SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
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o
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF
1934
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OR
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
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OR
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o
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell
company report _____________
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Commission file number 1-15028
CHINA UNICOM (HONG KONG) LIMITED
(Exact Name of Registrant as Specified in Its Charter)
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N/A
(Translation of Registrants Name Into English)
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Hong Kong
(Jurisdiction of Incorporation or Organization)
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75
th
Floor, The Center
99 Queens Road Central
Hong Kong
(Address of Principal Executive Offices)
Chu Ka Yee
Telephone: +852 2121 3220
Facsimile: +852 2121 3232
75
th
Floor, The Center
99 Queens Road Central
Hong Kong
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange On Which Registered
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Ordinary shares, par value HK$0.10 per share
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The New York Stock Exchange, Inc.*
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*
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Not for trading, but only in connection with the listing on The New York Stock Exchange, Inc.
of American depositary shares, or ADSs, each representing 10 ordinary shares.
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Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report.
As of December 31, 2010, 23,562,176,959 ordinary shares were issued and outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
Yes
þ
No
o
If this report is an annual or transition report, indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934. Yes
o
No
þ
Note Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations
under those Sections.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
o
No
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
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Large Accelerated Filer
þ
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Accelerated Filer
o
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Non-Accelerated Filer
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Indicate by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing.
U.S. GAAP
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International Financial Reporting Standards as issued by the International Accounting
Standards Board
þ
Other
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If Other has been checked in response to the previous question, indicate by check mark which
financial statement item the registrant has elected to follow.
Item 17
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Item 18
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If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
þ
TABLE OF CONTENTS
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Page
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iii
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vi
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120
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- i -
Note Regarding Forward-Looking Statements
This annual report contains certain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Such forward-looking statements may include, without limitation, statements
relating to (i) our plans and strategies, including those in connection with our restructuring and
integration after our merger with China Netcom Group Corporation (Hong Kong) Limited, mergers and
acquisitions and capital expenditures; (ii) our plans for network expansion, including those in
connection with the build-out of third generation mobile telecommunications, or 3G, digital
cellular business and network infrastructure; (iii) our competitive position, including our ability
to upgrade and expand existing networks and increase network efficiency, to improve existing
services and offer new services, to develop new technological applications and to leverage our
position as an integrated telecommunications operator and expand into new businesses and markets;
(iv) our future business condition, including our future financial results, cash flows, financing
plans and dividends; (v) the future growth of market demand of, and opportunities for, our new and
existing products and services, in particular, 3G services; and (vi) future regulatory and other
developments in the PRC telecommunications industry.
The words anticipate, believe, could, estimate, intend, may, seek, will and
similar expressions, as they relate to us, are intended to identify certain of these
forward-looking statements. We do not intend to update any of these forward-looking statements.
The forward-looking statements contained in this annual report are, by their nature, subject
to significant risks and uncertainties. In addition, these forward-looking statements reflect our
current views with respect to future events and are not a guarantee of our future performance.
Actual results may differ materially from those expressed or implied in the forward-looking
statements as a result of a number of factors, including, without limitation:
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changes in the regulatory regime and policies for the PRC telecommunications
industry, including without limitation changes in the regulatory policies of the
Ministry of Industry and Information Technology, or the MIIT (which has assumed the
regulatory functions of the former Ministry of Information Industry), the State-Owned
Assets Supervision and Administration Commission, or the SASAC, and other relevant
government authorities of the PRC;
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changes in the PRC telecommunications industry resulting from the issuance of 3G
licenses by the central government of the PRC;
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effects of tariff reduction and other policy initiatives from the relevant PRC
government authorities;
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changes in telecommunications and related technologies and applications based on
such technologies;
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the level of demand for telecommunications services, in particular, 3G services;
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competitive forces from more liberalized markets and our ability to retain market
share in the face of competition from existing telecommunications companies and
potential new market entrants;
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effects of competition on the demand and price of our telecommunications services;
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the availability, terms and deployment of capital and the impact of regulatory and
competitive developments on capital outlays;
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effects of our restructuring and integration following the completion of our merger
with China Netcom Group Corporation (Hong Kong) Limited;
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effects of discontinuation of the personal handyphone system, or PHS, business in
response to the MIITs request;
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- iii -
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effects of our acquisition from our parent companies of certain telecommunications
business and assets, including the fixed-line business in 21 provinces in southern
China, in January 2009;
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changes in the assumptions upon which we have prepared our projected financial
information and capital expenditure plans;
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changes in the political, economic, legal and social conditions in the PRC,
including the PRC Governments policies and initiatives with respect to economic
development in light of the recent global economic downturn, foreign exchange policies,
foreign investment activities and policies, entry by foreign companies into the PRC
telecommunications market and structural changes in the PRC telecommunications
industry; and
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the recovery from the recent global economic downturn inside and outside the PRC.
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Please also see D. Risk Factors under Item 3.
Certain Definitions
As used in this annual report, references to we, us, our, the Company, our company
and Unicom are to China Unicom (Hong Kong) Limited (formerly known as China Unicom Limited).
Unless the context otherwise requires, these references include all of our subsidiaries. In respect
of any time prior to our incorporation, references to we, us, our and Unicom are to the
telecommunications businesses in which our predecessors were engaged and which were subsequently
assumed by us. All references to Unicom Group are to China United Network Communications Group
Company Limited (formerly known as China United Telecommunications Corporation), our indirect
controlling shareholder. Unless the context otherwise requires, these references include all of
Unicom Groups subsidiaries, including us and our subsidiaries.
All references to China Netcom are to China Netcom Group Corporation (Hong Kong) Limited,
which merged with us in October 2008, and, as the context may require, its subsidiaries. References
to Netcom Group mean China Network Communications Group Corporation which merged with, and was
absorbed by, Unicom Group in January 2009 and, as the context may require, its subsidiaries, other
than us and our subsidiaries.
As used in this annual report:
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references to China or PRC mean the Peoples Republic of China, excluding, for
purposes of this annual report, Hong Kong, Macau and Taiwan, and references to the
central government or the PRC Government mean the central government of the PRC;
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references to our fixed-line northern service region mean the 10 municipalities,
provinces and region where we operate fixed-line business in northern China, consisting
of Beijing and Tianjin Municipalities, and Hebei, Henan, Shandong, Liaoning,
Heilongjiang, Jilin, and Shanxi Provinces, and the Inner Mongolia Autonomous Region;
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- iv -
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references to the 21 provinces in southern China mean Shanghai Municipality,
Jiangsu Province, Zhejiang Province, Anhui Province, Fujian Province, Jiangxi Province,
Hubei Province, Hunan Province, Guangdong Province, Guangxi Zhuang Autonomous Region,
Hainan Province, Chongqing Municipality, Sichuan Province, Guizhou Province, Yunnan
Province, Tibet Autonomous Region, Shaanxi Province, Gansu Province, Qinghai Province,
Ningxia Hui Autonomous Region and Xinjiang Uygur Autonomous Region; we completed the
acquisitions of certain telecommunications business and assets, including the
fixed-line business in those 21 provinces in southern China, from Unicom Group and
Netcom Group and/or their respective subsidiaries and branches in January 2009; see A.
History and Development of the Company Acquisitions of Fixed-Line Business in 21 Provinces in Southern China and Other
Assets from Parent Companies and Lease of Telecommunications Networks in 21
Provinces in Southern China under Item 4;
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references to Hong Kong Stock Exchange or HKSE mean The Stock Exchange of Hong
Kong Limited, and references to NYSE or New York Stock Exchange mean The New York
Stock Exchange, Inc; and
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references to Renminbi or RMB are to the currency of the PRC, references to
U.S. dollars or US$ are to the currency of the United States of America, references
to HK dollars or HK$ are to the currency of the Hong Kong Special Administrative
Region of the PRC and references to Euro are to the currency of the eurozone (17 of
the 27 member states of the European Union).
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- v -
Special Note on Our Financial Information and Certain Statistical Information Presented
in This Annual Report
Our consolidated financial statements as of and for the years ended December 31, 2007, 2008,
2009 and 2010 included in this annual report on Form 20-F have been prepared in accordance with
International Financial Reporting Standards, or IFRS, as issued by the International Accounting
Standards Board, or the IASB. These financial statements also comply with Hong Kong Financial
Reporting Standards, or HKFRS, which collective term includes all applicable individual Hong Kong
Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations issued by the
Hong Kong Institute of Certified Public Accountants, or HKICPA. As applied to our company, HKFRS is
consistent with IFRS in all material respects.
The statistical information set forth in this annual report on Form 20-F relating to the PRC
is taken or derived from various publicly available government publications that have not been
prepared or independently verified by us. This statistical information may not be consistent with
other statistical information from other sources within or outside the PRC.
- vi -
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not Applicable.
Item 2. Offer Statistics and Expected Timetable
Not Applicable.
Item 3. Key Information
A. Selected Financial Data
The following tables present selected historical financial data of our company as of and for
the years ended December 31, 2007, 2008, 2009 and 2010. Except for amounts presented in U.S.
dollars, the selected historical consolidated income statement data for the years ended December
31, 2007, 2008, 2009 and 2010 and the selected historical consolidated balance sheet data as of
December 31, 2008, 2009 and 2010 set forth below are derived from, should be read in conjunction
with, and are qualified in their entirety by reference to, our audited consolidated financial
statements, including the related notes, included elsewhere in this annual report on Form 20-F. The
selected historical consolidated balance sheet data as of December 31, 2007 set forth below are
derived from our internal records and management accounts that are not included in this annual
report on Form 20-F. As disclosed above under Special Note on Our Financial Information and
Certain Statistical Information Presented in This Annual Report, our consolidated statements of
income for the years ended December 31, 2007, 2008, 2009 and 2010 and consolidated balance sheets
as of December 31, 2008, 2009 and 2010 have been prepared and presented in accordance with
IFRS/HKFRS.
We completed (i) acquisitions of fixed-line business in 21 provinces in southern China, the
local access telephone business in Tianjin Municipality, three subsidiaries (together referred to
as the Target Business) and certain other telecommunication assets from Unicom Group and Netcom
Group (which was later merged with Unicom Group in January 2009) in January 2009, and (ii) a merger
with China Netcom in October 2008. See A. History and Development of the Company Acquisitions
of Fixed-Line Business in 21 Provinces in Southern China and Other Assets from Parent Companies and
Lease of Telecommunications Networks in 21 Provinces in Southern China and A. History and
Development of the Company Sale of CDMA Business, Merger with China Netcom and Related
Transactions Merger with China Netcom and Related Transactions under Item 4, respectively.
Because we and the Target Business were under common control of Unicom Group, both prior to and
after the acquisitions, and we and China Netcom were under the common control of the PRC Government
both prior to and after the merger, each of the acquisitions and the merger is considered as a
business combination of entities and businesses under common control, and has been accounted for
using merger accounting in accordance with Accounting Guideline 5 Merger accounting for common
control combinations, or AG 5, issued by the HKICPA in November 2005. In addition, we completed
an acquisition of assets and business of the Guizhou Province branch of Unicom Group, or Unicom
Guizhou, from Unicom Group in December 2007 and prior to its merger with us, China Netcom completed
an acquisition of the entire equity interest of Beijing Planning and Design Institute, or Design
Institute, a wholly-owned subsidiary of Netcom Group, in December 2007. Because we and Unicom
Guizhou were under the common control of Unicom Group both prior to and after our acquisition of
Unicom Guizhou and China Netcom and Design Institute were under the common control of Netcom Group
(which merged with, and was absorbed by, Unicom Group in January 2009) both prior to and after
China Netcoms acquisition of Design Institute, both acquisitions have been accounted for using
merger accounting in accordance with AG5 issued by the HKICPA. Upon our adoption of IFRS, we
adopted the accounting policy to account for business combination of entities and businesses under
common control using the predecessor values method, which is consistent with HKFRS. The acquired
assets and liabilities mentioned above in this paragraph are stated at historical cost, and are
included in the consolidated financial statements included in this annual report on Form 20-F as if
these entities and their businesses acquired had always been part of our company during all the
periods presented.
- 1 -
We completed the disposal of our CDMA business in October 2008. See A. History and
Development of the Company Sale of CDMA Business, Merger with China Netcom and Related
Transactions Disposal of CDMA Business and Related Transactions under Item 4. In accordance
with IFRS/HKFRS 5, Non-Current Assets Held for Sale and Discontinued Operations, we recognized
the CDMA business as discontinued operations and the CDMA business was presented separately as
discontinued operations in our audited consolidated statements of income and statements of cash
flows for the years ended December 31, 2007 and 2008.
Prior to our merger with China Netcom, China Netcom completed the disposal of the fixed-line
telecommunications and related services in its Guangdong and Shanghai branches in February 2007.
See A. History and Development of the CompanyHistory and Corporate Development of China Netcom
under Item 4. After considering that we reacquired the fixed-line business in Guangdong and
Shanghai branches in January 2009, we did not present the fixed-line business in Guangdong and
Shanghai branches as discontinued operations and derecognized the gain on disposal previously
recorded in our 2007 consolidated financial statements.
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As of or for the year ended December 31
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2007
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2008
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2009
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2010
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2010
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RMB
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RMB
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RMB
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RMB
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US$
(1)
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(in millions, except for per share data)
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Consolidated Income Statement Data:
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CONTINUING OPERATIONS
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Revenue
(2)
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Mobile business
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Telecommunications service revenue
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62,236
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64,240
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69,769
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82,362
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12,479
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Information communication technology services and other revenue
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187
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359
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252
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15
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2
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Sales of mobile telecommunications products
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14
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532
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1,970
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7,173
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1,087
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Total mobile telecommunications revenue
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62,437
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65,131
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71,991
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89,550
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13,568
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Fixed-line business
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Telecommunications service revenue
(2)
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91,093
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88,254
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79,549
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78,896
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11,954
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Information communication technology services and other revenue
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4,782
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4,339
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1,611
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1,046
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158
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Sales of fixed-line telecommunications products
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980
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1,362
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193
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114
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17
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Total fixed-line telecommunications revenue
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96,855
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93,955
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81,353
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80,056
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12,129
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Unallocated amounts
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Telecommunications service revenue
(2)
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420
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337
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275
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737
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112
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Information communication technology services and other revenue
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228
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364
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326
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955
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145
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Sales of other telecommunications products
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5
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648
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706
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601
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1,692
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257
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Total revenue
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159,940
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159,792
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153,945
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171,298
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25,954
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Total costs, expenses and others
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(136,497
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(155,733
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(141,668
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166,525
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25,231
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Income from continuing operations before income tax
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23,443
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4,059
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|
|
12,277
|
|
|
|
4,773
|
|
|
|
723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
(7,175
|
)
|
|
|
(1,828
|
)
|
|
|
(2,721
|
)
|
|
|
(922
|
)
|
|
|
(140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
16,268
|
|
|
|
2,231
|
|
|
|
9,556
|
|
|
|
3,851
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
656
|
|
|
|
1,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal of discontinued operations
|
|
|
|
|
|
|
26,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total for discontinued operation
|
|
|
656
|
|
|
|
27,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
16,924
|
|
|
|
29,804
|
|
|
|
9,556
|
|
|
|
3,851
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share for income attributable to owners of the parent during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic earnings per share
(4)
|
|
|
0.73
|
|
|
|
1.25
|
|
|
|
0.40
|
|
|
|
0.16
|
|
|
|
0.03
|
|
-Diluted earnings per share
(4)
|
|
|
0.73
|
|
|
|
1.24
|
|
|
|
0.40
|
|
|
|
0.16
|
|
|
|
0.03
|
|
-Basic earnings per ADS
(5)
|
|
|
7.33
|
|
|
|
12.55
|
|
|
|
4.02
|
|
|
|
1.63
|
|
|
|
0.25
|
|
-Diluted earnings per ADS
(5)
|
|
|
7.26
|
|
|
|
12.45
|
|
|
|
4.00
|
|
|
|
1.62
|
|
|
|
0.25
|
|
-2-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the year ended December 31
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share for income from continuing operations attributable to owners of the parent during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic earnings per share
(4)
|
|
|
0.70
|
|
|
|
0.09
|
|
|
|
0.40
|
|
|
|
0.16
|
|
|
|
0.03
|
|
-Diluted earnings per share
(4)
|
|
|
0.70
|
|
|
|
0.09
|
|
|
|
0.40
|
|
|
|
0.16
|
|
|
|
0.03
|
|
-Basic earnings per ADS
(5)
|
|
|
7.04
|
|
|
|
0.94
|
|
|
|
4.02
|
|
|
|
1.63
|
|
|
|
0.25
|
|
-Diluted earnings per ADS
(5)
|
|
|
6.98
|
|
|
|
0.93
|
|
|
|
4.00
|
|
|
|
1.62
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share for income from discontinued operations attributable to owners of the parent during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic earnings per share
(4)
|
|
|
0.03
|
|
|
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Diluted earnings per share
(4)
|
|
|
0.03
|
|
|
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic earnings per ADS
(5)
|
|
|
0.29
|
|
|
|
11.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Diluted earnings per ADS
(5)
|
|
|
0.28
|
|
|
|
11.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Number of shares outstanding for basic earnings per share
(4)
|
|
|
23,075
|
|
|
|
23,751
|
|
|
|
23,767
|
|
|
|
23,562
|
|
|
|
23,562
|
|
-Number of shares outstanding for diluted earnings per share
(4)
|
|
|
23,321
|
|
|
|
23,941
|
|
|
|
23,895
|
|
|
|
23,704
|
|
|
|
23,704
|
|
-Number of ADS outstanding for basic earnings per ADS
(5)
|
|
|
2,308
|
|
|
|
2,375
|
|
|
|
2,377
|
|
|
|
2,356
|
|
|
|
2,356
|
|
-Number of ADS outstanding for diluted earnings per ADS
(5)
|
|
|
2,332
|
|
|
|
2,394
|
|
|
|
2,389
|
|
|
|
2,370
|
|
|
|
2,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalent and short-term bank deposits
|
|
|
13,555
|
|
|
|
10,574
|
|
|
|
8,816
|
|
|
|
22,768
|
|
|
|
3,449
|
|
Property, plant and equipment
|
|
|
306,420
|
|
|
|
315,546
|
|
|
|
351,157
|
|
|
|
366,060
|
|
|
|
55,464
|
|
Inventories and consumables
|
|
|
2,816
|
|
|
|
1,147
|
|
|
|
2,412
|
|
|
|
3,728
|
|
|
|
565
|
|
Prepayments and other current assets
|
|
|
5,181
|
|
|
|
2,876
|
|
|
|
4,252
|
|
|
|
5,115
|
|
|
|
775
|
|
Available-for-sale financial assets
|
|
|
287
|
|
|
|
95
|
|
|
|
7,977
|
|
|
|
6,214
|
|
|
|
942
|
|
Proceeds receivable for the disposal of the CDMA business
|
|
|
|
|
|
|
13,140
|
|
|
|
5,121
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
368,435
|
|
|
|
380,318
|
|
|
|
417,045
|
|
|
|
441,453
|
|
|
|
66,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts payable and accrued liabilities
|
|
|
61,331
|
|
|
|
73,854
|
|
|
|
104,072
|
|
|
|
97,659
|
|
|
|
14,795
|
|
Long-term loans due to ultimate holding company
|
|
|
27,213
|
|
|
|
35,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables in relation to the disposal of the CDMA business
|
|
|
|
|
|
|
4,232
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Short-term bank loans
|
|
|
11,850
|
|
|
|
10,780
|
|
|
|
63,909
|
|
|
|
36,727
|
|
|
|
5,565
|
|
Commercial papers
|
|
|
20,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
23,000
|
|
|
|
3,485
|
|
Current portion of long-term bank loans
|
|
|
7,413
|
|
|
|
1,216
|
|
|
|
62
|
|
|
|
58
|
|
|
|
9
|
|
Current portion of other obligations
|
|
|
3,381
|
|
|
|
3,012
|
|
|
|
2,534
|
|
|
|
2,637
|
|
|
|
400
|
|
Long-term bank loans
|
|
|
16,086
|
|
|
|
997
|
|
|
|
759
|
|
|
|
1,462
|
|
|
|
222
|
|
Promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
2,273
|
|
Convertible bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,558
|
|
|
|
1,751
|
|
Corporate bonds
|
|
|
2,000
|
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
1,061
|
|
Tax payable
|
|
|
5,091
|
|
|
|
11,370
|
|
|
|
912
|
|
|
|
1,484
|
|
|
|
225
|
|
Total liabilities
|
|
|
195,146
|
|
|
|
183,085
|
|
|
|
210,578
|
|
|
|
235,612
|
|
|
|
35,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
173,289
|
|
|
|
197,233
|
|
|
|
206,467
|
|
|
|
205,841
|
|
|
|
31,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
1,437
|
|
|
|
2,329
|
|
|
|
2,310
|
|
|
|
2,310
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTINUING OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow from operating activities of
continuing operations
|
|
|
68,854
|
|
|
|
57,241
|
|
|
|
57,733
|
|
|
|
66,344
|
|
|
|
10,052
|
|
Net cash outflow from investing activities of continuing operations
|
|
|
(54,745
|
)
|
|
|
(61,026
|
)
|
|
|
(85,308
|
)
|
|
|
(76,614
|
)
|
|
|
(11,608
|
)
|
Net cash (outflow)/inflow from financing activities of continuing operations
|
|
|
(22,830
|
)
|
|
|
(28,786
|
)
|
|
|
30,197
|
|
|
|
19,824
|
|
|
|
3,003
|
|
Net cash (outflow)/inflow from continuing operations
|
|
|
(8,721
|
)
|
|
|
(32,571
|
)
|
|
|
2,622
|
|
|
|
9,554
|
|
|
|
1,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow from operating activities of
discontinued operations
|
|
|
837
|
|
|
|
656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
(outflow)/inflow from investing activities of discontinued operations
|
|
|
(25
|
)
|
|
|
29,489
|
|
|
|
(5,039
|
)
|
|
|
5,121
|
|
|
|
776
|
|
Net cash outflow from financing activities of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow/(outflow) from discontinued operations
|
|
|
812
|
|
|
|
30,145
|
|
|
|
(5,039
|
)
|
|
|
5,121
|
|
|
|
776
|
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
|
(7,909
|
)
|
|
|
(2,426
|
)
|
|
|
(2,417
|
)
|
|
|
14,675
|
|
|
|
2,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend declared per share
|
|
|
0.20
|
|
|
|
0.20
|
|
|
|
0.16
|
|
|
|
0.08
|
|
|
|
0.01
|
|
-3-
|
|
|
(1)
|
|
The translation of RMB into US dollars has been made at the rate of RMB6.6000 to US$1.00,
representing the exchange rate as set forth in the H.10 statistical release of the Federal
Reserve Board on December 30, 2010. The translations are solely for the convenience of the
reader.
|
|
(2)
|
|
Includes fixed-line upfront connection fees for basic telephone access services that were
eliminated by order of the former Ministry of Information Industry in July 2001.
|
|
(3)
|
|
Results of our CDMA business have been disclosed as discontinued operations for the years
ended December 31, 2007 and 2008.
|
|
(4)
|
|
See Note 38 to the financial statements included in this Form 20-F on how basic and diluted
earnings per share are calculated under IFRS/HKFRS.
|
|
(5)
|
|
Earnings per ADS is calculated by multiplying earnings per share by 10, which is the number
of shares represented by each ADS.
|
Exchange Rate Information
We publish our consolidated financial statements in Renminbi. Solely for the convenience of
the reader, this annual report on Form 20-F contains translations of certain Renminbi and Hong Kong
dollar amounts into U.S. dollars at specific rates. Prior to January 1, 2009, the exchange rate
refers to the noon buying rates in New York City for cable transfers as certified for customs
purposes by the Federal Reserve Bank of New York. For January 1, 2009 and all later dates and
periods, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release
of the Federal Reserve Board. Unless otherwise indicted, conversions of Renminbi or Hong Kong
dollars into U.S. dollars in this annual report are based on the exchange rate on December 30, 2010
(RMB6.6000 to US$1.00 and HK$7.7810 to US$1.00). These translations should not be construed as
representations that the Renminbi or Hong Kong dollar amounts could actually be converted into U.S.
dollars at such rates or at all.
The
daily exchange rates reported by the Federal Reserve Board were
RMB6.4917 = US$1.00 and
HK$7.7733 = US$1.00, respectively, on May 20, 2011. The following table sets forth the high and low
exchange rates between Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars for
each month during the previous six
months:
Exchange Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMB per US$1.00
|
|
|
HK$ per US$1.00
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
November 2010
|
|
|
6.6892
|
|
|
|
6.6330
|
|
|
|
7.7656
|
|
|
|
7.7501
|
|
December 2010
|
|
|
6.6745
|
|
|
|
6.6000
|
|
|
|
7.7833
|
|
|
|
7.7612
|
|
January 2011
|
|
|
6.6364
|
|
|
|
6.5809
|
|
|
|
7.7978
|
|
|
|
7.7683
|
|
February 2011
|
|
|
6.5965
|
|
|
|
6.5520
|
|
|
|
7.7957
|
|
|
|
7.7823
|
|
March 2011
|
|
|
6.5743
|
|
|
|
6.5483
|
|
|
|
7.8012
|
|
|
|
7.7750
|
|
April 2011
|
|
|
6.5477
|
|
|
|
6.4900
|
|
|
|
7.7784
|
|
|
|
7.7669
|
|
May 2011 (up to May 20, 2011)
|
|
|
6.5073
|
|
|
|
6.4917
|
|
|
|
7.7771
|
|
|
|
7.7652
|
|
The following table sets forth the average exchange rates between Renminbi and U.S. dollars
and between Hong Kong dollars and U.S. dollars for each of 2006, 2007, 2008, 2009 and 2010,
calculated by averaging, in the case of 2006 to 2008, the noon buying rates, or in the case of 2009
and 2010, the daily exchange rate, on the last day of each month during the relevant years.
-4-
Average Exchange Rate
|
|
|
|
|
|
|
|
|
|
|
RMB per US$1.00
|
|
|
HK$ per US$1.00
|
|
|
2006
|
|
|
7.9579
|
|
|
|
7.7685
|
|
2007
|
|
|
7.5806
|
|
|
|
7.8008
|
|
2008
|
|
|
6.9193
|
|
|
|
7.7814
|
|
2009
|
|
|
6.8295
|
|
|
|
7.7513
|
|
2010
|
|
|
6.7603
|
|
|
|
7.7692
|
|
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Risks Relating to Our Business
We face intense competition in all our businesses from other telecommunications service
providers, including China Mobile and China Telecom, which may materially adversely affect
our financial condition, results of operations and growth prospects.
The telecommunications industry in China has been rapidly evolving. Following the
restructuring of the PRC telecommunications industry in 2008, we, along with China Mobile and China
Telecom, have become full-service telecommunications service providers that operate both fixed-line
and mobile telecommunications networks in China. See A. History and Development of the Company
Restructurings of the Telecommunications Industry under Item 4. We face intense competition in
each of our business lines from China Mobile and China Telecom and expect that this competition
will further intensify and may also include other telecommunications service providers in the
future.
For mobile business, China Mobile is the largest mobile operator in China, while China Telecom
has become a new competitor after acquiring our CDMA business in the 2008 industry restructuring.
In the emerging 3G mobile market, we face intense competition from the other two operators. For
fixed-line business, we are a leading fixed-line operator in northern China, but remain relatively
small in southern China, where China Telecom has a dominant market position. We also face
increasing competition from competitors outside the telecommunications industry, such as cable
television companies for fixed-line broadband business. Furthermore, the PRC Government is in the
process of initiating new policies, in particular, the policies regarding the convergence of
television broadcast, telecommunications and Internet access networks and the policies that would
allow mobile subscribers to switch to the networks of another telecommunications operator with
their existing numbers in certain areas in China. Although these new initiatives may present
opportunities for us to attract new users, they also pose additional uncertainties to the
competition in mobile business in China, and we cannot assure you that our business will not be
adversely affected from such initiatives.
-5-
Intensive competition from China Mobile and China Telecom, as well as other telecommunications
service providers, could lead to slower subscriber growth, lower traffic volume of our
telecommunications services, continued price pressure and higher customer acquisition costs, which
may materially adversely affect our financial condition, results of operations and growth
prospects.
We may further lose subscribers, in particular, fixed-line services subscribers, which may
materially adversely affect our financial condition, results of operations and growth
prospects.
We continue to lose fixed-line services subscribers due to the trend of mobile service
substitution for fixed-line services. Consistent with trends in global markets in recent years,
significant traffic from our fixed-line networks has been diverted to mobile networks, including
mobile networks of other mobile operators. While we have been taking various measures to retain
our fixed-line subscribers, we cannot assure you that we will be successful in mitigating the
adverse impact of mobile service substitution for fixed-line telephone services. Historically, we
also experienced loss of mobile subscribers, primarily due to intensified competition from other
service providers. We may continue to lose fixed-line and mobile subscribers, which may in turn
adversely affect our relevant market share and increase our costs of additional customer
acquisitions and bad debts, which would materially adversely affect our financial condition,
results of operations and growth prospects.
Competition from foreign-invested operators and other new entrants may further increase the
competition for employees, exacerbate price competition and increase our operating expenses,
thereby adversely affecting our financial condition, results of operations and growth
prospects.
As a result of Chinas accession to the World Trade Organization, or WTO in December 2001 and
the adoption of the Regulations on the Administration of Foreign-Invested Telecommunications
Enterprises in January 2002, which implement Chinas commitments to the WTO, the PRC Government has
agreed to gradually liberalize the various segments and regions of the telecommunications market in
China to foreign investors. Currently, foreign investors are permitted to own up to 49% of joint
ventures that offer basic telecommunications services without any geographic restrictions in China
and up to 50% of joint ventures that offer value-added telecommunications services without any
geographic restrictions in China. More foreign-invested operators may enter Chinas
telecommunications market as a result of this liberalization. They may have greater financial,
managerial and technical resources and more expertise in network management and sales and marketing
than we do.
Increased competition from these and other new entrants into the Chinese telecommunications
market may further increase the competition for skilled and experienced employees, exacerbate price
competition and increase our customer acquisition costs and other operating expenses, and thereby
adversely affect our financial condition, results of operations and growth prospects.
We may not be able to fully realize the anticipated synergies of our merger with China
Netcom as well as our acquisition of the fixed-line business in 21 provinces in southern
China due to a number of factors, some of which are beyond our control, and may experience
various difficulties in the ongoing integration process, and our future financial condition,
results of operations and growth prospects may be materially
adversely affected.
We believe that our merger with China Netcom represents an important transaction for us,
consistent with the industry trend of convergence between fixed-line and mobile businesses within
China. It allows us to benefit from increased economies of scale, reinforce our market position,
improve our overall competitiveness and lay the foundation for sustainable long-term growth.
Nevertheless, the scale, scope and nature of the integration and customer retention efforts
required in connection with the merger present significant challenges. Although we have achieved
integration in a number of areas, such as networks and personnel, we cannot assure you that we will
be able to fully realize the anticipated synergies as a result of numerous factors, some of which
are beyond our control. These factors include, among other things:
|
|
|
unforeseen contingent risks or latent liabilities relating to the merger that may
not become apparent until the future;
|
|
|
|
increase in competition in the PRC telecommunications industry resulting from the
recent restructuring of the PRC telecommunications industry, which, among other things,
may require us to increase our marketing efforts;
|
|
|
|
the diversion of financial or other resources from our existing businesses; and
|
|
|
|
potential loss of, or harm to, relationships with customers.
|
-6-
Any of the above could adversely impact the full realization of our anticipated synergies from
the merger with China Netcom and could materially adversely affect our future business performance,
results of operations and financial condition.
In addition, as the integration is ongoing, due to various potential difficulties in managing
a much larger business, our management expects that further efforts will be required in the
continuing integration process, which may result in a diversion of our managements
attention from the operation of our businesses and may restrain our managements
resources, thereby adversely affecting our financial condition, results of operations and growth
prospects.
Following the completion of our acquisition of the fixed-line business in 21 provinces in
southern China, we have been integrating our existing business with the fixed-line operations in
those 21 provinces in southern China. We cannot assure you that this acquisition will meet our
expectation to optimize our business and resources and enhance our overall competitive position.
Failure to respond to technological and industry developments in a timely and effective
manner or failure to continually optimize, expand and upgrade our networks and
infrastructure could materially adversely affect our competitive position and hinder our
growth.
The telecommunications industry in China and elsewhere in the world has been experiencing
rapid and significant changes in the diversity and sophistication of the technologies and services
offered. Such changes may render our existing services or technologies inadequate or obsolete. As a
result, we expect that we will need to constantly upgrade our telecommunications technologies and
services to respond to such changes in order to maintain our competitiveness, which typically
involves substantial time, costs and risk. We cannot assure you that we will be able to respond to
technological and industry developments in a timely and cost-effective manner, or at all. Our
inability to respond successfully to technological or industry developments may adversely affect
our financial condition, results of operations and growth prospects. Furthermore, if the new
technologies adopted by us do not perform as expected, or if we are unable to effectively deliver
new services based on these technologies in a commercially viable manner, our revenue growth may
decline and our competitive position may be adversely affected.
In addition, the growth of our business, particularly the mobile business, depends on whether
we are able to continue to optimize the capacity, expand the coverage and improve the quality of,
and upgrade our existing networks and infrastructure in a timely and effective manner. Our failure
to do so could result in loss of our customers and thus materially adversely affect our competitive
position and hinder our growth.
Our ability to expand and upgrade our networks and infrastructure is subject to a number of
uncertainties, including our ability to achieve the following on a timely basis and on acceptable
terms:
|
|
|
manage technology migration in an effective manner, including effectively responding
to a shortage of available Internet Protocol version 4 addresses and timely developing
3GPP Long Term Evolution, or LTE;
|
|
|
|
obtain adequate financing;
|
|
|
|
obtain relevant government licenses, permits and approvals;
|
|
|
|
obtain adequate network equipment and software;
|
|
|
|
retain experienced management and technical personnel;
|
-7-
|
|
|
obtain sufficient spectrum frequencies, network numbers and other telecommunications
resources controlled by the PRC Government;
|
|
|
|
gain access to the sites for network construction or upgrade; and
|
|
|
|
enter into interconnection and other arrangements with other operators.
|
If we are not able to timely and effectively overcome the uncertainties and difficulties we
may encounter in expanding and upgrading our networks and infrastructure, our competitive position,
financial condition, results of operations and growth prospects may be materially adversely
affected.
The successful development of our 3G business is subject to market demand, consumer
acceptance, technological challenges, other uncertainties, expected benefits from
investments in our 3G networks and technology may not be realized and our business may be
adversely affected due to the competitive nature between 3G services and 2G mobile business
and fixed-line broadband services in the industry.
We commercially launched our 3G service in October 2009. As is common with undertakings of
this scale and complexity, we may experience various difficulties in the development of our 3G
business, including software, network, handset and other technical issues. While we generally
believe we are capable of solving these issues, we cannot assure you that we will be able to do so
in a timely fashion or that we will not encounter other difficulties. Moreover, we cannot assure
you that:
|
|
|
we will be able to gain access to sufficient sites for 3G network expansion;
|
|
|
|
there will be sufficient demand for 3G services;
|
|
|
|
our 3G services will be more popular among potential subscribers than those of our
competitors;
|
|
|
|
we will not encounter unexpected technological difficulties in implementing the
WCDMA technology; or
|
|
|
|
our 3G services will generate an acceptable or commercially viable rate of return.
|
Any failure or delay in completing and expanding our 3G networks, any increase in the
associated costs (including the costs and expenses that may be incurred as a result of the changes
of our marketing and sales policies, including handsets subsidies, to meet the market demand), or
any problem encountered in our operations of 3G business could hinder the recovery of our
significant capital investment in the 3G business, which could in turn have a material adverse
effect on our financial condition, results of operations and growth prospects. In addition, we
expect that 3G services will compete with 2G services and fixed-line broadband as an industry trend
in the future. Therefore, while we continue to promote our 3G business, we cannot assure you that
our 2G business and fixed-line broadband will not be adversely affected by the industry-wide
competition.
-8-
Because we rely on arrangements with other telecommunications operators, changes to the
terms or availability of these arrangements may result in disruptions to our services and
operations and may result in customer dissatisfaction and materially adversely affect our
financial condition, results of operations and growth prospects.
Our ability to provide telecommunications services depends upon arrangements with other
telecommunications operators. In particular, interconnection is necessary to complete all calls
between our subscribers and subscribers of other telecommunications operators. We, either through
ourselves or through Unicom Group, have established interconnection and transmission line leasing
arrangements with other telecommunication operators, including our parent company, as required to
conduct our current business. Any disruption to our interconnection with the networks of those
operators or other international telecommunications carriers with which we interconnect may affect
our operations, service quality and customer satisfaction, thus adversely affecting our business.
Furthermore, we are generally not entitled to collect indirect or consequential damages resulting
from disruptions in the networks with which we are interconnected. Any disruption in existing
interconnection arrangements and leased line arrangements or any significant change of their terms,
as a result of natural events or accidents or for regulatory, technical, competitive or other
reasons, may lead to temporary service interruptions and increased costs that can seriously
jeopardize our operations and adversely affect our financial condition, results of operations and
growth prospects. Difficulties in executing alternative arrangements with other operators on a
timely basis and on acceptable terms, including the inability to promptly establish additional
interconnection links or increase interconnection bandwidths as required, could also materially
adversely affect our financial condition, results of operations and growth prospects.
Interruptions to our networks and operating systems or to those with which we interconnect,
including those caused by natural disaster and service maintenance and upgrades, may disrupt
our services and operations and may result in customer dissatisfaction and materially
adversely affect our financial condition, results of operations and growth prospects.
Our network infrastructure and the networks with which we interconnect are vulnerable to
potential damages or interruptions from floods, wind, storms, fires, power loss, severed cables,
acts of terrorism and similar events. The occurrence of a natural disaster or other unanticipated
problems at our facilities or any other failure of our networks or systems, or the networks to
which we are interconnected, may result in consequential interruptions in services across our
telecommunications infrastructure. For example, in May 2008, an earthquake registering 8.0 on the
Richter scale struck Sichuan Province and its neighboring areas in China. In 2010, another major
earthquake registering 7.1 on the Richter scale struck Qinghai Province. Our network equipment,
including our base stations, in the affected areas sustained extensive damage, leading to service
stoppage and other disruptions in our operations in those areas. Any future natural disasters may,
among other things, significantly disrupt our ability to adequately staff our business, and may
generally disrupt our services and operations. Moreover, our networks and systems and the networks
with which we interconnect also require regular maintenance and upgrades. Such maintenance and
upgrades may cause service disruptions. Network or system failures, as well as high traffic
volumes, may also affect the quality of our services and cause temporary service interruptions. Any
such future occurrence may result in customer dissatisfaction and materially adversely affect our
financial condition, results of operations and growth prospects.
If we fail to achieve a smooth discontinuation of PHS services or retain our PHS subscribers
to use our other telecommunications services, our financial condition and results of
operations may be adversely affected.
Upon the completion of our merger with China Netcom, we took over China Netcoms PHS services,
which we did not operate before the merger. PHS is a telecommunications technology that allows an
operator to offer wireless local access services with mobility within an area with the same area
code. PHS business has experienced dramatic declines in recent years since its tariff advantage has
been diminishing as a result of intense competition in the mobile service market in China. Further,
in January 2009, the MIIT announced its decision to reallocate the radio spectrum on which we
currently provide our PHS services to the TD-SCDMA technology which China Mobile uses to provide
its 3G services. The MIIT requested that current wireless access systems operating on 1900-1920
MHz spectrum be cleared and removed by the end of 2011. As we expected that we would experience a
significant decline in revenue and profitability for our PHS business in 2009 and onwards, and that
our PHS business would deteriorate significantly and discontinuing the PHS services may result in a
substantial loss of our investment in this area, we recognized an impairment loss on the
PHS-related assets of approximately RMB11.8 billion for the year ended December 31, 2008, leaving
the carrying value of PHS-related assets of approximately RMB1.52 billion as of December 31, 2008.
We have been utilizing our full-service operations platform to provide substitute or
supplemental telecommunications services to our existing PHS users together with favorable
measures. However, we cannot assure you that we will be able to achieve a smooth discontinuation
of PHS services within the specified time frame or effectively retain our PHS subscribers to use
our other telecommunications services. As a result, our financial condition and results of
operations may be adversely affected.
-9-
If we are unable to fund our capital expenditure and debt service requirements, our
financial condition, results of operations and growth prospects will be materially adversely
affected.
