PREFACE

5 RIGHTS OF THE CONCESSION HOLDER

5.1 Period of Limited Competition

The CONCESSION under this Agreement is subject to the provisions in Sections 5.6 National and international traffic and 5.3 Local Public Networks, granted under a framework of limited competition with respect to the Basic Services, during a period of ENTER_DURATION years, as from the Effective Date.

The period of limited competition shall mean that the GOVERNMENT may not grant other concessions or licenses for rendering the Basic Services otherwise than provided in Section 5.3 Local Public Networks. During the period of limited competition, the GOVERNMENT shall prohibit the commercial exploitation of other telecommunications networks with respect to the Basic Services. The GOVERNMENT shall provide that any other telecommunications networks or circuits thereof have been dedicated to the use of a single user only and other telecommunications networks shall not interconnect with the network for the Basic Services, except to cases provided in Section 4.12 Interconnections.

During the year prior to the end of the period of the limited competition, the GOVERNMENT shall conduct a review of the CONCESSION HOLDER'S compliance with this Agreement. A report of the findings of the review shall be sent to the CONCESSION HOLDER one (1) month before the end of the year prior to the end of the concession period.

-1 the CONCESSION HOLDER has complied with its fundamental obligations regarding operation, expansion and modernization of the network; and

-2 the GOVERNMENT, after thorough investigation, reaches the conclusion that the benefits of permitting additional providers of the Basic Services are less significant than other circumstances such as a significant likelihood that the CONCESSION HOLDER would be unable to recover, or earn an adequate return on (considering the risks taken) its investment in the infrastructure necessary to provide the Basic Services

then

the period of limited competition in the provision of the Basic Services may be extended for a period of not more than ENTER_DURATION years to a total period up to ENTER_DURATION years.

In determining whether the CONCESSION HOLDER would be able to earn an adequate return on its initial investment without an extension of the period of limited competition, the following factors, among others, shall be taken into account by the GOVERNMENT:

1 the adequacy of steps taken to rebalance tariff structures and eliminate or reduce cross-subsidies of local services by other categories of switched voice telephony services;

2 the effectiveness of measures taken to permit the full recovery of investment costs in telecommunications infrastructure;

3 the existence of economic, social, political, legal or other regulatory conditions that were unanticipated at the time this Agreement was entered into; and

4 substantial or material changes in the terms of this Agreement.

5.2 National and International Traffic

During the period of limited competition, all national and international switched telephone traffic, coming from or directed to any switched network located in the territory of East Timor, including any switched data network, shall be sent through the network of the CONCESSION HOLDER.

Single users of telecommunications services, whether individuals or corporate, shall first request the CONCESSION HOLDER to provide such services through the CONCESSION HOLDER'S facilities and networks. Should the CONCESSION HOLDER not agree to this on terms acceptable to the user, the user shall be free to implement and connect its own networks for its own use, but not for any third party connections.

This Section 5.6 National and international traffic, shall not apply to governmental special networks for public security and safety.

5.3 Local Public Networks/Independent carriers

If, during the period of limited competition, the CONCESSION HOLDER receives an application for the establishment of a local public network from a third party willing to finance and operate that network, the CONCESSION HOLDER shall consider such an application favorably.

If the proposal is incompatible with the business strategy of the CONCESSION HOLDER, or would otherwise negatively impact the business of the CONCESSION HOLDER, the CONCESSION HOLDER shall not be required to enter into an agreement with the third party. The establishment of a local public network shall be considered incompatible with the business strategy of the CONCESSION HOLDER if an expansion of the CONCESSION HOLDER'S network in the relevant area is included in the current three year plan of the development of the CONCESSION HOLDER'S activities.

If the proposal is not incompatible with the CONCESSION HOLDER as described in the above paragraph, the CONCESSION HOLDER shall allow the third party to operate the sub-network as op a subcontracted INDEPENDENT CARRIER to the CONCESSION HOLDER, provided that the third party is able to fulfill the requirements regarding the quality of services set out in this Agreement and in the relevant provisions of the Telecommunications Act of East Timor.

