of the Act Permitting the Private
Sector to Jointly Undertake Work or to Operate the Work of State
Enterprise B.E. 2535 (The case between the CAT and DPC no. 294/2550)
that:

“…the assignment of the rights and duties by Total Access Communication
Public Company Limited (DTAC) to DPC and the entering into an agreement
between DPC and CAT dated 19 November 1996 are considered as the
permission of CAT granted to the private sector to provide cellular
mobile phone service whereby DPC shall be under the supervision and
regulation of CAT and pay remuneration to CAT. DPC shall, therefore,
have to comply with the said Act. Since CAT has already specifically
prescribed the scope of the project and the private

sector to provide the service, besides, the project has already been
carried out. Therefore, there is no need to invite the private sector to
jointly undertake work or operate the work of the State and select the
private sector

by way of auction as prescribed in Chapter 3, but the provisions in
Chapter 3 shall be applied mutatis mutandis in so far as it is not
contrary to the fact whereby CAT has to set up the Coordinating
Committee in accordance with Section 13 to proceed according to Section
21 of the said Act, namely, the committee shall present the selection
results including reasons, negotiated issues related to the state
benefit, the drafted contract and all relating documents to the Minister
in charge in order to submit for cabinet’s consideration within ninety
days as from the decision date of the committee.

Therefore, the process shall be under the authority and duties of the
committee according to Section 13 to consider as it sees fit and DPC, as
the transferee of the rights and obligations from DTAC under the Digital
PCN (Personal Communication Network) 1800 Service Agreement between CAT
and DTAC, shall be entitled to provide telecommunication services based
on the transferred rights and obligations even though the current
agreement between CAT and DPC is not in compliance with the Act
Permitting the Private Sector to Jointly Undertake Work or to Operate
the Work of State Enterprises. However, the current agreement is still
effective as long as it is not rescinded or invalidated by time or other
conditions. Therefore, CAT and DPC are bound to comply with the said
Agreement.”

In addition, the Coordinating Committee pursuant to Section 13 has
already submitted its opinion regarding the amendments of the Agreement
of DPC to the Minister of Information and Communications Technology.

The Company firmly believes in the principles and the grounds of the
amendments of the Agreement and DPC has fully complied with the Jointly
Undertaken Work Agreement and all related laws including the principles
of good governance. Thus, the Company believes that there shall be no
material change which shall have an impact on the Company. However, the
Company cannot foresee the outcome of the consideration on the part of
the State and the cabinet in the case that the amendments of the
Agreement of DPC are invalidated; this may result in a shortening of the
term of the Agreement and an increase in the amount of revenue sharing
which has to be additionally paid.

2.2 Disputes relating to the Excise Tax

2.2.1 The Case between Advanced Info Service Public Company Limited (the
Company) and TOT Public Company Limited (TOT)

On 22 January 2008, TOT submitted a dispute (Case No. Black 9/2551) to
the Arbitration Institute, Alternative Dispute Resolution Office, and
the Office of the Judiciary, demanding the Company to pay additional
revenue sharing for Baht 31,463 million.

On 20 May 2011, the Arbitral Tribunal unanimously resolved to dismiss
the disputes by giving the reason which can be summarized that AIS had
lawfully paid the revenue sharing. Therefore, the Company has not
committed a breach of the agreement and the Company does not have to pay
any additional revenue sharing to TOT.

TOT submitted an application to the Central Administrative Court to set
aside the award of the Arbitral Tribunal. At present, the case is
pending the consideration of the Central Administrative Court. However,
the management of the Company firmly believe that this case shall reach
a positive conclusion since the Company has fully paid the revenue
sharing according to the same amount of excise tax.

2.2.2 The Case between Digital Phone Company Limited (DPC), a subsidiary
of the Company, and CAT Telecom Public Company Limited (CAT)

On 9 January 2008, CAT submitted a dispute (Case no. Black 3/2551) to
the Arbitration Institute, Alternative Dispute Resolution Office, and
Office of the Judiciary, demanding DPC, a subsidiary of the Company, to
pay additional revenue sharing for Baht 2,449 million under the Digital
PCN (Personal Communication Network) Agreement plus penalty at the rate
of 1.25 percent per month of the unpaid amount of each year computing
from

the default date until full payment is made totalling Baht 3,410
million. Such claimed amount is the same amount of the excise tax as DPC
has paid during 16 September 2003 to 15 September 2007, and was deducted
from revenue sharing pursuant to the resolution of the cabinet on 11
February 2003 and is the same standard practice of the
telecommunications industry.