We continue to have a significant level of capital expenditure and debt service requirements
necessary to implement our business strategies. We plan to spend approximately RMB73.80 billion for
capital expenditure in 2011. To the extent these capital expenditures exceed our cash resources,
we will be required to seek additional debt or equity financing. Our wholly-owned subsidiary, CUCL,
completed the issue of two tranches of commercial paper for the year of 2010 in an amount of RMB15
billion and RMB8 billion at an interest rate of 2.64% and 2.81% per annum, respectively, as well as
the issue of two tranches of promissory note for the year of 2010 in an amount of RMB3 billion and
RMB 12 billion at an interest rate of 3.73% and 3.31% per annum, respectively. In addition, on
October 18, 2010, Billion Express Investments Limited, a wholly-owned subsidiary of our company,
completed the issue of US$1,838,800,000 0.75 per cent guaranteed convertible bonds due 2015, or the
2015 Convertible Bonds, which are exchangeable into ordinary shares of our company. We cannot
assure you that we will be able to obtain future financing on a timely basis and/or on acceptable
terms. Even if we obtain such financing, our financing cost may increase significantly as a result
of additional financing or higher interest rate. See Liquidity and Capital Resources under Item
5. Our failure to do so may adversely affect our financial condition, results of operations and
growth prospects. Our ability to obtain acceptable financing at any time may depend on a number of
factors, including, among others:
|
|
|
our financial condition and results of operations;
|
|
|
|
our creditworthiness and relationship with lenders;
|
|
|
|
changes in credit policies, other government or banking policies that may affect
credit markets in China;
|
|
|
|
conditions of the economy and the telecommunications industry in China;
|
|
|
|
conditions in relevant financial markets in China and elsewhere in the world; and
|
|
|
|
our ability to obtain any required government approvals for our financings.
|
We may experience further declines in ARPU for our telecommunications services.
In 2010, the ARPU for our mobile business increased by 5.0% from 2009, primarily because (i)
the ARPU for our 3G business is significantly higher than that of our 2G business and (ii) the
number of our 3G subscribers has increased as a percentage of the total number of our mobile
subscribers. However, we have been experiencing declining ARPU for each of our GSM mobile services,
3G mobile services and fixed-lined business, mainly due to (i) the pricing competition with other
telecommunications operators in China; (ii) downward adjustments on some of the telecommunications
tariffs by the PRC Government (which may continue in the future); and
(iii) many new subscribers are
users with lower usage of telecommunications services. Our current GSM mobile services, 3G mobile
services and fixed-lined services may continue to experience declining ARPU in the foreseeable
future, which could have a material adverse effect on our financial condition and results of
operations. Although we have been making efforts to mitigate those effects by allocating more
resources to diversify our service offerings, particularly the value-added services, to encourage
more usage of our services and developing our high-end customers, we cannot assure you that these
efforts will be able to achieve the anticipated results.
-10-
Our controlling shareholder, Unicom Group, can exert influence on us and cause us to make
decisions that may not always be in the best interests of us or our other shareholders and
may fail to provide services and facilities that we rely on to operate our business.
Unicom Group indirectly controlled an aggregate of 71.02% of our issued share capital as of
April 30, 2011 and all of our executive directors also serve as directors or executive officers of
Unicom Group. As our controlling shareholder, subject to our articles of association and applicable
laws and regulations, Unicom Group is effectively able to control our management, policies and
business by controlling the composition of our board of directors and, in turn, indirectly
controlling the selection of our senior management, determining the timing and amount of our
dividend payments, approving significant corporate transactions, including mergers and
acquisitions, and approving our annual budgets. The interests of Unicom Group as our controlling
shareholder may conflict with our interests or the interests of our other shareholders. As a
result, Unicom Group may cause us to enter into transactions or take (or fail to take) other
actions or make decisions that may not be in our or our other shareholders best interests.
In addition, our operations depend on a number of services and facilities provided by Unicom
Group. For example, following our acquisition of the fixed-line business in 21 provinces in
southern China in January 2009, we began leasing fixed-line networks from Unicom Group for our
fixed-line business operations in those provinces. Unicom Group also provides us with international
gateway services, interconnection services, sales agency and collection services and provision of
premises. See B. Related Party Transactions under Item 7 and A. History and Development of the
Company under Item 4. The interests of Unicom Group as provider of these services and facilities
may conflict with our interests. Failure by Unicom Group to fulfill its obligations under any of
these arrangements may have a material adverse effect on our business operations. We currently have
limited alternative sources of supply for these services and facilities and, as a result, may have
limited ability to negotiate with Unicom Group regarding the terms for providing these services and
facilities. Changes in the availability, pricing or quality of these services or facilities may
have a material adverse effect on our business and profitability.
The previous internal reorganization of Unicom Group for the A Share offering created a
two-step voting mechanism that requires the approval of the minority shareholders of both
our Company and China United Network Communications Limited (formerly known as China United
Telecommunications Corporation Limited), or the A Share Company, for significant related
party transactions between us and Unicom Group.
In October 2002, Unicom Group completed an internal reorganization of its shareholding in our
company and the initial public offering in China of its then newly established subsidiary, the A
Share Company. As part of this restructuring, a portion of Unicom Groups indirect shareholding in
our company was transferred to the A Share Company, whose business is limited to indirectly holding
the equity interest of our company without any other direct business operations. A voting mechanism
was established to allow public shareholders of the A Share Company to indirectly participate in
our shareholders meetings and a two-step voting mechanism was established for the approval of
related party transactions. As a result, any significant related party transaction between us or
our subsidiaries and Unicom Group or its other subsidiaries will require the separate approval of
the independent minority shareholders of both our company and the A Share Company. Related party transactions approved by our
independent minority shareholders nevertheless cannot proceed if they are not approved by the
independent minority shareholders of the A Share Company. This adds another necessary step of
approval process for those transactions. See A. History and Development of the Company Two-Step
Voting Arrangements under Item 4.
Investor confidence and the market prices of our shares and ADSs may be materially and
adversely impacted if we are or our independent registered public accounting firm is unable
to conclude that our internal control over financial reporting is effective in future years
as required by Section 404 of the Sarbanes-Oxley Act of 2002.
We are a public company in the United States that is subject to the Sarbanes-Oxley Act of
2002. Pursuant to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we include in
this annual report a report of management on our internal control over financial reporting and an
attestation report of our independent registered public accounting firm on the effectiveness of our
internal control over financial reporting.
-11-
As of December 31, 2010, our management conducted an assessment of the effectiveness of our
internal control over financial reporting and concluded that our internal control over financial
reporting as of December 31, 2010 was effective. The effectiveness of our internal control over
financial reporting as of December 31, 2010, has been audited by PricewaterhouseCoopers, an
independent registered public accounting firm, as stated in their report appearing on page F2.
However, we cannot assure you that, in the future, our management will continue to conclude that
our internal control over financial reporting is effective. Even if our management concludes that
our internal control over financial reporting is effective for future periods, our independent
registered public accounting firm may disagree. If our independent registered public accounting
firm is not satisfied with our internal control over financial reporting or the level at which our
controls are documented, designed, operated, reviewed or evaluated, or if the independent
registered public accounting firm interprets the relevant requirements, rules or regulations
differently from us, then it may issue an adverse opinion. Any of these possible outcomes in the
future could result in an adverse reaction in the financial marketplace due to a loss of investor
confidence in the reliability of our consolidated financial statements, which could materially
adversely affect the market prices of our shares and ADSs.
Moreover, internal control over financial reporting may not prevent or detect misstatements
because of its inherent limitations, including the possibility of human error, the circumvention or
overriding of controls, or fraud. Therefore, even effective internal control over financial
reporting can provide only reasonable assurance with respect to the preparation and fair
presentation of financial statements. If we fail to maintain the adequacy of our internal control
over financial reporting, including through a failure to implement required new or improved
controls, or if we experience difficulties in their implementation, our business and operating
results could be harmed, we could fail to meet our reporting obligations and there could be a
material adverse effect on the market prices of our shares and ADSs.
If we fail to effectively rectify those improper measures and practices identified by the PRC National Audit
Office in our operations, our reputation, business, financial condition and results of
operations may be materially and adversely affected, which could adversely affect the prices
of our shares and ADSs.
The PRC National Audit Office, or the NAO, from time to time performs audits on state-owned
companies, such as Unicom Group, our controlling shareholder. The NAO issued an audit report in May
2011 that set forth the results of its routine audit on the 2009 financial information of Unicom
Group and us. The NAO identified in the audit report improper measures and practices in our certain related party
transactions, procurement procedures, operational management and accounting procedures. We have
adopted a number of rectification measures to address these improper measures and practices. Based on our current
assessment, none of these improper measures and practices has a material impact on our historical operating results,
financial statements, audit opinion or internal control assessments. However, there is no
assurance all of these measures can continuously and effectively rectify all the improper measures and practices. If we fail to successfully
implement any of these measures or fail to effectively rectify these improper measures and practices, our
reputation, business, financial condition and results of operations may be materially and adversely
affected, which could adversely affect the prices of our shares and ADSs. Furthermore, the publish
of these improper measures and practices in the audit report by the NAO may have a material adverse effect on our
reputation.
-12-
Our outstanding convertible bonds may dilute the ownership interest of existing shareholders
and may adversely affect the market price of our ordinary shares.
On October 18, 2010, Billion Express Investments Limited, a wholly-owned subsidiary of our
company, completed the issue of the 2015 Convertible Bonds, which are exchangeable into ordinary
shares of our company. Pursuant to the subscription agreement with respect to the 2015 Convertible
Bonds, the holders of the 2015 Convertible Bonds may, beginning on November 28, 2010, elect to
convert its bonds into our ordinary shares at an initial conversion price of HK$15.85 per share,
subject to certain adjustments. As of April 30, 2011, none of the 2015 Convertible Bonds has been
converted into our ordinary shares. Assuming a full conversion of the 2015 Convertible Bonds at the
initial conversion price of HK$15.85 per share, the bonds would be convertible into 899,979,487
ordinary shares, representing approximately 3.68% of our enlarged issued and outstanding share
capital as of April 30, 2011.
The conversion of the 2015 Convertible Bonds, if converted in full or in part, would dilute
the ownership interest of our existing shareholders and our earnings per share, and could adversely
affect the market price of our shares. Even if the 2015 Convertible Bonds are not converted, their
existence may encourage the short selling of our ordinary shares by the holders of the 2015
Convertible Bonds as well as other market participants, depressing the price of our ordinary
shares.
Risks Relating to the Telecommunications Industry in China
Government regulation of the telecommunications industry in China may affect our ability to
respond to market conditions or competition, and may have a material adverse effect on our
financial condition, results of operations and growth prospects.
As a telecommunications operator in China, we are subject to regulation by, and under the
supervision of, the MIIT, which is the primary regulator of the telecommunications industry in
China. The MIIT is responsible for formulating policies and regulations for the telecommunications
industry, granting telecommunications licenses, allocating frequency spectrum and numbers,
formulating interconnection and settlement arrangements between telecommunications operators, and
enforcing industry regulations. Other PRC Governmental authorities also regulate tariff policies, capital investment and foreign investment in the telecommunications industry.
See B. Business Overview Regulatory and Related Matters under Item 4. The regulatory framework
within which we operate may constrain our ability to implement our business strategies and limit
our ability to respond to market conditions or to changes in our cost structure. Moreover, we
operate our businesses pursuant to approvals granted by the State Council of the PRC, or the State
Council, and under licenses granted by the MIIT. If these approvals or licenses were revoked or
suspended, our business and operations would be materially adversely affected. In addition, we are
subject to various regulatory requirements as to service quality, pricing and other actions, and
failure to comply with such requirements may subject us to mandatory penalties or other punitive
measures, any of which could have a material adverse effect on our financial condition, results of
operations and growth prospects.
Regulatory or policy changes relating to the PRC telecommunications industry or any future
industry restructuring may materially adversely affect our financial condition, results of
operations and growth prospects.
The PRC Government continues to regulate many aspects of the telecommunications industry in
China. Potential changes in regulations and policies and their implementation could lead to
significant changes in the overall industry environment and may have a material adverse effect on
our financial condition, results of operations and growth prospects. As part of the comprehensive
plan to restructure the telecommunications industry in China, the PRC Government has been adjusting
and improving its regulatory oversight of the telecommunications industry, including further
deregulating telecommunications tariffs.
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The MIIT, under the direction of the State Council, is currently preparing a
telecommunications law to provide a uniform regulatory framework for the telecommunications
industry in China. The proposed nature and scope of the telecommunications law have not yet been
announced by the PRC Government. The telecommunications law and other new telecommunications
regulations or rules, or future changes thereto, such as enforcement of existing regulations and
policies, may materially adversely affect our financial condition, results of operations and growth
prospects.
Issues may also arise regarding the interpretation and enforcement of Chinas WTO commitments
regarding telecommunications services. Any future regulatory changes, such as those relating to the
issuance of additional telecommunications licenses, tariff setting, interconnection and settlement
arrangements, changes in technical and service standards, universal service obligations and
spectrum and number allocations, may have a material adverse effect on our business and operations.
The PRC telecommunications industry has been extensively restructured in recent years and may
be subject to further restructuring. Such further industry restructuring may materially affect the
operations of all telecommunications operators in China, including us. Accordingly, we cannot
predict the scope and effect of any further restructuring on our financial condition, results of
operations and growth prospects.
New regulations, regulatory changes or changes in enforcement policies relating to tariffs
and other aspects of telecommunications services may materially adversely affect our
competitiveness, business and financial condition, results of operations and growth
prospects.
Tariffs are the prices we charge our customers for our telecommunications services. We are
subject to extensive government regulations on tariffs, especially those relating to our basic
telecommunications services, such as mobile services, local and long distance fixed-line telephone
services, managed data services, leased line services and interconnection agreements. We have
experienced significant downward adjustments on tariffs of telecommunications services in recent
years and our revenue have been adversely affected by reductions in tariffs promulgated by the PRC
Government, such as the reduction of charges for roaming services mandated by the MIIT and the
National Development and Reform Commission of the PRC, or the NDRC, in February 2008.
We cannot predict with accuracy the timing, likelihood or magnitude of tariff adjustments by
the PRC Government or the extent or potential impact on our business of future tariff adjustments.
If the PRC Government substantially lowers the tariffs for our services, our business and our financial condition,
results of operations and growth prospects may be adversely affected. In particular, monthly fees
on fixed-line services have recently drawn attention from customers and the PRC Government. Revenue
from some of our customers have decreased as a result of discounts on monthly fees that we offered
through bundled service packages. Our revenue will be adversely affected if the PRC Government
abolishes such monthly fees. In addition, the PRC Government is in the process of initiating
detailed policies following the industry restructuring in 2008, including those that allow mobile
subscribers to switch to the networks of another telecommunications operator with their existing
numbers and those relating to the convergence of telecommunications, Internet and television
broadcast networks. On November 22, 2010, Hainan Province and Tianjin City initiated trials on the
switch of telecommunications operator networks with existing numbers. The potential new regulatory
policies and regulations may materially adversely affect our financial condition, results of
operations and growth prospects.
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The PRC Government may require us, along with other telecommunications service providers in
China, to provide universal services with specified obligations, and we may not be
compensated adequately for providing such services.
Under the Telecommunications Regulations promulgated by the State Council, telecommunications
service providers in China are required to fulfill universal service obligations in accordance with
relevant regulations to be promulgated by the PRC Government authorities, and the MIIT has the
authority to delineate the scope of universal service obligations. The MIIT, together with
government finance and pricing authorities, is also responsible for formulating administrative
rules relating to the establishment of a universal service fund and compensation schemes for
universal services. These rules have not yet been promulgated, and there are currently no specific
regulatory requirements relating to the provision of universal services in China.
While specific universal services obligations are not yet clear, we believe that such services
may include mandatory provision of basic telecommunications services in less economically developed
areas in China and mandatory contribution by telecommunications service providers to a universal
service fund. In addition, as part of the transitional measures prior to the formalization of a
universal service obligation framework, the MIIT has required major telecommunications service
providers in China, including Unicom Group, to participate in a project to provide telephone
services in thousands of remote villages in China. See B. Business Overview Regulatory and
Related Matters Universal Services under Item 4.
We cannot predict whether the PRC Government will specifically require us to undertake
universal service obligations in the future. To the extent we are required to do so, it is
currently uncertain whether we will be adequately or timely compensated by the PRC Government or by
the universal service fund. We cannot assure you that we will be able to realize an adequate return
on investments for expanding networks to, and providing telecommunications services in, less
economically developed areas due to potentially higher capital expenditure requirements, lower
usage by customers and lack of flexibility in setting our tariffs. We also cannot predict whether
we will be required to make a contribution to the universal service fund. Any of these events may
adversely affect our financial condition and results of operations.
Actual or perceived health risks associated with the use of mobile devices could impair our
ability to retain and attract customers of our mobile services, reduce mobile service usage
or result in litigation.
Concerns have been expressed in some countries that the electromagnetic signals emitted by
wireless telephone handsets and base stations may pose health risks at exposure levels below
existing guideline levels, and interfere with the operation of electronic equipment. In addition,
mobile operators have been subject to lawsuits alleging various health consequences as a result of
mobile handset usage or proximity to base stations or seeking protective or remedial measures.
While we are not aware that such health risks have been substantiated, there can be no assurance
that the actual, or perceived, risks associated with the transmission of electromagnetic signals
will not impair our ability to retain customers and attract new customers, reduce mobile service
usage or result in litigation.
Risks Relating to Doing Business in China
Our operations may be materially adversely affected by changes in Chinas economic,
political and social conditions.
Substantially all of our business operations are conducted in China and substantially all of
our revenue are derived from our operations in China. Accordingly, our business, financial
condition, results of operations and prospects are affected to a significant degree by economic,
political and social conditions in China. The PRC economy differs from the economies of most
developed countries in many respects, including with respect to the extent of government
involvement, level of development, growth rate, control of foreign exchange and allocation of
resources. While the PRC economy has experienced significant growth in the past three decades,
growth has been uneven across different regions and among various economic sectors. The PRC
Government has implemented various measures to encourage economic development and guide the
allocation of resources. Some of these measures benefit the overall PRC economy, but may also have
a negative effect on us. For example, our financial condition and results of operations may be
materially adversely affected by government control over capital investments. In addition,
increased levels of inflation or increased pressure for higher social average wages in China may
prompt us, or the PRC Government to request us, to increase wages for our employees, which may
materially adversely affect our financial condition and results of operations. Furthermore, if
Chinas economic growth slows down, there may be reduced business activities and reduced demand for
our services, which could materially and adversely affect our business, as well as our financial
condition and results of operations.
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If the PRC Government revises the current regulations that allow a foreign-invested
enterprise to pay foreign exchange in current account transactions, our operating
subsidiarys ability to satisfy its foreign exchange obligations and to pay dividends to us
in foreign currencies may be restricted.
The ability of our major operating subsidiary, CUCL, to satisfy its foreign exchange
obligations and to pay dividends to us depends on existing and future foreign exchange regulations
in China. The Renminbi is currently convertible by foreign-invested enterprises in China to settle
transactions under the current account, which include trade and service related foreign exchange
transactions and payments of dividends. The Renminbi currently cannot be freely converted without
regulatory approval for transactions under the capital account, which includes outbound foreign
investment and payments on foreign loans. CUCL, which holds substantially all of our assets and
through which we conduct substantially all of our business, is a foreign-invested enterprise in
China. However, there is no assurance that in the future the relevant PRC government authorities
will not impose any limitation on the ability of foreign-invested enterprises to purchase foreign
exchange to satisfy their foreign exchange obligations or to pay dividends. In that event, CUCLs
ability to satisfy its foreign exchange obligations and to pay dividends to us in foreign
currencies may be restricted and the interests of our shareholders may, in turn, be affected.
Fluctuations in the value of the Renminbi could adversely affect the prices of our shares
and ADSs as well as our profitability.
Substantially all of our revenue and costs and expenses are denominated in Renminbi, while a
portion of our borrowings, equipment purchases and other capital expenditures are denominated in
foreign currencies. On July 21, 2005, the PRC Government changed its decade-old policy to permit
Renminbi to fluctuate within a narrow and managed band against a basket of certain foreign
currencies determined by the Peoples Bank of China, or the PBOC. On May 19, 2007, the PBOC
announced a policy to further expand the maximum daily floating range of RMB trading prices against
the U.S. dollar in the inter-bank spot foreign exchange market. With the increased floating range
of the Renminbis value against foreign currencies, the Renminbi may appreciate or depreciate
significantly in value against the U.S. dollar or other foreign currencies in the long term,
depending on the fluctuation of the basket of currencies against which it is currently valued, or
it may be permitted to enter into a full float. Increased fluctuations of the Renminbi could
adversely affect the value in foreign currency terms of cash flow generated from our operations or
any dividends payable on our shares and ADSs, and therefore the price of our shares and ADSs. Any
future Renminbi devaluations could also increase our equipment importation costs or lead to
significant fluctuations in the exposure of our foreign-currency-denominated liabilities, thereby
adversely affecting our profitability.
Uncertainties in the PRC legal system could limit the legal protections available to us and
to foreign investors and materially adversely affect our financial condition, results of
operations and growth
prospects.
Our wholly-owned operating subsidiary, CUCL, is organized under the laws of PRC and is
generally subject to laws and regulations applicable to foreign-invested enterprises in China. The
Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it
is a system in which decided legal cases may be cited for reference but have limited precedential
value. Since 1979, the PRC Government has promulgated laws and regulations dealing with economic
matters such as foreign investment, corporate organization and governance, commerce, property,
taxation and trade. However, because these laws and regulations are relatively new, and because of
the relatively limited volume of published cases and their non-binding nature, interpretation
and/or enforcement of these laws and regulations involves uncertainties, which may limit the
remedies available to you as an investor and to us in the event of any claims or disputes with
third parties. In addition, any litigation in China may be protracted and result in substantial
costs and diversion of resources and management attention. Therefore, the protection provided by
the PRC legal system may not be the same as the legal protection available to investors in the
United States or elsewhere. Furthermore, various uncertainties involved in the rulemaking,
interpretation and enforcement process of the laws, regulations and rules in China that are related
to our business operations, in particular, those in respect of telecommunications and enterprise
income tax, may also materially and adversely affect our financial condition, results of operations
and growth prospects.
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Since we are a Hong Kong company, you will not have certain investor rights as our
shareholder, such as the right to bring legal action against other shareholders on behalf of
the company.
We were incorporated in Hong Kong. The Hong Kong Companies Ordinance does not provide for any
right for our shareholders, including our significant shareholders, to bring legal action against
any other shareholder on our behalf to enforce any claim against such party or parties if we fail
to enforce such claim ourselves.
You may experience difficulties in effecting service of legal process and enforcing
judgments against us and our management.
Most of our current operations are conducted in China and most of our assets are located in
China. In addition, five out of eleven of our current directors and all of our current executive
officers reside within China, and substantially all of the assets of these persons are located
within China. As a result, it may not be possible to effect service of process within the United
States or elsewhere outside China upon these directors or executive officers, including with
respect to matters arising under U.S. federal securities laws or applicable state securities laws.
Moreover, our PRC counsel has advised us that China does not have treaties with the United States
or many other countries providing for the reciprocal recognition and enforcement of court
judgments. Our Hong Kong counsel has also advised us that Hong Kong has no arrangement for the
reciprocal enforcement of judgments with the United States. As a result, recognition and
enforcement in China of judgments of a court of the United States or any other jurisdiction,
including judgments against us or our directors, executive officers, underwriters or experts, may
be difficult or impossible.
New provisions of the PRC Employment Contract Law and its implementation rules may
substantially increase our labor-related costs in the future.
A new labor contract law in China, which we refer to as the Employment Contract Law, became
effective on January 1, 2008, and its implementation rules became effective on September 18, 2008.
The Employment Contract Law and its implementation rules contain a number of provisions that are
more favorable to employees than the prior labor laws and regulations in China. For example, an
employee may terminate the employment contract without notice if his or her employer fails to pay
regulatory social insurance contributions for the employee, or the employer has a workplace policy
that violates PRC law and causes harm to the employee. In such case, the employee is entitled to
compensation by the employer in an amount equal to his or her average monthly salary for the prior
twelve months times the number of years the employee has served the employer. An employer is also
obligated to compensate an employee if the employer decides not to renew an existing employment
contract, unless the employee refuses the employers offer to renew the expiring employment
contract with the same or better terms. In addition, an employer is obligated to provide an
open-ended employment contract after an employee has completed two consecutive terms of
fixed-term employment, under which the employer will be liable to pay damages to an employee
if the employer terminates the employment without cause, until the employee reaches an age at which
he or she is eligible for pension payment. As a result of the implementation of the new Employment
Contract Law and its implementation rules, we may have greater difficulty terminating
under-performing employees and may incur higher levels of labor costs in order to comply with the
provisions of the new law and its rules, which may adversely affect our business, financial
condition and operating results.
Natural disasters and health hazards in China may severely disrupt our business and
operations and may severely restrict the level of economic activities in affected areas
which in turn may have a material adverse effect on our financial condition and results of
operations.
In 2008, we experienced severe sleet and snowstorms in southern China and a devastating
earthquake in Sichuan province. Those natural disasters resulted in significant and extensive
damage to our base stations and network equipment. Moreover, certain countries and regions,
including China, have encountered incidents of the H5N1 strain of bird flu, or avian flu, as well
as severe acute respiratory syndrome, or SARS, over the past several years and, more recently in
2009, the outbreak of influenza A (H1N1). In 2010, another major earthquake registering 7.1 on the
Richter scale struck Qinghai Province. We are also unable to predict the effect, if any, that any
other future natural disasters and health hazards may have on our business. Any future natural
disasters and health hazards may, among other things, significantly disrupt our ability to
adequately staff our business, and may generally disrupt our operations. Furthermore, natural
disasters and health hazards may severely restrict the level of economic activities in affected
areas, which may in turn materially adversely affect our business and prospects. As a result, any
natural disasters or health hazards in China may have a material adverse effect on our financial
condition and results of operations.
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Risk Relating to our ADSs
Holders of our ADSs will not have the same voting rights as the holders of our shares and
may not receive voting materials in time to be able to exercise their right to vote.
Except as described in this annual report and in the deposit agreement, holders of our ADSs
will not be able to exercise voting rights attaching to the shares represented by our ADSs on an
individual basis. Holders of our ADSs will receive proxy materials with respect to matters to be
voted on at a meeting of shareholders through the depositary and may only exercise voting rights by
appointing the depositary or its nominee as their representative to exercise the voting rights
attaching to the shares represented by the ADSs. Consequently, if the materials to be forwarded to
holders of ADSs by the depositary are delayed or if the depositary sets deadlines by which holders
of ADSs must give their instructions regarding how to vote that fall too soon after mailing of the
proxy materials, the holders of our ADSs may not receive voting materials in time to instruct the
depositary to vote. Thus, it is possible that such holders, or persons who hold their ADSs through
brokers, dealers or other third parties, may not have the opportunity to exercise a right to vote.
Item 4. Information on the Company
A. History and Development of the Company
We were incorporated under the laws of Hong Kong on February 8, 2000 under the Companies
Ordinance as a company limited by shares under the name China Unicom Limited. In connection with
the telecommunications industry restructuring initiated by the MIIT, the NDRC and the Ministry of
Finance of the PRC in 2008 as discussed below, we merged with China Netcom and changed our name to
China Unicom (Hong Kong) Limited with effect from October 15, 2008. Following our merger with
China Netcom, we became an operator providing a full range of telecommunications services,
including mobile and fixed-line services, in China.
Our registered office and principal executive offices are located at 75th Floor, The Center,
99 Queens Road Central, Hong Kong (telephone number: 852-2126-2018).
Restructurings of the Telecommunications Industry
Since 1993, the PRC Government has implemented a number of measures to restructure and
introduce competition in the telecommunications industry. Prior to July 1994, China Telecom was the
sole provider of telecommunications services in China. In July 1994, Unicom Group was established
in accordance with the State Councils approval to introduce orderly competition in the
telecommunications industry. Since then, the PRC Government has approved Jitong Network
Communications Company Limited, or Jitong, and China Netcom Corporation Ltd., or CNCL, to provide
Internet protocol, or IP, telephony, Internet and data services. It has also approved China Tietong
to provide most telecommunications services other than mobile services.
In 1999, the State Council approved a plan to restructure the former China Telecom along four
business lines: fixed-line, mobile, paging and satellite communications. As a result of the
restructuring, China Telecom retained the fixed-line, data and Internet businesses, while China
Mobile assumed the mobile business previously operated by China Telecom. In 2002, the PRC
Government further separated China Telecom into two companies, with the southern company retaining
the name of China Telecom and assets and businesses in 21 provinces in southern China and the
northern company retaining assets and businesses in 10 provinces in northern China and merging with
CNCL and Jitong to form China Netcom. As a result of the PRC Governments efforts to introduce
competition in the telecommunications industry, there are currently more than one service providers
in most of the sectors within the telecommunications industry.
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On May 24, 2008, the MIIT, the NDRC and the Ministry of Finance issued a joint announcement
relating to the further reform of the PRC telecommunications industry. According to the joint
announcement, the principal objectives of such further reform included, among others: (i)
supporting the formation of three telecommunications services providers of comparable scale and
standing, each with nationwide network resources, full-service capabilities and competitive
strength, in order to help optimize the allocation of telecommunications resources and foster
market competition; (ii) promoting homegrown innovation by telecommunications services providers;
and (iii) enhancing the service capabilities and quality of, and the regulatory framework
governing, the telecommunications industry. To achieve these objectives, the three ministries
encouraged the following restructuring transactions: (a) the acquisition by China Telecom of the
CDMA network (including both assets and subscriber base) then owned by Unicom Group along with us;
(b) the merger between China Unicom and China Netcom; (c) the transfer of the basic
telecommunications services business operated by China Satellite into China Telecom; and (d) the
consolidation of China Tietong into China Mobile. The detailed implementation plans relating to
these restructuring transactions were subsequently formulated by the relevant parties and, as a
result, China Mobile, China Telecom and we became the current three major telecommunications
operators in China, each providing a full range of telecommunications services nationwide.
Sale of CDMA Business, Merger with China Netcom and Related Transactions
Disposal of CDMA Business and Related Transactions
Pursuant to the 2008 telecommunications industry restructuring announcement, on June 2, 2008,
we, CUCL and China Telecom entered into a CDMA business disposal framework agreement, under which
CUCL agreed to sell, and China Telecom agreed to purchase, the CDMA business of CUCL, including (i)
the entire CDMA business, which is owned and operated by CUCL, together with the assets of CUCL
that are relevant to the CDMA operations and the rights and liabilities of CUCL relating to its
CDMA subscribers; (ii) the entire equity interest in China Unicom (Macau) Company Limited, our
wholly-owned subsidiary; and (iii) all of the 99.5% equity interest in Unicom Huasheng
Telecommunications Technology Company Limited, a limited liability company incorporated under the
laws of the PRC, held by CUCL.
On July 27, 2008, we, CUCL and China Telecom further entered into a CDMA business disposal
agreement which set out the detailed terms and conditions of the CDMA business disposal. The
consideration for the CDMA business disposal was RMB43.8 billion in cash, payable in three
installments. While the consideration was subject to a price adjustment mechanism based on the CDMA
service revenue generated by us for the six months ended June 30, 2007 and June 30, 2008, as agreed
with China Telecom, there was no subsequent adjustment to the consideration as a
result of the price adjustment mechanism.
On July 27, 2008, in connection with the CDMA business disposal, CUCL agreed (i) to waive its
right to exercise its option to purchase the CDMA network from Unicom New Horizon Mobile
Telecommunications Company Limited, or Unicom New Horizon, a wholly-owned subsidiary of Unicom
Group, and (ii) to terminate the CDMA lease pursuant to which CUCL leased capacity on the CDMA
network from Unicom New Horizon, in each case with effect upon the completion of the CDMA business
disposal.
At our shareholders meeting held on September 16, 2008, our shareholders approved the CDMA
business disposal and our independent shareholders approved the waiver by CUCL of the option to
purchase the CDMA network and the termination of the CDMA lease. As all of the conditions of the
CDMA business disposal as specified in the CDMA business disposal agreement had been satisfied or
deemed to have been satisfied, the CDMA business disposal was completed on October 1, 2008. On that
date, China Telecom became the legal owner of the CDMA business and all the rights, interests,
obligations and liabilities in relation to the CDMA business have been borne by China Telecom with
effect from October 1, 2008. We recognized in our statements of income for the year ended December
31, 2008 a gain on disposal of the CDMA business of approximately RMB26.1 billion, net of
corresponding income tax of approximately RMB9.0 billion. For further details, see Operating
Results Year Ended December 31, 2008 Compared to Year Ended December 31, 2007 Income from
Discontinued Operations under Item 5.
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In connection with the CDMA business disposal, we had been notified by Unicom Group that on
June 2, 2008 and July 27, 2008, Unicom Group, Unicom New Horizon and China Telecom entered into a
CDMA network framework agreement and a CDMA network disposal agreement, respectively, which set out
the terms and conditions, under which Unicom Group and Unicom New Horizon agreed to sell, and China
Telecom agreed to purchase, the CDMA network at a consideration of RMB66.2 billion. The disposal of
the CDMA network was completed concurrently with our CDMA business disposal, on October 1, 2008.
Merger with China Netcom and Related Transactions
Merger with China Netcom
On October 15, 2008, following the approval of the merger by our shareholders and the
shareholders of China Netcom at shareholders meetings held on September 16, 2008 and September 17,
2008, respectively, and the satisfaction of all other conditions, the merger between China Unicom
and China Netcom by way of a scheme of arrangement of China Netcom under Section 166 of the Hong
Kong Companies Ordinance became effective. Upon the merger becoming effective, all ordinary shares
of China Netcom outstanding at 5:00 p.m., Hong Kong time, on October 14, 2008 and all outstanding
options to acquire China Netcom shares granted under the share option scheme of China Netcom were
cancelled and new China Netcom shares were issued to us. As a result, China Netcom became our
wholly-owned subsidiary and the listings of China Netcoms ordinary shares and ADSs on the HKSE and
the NYSE, respectively, were withdrawn.
In connection with our merger with China Netcom, each holder of China Netcom shares was
entitled to receive 1.508 of our new ordinary shares for every cancelled China Netcom share and
each holder of Netcom ADSs was entitled to receive 3.016 of our new ADSs for every cancelled China
Netcom ADS. A total of 10,102,389,377 of our new ordinary shares (including ordinary shares
underlying our newly issued ADSs) were issued to China Netcoms shareholders as consideration for
the cancellation of the China Netcom shares held by China Netcom shareholders.
Furthermore, we adopted a special purpose share option scheme, pursuant to which we have
granted new Unicom options to the holders of China Netcom options in consideration for the
cancellation of their outstanding Netcom options (whether vested or not). The number of Unicom
options granted and the exercise price of such options were determined in accordance with a formula
which ensures that the value of the Unicom options received by a holder of Netcom options is
equivalent to the value determined by deducting the exercise price of the relevant Netcom option
from the value of HK$27.87 per Netcom share. See E. Share Ownership Stock Incentive Schemes
Special Purpose Share Option Scheme under Item 6 for further details.
As a result of our merger with China Netcom, we have become an operator providing a full range
of telecommunications services, including mobile voice and value-added, fixed-line voice and
value-added, fixed-line broadband, data communications and other telecommunications services, to
our customers through our two business segments comprised of mobile services and fixed-line
services. Following the merger, we have taken measures to combine the respective experience and
technologies of Unicom and China Netcom and develop business strategies, taking into account
current market developments, to promote business innovation and competitiveness and to improve
operating and financial performance. By combining the resources and business strengths of Unicom
and China Netcom in different areas, we seek to become a world-class provider of telecommunications
services, in particular in fixed-line broadband communications and information services, establish
competitive advantages in our technologies, products and services and provide professional and
multi-tiered information services to satisfy the changing and diverse needs of the
telecommunications market in the PRC.
Change of Company Name
Upon our merger with China Netcom becoming effective on October 15, 2008, our name changed
from China Unicom Limited to China Unicom (Hong Kong) Limited. Our stock trading code on the
HKSE and our ticker symbol on the NYSE remain unchanged.
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Related Transactions
As part of our integration with China Netcom, our wholly-owned subsidiary, CUCL, merged with
China Netcom (Group) Company Limited, or CNC China, a wholly-owned subsidiary of China Netcom, in
January 2009, and upon that merger becoming effective, CUCL assumed all the rights and obligations
of CNC China, and all the assets, liabilities and business of CNC China were vested in CUCL. In
addition, in January 2009, Unicom Group, our parent company, merged with and absorbed Netcom Group,
the parent company of China Netcom. Upon completion of the merger between Unicom Group and Netcom
Group, Unicom Group assumed all the rights and obligations of Netcom Group, and all the assets,
liabilities and business of Netcom Group have vested in Unicom Group.
History and Corporate Development of China Netcom
China Netcom was incorporated in Hong Kong on October 22, 1999, under the Hong Kong Companies
Ordinance as a company limited by shares under the name Target Strong Limited. The company changed
its name to China Netcom (Hong Kong) Corporation Limited on December 9, 1999, to China Netcom
Corporation (Hong Kong) Limited on August 4, 2000, and to China Netcom Group Corporation (Hong
Kong) Limited on July 23, 2004 (the last name change in anticipation of its IPO in 2004).
China Netcoms principal operating subsidiary, CNC China, which merged with, and was absorbed
by, CUCL in January 2009, was incorporated as a PRC limited liability company in August 1999 by its
four founders and shareholders, the Academy of Sciences, INC-SARFT, CRTC and Shanghai Alliance, as
a facilities-based telecommunications operator in China. China Netcom was established in October
1999 to facilitate investments by foreign investors, including CNC Fund, L.P., in CNC China.
Shortly thereafter, the four founders, using their respective equity interests in CNC China as
capital contributions, established China Netcom (Holdings) Company Limited, or China Netcom
Holdings, which in turn contributed its entire interests in CNC China through CNC BVI to China
Netcom. China Netcom, through China Netcom Corporation International Limited, established Asia
Netcom in 2002. Asia Netcom remained inactive until it acquired substantially all the assets,
including cash, and most of the subsidiaries, of the former Asia Global Crossing Ltd. by the end of
2003.
China Netcom successfully completed its IPO in November 2004 with the listing of its ordinary
shares on the HKSE and ADSs, each representing 20 of its ordinary shares, on the NYSE.
In October 2005, China Netcom acquired from CNC BVI the entire equity interests of China
Netcom Group New Horizon Communications Corporation (BVI) Limited, or CNC New Horizon BVI, which
merged into CNC China in November 2006. As a result of the merger, China Netcom acquired the
fixed-line telecommunications assets and related liabilities in Heilongjiang Province, Jilin
Province, the Inner Mongolia Autonomous Region and Shanxi
Province. In August 2006, China Netcom sold the entire equity interest in Asia Netcom, which
then provided international telecommunications services in the Asia-Pacific region, to Connect
Holdings Limited. In February 2007, China Netcom sold its telecommunications assets, liabilities
and business operations in Guangdong Province and Shanghai Municipality to Netcom Group. In
December 2007, China Netcoms wholly-owned subsidiary, China Netcom Group System Integration
Limited Corporation, or China Netcom System Integration, acquired the entire equity interest in
Design Institute from China Netcom Group Beijing Communications Corporation, a wholly-owned
subsidiary of Netcom Group, in order to develop two of its key information and communication
technologies, or ICT, services.
Our Parent Company and Our Initial Public Offering
Our ultimate controlling shareholder is Unicom Group, a company incorporated under the laws of
the PRC and majority-owned by the PRC Government. Unicom Group was established in accordance with
the State Councils approval to introduce orderly competition in the telecommunications industry in
1994.
Unicom Group transferred certain of its telecommunications assets, rights and liabilities to
CUCL (which became our wholly-owned subsidiary in China) in April 2000 in preparation for our IPO.
In June 2000, we successfully completed our IPO. Our ordinary shares are listed on the HKSE and our
ADSs, each representing ten of our ordinary shares, are listed on the NYSE.
-21-
Unicom Acquisitions and Sales
In December 2002 and December 2003, respectively, we completed our acquisitions from Unicom
Group of 100% of the equity interests in Unicom New Century and Unicom New World, both of which
held mobile telecommunications operations (including GSM assets and business and CDMA business) in
various provinces and autonomous regions in the PRC. Subsequent to the completion of those
acquisitions, Unicom New Century and Unicom New World merged into CUCL in July 2004 and September
2005, respectively.
