Global Gambits Telecom Services - J.P. Morgan Services chapter. June 28, ... In the current environment of market ... risks to our positive thesis for VIP remain the macro economic

Global Equity ResearchJune 28, 2006

Global GambitsThe Right Moves for Right Now

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The following is a chapter from Global Gambits � The Right Moves for Right Now, dated June 28, 2006. This chapter is presented forconvenience, and should be read in conjunction with the full report and its analyst certifications and important disclosures. The full report isavailable on MorganMarkets.

Telecom Serviceschapter

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June 28, 2006

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Telecom Services Emerging Market Wireless, European Small Caps, US Wireless and Enterprise Favored

Key DriversAsia• Organic growth remains strong and capital management

themes still do matter, while regulatory bets are critical. Regulatory risks are rising in several markets including Japan, China, Taiwan, Thailand and New Zealand, but falling in Korea and Hong Kong. The best growth remains in India, where wireless net adds have accelerated sharply in the past year. Indonesia’s and China’s wireless growth are also robust. In the current environment of market volatility, high free cash flow yields and management-led strategies focused on such flows for better investor returns should help create stability and downside protection for many telecom stocks in Korea, Taiwan, Singapore, Philippines, and Malaysia.

Europe • Margin erosion and slowing growth dominate. Slowing

revenue growth and excess FCF are driving increased competition in broadband and mobiles, as operators try to boost sluggish top lines. A number of operators have already issued disappointing guidance for 2006, with commitments to spend more on acquisitions. However, this move to increase market share is driven by reduced prices and operators are not seeing compensating usage increase. The defensive tone is set to feed into capex, as operators are increasingly looking at new technology to help drive revenues.

Latin America and CEEMEA • Growth stories still abound in mobile and at very attractive

valuations. Growth remains robust in mobile operators in LatAm, CIS and MENA regions, with potential to grow for several years to come. In our view, the focus is likely to remain on medium-term growth potential rather than long-term technology concerns in mobile markets. After the recent sell-

off, we believe valuations have become very attractive, particularly in Russian and Egyptian mobiles, but also more selectively in Latin America.

• Interest in wireline remains more focused on special situations through either deep value, such as for Telecom Argentina, or special market structures, but overall incumbents remain unattractive in our view, despite the recent acceleration in broadband growth.

North America • Strong wireless, improving wireline enterprise, wireline

consumer to deteriorate further. In 1Q06, modest growth in industry gross adds and flat churn led to significant growth in net adds. We believe ARPU should continue to decline modestly, with pressure in voice offset by growth in data.

• Wireless margins should continue to expand, while capex should decline by our estimates, driving robust FCF growth over the next few years.

• Wireline enterprise volume growth across most products should continue. Pricing pressure has eased over the past year, leading to improving revenue trends. This should ease further from consolidation, given that the two carriers that were pricing most aggressively will be the new incumbents with over 80% of large enterprise revenues, paving the way to improving profitability.

• Wireline consumer market will likely deteriorate in the coming years due to increasing competitive intensity across all products. Telcos will likely see pricing pressure in voice

Global Sector Coordinator

Jean-Charles Lemardeley,CFA (44-20) 7325-5763 [email protected] J.P. Morgan Securities Ltd.

Full sector coverage details on page 9

June 28, 2006


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and data in our view. In addition, they will likely lose considerable share in voice. We belive margins will likely come down due to share loss in the context of high fixed costs.

• Given this fundamental outlook, among the integrated carriers we favor those with high exposure to wireless and enterprise and low exposure to consumer. Among the RLECs, we favor those that pay large dividends in the context of stable or growing FCF.

Our Non-Consensus Views Asia • IPTV theme could move to Korea next. Following Hong

Kong’s successful deployment of IPTV, we see Korea as the next market to exploit this technology. Japan, Taiwan and China are also well positioned, but still face regulatory hurdles.