On 1 March 2011, the Arbitral Tribunal resolved to dismiss the dispute
by giving the reason which can be summarized that the original debt had
been completely paid and settled. CAT cannot re-claim for the alleged
deficit amount, including the penalty and the value added tax.

CAT submitted a request to the Central Administrative Court to set aside
the award of the Arbitral Tribunal.  At present, the case is pending the
consideration of the Central Administrative Court. However, the
management of

the Company firmly believes that this case shall positively ease off
since the revenue sharing demanded by CAT is the same amount of excise
tax which has already been paid by the Company.

2.3 Dispute on Interconnection Charge

According to the Telecommunication Business Act B.E. 2544 and the
Notification of NTC regarding the Use and Interconnection of
Telecommunication Networks B.E. 2549, the Company has the duty to enter
into the interconnection agreements with other operators. However, TOT,
the contract grantor, has issued a written notice to the Company stating
that the Company is not a legitimate licensee of telecommunication
networks and is, therefore, not entitled to enter into the
interconnection agreements by virtue of the Notification of NTC
regarding the Use and Interconnection of Telecommunication Networks B.E.
2549. After having considered together with the comment of legal
consultants, the management of the Company is of the opinion that
non-compliance with the above interconnection agreements would be in
conflict with the Notification of NTC regarding the Use and
Interconnection of Telecommunication Networks. Therefore, the Company
decided to comply with the said agreements which are in line with the
legal provisions currently in force by issuing invoices to collect the
interconnection charges from the contractual parties based on the rate
and calculation method of the Company and paid to TOT. However, TOT
required the Company to pay the revenue sharing calculated on gross
amount of interconnection charges received by the Company at the rate
specified in the Agreement without deduction of interconnection charges
which the Company has to pay to other operators.

On 26 January 2011, TOT sent a letter demanding the Company to pay the
revenue sharing of the interconnection charges of the concession years
17-20 in the amount of Baht 17,803 million plus interest at the rate of
1.25 percent per month. However, the Company disagreed and sent a letter
opposing the said claim to TOT and has submitted the dispute to the
Dispute Reconciliation Office, Arbitration Institute ref. no. Black
19/2554 on 9 March 2011 requesting the Arbitral Tribunal to give an
award that TOT has no right to claim for such revenue sharing. At
present, the case is pending consideration of the Arbitral Tribunal. The
management of the Company firmly believes that there shall unlikely be
any material impact since the Company has fully complied with the law.

2.4 Dispute between Digital Phone Company Limited (DPC), a subsidiary of
the Company, and CAT Telecom Public Company Limited (CAT) regarding the
reduction of roaming charge between DPC and the Company

On 7 April 2010, Digital Phone Company Limited (DPC) submitted a dispute
(Case no. Black 27/2553) to the Alternative Dispute Resolution Office,
the Thai Arbitration Institute, requesting the Arbitration Panel to set
aside the allegation of CAT that DPC was in breach of agreement on the
grounds that the agreement was made without approval from CAT and would
terminate the agreement as stated in a letter dated 6 January 2010, and
demanding CAT to pay compensation of Baht 50 million to DPC.

On 15 July 2010, CAT submitted a dispute (Case no. Black 62/2553) to the
Arbitration Institute, demanding DPC to pay additional remuneration for
concession years 10-12 which incurred due to the reduction by DPC of the
roaming charge rate between DPC - the Company from Baht 2.10 to Baht
1.10 during the period of 1 April

2007 - 31 December 2008 without approval of CAT in the amount of Baht
1,640 million plus penalty calculating up to March 2010 in the amount of
Baht 365 million totalling Baht 2,000 million and also the penalty at
the rate of 1.25 percent per month calculating from April 2010 onward.

On 12 September 2011, CAT submitted a further dispute of the concession
year 12 (1 April 2009-15 June 2009) to the Arbitration Institute,
Alternative Dispute Resolution Office, and the Office of the Judiciary
(Case no. Black 89/2554) for the amount of Baht 113,211,582.68.

Later, the Arbitration Institute has ordered all three disputes to be
considered together and, at present, such disputes are pending
consideration of the Arbitral Tribunal which may take several years.
However, the management of the Company believes that the ruling of the
Arbitration Panel of this case shall positively ease off as DPC had
informed CAT of the application of the roaming rate of Baht 1.10 per
minute since July 2006, to which CAT has given a written approval of
such application until March 2007 and has also given additional approval
during the period of January 2009 to March 2009, and during the disputed
periods, CAT has never sent any refusal or objection to DPC. The roaming
rate at Baht 1.10 per minute is also in conformity with market
conditions where the rate of service charge has been lowered from the
previous higher roaming service charge

rate. Besides, DPC has also entered into a roaming agreement with the
Company using the rate of Baht 1.10 per minute as approved by NTC.