In March 2003, we completed the sale to Unicom Group of the entire equity interest of Guoxin
Paging Corporation Ltd., which at the time of transfer was engaged in paging business.
In September 2004, we acquired from Unicom Group of 100% of the equity interest in China
Unicom International Limited, or Unicom International, a limited liability company established in
Hong Kong and engaged in voice wholesale business, telephone cards business, line leasing services,
managed bandwidth services and mobile virtual network services. In September 2009, the name of
China Unicom International Limited was changed to China Unicom (Hong Kong) Operations Limited.
Unicom Internationals wholly-owned U.S. subsidiary, China Unicom USA Corporation, is engaged in
the wholesale business of voice traffic between the United States and PRC. In August 2009, the name
of China Unicom USA Corporation changed into China Unicom (Americas) Operations Limited upon the
completion of its merger with China Netcom (USA) Operations Limited, a subsidiary of China Netcom.
In October 2004, we established China Unicom (Macau) Company Limited, or Unicom Macau, in
Macau, which then provided CDMA mobile services to local CDMA users in Macau. In connection with
the disposal of our CDMA business in October 2008, we sold the entire equity interest in Unicom
Macau to China Telecom along with our other CDMA business and certain related assets.
In July 2005, CUCL and Unicom Xingye Science and Technology Trade Co., Ltd., or Unicom Xingye,
a subsidiary of Unicom Group, incorporated Unicom Huasheng. Unicom Huasheng was principally engaged
in the sales of CDMA handsets and telecommunications equipment and the provision of technical
services for us. In connection with the disposal of our CDMA business in October 2008, CUCL sold
all of the 99.5% equity interest it held in Unicom Huasheng to China Telecom.
In December 2007, we completed the acquisition from Unicom Group of the mobile
telecommunications operations (including GSM assets and business and CDMA business) of its Guizhou
Province branch. As a result of
the acquisitions of Unicom New Century, Unicom New World and Unicom Guizhou, we extended our
GSM and CDMA mobile businesses to all provinces, autonomous regions and municipalities across
China.
On August 19, 2008, CUCL established a wholly-owned subsidiary, Unicom Huakai
Telecommunications Company Limited, or Unicom Huakai, as a limited liability company under the laws
of the PRC. Unicom Huakai is principally engaged in the sales of handsets and telecommunications
equipment and the provision of technical services. The paid-in capital of Unicom Huakai is RMB500
million. On December 26, 2008, the name of Unicom Huakai was changed to Unicom Vsens
Telecommunications Company Limited.
-22-
Acquisitions of Fixed-Line Business in 21 Provinces in Southern China and Other Assets from Parent
Companies and Lease of Telecommunications Networks in 21 Provinces in Southern China
Following the approval by our independent shareholders and the shareholders of the A Share
Company and upon the satisfaction of all other conditions, in January 2009, we completed our
acquisitions, through CUCL, of certain telecommunications business and assets from Unicom Group and
Netcom Group (which merged with, and was absorbed by, Unicom Group in January 2009), including:
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the fixed-line business across 21 provinces in southern China operated by Unicom
Group and Netcom Group and/or their respective subsidiaries and branches (but not the
underlying fixed assets) and the local access telephone business in Tianjin
Municipality operated by Unicom Group and related fixed assets (other than land and
buildings) necessary for the operation of such local access telephone business and/or
respective subsidiaries and branches;
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the backbone transmission assets in 10 provinces in northern China owned by Netcom
Group and/or its subsidiaries;
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100% of the equity interest in Unicom Xingye, a limited liability company
incorporated under the laws of the PRC and a wholly-owned subsidiary of Unicom Group;
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100% of the equity interest in China Information Technology Designing & Consulting
Institute Company Limited, or CITC, a limited liability company incorporated under the
laws of the PRC and a wholly-owned subsidiary of Unicom Group; and
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100% of the equity interest in New Guoxin Telecom Corporation of China Unicom, or
New Guoxin, a limited liability company incorporated under the laws of the PRC and a
wholly-owned subsidiary of Unicom Group.
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The total consideration for the above acquisitions is approximately RMB4.43 billion, payable
in cash. Following the completion of these acquisitions, the coverage of our fixed-line services
expanded to all 31 provinces, autonomous regions and municipalities across China. We believe that
these acquisitions will help integrate and optimize our business and resources and enhance our
overall competitive position.
In addition, in order to operate the fixed-line business in the 21 provinces in southern
China, on December 16, 2008, CUCL entered into a network lease agreement, or the initial lease,
with Unicom Group, Netcom Group and Unicom New Horizon, a wholly-owned subsidiary of Unicom Group,
to lease on an exclusive basis the telecommunications networks in those provinces, which are held
by Unicom New Horizon and are necessary for the operation of the fixed-line business in southern
China. The initial lease became effective in January 2009 upon the completion of our acquisitions
of the fixed-line business in southern China and was for an initial term of two years effective
from January 2009. On October 29, 2010, CUCL entered into a network leasing agreement or, the
2011-2012 Network Lease Agreement, with Unicom New Horizon, which became effective on January 1,
2011. The 2011-2012 Network Lease Agreement is for an initial term of two years effective from
January 1, 2011 and is renewable at the option of CUCL with at least two months prior notice on
the same terms and conditions, except for the future lease fee which will remain subject to further
negotiations between the parties. The annual lease fee payable by CUCL under the
initial lease for the years ending December 31, 2009 and 2010 was RMB2.0 billion and RMB2.2
billion, respectively, and the annual lease fee payable by CUCL under the 2011-2012 Network Lease
Agreement for the years ending December 31, 2011 and 2012 is RMB2.4 billion and RMB2.6 billion,
respectively. In connection with the 2011-2012 Network Lease Agreement, Unicom New Horizon also
granted CUCL an option, but not an obligation, to purchase the telecommunications networks leased
in southern China. The purchase option may be exercised, at the discretion of CUCL, at any time
during the term of the lease. No premium has been paid or will be payable by CUCL for such purchase
option. In the event that CUCL elects to exercise this purchase option, the parties will discuss
and negotiate the purchase price with reference to the appraised value of the telecommunications
networks in southern China, which is to be determined in accordance with applicable laws of Hong
Kong and the PRC, after taking into account the prevailing market conditions and other factors.
Under the 2011-2012 Network Lease Agreement, CUCL is responsible for the ongoing cost and expenses
incurred in respect of the maintenance and management which may arise from the use of the leased
telecommunications networks in southern China. See B. Related Party Transactions Acquisitions
of Fixed-Line Business in 21 Provinces in Southern China and Other Assets from Parent Companies and
Lease of Telecommunications Networks in 21 Provinces in Southern China under Item 7.
-23-
Mutual
Investment with Telefónica, S.A.
On
September 6, 2009, we entered into a share subscription
agreement with Telefónica, S.A., or Telefónica, one of
our shareholders, to strengthen our cooperation. Pursuant to this agreement, we and Telefónica
agreed to make a mutual investment in the amount of the equivalent of US$1 billion in each other
through acquisitions of shares in the other party. On October 21, 2009, we and Telefónica completed
such mutual investments which were implemented by way of the subscription by Telefónica of
693,912,264 new ordinary shares in the capital of our company at a price of HK$11.17 each and the
contribution by Telefónica of 40,730,735 treasury shares in the capital of Telefónica at a price of
Euro17.24 each to us. In addition, on September 6, 2009, we entered into a strategic alliance
agreement with Telefónica, pursuant to which Telefónica and we agreed to establish a strategic
alliance to strengthen the business of each party by cooperation based on our respective networks,
business model and experience.
On January 23, 2011, we entered into the Agreement to Enhance the Strategic Alliance with
Telefónica. Pursuant to this agreement, we acquired from Telefónica 21,827,499 ordinary shares of
Euro1.00 each in the capital of Telefónica for an aggregate purchase price of Euro374,559,882.84 on
January 25, 2011, and Telefónica agreed to purchase ordinary shares of HK$0.10 each in the capital
of our company for the aggregate consideration of US$500,000,000 through acquisitions from third
parties within nine months after the date of the signing of this agreement. Pursuant to the
agreement, Chang Xiaobing, our Chairman and Chief Executive Officer,
as our designated representative, was appointed in May 2011 as a
director on the board of directors of Telefónica.
Share Repurchase from SK Telecom
On September 25, 2009, we received a conditional irrevocable offer from SK Telecom Co., Ltd.
for sale, and we repurchased from SK Telecom by way of an off-market share repurchase of
899,745,075 shares, which comprised all of our shares previously owned by SK Telecom. The
consideration for this share repurchase was approximately HK$9.99 billion, HK$11.105 for each share
repurchased, and was paid in cash. The share repurchase was completed on November 5, 2009 and the
899,745,075 repurchased shares were subsequently cancelled by our company.
Our Relationship with Unicom Group
Unicom Group holds the licenses required for our telecommunications businesses and we derive
our rights to operate our businesses from our status as a subsidiary of Unicom Group. Unicom Group
undertook to hold and maintain all licenses received from the MIIT in connection with our
businesses solely for our benefit during the term of such licenses and at no cost to us. In
addition, Unicom Group undertook to take all actions necessary to obtain and maintain for our
benefit such governmental licenses or approvals as we shall require to continue to operate our
businesses. Unicom Group also agreed not to engage in any business which competes with our
businesses other than the then-existing competing businesses of Unicom Group and to grant us a
right of first refusal in relation to any government authorization, license or permit, or other
business opportunity to develop any new telecommunications
technology, product or service. Finally, Unicom Group also gave us an undertaking not to seek
an overseas listing for any of its businesses or the businesses of its subsidiaries in which we are
engaged or may engage in the future, except through us.
In connection with the restructuring of Unicom Group and the acquisitions of Unicom New
Century, Unicom New World and Unicom International, we entered into a number of agreements with
Unicom Group pursuant to the two-step process described in A. Development and History of the
Company Two-Step Voting Arrangements below. These include arrangements for interconnection
services between the telecommunications networks owned by us and Unicom Group and for the provision
or sharing of telecommunications and ancillary services and facilities between us and Unicom Group.
Unicom Group also retains its interests in its other subsidiaries that provide ancillary services
to us, including the procurement of telecommunications equipment and the supply of SIM cards and
calling cards. Our existing agreements with Unicom Group were entered into in August 2008. In
addition, in connection with our merger with China Netcom, CUCL and Netcom Group entered into
various framework agreements in August 2008 to record the principles governing, and the principal
terms of, various arrangements including interconnection services and the provision and sharing of
telecommunications and ancillary services and facilities between us and Netcom Group (whose rights
and obligations under such framework agreements have been assumed by Unicom Group, which merged
with, and absorbed, Netcom Group in January 2009). Furthermore, as a result of the merger between
Unicom Group and Netcom Group, Unicom Group assumed all rights and obligations under certain
existing agreements entered into between CNC China (which merged with, and was absorbed by, CUCL in
January 2009) and Netcom Group relating to various arrangements, including interconnection
services, settlements and the provisions and sharing of telecommunications and ancillary services
and facilities between CNC China and Netcom Group. See B. Related Party Transactions under Item 7
for a detailed description of our agreements with Unicom Group.
-24-
Set forth below is our shareholding structure and significant subsidiaries as of April 30,
2011.
Two-Step Voting Arrangements
As a result of a series of internal restructurings of Unicom Groups shareholding in us
following our IPO, Unicom BVI became our direct controlling shareholder, which in turn is directly
controlled by the A Share Company and indirectly controlled by the Unicom Group. The A Share
Companys business is limited to indirectly holding the equity interest in Unicom without any other
direct business operations. The A Share Company was listed on the Shanghai Stock Exchange in 2002.
In order to allow public shareholders of the A Share Company to indirectly participate in our
shareholders meeting, a voting mechanism was designed in accordance with the articles of
association of Unicom BVI and the A Share Company. Under this voting mechanism, before Unicom BVI
votes on certain proposals at our shareholders meeting, the A Share Company must first convene a
shareholders meeting to consider the same proposals in order to direct Unicom BVI to vote the
shares in our company indirectly held by the A Share Company through Unicom BVI. Unicom Group can
similarly direct the voting in respect of its direct equity interest in Unicom BVI.
-25-
The voting mechanism described above, however, will not apply to the approval process for any
related party transaction between us or our subsidiaries and Unicom Group or its subsidiaries, on
which Unicom BVI will not be permitted to vote under the Rules Governing the Listing of Securities
on HKSE, or the HKSE Listing Rules. Those related party transactions would require the separate
approvals of the public shareholders of each of our company and the A Share Company. We and the A
Share Company therefore created the two-step voting arrangements, pursuant to which each related
party transaction between us or our subsidiaries and Unicom Group or its subsidiaries will consist
of an initial agreement and a further agreement. The initial agreement would be entered into by
Unicom Group or its subsidiaries (excluding the A Share Company and its subsidiaries) on the one
hand and the A Share Company or Unicom BVI on the other hand. The initial agreement would contain
the following terms:
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the closing of the initial agreement would be subject to (i) the successful transfer
of all rights and obligations of the A Share Company or Unicom BVI under the initial
agreement to us or our subsidiaries, and (ii) the approval of the further agreement by
our independent shareholders; and
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Unicom Group or its subsidiaries (excluding the A Share Company and its
subsidiaries) would agree and acknowledge that all rights and obligations under the
initial agreement can be transferred to us or our subsidiaries without any further
consent requirements.
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The initial agreement will constitute a related party transaction of the A Share Company and,
if certain thresholds are met, will require the approval of the public or independent shareholders
of the A Share Company under the rules of the Shanghai Stock Exchange. The further agreement would
be entered into by the A Share Company or Unicom BVI, on the one hand, and us or our subsidiaries,
on the other hand, and will provide for the transfer of all rights and obligations of the A Share
Company or Unicom BVI under the initial agreement to us or our subsidiaries. The further agreement
will constitute a related party transaction of our company and, if certain thresholds are met, will
require the approval of our public or independent shareholders under the HKSE Listing Rules. We
expect, to the extent the nature of a particular related party transaction allows, the two-step
voting arrangements to apply as described above. However, when we or our subsidiaries are the
providers, rather than recipients, of certain services, the two-step voting arrangements will need
to be adjusted so that the process as described above is effectively reversed, such that the
initial agreement is entered into by us or our subsidiaries rather than Unicom Group or its
subsidiaries (excluding the A Share Company and its subsidiaries) with the A Share Company or
Unicom BVI. Accordingly, Unicom Group or its subsidiaries (excluding the A Share Company and its
subsidiaries), rather than us or our subsidiaries, will be a party to the further agreement. The
arrangements (including the conditions) will apply correspondingly. This two-step structure will be
applied in all related party transactions between us or our subsidiaries and Unicom Group or its
subsidiaries and will effectively require the separate approvals of the public or independent
shareholders of each of Unicom and the A Share Company for such related party transactions.
Capital Expenditures and Divestitures
See Liquidity and Capital Resources Capital Expenditures under Item 5 for information
concerning our principal capital expenditures for the previous two years and those planned for
2010. We currently do not have any significant divestiture in progress.
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B. Business Overview
General
We are an integrated telecommunications operator in China providing mobile voice and
value-added, fixed-line voice and value-added, fixed-line broadband, data communications and other
telecommunications services to our customers through our two business segments comprised of mobile
services and fixed-line services. Following our acquisition of fixed-line business in 21 provinces
in southern China from our parent companies in January 2009, we have extended the coverage of all
of our services nationwide. We, China Mobile and China Telecom are the three major
telecommunications operators in China. See A. History and Development of the Company
Restructurings of the Telecommunications Industry.
In 2010, driven by the growth in our 3G business, which was launched in May 2009 and put into
commercial operations in October 2009, we generated 50.9% of the total telecommunications service
revenue from the mobile business, which for the first time exceeded that from the fixed-line
business. Our fixed-line business remained stable.
Mobile Business
Our mobile business consists of GSM and 3G mobile business. Our mobile business revenue,
subscribers and usage maintained growth in 2010, with those for 3G mobile business growing at a
more rapid pace. As of December 31, 2010, we had a total of 167.43 million mobile subscribers,
representing a 13.4% increase from 147.59 million as of December 31, 2009. Revenue from our mobile
business was RMB89.55 billion in 2010, of which, telecommunications service revenue of our mobile
business increased by 18.0% from RMB69.77 billion in 2009 to RMB82.36 billion in 2010, accounted
for 46.8% and 50.9% of our total telecommunications service revenue from continuing operations in
2009 and 2010, respectively (excluding fixed-line upfront connection fees of RMB0.49
billion and RMB0.19 billion in 2009 and 2010, respectively).
The following table sets forth selected historical information for our mobile operations and
our subscriber base for the periods indicated.
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As of or for
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the year ended December 31,
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2008
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2009
(1)
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2010
(1)
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Number of subscribers (in thousands)
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133,365
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147,587
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167,426
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Estimated market share in our service areas
(2)
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20.8
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%
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19.7
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%
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19.5
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%
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Average minutes of usage per subscriber per month (MOU)
(3)
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246.4
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253.1
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280.5
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Average revenue per subscriber per month (ARPU) (in RMB)
(4)
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42.3
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41.6
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43.7
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(1)
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Including our 3G business which we launched on a trial basis in May 2009 and began operating
on a commercial basis in October 2009.
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(2)
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Market share in a given area is determined by dividing the number of our mobile subscribers
in the area by the total number of mobile subscribers in the area.
Source
: MIIT.
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(3)
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MOU is calculated by dividing the total minutes of usage during the period by the average
number of our mobile business subscribers during the period, and dividing the result by the
number of months in the relevant period.
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(4)
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ARPU is calculated by dividing the sum of revenue of mobile business during the relevant
period by the average number of our mobile business subscribers during the period, and
dividing the result by the number of months in the period.
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Our total number of mobile subscribers increased by 13.4% from 147.59 million as of December
31, 2009 to 167.43 million as of December 31, 2010, which was mainly due to the increase in our GSM
and 3G subscribers. The MOU of our mobile business increased from 253.1 minutes in 2009 to 280.5
minutes in 2010, which was mainly because (i) the MOU of our 3G
business is significantly higher than that of our GSM business and (ii) the number of our 3G subscribers has increased as a
percentage of the total number of our mobile subscribers. The ARPU of our mobile business increased
by 5.0% from RMB41.6 in 2009 to RMB43.7 in 2010, which was mainly due to the change of revenue mix
between our GSM business and 3G business. 3G business has a significantly higher ARPU than GSM
business. Therefore, despite the ARPU of each of our GSM and 3G businesses decreased in 2010
compared to 2009, as the revenue from 3G business increased significantly as a percentage of
telecommunications service revenue from the mobile business from 1.1% in 2009 to 14.1% in 2010, the
overall ARPU of our mobile business increased.
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3G Mobile Business
In January 2009, our parent company, Unicom Group, received a 3G license to operate a 3G
business based on the WCDMA technology nationwide in China and, with the approval of the MIIT,
authorized our major wholly-owned subsidiary, CUCL, to operate this business. We launched our 3G
operations on a trial basis in 55 cities in China under the brand WO in May 2009 and began
commercial 3G operations in 285 cities in China on October 1, 2009. Our 3G network coverage has
reached cities at county level and above throughout China as well as villages and towns in eastern
developed areas of China.
In 2010, we continued to implement our unified strategies for 3G business with respect to
brand, service, tariff, packaging, handset policies and customer care standards throughout China.
In order to meet the changing market demand and customer needs, we initiated active sales and
marketing efforts, including introducing more types of 3G tariff plans, enhancing 3G handsets
subsidy models and launching a more variety of 3G handsets models. In addition, we further
developed mobile Internet and mobile applications businesses for 3G business. Furthermore, we
launched WO store, an online applications store that enriches customers 3G experience. We also
promoted mobile music, mobile TV, mobile reading and other resource-based businesses, as well as
instant communication and other interactive social communication businesses, so as to cultivate
customers data consumption habits.
The total number of our 3G subscribers increased from 2.74 million as of December 31, 2009 to
14.06 million as of December 31, 2010. As of December 31, 2010, we had 1.35 million wireless data
card subscribers, 2.41 million mobile TV subscribers and over 7 million mobile reading subscribers.
In 2010, the ARPU of 3G subscribers decreased from RMB141.7 in 2009 to RMB124.0 in 2010. In 2010,
the total 3G voice usage was 55.47 billion minutes and the
average data usage per subscriber per month was 178M.
GSM Mobile Business
Our GSM mobile business primarily consists of GSM voice business and value-added business.
GSM Voice Business
Our mobile voice business enables our subscribers to make and receive phone calls with a
mobile handset at any point within the coverage area of our mobile telecommunications networks. Our
mobile voice business includes local calls, domestic long distance calls, international long
distance calls, intra-provincial roaming, inter-provincial roaming and international roaming.
Subscriber Increase.
Our total number of GSM mobile subscribers increased by 5.9% from 144.85
million as of December 31, 2009 to 153.37 million as of December 31, 2010. We believe that this
growth was attributable to a number of factors, including, among others, (i) the continued growth
of the Chinese mobile telecommunications market, driven by domestic economic growth and reduction
in the cost of mobile handsets and services, and (ii) our sales and marketing efforts in retaining
existing subscribers and expanding our subscriber base, including through service bundling. The
increase of our GSM mobile subscribers, together with the decreasing effective tariffs, also
resulted in an increase of the total voice usage of our GSM mobile services by 11.3% from 423.05
billion minutes in 2009 to 471.00 billion minutes in 2010.
MOU and ARPU
. With respect to our GSM mobile business, MOU increased by 4.3% from 252.0
minutes in 2009 to 262.9 minutes in 2010, and ARPU decreased by 4.1% from RMB41.2 in 2009 to
RMB39.5 in 2010. The increase in our MOU is mainly attributed to the decreasing effective tariffs.
The decrease in ARPU was primarily attributable to (i) our generally decreased effective tariffs,
which were caused by the further intensified competition among the telecommunications operators in
China and downward adjustments on tariffs by the PRC Government and (ii) the fact that a
significant portion of our new users consists of users from rural areas, many of whom tend to have
less usage of telecommunications services and to be more cost-sensitive than users from urban
areas.
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GSM Value-Added Services
We offer a broad range of GSM value-added services nationwide, including SMS, Cool Ringtone
(a personalized ring-back tone service), mobile Internet and other wireless information services.
Our value-added services continued to grow and the contribution to our revenue from mobile services
continued to increase in 2010. In particular, a total of 78.31 billion SMSs were transmitted by our
GSM mobile subscribers in 2010, representing an increase of 2.4% compared to 2009. As of December
31, 2010, we had a total number of 67.26 million subscribers to our Cool Ringtone service,
representing a net increase of 18.04 million, and the penetration rate increased from 34.0% at the
end of 2009 to 43.9% at the end of 2010. In addition, as of December 31, 2010, we had a total
number of 55.81 million mobile Internet subscribers, representing a net increase of 11.02 million
from the end of 2009, up by 24.6% from 2009, and the penetration rate increased from 30.9% at the
end of 2009 to 36.4% at the end of 2010.
Fixed-Line Business
We are a leading fixed-line broadband and communications operator in northern China. Following
our merger with China Netcom in October 2008, which previously provided mainly fixed-line services
in 10 provinces in northern China, and our acquisition of the fixed-line business in 21 provinces
in southern China from our parent companies in January 2009, we offer a wide range of fixed-line
services nationwide in China, including (i) fixed-line broadband services and data communications
services, (ii) fixed-line voice services, include local and long distance fixed-line voice services
and value-added services and (iii) other services.
In 2010, with the continuation of the mobile services substitution of fixed-line voice
services, our fixed-line voice business has been negatively impacted. By accelerating our
implementation of an upgrade of our fixed-line
broadband network with increased access speed, developing content and application services, we
achieved continued growth in 2010 in fixed-line broadband and data communications business, which
partially mitigated the decline in the fixed-line voice business. Excluding fixed-line upfront
connection fees of RMB0.19 billion and RMB0.49 billion in 2010 and 2009, respectively, our revenue
from fixed-line business was RMB79.86 billion in 2010, of which telecommunications service revenue
from our fixed-line business decreased by 0.4% from RMB79.06 billion in 2009 to RMB78.70 billion in
2010, accounted for 53.0% and 48.6% of our total telecommunications service revenue from continuing
operations in 2009 and 2010, respectively.
Fixed-Line Broadband Services and Data Communications Services
Fixed-Line Broadband Services
Fixed-line broadband services are one of our emphases as part of our strategy to focus on high
growth services. The growth in fixed-line broadband business has been driven by the increasing
affordability and rising use of personal computers and other Internet access devices, gradual
recognition by businesses of the importance of information and the proliferation of content and
applications, such as online games and video-on-demand. We are a leading provider of fixed-line
broadband services in our fixed-line northern service region and we seek to maintain this leading
position by capitalizing on our extensive fixed-line network, large customer base, experienced
sales force, established brand and strategy of multi-service bundling.
In 2010, we further upgraded our broadband network and improved access speed. As of December
31, 2010, our fixed-line broadband subscribers increased by 22.5% to 47.22 million, of which,
subscribers with 2M-and-above bandwidth accounted for 86.8% of all fixed-line broadband
subscribers, representing an increase of 3.6 percentage points from the end of 2009, and
subscribers with 4M-and-above bandwidth accounted for 29.6% of all fixed-line broadband
subscribers. We also continued implementing our marketing strategy to offer integrated broadband
content, applications, access and services. The total number of our subscribers of broadband
content and applications reached 18.61 million, accounting for 39.4% of all fixed-line broadband
subscribers. Our broadband ARPU remained relatively stable at RMB57.1 in 2010 compared to RMB57.2
in 2009.
-29-
The following table sets forth the information of our fixed-line broadband subscribers as of
the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Number of fixed-line broadband subscribers
(in thousands)
|
|
|
30,081
|
|
|
|
38,550
|
|
|
|
47,224
|
|
|
|
|
|
|
|
|
|
|
|
Data Communications Services
We are a leading provider of data communications services in our fixed-line northern service
region. We offer managed data products, such as those based on digital data networks, or DDN, frame
relay, asynchronous transfer mode, or ATM, and Internet protocol-virtual private network, or
IP-VPN. We also offer leased line products, including domestic and international leased circuits.
Our customers for these services include government entities, large financial institutions and
other domestic and multinational businesses, Internet service providers and other
telecommunications operators. As of the end of 2010, we have established business cooperation
relationships with more than 160 overseas operators to provide various international data
communications products and services, such as international voice and data services. In 2010, we
continued to offer full-scale data communications services to international operators and domestic
and international corporate customers. We have also improved our capabilities to offer cross-border
data communications and integrated information services.
Fixed-Line Voice Business
Our fixed-line voice services consist of local voice, domestic long distance, international
long distance, value-added, interconnection and PHS services. As domestic mobile operators launched
service packages at competitive prices, mobile roaming tariffs were lowered, the migration of voice
usage from fixed-line to mobile continued. In 2010, leveraging on our companys full-service
advantage, we enhanced market development in areas of customer premises network, or CPN, and rural
markets, as well as strengthened the marketing of integrated services. The number of our fixed-line
subscribers (including PHS subscribers) decreased by 6.0% to 96.64 million at the end of 2010. The
following table sets forth the information of our fixed-line subscribers as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(in thousands)
|
|
Number of fixed-line
subscribers
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Residential
|
|
|
63,824
|
|
|
|
61,733
|
|
|
|
59,681
|
|
Business
|
|
|
13,586
|
|
|
|
14,238
|
|
|
|
15,494
|
|
PHS
|
|
|
23,979
|
|
|
|
18,742
|
|
|
|
13,423
|
|
Public telephones
|
|
|
8,181
|
|
|
|
8,109
|
|
|
|
8,037
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
109,570
|
|
|
|
102,822
|
|
|
|
96,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Fixed-line subscribers consist of all local access lines in service as well as PHS
subscribers. We calculate PHS subscribers based on the number of active telephone numbers for
our PHS services. In cases where a PHS subscriber uses the same telephone number as an access
line in service, the designation as a PHS subscriber or access line in service depends on
which service is first activated. We increase our total number of fixed-line subscribers as
soon as practicable after activation of the service. We remove a fixed-line subscriber from
the total number of fixed-line subscribers as soon as practicable after the fixed-line
subscriber deactivates the service voluntarily or three months after the date on which the
fixed-line subscribers bill becomes overdue.
|
We have in the past selectively built wireless local access networks based on PHS technology
to offer PHS services as a supplement to our fixed-line services. Although PHS services were once
popular among subscribers due to its tariff advantage, beginning in 2006, such advantage diminished
as mobile operators continued to launch attractive tariff packages. As a result, our PHS
subscribers significantly decreased over the past few years. In addition, a policy was issued by
the PRC Government in January, 2009, requiring the current wireless access systems operating on the
spectrum used by PHS services to be cleared and removed from such spectrum within three years. See
D. Risk Factors Risks Relating to Our Businesses If we fail to achieve a smooth
discontinuation of PHS services or retain our PHS subscribers to use our other telecommunications
services, our financial condition and results of operations may be adversely affected. under Item
3.
-30-
Local Voice Services
As a result of mobile substitution, our fixed-line local voice traffic has continued to
decrease in recent years. As fixed-line broadband business further develops, our Internet dial-up
usage has also continued to decrease. The following table sets forth information regarding usage of
our local voice services for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
Usage of local calls (pulse in millions)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total usage
|
|
|
206,632
|
|
|
|
188,116
|
|
|
|
156,724
|
|
Internet dial-up usage
|
|
|
2,960
|
|
|
|
2,577
|
|
|
|
1,162
|
|
Total usage excluding Internet dial-up usage
|
|
|
203,672
|
|
|
|
185,539
|
|
|
|
155,562
|
|
|
|
|
(1)
|
|
Pulses are the billing units for calculating local telephone usage fees.
|
Long Distance Voice Services
We offer traditional long distance services and VoIP long distance services. In recent years,
due to the general decline of our fixed-line business and competition from software applications
that allow users to make long distance calls over the Internet, our long distance business has been
adversely affected.
The following table shows the total minutes of domestic long distance calls carried through
our long distance networks for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
Total minutes of domestic
long distance calls (minutes
in millions)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional
|
|
|
25,771
|
|
|
|
21,261
|
|
|
|
17,349
|
|
VoIP
|
|
|
14,643
|
|
|
|
11,698
|
|
|
|
8,879
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
40,414
|
|
|
|
32,959
|
|
|
|
26,228
|
|
|
|
|
(1)
|
|
Includes calls originated by prepaid phone cards users and VoIP subscribers that are carried
over our long distance networks.
|
The following table sets forth certain information related to the usage of our international
long distance services for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
International long distance
outbound call minutes
(minutes in
millions)
(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional
|
|
|
236
|
|
|
|
221
|
|
|
|
269
|
|
VoIP
|
|
|
456
|
|
|
|
403
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
692
|
|
|
|
624
|
|
|
|
559
|
|
|
|
|
(1)
|
|
Includes calls originated by prepaid phone cards users and VoIP subscribers that are carried
over our international long distance networks.
|
|
(2)
|
|
Includes long distance outbound calls made to Hong Kong, Macau and Taiwan.
|
-31-
Fixed-Line Value-Added Services
In addition to fixed-line telephone voice services, we offer a wide range of value-added
services on our fixed-line networks. Our value-added services generate additional usage on our
networks and increase our average revenue per fixed-line subscriber. Our major fixed-line
value-added services include Personalized Ring and caller identification services. Personalized
Ring services enable our fixed-line subscribers to personalize the ring-back tone for incoming
calls. As the number of our fixed-line subscribers continued to decrease in the past few years, the
number of customers using our fixed-line value added services also decreased correspondingly. As of
December 31, 2010, the number of our Personalized Ring subscribers reached 23.79 million,
representing a decrease of approximately 10.7% from the end of 2009. The penetration rate of caller
identification services amounted to 70.1%, decreasing by 1.3 percentage point over that of 2009.
Interconnection and Roaming Arrangements
Interconnection
Interconnection refers to the arrangements that permit the connection of our
telecommunications networks with other networks. Our mobile and fixed-line networks interconnect
with Unicom Groups networks. Under current arrangements, settlement between Unicom Group and us is
based on an internal settlement standard that takes into account either the internal costs of the relevant networks or the government standard
applicable between third-party operators, whichever is the more favorable to us.
We earn interconnection fees for terminating or transiting calls that originate from other
domestic telecommunications operators networks and pay interconnection fees to other operators for
calls originating from our networks that are terminated on their networks. We earn and pay such
fees in respect of mobile calls, local and domestic and international long distance calls and
Internet services, except for the interconnection by fixed-line subscribers calling our mobile
subscribers in the same region where no interconnection fee will be charged. We are required to pay
the interconnection fees regardless of our ability or inability to collect the tariff from our
subscribers. Interconnection charges are accrued on a monthly basis based on the actual call volume
and applicable tariff rates.
All interconnection and settlement arrangements among domestic telecommunications operators in
China are governed by the Telecommunications Regulations and the rules on interconnection
arrangements and settlement promulgated by the MIIT. Most of the agreements pursuant to which we
interconnect with other domestic operators were entered into by Unicom Group. We have entered into
an agreement with Unicom Group pursuant to which we have agreed with Unicom Group that the costs
and benefits arising under these agreements, as they relate to our operations, will be incurred to
our account.
For additional information about our domestic and international interconnection arrangements,
see B. Business Overview Regulatory and Related Matters under Item 4 and B. Related Party
Transactions under Item 7.
Roaming
We provide roaming services, which allow our subscribers to access our mobile services while
they are physically outside of their registered service area or in the coverage areas of other
mobile networks in other countries and regions with which we have roaming arrangements. As of April
30, 2011, we had roaming arrangements for (i) GSM international voice and SMS services with 242
operators in 521 countries and regions, (ii) GPRS international inbound data services with 179
operators in 400 countries and regions and for international GPRS outbound data services with 164
operators in 357 countries and regions, and (iii) 3G services with 104 WCDMA operators in 245
countries and regions.
-32-
A mobile subscriber using roaming services is charged at our roaming usage rate for both
incoming and outgoing calls, plus applicable long distance tariffs. With respect to international
roaming, we settle roaming charges with international operators in accordance with roaming
agreements between Unicom Group and each of the international operators. See B. Related Party
Transactions Our Roaming Arrangements under Item 7 for further information regarding prior
roaming arrangements between Unicom Group and us.
Networks
We operate an advanced network system to support our integrated operations. The backbone of
the system is a nationwide fiber optic transmission network, which serves as the common platform
for our mobile, fixed-line telephone, broadband and data services. We generally utilize a
centralized network planning and equipment selection process, which ensures uniform nationwide
design and network compatibility. After our merger with China Netcom in October 2008, we have
actively integrated our network resources to improve our network quality and capacity.
Mobile Networks
Our mobile network generally consists of:
|
|
|
cell sites, which are physical locations, each equipped with a base station that
houses transmitters, receivers and other equipment used to communicate through radio
channels with subscribers mobile handsets within the range of a cell;
|
|
|
|
base station controllers, which connect to, and control, the base stations;
|
|
|
|
mobile switching centers, which control the base station controllers and the routing
of telephone calls; and
|
|
|
|
a transmission network, which links the mobile switching centers, base station
controllers, base stations and the public switched telephone network.
|
We have deployed GSM and WCDMA mobile networks. Our GSM mobile network mainly operates at 900
MHz. We have also deployed GSM technology that operates at 1800 MHz in major metropolitan areas to
supplement the capacity of our existing mobile network. We use 2x15 MHz of spectrum in the 900
frequency band for our GSM network in most of our service areas and 2x20 MHz for certain major
cities in China. We use 2x15 MHz of spectrum in the 1900 frequency band for our WCDMA mobile
network.
As
of December 31, 2010, we had approximately 329,000 GSM base stations, representing an
increase by 15.5% from December 31, 2009. The call-completion rate of our GSM service increased to
97.6% at the end of 2010 from 96.2% at the beginning of 2010 and the call-drop rate decreased to
0.34% at the end of 2010 from 0.39% at the beginning of 2010. We also completed the GPRS network
upgrade and significantly improved the configuration of static packet data channels. We have
devoted significant resources in developing our 3G networks and have established one of the biggest
WCDMA networks in the world. As of the end of 2010, our 3G network coverage reached cities at
county level and above throughout China as well as villages and towns in eastern developed area of
China.
Fixed-Line Networks
We operate fixed-line networks which provide extensive coverage in China. These networks are
technologically advanced and conducive to the introduction of the next generation fixed-line
network and 3G technologies. These networks support a wide range of end-to-end fixed-line
telecommunications services and enable customized products to be delivered to meet a variety of
telecommunications needs in real-time.
Our fixed-line networks consist of fixed-line telephone networks, broadband Internet and data
networks, transmission networks, value-added service platforms, IT support systems and related
infrastructures. Our transmission networks consist primarily of fiber-optic based networks, which
cover our major service regions, supplemented by satellite transmission and digital microwave
links.
-33-
We have integrated our resources to optimize and improve the transport capabilities of our IP
networks and improved our long-distance soft-switch network capability. In addition, we have fully
implemented the upgrade of broadband connection speed and our broadband network capacity was
substantially enhanced. By the end of 2010, the number of fixed-line broadband access ports was
65.83 million, up by 29.3% from the end of 2009, of which the number of access ports with an access
speed of 20M and above accounted for 38%. Our international Internet outbound bandwidth reached
339G, our submarine cable capacity reached 1,539G, and our international cross-continental cable
capacity reached 1,893G.
Marketing, Sales and Distribution
Our marketing strategy is to establish our image as a full-service telecommunications service
provider and utilize our comprehensive services platform and nationwide sales and distribution
network. We implement our marketing and sales strategies under a single unified brand WO and
distribute our services through a variety of distribution channels, consisting of (i) self-owned
channels, including proprietary sales outlets and direct sales forces targeting retail and
corporate customers, (ii) social channels, including cooperative sales outlets, exclusive sales
outlets and agency sales outlets, and (iii) electronic distribution channels, including self-owned
and third-party channels online e-stores. In recent years, we have continued developing our
self-owned sales channels and strategically expanding our social channels. In particular, for our
3G services, in addition to the full use of our self-owned channels, we have also focused on using high-quality social channels, such as large
brand name electronics retail chains and electronics outlets in China, to achieve better sales
results. Further, we continued promoting our nationwide e-sales system, which has effectively
supplemented our traditional sales channels and improve our service quality.
Customer Service
We provide customer services through our nationwide sales outlets, hotline number 10010,
online sales outlets, SMSs, Wireless Application Protocol, or WAP, and other channels. Our customer
services typically include inquiries, service initiation and termination, sales, and response to
customer complaints and suggestions. Since 2009, we have provided 3G-dedicated customer service and
have established over 300 WO brand stores to enhance our customers experience. In 2010, we
continued to improve our customer service quality and created 3G Customer Service Centers + VIP
Customer Managers, a 3G-dedicated customer service model for our 3G subscribers.
Information Systems
We have established comprehensive information systems in each province, autonomous region and
municipality to support our business and management. For business support, we have established core
systems composed of a customer relationship management system, a comprehensive billing and
accounting system, a comprehensive settlement system and an operation analysis system to support
services and marketing of our mobile and fixed-line businesses. For our management support, we have
focused on developing a human resource management system and a financial management system to
enhance the efficiency of our control and management over our resources. In 2010, we further
improved our core customer relationship management system and billing, or BSS, system of our
provincial branches and started the establishment of integrated account settlement system and
integrated partner relation management system. Meanwhile, we continued to implement system
integration and system upgrade with a focus on 3G business related information systems.
-34-
Research and Development
We focus on technology innovation in coordination with our various business departments in order to
provide technical support to the development of our various businesses. Our research and
development activities are focused primarily on 3G technologies and their further development, next
generation Internet technologies and businesses, operational planning and development of
value-added services. In addition, part of our research and development requirements is fulfilled
by our parent company, Unicom Group, in return for a service fee. See B. Related Party
Transactions under Item 7 below. With respect to research and development for our broadband
business, we mainly rely on Unicom Groups National Laboratory of Next Generation Network in
Broadband Application, which is Chinas only national level engineering laboratory in the
information and telecommunications industry, focusing on the research of next generation Internet
IPv6, Triple-Play and 3G operating and supporting systems. We also participate in the national
research project on LTE. We have applied for a number of patents and software copyrights in China.