Europe • Smaller operators continue to be more attractive. Small-cap

telecoms have recently been underperforming large-cap peers as a result of sector rotation. We expect this trend to reverse in 2H06, not just because many small-caps remain M&A targets, but because we believe they are generally far less exposed to the more competitive markets in Europe and hence are far more likely to deliver positive earnings surprises. A stock such Telekom Austria falls into this category, in our view.

Latin America and CEEMEA • Russian mobile revenue, margin potential underrated. We

believe that the stock price of VIP, in particular, is pricing in too pessimistic a revenue growth outlook due to the perception that subscriber growth is coming to an end. We believe that stabilization in US dollar pricing should allow revenue growth to start beating expectations again.

North America • Enterprise fundamentals are firming. We believe improving

volume growth and stable pricing will lead to improving top-line trends and an easing of margin pressure. We believe Q and AT&T (and to a lesser extent VZ) are most levered to this trend in our group. Our FCF estimates for Q and AT&T are higher than company guidance and higher than the Street.

• We are positive on telecom valuations. The Bells is trading at historical lows relative to the market, which we believe is unwarranted, given our estimates for annual double-digit earnings and FCF growth over the next five years.

• We remain positive on Qwest. Qwest’s shares have substantially outperformed the market in recent months, leading several of our competitors to downgrade the name. We maintain our Overweight rating, based on our view that the company’s FCF will beat consensus estimates. In addition, we believe investors get a free call option on additional potential upside to FCF from: (1) greater-than-expected enterprise and wholesale revenue growth; (2) greater-than-expected margin expansion; and (3) M&A.

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Telecom Services: Top Picks Company Key Financials Rationale and Catalysts SK Telecom Rating: Overweight Fiscal EPS (Local): Year-end Dec. Ticker: 017670 KS / 017670.KS 2005 2006E 2007E 22,217 21,059 22,980 Exchange: Korea Stock Exchange P/E (Calendar) Price (Local): W2,08,500 2006E 2007EMkt Cap (US$): 18.1 bn 9.9 9.1 Analyst: Julius Kim EV/EBITDA (Calendar) Phone: (82-2) 758-5716 2006E 2007EEmail: [email protected] 4.0 3.8

• SKT has been improving corporate governance under the first-ever, non-family-related CEO. Under his leadership, SKT has raised the dividend payout ratio to 40% and plans to do W200 billion worth of share buybacks in 2006.

• We view SKT as the leading sector top pick, due to: (1) a seemingly better regulatory environment that could lower the degree of asymmetric rule; and (2) solid fundamentals. Although the current foreign ownership is near its limit, we believe domestic institutional investors’ demand should be sustained if the market shifts northbound.

• We believe SKT’s efforts overseas could provide some positive spin, despite the investment scale being small. However, the company’s interest in China, which could potentially mean getting involved in the CDMA network of China Unicom via some sort of a JV (if allowed by the Chinese government), draws concern.

• Our June-2007 target price of W2,50,000 is DCF based. Key risks are WiBro and HSDPA capex, as well as marketing costs.

Bharti Airtel Limited Rating: Overweight Fiscal EPS (Local): Year-end Mar. Ticker: BHARTI IN / BRTI.BO 2005 2006 2007E 5.80 11.90 17.70 Exchange: Bombay Stock Exchange P/E (Calendar) Price (Local): Rs343.60 2006E 2007EMkt Cap (US$): 14.2 bn 21.2 15.4 Analyst: Sanjay Chawla EV/EBITDA (Calendar) Phone: (91-22) 6639-3019 2006E 2007EEmail: [email protected] 12.1 8.8

• Clear leader in India’s hyper growth mobile telecoms space. • Net-adds and incremental mobile market share are currently ahead of our forecasts. • High quality execution and superior track record; capable of delivering best-in-class operating metrics in our view. • We regard it as attractively valued at 14.4x our FY08E EPS, compared to the average one-year forward P/E of 21.6x

over the last six months. • Our May 2007 price target of Rs475/share is at a 10% premium to our 12-month DCF value (Rs430). Key risk is

lower-than-expected wireless EBITDA margins due to excess competition.