If the third party and the CONCESSION HOLDER fail to reach an agreement within six months from the receipt by the CONCESSION HOLDER for the proposal, the GOVERNMENT shall have the right to intervene on behalf of the third party. Should the GOVERNMENT and the CONCESSION HOLDER fail to agree, the GOVERNMENT shall, after consultation with the CONCESSION HOLDER, appoint an independent expert or experts to advise on the matter. The final decision shall be made by the GOVERNMENT, with the opinion of the expert(s) having been taken into consideration. Should the GOVERNMENT find that the proposals meet the criteria set out above, the GOVERNMENT shall give the third party a non-exclusive CONCESSION or license to establish and operate a local public network.

5.4 Other Networks

The activities of the owners of telecommunications networks for a single user or several such networks, interconnected or not with one another as of the Effective Date, who are providing the Basic Services or the activities of possessors of public telecommunications networks shall be brought into compliance with the conditions and order provided in Sections 4.12 Interconnections, 5.5 Period Of Limited Competition, 5.6 National and international traffic and 5.3 Local Public Networks of this Agreement by the GOVERNMENT (involving the owners of the relevant networks) and the CONCESSION HOLDER within two years as from the Effective Date.

5.5 Period of Competition

The GOVERNMENT shall treat the CONCESSION HOLDER and other service providers providing the Basic Services after the period of limited competition similarly.

5.6 Tariffs

The CONCESSION HOLDER shall, subject to the provisions below, be free to set the rates for the services provided by it. Such rates are to be published by the CONCESSION HOLDER. The CONCESSION HOLDER shall settle, invoice and receive the amounts corresponding to the rates for the services it renders.

The CONCESSION HOLDER shall have the right to adjust the charges for installation and subscription for residential subscribers in permanent dwellings ("the Residential Charges") not more than four times annually. The adjustment of these charges shall be agreed between the CONCESSION HOLDER and the GOVERNMENT. The Residential Charges shall be adjusted such that they adequately reflect the costs for the CONCESSION HOLDER to provide the relevant services taking into account the average household incomes in East Timor.

In any event, the rates for the Basic Services to residential subscribers in permanent dwellings shall not be greater than necessary for recovering the actual costs and guaranteeing a reasonable profit for providing the Basic Services on a national basis.

5.6.1 Basic Services tariffs and allowable cross subsidies

Tariffs for the Basic Services during the first INSERT = X years can be lower than actual costs, thereby allowing the Operator the discretion to cross-subsidize the Basic Services with revenues from non-regulated services in order to meet the Universal Service Obligation for the Basic Services..

Any cross-subsidies for the Basic Services in existence during this period of the CONCESSION shall be reduced, in a linear regression, starting in year INSERT_X+1 of the CONCESSION, and terminating in year INSERT_Y of the CONCESSION such that the tariffs for the Basic Services from year INSERT_Y+1 of the CONCESSION agreement onward are based on the actual costs plus a reasonable rate of return from year INSERT_Y+1 onward.

5.6.2 Tariff schedules to encourage use of Basic Services

Residential telephone tariffs shall be the same throughout the country.

Differential tariffs (for example, lower rates for evening and night calls) shall be used to encourage the use of the Basic Services.

5.6.3 Annual rate of return

The annual rate of return shall be 12 % per annum, or as negotiated between the CONCESSION HOLDER and the GOVERNMENT prior to the signature of this agreement, averaged over all services including the Basic Services.

5.7 Cost Allocation for Residential Subscribers

The CONCESSION HOLDER shall within INSERT_DURATION years of the Effective Date and after consultation with the GOVERNMENT adopt appropriate rates of installation and subscription charges for residential subscribers, which are based on its business requirements, and determine the assignment procedures thereof, considering Section 4.5 Prohibition on Unfair Competition, Section 4.12 Interconnections, and Section 5.7 Tariffs of this Agreement.