2.5 Dispute between Digital Phone Company Limited (DPC), a subsidiary of
the Company, and CAT Telecom Public Company Limited on Tower and Power
Supply ownership

On 3 February 2009, CAT submitted a dispute (Case no. Black 8/2552) to
the Arbitration Institute, Alternative Dispute Resolution Office,
demanding DPC to deliver and transfer ownership of 3,343 Towers
including 2,653 units of Power Supply equipment under the terms and
conditions of the Digital PCN (Personal Communication Network)
Agreement. If having failed to do so, CAT demanded that DPC is obligated
to pay Baht 2,230 million to CAT. DPC considers that all disputed Towers
and Power Supply equipment, are not included under the definition of
equipment as stipulated in clause 2.1 of the Agreement of which DPC is
obligated to deliver and transfer under the terms and conditions of the
Agreement. The case is pending consideration of the Arbitral Tribunal.

On 18 July 2012, the Arbitrary Tribunal unanimously resolved to dismiss
all of the disputes by giving the reason which can be summarised that
the right of CAT to demand DPC to deliver properties which are objects
of the contract shall be in accordance with Clause 12 of the Digital PCN
(Personal Communication Network) which states that such a right can be
exercised after 60 days upon expiration of the contract. Therefore, the
submission of the dispute by CAT is prematurely. CAT has submitted a
request to the Central Administrative Court to set aside the award of
the Arbitral Tribunal. At present, the case is pending consideration of
the Central Administrative Court. However, the management of the
Company’s firmly believes that the outcome of the case shall positively
ease off.

2.6 The determination of Maximum Rate of Service Fee for Domestic
Telecommunications Voice Services

On 2 July 2012, AIS filed a lawsuit against the Office of the National
Broadcasting and Telecommunication Commission (Case no. Black
1067/2555), to the Central Administrative Court, demanding that the
Court revoke the Notification on The Determination of Maximum Rate of
Service Fee for Domestic Telecommunications Voice Services B.E. 2555,
which allows operators to charge domestic voice services at a maximum
rate of Baht 0.99 per minute, specifically applying only to operators
with significant market power (which on 30 September 2010, the Office of
the National Broadcasting and Telecommunication Commission specified the
Company being the operators with significant market power in the retail
domestic mobile phone services market and domestic mobile network
service as stated in the order of the Office of the National
Broadcasting and Telecommunications Commission no. 32/2553).

3.  Risk on administration

3.1 Risks on the safety of information

The development of information technology enables us to connect easily
from around the world and enjoy the convenience of conducting business
transactions through mobile devices and such new technology as Cloud
Computing. In addition, the telecommunications industry has change very
fast and AIS may become exposed to threats from technology and risks
relating to the safety of information.

Therefore, AIS focuses on the prevention of such threats and on the
safety of information by raising the awareness of how to use information
technology safely and also conduct risk assessments of the safety of
information stored in the system to successfully prevent any risks that
may be posed by the hacker or by system error.

3.2 Operational Risks

As a result of the worst flood occurred in Thailand in 2011, AIS has
formulated an emergency plan to prevent interruption of business by
setting up a business continuity plan to cope with the disasters which
may cause a loss to property, adversely affect personnel, and a halt to
the main business activities of the company.

In 2012, AIS restructured the risk management operations by merging the
Safety, Health and Environment committees (SHE) under the supervision of
the newly-formed Business Continuity Management Committee (BCMC) to
ensure the effectiveness of resource management.

The BCMC approved the master plan of creating measures to prevent the
halt to business across all areas, and to deal with disasters which can
damage buildings, operation centers. Alternative sites are also prepared
to ensure the continuity of the Company’s business.

Furthermore, the emergency plan shall be reviewed to examine potential
flaws in its operating system while implement the planned system changes
to ensure that if there is a problem during the changes, it shall not
widely affect the provision of mobile phone network or for a long time
as it happened to other network in 2012. In addition, the emergency plan
was also adjusted to cover any faults in the operating system to ensure
that the Company can maintains as a leader in network quality and retain
consumer confidence in our service when a natural disaster occurs.