Source: Company data, Bloomberg, JPMorgan estimates, JPMorgan SaVanT. Prices as of cob June 15, 2006.

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Telecom Services: Top Picks (cont’d) Company Key Financials Rationale and Catalysts Vimpelcom Rating: Overweight Fiscal EPS (ADR): Year-end Dec. Ticker: VIP US / VIP 2005 2006E 2007E 3.01 4.11 5.68 Exchange: NYSE P/E (Calendar) Price (ADR): US$43.58 2006E 2007EMkt Cap (US$): 8.9 bn 9.8 8.4 Analyst: Jean-Charles Lemardeley, CFA EV/EBITDA (Calendar) Phone: (44-20) 7325-5763 2006E 2007EEmail: [email protected] 4.1 3.5

• Based on our proprietary mobile industry model, we believe that the current consensus for industry revenue growth in the next few years is overly conservative and leaves room for significant upside surprises coming from better-than-expected ARPU trends. We expect mobile service revenues to show a 19% CAGR in Russia in 2005-10E.

• We expect the improvement in ARPU trends to come on the back of slower subscriber growth and stabilization in pricing. In our view, both are likely to take place in the next 12-18 months, acting as a trigger for the re-rating of Vimpelcom.

• In our view, while a competitive flare up is always possible, we do not see a major cause for concern from either the competitive or regulatory outlook. We believe that because of the absence of significant mobile-to-mobile interconnection revenues and costs in the industry, long-term consensus EBITDA margin expectations are likely understated.

• Our Dec-06 price target of US$60 implies that VIP can trade at a FV/EBITDA multiple of 5.8x based on our 2006 estimates, slightly lower than the current multiple of 6.5 that it commands on our 2005 estimates. In our view, the key risks to our positive thesis for VIP remain the macro economic downturn leading to a slowdown of the Russian economy, which would pressure our ARPU and revenue estimates. Also, an overhang from the shareholder conflict cannot be ruled out entirely. Any adverse impact of Calling Party Pays to be introduced in July cannot be accurately ascertained yet.

Qwest Communications Rating: Overweight Fiscal EPS (Local): Year-end Dec. Ticker: Q US / Q 2005 2006E 2007E (0.25) 0.24 0.43 Exchange: NYSE P/E (Calendar) Price (Local): US$7.64 2006E 2007EMkt Cap (US$): 14.4 bn 31.7 17.7 Analyst: Jonathan Chaplin EV/EBITDA (Calendar) Phone: (1-212) 622-6413 2006E 2007EEmail: [email protected] 6.5 6.1

• We expect FCF to grow 72% in ’06 and 30% in ’07, driven by modest revenue growth, margin expansion, flat capex and declining interest. While we forecast higher revenues and greater margin expansion than the Street, we believe our estimates are conservative.

• There is a free call option on further upside. We see potential for further upside of 15-20% to our estimated ’07 FCF from a recovery in long-haul and better-than-expected margin expansion. In addition, there could be significant additional upside from M&A.

• An announcement for a return of cash later this year should drive a narrowing of the valuation gap between Q and its peers. Organic FCF growth should allow for a return of US$750 million in ’06 and US$1.5 billion in ’07.


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Telecom Services: Top Picks (cont’d) Company Key Financials Rationale and Catalysts Telekom Austria Rating: Overweight Fiscal EPS (Local): Year-end Dec. Ticker: TKA AV / TELA.VI 2005 2006E 2007E 1.06 1.36 1.57 Exchange: Vienna Stock Exchange Normalised P/E (Calendar) Price (Local): €17.39 2006E 2007EMkt Cap (US$): 11.0 bn 12.8 11.1 Analyst: David Wright EV/EBITDA (Calendar) Phone: (44-20) 7325-7317 2006E 2007EEmail: [email protected] 6.0 6.0

• We believe TKA, on the European Analyst Focus List, combines a compelling valuation and attractive M&A angle with positive near-term catalysts.