Competition
As a result of the telecommunications industry restructuring in 2008, the Chinese
telecommunications market now has three key providers of basic telecommunications service China
Telecom, China Mobile and us in addition to thousands of value-added service providers. We
compete with China Mobile and China Telecom in virtually all aspects of our business, including
mobile services, fixed-line voice services, broadband services and data communications services. We
believe that the telecommunications industry restructuring in 2008 has provided an opportunity for
us to integrate our various resources with those of China Netcom to create business synergies for
the post-merger Unicom. However, we also believe that the restructuring may cause the competition
in the telecommunications industry in China to be more intensified and complex in the future. See
D. Risk Factors Risks Relating to Our Business We face intense competition in all our
businesses from other telecommunications service providers, including China Mobile and China
Telecom, which may materially adversely affect our financial condition, results of operations and growth prospects. under Item 3.
Strategic Alliances with Telefónica
On January 30, 2009, we entered into a strategic alliance framework agreement with Telefónica.
Pursuant to the framework agreement, Telefónica and we agreed to share business experience and
strengthen cooperation in the areas of mobile communications, broadband applications, international
business, marketing and sales and telecommunications services to corporate clients. On September 6,
2009, we entered into a strategic alliance agreement with Telefónica, pursuant to which Telefónica
and we agreed to establish a strategic alliance to strengthen the business of each party by
cooperation based on our respective networks, business models and experience. On October 21, 2009,
we and Telefónica completed a mutual investment in the amount of the equivalent of US$1 billion in
each other, which was implemented by way of the subscription by Telefónica of 693,912,264 new
shares in our Company and the contribution by Telefónica of 40,730,735 treasury shares in the
capital of Telefónica to us.
On January 23, 2011, we entered into the Agreement to Enhance the Strategic Alliance with
Telefónica. Pursuant to this agreement, we acquired from Telefónica 21,827,499 ordinary shares of
Euro1.00 each in the capital of Telefónica for an aggregate purchase price of Euro374,559,882.84 on
January 25, 2011, and Telefónica agreed to purchase ordinary shares of HK$0.10 each in the capital
of our company for the aggregate consideration of US$500,000,000 through acquisitions from third
parties within nine months after the date of the signing of this agreement. Pursuant to the
agreement, Chang Xiaobing, our Chairman and Chief Executive Officer,
as our designated representative, was appointed in May 2011 as a
director on the board of directors of Telefónica.
Trademarks
We conduct our businesses under the Unicom name and logo. Unicom Group is the registered
proprietor in China of the Unicom trademark in English and the trademark bearing the Unicom logo.
Unicom Group is also the registered proprietor of the trademark of the word Unicom in Chinese
(
). Unicom Group has granted us the right to use these trademarks on a royalty-free basis
with periodic renewals, and licensed us any trademark that it registers in China in the future
which incorporates the word Unicom.
-35-
Regulatory and Related Matters
The telecommunications industry in China is subject to a high degree of government regulation.
The primary regulatory authority of the Chinese telecommunications industry is the MIIT,
established in 2008 as a new ministry under the PRC State Council and the successor of the former
Ministry of Information Industry. The NDRC, the Ministry of Commerce and other governmental
authorities also maintain regulatory responsibilities over certain aspects of the Chinese
telecommunications industry.
The MIIT, under the supervision of the State Council, is responsible for, among other things:
|
|
|
formulating and enforcing industry policies and regulations, as well as technical
standards;
|
|
|
|
granting telecommunications service licenses;
|
|
|
|
supervising the operations and quality of services of telecommunications service
providers;
|
|
|
|
allocating and administering telecommunications resources such as spectrum and
number resources;
|
|
|
|
together with other relevant regulatory authorities, formulating tariff standards
for telecommunications services;
|
|
|
|
formulating interconnection and settlement policies between telecommunications
networks; and
|
|
|
|
maintaining fair and orderly market competition among service providers.
|
The MIIT has established a Telecommunications Administration in each province, which is mainly
responsible for overseeing the implementation of the MIITs policies and regulations and exercising
regulatory authority delegated by the MIIT within that province.
The NDRC, together with the MIIT, sets government fixed tariffs and government guidance
tariffs for certain telecommunications services. See Tariff Setting and Price Controls below.
It also approves investment projects within the restricted sectors specified in an annually
adjusted catalogue released by the State Council.
The MIIT is in the process of drafting a telecommunications law that, once adopted by the
National Peoples Congress of the PRC, will become the basic telecommunications statute and provide
the principal legal framework for telecommunications regulations in China. It is currently
uncertain when the law will be adopted and become effective. See D. Risk Factors Risks Relating
to the Telecommunications Industry in China Regulatory or policy changes relating to the PRC
telecommunications industry or any future industry restructuring may materially adversely affect
our financial condition, results of operations and growth prospects. under Item 3.
Telecommunications Regulations
On September 25, 2000, the PRC State Council promulgated the Telecommunications Regulations of
the Peoples Republic of China, which came into effect on the same date. All telecommunications
activities and related activities within China are subject to the Telecommunications Regulations.
According to the PRC Government, its administration and regulation of the Chinese
telecommunications industry is based on the principles of the separation of governmental regulation
from enterprise management, the elimination of monopolistic behavior, the encouragement of
competition and the promotion of the development of the Chinese telecommunications industry, while
also taking into account the principles of openness, equality and fairness. The Telecommunications
Regulations regulate all major aspects of the telecommunications industry, including licensing,
interconnection, tariffs, resources, services, security, facility construction and access to
networks.
-36-
Licensing
The PRC Government licenses telecommunications businesses in accordance with their
classification. Telecommunications businesses are currently classified into two broad categories of
basic services and value-added services. An appendix to the Telecommunications Regulations divides
each of the two categories into further sub-categories. On March 21, 2003, the former Ministry of
Information Industry amended the categorization in this appendix and the amendments took effect on
April 1, 2003. According to the amended appendix:
|
|
|
basic telecommunications services are classified into Category I basic
telecommunications services and Category II basic telecommunications services. Category
I basic telecommunications services include fixed-line telecommunications services
(including fixed-line local, domestic long distance, international long distance and IP
telephone services and services related to maintaining international telecommunications
facilities), mobile telecommunications services (including 900/1800MHz GSM 2G, 800MHz
CDMA 2G and 3G digital cellular mobile telecommunications services), Category I
satellite telecommunications services (including satellite mobile telecommunications
and international satellite private-line services) and Category I data communications
services (including Internet data transmission, international data telecommunications,
public telegraph and telex services). Category II basic telecommunications services
include trunking telecommunications services (including analogue trunking
telecommunications and digital trunking telecommunications services), wireless paging
services, Category II satellite telecommunications services (including lease and sales
of satellite transponders and very-small-aperture-terminal, or VSAT, telecommunications services), Category II
data telecommunications services (including fixed-line domestic and wireless data
transmission services), network access services (including wireless network access
services and network services from customer premises), services related to
maintaining domestic telecommunications facilities and network hosting services.
|
|
|
|
value-added telecommunications services are classified into Category I value-added
telecommunications services and Category II value-added telecommunications services.
Category I value-added telecommunications services include on-line data processing and
interchange, domestic multi-party telecommunications, IP-VPN and Internet data center,
or IDC, services. Category II value-added telecommunications services include
store-and-forward, call center, Internet access and information services.
|
On March 1, 2009, the MIIT promulgated the Measures on the Administration of
Telecommunications Business Licenses, which took effect on April 10, 2009 and superseded the
previous measures promulgated by the former Ministry of Information Industry on December 26, 2001.
The measures govern the application for, approval of and regulation of telecommunications
business licenses in China. The operation of any basic telecommunications business is subject to
the MIITs approval and grant of License for Operation of Basic Telecommunications Businesses. The
operation of any value-added business in two or more provinces, autonomous regions or
municipalities is subject to the MIITs approval and grant of License for Inter-Provincial
Operation of Value-Added Telecommunications Businesses. The operation of value-added businesses
within a single province, autonomous region or municipality is subject to the approval of the
telecommunications authority of the relevant province, autonomous region or municipality and the
grant of the License for Operation of Value-Added Telecommunications Businesses. The measures,
among other things, lowered the minimum amount of registered capital required for an applicant to
enter the basic telecommunications business in the PRC.
-37-
After the PRCs accession to the WTO, on December 11, 2001, the PRC State Council promulgated
the Administrative Regulations on Telecommunications Companies with Foreign Investments, which took
effect on January 1, 2002, and were amended on September 10, 2008, to implement Chinas commitments
to the WTO. Those commitments include the gradual reduction of restrictions on foreign ownership in
telecommunications enterprises in China and the step-by-step opening up of the Chinese
telecommunications market to foreign enterprises. In recent years, China gradually lifted
restrictions for foreign investors in telecommunications enterprises in China and fulfilled its
commitment to open up the Chinese telecommunications market. However, the following restrictions on
investments in mobile, value-added telecommunications and fixed-line businesses remain:
|
|
|
for fixed-line services, there is no longer any geographic restriction and foreign
ownership may be no more than 49%;
|
|
|
|
for mobile voice and data services, there is no longer any geographic restriction
and foreign ownership may be no more than 49%; and
|
|
|
|
for value-added telecommunications services, there is no longer any geographic
restriction and foreign ownership may be no more than 50%.
|
Spectrum and Network Number Resources
The MIIT is responsible for the management of the wireless radio frequency spectrum and the
allocation of frequencies within the spectrum. The frequency assigned to a telecommunications
operator may not be leased or transferred without the MIITs approval. Standard fees for usage of
the frequencies assigned to cellular telecommunications are charged to telecommunications
operators: (i) for the nationwide GSM network frequency, an annual rate of RMB17 million per MHz is
charged for the 900MHz band and an annual rate of RMB15 million per MHz is charged for the 1800 MHz band; (ii) for the nationwide WCDMA network frequency, a
standard fee at an annual rate of RMB3.75 million per MHz in 2011, RMB7.5 million per MHz in 2012,
RMB11.25 million MHz in 2013 and RMB15 million per MHz in 2014 and onwards will be charged for the
2100 MHz band; (iii) for the Femtocell experimental frequency, an annual rate of 20% of RMB15
million per MHz will be charged for the 2100 MHz band from 2011; and (iv) for any local
telecommunications network frequency, an annual rate of RMB1.7 million per MHz is charged for each
province for the 900MHz band, an annual rate of RMB1.5 million per MHz is charged for each province
for the 1800 MHz band and an annual rate of RMB1.5 million will be charged for each province for
the 2100 MHz band.
The MIIT is also responsible for the administration of Chinas telecommunications network
number resources. The telecommunications network number resources are owned by the State, which
shall charge fees for the use of such resources. Application for the use of number resources by any
telecommunications operator is subject to the approval of the MIIT or the relevant provincial
telecommunications authority and the payment of certain usage fees. The measures also provide for
the procedures for the application, usage and record keeping for the telecommunications operators
use of number resources.
Tariff Setting and Price Controls
The levels and categories of our current tariffs are subject to regulation by various
government authorities, including the MIIT, the NDRC, and, at the local level, the relevant
provincial Telecommunications Administration Bureaus and price regulatory authorities. Under the
Telecommunications Regulations, telecommunications tariffs are categorized into State-fixed
tariffs, State-guidance tariffs and market-based tariffs.
The monthly fee and local usage fee for mobile services are regulated as State-fixed tariffs.
Leased line and data services (other than ATM service) are charged at State-guidance tariffs, which
are determined jointly by the MIIT and the NDRC. Pursuant to the Notice on Adjustment to Tariff
Management for Local Fixed-Line Telephone Services issued by the MIIT in 2009, the monthly fee and
usage fee for local fixed-line telephone services (including PHS) as well as the long-term leasing
fees for circuits leasing are subject to certain tariff ceiling. Domestic long distance services,
international long distance services and Hong Kong, Macau and Taiwan long distance services are
also currently subject to tariff ceiling.
-38-
The Notice on Implementation of Market-Based Tariffs for Certain Telecommunications Services,
promulgated jointly by the former Ministry of Information Industry and the NDRC in 2002, specifies
the telecommunications businesses to which market-based tariffs are applicable, including VoIP,
Internet access services, and certain value-added services provided over fixed-line telephone
networks, such as telephone information, caller identification and voice mail. Market-based tariffs
shall be applicable to those telecommunications services for which effective competition exists in
the market. The tariffs of such telecommunications services are determined at the sole discretion
of the operators, and will be implemented after filing with the MIIT or provincial
Telecommunications Administration Bureaus, as applicable. There is uncertainty regarding how the
MIIT determines the existence of effective competition, as the MIIT has not publicly disclosed the
criteria it uses for determining whether a certain type of service should be subject to
market-based tariffs. Under the Telecommunications Regulations, cost is the primary basis for
tariff setting, but the tariff levels also take into account social and economic development, the
development of the telecommunications industry and the purchasing power of the customers. The MIIT
has not provided a timetable for tariff deregulation or indicated that operators will eventually be
permitted to freely set all tariffs. We expect that increased flexibility in setting certain
tariffs will allow us to better respond to changes in market demand and competitive conditions.
The PRC Government retains the ultimate authority to adopt changes to tariffs. However, the
Telecommunications Regulations require the government to hold public hearings before setting or
changing important State-tariff rates, which are attended by telecommunications operators,
consumers and others. Operators are required to provide complete and adequate cost data and other
materials for those hearings.
The following tables set forth the tariff rates of certain services provided by us, where
government fixed tariffs or government guidance tariffs are applicable:
Mobile Business
Generally the categories of tariffs we charge our mobile subscribers include, among others,
basic monthly fees and local usage charges, roaming charges, long-distance call charges and charges
for value-added services. Mobile tariffs are set forth by the MIIT and tariff adjustments are
subject to regulation by various government authorities, including the MIIT, the NDRC and the
relevant provincial price regulatory authorities. The following table summarizes the current
tariffs for post-paid and pre-paid mobile services:
|
|
|
|
|
|
|
|
|
|
|
Post-paid Services
|
|
|
Pre-paid Services
|
|
|
|
(RMB)
|
|
|
(RMB)
|
|
Basic monthly fee
|
|
45-50
|
|
|
0
|
|
Local usage charge (per minute)
|
|
0.36-0.40
|
|
|
0.54-0.6
|
|
Domestic roaming charge (per minute)
|
|
0.6 for caller
|
|
0.6 for caller
|
|
|
0.4 for receiver
|
|
0.4 for receiver
|
Intensified competition in our mobile service areas has resulted in tariff discounts and
service promotions offered by us and our main competitors from time to time, which may reduce the
effective tariffs. These discounts and promotions have taken many forms, including promotional
tariff rates, free call minutes, reduced roaming charges, off-peak discounts or discounts for
high-usage subscribers and package service plans with fixed monthly fees.
We have introduced a number of package service plans. Under these plans, subscribers typically
pay a fixed monthly fee for a specified number of call minutes. The plans vary at the levels of
fixed monthly fee, number of specified call minutes and tariff rates for call minutes in excess of
the specified call minutes. The terms of these plans also vary depending on the local markets.
In 1997, the PRC Government granted us preferential treatment by allowing us to reduce our
tariffs by up to 10% below the State-guidance tariff rates. In the past, this preferential
treatment has helped us capture a significant number of mobile subscribers by allowing us to market
our mobile services at discounted rates. As we and our main competitors introduced various package
service plans and other promotional programs, the tariff structure has become more complex, which,
to some extent, has made our price advantages less obvious to subscribers compared to previous
tariffs that were largely based on simple per-minute charges.
-39-
Fixed-Line Voice Business
For our local voice services, we charge a registration fee for initial installation that
varies depending on whether the subscriber is a residential or a business customer, a fixed monthly
fee, local call usage fees based on call duration and fees for certain value-added services. For
our domestic long distance services, our revenue from domestic long distance services consist of
charges based on the duration, time of day and day of the week a call is placed. In addition, we
currently charge RMB0.30 per minute in addition to a long distance fee for our VoIP domestic long
distance services. For our international long distance services, our charges are subject to the
maximum tariffs regulated by the MIIT.
The following table sets forth our current tariffs for (i) local voice services provided on
our traditional and PHS network, (ii) domestic long distance telephone services using our
traditional network and (iii) our international long distance telephone services using our
traditional network:
|
|
|
|
|
Tariff
|
Local Voice Services
|
|
(RMB)
|
Monthly fee:
|
|
|
Residential subscribers in:
|
|
|
Provincial capitals
|
|
20.00 to 25.00
|
Other cities and counties
|
|
12.00 to 18.00
|
Rural areas
|
|
10.00 to 15.00
|
Business subscribers
|
|
25.00 to 35.00
|
Usage fee:
|
|
|
Intra-district
|
|
0.18 to 0.22 for the first two pulses (first three minutes or less) and 0.09 to 0.11 for each additional pulse (one minute intervals)
|
Inter-district
|
|
up to 0.30 per pulse (one minute intervals)
|
Communication fee:
|
|
|
Internet dial-up
|
|
0.02 per pulse (one minute intervals)
|
Domestic long distance services
on our traditional
network
(1)
|
|
0.07 per six seconds
|
International long distance
services on our traditional
network
(1)
:
|
|
|
To Hong Kong, Macau and Taiwan
|
|
0.20 per six seconds
|
To all international destinations
|
|
0.80 per six seconds
|
|
|
|
(1)
|
|
Subject to filing with the provincial telecommunications administrations, our provincial
level headquarters may apply a 10% to 50% discount rate to calls made during off-peak hours.
|
Managed Data Services
The PRC Government publishes guidance tariffs for certain managed data services, including DDN
and frame relay services, provided by operators in China. Tariffs for our ATM services are
determined at our discretion, subject to approval by the MIIT. An initial fee is generally charged
for installation and testing for our data services, as well as a fixed monthly fee for each of the
services.
DDN services
.
The following table sets forth the monthly fees for DDN services at the
bandwidths of 64kbps, 128kbps, 512kbps and 1Mbps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly Fee
|
|
|
|
64kbps
|
|
|
128kbps
|
|
|
512kbps
|
|
|
1Mbps
|
|
|
|
(RMB)
|
|
Intra-district
|
|
|
1,500
|
|
|
|
2,000
|
|
|
|
3,800
|
|
|
|
5,000
|
|
Inter-district
|
|
|
2,000
|
|
|
|
2,500
|
|
|
|
5,200
|
|
|
|
7,500
|
|
Domestic long distance
|
|
|
3,500
|
|
|
|
5,000
|
|
|
|
7,000
|
|
|
|
9,000
|
|
-40-
Frame relay services
.
The following tables set forth the monthly fees for frame relay
services, which include monthly fees for port access and permanent virtual circuits, or
PVCs
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly Fee
|
|
|
|
64kbps
|
|
|
256kbps
|
|
|
512kbps
|
|
|
1Mbps
|
|
|
|
(RMB)
|
|
Port access
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly fees
|
|
|
260
|
|
|
|
400
|
|
|
|
500
|
|
|
|
750
|
|
PVC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intra-district
|
|
|
550
|
|
|
|
800
|
|
|
|
1,000
|
|
|
|
1,250
|
|
Inter-district
|
|
|
800
|
|
|
|
1,150
|
|
|
|
1,450
|
|
|
|
2,000
|
|
Domestic long distance
|
|
|
1,700
|
|
|
|
2,200
|
|
|
|
2,500
|
|
|
|
3,000
|
|
|
|
|
(1)
|
|
One-way tariff for PVCs frame relay services.
|
Leased Line Services
We charge monthly fees for subscribers to our leased line services based on guidance tariffs
set by the PRC Government, which vary based on bandwidth and whether the leased line is local or long
distance. Leased line tariffs have generally decreased in recent years.
-41-
The following table sets forth the tariffs for 2Mbps, 8Mbps, 34Mbps and 155Mbps digital
circuits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly Fee
|
|
|
|
2Mbps
|
|
|
8Mbps
|
|
|
34Mbps
|
|
|
155Mbps
|
|
|
|
(RMB)
|
|
Intra-district
|
|
|
2,000
|
|
|
|
6,000
|
|
|
|
16,000
|
|
|
|
44,000
|
|
Inter-district
|
|
|
4,000
|
|
|
|
11,000
|
|
|
|
31,000
|
|
|
|
88,000
|
|
Domestic long distance
(1)
|
|
|
6,000
|
|
|
|
17,000
|
|
|
|
47,000
|
|
|
|
132,000
|
|
|
|
|
(1)
|
|
Does not include the tariffs for local digital circuits and access lines.
|
Interconnection Arrangements
In October 2003, the former Ministry of Information Industry issued Measures on Settlement of
Interconnection between Public Telecommunications Networks and Sharing of Relaying Fees, which
superseded the Measures on the Settlement of Call Charges between Telecommunications Networks
issued by the former Ministry of Information Industry in 2001. These regulations contain specific
provisions regarding, among other things, revenue sharing methods and settlement mechanisms and
interconnection agreements among telecommunications service providers. Since November 2005, the
former Ministry of Information Industry (or the MIIT after March 2008) has issued a number of
administrative measures to adjust the settlement arrangement standards with respect to
interconnection fees for certain network interconnections between telecommunications operators. In
accordance with various administrative measures, Unicom Group has entered into agreements on
interconnection with other telecommunications operators, including China Telecom and China Mobile.
The following table sets forth selected interconnection revenue sharing and settlement
arrangements for local calls:
|
|
|
|
|
Operator from Whose Network Calls are
|
|
Operator at Whose Network
|
|
Current Main Settlement
|
Originated
|
|
Calls are Terminated
|
|
Arrangement
|
Mobile operator
|
|
Local fixed-line operator
|
|
(1) Mobile operator
collects the usage
fees from its
subscribers;
|
|
|
|
|
(2) Mobile operator
pays RMB0.06 per
minute to local
fixed-line
operator. For calls
originated from
157 or 188
prefix phone
numbers (TD users)
during the period
from January 1,
2010 to December
31, 2010, mobile
operator (China
Mobile) pays
RMB0.012 per minute
to fixed-line
operator. From
January 1, 2011,
for calls
originated from
157 or 188
prefix phone
numbers (TD users),
mobile operator
(China Mobile)
continues to pay
RMB0.012 per
minute to
fixed-line
operator.
|
Local fixed-line operator
|
|
Mobile operator
|
|
(1) Local
fixed-line operator
collects the usage
charge from its
subscribers;
|
|
|
|
|
(2) No revenue
sharing or
settlement prior to
June 1, 2010. Local
fixed-line operator
pays RMB0.001 per
minute to mobile
operator after June
1, 2010.
|
Mobile operator A
|
|
Mobile operator B
|
|
(1) Mobile operator
A collects the
cellular usage
charge from its
subscribers;
|
|
|
|
|
(2) Mobile operator
A pays RMB0.06 per
minute to mobile
operator B. For
calls originated
from 157 or 188
prefix phone
numbers (TD users)
during the period
from January 1,
2010 to December
31, 2010, mobile
operator A (China
Mobile) pays
RMB0.012 per minute
to mobile operator
B. For calls
originated from
157 or 188
prefix phone
numbers (TD users)
during the period
from January 1,
2011, mobile
operator A (China
Mobile) pays
RMB0.012 per minute
to mobile operator
B.
|
Local fixed-line operator A
|
|
Local fixed-line operator B
|
|
(1) Operator A
collects the usage
fees from its
subscribers;
(2) In the case of
Intra-district
calls, operator A
pays operator B 50%
of the
intra-district
usage fees;
(3) (i) In the case
of local
inter-district
calls from operator
A using operator
Bs local
inter-district
trunk circuit,
operator A collects
the usage charge
from its
subscribers and pay
RMB0.06 per minute
to operator B; (ii) In the case of
local
inter-district
calls from operator
A not using
operator Bs local
inter-district
trunk circuit,
operator A collects
the usage charge
from its
subscribers and
pays operator B 50%
of the
intra-district
usage fees.
|
-42-
The following table sets forth selected current major main interconnection revenue sharing and
settlement arrangements for domestic long distance calls:
|
|
|
|
|
Operator at Whose Network Calls are
|
|
Operator at Whose Network Calls are
|
|
Current Main Settlement
|
Originated
|
|
Terminated
|
|
Arrangement
|
Local fixed-line or mobile operator
A (through the long distance network
of operator A)
|
|
Local fixed-line or mobile operator B
|
|
Operator A pays
RMB0.06 per minute
to operator B
|
Fixed-line or mobile operator A
|
|
Domestic long distance calls made
without using the carrier identity
code of operator B (through the long
distance network of operator B)
|
|
(1) Operator A
collects the tariff
from the
subscribers;
(2) If Operator A
is a fixed-line
operator, operator
A retains RMB0.06
per minute; if
operator A is a
mobile operator,
operator A retains
local usage fee and
RMB0.06 per minute;
and
(3) Operator A pays
operator B the rest
of the domestic
long distance
tariff.
Note: Domestic long
distance calls
shall be charged at
the domestic long
distance call
tariff of operator
B.
|
Local fixed-line or mobile operator A
|
|
Domestic long distance calls made by
using the carrier identity code of
operator B (through the long
distance network of operator B)
|
|
(1) Operator B
collects the tariff
from the
subscribers; and
(2) Operator B pays
operator A RMB0.06
per minute.
|
The following table sets forth selected current main interconnection revenue sharing and
settlement arrangements for public switched telephone network international long distance calls,
including calls originated from and terminated in Hong Kong, Macau and Taiwan:
|
|
|
|
|
Operator at Whose Network Calls are
|
|
Operator at Whose Network Calls are
|
|
Current Main Settlement
|
Originated
|
|
Terminated
|
|
Arrangement
|
Local fixed-line or mobile operator A
|
|
International long
distance calls
(including to Hong
Kong, Macau and
Taiwan) made
without using the
carrier identity
code of operator B
and directed by
operator A from the
originating network
to operator B.
|
|
(1) Operator A
collects the tariff
from the
subscribers;
(2) If operator A
is a fixed-line
operator, operator
A retains no more
than RMB0.54 per
minute with the
remaining paid to
operator B; and
(3) If operator A
is local usage fees
and a mobile
operator, operator
A retains local
usage fees and no
more than RMB0.54
per minute with the
remaining paid to
operator B.
Note: International
long distance calls
shall be charged at
the international
long distance call
tariff of operator
B.
|
Local fixed-line or mobile operator A
|
|
International long
distance calls made
by using the
carrier identity
code of operator B
and through the
domestic and
international long
distance networks
of operator B.
|
|
(1) Operator B
collects the tariff
from the
subscribers; and
(2) Operator B pays
operator A RMB0.06
per minute.
|
-43-
The following table sets forth selected current main interconnection revenue sharing and
settlement arrangements for VoIP long distance calls:
|
|
|
|
|
Operator from Whose Network Calls
|
|
Operator at Whose Network Calls are
|
|
Current Main Settlement
|
are Originated
|
|
Terminated
|
|
Arrangement
|
Fixed-line or mobile operator A
|
|
Fixed-line or
mobile operator B
through the VoIP
network of operator
C
|
|
(1) Operator A
collects local
usage fees;
(2) Operator C
collects the VoIP
long distance usage
fees from its
subscribers;
(3) Operator C pays
RMB0.06 per minute
to operator B on
the terminating
end;
|
|
|
|
|
(4) No settlement
between operator C
and operator A on
the originating
end.
|
The following table sets forth selected current main interconnection revenue sharing and
settlement arrangements for SMS:
|
|
|
|
|
Network from Which
|
|
Network at Which
|
|
Current Main Settlement
|
SMS Originated
|
|
SMS Terminated
|
|
Arrangement
|
|
Fixed-line or mobile operator A
|
|
Fixed-line or mobile operator B
|
|
(1) Operator A
collects the tariff
from its subscribers;
|
|
|
|
|
(2) Operator A pays
RMB0.03 (RMB0.05 prior
to January 1, 2010)
per SMS to Operator B
|
The following table sets forth selected current main interconnection revenue sharing and
settlement arrangements for MMS:
|
|
|
|
|
Network from Which
|
|
Network at Which
|
|
Current Main Settlement
|
MMS Originated
|
|
MMS Terminated
|
|
Arrangement
|
Fixed-line or mobile operator A
|
|
Fixed-line or mobile operator B
|
|
(1) Operator A
collects the tariff
from its subscribers;
|
|
|
|
|
(2) Operator A pays
RMB0.10 (RMB0.15 prior
to January 1, 2010)
per MMS to Operator B
|
Technical Standards
The MIIT is responsible for promulgating the technical standards for Chinas
telecommunications industry and establishing the technical requirements and testing parameters for
telecommunications equipment (including network and end user equipment). The MIIT is also
responsible for designating qualified institutes to test telecommunications equipment, which would
grant network access licenses for the equipment that has successfully passed the relevant tests.
Only telecommunications equipment for which a license has been granted may be sold and used in
China.
Most of the standards used in the Chinese telecommunications industry are generally based on
the standards issued by the International Telecommunication Union, or ITU, 3rd Generation
Partnership Project, Open Mobile Alliance, World Wide Web Consortium, and other international
organizations for telecommunications standards, with more specific requirements made in light of
Chinas particular telecommunications industry. On the basis of the technical standards used in
Chinas telecommunications industry, we may formulate our own technical standards based on our own
needs and issue additional requirements for telecommunications equipment in order to meet our
operational needs. All telecommunications equipment purchased by Chinas telecommunication
operators must have been granted a network access license issued by the MIIT and must meet the
standards set forth by the relevant operators.
-44-
Quality of Service
Under the Telecommunications Regulations, the MIIT and the relevant provincial
telecommunications administrations are responsible for supervising and monitoring the quality of
services provided by telecommunications operators in China. Under the Telecommunications
Regulations, customers of telecommunications operators have the right to submit their complaints to
the MIIT and the relevant provincial telecommunications administrations or other relevant
government authorities. In addition, the MIIT, together with other governmental authorities, has
taken measures to prompt telecommunications operators to screen indecent contents carried through
their networks.
Universal Services
Telecommunications service providers in China are required to fulfill universal service
obligations in accordance with relevant regulations to be promulgated by the PRC Government, and
the MIIT has the authority to delineate the scope of its universal service obligations. The MIIT
may also select universal service providers through a tendering process. The MIIT, together with
the finance and pricing authorities, is also responsible for formulating administrative rules
relating to the establishment of a universal service fund and compensation schemes for universal
services. Under the Telecommunications Regulations, all PRC telecommunications operators shall
provide universal services, and we expect to perform our duties thereunder accordingly.
The MIIT has required major Chinese telecommunications service providers, including Unicom
Group and former Netcom Group, to participate in a project to provide telecommunications services
in a number of remote villages in certain designated provinces in China as transitional measures
prior to the formalization of a universal service obligation framework. In participating in this
project, Unicom Group has undertaken the universal service obligation to extend telecommunications service coverage to all administrative-level villages
primarily through its transmission networks. Currently, with our assistance, Unicom Group is
further extending telecommunications service coverage to natural villages in remote areas in China
as designated by the MIIT. We have been assisting Unicom Group in providing mobile
telecommunications services to these remote villages and are responsible for the operation and
maintenance of the relevant network facilities in our service areas. See D. Risk Factors Risks
Relating to the Telecommunications Industry in China The PRC Government may require us, along
with other telecommunications service providers in China, to provide universal services with
specified obligations, and we may not be compensated adequately for providing such services. under
Item 3.
Convergence Policy of Telecom, Broadcasting and Internet Networks
In January 2010, the PRC government announced its decision to accelerate the advancement of
convergence of television broadcast, telecommunications and Internet access networks to realize
interconnection and resource sharing among the three networks and further develop the provision of
voice, data, television and other services. Specifically, the three-network convergence policy will
be initially carried out on a trial basis in selective geographic locations during the period from
2010 to 2012 and further implemented across-the-board in the following three years. The PRC
government may amend relevant policies or promulgate new regulations corresponding to the
implementation of the three-network convergence policy in the future.
Others
As a company with substantially all of our operations in China, we, along with our controlling
shareholder, Unicom Group, are subject to various regulations of the PRC Government in addition to
those regulating the telecommunications industry. PRC regulatory authorities, such as the State
Bureau of Taxation, National Audit Office, SAIC and local price bureaus, exercise extensive control
over various aspects of our businesses and conduct various regular inspections, examinations and/or
audits on us and Unicom Group. As required by the relevant PRC laws and regulations, Unicom Group,
as one of the key State-owned enterprises under the direct supervision of the SASAC, is also
subject to routine audits by the National Audit Office, or the NAO, including the senior management
departure audit which involves a mandatory review by the NAO of the economic responsibilities of a
departing senior management member of Unicom Group.
-45-
In addition, SASAC has an indirect influence over us as our controlling shareholder, Unicom
Group, is under the direct supervision of SASAC. In particular, SASAC may designate certain
nominees and request Unicom Group to propose the appointment of such nominees as our directors and
senior management. SASAC may also request Unicom Group to remove our directors and senior
management in accordance with relevant procedures provided by applicable law and our articles of
association.
C. Organizational Structure
We are incorporated in Hong Kong and as of April 30, 2011, we were 41.27% owned by Unicom BVI,
which was 17.90% owned by Unicom Group and 82.10% owned by the A Share Company, which in turn was
61.05% owned by Unicom Group, 29.74% owned by Netcom BVI, which in turn was 100% owned by Unicom
Group, 20.62% owned by public shareholders and 8.37% owned by Telefónica. See A. History and
Development of the Company above. Set forth below are details of our directly wholly owned
significant subsidiaries:
|
|
|
|
|
|
|
Name of Subsidiary
|
|
Country of Incorporation
|
|
Ownership Interest
|
|
China United Network Communications
Corporation Limited
|
|
China
|
|
|
100
|
%
|
China Netcom Group Corporation (Hong Kong)
Limited
|
|
Hong Kong
|
|
|
100
|
%
|
China Unicom (Hong Kong) Operations Limited
|
|
Hong Kong
|
|
|
100
|
%
|
China Unicom (Americas) Operations Limited
|
|
United States
|
|
|
100
|
%
|
China Unicom (Singapore) Operations Pte. Ltd.
|
|
Singapore
|
|
|
100
|
%
|
China Unicom (Europe) Operations Limited
|
|
United Kingdom
|
|
|
100
|
%
|
China Unicom (Japan) Operations Corporation
|
|
Japan
|
|
|
100
|
%
|
Billion Express Investments Limited
|
|
British Virgin Islands
|
|
|
100
|
%
|
D. Properties
Our principal executive offices are located in Hong Kong. We also maintain executive offices
in Beijing. We own and lease a large number of offices, retail outlets, equipment rooms and base
stations throughout China. In some cases, we have not entered into formal lease agreements with the
lessors or the lessors may not possess requisite title certificates. We believe that it is unlikely
that we would be denied our right to use a large number of these properties at any given time.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
You should read the following discussion and analysis in conjunction with the selected
financial data set forth in Item 3 and our consolidated financial statements, together with the
related notes, included elsewhere in this annual report on Form 20-F.
-46-
Acquisitions of Fixed-Line Business in 21 Provinces in Southern China and Other Assets from Parent
Companies, Merger with China Netcom, Acquisitions of Unicom Guizhou and Design Institute, and
Disposal of CDMA Business and Fixed-Line Business and Assets in Shanghai and Guangdong
We completed (i) acquisitions of fixed-line business in 21 provinces in southern China, the
local access telephone business in Tianjin Municipality, three subsidiaries (together referred to
as the Target Business) and certain other telecommunication assets from Unicom Group and Netcom
Group (which was later merged with Unicom Group in January 2009) in January 2009 and (ii) a merger
with China Netcom in October 2008. See A. History and Development of the Company Acquisitions
of Fixed-Line Business in 21 Provinces in Southern China and Other Assets from Parent Companies and
Lease of Telecommunications Networks in 21 Provinces in Southern China and A. History and
Development of the Company Sale of CDMA Business, Merger with China Netcom and Related
Transactions Merger with China Netcom and Related Transactions under Item 4, respectively.
Because we and the Target Business were under common control of Unicom Group, both prior to and
after the acquisitions, and we and China Netcom were under the common control of the PRC Government
both prior to and after the merger, each of the acquisitions and the merger is considered as a
business combination of entities and businesses under common control, and has been accounted for
using merger accounting in accordance with AG 5. In addition, we completed an acquisition of assets
and business of the Guizhou Province branch of Unicom Group, or Unicom Guizhou, from Unicom Group
in December 2007 and prior to its merger with us, China Netcom completed an acquisition of the
entire equity interest of Beijing Planning and Design Institute, or Design Institute, a
wholly-owned subsidiary of Netcom Group, in December 2007. Because we and Unicom Guizhou were under
the common control of Unicom Group both prior to and after our acquisition of Unicom Guizhou and
China Netcom and Design Institute were under the common control of Netcom Group (which merged with,
and was absorbed by, Unicom Group in January 2009) both prior to and after China Netcoms
acquisition of Design Institute, both acquisitions have been accounted for using merger accounting
in accordance with AG5 issued by the HKICPA. Upon our adoption of IFRS, we adopted the accounting
policy to account for business combination of entities and businesses under common control using
the predecessor values method, which is consistent with HKFRS. The acquired assets and liabilities
mentioned above in this paragraph are stated at historical cost, and are included in the
consolidated financial statements included in this annual report on Form 20-F as if these entities and their businesses acquired had always been part of our
company during all the periods presented.
We completed the disposal of our CDMA business in October 2008. See A. History and
Development of the Company Sale of CDMA Business, Merger with China Netcom and Related
Transactions Disposal of CDMA Business and Related Transactions under Item 4. In accordance
with IFRS/HKFRS 5, Non-Current Assets Held for Sale and Discontinued Operations, we recognized
the CDMA business as discontinued operations and the CDMA business is presented separately as
discontinued operations in our audited consolidated statements of income and statements of cash
flows for the years ended December 31,2007 and 2008.
Prior to our merger with China Netcom, China Netcom completed the disposal of the fixed-line
telecommunications and related services in its Guangdong and Shanghai branches in February 2007.
See A. History and Development of the CompanyHistory and Corporate Development of China Netcom
under Item 4. After considering that we reacquired the fixed-line business in Guangdong and
Shanghai branches in January 2009, we did not present the fixed-line business in Guangdong and
Shanghai branches as discontinued operations and derecognized the gain on disposal previously
recorded in our 2007 consolidated financial statements.
Overview
We are an integrated telecommunications operator in China providing mobile voice and
value-added, fixed-line voice and value-added, fixed-line broadband, data communications and other
telecommunications services to our customers through our two operating segments comprised of mobile
services and fixed-line services. Following our acquisition of fixed-line business in 21 provinces
in southern China from our parent companies in January 2009, we have extended the coverage of all
of our services nationwide. We, China Mobile and China Telecom are the three major
telecommunications operators in China. See A. History and Development of the Company
Restructurings of the Telecommunications Industry under Item 4.