5.8 Modifications Of Terms And Conditions Of The Concession

In the event that during the term of this Agreement there are substantial and material changes unforeseen by either party in

(a) the general economic situation within East Timor, or

(b) the specific circumstances or assumptions, (such as those made in the Preliminary Ten Years Development Plan, Appendix 1) concerning the market, technological, legal, regulatory or other environmental conditions, upon which the CONCESSION HOLDER'S rights and obligations are based, that will make either party suffer severe and unforeseeable hardships in the fulfillment of this Agreement, or

the CONCESSION HOLDER and the GOVERNMENT shall consult with each other with a view to make such adjustments and modifications of the terms and conditions of the Agreement as may be required to restore the equitable character of this Agreement and which are consistent with the basic purposes of this Agreement, envisaged in the preamble.

The CONCESSION HOLDER shall have the right to obtain such adjustments or modifications of the terms and conditions of this Agreement as are necessary to restore its economic and financial equilibrium, provided that it is substantially altered in the course of exercising the authorizations granted by the GOVERNMENT or as a direct or indirect consequence of the fulfillment of normative as well as individual acts of the legislative organ, executive-regulative organs of the state and municipal organs, relating to matters such as taxes, custom duties, foreign exchange or labor etc.

The CONCESSION HOLDER shall also have the right to the reestablishment of the economic and financial equilibrium if that equilibrium has been significantly altered by other causes which are extraordinary, unexpected, unforeseeable and foreign to the CONCESSION HOLDER, provided the GOVERNMENT agrees that an appropriate economic compensation is proper under the said circumstances.

Any dispute or controversy with respect to any proposed modification to the Agreement shall be subject to the provisions of Section 9 FINAL PROVISIONS.

The CONCESSION HOLDER shall not be obliged to undertake any action or development which may be damaging to the CONCESSION HOLDER, or which may be deemed not to be practical as concerns technology, economy or use of resources, in case it is incompatible with the objectives of this Agreement.

5.9 Force Majeure

The CONCESSION HOLDER shall not be held to have failed to comply with obligations imposed upon it by or under this Agreement if the CONCESSION HOLDER has not complied with that obligation by reason of any circumstance beyond its control (Force Majeure), such as fire, flood, explosion, accident, emergency, riot or war or other major accidents or circumstances of a similar nature.

Mandatory acts of any national authority, local authority or international organization, labor disputes or blockades, or the failure of suppliers to meet contractual commitments due to any of the aforementioned reasons shall be considered equal to the situation provided in Paragraph 1.

5.1 Taxes, Charges and Import Duties

Payment of taxes shall occur in accordance with the laws of East Timor.

If any taxes, charges or import duties on equipment and other assets intended for the installation and rendering of the Basic Services are changed during the term of this Agreement or any taxes (including value added tax) or charges, different from those valid at the time this Agreement was entered into, are introduced with respect to the activities of the CONCESSION HOLDER, the CONCESSION HOLDER shall have the right to increase accordingly rates for the Basic Services as provided in Section 5.7 Tariffs, unless the GOVERNMENT finds another solution to the problem of compensation.

5.11 Servitude

The CONCESSION HOLDER shall have the right to install and maintain terminal equipment and wiring located at the premises of subscribers and to take actions that may be needed to lay cables, build and make installations on land in another ownership either free of charge or against compensation, as prescribed by law, and to render the Basic Services in accordance with this Agreement and as is prescribed by laws of East Timor and other normative acts.

5.12 Wages and Terms of Employment

The CONCESSION HOLDER shall operate as a commercial enterprise and be free to set the wages and decide on the terms of employment of its employees, unless otherwise provided in the laws of East Timor and other normative acts. The wages shall be no less than the minimum wages in general. The CONCESSION HOLDER shall have the right, if it deems fit, to operate a system of differentiated wages.