• Domestic mobile pricing is already low, while margins could benefit from market consolidation which has started to take place following the T-Mobile/Telering merger at the end of April. TKA’s broadband position appears safe given the lack of cable growth, stable retail pricing and un-compelling ULL rates. Although EU roaming regulation could still have a small negative effect on 2008E earnings.

• TKA looks well placed to acquire assets with strong growth potential in Eastern Europe, with indicative bidding undervaluing the Serbian asset by an amount equal to €1 per TKA share, on our estimates. Alternatively, we expect speculation over TKA’s ultimate ownership to intensify as the OIAG reviews its stake post the October elections, and note that any acquirer could enjoy a tax advantage unique to Austria, worth a 6-7% discount, on our numbers.

• TKA trades on a class-leading equity cash flow yield and an implied P/E based on the normalization of its aggressive depreciation policy, versus the rest of its peers. Moreover, we estimate that potential upside to the current share price is significant, with several catalysts on the horizon.

• We have a year-end 2006 €21.8 price target for Telekom Austria. The methodology is a sum-of-the-parts analysis comprising divisional discounted cash flows. Risks to our price target are: (1) an increase in the rate of domestic unbundling leading to weaker-than-expected revenue trends; (2) steep declines in mobile pricing; (3) implementation of EU mobile roaming regulation; (4) macro instability across TKA’s emerging market mobile footprint; (5) more aggressive-than-expected bidding for the Serbian/Bosnian businesses that leads to value dilution; and (6) the collapse of the T-Mobile/Telering merger discussion that leads to a deterioration in domestic mobile competition conditions and incremental pressure on TKA’s domestic margins.

AT&T Corp. Rating: Overweight Fiscal Pro-forma EPS (Local): Year-end Dec.Ticker: T US / T 2005 2006E 2007E 1.83 2.21 2.52 Exchange: NYSE Pro Forma P/E (Calendar) Price (Local): US$27.73 2006E 2007EMkt Cap (US$): 107.8 bn 12.5 11.0 Analyst: Jonathan Chaplin Pro Forma EV/EBITDA (Calendar) Phone: (1-212) 622-6413 2006E 2007EEmail: [email protected] 5.1 4.7

• We believe the BLS transaction has a number of strategic merits: (1) consolidating long-haul and enterprise operations; (2) simplifying Cingular’s management; (3) eliminating brands and reducing advertising costs; and (4) reducing corporate overheads. In addition, we believe synergies of US$18 billion are achievable.

• We estimate that Cingular should see accelerating top-line growth (9% per year on average), expanding service margins (from 29% in ’05 to 42% in ’08E) and declining capex (from US$7.5 billion in ’05 to US$6.8 billion in ’08E), which should drive significant free cash flow growth. In addition, we estimate that the acquisition of legacy AT&T will generate an incremental FCF of US$3.6 billion annually for AT&T by 2010, excluding any further synergies from the BellSouth acquisition.

• We estimate pro-forma FCF will increase from US$8.1 billion in 2006E to US$23.1 billion in 2010E. We believe FCF growth should drive share price appreciation which, coupled with a 5.1% dividend yield, should drive total returns of 20% per year, by our estimates.


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Telecom Services: Stocks to Underweight Company Key Financials Rationale and Catalysts Advanced Info Service Rating: Underweight Fiscal EPS (Local): Year-end Dec. Ticker: ADVANC TB / ADVA.BK 2005 2006E 2007E 6.42 6.61 6.66 Exchange: Thailand Stock Exchange P/E (Calendar) Price (Local): Bt88.00 2006E 2007EMkt Cap (US$): 6.8 bn 13.3 13.2 Analyst: Andy Chan EV/EBITDA (Calendar) Phone: (66-2) 684-2674 2006E 2007EEmail: [email protected] 5.5 5.3

• We believe AIS’ growing inability to defend its dominant 55% market share is leading to weak, low-single digit EPS growth. The company faces aggressive competition from Telenor-controlled number two operator, Total Access Communications, which is looking to close the coverage gap with AIS in the provinces. Meanwhile, AIS also faces stiff competition from Bangkok-centric triple-play operator, True Corporation, which is using a bundling strategy to win in the churn market.