-47-
The table below sets forth revenue from our major businesses and their respective percentage
of our total revenue from continuing operations in 2008, 2009 and 2010 (excluding (i) fixed-line
upfront connection fees of RMB886 million in 2008, RMB490 million in 2009 and RMB192 million in
2010 and (ii) interconnection revenue of RMB992 million between certain fixed-line business and
the discontinued operations of CDMA business in 2008).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
RMB in
|
|
|
As % of
|
|
|
RMB in
|
|
|
As % of
|
|
|
RMB in
|
|
|
As % of
|
|
|
|
millions
|
|
|
Total
|
|
|
millions
|
|
|
Total
|
|
|
millions
|
|
|
Total
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (excluding fixed-line
upfront connection fees and
interconnection revenue between certain
fixed-line business and the discontinued
operations of CDMA business)
(1)
|
|
|
157,914
|
|
|
|
100.0
|
|
|
|
153,455
|
|
|
|
100.0
|
|
|
|
171,106
|
|
|
|
100.0
|
|
Total telecommunications service revenue
(excluding fixed-line upfront connection
fees and interconnection revenue between
certain fixed-line business and the
discontinued operations of CDMA business)
|
|
|
150,953
|
|
|
|
95.6
|
|
|
|
149,103
|
|
|
|
97.2
|
|
|
|
161,803
|
|
|
|
94.6
|
|
Include: Mobile business
|
|
|
64,240
|
|
|
|
40.7
|
|
|
|
69,769
|
|
|
|
45.5
|
|
|
|
82,362
|
|
|
|
48.1
|
|
Fixed-line business
|
|
|
86,376
|
|
|
|
54.7
|
|
|
|
79,059
|
|
|
|
51.5
|
|
|
|
78,704
|
|
|
|
46.0
|
|
Out of which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband service
|
|
|
20,962
|
|
|
|
13.3
|
|
|
|
23,898
|
|
|
|
15.6
|
|
|
|
29,822
|
|
|
|
17.4
|
|
Information communication technology
services and other revenue
|
|
|
5,062
|
|
|
|
3.2
|
|
|
|
2,189
|
|
|
|
1.4
|
|
|
|
2,016
|
|
|
|
1.2
|
|
Total sales of telecommunications products
|
|
|
1,899
|
|
|
|
1.2
|
|
|
|
2,163
|
|
|
|
1.4
|
|
|
|
7,287
|
|
|
|
4.2
|
|
|
|
|
(1)
|
|
Fixed-line upfront connection fees represent the amortization of deferred upfront
connection fees received from the customers before July 1, 2001. No upfront connection fee was
received from the customers since then. In addition, upon disposal of the CDMA business in
2008, interconnection revenue between certain fixed-line business and the discontinued
operations of CDMA business will not be recognized anymore. Therefore, we consider that analyses of our operating results excluding upfront
connection fees and interconnection revenue between certain fixed-line business and the
discontinued operations of CDMA business are more relevant to the readers of this report.
|
Our telecommunications service revenue from continuing operations primarily consist of the
following:
|
|
|
usage fees and monthly fees for our mobile and fixed-line telephone services, which
are recognized when we render the service to our customers;
|
|
|
|
revenue from the provision of value-added services, which is recognized when we
render the services to our customers;
|
|
|
|
revenue from the provision of broadband and other Internet-related services, mainly
consisting of Internet access services, and managed data services, which is recognized
when we render the service to our customers;
|
|
|
|
revenue from telephone cards, which is service fees received from customers for
telephone services, is recognized when we render the related service upon actual usage
of the telephone cards by customers;
|
|
|
|
revenue from interconnection with other telecommunications operators for calls made
from their networks to our networks. We recognize interconnection revenue when the
relevant calls are made by subscribers;
|
-48-
|
|
|
revenue for offerings which include the bundled sale of mobile handsets and
provision of services. We recognize revenue allocated to the sale of handset when the
title of the handset is passed to the customer and recognize revenue allocated to the
service element based upon the actual usage of mobile services. The cost of the mobile
handset sold is expensed immediately to the statement of income. Prior to the fourth quarter
of 2010, we determined the amount of revenue allocated to the handset using the
residual value method. Under the residual value method, we determined the revenue
allocated to the sale of the mobile handset by deducting the fair value of the service
element from the total contract consideration. In the fourth quarter of 2010, we
determined to adopt the accounting policy of relative fair value method to account for
the bundled sale of mobile handsets and provision of services retrospectively from
January 1, 2010. Under the relative fair value method, the total revenue from such
bundled sale is allocated to service revenue and sales of handsets based on their
relative fair values. The change in accounting policy resulted in (i) an increase of
our revenue, income before income tax, net income and earnings per share of RMB3,208
million, RMB3,208 million, RMB2,406 million and RMB0.11, respectively for the year
ended December 31, 2010; and (ii) a decrease in advance from customers of RMB3,317
million as of December 31, 2010. The above change in accounting policy did not have a
significant impact on the financial statements for the years ended
December 31, 2009 and 2008,
and accordingly, we did not restate the comparative figures;
|
|
|
|
revenue from information communications technology services are recognized when
goods are delivered to the customers (which generally coincides with the time when the
customers have accepted the goods and the related risks and rewards of ownership have
been transferred to the customers) or when services are rendered to the customers using
the percentage of completion method when the outcome of the services provide can be
estimated reliably. If the outcome of the services provided cannot be estimated
reliably, the treatment should be as follows: (i) if it is probable that the costs
incurred for the services provided is recoverable, service revenue should be recognized
only to the extent of reasonable costs incurred, and costs should be recognized as
current expenses in the period in which they are incurred, or (ii) if it is probable
that costs incurred will not be recoverable, costs should be recognized as current
expenses immediately and service revenue should not be recognized;
|
|
|
|
revenue from sales of telecommunications products (which mainly represent handsets
and accessories) that are not bundled with mobile services are recognized when title of
such products has been passed to the buyers; and
|
|
|
|
rental income from leases of customer-end equipment and transmission lines on our
networks to business customers and other telecommunications carriers in China. We
recognize leased line rental revenue on a straight-line basis over the relevant lease
term.
|
-49-
The following table sets forth our major costs and expenses items and income before income
tax, both in terms of amount and as a percentage of total revenue from continuing operations in
2008, 2009 and 2010 (excluding (i) fixed-line upfront connection fees of RMB886 million in 2008,
RMB490 million in 2009 and RMB192 million in 2010 and (ii) interconnection revenue of RMB992
million between certain fixed-line business and the discontinued operations of CDMA business 2008).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
RMB in
|
|
|
|
|
|
|
RMB in
|
|
|
|
|
|
|
RMB in
|
|
|
|
|
|
|
millions
|
|
|
% of Total
|
|
|
millions
|
|
|
% of Total
|
|
|
millions
|
|
|
% of Total
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue (excluding fixed-line
upfront connection fees and
interconnection revenue between certain
fixed-line business and the
discontinued operations of CDMA
business)
(1)
|
|
|
157,914
|
|
|
|
100.0
|
|
|
|
153,455
|
|
|
|
100.0
|
|
|
|
171,106
|
|
|
|
100.0
|
|
Costs, expenses and others
|
|
|
155,733
|
|
|
|
98.6
|
|
|
|
141,668
|
|
|
|
92.3
|
|
|
|
166,525
|
|
|
|
97.3
|
|
Interconnection charges
|
|
|
13,038
|
|
|
|
8.3
|
|
|
|
12,955
|
|
|
|
8.4
|
|
|
|
13,727
|
|
|
|
8.0
|
|
Depreciation and amortization
|
|
|
51,847
|
|
|
|
32.8
|
|
|
|
47,587
|
|
|
|
31.0
|
|
|
|
54,433
|
|
|
|
31.8
|
|
Networks, operations and support
expenses
|
|
|
18,736
|
|
|
|
11.9
|
|
|
|
23,728
|
|
|
|
15.5
|
|
|
|
26,383
|
|
|
|
15.4
|
|
Employee benefit expenses
|
|
|
20,758
|
|
|
|
13.1
|
|
|
|
21,931
|
|
|
|
14.3
|
|
|
|
23,327
|
|
|
|
13.6
|
|
Selling and marketing
|
|
|
19,614
|
|
|
|
12.4
|
|
|
|
21,020
|
|
|
|
13.7
|
|
|
|
23,733
|
|
|
|
13.9
|
|
Cost in relation to information
communication technology services
|
|
|
3,010
|
|
|
|
1.9
|
|
|
|
839
|
|
|
|
0.5
|
|
|
|
895
|
|
|
|
0.5
|
|
General, administrative and other
expenses
|
|
|
13,217
|
|
|
|
8.4
|
|
|
|
12,175
|
|
|
|
7.9
|
|
|
|
12,953
|
|
|
|
7.6
|
|
Cost of telecommunications products
sold
|
|
|
2,156
|
|
|
|
1.4
|
|
|
|
2,689
|
|
|
|
1.8
|
|
|
|
10,688
|
|
|
|
6.3
|
|
Finance costs, net of interest income
|
|
|
3,004
|
|
|
|
1.9
|
|
|
|
945
|
|
|
|
0.6
|
|
|
|
1,607
|
|
|
|
0.9
|
|
Impairment loss on property, plant
and equipment
|
|
|
12,494
|
|
|
|
7.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains on changes in fair
value of derivative financial
instrument
|
|
|
|
|
|
|
|
|
|
|
(1,239
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
Other income-net
|
|
|
(2,141
|
)
|
|
|
(1.4
|
)
|
|
|
(962
|
)
|
|
|
(0.6
|
)
|
|
|
(1,221
|
)
|
|
|
(0.7
|
)
|
|
|
|
(1)
|
|
Fixed-line upfront connection fees represent the amortization of deferred upfront
connection fees received from the customers before July 1, 2001. No upfront connection fee was
received from the customers since then. In addition, upon disposal of the CDMA business in
2008, interconnection revenue between certain fixed-line business and the discontinued
operations of CDMA business will no longer be recognized. Therefore, we consider that analyses
of our operating results excluding upfront connection fees and interconnection revenue between
certain fixed-line business and the discontinued operations of CDMA business are more relevant
to the readers of this report.
|
Our major costs and expenses include the following:
|
|
|
interconnection expenses, representing amounts paid to other operators for calls
from our networks to their networks and for calls made by our subscribers roaming in
their networks;
|
|
|
|
depreciation and amortization expenses, mainly relating to our property, plant and
equipment and other assets;
|
|
|
|
networks, operations and support expenses, mainly relating to repair, maintenance
and operations of our networks;
|
|
|
|
leasing fee for telecommunications networks in southern China;
|
|
|
|
employee benefit expenses, representing staff salaries and wages, bonuses and
medical benefits, contributions to defined contribution pension schemes, housing
benefits and share-based compensation costs amortized over the vesting period of
options;
|
|
|
|
selling and marketing expenses, including commissions, promotion and advertising
expenses, direct incremental costs for activating subscriber services and customer
retention costs;
|
-50-
|
|
|
cost in relation to information communication technology services, primarily
including cost of hardware sold;
|
|
|
|
general, administrative and other expenses, primarily including provision for
doubtful debts, utilities, general office expenses and travel expenses;
|
|
|
|
cost of telecommunications products sold; and
|
|
|
|
finance costs, net of interest income, primarily including interest expenses, net of
interest income.
|
Critical Accounting Policies
The preparation of our financial statements and this annual report on Form 20-F requires us to
make estimates and judgments that affect the reported and disclosed amounts of assets and
liabilities, including contingent assets and liabilities, as of the relevant dates and revenue and
expenses for the relevant periods. We have identified below the areas involving a higher degree of
judgment or complexity, or areas where assumptions are significant to the accounting policies and
estimates, as critical to our business operations and an understanding of our results of operations
and financial position. The impact and any associated risks related to these policies on our
business operations are discussed throughout this Item 5 where such policies affect our reported
and expected financial results. For a discussion of the application of these and other accounting
policies, see Note 4 to our consolidated financial statements included in this annual report. There
can be no assurance that actual results will not differ from those estimates and assumptions.
Significant Accounting Policies
Revenue Recognition
Revenue comprises the fair value of the consideration received or receivable for the services
and sales of goods or telecommunications products in the ordinary course of our business
activities. Revenue is shown net of business tax, government surcharges, returns and discounts and
after eliminating sales within our company.
We recognize revenue when the amount of revenue can be reliably measured, it is probable that
future economic benefits will flow to the entity and specific criteria have been met for each of
our activities as described below. The amount of revenue is not considered to be reliably
measurable until all contingencies relating to the sale have been resolved. We base our estimates
on historical results, taking into consideration of the type of customer, the type of transaction
and the specifics of each arrangement.
Sales of services and goods
|
|
|
Usage fees and monthly fees are recognized when the services are rendered;
|
|
|
|
Revenue from the provision of broadband and other Internet-related services and
managed data services are recognized when the services are provided to customers;
|
|
|
|
Revenue from telephone cards, which represents service fees received from customers
for telephone services, is recognized when the related service is rendered upon actual
usage of the telephone cards by customers;
|
|
|
|
Lease income from leasing of lines and customer-end equipment are treated as
operating leases with rental income recognized on a straight-line basis over the lease
term;
|
-51-
|
|
|
Value-added services revenue, which mainly represents revenue from the provision of
services such as SMSs, Cool Ringtone, personalized ring, caller number display and
secretarial services to subscribers, is recognized when service is rendered;
|
|
|
|
Standalone sales of telecommunications products, which mainly represent handsets and
accessories, are recognized when title has been passed to the buyers;
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For offerings which include the bundled sale of mobile handsets and provision of
services, prior to the fourth quarter of 2010, we determined the amount of revenue
allocated to the handset using the residual value method. Under the residual value
method, we determined the revenue allocated to the sale of the mobile handset by
deducting the fair value of the service element from the total contract consideration.
We recognize revenue related to the sale of handset when the title of the handset is
passed to the customer and recognize revenue allocated to the service element based
upon the actual usage of mobile services. The cost of the mobile
handset sold is expensed
immediately to the statement of income. In 2010, we have offered promotional packages
for the bundled sale of mobile handsets and provision of services with more attractive
terms to new subscribers, and more new subscribers were developed under such
preferential packages during the year. In the fourth quarter of 2010, we determined to
adopt the accounting policy to use relative fair value method to account for the
bundled sale of mobile handsets and provision of services retrospectively from January
1, 2010. The purpose of the change in this accounting policy is to provide reliable and
more relevant information for users of the financial statements given that each of the
handset and service elements in a bundled sale has stand-alone value to the customer
and there is objective and reliable evidence of the fair value of the handset and
service elements in a bundled sale. Under the relative fair value method, the total
revenue from such bundled sale is allocated to service revenue and sales of handsets
based on their relative fair values. The change in accounting policy resulted in (i)
an increase of our revenue, income before income tax, net income and earnings per share
of RMB3,208 million, RMB3,208 million, RMB2,406 million and RMB0.11, respectively for
the year ended December 31, 2010; and (ii) a decrease in advance from customers of
RMB3,317 million as of December 31, 2010. The above change in accounting policy did not
have a significant impact on the financial statements for the years ended December 31,
2009 and 2008, and accordingly, we did not restate the comparative figures; and
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Revenue from information communications technology services are recognized when
goods are delivered to the customers (which generally coincides with the time when the
customers have accepted the goods and the related risks and rewards of ownership have
been transferred to the customers) or when services are rendered to the customers using
the percentage of completion method when the outcome of the services provided can be
estimated reliably. If the outcome of the services provided cannot be estimated
reliably, the treatment should be as follows: (i) if it is probable that the costs
incurred for the services provided are recoverable, services revenue should
be recognized only to the extent of recoverable costs incurred, and costs should be
recognized as current expenses in the period in which they are incurred; or (ii) if
it is probable that costs incurred will not be recoverable, costs should be
recognized as current expenses immediately and services revenue should not be
recognized.
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Interest income
Interest income from deposits in banks or other financial institutions is recognized on a time
proportion basis, using the effective interest method.
Dividend income
Dividend income is recognized when the right to receive payment is established.
Deferred Revenue, Advances from Customers and Subscriber Points Reward Program
-52-
Deferred revenue
Deferred revenue mainly represents upfront non-refundable revenue, including upfront
connection fees and installation fees of fixed-line business and receipts from the activation of
SIM/USIM cards relating to our mobile businesses, which are deferred and recognized over the
expected customer service period.
Advances from customers
Advances from customers are amounts paid by customers for prepaid cards, other calling cards
and prepaid service fees, which cover future telecommunications services (over a period of one to
twelve months). Advances from customers are stated at the amount of proceeds received less the
amount already recognized as revenue upon the rendering of services.
Subscriber points reward program
The fair value of providing telecommunications services and the subscriber points reward are
allocated based on their relative fair values. The allocated portion of fair value for the
subscriber points reward is recorded as deferred revenue when the rewards are granted and
recognized as revenue when the points are redeemed or expired. The fair value of deferred revenue
is estimated based on (i) the value of each bonus point awarded to subscribers, (ii) the number of
bonus points related to subscribers who are qualified or expected to be qualified to exercise their
redemption right at each balance sheet date, and (iii) the expected bonus points redemption rate.
The fair value of the outstanding subscriber points reward is subject to review by management on a
periodic basis.
Critical Accounting Estimates and Judgments
Recognition of Upfront Non-Refundable Revenue and Direct Incremental Costs
We defer and amortize upfront activation fees of SIM/USIM cards of the mobile business over
the expected customer service period of 3 years (2008: approximately 3 years; 2009: approximately 3
years). The related direct incremental costs of acquiring and activating mobile subscribers,
including costs of SIM/USIM cards and commissions, are also capitalized and amortized over the same
expected customer service period of 3 years.
We defer and amortize upfront customer connection and installation fees of the fixed-line
business over the expected customer service period of 10 years (2008: approximately 10 years; 2009:
approximately 10 years). The related direct incremental installation costs are deferred and
amortized over the same expected customer service period of 10 years.
-53-
We only capitalize costs to the extent that they will generate future economic benefits. The
excess of the direct incremental costs over the corresponding upfront non-refundable revenue, if
any, are expensed to the statement of income immediately.
We estimate the expected customer service period based on the historical customer retention
experience and after factoring in the expected level of future competition, the risk of
technological or functional obsolescence to our services, technological innovation, and the
expected changes in the regulatory and social environment. If our estimate of the expected customer
service period changes as a result of increased competition, changes in telecommunications
technology or other factors, the amount and timing of recognition of the deferred revenue and
direct incremental costs may change for future periods.
The Acquisition of Target Business (2009 Business Combination)
Our acquisition of Target Business, or the 2009 Business Combination, was considered as a
business combination of entities and business under common control, and has been accounted for
using merger accounting under HKFRS, which is consistent with the predecessor values method under
IFRS.
-54-
When applying the merger accounting/predecessor values method to account for the 2009 Business
Combination, we included all the assets and liabilities, revenue and expenses associated with the
Target Business and the fixed-line telecommunications networks of the 21 provinces in southern
China, or the Telecommunications Networks in Southern China, in the consolidated balance sheet and
the consolidated statement of income throughout the periods presented. Pursuant to the agreement
dated December 16, 2008, the 2009 Business Combination excluded the Telecommunications Networks in
Southern China, which are retained by Unicom New Horizon and are leased from Unicom New Horizon to
CUCL effective from January 2009. To reflect the economic substance that we have not taken on the
risks and rewards associated with the property, plant and equipment and related assets and
liabilities relating to the fixed-line business in southern China, we are deemed to have disposed
of the assets not acquired and liabilities not assumed and have recorded the deemed disposal of
these assets and liabilities as a distribution from reserves by us to Unicom Group upon the
completion of the 2009 Business Combination effective from January 2009.
Subsequent to the completion of the 2009 Business Combination, we recorded leasing fees
amounting to approximately RMB2.2 billion (2009: RMB2.0 billion) charged by Unicom New Horizon for
the lease of the Telecommunications Networks in Southern China for the year ended December 31, 2010
(Note 4.2(c) to our consolidated financial statements).
Lease of Telecommunications Networks in Southern China
Pursuant to an agreement in relation to the lease of the Telecommunications Networks in
Southern China between CUCL and Unicom Horizon dated December 16, 2008, Unicom New Horizon has the
legal ownership of the Telecommunications Networks in Southern China. We believe we only bear the
risks associated with the operation of the fixed-line business in southern China during the
relevant leasing periods and are free from any ownership risks of the telecommunications networks,
and the risks and rewards of ownership of the leased assets rest substantially with the lessor. In
addition, at the inception of the lease agreement, there was a high degree of uncertainty related
to the market condition and operating results of the fixed-line business in southern China. It was
highly uncertain whether we would continue to lease the network in the future, and were also unable
to determine whether or not we would exercise the purchase option in future. Given these
uncertainties and due to the fact that the risks associated with the ownership of the
Telecommunications Networks in Southern China substantially remained with Unicom New Horizon,
accordingly, we accounted for the leasing of the Telecommunications Networks in Southern China as
an operating lease. The operating lease expense was recorded in the consolidated statement of
income for the years ended December 31, 2009 and 2010, but the carrying value of the
Telecommunications Networks in Southern China and the related liabilities were not reflected in the
consolidated balance sheets as of December 31, 2009 and 2010.
At the beginning of each lease term, we assess the appropriate classification based on the
relevant factors and circumstances at that time. On October 29, 2010, CUCL entered into the
2011-2012 Network Lease Agreement with Unicom New Horizon. The 2011-2012 Network Lease Agreement has an initial term of two years,
effective from January 1, 2011 and expiring on December 31, 2012, which is renewable at the option
of CUCL with at least two months prior notice on the same terms and conditions as the network
lease agreement dated December 16, 2008, except that the annual fee payable by CUCL for such lease
for the two years ending December 31, 2011 and 2012 is RMB2.4 billion and RMB2.6 billion,
respectively. At the time of entering into the 2011-2012 Network Lease Agreement, we still believed
the uncertainties of the fixed-line business in southern China continue to exist, particularly due
to the fact that (i) the growth of the fixed-line business in southern China was not significant;
(ii) the future success of the fixed-line business in southern China remained uncertain, in light
of the keen market competition; and (iii) the technology, technological standards and government
regulatory environment in respect of the relevant business are still subject to uncertainties.
Accordingly, we were not in a position to determine whether we would renew the lease after the
initial two-year lease term or whether we would exercise the purchase option upon the entering into
the 2011-2012 Network Lease Agreement. As a result, we considered the risks associated with the
ownership of the Telecommunications Networks in Southern China still substantially remain with
Unicom New Horizon, and therefore accounted for the leasing of Telecommunications Networks in
Southern China under the 2011-2012 Network Lease Agreement as an operating lease.
-55-
Accounting to Available-for-Sale Assets
Available-for-sale financial assets are carried at fair value. Changes in the fair value of
available-for-sale assets are recognized in other comprehensive income or loss until impairment. We
assess at the end of each reporting period whether there is objective evidence that
available-for-sale financial assets are impaired. For equity investments classified as
available-for-sale, a significant or prolonged decline in the fair value of the security below its
cost is evidence that the assets are impaired. Prior to our adoption of IFRS/HKFRS 9 Financial
Instruments in January 2011, if available-for-sale equity investments are impaired, the
accumulated reduction in fair value will be reclassified from equity to the statement of income as
impairment loss of available-for-sale financial assets. We consider all available relevant factors,
including the fair value of the shares, the period of the decline of fair value, exchange rate and
share price volatility and future business prospects, when determining whether there is any
impairment.
As of December 31, 2010, our available-for-sale financial assets are principally the equity
investment in Telefónica. The net decline in fair value during 2010 was partially due to the
depreciation of Euro against RMB of approximately 10% in 2010. In addition, the quoted Euro market
price of Telefónica shares experienced fluctuations as a result of the credit rating downgrades for
certain Euro zone countries in the middle of 2010. The Euro share price of Telefónica increased and
exceeded the initial Euro share value in a certain period during the third quarter of 2010 but it
had decreased on a net basis by approximately 13% for the year 2010. Subsequently, during the
period from January 1, 2011 to May 24, 2011, there was an appreciation of Euro against RMB of
approximately 4%, and a decrease in share price in Euro of
approximately 2%, as compared to
December 31, 2010.
In addition, we received cash dividends of RMB209 million and RMB480 million from this
strategic investment for the years ended December 31, 2009 and 2010, respectively. Based on our
judgment , the observed decline in the fair value below the cost of the equity investments in
Telefónica was not considered to be significant or prolonged, in light of the ongoing exchange rate
and share price volatility, the solid operating results and business prospects of Telefónica, its
regular dividend distribution and strategic relationships with us, and therefore did not indicate
any impairment as of December 31, 2010.
On January 1, 2011, we early adopted IFRS/HKFRS 9 Financial Instruments. Upon adoption of
this standard, the balance of available-for-sale fair value reserve was transferred to investment
revaluation reserve. In addition, we have made an irrevocable election upon initial adoption of
the standard to recognize changes in fair value of available-for-sale financial assets only through
other comprehensive income or loss. Thus, there will be no subsequent recycling of fair value gains
and losses to the statement of income. Upon adoption, IFRS/HKFRS 9 will be applied retrospectively to all
periods presented.
Depreciation on Property, Plant and Equipment
Depreciation on our property, plant and equipment is calculated using the straight-line method
to allocate cost or revalued amounts up to residual values over the estimated useful lives of the
assets. We review the useful lives and residual values periodically to ensure that the method and
rates of depreciation are consistent with the expected pattern of realization of economic benefits
from property, plant and equipment. We estimate the useful lives of property, plant and equipment
based on historical experience, taking into account anticipated technological changes. If there are
significant changes from previously estimated useful lives, the amount of depreciation expenses may
change.
Revaluation of Property, Plant and Equipment
Property, plant and equipment other than buildings and telecommunications equipment of the
mobile business is carried at revalued amounts, being the fair value at the date of revaluation,
less subsequent accumulated depreciation and accumulated impairment losses. Such equipment is
revalued on a depreciated replacement cost or open market value approach, as appropriate, by an
independent valuer on a regular basis.
-56-
During the intervals of independent revaluations, management performs the analysis and
assessment annually to determine whether the fair values of property, plant and equipment are
materially different from their carrying amounts. If the revalued amounts differ significantly from
the carrying amounts of the equipment in the future, the carrying amounts will be adjusted to the
revalued amounts. The key assumptions made to determine the revalued amounts include the estimated
replacement costs and the estimated useful lives of the equipment. This will have an impact on our
future results, since any subsequent decreases in valuation are first set off against increases on
earlier valuations in respect of the same item and thereafter are charged as an expense to the
statement of income and any subsequent increases are credited as income to the statement of income
up to the amount previously charged to the statement of income and thereafter are credited to
equity. In addition, the depreciation expenses in future periods will change as the carrying
amounts of such equipment change as a result of the revaluation.
Most of our property, plant and equipment which are carried at revalued amounts were
revaluated as at December 31, 2006 by an independent valuation firm. We believe that the fair
values of these revalued property, plant and equipment were not materially different from their
carrying values as of December 31, 2010.
Impairment of Non-Financial Assets
We test whether non-financial assets have suffered from any impairment, in accordance with the
accounting policy stated in Note 2.11 to the audited consolidated financial statements contained
elsewhere in this annual report. The recoverable amount of an asset is the higher of its fair value
less costs to sell and its value in use. Management estimates value in use based on estimated
discounted pre-tax future cash flows of the cash generating unit at the lowest level to which the
asset belongs. If there is any significant change in managements assumptions, including discount
rates or growth rates in the future cash flow projection, the estimated recoverable amounts of the
non-financial assets and our results would be significantly affected. Such impairment losses are
recognized in the statement of income, except where the asset is carried at valuation and the
impairment loss does not exceed the revaluation surplus for that same asset, in which case the
impairment loss is treated as a revaluation decrease and charged to the revaluation reserve.
Accordingly, there will be an impact to the future results if there is a significant change in the
recoverable amounts of the non-financial assets.
During 2008, we conducted the impairment test for the PHS service related assets, after
considering the expected significant decline in revenue and profitability in 2009 and onwards. The
impaired PHS business related assets were written down to their recoverable amount, which was
determined based on their estimated value in use as there is no active market transaction for PHS
business related assets . Estimated value in use was determined based on the present value of
estimated future net cash flows expected to arise from the continuing use of the PHS business
related assets. In estimating the future net cash flows, we made key assumptions and estimates on
the appropriate discount rate of 15%, the period covered by the cash flow forecast of 3 years, the
future loss of customers at an annual rate of declining ranging from 60% to 80%, and the decrease
in average revenue per subscriber at an annual rate of decline at 15%.
These assumptions and estimates were made after considering the historical trends, the
prevailing market trends and the physical conditions of the PHS business related assets. Changes in
these assumptions and estimates could have a significant impact on the estimated recoverable
amount. Based on above, we recognized RMB11.84 billion of impairment loss on PHS services related
assets at the end of 2008.
No impairment loss on property, plant and equipment was recognized for the years ended
December 31, 2009 and 2010.
Provision for Doubtful Debts
Accounts receivables are recognized initially at fair value and subsequently measured at
amortized cost using the effective interest method, less provision for impairment. We evaluate
specific accounts receivable where there are indications that the receivable may be doubtful or is
not collectible. We record a provision based on our best estimates to reduce the receivable balance
to the amount that is expected to be collected. For the remaining receivable balances as at each
reporting date, we make a provision based on observable data indicating that there is a measurable
decrease in the estimated future cash flows from the remaining balances. We make such estimates
based on our past experience, historical collection patterns, subscribers creditworthiness and
collection trends. For general subscribers, we make a full provision for receivables aged over 3
months, which is consistent with our credit policy with respect to the relevant subscribers.
-57-
Our estimate described above is based on past experience, historical collection patterns,
subscribers creditworthiness and collection trends. If circumstances change (e.g., due to factors
including developments in our business and the external market environment), we may need to
re-evaluate our policies on doubtful debts, and make additional provisions in the future.
Income Tax and Deferred Taxation
We estimate our income tax provision and deferred taxation in accordance with the prevailing
tax rules and regulations, taking into account any special approvals obtained from relevant tax
authorities and any preferential tax treatment to which we are entitled in each location or
jurisdiction in which we operate. There are many transactions and calculations for which the
ultimate tax determination is uncertain during the ordinary course of business. We recognize
liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be
due. Where the final tax outcome of these matters is different from the amounts that were initially
recorded, such differences will impact the income tax and deferred tax provisions in the period in
which such determination is made.
For temporary differences which give rise to deferred tax assets, we have assessed the
likelihood that the deferred tax assets could be recovered. Major deferred tax assets relate to
impairment loss on property, plant and equipment, unrecognized revaluation surplus on property,
plant and equipment under PRC tax regulations, and provision for doubtful debts. Due to the effects
of these temporary differences on income tax, we have recorded deferred tax assets amounting to
approximately RMB4,840 million as at December 31, 2010 (2009: approximately RMB5,202 million).
Deferred tax assets are recognized based on our estimates and assumptions that they will be
recovered from taxable income arising from continuing operations in the foreseeable future.
We believe we have recorded adequate income tax provision and deferred taxes based on the
prevailing tax rules and regulations and our current best estimates and assumptions. In the event
that future tax rules and regulations or related circumstances change, adjustments to income tax
and deferred taxation may be necessary which would impact our results or financial position.
Recently Issued International Financial Reporting Standards/Hong Kong Financial Reporting Standards
The IASB has issued a number of new and revised IFRSs and interpretations that are first
effective for the current accounting period commencing January 1, 2010 or are available for early
adoption. The equivalent new and revised HKFRSs and interpretations consequently issued by the
HKICPA have the same effective date as those issued by the IASB and are in all material respects
identical to the pronouncements issued by the IASB. There have been no other material changes to
HKFRSs.
Up
to the date of issue of our 2010 financial statements, the following
new interpretation to existing standard has been issued but not yet effective for the annual
accounting period ended December 31, 2010 and has not been adopted by us:
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Effective for annual
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accounting period
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beginning on or after
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IFRIC/(HK)IFRIC Int 19 Extinguishing financial liabilities with equity instruments
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July 1, 2010
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On January 1, 2011, we early adopted IFRS/HKFRS 9 Financial instruments. Upon adoption of
this standard, the balance of available-for-sale fair value reserve is transferred to investment
revaluation reserve. In addition, we have made an irrevocable election upon initial adoption of
the standard to recognize changes in fair value of available-for-sale financial assets only through
other comprehensive income/loss. Thus, there will be no subsequent recycling of fair value gains
and losses to the statement of income. IFRS/HKFRS 9 will be applied retrospectively to all
periods presented.
-58-
Operating Results
Acquisition of Fixed-Line Telecommunications Business in 21 Provinces in Southern China
In the 2009 Business Combination, we did not purchase the underlying fixed-line network assets
in southern China, but subsequently leased such assets from Unicom New Horizon, a wholly-owned
subsidiary of Unicom Group, to operate the acquired fixed-line business. To account for this
transaction, we recorded all assets, liabilities, revenue and costs and expenses associated with
the acquired fixed-line business in southern China and the underlying network assets in our
consolidated financial statements for the historical periods prior to the completion of the
transaction in January 2009. Following the completion of this transaction, as we started to lease
the fixed-line network assets in southern China, which were retained by the lessor, the assets and
liabilities associated with these network assets were treated as a distribution by us to Unicom
Group from other reserve using the merger accounting under HKFRS and predecessor values method
under IFRS. Accordingly, we no longer include any assets, liabilities, depreciation, finance costs
or other costs relating to such assets, but record only revenue generated from the acquired
fixed-line business in southern China and the leasing fee for the relevant network assets in our
consolidated financial statements for the subsequent periods.
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Revenue
2010 is the second year that we had a full-year operation following our merger with China
Netcom. Although Chinas economy experienced recovery from the global financial crisis, we continue
to face various challenges, including intensified telecommunications market competition, further
downward adjustments in tariffs and decline of fixed-line voice business. We continued to actively
develop full-service operation with a focus on mobile and fixed-line broadband businesses. Revenue
from our continuing operations for 2010 was RMB171.30 billion, an increase of 11.3% from RMB153.95
billion for 2009. Excluding the effects of fixed-line upfront connection fees of RMB0.19 billion
and RMB0.49 billion in 2010 and 2009 respectively, our revenue from continuing operations for 2010
would have been RMB171.11 billion, representing an increase of 11.5% from RMB153.46 billion in
2009, of which our telecommunications service revenue would have been RMB161.80 billion in 2010, up by
8.5% from 2009.
Mobile Business Revenue
Revenue from our mobile business increased by 24.4% from RMB71.99 billion in 2009 to RMB89.55
billion in 2010. Of the revenue from our mobile business in 2009 and 2010, RMB69.77 billion and
RMB82.36 billion, respectively, was from telecommunications service. Telecommunications service
revenue from our mobile business as a percentage of our total telecommunications service revenue
(excluding fixed-line upfront connection fees of RMB0.19 billion and RMB0.49 billion in 2010 and
2009 respectively) increased from 46.8% in 2009 to 50.9% in 2010. The growth in revenue from our
mobile business is primarily due to the continued increase in the total number of our mobile
subscribers, as well as an increase in our subscribers ARPU. The increase in ARPU was due to the
change of revenue mix between our GSM business and 3G business. 3G business has a significantly
higher ARPU than GSM business. Therefore, despite the ARPU of each of our GSM and 3G businesses
decreased in 2010 compared to 2009, as the revenue from 3G business increased significantly as a
percentage of total telecommunications service revenue from mobile business from 1.1% in 2009 to
14.1% in 2010, the overall ARPU of our mobile business increased. In 2010, revenue from 3G business
was RMB11.59 billion.
Our total number of mobile subscribers was 167.43 million as of December 31, 2010, with a net
addition of 19.84 million subscribers (including 11.32 million 3G subscribers) from the end of
2009. ARPU of our GSM mobile business was RMB39.5 in 2010, a decrease of 4.1% from RMB41.2 in 2009.
ARPU of our 3G business was RMB124.0 in 2010, a decrease of 12.5% from RMB141.7 in 2009.
-59-
The table below sets forth the revenue composition of our mobile business and each revenue
items respective share of total revenue for the years ended December 31, 2009 and 2010.
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2009
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2010
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RMB in millions
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As % of total
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RMB in millions
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As % of total
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Total revenue from mobile
business
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71,991
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100.0
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89,550
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100.0
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Telecommunications service
revenue
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69,769
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97.0
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82,362
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92.0
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Usage fees and monthly fees
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42,297
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58.8
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47,004
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52.5
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Value-added service revenue
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19,070
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26.5
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25,852
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28.9
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Interconnection revenue
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8,220
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11.4
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9,022
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10.1
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Other service revenue
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182
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0.3
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484
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0.5
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Other revenue
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252
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0.3
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15
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Sales of mobile
telecommunications products
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1,970
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2.7
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7,173
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8.0
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Usage Fees and Monthly Fees
. As a result of an increase in mobile subscribers, partially
offset by the decrease in effective tariffs, usage fees and monthly fees for our mobile services
were RMB47.00 billion in 2010, an increase of 11.1% from RMB42.30 billion in 2009.
Value-Added Service Revenue
. In 2010, we continued to actively promote mobile value-added
services and mobile data business, and improved the penetration of SMS, Cool Ringtone and mobile
Internet services. As a result, revenue from our mobile value-added services amounted to RMB25.85
billion in 2010, representing an increase of 35.6% from RMB19.07 billion in 2009 and as a
percentage of total mobile revenue increased from 26.5% in 2009 to 28.9% in 2010. Of the total
revenue from mobile value-added services, revenue from our SMS services increased by 1.8% from
RMB7.92 billion in 2009 to RMB8.07 billion in 2010, revenue from Cool Ringtone services increased
by 6.8% from RMB2.88 billion in 2009 to RMB3.08 billion in 2010 and revenue from mobile Internet
services increased by 174.6% from RMB2.80 billion in 2009 to RMB7.70 billion in 2010.
Interconnection Revenue
. Our interconnection revenue increased by 9.8% from RMB8.22 billion
in 2009 to RMB9.02 billion in 2010, and represented 10.1% of total mobile revenue in 2010 as
compared with 11.4% in 2009. This increase is primarily as a result of the increased total usage of
our mobile services due to the increased total number of our mobile subscribers.
Sales of Telecommunications Products
. Revenue from our sale of mobile telecommunications
products increased from RMB1,970 million in 2009 to RMB7,173 million in 2010, mainly due to our
continuing efforts in promoting our bundled sale of 3G mobile handsets and provision of 3G mobile
services.
Fixed-Line Business Revenue
In 2010, as mobile substitution further intensified and the declining trend of the fixed-line
voice business continued, we further developed our fixed-line broadband services and promoted our
mobile and fixed-line bundled services. Excluding fixed-line upfront connection fees of RMB0.49
billion and RMB0.19 billion in 2009 and 2010, respectively, our revenue from fixed-line business
would have decreased by 1.2% from RMB80.86 billion in 2009 to RMB79.86 billion in 2010, of which
telecommunications service revenue would have decreased by 0.4% from RMB79.06 billion in 2009 to
RMB78.70 billion in 2010. See D. Risk Factors We may further lose fixed-line and mobile
subscribers and our doubtful debt ratios may increase, which may materially adversely affect our
financial condition, results of operations and growth prospects under Item 3.
-60-
The table below sets forth the revenue composition of our fixed-line business and each revenue
items respective share of total revenue from our fixed-line business for the years ended December
31, 2009 and 2010.
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For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
RMB in millions
|
|
|
As % of Total
|
|
|
RMB in millions
|
|
|
As % of Total
|
|
Total revenue from fixed-line business
(1)
|
|
|
80,863
|
|
|
|
100.0
|
|
|
|
79,864
|
|
|
|
100.0
|
|
Telecommunications service revenue
(1)
|
|
|
79,059
|
|
|
|
97.8
|
|
|
|
78,704
|
|
|
|
98.6
|
|
Usage fee and monthly fee
(1)
|
|
|
34,369
|
|
|
|
42.5
|
|
|
|
29,085
|
|
|
|
36.4
|
|
Fixed-line broadband, managed data and other
Internet-related services revenue
|
|
|
26,364
|
|
|
|
32.6
|
|
|
|
32,595
|
|
|
|
40.8
|
|
Interconnection revenue
|
|
|
5,599
|
|
|
|
6.9
|
|
|
|
5,243
|
|
|
|
6.6
|
|
Value-added service revenue
|
|
|
5,238
|
|
|
|
6.5
|
|
|
|
4,860
|
|
|
|
6.1
|
|
Leased line service revenue
|
|
|
5,683
|
|
|
|
7.0
|
|
|
|
5,589
|
|
|
|
7.0
|
|
Others
|
|
|
1,806
|
|
|
|
2.3
|
|
|
|
1,332
|
|
|
|
1.7
|
|
Information communication technology services and
other revenue
|
|
|
1,611
|
|
|
|
2.0
|
|
|
|
1,046
|
|
|
|
1.3
|
|
Sales of fixed-line telecommunications products
|
|
|
193
|
|
|
|
0.2
|
|
|
|
114
|
|
|
|
0.1
|
|
|
|
|
(1)
|
|
Excluding fixed-line upfront connection fees of RMB0.49 billion in 2009 and RMB0.19
billion in 2010. Fixed-line upfront connection fees represent the amortization of deferred
upfront connection fees received from the customers before July 1, 2001. No upfront connection
fee was received from the customers since then. Therefore, we consider that analyses of our
operating results excluding upfront connection fees are more relevant to the readers of this
report.
|
Usage Fees and Monthly Fees.
Usage fees include local usage fees charged for local telephone
calls and VoIP long distance calls, long distance usage fees for domestic and international long
distance calls originated by our fixed-line subscribers, users of our pre-paid phone cards and
certain other customers. Monthly fees represent the fixed amount of service charges to our
customers for using our fixed-line telephone services.
As a result of further implementation of the Calling-Party-Pays tariff policy for mobile
services and continuing downward adjustments of tariffs for fixed-line services, the substitution
effect of fixed-line local services by mobile services became more intense. We experienced
significant decline in the number of our fixed-line local telephone subscribers and substantial
decline in revenue. Our local telephone subscribers decreased in 2010 by 6.0% from 102.82 million
at the end of 2009 to 96.64 million at the end of 2010. ARPU of the local telephone business
decreased by 8.0% from 2009 to RMB28.9 in 2010. Total usage of local calls decreased by 16.2% from
2009 to 155.56 billion pulses in 2010 (excluding Internet dial-up usage) and total usage of long
distance calls decreased by 20.2% from 33.58 billion minutes in 2009 to 26.79 billion minutes in
2010. As a result, revenue from our usage fees and monthly fees in 2010 decreased by 15.4% from
RMB34.37 billion in 2009 to RMB29.09 billion in 2010.