• Being a foreign (Singaporean)-owned market dominant incumbent, we believe AIS will likely face an increasingly hostile regulatory environment from an emboldened regulator, the NTC. We believe the NTC will look to “level the playing field” more aggressively post exit of the Shinawatra family from AIS, and issues such as MNP, 3G licensing, concession conversion, interconnection, anti-trust regulations, foreign ownership, will not necessarily favor AIS.

• Telecom reforms still look murky, with state-owned TOT Corporation likely to challenge the NTC’s authority in the courts over the commercial aspects on interconnection as it relates to revenue sharing and access charges paid now by concession operators to TOT. While AIS could gain up to US$150 million per year on interconnection revenues, this benefit may be offset by compensation to TOT.

• Operationally, AIS’ attempts to defend market share through price cuts are likely to be reflected in poor FY06E results, according to our estimates. Anaemic EPS growth prospects against 13.3x FY06E P/E are demanding, in our view.

• Our Dec-06 DCF-based target price is Bt80/share. Key risk to our target price is a faster-than-expected recovery in ARPU-driven higher tariffs as operators step back from the intense competition currently ongoing. Regulatory changes are also a risk factor on the upside to our target price. A “blue sky” outcome in which AIS can be a net-beneficiary of interconnection revenues without having TOT dispute its concession contract, or without AIS paying compensation to TOT to facilitate interconnection.

Magyar Telekom Rating: Underweight Fiscal EPS (Local): Year-end Dec. Ticker: MTEL HB / MTEL.BU 2005 2006E 2007ETicker ADR: MTA 77.19 77.56 87.47 Exchange: Budapest Stock Exchange P/E (Calendar) Price (Local): HUF 804.00 2006E 2007EMkt Cap (US$): 4.0 bn 10.4 9.2 Analyst: Jean-Charles Lemardeley, CFA EV/EBITDA (Calendar) Phone: (44-20) 7325-5763 2006E 2007EEmail: [email protected] 4.6 4.0

• We maintain our Underweight rating on Magyar Telekom based on: (1) its unattractive absolute valuation, with our DCF pointing to almost no upside, and unattractive relative valuation compared to other stocks in our coverage universe; (2) potential downside to our current fixed-line projections; (3) potential downside to our Hungarian mobile projections as Magyar Telekom Mobile Hungary could face more market share loss than we currently forecast; and (4) lack of catalyst that could create upside for the stock.

• Indeed, we believe that Magyar Telekom faces the same negative secular trends as Cesky and TPSA in the fixed-line business, and is unlikely to post any meaningful growth in the mobile business. We see little scope for upside surprises to estimates in the foreseeable future. Since Magyar has the strongest track record in cash returns of the three, we see little potential for a re-rating going forward.


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Telecom Services: Stocks to Underweight (cont’d) Company Key Financials Rationale and Catalysts Telmex Rating: Underweight Fiscal EPS (Local): Year-end Dec. Ticker: TMX US / TMX 2005 2006E 2007E 2.49 2.15 2.30 Exchange: NYSE P/E (Calendar) Price (ADRl): US$19.60 2006E 2007EMkt Cap (US$): 20.6 bn 9.1 8.2 Analyst: Jean-Charles Lemardeley, CFA EV/EBITDA (Calendar) Phone: (44-20) 7325-5763 2006E 2007EEmail: [email protected] 4.3 4.1

• Although TMX appears inexpensive on multiples in absolute terms, we believe that it is unattractive on a relative basis. Based on free cash flow multiples, we do not believe that TMX is particularly attractive relative to developed market peers, and we believe the stock is also expensive versus almost all fixed/integrated Latin peers.

• On the growth front, we believe that despite an increasingly convincing effort on the broadband/IP front, TMX's outlook is not only mediocre relative to the mobile sector, but also relative to the company’s main fixed-line peers. In our view, its revenue and tariff structure makes it particularly vulnerable to wireless substitution, competition and technology-induced pricing pressures in long distance voice and data, despite its benign competitive and regulatory environment. We continue to believe the bias to our TMX estimates is to the downside.

• In our view, the two potential catalysts for TMX - a sustained pick-up in revenue growth into the mid single digits or a very large increase in the company's recurring dividend - are unlikely in the near term.

Belgacom Rating: Underweight Fiscal EPS (Local): Year-end Dec. Ticker: BELG BB / BCOM.BR 2005 2006E 2007E 2.77 2.39 2.26 Exchange: Brussels Stock Exchange P/E (Calendar) Price (Local): €25.36 2006E 2007EMkt Cap (US$): 11.6 bn 10.6 11.2

Analyst: David Wright EV/EBITDA (Calendar) Phone: (44-20) 7325-7317 2006E 2007EEmail: [email protected] 4.6 4.8

• In the face of ongoing intense competition, Belgacom is fighting to maintain market share and earnings in all core divisions. The aggressive pricing initiatives launched by BASE and Mobistar in Belgium at the beginning of the year mean Belgacom faces added challenges in achieving its 2006 margin guidance of 46%, which the company confirms is a tough target.

• We expect increasing pressure in domestic wireline. We are positioned at the lower end of Belgacom’s margin guidance and despite flat guidance, the first quarter results confirmed a slowing in margins. We expect a costly launch of Belgacom’s IPTV product, much higher than management’s estimate of €30/40 million, as the company works to secure market share.

• M&A risk remains high at Belgacom. We believe Belgacom’s lack of diversification and its poor growth profile within the telco universe could well fuel acquisition risk. We cite the Telindus acquisition at the end of 2005, which cost Belgacom all of its current cash reserves as a core example.

• A lack of diversification means this impact is felt at the bottom line, thus leaving Belgacom’s growth and relative valuation unattractive, in our view. Although the dividend and incremental buyback provide some support for the stock, we believe Belgacom is expensive versus peers.

• We have a year-end 2006 €26.5 price target for Belgacom. The methodology is based on a sum-of-the-parts analysis comprising divisional discounted cash flows. Risks to price target: (1) The company’s balance sheet being under-levered; and the company could choose to distribute significant one-off returns (as per YE2005’s special dividend, buyback). This could drive support for the share price based on yield. (2) Mobile competition is currently intense, and while we do not expect any change in the near term, there is a risk that competition will ease and current growth and margin estimates would prove too aggressive. This situation applies similarly with the wireline business.


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JPMorgan Global Telecom Services Team – Research Equity Research Credit Research Global Sector Wireless Wireline Americas Americas Americas Jean Charles Lemardeley, CFA Global Sector Coordinator

United States

Thomas J. Lee Eduardo Lecubarri Bhupinder Singh Rohit Saraf

United States Jonathan Chaplin Weston Tucker Jason Chang

United States

Thomas Egan (HG/HY-Wireless and Wireline) Peter Fitzpatrick (HG/HY-Wireline and Wireless) Austin Camporin (HG/HY-WIreline and Wireless)

Latin America Jean-Charles Lemardeley, CFA Andre Baggio, CFA

Latin America Jean-Charles Lemardeley, CFA Andre Baggio, CFA

Latin America William W Perry

EMEA EMEA EMEA Pan Europe

Jeremy Dellis David Wright Akhil Dattani

Pan Europe

David Wright Raj Sinha Malin Lethenstrom Akhil Dattani Winnie Wutte

Pan Europe

Jennifer Billings (HG/HY-Telecom) David Caldana (HG/HY-Telecom, Cable) Andrew Webb (HG/HY-Telecom) Diana Tatarchuk (HG/HY-Telecom)