Fixed-Line Broadband, managed data and other Internet-related services revenue.
Revenue from
our fixed-line broadband, managed data and other internet-related service include revenue generated
from DSL, LAN, and broadband-related value-added services, fees that we charge for our DDN, frame
relay, ATM, MPLS-VPN and X.25 services and revenue from the provision of Internet dial-up services
(other than communication fees) and dedicated Internet access services. Revenue from our
fixed-line broadband, managed data and other internet-related service increased by 23.6% from
RMB26.36 billion in 2009 to RMB32.60 billion in 2010, as a result of increases in both revenue from
fixed-line broadband services and from managed data and other Internet-related services services.
In 2010, our fixed-line broadband business continued to maintain a rapid growth as a result of
our efforts in improving broadband access speed, adopting multi-service bundling strategy,
enriching application contents and implementing diversified sales strategies. The number of our
fixed-line broadband subscribers increased by 22.5% from 2009 to 47.22 million in 2010. ARPU of our
fixed-line broadband business remained stable at RMB57.2 in 2009 and RMB57.1 in 2010. However,
revenue from our fixed-line broadband service increased significantly by 24.8% from 2009 to
RMB29.82 billion in 2010, and as a percentage of the total fixed-line revenue, increased from 29.6%
in 2009 to 37.3% in 2010. Fixed-line broadband service has become the main factor in counteracting
the effect of mobile substitution in the decline of our fixed-line voice business. Revenue from
our managed data services and other Internet-related services increased by 12.4% from RMB2.47
billion in 2009 to RMB2.77 billion in 2010.
-61-
Interconnection Revenue
. Revenue from our interconnection services consists of
interconnection fees charged to other domestic telecommunications operators, principally China
Mobile and China Telecom, for both local and long distance calls. Revenue from our interconnection
services decreased by 6.4% from RMB5.60 billion in 2009 to RMB5.24 billion in 2010. The decrease in
interconnection revenue was mainly due to a decrease in voice traffic from other telecommunications
operators as a result of the mobile substitution effect.
Value-Added Service Revenue
. Revenue from our value-added services consists of fees that we
charge our customers for the provision of caller identification, personalized ring, telephone
information services, video- and tele-conferencing and other value-added services. Revenue from our
value-added services decreased by 7.2% from RMB5.24 billion in 2009 to RMB4.86 billion in 2010,
mainly due to the decrease in the usage of our caller identification, Personalized Ring, and PHS
SMS services as a result of the significant reduction of our fixed-line telephone subscribers,
including PHS subscribers.
Leased Line Service Revenue
. Revenue from our leased line services consists of fees that we
receive from our government, corporate and carrier customers for leasing circuit capacity to them,
including the lease of digital circuits, digital trunk lines and optic fibers. Revenue from our
leased line services decreased by 1.7% from RMB5.68 billion in 2009 to RMB5.59 billion in 2010.
Others
. Other fixed-line related revenue mainly consists of miscellaneous revenue items.
Other fixed-line related revenue decreased by 26.2% from RMB1.81 billion in 2009 to RMB1.33 billion
in 2010.
Information Communication Technology Services and Other Revenue.
Information communication
technology services and other revenue decreased by 35.1% from RMB1.61 billion in 2009 to RMB1.05
billion in 2010, mainly due to the decrease in other revenue in 2010.
Sales of Telecommunications Products
. Revenue from our sales of fixed-line telecommunications
products decreased by 40.9% from RMB0.19 billion in 2009 to RMB0.11 billion in 2010, mainly due to
the decrease in sales of telecommunications terminal products such as telephone sets associated
with local voice services in 2010.
Costs, Expenses and Others
Total costs, expenses and others for our continuing operations in 2010 were RMB166.53 billion,
representing an increase of 17.5% from RMB141.67 billion in 2009. Excluding the effects of the
realized gains of RMB1.24 billion on changes in fair value of derivative financial instrument in
2009, our total costs, expenses and others for our continuing operations in 2010 increased by 16.5%
from RMB142.91 billion in 2009.
The table below sets forth the major items of costs, expenses and others from continuing
operations and their respective percentage of the total telecommunications services revenue from
continuing operations for the years 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
RMB in millions
|
|
|
% of Total
|
|
|
RMB in millions
|
|
|
% of Total
|
|
Total telecommunications services revenue
(1)
|
|
|
149,103
|
|
|
|
100.0
|
|
|
|
161,803
|
|
|
|
100.0
|
|
Costs, expenses and others
|
|
|
141,668
|
|
|
|
95.0
|
|
|
|
166,525
|
|
|
|
102.9
|
|
Interconnection charges
|
|
|
12,955
|
|
|
|
8.7
|
|
|
|
13,727
|
|
|
|
8.5
|
|
Depreciation and amortization
|
|
|
47,587
|
|
|
|
31.9
|
|
|
|
54,433
|
|
|
|
33.6
|
|
Networks, operations and support expenses
|
|
|
23,728
|
|
|
|
15.9
|
|
|
|
26,383
|
|
|
|
16.3
|
|
Employee benefit expenses
|
|
|
21,931
|
|
|
|
14.7
|
|
|
|
23,327
|
|
|
|
14.4
|
|
Selling and marketing
|
|
|
21,020
|
|
|
|
14.1
|
|
|
|
23,733
|
|
|
|
14.7
|
|
Cost in relation to information communication
technology services
|
|
|
839
|
|
|
|
0.6
|
|
|
|
895
|
|
|
|
0.6
|
|
General, administrative and other expenses
|
|
|
12,175
|
|
|
|
8.2
|
|
|
|
12,953
|
|
|
|
8.0
|
|
Cost of telecommunications products sold
|
|
|
2,689
|
|
|
|
1.8
|
|
|
|
10,688
|
|
|
|
6.6
|
|
Finance costs, net of interest income
|
|
|
945
|
|
|
|
0.6
|
|
|
|
1,607
|
|
|
|
1.0
|
|
Realized gains on changes in fair value of
derivative financial instrument
|
|
|
(1,239
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
Other income-net
|
|
|
(962
|
)
|
|
|
(0.7
|
)
|
|
|
(1,221
|
)
|
|
|
(0.8
|
)
|
|
|
(1)
Excludes fixed-line upfront connection fees of RMB0.49 billion in 2009 and RMB0.19
billion in 2010.
|
-62-
Interconnection Charges
. Interconnection charges were RMB13.73 billion in 2010, up by 6.0%
from 2009, primarily due to an increase in mobile interconnection traffic volume resulting from the
increase of total usage of our mobile services. The increase in interconnection charges is
consistent with the increase in interconnection revenues. Interconnection charges as a percentage
of telecommunications service revenue (excluding fixed-line upfront connection fees) was 8.5% and
8.7% in 2010 and 2009, respectively.
Depreciation and Amortization
. Our depreciation and amortization expenses were RMB54.43
billion in 2010, up by 14.4% from 2009. The increase was primarily because we focused on improving
our 3G network capacity and expanding the 3G network coverage. Meanwhile, we continued to optimize
our GSM network and expedited the broadband upgrade. As a percentage of telecommunications service
revenue (excluding fixed-line upfront connection fees), our depreciation and amortization expenses
increased from 31.9% in 2009 to 33.6% in 2010.
Networks, Operations and Support Expenses
. Due to various factors, including the expansion of
networks, facilities and base stations and the increases in utilities charges and rental expenses,
we incurred networks, operations and support expenses of RMB26.38 billion in 2010, up by 11.2% from
2009. Networks, operations and support expenses, as a percentage of telecommunications service
revenue (excluding fixed-line upfront connection fees), increased from 15.9% in 2009 to 16.3% in
2010. As a result of an increase in the lease of underlying telecommunications networks from other
telecommunications operators, the related line leasing fees was RMB1.54 billion, up by 29.4% from
2009. We completed an acquisition of fixed-line business of 21 provinces in southern China in
January 2009. As the underlying telecommunications networks for such business are retained by
Unicom Group, we operated those networks through an operating lease from Unicom Group from January
2009. As a result, we incurred a lease fee of RMB2.20 billion for leasing those telecommunications
networks in 2010.
Employee Benefit Expenses
. Due to various factors, such as increased employee insurance
premium expenses and housing fund resulting from new regulations and generally improved social
average wages in China, our employee benefit expenses increased by 6.4% from 2009 to RMB23.33
billion in 2010, and as a percentage of telecommunications service revenue (excluding fixed-line
upfront connection fees), decreased from 14.7% in 2009 to 14.4% in 2010.
Selling and Marketing Expenses
. Due to various factors, including the increased promotion of
our key businesses such as 3G and broadband services and the increased costs of customer retention
and channel subsidies, in 2010, our total selling and marketing expenses reached RMB23.73 billion,
up by 12.9% from 2009, and as a percentage of telecommunications service revenue (excluding
fixed-line upfront connection fees), increased from 14.1% in 2009 to 14.7% in 2010.
Cost in Relation to Information Communication Technology Services
. Cost in relation to
information communication technology in 2010 was RMB0.90 billion, up by 6.7% from last year.
Correspondingly, revenue from ICT services in 2010 was RMB1.05 billion, up by 1.3% from last year.
General, Administrative and Other Expenses
. We continued to closely control the growth of
general and administrative expenses. Our general, administrative and other expenses was RMB12.95
billion in 2010, up by 6.4% compared with last year, and as a percentage of telecommunications
service revenue (excluding fixed-line upfront connection fees), slightly decreased from 8.2% in
2009 to 8.0% in 2010.
-63-
Cost of Telecommunications Products Sold
. In 2010, we launched more than one hundred models
of custom-made 3G handsets (including iPhone 4), proactively implemented handsets subsidies
packages and developed 3G contracting subscribers. As a result, the cost of telecommunications
products sold amount to RMB10.69 billion, up by 297.5% from 2009. Correspondingly, revenue from
sale of telecommunications products in 2010 amounted to RMB7.29 billion, up by 236.9% from 2009.
Finance Costs, Net of Interest Income
. In 2010, we adopted low cost fund raising strategy
including the issuance of commercial papers, promissory notes and convertible bonds to decrease our
overall cost of capital to 3.2% from 4.1% in 2009. However, due to various factors including the
increase in our interest-bearing debt, our finance costs, net of interest income, increased by
70.1% from RMB0.94 billion in 2009 to RMB1.61 billion in 2010.
Realized Gain on Changes in Fair Value of Derivative Financial Instrument
. In order to
strengthen our cooperation with Telefónica, we entered into a subscription agreement with
Telefónica on September 6, 2009, pursuant to which each party completed the mutual investment of an
equivalent of US$1 billion in each other through an acquisition of the other partys shares on
October 21, 2009. At the inception of the subscription agreement on September 6, 2009, our
agreement to undertake the above mutual investment with Telefónica was accounted for as a
derivative financial instrument in accordance with IAS/HKAS 39 Financial instrument: Recognition
and measurement, as it represents a forward contract for the purchase of shares by Telefónica and
us in each other at predetermined fixed prices and is denominated in a foreign currency. The
derivative financial instrument was derecognized upon completion of the transaction on October 21,
2009. The changes in the fair value of the derivative financial instrument during the period from
September 6, 2009 to October 21, 2009 resulted in a fair value gain of approximately RMB1.24
billion, which has been recorded in the consolidated statement of income for the year ended
December 31, 2009.
Other Income-Net
. In 2010, other income-net was RMB1.22 billion, up by 26.9% from 2009, of
which, dividend received from investment in Telefónica was RMB0.48 billion, up by RMB0.27 billion
from 2009.
Income Before Income Tax
In 2010, our income before income tax was RMB4.77 billion, down by 61.2% from 2009, mainly due
to our initial development of the 3G business, in respect of which the related revenue is not yet
sufficient to cover the increased costs and expenses, including depreciation and amortization
charges, networks, operations and support expenses and selling and marketing expenses related to 3G
handset subsidy cost.
In order to ensure the comparability of income before income tax and income for the year, we
exclude the following non-comparable factors that are reflected in the figures of 2009 and 2010 for
additional analysis purpose:
|
(1)
|
|
deferred fixed-line upfront connection fees of RMB0.19 billion for 2010 and
RMB0.49 billion for 2009;
and
|
|
(2)
|
|
realized gain of RMB1.24 billion on changes in fair value of derivative
financial instrument in 2009.
|
After excluding the above factors, our income before income tax would have been RMB4.58
billion, down by 56.6% from 2009.
Income Tax
Our income tax was RMB0.92 billion in 2010, down by 66.1% from 2009, and our effective tax
rate in 2010 was 19.3%. Such decrease is mainly due to various factors, including the utilization
of tax loss from the previous years of a subsidiary of our company against the current year taxable
income and other favorable tax treatments. After excluding the factors discussed under Income
Before Income Tax above, our effective tax rate in 2009 and 2010 would have been 22.9% and 20.1%,
respectively.
-64-
Net Income for the Year
In 2010, our net income reached RMB3.85 billion, down by 59.7% from 2009. Our basic earnings
per share was RMB0.163 in 2010. After excluding the factors discussed under the subsection Income
Before Income Tax above, our net income from continuing operations would be RMB3.66 billion, down
by 55.0% from 2009.
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Revenue
2009 is the first year that we had a full-year operation following our merger with China
Netcom. Despite various challenges, including global financial crisis, intensified
telecommunications market competition, further downward adjustments in tariffs and decline of
fixed-line voice business, we actively developed full-service operation with a focus on mobile and
fixed-line broadband businesses. Revenue from our continuing operations for 2009 amounted to
RMB153.95 billion, a decrease of 3.7% from RMB159.79 billion for 2008. Excluding the effects of
fixed-line upfront connection fees of RMB0.49 billion and RMB0.89 billion in 2009 and 2008
respectively, and interconnection revenue of RMB0.99 billion between our certain fixed-line
business and the discontinued operations of CDMA business in 2008, our revenue from continuing
operations for 2009 would amount to RMB153.46 billion, a decrease of 2.8% from RMB157.91 billion in
2008, of which our telecommunications service revenue would be RMB149.10 billion, down by 1.2% from
2008.
Mobile Business Revenue
Revenue from our mobile business was RMB71.99 billion in 2009, of which telecommunications
service revenue accounted for RMB69.77 billion, up by 8.6% compared with 2008. Telecommunications
service revenue from our mobile business, as a percentage of our total telecommunications service
revenue (excluding fixed-line upfront connection fees of RMB0.49 billion and RMB0.89 billion in
2009 and 2008 respectively, and interconnection revenue of RMB0.99 billion between our certain
fixed-line business and the discontinued operations of CDMA business in 2008), increased from 42.6%
in 2008 to 46.8% in 2009. The growth in revenue from our mobile business is primarily due to the
continued increase in the total number of our mobile subscribers, partially offset by the decrease
in our subscribers ARPU.
Our total number of mobile subscribers was 147.59 million as of December 31, 2009, with a net
addition of 14.22 million subscribers (including 2.74 million 3G subscribers) from the end of 2008.
ARPU of our GSM mobile business was RMB41.2 in 2009, a decrease of 2.64% from RMB42.3 in 2008. ARPU
of our 3G business was RMB141.7 in 2009.
The table below sets forth the revenue composition of our mobile business and each revenue
items respective share of total revenue for the years ended December 31, 2008 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB in millions
|
|
|
As % of total
|
|
|
RMB in millions
|
|
|
As % of total
|
|
Total revenue from mobile business
|
|
|
65,131
|
|
|
|
100.0
|
|
|
|
71,991
|
|
|
|
100.0
|
|
Telecommunications service
revenue
|
|
|
64,240
|
|
|
|
98.6
|
|
|
|
69,769
|
|
|
|
97.0
|
|
Usage fees and monthly fees
|
|
|
40,462
|
|
|
|
62.1
|
|
|
|
42,297
|
|
|
|
58.8
|
|
Value-added service revenue
|
|
|
16,263
|
|
|
|
25.0
|
|
|
|
19,070
|
|
|
|
26.5
|
|
Interconnection revenue
|
|
|
6,775
|
|
|
|
10.4
|
|
|
|
8,220
|
|
|
|
11.4
|
|
Other service revenue
|
|
|
740
|
|
|
|
1.1
|
|
|
|
182
|
|
|
|
0.3
|
|
Other revenue
|
|
|
359
|
|
|
|
0.6
|
|
|
|
252
|
|
|
|
0.3
|
|
Sales of mobile
telecommunications products
|
|
|
532
|
|
|
|
0.8
|
|
|
|
1,970
|
|
|
|
2.7
|
|
Usage Fees and Monthly Fees
. As a result of increase of mobile subscribers, partially offset
by the decrease in effective tariffs, usage fees and monthly fees for our mobile services were
RMB42.30 billion in 2009, an increase of 4.5% from RMB40.46 billion in 2008.
-65-
Value-Added Service Revenue
. In 2009, we continued to actively promote mobile value-added
services and mobile data business, and improved the penetration of SMS and Cool Ringtone
services. As a result, revenue from our mobile value-added services amounted to RMB19.07 billion in
2009, an increase of 17.3% from RMB16.26 billion in 2008 and as a percentage of total mobile
revenue increased from 25.0% in 2008 to 26.5% in 2009. Of the total revenue from mobile value-added
services, revenue from our SMS services decreased by 8.2% from RMB6.52 billion in 2008 to RMB5.98
billion in 2009 and revenue from Cool Ringtone services increased by 15.7% from RMB2.49 billion
in 2008 to RMB2.88 billion in 2009.
Interconnection Revenue
. Our interconnection revenue increased by 21.3% from RMB6.78 billion
in 2008 to RMB8.22 billion in 2009, and represented 11.4% of total mobile revenue in 2009 as
compared with 10.4% in 2008. This increase is primarily due to the increased total usage of our
mobile services.
Sales of Telecommunications Products
. Revenue from our sale of mobile telecommunications
products increased 270.3% from RMB532 million in 2008 to RMB1,970 million in 2009, mainly due to
our efforts in sales of 3G mobile handsets.
Fixed-Line Business Revenue
In 2009, as mobile substitution further intensified and the declining trend of the fixed-line
voice business continued, we further adjusted our business structure and continued to focus on the
development of fixed-line broadband services and innovative business services. Excluding fixed-line
upfront connection fees of RMB0.49 billion and RMB0.89 billion in 2009 and 2008 respectively, and
interconnection revenue of RMB0.99 billion between our certain fixed-line business and the
discontinued operations of CDMA business in 2008, our revenue from fixed-line business would have
decreased by 12.2% from RMB92.08 billion in 2008 to RMB80.86 billion in 2009, of which
telecommunications service revenue would have decreased by 8.5% from RMB86.38 billion in 2008 to
RMB79.06 billion in 2009. See D. Risk FactorsWe may further lose fixed-line and mobile
subscribers and our doubtful debt ratios may increase, which may materially adversely affect our
financial condition, results of operations and growth prospects under Item 3.
The table below sets forth the revenue composition of our fixed-line business and each revenue
items respective share of total revenue from our fixed-line business for the years ended December
31, 2008 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB in millions
|
|
|
As % of Total
|
|
|
RMB in millions
|
|
|
As % of Total
|
|
Total revenue from fixed-line business
(1)
|
|
|
92,077
|
|
|
|
100.0
|
|
|
|
80,863
|
|
|
|
100.0
|
|
Telecommunications service revenue
(1)
|
|
|
86,376
|
|
|
|
93.8
|
|
|
|
79,059
|
|
|
|
97.8
|
|
Usage fee and monthly fee
(1)
|
|
|
40,497
|
|
|
|
44.0
|
|
|
|
34,369
|
|
|
|
42.5
|
|
Fixed-line broadband, managed data and other
internet-related service revenue
|
|
|
23,624
|
|
|
|
25.6
|
|
|
|
26,364
|
|
|
|
32.6
|
|
Interconnection revenue
|
|
|
7,342
|
|
|
|
8.0
|
|
|
|
5,599
|
|
|
|
6.9
|
|
Value-added service revenue
|
|
|
7,074
|
|
|
|
7.7
|
|
|
|
5,238
|
|
|
|
6.5
|
|
Leased line service revenue
|
|
|
5,492
|
|
|
|
6.0
|
|
|
|
5,683
|
|
|
|
7.0
|
|
Others
|
|
|
2,347
|
|
|
|
2.5
|
|
|
|
1,806
|
|
|
|
2.3
|
|
Information communication technology services and
other revenue
|
|
|
4,339
|
|
|
|
4.7
|
|
|
|
1,611
|
|
|
|
2.0
|
|
Sales of fixed-line telecommunications products
|
|
|
1,362
|
|
|
|
1.5
|
|
|
|
193
|
|
|
|
0.2
|
|
(1)
|
|
Excludes fixed-line upfront connection fees of RMB0.49 billion in 2009 and RMB0.89
billion in 2008 and interconnection revenue of RMB0.99 billion between certain fixed-line
business and the discontinued operations of CDMA business in 2008. Fixed-line upfront
connection fees represent the amortization of deferred upfront connection fees received from
the customers before July 1, 2001. No upfront connection fee was received from the customers
since then. In addition, upon disposal of the CDMA business in 2008, interconnection revenue
between certain fixed-line business and the discontinued operations of CDMA business will not
be recognized anymore. Therefore, we consider that analyses of our operating results excluding
upfront connection fees and interconnection revenue between certain fixed-line business and
the discontinued operations of CDMA business are more relevant to the readers of this report.
|
-66-
Usage Fees and Monthly Fees.
Usage fees include local usage fees charged for local telephone
calls and VoIP long distance calls, long distance usage fees for domestic and international long
distance calls originated by our fixed-line subscribers, users of our pre-paid phone cards and
certain other customers. Monthly fees represent the fixed amount of service charges to our
customers for using our fixed-line telephone services.
As a result of further implementation of the Calling-Party-Pays tariff policy for mobile
services and continuing downward adjustments of tariffs for fixed-line services, the substitution
effect of fixed-line local services by mobile services became more intense. We experienced
significant decline in the number of our fixed-line local telephone subscribers and substantial
decline in revenue. Our local telephone subscribers decreased in 2009 by 6.2% from 109.57 million
at the end of 2008 to 102.82 million at the end of 2009. ARPU of the local telephone business
decreased by 11.3% from 2008 to RMB31.4 in 2009. Total usage of local calls decreased by 8.9% from
2008 to 185.54 billion pulses in 2009 (excluding Internet dial-up usage) and total usage of long
distance calls decreased by 18.3% from 41.11 billion minutes in 2008 to 33.58 billion minutes in
2009. As a result, revenue from our usage fees and monthly fees in 2009 decreased by 15.1% from
RMB40.50 billion in 2008 to RMB34.37 billion in 2009.
Fixed-Line Broadband, managed data and other Internet-related services revenue.
Revenue from
our fixed-line broadband, managed data and other internet-related service include revenue generated
from DSL, LAN, and broadband-related value-added services, fees that we charge for our DDN, frame
relay, ATM, MPLS-VPN and X.25 services and revenue from the provision of Internet dial-up services
(other than communication fees) and dedicated Internet access services. Revenue from our
fixed-line broadband, managed data and other internet-related service increased by 11.6% from
RMB23.62 billion in 2008 to RMB26.36 billion in 2009, as a result of an increase in revenue from
fixed-line broadband services, partially offset by a decrease in revenue from managed data and
other Internet-related services services.
In 2009, our fixed-line broadband business continued to maintain a rapid growth as a result of
our efforts in improving broadband access speed, enriching application contents and implementing
diversified sales strategies. Our fixed-line broadband subscribers increased by 28.2% from 2008 to
38.55 million in 2009. ARPU of our fixed-line broadband business decreased from RMB63.6 in 2008 to
RMB57.2 in 2009, mainly because: (i) a significant portion of our new broadband subscribers consist
of users from rural areas in China who tend to have limited usage of broadband services, and (ii)
the general decreasing tariff resulted from intensified market competition. However, revenue from
our fixed-line broadband service increased significantly by 14.0% from 2008 to RMB23.90 billion in
2009, and as a percentage of the fixed-line service revenue, increased from 22.8% in 2008 to 29.6%
in 2009. Fixed-line broadband service has become the main factor in counteracting the effect of
mobile substitution in the decline of our fixed-line voice business. Revenue from our managed data services increased by
3.7% from RMB1.41 billion in 2008 to RMB1.46 billion in 2009. Revenue from other Internet-related
services decreased by 19.8% from RMB1.25 billion in 2008 to RMB1.01 billion in 2009.
Interconnection Revenue
. Revenue from our interconnection services consists of
interconnection fees charged to other domestic telecommunications operators, principally China
Mobile and China Telecom, for both local and long distance calls. Revenue from our interconnection
services decreased by 23.7% from RMB7.34 billion in 2008 to RMB5.60 billion in 2009. The decrease
in interconnection revenue was mainly due to a decrease in voice traffic from other
telecommunications operators as a result of the mobile substitution effect.
Value-Added Service Revenue
. Revenue from our value-added services consists of fees that we
charge our customers for the provision of caller identification, personalized ring, telephone
information services, video- and tele-conferencing and other value-added services. Revenue from our
value-added services decreased by 26.0% from RMB7.07 billion in 2008 to RMB5.24 billion in 2009,
mainly due to the decrease in usage of our caller identification and PHS SMS services as a result
of the significant reduction of our fixed-line telephone subscribers, including PHS subscribers.
-67-
Leased Line Service Revenue
. Revenue from our leased line services consists of fees that we
receive from our government, corporate and carrier customers for leasing circuit capacity to them,
including the lease of digital circuits, digital trunk lines and optic fibers. Revenue from our
leased line services increased by 3.5% from RMB5.49 billion in 2008 to RMB5.68 billion in 2009,
mainly due to the increased demand of leased line services by our government and SME customers.
Others
. Other fixed-line related revenue mainly consists of miscellaneous revenue items.
Other fixed-line related revenue decreased by 23.1% from RMB2.35 billion in 2008 to RMB1.81 billion
in 2009.
Information communication technology services and other revenue.
Information communication
technology services and other revenue decreased by 62.9% from RMB4.34 billion in 2008 to RMB1.61
billion in 2009. This decrease was mainly due to the decrease in our ICT service revenue as a
result of the change in our ICT business strategy which is changed to focus on the provision of
technology/services and reducing hardware sales. In 2009, we reduced sales of third-party products
in connection with the provision of our ICT services, which, despite reducing our direct revenue,
helped enhance the profit margin, of our ICT services.
Sales of Telecommunications Products
. Revenue from our sales of fixed-line telecommunications
products decreased by 85.8% from RMB1.36 billion in 2008 to RMB0.19 billion in 2009, mainly due to
the decrease in sales of computers bundled with our fixed-line broadband services in 2008.
Costs, Expenses and Others
Total costs, expenses and others for our continuing operations in 2009 were RMB141.67 billion,
representing a decrease of 9.0% from RMB155.73 billion in 2008. Excluding the effects of the
following non-comparable items: (i) realized gains of RMB1.24 billion on changes in fair value of
derivative financial instrument in 2009; (ii) impairment loss of RMB11.84 billion on PHS services
related equipment in 2008; and (iii) gain of RMB0.04 billion from the non-monetary assets exchange
in 2009 and RMB1.31 billion in 2008, our total costs, expenses and others for our continuing
operations in 2009 would have been RMB142.95 billion, representing a decrease of 1.6% from
RMB145.20 billion in 2008.
The table below sets forth the major items of costs, expenses and others from continuing
operations and their respective percentage of the total telecommunications services revenue from
continuing operations for the years 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
RMB in millions
|
|
|
% of Total
|
|
|
RMB in millions
|
|
|
% of Total
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total telecommunications services revenue
(1)
|
|
|
150,953
|
|
|
|
100.0
|
|
|
|
149,103
|
|
|
|
100.0
|
|
Costs, expenses and others
|
|
|
155,733
|
|
|
|
103.2
|
|
|
|
141,668
|
|
|
|
95.0
|
|
Interconnection charges
|
|
|
13,038
|
|
|
|
8.6
|
|
|
|
12,955
|
|
|
|
8.7
|
|
Depreciation and amortization
|
|
|
51,847
|
|
|
|
34.3
|
|
|
|
47,587
|
|
|
|
31.9
|
|
Networks, operations and support expenses
|
|
|
18,736
|
|
|
|
12.4
|
|
|
|
23,728
|
|
|
|
15.9
|
|
Employee benefit expenses
|
|
|
20,758
|
|
|
|
13.8
|
|
|
|
21,931
|
|
|
|
14.7
|
|
Selling and marketing
|
|
|
19,614
|
|
|
|
13.0
|
|
|
|
21,020
|
|
|
|
14.1
|
|
Cost in relation to information communication
technology services
|
|
|
3,010
|
|
|
|
2.0
|
|
|
|
839
|
|
|
|
0.6
|
|
General, administrative and other expenses
|
|
|
13,217
|
|
|
|
8.8
|
|
|
|
12,175
|
|
|
|
8.2
|
|
Cost of telecommunications products sold
(1)
|
|
|
2,156
|
|
|
|
1.4
|
|
|
|
2,689
|
|
|
|
1.8
|
|
Finance costs, net of interest income
|
|
|
3,004
|
|
|
|
2.0
|
|
|
|
945
|
|
|
|
0.6
|
|
Impairment loss on property, plant and equipment
|
|
|
12,494
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
Realized gains on changes in fair value of derivative
financial instrument
|
|
|
|
|
|
|
|
|
|
|
(1,239
|
)
|
|
|
(0.8
|
)
|
Other income-net
|
|
|
(2,141
|
)
|
|
|
(1.4
|
)
|
|
|
(962
|
)
|
|
|
(0.7
|
)
|
(1)
|
|
Excludes fixed-line upfront connection fees of RMB0.49 billion in 2009 and RMB0.89
billion in 2008 and interconnection revenue of RMB0.99 billion between certain fixed-line
business and the discontinued operations of CDMA business in 2008.
|
-68-
Interconnection Charges
. Interconnection charges were RMB12.96 billion in 2009, down by 0.6%
from 2008 and as a percentage of telecommunications service revenue (excluding fixed-line upfront
connection fees and interconnection revenue between our certain fixed-line business and the
discontinued operations of CDMA business in 2008) would remain stable in 2009.
Depreciation and Amortization
. Our depreciation and amortization expenses were RMB47.59
billion in 2009, down by 8.2% from 2008. The decrease was primarily due to the following factors
(i) we no longer record any depreciation of the fixed-line network assets in southern China as a
result of our acquisition from Unicom Group of the telecommunications business in 21 provinces in
southern China in 2009 (see Acquisition of Fixed-Line Telecommunications Business in 21
Provinces in Southern China above), (ii) our full provision of the impairment loss on the PHS
service related equipment in 2008, and (iii) to a lesser extent, the full depreciation of certain
property, plant and equipment (other than the fixed-line network assets in southern China) in 2008.
This decrease was partially offset by the increase in the depreciation and amortization expenses of
3G network assets of RMB0.65 billion in the fourth quarter of 2009. As a percentage of
telecommunications service revenue (excluding fixed-line upfront connection fees and
interconnection revenue between certain fixed-line business and the discontinued operations of CDMA
business in 2008), our depreciation and amortization expenses decreased from 34.3% in 2008 to 31.9%
in 2009.
Networks, Operations and Support Expenses
. We completed an acquisition of fixed-line business
of 21 provinces in southern China in January 2009. As the underlying telecommunications networks
for such business are retained by Unicom Group, we operated those networks through an operating
lease from Unicom Group from January 2009. As a result, we incurred a lease fee of RMB2.00 billion
for leasing those telecommunications networks in 2009. In addition, due to various factors,
including the launch of 3G services, the expansion of GSM networks facilities and base stations and
the increases in utilities charges and repair and maintenance expenses, we incurred networks,
operations and support expenses of RMB23.73 billion in 2009, up by 26.6% from 2008. Networks,
operations and support expenses, as a percentage of telecommunications service revenue (excluding
fixed-line upfront connection fees and interconnection revenue between certain fixed-line business
and the discontinued operations of CDMA business in 2008), increased by 2.2% from 2008 to 15.9% in
2009. As a result of network resources sharing and utilization of synergies, the related line
leasing fees was RMB1.19 billion, down by 22.7% from 2008.
Employee Benefit Expenses
. Due to various factors, such as increased employee insurance
premium expenses and housing fund resulting from new regulations and generally improved social
average wages in China, our employee benefit expenses increased by 5.7% from 2008 to RMB21.93 billion in 2009, and as a
percentage of telecommunications service revenue (excluding fixed-line upfront connection fees and
interconnection revenue between certain fixed-line business and the discontinued operations of CDMA
business in 2008), increased from 13.8% in 2008 to 14.7% in 2009.
Selling and Marketing Expenses
. Since the commercial launch of 3G business on October 1,
2009, we have been engaged in active advertising campaigns and marketing promotion activities,
which resulted in a total selling and marketing expenses for the fourth quarter of 2009 of RMB1.17
billion. In 2009, our total selling and marketing expenses reached RMB21.02 billion, up by 7.2%
from 2008, and as a percentage of telecommunications service revenue (excluding fixed-line upfront
connection fees and interconnection revenue between certain fixed-line business and the
discontinued operations of CDMA business in 2008), increased from 13.0% in 2008 to 14.1% in 2009.
Cost in Relation to Information Communication Technology Services
. We adjusted the
development strategy in relation to our ICT business by focusing on the provision of technology
services and reducing hardware sales. As a result, cost in relation to information communication
technology in 2009 was RMB0.84 billion, down by 72.1% from last year. Correspondingly, revenue from
ICT services in 2009 was RMB1.04 billion, down by 71.9% from last year.
-69-
General, Administrative and Other Expenses
. As we continued to benefit from the post-merger
synergies and to closely control the growth of general and administrative expenses, our general,
administrative and other expenses was RMB12.18 billion in 2009, down by 7.9% compared with last
year, and as a percentage of telecommunications service revenue (excluding fixed-line upfront
connection fees and interconnection revenue between certain fixed-line business and the
discontinued operations of CDMA business in 2008), slightly decreased from 8.8% in 2008 to 8.2% in
2009.
Cost of Telecommunications Products Sold
. As a result of the increase in the number of mobile
handsets sold after the commercial launch of 3G business, the cost of telecommunications products
sold amount to RMB2.69 billion, up by 24.7% from 2008. Correspondingly, revenue from sale of
telecommunications products in 2009 amounted to RMB2.16 billion, up by 13.9% from 2008.
Finance Costs, Net of Interest Income
. In 2009, we further improved our debt structure by
enhancing the centralization of fund management and fund operation and obtained low-cost financing.
In addition, due to the following factors: (i) reduction of base lending rate and the increase in
the amount of capitalized interest related to the construction we undertook in 2009, and (ii) we no
longer record any finance costs associated with the fixed-line network assets in southern China as
a result of our acquisition from Unicom Group of the telecommunications business in 21 provinces in
southern China in 2009 (see Acquisition of Fixed-Line Telecommunications Business in 21
Provinces in Southern China above), our finance costs, net of interest income, decreased by 68.5%
from RMB3.00 billion in 2008 to RMB0.95 billion in 2009.
Impairment Loss on Property, Plant and Equipment
Our impairment loss on property, plant and equipment was nil in 2009 and RMB12.49 billion in
2008, mainly consisting of impairment loss on PHS services related equipment and fixed-line network
assets in southern China.
Upon the completion of our merger with China Netcom, we reconsidered our strategy relating to
the PHS business. As we expected that the economic performance of the PHS business would
deteriorate significantly, we prepared an updated analysis and forecast accordingly to determine if
there had been an impairment of assets. After considering the expected significant decline in
revenue and profitability in 2009 and onwards, we conducted an impairment test for the PHS business
related assets. See D. Risk FactorsRisks Relating to Our BusinessIf we fail to achieve a
smooth discontinuation of PHS services or retain our PHS subscribers to use our other
telecommunications services, our financial condition and results of operations may be adversely
affected. under Item 3. Accordingly, we recognized an impairment loss on PHS business related
equipment of approximately RMB11.84 billion for the year ended December 31, 2008. As of December
31, 2009, we updated the impairment analysis for the PHS business related equipment and concluded that there was no need for additional recognition
or reversal of the previously recognized impairment loss. In addition, we no longer record any
impairment loss associated with the fixed-line network assets in southern China as a result of our
acquisition from Unicom Group of the telecommunications business in 21 provinces in southern China
in 2009 (see Acquisition of Fixed-Line Telecommunications Business in 21 Provinces in Southern
China above).
Realized Gain on Changes in Fair Value of Derivative Financial Instrument
. In order to
strengthen our cooperation with Telefónica, we entered into a subscription agreement with
Telefónica on September 6, 2009, pursuant to which each party completed the mutual investment of an
equivalent of US$1 billion in each other through an acquisition of the other partys shares on
October 21, 2009. At the inception of the subscription agreement on September 6, 2009, our
agreement to undertake the above mutual investment with Telefónica was accounted for as a
derivative financial instrument in accordance with IAS/HKAS 39 Financial instrument: Recognition
and measurement, as it represents a forward contract for the purchase of shares by Telefónica and
us in each other at predetermined fixed prices and is denominated in a foreign currency. The
derivative financial instrument was derecognized upon completion of the transaction on October 21,
2009. The changes in the fair value of the derivative financial instrument during the period from
September 6, 2009 to October 21, 2009 resulted in a fair value gain of approximately RMB1.24
billion, which has been recorded in the consolidated statement of income for the year ended
December 31, 2009.
-70-
Other Income-Net
. In 2009, other income-net was RMB0.96 billion, down by 55.1% from 2008, of
which, gain on non-monetary assets exchanged in connection with our replacement of copper cables in
some of our fixed-line network regions with optical fibers was RMB0.04 billion, down by RMB1.27
billion from 2008.
Income Before Income Tax
In 2009, our income before income tax was RMB12.28 billion, up by 202.5% from 2008, mainly due
to (i) we had provision for impairment loss on PHS business related equipment for 2008 but none for
2009 and (ii) a significant decrease in costs and expenses because (A) we no longer record
depreciation, finance or other costs associated with the fixed-line assets in southern China as a
result of our acquisition from Unicom Group of the telecommunications business in 21 provinces in
southern China in 2009, and (B) the resulting decrease in depreciation, finance or other costs is
greater than the amount of the leasing fee that we started to incur in 2009 with respect to such
fixed-line assets (see Acquisition of Fixed-Line Telecommunications Business in 21 Provinces in
Southern China above).
In order to ensure the comparability of income before income tax and income for the year, we
exclude the following non-comparable factors that are reflected in the figures of 2008 and 2009 for
additional analysis purpose:
|
(1)
|
|
deferred fixed-line upfront connection fees of RMB0.49 billion for 2009 and
RMB0.89 billion for 2008;
|
|
(2)
|
|
gain of RMB0.04 billion from the non-monetary assets exchange for 2009 and
RMB1.31 billion for 2008;
|
|
(3)
|
|
realized gain of RMB1.24 billion on changes in fair value of derivative
financial instrument in 2009; and
|
(4) impairment loss of RMB11.84 billion on PHS services related equipment in 2008.
After excluding the above factors, our income from continuing operations before income tax
would be RMB10.51 billion, down by 23.3% from 2008. Such decrease is mainly due to two reasons: (i)
the decline of fixed-line voice business, which has been a consistent trend in recent years due to
further intensified mobile substitution and contraction of PHS industry; and (ii) the initial
development stage of our 3G business, during which we incurred significant costs in connection with
3G network operations and business development increased in a much more rapid rate than the
increase of our revenue from the 3G business. Such decrease in income from continuing operations
before income tax was partially offset by the decrease in our total costs and expenses in 2009 as
discussed above.
Income Tax
Our income tax for continuing operations was RMB2.72 billion in 2009, up by 48.9% from 2008,
and our effective tax rate in 2009 was 22.2%. After excluding the factors discussed under Income
Before Income Tax above, our effective tax rate in 2008 and 2009 would be 32.6% and 22.9%,
respectively.
Net Income for the Year
In 2009, our net income from continuing operations reached RMB9.56 billion, up by 328.3% from
2008. Our basic earnings per share was RMB0.402 in 2009. After excluding the factors discussed
under the subsection Income Before Income Tax above, our net income from continuing operations
would be RMB8.11 billion, down by 12.3% from 2008.
-71-
Liquidity and Capital Resources
Working Capital and Cash Flows
As of December 31, 2010, we had RMB22.50 billion of cash and cash equivalents, as compared
with RMB7.82 billion as of December 31, 2009 and RMB10.24 billion as of December 31, 2008. As of
December 31, 2010, we had RMB0.27 billion of short-term bank deposits, as compared with RMB1.00
billion as of December 31, 2009. As of December 31, 2010, we had a working capital deficit (current
liabilities less current assets) of RMB156.03 billion, representing a decrease by 7.8% from the
working capital deficit of RMB169.21 billion as of December 31, 2009. The decrease in working
capital deficit in 2010 primarily resulted from the increase in our cash and cash equivalents.