CEEMEA Jean Charles Lemardeley, CFA Andre Baggio, CFA Cesar Tiron Elena Nikolaaeva

CEEMEA Jean Charles Lemardeley, CFA Andre Baggio, CFA Cesar Tiron Elena Nikolaaeva

CEEMEA Douglas Krehbiel Tatiana Tchembarova

South Africa Shamier Khan South Africa Shamier Khan

Asia Pacific Asia Pacific Asia Pacific Australia

Laurent Horru Australia

Laurent Horrut Australia, New Zealand Allison Bellows Tiernan

China, Hong Kong, Taiwan Tim Storey China, Hong Kong, Taiwain Tim Storey Jimmy Cheong

ExJapan Asia Allison Bellows Tiernan

India Sanjay Chawla India Sanjay Chawla Japan Mana Nakazora Indonesia, Philippines Luis Hilado Indonesia, Philippines Luis Hilado Japan Kazuyo Katsuma Japan Kazuyo Katsuma

Singapore Luis Hilado Maria Anne Corpuz

Malaysia Andy Chan

South Korea Julius Kim Singapore Luis Hilado Maria Anne Corpuz

Thailand Andy Chan South Korea Julius Kim

Thailand Andy Chan

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Companies Recommended in This Report (prices as of COB 19 June 2006) Advanced Info Service (ADVA.BK/Bt82.50/Neutral), Bharti Airtel Limited (BRTI.BO/Rs361.80/Overweight), SK Telecom (017670.KS/W212,000/Overweight)

Analyst Certification: The research analyst who is primarily responsible for this research and whose name is listed first on the front cover certifies (or in a case where multiple research analysts are primarily responsible for this research, the research analyst named first in each group on the front cover or named within the document individually certifies, with respect to each security or issuer that the research analyst covered in this research) that: (1) all of the views expressed in this research accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst in this research.

Important Disclosures

Client of the Firm: Advanced Info Service is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment banking services. Bharti Airtel Limited is or was in the past 12 months a client of JPMSI. SK Telecom is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment banking services. Investment Banking (past 12 months): JPMSI or its affiliates received in the past 12 months compensation for investment banking services from Advanced Info Service, SK Telecom. Investment Banking (next 3 months): JPMSI or its affiliates expect to receive, or intend to seek, compensation for investment banking services in the next three months from Advanced Info Service, SK Telecom.

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Advanced Info Service (ADVA.BK) Price Chart

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Source: Reuters and JPMorgan; price data adjusted for stock splits and dividends.This chart shows JPMorgan's continuing coverage of this stock; the current analyst may or may not have covered it overthe entire period. As of Aug. 30, 2002, the firm discontinued price targets in all markets where they were used. Theywere reinstated at JPMSI as of May 19th, 2003, for Focus List (FL) and selected Latin stocks. For non-JPMSI coveredstocks, price targets are required for regional FL stocks and may be set for other stocks at analysts' discretion.JPMorgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

Date Rating Share Price (Bt)

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15-Mar-04 OW 88.50 106.00 13-May-05 N 98.00 106.00 23-Jan-06 UW 104.00 90.00 20-Jun-06 N 82.50 81.00

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Bharti Airtel Limited (BRTI.BO) Price Chart

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SK Telecom (017670.KS) Price Chart

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25-Jul-03 OW 195500 240000 07-Oct-03 N 189000 210000 18-Jul-05 OW 185500 220000

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Important Disclosures for Equity Research Compendium Reports: Important disclosures, including price charts for all companies under coverage for at least one year, are available through the search function on JP Morgan’s website https://mm.jpmorgan.com/disclosures/company or by calling this U.S. toll-free number (1-800-477-0406)

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: JPMorgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] The analyst or analyst’s team’s coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.