A global financial crisis that unfolded in 2008 and has continued during 2009 has widely and
adversely affected the financing markets of a number of countries where the banks and other
financial institutions are reluctant to lend and impose stricter terms in their lending. Changes in
the macroeconomic environment arising from the current global financial crisis had a material
adverse impact on economic activity in the PRC in 2008 and 2009. However, under a series of
economic stimulus packages launched by the PRC Government, we, due to our enterprise nature and our
good credit records with PRC banks, generally have not experienced and do not expect to experience
in the foreseeable future significant difficulties in obtaining bank financing in the PRC. As of
December 31, 2010, we had revolving banking facilities of RMB114.0 billion, of which, RMB88.4
billion was unutilized. Meanwhile, we will continue to optimize our fund raising strategy from
short, medium and long-term perspectives and maintain reasonable financing costs through
appropriate financing portfolio. Therefore, we believe that we will be able to fund our anticipated
capital and liquidity needs with our access to debt and equity financing, in particular bank
financing in the PRC, and net cash inflows from our operations.
The following table sets forth cash inflows and outflows in 2008, 2009 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
RMB in millions
|
|
|
RMB in millions
|
|
|
RMB in millions
|
|
Net cash inflow from operating activities of continuing operations
|
|
|
57,241
|
|
|
|
57,733
|
|
|
|
66,344
|
|
Net cash outflow from investing activities of continuing operations
|
|
|
(61,026
|
)
|
|
|
(85,308
|
)
|
|
|
(76,614
|
)
|
Net cash (outflow)/inflow from financing activities of continuing
operations
|
|
|
(28,786
|
)
|
|
|
30,197
|
|
|
|
19,824
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (outflow)/inflow from continuing operations
|
|
|
(32,571
|
)
|
|
|
2,622
|
|
|
|
9,554
|
|
Net cash inflow/(outflow) from discontinued operations
|
|
|
30,145
|
|
|
|
(5,039
|
)
|
|
|
5,121
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
|
(2,426
|
)
|
|
|
(2,417
|
)
|
|
|
14,675
|
|
|
|
|
|
|
|
|
|
|
|
Our net cash inflow from operating activities of continuing operations increased by 0.9% from
RMB57.24 billion in 2008 to RMB57.73 billion in 2009, and further increased by 14.9% to RMB66.34
billion in 2010. The increase in net cash inflow from operating activities in 2010 was mainly due
to an increase in cash generated from operations as a result of 3G business development and a
decrease in the amount of income tax paid as a result of the lower income before income tax.
Our net cash outflow from investing activities of continuing operations increased by 39.8%
from RMB61.03 billion in 2008 to RMB85.31 billion in 2009, and decreased by 10.2% to RMB76.61
billion in 2010. The increase in 2009 was mainly due to the significant increase in our capital
expenditure attributable to 3G network construction, partially offset by the effect that we no
longer have any cash outflow from investing activities associated with the construction of
fixed-line network assets in southern China, as a result of our acquisition from Unicom Group of
the telecommunications business in 21 provinces in southern China in 2009 (see Acquisition of
Fixed-Line Telecommunications Business in 21 Provinces in Southern China above). The decrease in
2010 was mainly due to the effect that we no longer have any cash outflow from investing activities
associated with the consideration for purchase of entities and
businesses under common control.
Our net cash outflow from financing activities changed from RMB28.79 billion in 2008 to net
cash inflow from financing activities of RMB30.20 billion in 2009, primarily due to the increase in
our short-term bank loans in 2009, partially offset by the effect that we no longer have any cash
inflow from intercompany loans associated with the construction of fixed-line network assets, as a
result of our acquisition from Unicom Group of the telecommunications business in 21 provinces in
southern China in 2009 (see Operating Results above). Our net cash inflow from financing
activities decreased to RMB19.82 billion in 2010, primarily as a result of a decrease in the net
increase of our indebtedness in 2010 from 2009, reflecting our decreased needs for new financings,
primarily due to the increase in our net cash inflow from operating activities and the decrease in
our net cash outflow from investing activities.
-72-
Our net cash inflow from discontinued operations changed from RMB30.15 billion in 2008 to net
cash outflow of RMB5.04 billion in 2009, and further changed to net cash inflow of RMB5.12 billion
in 2010, mainly resulting from our receipt of proceeds in 2008 in relation to the sale of our CDMA
business, our payment made in 2009 of the income tax in relation to the sale of our CDMA business
in 2008, and our receipt of proceeds in 2010 in relation to the disposal of our CDMA business in
2008.
Indebtedness and Capital Structure
The following table sets forth the amount of cash, assets, short-term and long-term debt and
equity as well as debt-to-capitalization and debt-to-equity ratios as of the end of 2008, 2009 and
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(RMB in millions, except percentages)
|
|
Cash and cash equivalent and short-term bank deposits
|
|
|
10,652
|
|
|
|
8,816
|
|
|
|
22,768
|
|
Total assets
|
|
|
380,318
|
|
|
|
417,045
|
|
|
|
441,453
|
|
Short-term debt
|
|
|
21,996
|
|
|
|
66,601
|
|
|
|
61,944
|
|
Short-term bank loans
|
|
|
10,780
|
|
|
|
63,909
|
|
|
|
36,727
|
|
Commercial papers
|
|
|
10,000
|
|
|
|
|
|
|
|
23,000
|
|
Current portion of long-term bank loans
|
|
|
1,216
|
|
|
|
62
|
|
|
|
58
|
|
Amounts due to related parties
|
|
|
|
|
|
|
2,104
|
|
|
|
2,033
|
|
Notes payables included in accounts payable and
accrued liabilities
|
|
|
|
|
|
|
500
|
|
|
|
|
|
Current portion of obligations under finance lease
included in other obligations
|
|
|
|
|
|
|
26
|
|
|
|
126
|
|
Long-term debt
|
|
|
43,649
|
|
|
|
7,862
|
|
|
|
35,098
|
|
Long-term loans due to ultimate holding company
|
|
|
35,652
|
|
|
|
|
|
|
|
|
|
Promissory notes
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
Corporate bonds
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
7,000
|
|
Convertible bonds
|
|
|
|
|
|
|
|
|
|
|
11,558
|
|
Non-current portion of long-term bank loans
|
|
|
997
|
|
|
|
759
|
|
|
|
1,462
|
|
Non-current portion of obligations under finance lease
|
|
|
|
|
|
|
103
|
|
|
|
78
|
|
Equity attributable to owners of the parent
|
|
|
197,233
|
|
|
|
206,467
|
|
|
|
205,841
|
|
Debt-to-capitalization ratio
(1)
|
|
|
25.0
|
%
|
|
|
26.5
|
%
|
|
|
32.0
|
%
|
Debt-to-equity ratio
(2)
|
|
|
33.3
|
%
|
|
|
36.1
|
%
|
|
|
47.1
|
%
|
|
|
|
(1)
|
|
Debt-to-capitalization ratio = (long-term interest-bearing debt + short-term interest-bearing
debt)/(long-term interest-bearing debt + short-term interest-bearing debt + equity attributable to owners of the parent).
|
(2)
|
|
Debt-to-equity ratio = (long-term interest-bearing debt + short-term interest-bearing
debt)/equity attributable to owners of the parent.
|
Our debt-to-capitalization ratio was 32.0% at the end of 2010, compared to 26.5% at the end of
2009, and 25.0% at the end of 2008. Our debt-to-equity ratio was 47.1% at the end of 2010, compared
to 36.1% at the end of 2009, and 33.3% at the end of 2008. The sum of our long-term and short-term
interest-bearing debt exceeds the amount of our cash and cash equivalents and short-term bank
deposits by RMB74.27 billion as of December 31, 2010, compared to 65.65 billion as of December 31,
2009 and RMB54.99 billion as of December 31, 2008. We continue to seek to optimize our capital
structure, develop multiple financing sources and reduce overall financing costs.
Our outstanding short-term and long-term bank loans, denominated in RMB, U.S. dollar, HK
dollar and Euro, was RMB38.25 billion at the end of 2010, compared to RMB64.73 billion at the end
of 2009 and RMB12.99 billion at the end of 2008. The decrease in 2010 resulted primarily from a
decrease in the borrowings of short-term bank loans. The increase in 2009 resulted primarily from
the borrowings of short-term bank loans to finance the telecommunications network construction and
the off-market share repurchase completed during the year. The loan agreement does not include
financial performance or other covenants which may materially restrict our operations or those of
CUCL, our principal operating subsidiary in China. As of December 31, 2010, no short-term bank
loans or long-term bank loans were guaranteed by Unicom Group.
-73-
In order to further rationalize our debt structure and reduce our interest expense, we may
continue to finance a portion of our business operations and capital expenditures through
short-term borrowings. Our liquidity in the future will primarily depend on our ability to maintain
adequate cash inflow from operations and obtain adequate external financing to meet our debt
service obligations and planned capital expenditures. Our operating cash flows could be adversely
affected by numerous factors beyond our control, including, but not limited to, changes in
telecommunications tariffs, decreased demand for our telecommunications services and further
intensified competition. Our ability to obtain external financing also depends on numerous factors,
including, but not limited to, our financial condition and creditworthiness as well as our
relationship with lenders. See D. Risk Factors Risks Relating to Our Business If we are
unable to fund our capital expenditure and debt service requirements, our financial condition,
results of operations and growth prospects will be adversely affected under Item 3.
On June 8, 2007, we issued RMB2 billion 10-year corporate bonds, bearing interest at 4.5% per
annum. The corporate bonds are secured by a guarantee issued by Bank of China Limited. On September
3, 2008, we issued another RMB5 billion 5-year corporate bonds, bearing interest at 5.29% per
annum. The corporate bonds are secured by a guarantee issued by State Grid Corporation of China.
In addition, prior to our merger with China Netcom, China Netcoms wholly-owned subsidiary,
CNC China (which merged with, and was absorbed by, our wholly-owned subsidiary, CUCL, in January
2009), issued two tranches of RMB10 billion unsecured commercial papers in the PRC capital market
with repayment periods of 365 days and 270 days on April 30, 2007 and September 18, 2007,
respectively. The effective interest rates were 3.34% and 3.93% per annum, respectively. These
commercial papers were fully repaid on May 9, 2008 and June 16, 2008, respectively. On October 6,
2008, CNC China also issued RMB10 billion unsecured commercial paper in the PRC capital market with
payment period of 365 days. The effective interest rate is 4.47% per annum. The commercial paper
was fully repaid in October 2009.
On April 1, 2010, CUCL completed the issue of the first tranche of commercial paper for the
year 2010 in an amount of RMB15 billion, with a maturity period of 365 days and at an interest rate
of 2.64% per annum. On April 2, 2010, CUCL completed the issue of the first tranche of promissory
note for the year 2010 in an amount of RMB3 billion, with a maturity period of 3 years and at an
interest rate of 3.73% per annum.
On September 20, 2010, CUCL completed the issue of the second tranche of commercial paper for
the year 2010 in an amount of RMB8 billion, with a maturity period of 365 days and at an interest
rate of 2.81% per annum. On the same date, CUCL completed the issue of the second tranche of
promissory note for the year 2010 in an amount of RMB12 billion, with a maturity period of 3 years
and at an interest rate of 3.31% per annum.
On October 18, 2010, Billion Express Investments Limited, a wholly-owned subsidiary of our
company, issued the 2015 Convertible Bonds, which are guaranteed by our company and are
exchangeable into ordinary shares of our company. Pursuant to the subscription agreement with
respect to the 2015 Convertible Bonds, the holders of the 2015 Convertible Bonds may, beginning on
November 28, 2010, elect to convert its bonds into our ordinary shares at an initial conversion
price of HK$15.85 per share, subject to certain adjustments. As of April 30, 2011, none of the 2015
Convertible Bonds has been converted into our ordinary shares.
-74-
Contractual Obligations and Commercial Commitments
The following table sets forth the amounts of our outstanding contractual cash obligations as
of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1
|
|
|
Between 1 and
|
|
|
Between 2 and
|
|
|
|
|
|
|
Total
|
|
|
year
|
|
|
2 years
|
|
|
5 years
|
|
|
Over 5 years
|
|
Short-term bank loans
(1)
*
|
|
|
37,319
|
|
|
|
37,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial papers
(2)
*
|
|
|
23,621
|
|
|
|
23,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term bank loans
(3)
*
|
|
|
1,734
|
|
|
|
103
|
|
|
|
94
|
|
|
|
1,004
|
|
|
|
533
|
|
Corporate bonds
(4)
*
|
|
|
8,425
|
|
|
|
355
|
|
|
|
355
|
|
|
|
5,535
|
|
|
|
2,180
|
|
Convertible bonds
(5)
*
|
|
|
12,634
|
|
|
|
91
|
|
|
|
91
|
|
|
|
12,452
|
|
|
|
|
|
Promissory notes
(6)
*
|
|
|
16,528
|
|
|
|
509
|
|
|
|
509
|
|
|
|
15,510
|
|
|
|
|
|
Other obligations
|
|
|
2,806
|
|
|
|
2,640
|
|
|
|
92
|
|
|
|
27
|
|
|
|
47
|
|
Capital commitments
(7)
|
|
|
8,383
|
|
|
|
5,792
|
|
|
|
811
|
|
|
|
456
|
|
|
|
1,324
|
|
Operating leases commitments
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecommunications networks leasing
arrangement in 21 provinces in southern
China
|
|
|
5,000
|
|
|
|
2,400
|
|
|
|
2,600
|
|
|
|
|
|
|
|
|
|
Other commitments
|
|
|
6,403
|
|
|
|
1,846
|
|
|
|
1,331
|
|
|
|
2,276
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations
|
|
|
122,853
|
|
|
|
74,676
|
|
|
|
5,883
|
|
|
|
37,260
|
|
|
|
5,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Interest included
|
|
(1)
|
|
See Note 27 Short-Term Bank Loans to our consolidated financial statements.
|
|
(2)
|
|
See Note 26 Commercial Papers to our consolidated financial statements.
|
|
(3)
|
|
See Note 20 Long-Term Bank Loans to our consolidated financial statements.
|
|
(4)
|
|
See Note 23 Corporate Bonds to our consolidated financial statements.
|
|
(5)
|
|
See Note 22 Convertible Bonds to our consolidated financial statements.
|
|
(6)
|
|
See Note 21 Promissory Notes to our consolidated financial statements.
|
|
(7)
|
|
See Note 41 Contingencies and Commitments to our consolidated financial statements.
|
Trend
Information
Please
refer to the discussion in sections headed
Overview and Operating Results
under this Item 5.
Off-Balance Sheet Arrangements
As of December 31, 2010, except for the operating lease of the telecommunications networks in
21 provinces in southern China set forth above in Contractual Obligations and Commercial
Commitments, we did not have any other off-balance sheet arrangement.
Capital Expenditures
The following table sets forth our historical and planned capital expenditure requirements for
the periods indicated. Actual future capital expenditures may differ from the amounts indicated
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(RMB in
|
|
|
As a
|
|
|
(RMB in
|
|
|
As a
|
|
|
(RMB in
|
|
|
As a
|
|
|
|
billions)
|
|
|
percentage
|
|
|
billions)
|
|
|
Percentage
|
|
|
billions)
|
|
|
Percentage
|
|
Mobile business
|
|
|
56.98
|
|
|
|
50.7
|
%
|
|
|
23.17
|
|
|
|
33.0
|
%
|
|
|
22.88
|
|
|
|
31.0
|
%
|
Broadband and data business
|
|
|
18.80
|
|
|
|
16.7
|
%
|
|
|
22.45
|
|
|
|
32.0
|
%
|
|
|
18.75
|
|
|
|
25.4
|
%
|
Infrastructure and transmission network
|
|
|
25.01
|
|
|
|
22.2
|
%
|
|
|
16.96
|
|
|
|
24.2
|
%
|
|
|
19.48
|
|
|
|
26.4
|
%
|
Others
(1)
|
|
|
11.68
|
|
|
|
10.4
|
%
|
|
|
7.61
|
|
|
|
10.8
|
%
|
|
|
12.69
|
|
|
|
17.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
112.47
|
|
|
|
100.0
|
%
|
|
|
70.19
|
|
|
|
100.0
|
%
|
|
|
73.80
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Other expenditures consist of innovation and value-added platform, IT system, fixed-line
business and procurement of miscellaneous assets, equipment and spare parts.
|
Our capital expenditure totaled RMB70.19 billion in 2010, which mainly consisted of investment
in mobile business, broadband and data business, and infrastructure and transmission networks. In
2010, capital expenditure attributable to mobile business was RMB23.17 billion; capital expenditure
attributable to broadband and data business was RMB22.45 billion; capital expenditure attributable
to infrastructure and transmission networks was RMB16.96 billion.
-75-
Our projected capital expenditure for 2011 is estimated to be approximately RMB73.80 billion,
a significant portion of which will continue to be used for investments in our mobile business,
fixed-line broadband and data business and infrastructure and networks.
We expect to fund our capital expenditure needs through a combination of cash generated from
operating activities, granted and unused banking facilities and other available financing sources.
See D. Risk Factors Risks Relating to Our Business If we are unable to fund our capital
expenditure and debt service requirements, our financial condition, results of operations and
growth prospects will be adversely affected. under Item 3.
Item 6. Directors, Senior Management and Employees
A.
Directors and Senior Management
The following table sets forth certain information concerning our current directors and
executive officers.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
Chang Xiaobing
|
|
|
54
|
|
|
Chairman of the Board of Directors and Chief Executive Officer
|
Lu Yimin
|
|
|
47
|
|
|
Executive Director and President
|
Tong Jilu
(1)
|
|
|
53
|
|
|
Executive Director and Senior Vice President
|
Li Fushen
(2)
|
|
|
48
|
|
|
Executive Director and Chief Financial Officer
|
Cesareo Alierta Izuel
|
|
|
66
|
|
|
Non-Executive Director
|
Cheung Wing Lam Linus
|
|
|
62
|
|
|
Independent Non-Executive Director
|
Wong Wai Ming
|
|
|
53
|
|
|
Independent Non-Executive Director
|
John Lawson Thornton
|
|
|
57
|
|
|
Independent Non-Executive Director
|
Timpson Chung Shui Ming
|
|
|
59
|
|
|
Independent Non-Executive Director
|
Cai Hongbin
(3)
|
|
|
43
|
|
|
Independent Non-Executive Director
|
Li Jianguo
|
|
|
57
|
|
|
Senior Vice President
|
Li Gang
|
|
|
53
|
|
|
Senior Vice President
|
Zhang Junan
|
|
|
54
|
|
|
Senior Vice President
|
Jiang Zhengxin
|
|
|
54
|
|
|
Senior Vice President
|
Shao Guanglu
(4)
|
|
|
47
|
|
|
Senior Vice President
|
|
|
|
(1)
|
|
Mr. Tong Jilu resigned as the Chief Financial Officer of our company and was appointed as a
Senior Vice President of our company, each on March 30, 2011. Mr. Zuo Xunsheng resigned as an
Executive Director and a Senior Vice President of our company on March 30, 2011. Each of Mr.
Pei Aihua and Mr. Zhao Jidong resigned as a Senior Vice President of our company on March 30,
2011.
|
|
(2)
|
|
Mr. Li Fushen resigned as a Senior Vice President of our company and was appointed as an
Executive Director and the Chief Financial Officer of our company, each on March 30, 2011.
|
|
(3)
|
|
Mr. Cai Hongbin was appointed as an Independent Non-Executive Director of our company on May
13, 2010.
|
|
(4)
|
|
Mr. Shao Guanglu was appointed as a Senior Vice President of our company on April 26, 2011.
|
Mr. Chang Xiaobing
was appointed in December 2004 as an Executive Director, Chairman and Chief
Executive Officer of the Company. Mr. Chang, a professor level senior engineer, graduated in 1982
from the Nanjing Institute of Posts and Telecommunications with a bachelors degree in
telecommunications engineering and received a masters degree in business administration from
Tsinghua University in 2001. He received a doctors degree in business administration from the Hong
Kong Polytechnic University in 2005. Prior to joining China United Telecommunications Corporation,
Mr. Chang served as a Deputy Director of the Nanjing Municipal Posts and Telecommunications Bureau
of Jiangsu Province and a Deputy Director General of the Directorate General of Telecommunications
of the Ministry of Posts and Telecommunications and a Deputy Director General and Director General
of the Department of Telecommunications Administration of the former Ministry of Information
Industry, Vice President of China Telecommunications Corporation, as well as Executive Director and
President of China Telecom Corporation Limited. Mr. Chang was appointed the Chairman of China
United Telecommunications Corporation in November 2004. In December 2008, China United
Telecommunications Corporation changed its company name to China United Network Communications
Group Company Limited (Unicom Group). Mr. Chang has served as a
Director of Telefónica since May 2011. He also serves as the Chairman of Unicom Group, A Share Company
and CUCL, respectively. Mr. Chang has extensive operational and managerial experience in the
telecommunications industry.
-76-
Mr. Lu Yimin
was appointed as an Executive Director of the Company in October 2008 and
President of the Company in February 2009. Mr. Lu, a researcher level senior engineer, graduated
from Shanghai Jiao Tong University with a bachelors degree in computer science in 1985 and then
was awarded a masters degree in public administration by the John F. Kennedy School of Government
at Harvard University. Mr. Lu joined Netcom Group in December 2007, serving as senior management.
Mr. Lu has served as a Non-Executive Director of PCCW Limited (listed on the Hong Kong Stock
Exchange with an American Depositary Receipt trading on the Pink Sheets OTC Market in the U.S.)
since May 2008. Prior to joining the Netcom Group, Mr. Lu was a member of the Secretary Bureau of
the General Office of the Chinese Communist Party Central Committee, serving as the Deputy Director
and the Director of the Information Processing Office since 1992, Secretary at deputy director
general level since 2001 and Secretary at director general level since 2005. Mr. Lu is Vice
Chairman and President of Unicom Group. Mr. Lu is also a Director and President of A Share Company,
and a Director and President of CUCL. Mr. Lu has extensive experience in government administration
and business management.
Mr. Tong Jilu
was appointed as an Executive Director of the Company in February 2004 and
Senior Vice President of the Company in March 2011. Mr. Tong graduated in 1987 from the Department
of Economic Management at the Beijing University of Posts and Telecommunications. He received a
doctors degree in management from the Hong Kong Polytechnic University in 2009. Mr. Tong was
Deputy Director General of the Posts and Telecommunications Administration of Liaoning Province, as
well as the Posts Office of Liaoning Province. Mr. Tong joined China United Telecommunications
Corporation in July 2000. He served first as Chief Accountant and later a Vice President and, from
September 2003, a Director of China United Telecommunications Corporation. In December 2008, China
United Telecommunications Corporation changed its company name to China United Network
Communications Group Company Limited (Unicom Group). From February 2004 to March 2011, Mr. Tong
served as Chief Financial Officer of the Company. Mr. Tong now serves as a Director and Vice
President of Unicom Group. He is also a Director of A Share Company, and a Director and Senior Vice
President of CUCL. Mr. Tong has extensive operation and financial management experience in
telecommunications companies.
Mr. Li Fushen
was appointed in March 2011 as an Executive Director and Chief Financial Officer
of the Company. Mr. Li graduated from the Jilin Engineering Institute with a degree in engineering
management in 1988, and from the Australian National University with a masters degree in
management in 2004. From November 2001 to October 2003, Mr. Li served as Deputy General Manager of
the former Jilin Provincial Telecommunications Company and Jilin Communications Company. From
October 2003 to August 2005, Mr. Li served as General Manager of the Finance Department of Netcom Group. Since October 2005, he has served as the
Chief Accountant of Netcom Group. He has served as Chief Financial Officer of China Netcom since
September 2005 and has served as Executive Director of China Netcom since January 2007. From
December 2006 to March 2008, Mr. Li served as Joint Company Secretary of China Netcom. From
February 2009 to March 2011, Mr. Li served as a Senior Vice President of the Company. In addition,
Mr. Li has served as a Non-Executive Director of PCCW Limited (listed on the Hong Kong Stock
Exchange with an American Depositary Receipt trading on the Pink Sheets OTC Market in the U.S.)
since July 2007. Mr. Li is a Vice President of Unicom Group, a Director of A Share Company, as
well as Director and Senior Vice President of CUCL. Mr. Li has worked in the telecommunications
industry for a long period of time and has extensive management experience.
-77-
Mr. Cesareo Alierta Izuel
was appointed in October 2008 as a Non-Executive Director of the
Company. Mr. Alierta has been a member of the Board of Directors of Telefónica (listed on
various stock exchanges including Madrid, New York and London) from January 1997 and has been
Chairman of Telefónica since July 2000. Mr. Alierta is a member of the Board of Directors of
Telecom Italia (listed on the stock exchange of Milan) and of International Consolidated Airlines
Group (IAG, listed on the stock exchanges of Madrid and London). He is also the Chairman of the
Social Board of the UNED (National Long Distance Spanish University) and a member of the Columbia
Business School Board of Overseers. Between 1970 and 1985, he was the General Manager of the
Capital Markets division at Banco Urquijo in Madrid. He has been the founder and Chairman of Beta
Capital. As from 1991, he has also acted as the Chairman of the Spanish Financial Analysts
Association. He has also been a member of the Board of Directors and the Standing Committee of the
Madrid Stock Exchange. Between 1996 and 2000, he held the post of Chairman of Tabacalera, S.A., and
subsequently Altadis following the companys merger with the French group Seita. Mr. Alierta served
as a Non-Executive Director of China Netcom during the period from December 2007 to November 2008.
In September 2005, Mr. Alierta received The Global Spanish Entrepreneur award from the Spanish/US
Chamber of Commerce. Mr. Alierta holds a degree in law from the University of Zaragoza and received
a masters degree of business administration at the University of Columbia (New York) in 1970.
Mr. Cheung Wing Lam Linus
was appointed in May 2004 as an Independent Non-Executive Director
of the Company. Mr. Cheung is Chairman of the University of Hong Kong School of Professional and
Continuing Education. Besides, Mr. Cheung is an independent Non-Executive Director of Taikang Life
Insurance Company Limited and a Non-Executive Director of HKR International Limited (listed on the
Hong Kong Stock Exchange). Mr. Cheung also serves as President of the Chartered Institute of
Marketing (Hong Kong Region) and Adjunct Professor of the Chinese University of Hong Kong. Mr.
Cheung was Chairman of Asia Television Limited and Deputy Chairman of PCCW Limited. Prior to the
merger of Pacific Century Cyberworks Limited and Cable & Wireless HKT Limited, or Hongkong Telecom,
Mr. Cheung was the Chief Executive of Hongkong Telecom and an Executive Director of Cable &
Wireless plc in the United Kingdom. Mr. Cheung also worked at Cathay Pacific Airways for 23 years,
before departing as Deputy Managing Director. He was appointed an Official Justice of the Peace in
1990 and a Non-official Justice of the Peace in 1992. Mr. Cheung received a bachelors degree in
social sciences and a diploma in management studies from the University of Hong Kong. He is also an
Honorary Fellow of the University of Hong Kong and of The Chartered Institute of Marketing in the
United Kingdom.
Mr. Wong Wai Ming
was appointed in January 2006 as an Independent Non-Executive Director of
the Company. Mr. Wong is Senior Vice President and Chief Financial Officer of Lenovo Group Limited
(listed on the Hong Kong Stock Exchange and the New York Stock Exchange). Besides, Mr. Wong is an
Independent Non-Executive Director of I.T Limited (listed on the Hong Kong Stock Exchange) and a
Non-Executive Director of Linmark Group (listed on the Hong Kong Stock Exchange). Prior to his
current executive position at Lenovo Group Limited, Mr. Wong was a Chief Executive Officer and
Executive Director of Roly International Holdings Limited and an Executive Director of Linmark
Group. Mr. Wong was also a Non-Executive Director of Kingsoft Corporation Limited. Mr. Wong was
previously an investment banker with over 15 years of experience in investment banking business in
Greater China and was a member of the Listing Committee of The Stock Exchange of Hong Kong Limited.
Mr. Wong is a chartered accountant and holds a bachelors degree (with Honors) in management
science from the Victoria University of Manchester in the United Kingdom.
Mr. John Lawson Thornton
was appointed in October 2008 as an Independent Non-Executive
Director of the Company and is currently a Professor and Director of the Global Leadership Program
at the Tsinghua University School of Economics and Management in Beijing. He is also the Chairman
of the Board of Trustees of the Brookings Institution in Washington, D.C. He is a Director and
Non-Executive Chairman of HSBC North America Holdings Inc., as well as a Director of HSBC Holdings
plc (listed on the Hong Kong Stock Exchange, London Stock Exchange, New York Stock Exchange, Paris
Stock Exchange and Bermuda Stock Exchange). He is also a Director of the Ford Motor Company (listed
on the New York Stock Exchange) and News Corporation, Inc. (listed on the NASDAQ Global Select
Market and the Australian Stock Exchange). Mr. Thornton is a trustee, advisory board member or
member of the Asia Society, China Foreign Affairs University, China Institute, China Investment
Corporation, China Reform Forum, China Securities Regulatory Commission, Council on Foreign
Relations, General Atlantic, The Hotchkiss School, McKinsey Knowledge Council, Morehouse College,
and the National Committee on U.S.-China Relations. He is the Chairman of the Advisory Board of the
Tsinghua University School of Economics and Management. Mr. Thornton served as a Director of Intel
Corporation from July 2003 to May 2010, an Independent Non-Executive Director of China Netcom from
October 2004 to November 2008 and as an Independent Non-Executive Director of Industrial and
Commercial Bank of China from October 2005 to November 2008. Mr. Thornton retired in July 2003 as
President, Co-Chief Operating Officer and a Director of The Goldman Sachs Group, Inc. Mr. Thornton
received an A.B. in history from Harvard College in 1976, a B.A. and M.A. in jurisprudence from
Oxford University in 1978 and an M.P.P.M. from the Yale School of Management in 1980.
-78-
Mr. Timpson Chung Shui Ming
was appointed in October 2008 as an Independent Non-Executive
Director of the Company. Mr. Chung is currently a member of the National Committee of the 11th
Chinese Peoples Political Consultative Conference. He is also the Chairman of the Advisory
Committee on Arts Development. Besides, Mr. Chung is an Independent Non-Executive Director of
Glorious Sun Enterprises Limited, The Miramar Hotel & Investment Co. Limited, Nine Dragons Paper
(Holdings) Limited and China Overseas Grand Oceans Group Limited (all listed on the Hong Kong Stock
Exchange). Mr. Chung is also an Independent Director of China State Construction Eng. Corp. Ltd.
and China Everbright Bank Company Limited (both listed on the Shanghai Stock Exchange). From
October 2004 to November 2008, Mr. Chung served as an Independent Non-Executive Director of China
Netcom. Formerly, he was the Chairman of China Business of Jardine Fleming Holdings Limited, the
Deputy Chief Executive Officer of BOC International Limited and the Independent Non-Executive
Director of Tai Shing International (Holdings) Limited. He was also the Director General of
Democratic Alliance for the Betterment and Progress of Hong Kong, the Chairman of the Council of
the City University of Hong Kong, the Chairman of the Hong Kong Housing Society, a member of the
Executive Council of the Hong Kong Special Administrative Region, the Vice Chairman of the Land
Fund Advisory Committee of Hong Kong Special Administrative Region Government, a member of the
Managing Board of the Kowloon-Canton Railway Corporation, a member of the Hong Kong Housing
Authority and a member of the Disaster Relief Fund Advisory Committee. Mr. Chung holds a bachelor
of science degree from the University of Hong Kong and a masters degree of business administration
from the Chinese University of Hong Kong. Mr. Chung also received an honorary doctoral degree in
Social Science from the City University of Hong Kong in 2010. Mr. Chung is a fellow member of the
Hong Kong Institute of Certified Public Accountants.
Mr. Cai Hongbin
was appointed in May 2010 as an Independent Non-Executive Director of the
Company. Mr. Cai is currently the Dean of and a Professor in Applied Economics at Guanghua School
of Management at Peking University, a Director of J. Mirrlees Institute of Economic Policy Research
at Peking University and an Associate Director of Center of Poverty Research at Peking University.
Besides, Mr. Cai is Independent Non-Executive Director of Concord Medical Services Holdings Limited
(listed on the New York Stock Exchange), China Everbright Bank Company Limited (listed on the
Shanghai Stock Exchange) and Beijing Venustech Inc. (listed on the Shenzhen Stock Exchange). Prior
to joining Guanghua School of Management at Peking University, Mr. Cai served as an Assistant
Professor of the Economics Department at University of California, Los Angeles, from 1997 to 2005.
Mr. Cai received a bachelors degree in Mathematics from Wuhan University in 1988, a masters
degree in Economics from Peking University in 1991, and a doctoral degree in Economics from
Stanford University in 1997. In addition, Mr. Cai was awarded New Century Excellent Talents in
University from Ministry of Education of the PRC, or the Ministry of Education in 2006, the
National Outstanding Young Researcher from National Science Foundation of China in 2007 and the
National Changjiang Scholar from the Ministry of Education in 2008. Mr. Cai has carried out
extensive research in the areas of, among others, game theory, industrial organization, corporate
finance and Chinese economy, and has published many academic papers in top international and
national journals.
Ms. Li Jianguo
was appointed as Senior Vice President of the Company in February 2009. Ms. Li
graduated from the Xiangtan University with a bachelors degree in Chemical Engineering in 1982 and
received a masters degree in business administration from the Hong Kong Polytechnic University in
2006. From June 2000 to July 2007, Ms. Li held various senior positions in China United
Telecommunications Corporation, including serving as a Director and Chairperson of the Labour
Union. Ms. Li also served as the Chairperson of the Board of Supervisors of A Shares Company from
December 2001 to July 2007 and as Executive Director of the Company from April 2006 to July 2007.
Ms. Li served as Senior Management in Netcom Group since July 2007. She has also served as
Executive Director of China Netcom since July 2007. Ms. Li holds a senior managerial position in
Unicom Group. Ms. Li is the Chairman of the Supervisory Board of A Share Company, as well as
Director and Senior Vice President of CUCL. Ms. Li held leading positions in various enterprises,
local governments and state ministries and committees for long period of time, and she has
extensive working and management experiences in government, authorities and enterprises.
-79-
Mr. Li Gang
was appointed as Vice President of the Company in April 2006 and Senior Vice
President of the Company in February 2009. Mr. Li graduated from Beijing University of Posts and
Telecommunications in 1985 and received a masters degree in business administration from the
Department of Advanced Business Administration of Jinan University in 2004. Mr. Li previously
served as a Deputy Director of the Telecommunications Division, a Deputy Director of the
Telecommunications Department, a Deputy Director of the Rural Telephone Bureau, a Deputy Director
and a Director of the Telecommunications Operation and Maintenance Department of the Posts and
Telecommunications Administration Bureau in Guangdong Province and as a Director of the Mobile
Communication Bureau in Guangdong Province. From 1999 to 2005, he served as the Deputy Chairman,
General Manager and Chairman of Guangdong Mobile Communication Co., Limited and as the Chairman and
General Manager of Beijing Mobile Communication Co., Limited. From 2000 to 2005, he also served as
an Executive Director of China Mobile (Hong Kong) Limited. Mr. Li joined China United
Telecommunications Corporation in December 2005 and served as Vice President. In December 2008,
China United Telecommunications Corporation changed its company name to China United Network
Communications Group Company Limited (Unicom Group). From April 2006 to October 2008, Mr. Li served
as an Executive Director of the Company. Mr. Li is a Deputy General Manager of Unicom Group,
Director and Senior Vice President of CUCL. Mr. Li has worked in the telecommunications industry
for a long period of time and has extensive management experience.
Mr. Zhang Junan
was appointed as Vice President of the Company in April 2006 and Senior Vice
President of the Company in February 2009. Mr. Zhang graduated from the Nanjing University of Posts
and Telecommunications majoring in carrier communication in 1982. He received a masters degree in
business administration from the Australian National University in 2002 and a doctors degree in
business administration from the Hong Kong Polytechnic University in 2008. He previously served as
a Director of the Bengbu Municipal Posts and Telecommunications Bureau in Anhui Province and a
Deputy Director of the Anhui Provincial Posts and Telecommunications Bureau. From 2000 to 2005, he
served as a Deputy General Manager and General Manager of the Anhui Provincial Telecommunications
Company and the Chairman and General Manager of the Anhui Provincial Telecommunications Co.,
Limited. Mr. Zhang joined the China United Telecommunications Corporation in December 2005 and
served as Vice President. In December 2008, China United Telecommunications Corporation changed its
company name to China United Network Communications Group Company Limited (Unicom Group). From
April 2006 to October 2008, Mr. Zhang served as the Executive Director of the Company. In addition,
Mr. Zhang serves as a Non-Executive Director of China Communications Services Corporation Limited.
Mr. Zhang also serves as Vice President of Unicom Group, as well as Director and Senior Vice
President of CUCL. Mr. Zhang has worked in the telecommunications industry for a long period of
time and has extensive management experience.
Mr. Jiang Zhengxin
was appointed as Senior Vice President of the Company in February 2009. Mr.
Jiang is a senior engineer of professor level. He received a bachelors degree in radio engineering
from Beijing University of Posts and Telecommunications in 1982, a masters degree in business
administration from Jilin University in 2001, and a PhD in political economy from Jilin University
in 2006. Mr. Jiang served as Deputy Director of the Bureau of Telecommunications Administration in
Changchun of Jilin Province from February 1998 to July 1999. He was the Deputy General Manager of Jilin Mobile Communication Company from July 1999 to March 2004. He
served as the Deputy General Manager of South Communication Co. Limited of Netcom Group from March
2004 to June 2004, and he was the General Manager of Zhejiang Branch of Netcom Group from June 2004
to September 2007. He has served as Deputy General Manager of Netcom Group since September 2007.
Mr. Jiang is a Deputy General Manager of Unicom Group, as well as Director and Senior Vice
President of CUCL. Mr. Jiang has worked in the telecommunications industry for a long period of
time and has extensive management experience.
Mr. Shao Guanglu
was appointed as Senior Vice President of the Company in April 2011. Mr. Shao
is a senior engineer. He received a bachelors degree from Harbin Institute of Technology in 1985,
a masters degree in engineering and a masters degree in economics from Harbin Institute of
Technology in 1988 and 1990, respectively, a masters degree in management from BI Norwegian
Business School in 2002 and a doctors degree in management from Nankai University in 2009. Mr.
Shao joined China United Telecommunications Corporation in February 1995. In December 2008, China
United Telecommunications Corporation changed its company name to China United Network
Communications Group Company Limited (Unicom Group). Mr. Shao was Deputy General Manager of Tianjin
Branch, Deputy General Manager of Henan Branch, General Manager of Guangxi Branch, as well as
General Manager of Human Resource Department of Unicom Group. Mr. Shao also serves as a Vice
President of Unicom Group. Mr. Shao has worked in the telecommunications industry for a long period
of time and has extensive management experience.
-80-
B. Compensation
The aggregate compensation and other benefits paid by us to our directors as a group in 2010
was approximately RMB12.66 million, while retirement benefits paid by us were approximately
RMB112,000. Each of our executive directors participated in a bonus scheme with us that ties the
amount of bonus he or she will receive at the end of a year to our operating results of the year
and his or her job performance. Some of our directors also hold options to purchase shares in our
company. See E. Share Ownership below for detailed descriptions of our share option schemes and
options granted to our directors as well as compensation for the year 2010.