Coverage Universe: David Wright: BT Group (BT.L), Belgacom (BCOM.BR), Portugal Telecom (PTC.LS), Swisscom (SCMN.VX), Telefonica (TEF.MC), Telefonica Moviles (TEM.MC), Telekom Austria (TELA.VI), Telenet (TNET.BR)

Kian Abouhossein: ABN Amro (AAH.AS), BNP Paribas (BNPP.PA), Credit Agricole (CAGR.PA), Credit Suisse Group (CSGN.VX), Deutsche Bank (DBKGn.DE), Société Générale (SOGN.PA), UBS (UBSN.VX)

JPMorgan Equity Research Ratings Distribution, as of April 3, 2006

Overweight (buy)

Neutral (hold)

Underweight (sell)

JPM Global Equity Research Coverage 40% 42% 18%

IB clients* 45% 47% 39%

JPMSI Equity Research Coverage 35% 50% 15%

IB clients* 63% 57% 46%

*Percentage of investment banking clients in each rating category. For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.

Valuation and Risks: Equity Research company notes and reports include a discussion of valuation methods used, including methods used to determine a price target (if any), and a discussion of risks to the price target.

Analysts’ Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.

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Other Disclosures

Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation’s Characteristics and Risks of Standardized Options, please contact your JPMorgan Representative or visit the OCC’s website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf.

Legal Entities Disclosures U.S.: JPMSI is a member of NYSE, NASD and SIPC. J.P. Morgan Futures Inc. is a member of the NFA. J.P. Morgan Chase Bank, N.A. is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a member of the London Stock Exchange and is authorised and regulated by the Financial Services Authority. South Africa: J.P. Morgan Equities Limited is a member of the Johannesburg Securities Exchange and is regulated by the FSB. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS Licence No: 238188, regulated by ASIC) and J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No: 238066, a Market Participant with the ASX) (JPMSAL) are licensed securities dealers. New Zealand: J.P. Morgan Securities New Zealand Limited is a New Zealand Exchange Limited Market Participant. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Commission. India: J.P. Morgan India Private Limited is a member of the National Stock Exchange of India Limited and The Stock Exchange, Mumbai and is regulated by the Securities and Exchange Board of India. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Jakarta Stock Exchange and Surabaya Stock Exchange and is regulated by the BAPEPAM. Philippines: This report is distributed in the Philippines by J.P. Morgan Securities Philippines, Inc. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Japan: This material is distributed in Japan by JPMorgan Securities Japan Co., Ltd., which is regulated by the Japan Financial Services Agency (FSA). Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [mica (p) 235/09/2005 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-x) (formerly known as J.P. Morgan Malaysia Sdn Bhd) which is a Participating Organization of Bursa Malaysia Securities Bhd and is licensed as a dealer by the Securities Commission in Malaysia

Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Issued and approved for distribution in the U.K. and the EEA by JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPMSL’s Policies for Managing Conflicts of Interest in Connection with Investment Research which can be found at http://www.jpmorgan.com/pdfdoc/research/ConflictManagementPolicy.pdf. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd. Frankfurt Branch and JPMorgan Chase Bank, N.A., Frankfurt Branch who are regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Australia: This material is issued and distributed by JPMSAL in Australia to “wholesale clients” only. JPMSAL does not issue or distribute this material to “retail clients.” The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms “wholesale client” and “retail client” have the meanings given to them in section 761G of the Corporations Act 2001. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for persons licensed by or registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from two months’ prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider for derivative warrants issued by J.P. Morgan International Derivatives Ltd and listed on The Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk/prod/dw/Lp.htm. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul branch. Singapore: JPMSI and/or its affiliates may have a holding in any of the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Legal Disclosures section above. India: For private circulation only not for sale.

General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively JPMorgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMSI and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMSI distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a JPMorgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

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Revised April 3, 2006.

Copyright 2006 JPMorgan Chase & Co. All rights reserved.

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