C. Board Practices
General
Pursuant to our articles of association, at each annual general meeting, one-third of our
directors retire from office by rotation. The retiring directors are eligible for re-election. The
Board may at any time appoint a new director to fill a vacancy or as an additional director. The
Board may also appoint and remove our executive officers. No benefits are payable to our directors
or executive officers upon termination of their service with us in accordance with the provisions
of their service agreements, except certain statutory compensation. The following table sets forth
certain information concerning our current directors and former directors who served as directors
in 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resignation or
|
|
Name
|
|
Appointment Date
|
|
Re-appointment Date
|
|
Retirement Date
|
|
Current Directors
|
|
|
|
|
|
|
|
|
|
Chang Xiaobing
|
|
December 21, 2004
|
|
May 12, 2006 and May 26, 2009
|
|
|
|
|
Lu Yimin
|
|
October 15, 2008
|
|
May 26, 2009 and May 24, 2011
|
|
|
|
|
Tong Jilu
|
|
February 1, 2004
|
|
May 12, 2004, May 12, 2006, May 16, 2008 and May 12, 2010
|
|
|
|
|
Li Fushen
|
|
March 30, 2011
|
|
May 24, 2011
|
|
|
|
|
Cesareo Alierta Izuel
|
|
October 15, 2008
|
|
May 26, 2009 and May 24, 2011
|
|
|
|
|
Cheung Wing Lam Linus
|
|
May 12, 2004
|
|
May 12, 2006, May 16, 2008 and May 12, 2010
|
|
|
|
|
Wong Wai Ming
|
|
January 19, 2006
|
|
May 12, 2006, May 26, 2009 and May 24, 2011
|
|
|
|
|
John Lawson Thornton
|
|
October 15, 2008
|
|
May 26, 2009
|
|
|
|
|
Timpson Chung Shui Ming
|
|
October 15, 2008
|
|
May 26, 2009
|
|
|
|
|
Cai Hongbin
|
|
May 13, 2010
|
|
May 24, 2011
|
|
|
|
|
|
Former Directors
|
|
|
|
|
|
|
|
|
|
Zuo Xunsheng
|
|
October 15, 2008
|
|
May 26, 2009 and May 12, 2010
|
|
March 30, 2011
|
Wu Jinglian
|
|
April 20, 2000
|
|
May 13, 2002,May 12, 2004, May 12, 2005 and May 11, 2007
|
|
May 12, 2010
|
Audit Committee
The audit committee reviews and supervises our financial reporting process and internal
controls. The duties of the audit committee include, among others:
|
|
|
considering and approving the appointment, resignation and removal of our external
auditor and the auditors fees;
|
|
|
|
reviewing our interim and annual financial statements and disclosures before
submission to the board of directors;
|
|
|
|
discussing with the auditor any problems and reservations arising from the audit of
the interim and annual financial statements;
|
|
|
|
reviewing any correspondence from the auditor to our management and the responses of
our management;
|
|
|
|
reviewing the relevant reports concerning our internal controls and procedures;
|
|
|
|
discussing with our management our internal control system to ensure that our
management discharge their duties to have an effective internal control system in
place;
|
|
|
|
pre-approving the audit and non-audit services to be provided by the external
auditor, and determining whether any non-audit services would affect the independence
of the auditor;
|
|
|
|
discussing with our management the timing and procedures for the rotation of the
partner of the auditing firm responsible for the audit of our company and the partner
responsible for the review of audit-related documents;
|
|
|
|
supervising the internal audit department, which will directly report to the
committee; and
|
|
|
|
having the right to approve the appointment or removal of the head of internal audit
department.
|
As of April 30, 2011, the members of the audit committee are Mr. Wong Wai Ming (Chairman of
the audit committee), Mr. Cheung Wing Lam Linus, Mr. John Lawson Thornton, Mr. Timpson Chung Shui
Ming and Mr. Cai Hongbin.
-81-
Remuneration Committee
The remuneration committee meets regularly to consider human resources issues, issuance of
options and other matters relating to compensation. In particular, the remuneration committee makes
recommendations to the Board on directors compensation. The primary duties of the remuneration
committee are to make recommendations to the Board regarding the remuneration structure of the
executive directors and senior management and to determine specific remuneration packages for the
executive directors and senior management on behalf of the Board. The remuneration committee is
also responsible for operating our employee share option scheme and any other incentive scheme as
they apply to the executive directors, including determining the granting of options to executive
directors. As of April 30, 2011, the members of the remuneration committee are Mr. Cheung Wing Lam
Linus (Chairman of the remuneration committee), Mr. Wong Wai Ming, Mr. John Lawson Thornton, Mr. Timpson Chung Shui
Ming and Mr. Cai Hongbin.
D. Employees
As of December 31, 2008, 2009 and 2010, we had a total number of 204,615, 321,772 and 310,030
employees, respectively. The employees as of December 31, 2010 are classified by function as
follows:
|
|
|
|
|
By Function
|
|
Number of Employees
|
|
Employees
|
|
|
215,815
|
|
Management and administration
|
|
|
23,211
|
|
Sales and customer service
|
|
|
63,380
|
|
Product and Marketing
|
|
|
18,282
|
|
Network construction and maintenance
|
|
|
81,021
|
|
Support
|
|
|
27,392
|
|
Others
|
|
|
2,529
|
|
Temporary employees
|
|
|
94,215
|
|
|
|
|
|
Total
|
|
|
310,030
|
|
E. Share Ownership
As of April 30, 2011, our directors who own shares in our company are listed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
|
|
|
Percentage of Total
|
|
Name
|
|
Capacity and Nature
|
|
|
Shares Held
|
|
|
Issued Shares
|
|
Cheung Wing Lam Linus
|
|
Beneficial Owner
(Personal)
|
|
|
400,000
|
|
|
|
0.0017
|
%
|
Timpson Chung Shui Ming
|
|
Beneficial Owner
(Personal)
|
|
|
6,000
|
|
|
|
0.0000
|
%
|
Apart from those disclosed herein, as of April 30, 2011, our other directors as a group do not
own any shares in our company.
-82-
As of April 30, 2011, our directors as a group hold options for 2,911,840 shares, or
approximately 0.012% of our issued and outstanding share capital, including the following options
granted under our pre-global offering share option scheme, share option scheme, and special purpose
share option scheme:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capacity and
|
|
Shares
|
|
|
|
|
Exercise
|
|
|
Consideration
|
|
|
Compensation
|
|
Name
|
|
Nature
|
|
Covered
(1)
|
|
|
Expiration Date
|
|
Price
|
|
|
Paid
|
|
|
for 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(RMB in
thousands)
|
|
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chang Xiaobing
|
|
Beneficial Owner
|
|
|
526,000
|
|
|
December 20, 2012
(3)
|
|
HK$6.20
|
|
HK$1.00
|
|
|
|
3,206
|
|
|
|
(Personal)
|
|
|
746,000
|
|
|
February 14, 2013
(3)
|
|
HK$6.35
|
|
HK$1.00
|
|
|
|
|
|
Lu Yimin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,637
|
|
Tong Jilu
|
|
Beneficial Owner
|
|
|
292,000
|
|
|
June 22, 2011
(3)
|
|
HK$15.42
|
|
HK$1.00
|
|
|
|
2,408
|
|
|
|
(Personal)
|
|
|
92,000
|
|
|
July 19, 2012
(3)
|
|
HK$5.92
|
|
HK$1.00
|
|
|
|
|
|
|
|
|
|
|
460,000
|
|
|
February 14, 2013
(3)
|
|
HK$6.35
|
|
HK$1.00
|
|
|
|
|
|
|
|
Beneficial Owner
|
|
|
32,000
|
|
|
July 19, 2012
(3)
|
|
HK$5.92
|
|
HK$1.00
|
|
|
|
|
|
|
|
(Spouse)
|
|
|
40,000
|
|
|
February 14, 2013
(3)
|
|
HK$6.35
|
|
HK$1.00
|
|
|
|
|
|
Li Fushen
|
|
Beneficial Owner
(Personal)
|
|
|
723,840
|
|
|
November 16, 2012
(3)
|
|
HK$5.57
|
|
|
|
|
|
|
2,225
|
|
Cesareo Alierta Izuel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261
|
|
Cheung Wing Lam Linus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
351
|
|
Wong Wai Ming
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
366
|
|
John Lawson Thornton
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340
|
|
Timpson Chung Shui Ming
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340
|
|
Cai Hongbin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217
|
|
Employees
(2)
|
|
|
|
|
4,058,000
|
|
|
June 22, 2011
(3)
|
|
HK$15.42
|
|
HK$1.00
|
|
|
|
|
|
|
|
|
|
|
8,956,000
|
|
|
May 20, 2012
(3)
|
|
HK$4.30
|
|
HK$1.00
|
|
|
|
|
|
|
|
|
|
|
40,900,000
|
|
|
July 19, 2012
(3)
|
|
HK$5.92
|
|
HK$1.00
|
|
|
|
|
|
|
|
|
|
|
128,000
|
|
|
December 20, 2012
(3)
|
|
HK$6.20
|
|
HK$1.00
|
|
|
|
|
|
|
|
|
|
|
150,310,000
|
|
|
February 14, 2013
(3)
|
|
HK$6.35
|
|
HK$1.00
|
|
|
|
|
|
|
|
|
|
|
99,131,916
|
|
|
November 16, 2012
(3)
|
|
HK$5.57
|
|
HK$1.00
|
|
|
|
|
|
|
|
|
|
|
88,929,468
|
|
|
December 5, 2012
(3)
|
|
HK$8.26
|
|
HK$1.00
|
|
|
|
|
|
|
|
|
(1)
|
|
Each option gives the holder the right to subscribe for one share.
|
|
(2)
|
|
In 2009, the exercise periods of approximately 25,000,000 options were extended by one year
by the Board pursuant to the terms of the Pre-Global Offering Share Option Scheme and the
Share Option Scheme. The reasons for such extension were that (i) the holders of those options
were determined by the Board as Transferred Personnel under the respective terms of the
Pre-Global Offering Share Option Scheme and the Share Option Scheme due to the transfers of
those option holders to other telecommunications operators as part of the 2008 industry
restructuring and (ii) those options were not exercisable due to a Mandatory Moratorium
under the respective terms of the Pre-Global Offering Share Option Scheme and the Share Option
Scheme. Due to the Mandatory Moratorium continuing to be in force, the Board further
extended the exercise periods of certain options by one year in March 2010 and March 2011
under the respective terms of the Share Option Scheme. As of December 31, 2010, approximately
23,600,000 share options held by Transferred Personnel remained valid.
|
|
(3)
|
|
In March 2010 and March 2011, the expiry dates for certain options were extended by one year
by the Board pursuant to the terms of each of the Share Option Scheme and the Special Purpose
Share Option Scheme, because those options were not exercisable due to a Mandatory
Moratorium, which is still in force, under the respective terms of each of the Share Option
Scheme and the Special Purpose Share Option Scheme.
|
-83-
Stock Incentive Schemes
Share Option Scheme.
We adopted a share option scheme on June 1, 2000, and amended the scheme
on each of May 13, 2002, May 11, 2007 and May 26, 2009. The amended scheme provides for the grant
of options to our employees, including executive directors and non-executive directors. Any grant
of options to a connected person (as defined in the HKSE Listing Rules) of Unicom requires
approval by our independent non-executive directors, excluding any independent non-executive
director who is the grantee of the option. The option period commences on any date after the date on which an option is offered,
but may not exceed 10 years from the offer date. The subscription price of a share in respect of
any particular option granted under this share option scheme will be determined by our board of
directors in its discretion at the grant date, which shall be no less than the higher of: (i) the
nominal value of the shares; (ii) the closing price of the shares on the HKSE on the grant date of
such option; and (iii) the average closing price of the shares on the HKSE for the five trading
days immediately preceding the grant date. As of April 30, 2011, 206,540,000 options granted by us
under the share option scheme were outstanding and held by 2 directors and approximately 2,800 of
our employees. The share option scheme expired on June 21, 2010. Following the expiry of the share option scheme,
no further option may be granted under the share option scheme, but the provisions of the share option scheme
will remain in full force and effect to the extent necessary to give effect to the exercise
of the options granted prior to the expiry or otherwise as may be required in accordance with the provisions of
the share option scheme. As of April 30, 2011, 1,766,000 options (with an exercise price of HK$15.42),
34,131,200 options (with an exercise price of HK$6.18), 92,398,800 options (with an exercise price
of HK$4.3), 366,000 options (with an exercise price of HK$4.66), 67,084,000 options (with an
exercise price of HK$5.92) and 10,652,000 options (with an exercise price of HK$6.35) had been
exercised.
Pre-Global Offering Share Option Scheme.
We adopted a pre-global offering share option scheme
on June 1, 2000, and amended the scheme on each of May 13, 2002, May 11, 2007 and May 26, 2009. The
pre-global offering share option scheme expired on may June 21, 2010. Following the expiry of the
pre-global offering share option scheme, no further option may be granted under the pre-global
offering share option scheme, but the provisions of the pre-global offering share option scheme
will remain in full force and effect to the extent necessary to give
effect to the exercise of the
options granted prior thereto or otherwise as may be required in accordance with the provisions of
the pre-global offering share option scheme. On June 21, 2010, 16,977,600 options, representing all
options validly granted and remaining valid under the pre-global offering share option scheme,
lapsed. No such option was held by the directors. The amended terms of the pre-global offering
share option scheme are substantially the same as the share option scheme, except for the
following:
|
|
|
The subscription price of a share in respect of any particular option granted under
the pre-global offering share option scheme is HK$15.42, the offer price in the Hong
Kong public offering portion of our initial public offering, excluding brokerage fees
and transaction levy.
|
|
|
|
The period during which an option may be exercised commences two years from the date
of grant and ends 10 years from June 22, 2000.
|
During the period from January 1, 2010 to June 21, 2010, no option granted under this scheme
had been exercised.
Special Purpose Share Option Scheme.
We also adopted a special purpose share option scheme on
September 16, 2008, in connection with our merger with China Netcom and amended the scheme on May
26, 2009. The special purpose share option scheme provides for the grant of options to the
optionholders of China Netcom, in consideration for the cancellation of their outstanding China
Netcom options (whether vested or not) on October 14, 2008. There are two exercise periods for the
options granted under the special purpose share option scheme, one of which commenced on October
15, 2008, and will end on November 16, 2012 (as extended by the Board), with an exercise price of
HK$5.57 and the other commenced on October 15, 2008, and will end on December 5, 2012 (as extended
by the Board), with an exercise price of HK$8.26. No amount was payable on acceptance of the grant
of options under the special purpose share option scheme. As of April 30, 2011, 189,472,118 options
granted under this scheme were outstanding and held by one director and approximately 690 of our
employees. As of April 30, 2011, 84,448 options granted under the Special Purpose Share Option
Scheme were exercised at an exercise price of HK$5.57 for each option.
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
As of April 30, 2011, our controlling shareholder, Unicom Group, through its 17.90% direct
interest in Unicom BVI, 61.05% direct interest in the A Share Company (which in turn holds 82.10%
of Unicom BVI) and 100% direct interest in Netcom BVI, indirectly and beneficially owned
approximately 16.7 billion shares of Unicom, or 71.02% of our total outstanding shares. See A.
History and Development of the Company under Item 4. Unicom Groups shares are held by the SASAC
and a group of companies, most of which are state-owned enterprises in China. Shares beneficially
owned by Unicom Group do not carry voting rights different from our other issued shares. In
addition, Telefónica held 8.37% of our total outstanding shares.
-84-
As of April 30, 2011, most of our shareholders of record were located outside of the United
States. In addition, as of April 30, 2011, there were
approximately 52,300,000 ADSs outstanding,
each representing 10 shares and together representing 2.22% of our total outstanding shares or
7.66% of our total outstanding shares not beneficially owned by our controlling shareholder.
B. Related Party Transactions
Prior to our merger with China Netcom, Netcom BVI and Netcom Group (which was the 100% owner
of Netcom BVI) did not have any shareholding interest in us. Upon completion of the merger, China
Netcom became one of our wholly-owned subsidiaries and Netcom BVI currently owns 29.74% of our
total outstanding shares. Accordingly, the related party transactions between China Netcom and its
subsidiaries, namely, CNC China (which merged with, and was absorbed by, CUCL in January 2009 after
the completion of our merger with China Netcom) and China Unicom System Integration (formerly known
as China Netcom System Integration, which became one of our wholly-owned subsidiaries upon the
completion of our merger with China Netcom), on one hand and Netcom Group (which merged with, and
was absorbed by, Unicom Group in January 2009 after the completion of our merger with China Netcom)
on the other hand in effect before our merger with China Netcom became our related party
transactions upon the completion of the merger.
There were transactions between certain of our subsidiaries and Netcom Group in existence
before our merger with China Netcom. Upon completion of the merger, these transactions became our
related party transactions. On August 12, 2008, CUCL and Netcom Group entered into various
framework agreements to record the principles governing, and the principal terms of, these
continuing transactions that would take effect upon the completion of our merger with China Netcom.
All of these framework agreements expired by the end of 2010.
In addition, before our merger with China Netcom, we had entered into a number of service
arrangements with Unicom Group and/or its subsidiaries (other than us and our subsidiaries) with
respect to the provision of ongoing telecommunications and ancillary services between Unicom Group
and us. On October 26, 2006, we entered into a comprehensive services agreement with Unicom Group
to record such related party transactions. In order to include CNC China as a party to the service
arrangements and to facilitate our business and operations after our merger with China Netcom,
Unicom Group and the A Share Company entered into a comprehensive services agreement on August 12,
2008, and the A Share Company, CUCL and CNC China entered into a transfer agreement on August 12,
2008, to amend the terms of the continuing related party transactions between us and Unicom Group
in existence before our merger with China Netcom, with effect upon the completion of the merger. On
October 29, 2010, CUCL and Unicom Group entered into a new comprehensive services agreement, or the
2010 comprehensive services agreement, to renew certain continuing related party transactions for a
term of three years commencing on January 1, 2011 and expiring on December 31, 2013.
Our related party transactions in connection with the lease of and the option to purchase the
CDMA network from Unicom Group were terminated upon the disposal of our CDMA business.
In January 2009, subsequent to our merger with China Netcom and the disposal of our CDMA
business, we completed our acquisitions, through CUCL, of certain telecommunications business and
assets from Unicom Group and Netcom Group, including the telecommunications business across 21
provinces in southern China.
The effects of certain of our and China Netcoms related party transactions that occurred
before 2008 (including, for example, those in relation to our and China Netcoms initial public
offerings) were not substantially affected by either our merger with China Netcom or the disposal
of our CDMA business.
-85-
Continuing Related Party Transactions under the 2010 Comprehensive Services Agreement
Under the two-step approach described under A. History and Development of the
CompanyTwo-Step Voting Arrangements of Item 4, the continuing transactions between CUCL and
Unicom Group under the comprehensive services agreement entered into in 2006 were amended, or the
amended comprehensive services agreement, effective upon the completion of our merger with China
Netcom, with CNC China added as party to such transactions. In January 2009, CNC China merged into
CUCL. Pursuant to the amended comprehensive services agreement, Unicom Group agreed to provide
certain services to CUCL and CNC China, being the supply of telephone cards, the provision of
equipment procurement services, interconnection arrangements, the mutual provision of premises, the
provision of international telecommunications network gateway, the provision of operator-based value-added services, the provision of value-added telecommunications services, the provision
of 10010/10011 customer services, the provision of agency services and the provision of
engineering design and technical services, until December 31, 2010. The total amount paid by CUCL
to Unicom Group (or its subsidiaries, other than us and our subsidiaries) under the 2006
comprehensive services agreement and the new comprehensive services agreement was approximately
RMB2.21 billion and RMB0.31 billion for continuing operations and discontinued operations,
respectively, in 2008. Unicom Group paid RMB0.18 million to CUCL in 2008.
On October 29, 2010, CUCL and Unicom Group entered into the 2010 comprehensive services
agreement to renew certain continuing connected transactions for a term of three years commencing
on January 1, 2011 and expiring on December 31, 2013. Unless CUCL notifies Unicom Group at least 60
days prior to the expiration of such agreement of their intention not to renew the 2010
comprehensive services agreement, such agreement shall automatically be renewed for a further
period of three years.
Details of the continuing related party transactions under the 2010 comprehensive services
agreement are summarized below.
Telecommunications Resources Leasing
Unicom Group agrees to lease to CUCL certain international telecommunications resources and
certain other telecommunications facilities required by CUCL for its operations.
The rental charges for the leasing of international telecommunications resources and other
telecommunications facilities are based on the annual depreciation charges of such resources and
telecommunications facilities provided that such charges would not be higher than market rates.
CUCL will be responsible for the on-going maintenance of the leased international
telecommunications resources. CUCL and Unicom Group will determine and agree which party is to
provide maintenance service to the leased telecommunications facilities. Unless otherwise agreed by
CUCL and Unicom Group, such maintenance service charges would be borne by CUCL. If Unicom Group is
responsible for maintaining any leased telecommunications facilities, CUCL will pay to Unicom Group
the relevant maintenance service charges which will be determined with reference to market rates,
or where there are no market rates, be agreed between the parties and determined on a cost-plus
basis. The net rental charges and service charges due to Unicom Group for the provision of the
leased telecommunications resources leasing will be settled between CUCL and Unicom Group on a
quarterly basis.
Property Leasing
CUCL and Unicom Group agree to lease to each other properties and ancillary facilities
belonging to CUCL or Unicom Group (including their respective branch companies and subsidiaries).
The rental charges payable by CUCL or Unicom Group are based on market rates or the
depreciation charges and taxes in respect of each property, provided that such rental charges will
not be higher than the market rates. The rental charges are payable quarterly in arrears and are
subject to review every year to take into account the then prevailing market rates of the
properties leased in that year.
-86-
Provision of Value-added Telecommunications Services
Unicom Group (or its subsidiaries) agrees to provide the customers of CUCL with various types
of value-added telecommunications services.
CUCL will settle the revenue generated from the value-added telecommunications services with
the branches of Unicom Group (or its subsidiaries) on the condition that such settlement will be
based on the average revenue for independent value-added telecommunications content providers who
provide value-added telecommunications content to CUCL in the same region. The revenue will be
settled on a monthly basis.
Provision of Equipment Procurement Services
Unicom Group agrees to provide comprehensive procurement services for imported and domestic
telecommunications equipment and other domestic non-telecommunications equipment to CUCL. Unicom
Group also agrees to provide services on management of tenders, verification of technical
specifications, installation, consulting and agency services.
In addition, Unicom Group will sell cable, modem and other materials operated by itself to
CUCL and will also provide storage and logistics services in relation to the above equipment and
materials procurement.
Charges for the provision of equipment procurement services are calculated at the rate of:
|
(a)
|
|
up to 3% of the contract value of those procurement contracts in the case of
domestic equipment procurement; and
|
|
(b)
|
|
up to 1% of the contract value of those procurement contracts in the case of
imported equipment procurement.
|
The charges for the provision of materials operated by Unicom Group are determined by
reference to the following pricing principles:
|
(A)
|
|
the government fixed price;
|
|
(B)
|
|
where there is no government fixed price but a government guidance price
exists, the government guidance price;
|
|
(C)
|
|
where there is neither a government fixed price nor a government guidance
price, the market price; or
|
|
(D)
|
|
where none of the above is applicable, the price to be agreed between the
parties and determined on a cost-plus basis.
|
The charges for the provision of storage and logistics services are determined by reference to
the market price, which is determined by reference to the following:
|
(I)
|
|
the price charged by an independent third party providing the services in the
same or nearby location in an ordinary business transaction; or
|
|
(II)
|
|
the price charged by an independent third party providing the services in
mainland China in an ordinary business transaction.
|
The service charges due to Unicom Group will be settled on a monthly basis.
-87-
Provision of Engineering Design and Construction Services
Unicom Group agrees to provide engineering design, construction and supervision services and
IT services to CUCL. Engineering design services include planning and design, engineering
inspection, telecommunications electronic engineering, telecommunications equipment engineering and
corporate telecommunications engineering. Construction services include services relating to
telecommunications equipment, telecommunications routing, power supplies, telecommunications
conduit, and technical support systems. IT services include services relating to office automation,
software testing, network upgrading, research and development of new business, and development of
support systems.
The charges for the provision of engineering design and construction services are determined
by reference to the market price, which is determined by reference to the following:
|
(a)
|
|
the price charged by an independent third party providing the services in the
same or nearby location in an ordinary business transaction; or
|
|
(b)
|
|
the price charged by an independent third party providing the services in
mainland China in an ordinary business transaction.
|
The service charges will be settled between CUCL and Unicom Group as and when the relevant
services are provided.
Provision of Ancillary Telecommunications Services
Unicom Group agrees to provide ancillary telecommunications services to CUCL. These services
include certain telecommunications pre-sale, on-sale and after-sale services such as assembling and
repairing of certain telecommunications equipment, sales agency services, printing and invoice
delivery services, maintenance of telephone booths, customers acquisitions and servicing and other
customers services.
The charges payable for the provision of ancillary telecommunications services are determined
by reference to the following pricing principles:
|
(a)
|
|
the government fixed price;
|
|
(b)
|
|
where there is no government fixed price but a government guidance price
exists, the government guidance price;
|
|
(c)
|
|
where there is neither a government fixed price nor a government guidance
price, the market price; or
|
|
(d)
|
|
where none of the above is applicable, the price to be agreed between the
parties and determined on a cost-plus basis.
|
The service charges will be settled between CUCL and Unicom Group as and when the relevant
services are provided.
-88-
Provision of Comprehensive Support Services
Unicom Group and CUCL agree to provide comprehensive support services to each other, including
dining services, facilities leasing services (excluding those facilities which are provided under
the paragraph headed Provision of Telecommunications Resources Leasing above), vehicle services,
health and medical services, labour services, security services, hotel and conference services,
gardening services, decoration and renovation services, sales services, construction agency,
equipment maintenance services, market development, technical support services, research and
development services, sanitary services, parking services, staff trainings, storage services,
advertising services, marketing, property management services, information and communications
technology services (including construction and installation services, system integration services,
software development, product sales and agent services, operation and maintenance services, and
consultation services).
The service charges are determined by reference to the following pricing principles:
|
(a)
|
|
the government fixed price;
|
|
(b)
|
|
where there is no government fixed price but a government guidance price
exists, the government guidance price;
|
|
(c)
|
|
where there is neither a government fixed price nor a government guidance
price, the market price; or
|
|
(d)
|
|
where none of the above is applicable, the price to be agreed between the
parties and determined on a cost-plus basis.
|
The service charges will be settled between CUCL and Unicom Group as and when the relevant
services are provided.
Provision of Shared Services
Unicom Group and CUCL agree to provide shared services to each other, including, but not
limited to, the following:
|
(a)
|
|
CUCL will provide headquarter human resources services to Unicom Group;
|
|
(b)
|
|
Unicom Group and CUCL will provide central business support services to each
other;
|
|
(c)
|
|
CUCL will provide trust services related to the services referred to in
paragraphs (a) and (b) above to Unicom Group; and
|
|
(d)
|
|
Unicom Group will provide premises to CUCL and other shared services requested
by its headquarters.
|
In relation to the central business support services Unicom Group and CUCL will provide to
each other, CUCL will provide support services, such as billing and settlement services provided by
the business support centre and operational statistics reports. Unicom Group will provide support
services, including telephone card production, development and related services, maintenance and
technical support and management services in relation to the telecommunications card operational
system.
Unicom Group and CUCL will share the costs related to the shared services proportionately in
accordance with their respective total assets value, except that the total assets value of the
overseas subsidiaries and the listed company of Unicom Group will be excluded from the total asset
value of Unicom Group, and the shared costs proportion will be agreed between Unicom Group and CUCL
in accordance with the total assets value set out in the financial statements provided to each
other, as adjusted in accordance with their respective total assets value on an annual basis.
-89-
Historical Related Party Transactions between China Unicoms Subsidiaries and Unicom Group
Certain subsidiaries of China Unicom and Unicom Group entered into a number of framework
agreements, all of which expired by the end of 2010. Details of the related party transactions
under such agreements are summarized below.
Domestic Interconnection Settlement Agreement
CNC China and Netcom Group entered into a domestic interconnection settlement agreement on
November 6, 2007, which renewed a previous similar agreement, for a term of three years commencing
on January 1, 2008. As CNC China and Netcom Group were merged into CUCL and Unicom Group,
respectively, in January 2009, the parties to the agreement became CUCL and Unicom Group. If CUCL
notifies Unicom Group at least three months prior to the expiration of the domestic interconnection
settlement agreement of its intention to renew the agreement, it can be renewed with the same terms
for further three-year periods.
Pursuant to the domestic interconnection settlement agreement, the parties agree to
interconnect the networks of Unicom Group and CUCL and settle the charges received in respect of
domestic long distance voice services within their respective service regions on a quarterly basis.
For domestic long distance voice services between Unicom Group and CUCL, the telephone
operator in the location of the calling party makes a settlement payment to the telephone operator
in the location of the called party at the rate of RMB0.06 per minute, irrespective of whether the
call terminates within the network of either Unicom Group or CUCL or outside the network of either
Unicom Group or CUCL. The rate of RMB0.06 per minute is adjustable with reference to the relevant
standards, tariffs or policies promulgated by the relevant regulatory authorities in the PRC from
time to time. In the case where the call terminates outside the network of either Unicom Group or
CUCL, the settlement payment is at the rate of RMB0.06 per minute.
International Long Distance Voice Services Settlement Agreement
CNC China and Netcom Group entered into an international long distance voice services
settlement agreement on November 6, 2007, which renewed a previous similar agreement, for a term of
three years commencing on January 1, 2008. As CNC China and Netcom Group were merged into CUCL and
Unicom Group, respectively, in January 2009, the parties to the agreement became CUCL and Unicom
Group. If CUCL notifies Unicom Group at least three months prior to the expiration of the
international long distance voice services settlement agreement of its intention to renew the
agreement, it can be renewed with the same terms for further three-year periods.
Pursuant to the international long distance voice services settlement agreement, the parties
agree to interconnect the networks of Unicom Group and CUCL and settle the charges received in
respect of international long distance voice services on a quarterly basis.
For outbound international calls from the PRC, Unicom Group reimburses CUCL for any amount
CUCL pays to overseas telecommunications operators. The revenue received by Unicom Group less the
amount paid to overseas telecommunications operators are shared between Unicom Group and CUCL in
proportion to the estimated costs incurred by Unicom Group and CUCL in connection with the
provision of outbound international long distance voice services.
For inbound international calls into the PRC, the revenue received by CUCL from overseas
telecommunications operators (other than China Netcom and entities under its control) less the
amount paid to Unicom Group at the rate of RMB0.06 per minute (irrespective of whether the call
terminates within the network of Unicom Group or within the network of other telecommunications
operators) are shared between Unicom Group and CUCL in proportion to the estimated costs incurred
by Unicom Group and CUCL in connection with the provision of inbound international long distance
voice services. The rate of RMB0.06 per minute is adjustable with reference to the relevant
standards, tariffs or policies promulgated by the relevant regulatory authorities in the PRC from
time to time.
In the case where an inbound international call terminates within the network of
telecommunications operators other than Unicom Group, an amount calculated at the rate of RMB0.06
per minute is paid to Unicom Group by CUCL.
-90-
Framework Agreement for Interconnection Settlement
CUCL and Unicom Group entered into a framework agreement for interconnection settlement on
August 12, 2008, to record the principles governing, and the principal terms of, the then-existing
continuing transactions between the parties whereby the parties agreed to interconnect the networks
of Unicom Group and CUCL and settle charges received in respect of domestic long distance voice
services within their respective service regions and international long distance voice services.
Pursuant to the framework agreement for interconnection settlement, within the local networks,
when a CUCL mobile telephone customer calls a Unicom Group fixed-line customer, or when customers
of the two operators make inter-network calls to various call centers, the telephone operator in the location of
the calling party makes a settlement payment to the telephone operator in the location of the
called party at the rate of RMB0.06 per minute. When a Unicom Group fixed-line customer calls a
CUCL mobile telephone customer, there shall be no settlement provisionally.
When a CUCL mobile telephone user chooses to use Unicom Groups domestic or international long
distance call services, or when a Unicom Group local fixed-line user chooses to use CUCLs domestic
or international long distance call services, the telephone operator in the location of the
receiver makes a settlement payment to the telephone operator in the location of the calling party
at the rate of RMB0.06 per minute.
For domestic long distance voice services and Internet protocol voice services from one
operator to another or for international voice services and international Internet protocol voice
services from one operator to another, the telephone operator in the location of the calling party
makes a settlement payment to the telephone operator in the location of the receiver at the rate of
RMB0.06 per minute.
However, for domestic long distance voice services between the parties where the calling party
is unable to choose to use a third-party operator, the settlement payment rate will be RMB0.34 per
minute if the call is made between 0:00 and 07:00 hours and RMB0.54 per minute if the call is made
between 07:00 and 23:59 hours. For calls that need to be transferred to a third-party operator, the
settlement rate for the transfer is RMB0.03 per minute.
Engineering and Information Technology Services Agreement and Framework Agreement for Engineering
and Information Technology Services
CNC China and Netcom Group entered into an engineering and information technology services
agreement on November 6, 2007, which renewed a previous similar agreement, for a term of three
years commencing on January 1, 2008. As CNC China and Netcom Group were merged into CUCL and Unicom
Group, respectively, in January 2009, the parties to the agreement became CUCL and Unicom Group. If
CUCL notifies Unicom Group at least three months prior to the expiration of the engineering and
information technology services agreement of its intention to renew the agreement, it can be
renewed with the same terms for further three-year periods.
CUCL and Unicom Group entered into a framework agreement for engineering and information
technology services on August 12, 2008 to record the principles governing, and the principal terms
of, the then-existing continuing transactions between the parties relating to the provision of
certain engineering and information technology-related services to CUCL by Unicom Group.
Under the engineering and information technology services agreement and framework agreement
for engineering and information technology services, Unicom Group agrees to provide to CUCL certain
engineering and information technology-related services, which include planning, surveying, design,
construction and supervision services in relation to telecommunications engineering projects and
information technology services, including office automation, software testing, network upgrade,
new business development and support system development.
The charges payable for engineering and information technology-related services described
above are determined with reference to the relevant market rates. In addition, where the value of
any single item of engineering design or supervision-related services is expected to exceed RMB0.5
million or where the value of any single item of engineering construction-related services is
expected to exceed RMB2 million, the award of such services will be subject to competitive bidding.
The charges are settled between CUCL and Unicom Group as and when the relevant services are
provided.
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Master Sharing Agreement
CNC China and Netcom Group entered into a master sharing agreement on November 6, 2007, which
renewed a previous similar agreement, for a term of three years commencing on January 1, 2008. As
CNC China and Netcom Group were merged into CUCL and Unicom Group, respectively, in January 2009,
the parties to the agreement became CUCL and Unicom Group. If CUCL notifies Unicom Group at least three months
prior to the expiration of the master sharing agreement of its intention to renew the agreement, it
can be renewed with the same terms for further three-year periods.
Pursuant to the master sharing agreement:
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(a)
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CUCL agrees to provide customer relationship management services for large
enterprise customers of Unicom Group;
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(b)
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CUCL agrees to provide network management services to Unicom Group;
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(c)
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CUCL agrees to share with Unicom Group the services provided by administrative
and managerial staff in respect of central management of the business operations,
financial control, human resources and other related matters of both CUCL and Unicom
Group;
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(d)
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CUCL agrees to provide to Unicom Group supporting services, such as billing and
settlement provided by CUCLs business support center;
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(e)
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Unicom Group agrees to provide to CUCL supporting services, including telephone
card production, development and certain related services;
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(f)
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Unicom Group agrees to provide to CUCL certain other shared services, including
advertising, publicity, research and development, business hospitality, maintenance and
property management;
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(g)
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Unicom Group agrees to provide certain office space in its headquarters to CUCL
for use as CUCLs principal executive office; and
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(h)
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CUCL and Unicom Group agree to share the revenue received by Unicom Group from
other telecommunications operators whose networks interconnect with the Internet
backbone network of Unicom Group and share the monthly connection fee that Unicom Group
pays to the State Internet Switching Center.
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CUCL and Unicom Group co-own certain equipment and facilities that form the Internet backbone
network of the PRC. This Internet backbone network interconnects with the networks of other
telecommunications operators. Such interconnection arrangements generate revenue which other
telecommunications operators settle with Unicom Group, and such revenue are shared between Unicom
Group and CUCL under the master sharing agreement.
The services referred to in clauses (a) to (g) above are provided by CUCL or Unicom Group and
the revenue and fees referred to in clause (h) above are shared between CUCL and Unicom Group on an
ongoing basis from time to time. The aggregate costs incurred by CUCL or Unicom Group for the
provision of the services referred to in clauses (a) to (g) above and the revenue and fees
receivable and payable by CUCL or Unicom Group as referred to in clause (h) above are apportioned
between CUCL and Unicom Group according to their respective total asset values as shown in their
respective financial statements on an annual basis.
-92-
Property Leasing Agreement and Framework Agreement for Property Leasing
CNC China and Netcom Group entered into a property leasing agreement on November 6, 2007,
which renewed a previous similar agreement, for a term of three years commencing on January 1,
2008. As CNC China and Netcom Group were merged into CUCL and Unicom Group, respectively, in
January 2009, the parties to the agreement became CUCL and Unicom Group. If CUCL notifies Unicom
Group at least three months prior to the expiration of the property leasing agreement of its
intention to renew the agreement, it can be renewed on the same terms for further three-year
periods.
CUCL and Unicom Group entered into a framework agreement for property leasing on August 12,
2008 to record the principles governing, and the principal terms of, the then-existing continuing
transactions between the parties relating to the leasing of properties (including offices and
storage facilities) by CUCL from Unicom Group.
Pursuant to the property leasing agreement and the framework agreement for property leasing,
CUCL agrees to lease to Unicom Group certain properties located throughout CUCLs service regions
for Unicom Groups use as offices and for other ancillary purposes, and Unicom Group agrees to
lease to CUCL certain properties located throughout CUCLs service regions for CUCLs use as
offices and telecommunications equipment sites and for other ancillary purposes.
The charges payable by CUCL and by Unicom Group under the property leasing agreement are based
on the relevant market rates or the depreciation charges and taxes in respect of each property,
provided that such depreciation charges and taxes shall not be higher than the market rates. The
charges are payable quarterly in arrears and are subject to review every year to take into account
the then-prevailing market rates of the properties leased in that year.
Materials Procurement Agreement
CNC China and Netcom Group entered into a materials procurement agreement on November 6, 2007,
which renewed a previous similar agreement, for a term of three years commencing on January 1,
2008. As CNC China and Netcom Group were merged into CUCL and Unicom Group, respectively, in
January 2009, the parties to the agreement became CUCL and Unicom Group. If CUCL notifies Unicom
Group at least three months prior to the expiration of the materials procurement agreement of its
intention to renew the agreement, it can be renewed on the same terms for further three-year
periods.
Pursuant to the materials procurement agreement:
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(a)
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CUCL may request Unicom Group to act as its agent for the procurement of
imported and domestic telecommunications equipment and other domestic
non-telecommunications equipment;
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(b)
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CUCL may purchase from Unicom Group certain products, including cables, modems
and telephone directories; and
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(c)
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Unicom Group agrees to provide to CUCL storage and transportation services
related to the procurement and purchase of materials or equipment under the agreement.
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Under the materials procurement agreement, commissions and/or charges for the domestic
materials procurement services referred to in clause (a) above cannot exceed 3% of the value of the
relevant contract. Commissions and/or charges for the imported materials procurement services
referred to in clause (a) above cannot exceed 1% of the value of the relevant contract. The price
for the purchases of Unicom Groups products referred to in clause (b) above is determined with
reference to the following pricing principles and limits:
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the price fixed by the PRC Government;
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where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price;
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where there is neither a government-fixed price nor a government-recommended price,
the market price; or
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where none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
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Commission and/or charges for the storage and transportation services referred to in clause
(c) above are to be determined with reference to the relevant market rates. Payments under the materials
procurement agreement will be made as and when the relevant equipment or products are procured and
delivered.
Ancillary Telecommunications Services Agreement and Framework Agreement for Ancillary
Telecommunications Services
CNC China and Netcom Group entered into an ancillary telecommunications services agreement on
November 6, 2007, which renewed a previous similar agreement, for a term of three years commencing
on January 1, 2008. As CNC China and Netcom Group were merged into CUCL and Unicom Group,
respectively, in January 2009, the parties to the agreement became CUCL and Unicom Group. If CUCL
notifies Unicom Group at least three months prior to the expiration of the ancillary
telecommunications services agreement of its intention to renew the agreement, it can be renewed on
the same terms for further three-year periods.
CUCL and Unicom Group entered into a framework agreement for ancillary telecommunications
services on August 12, 2008 to record the principles governing, and the principal terms of, the
then-existing continuing transactions between the parties relating to the provision of ancillary
telecommunications services to CUCL by Unicom Group.
Under the ancillary telecommunications services agreement and the framework agreement for
ancillary telecommunications services, Unicom Group agrees to provide certain ancillary
telecommunications services to CUCL. These services include certain pre-sale, on-sale and
after-sale telecommunications services, such as assembling and repairing of telecommunications
equipment, sales agency services, printing and invoice delivery services, maintenance of telephone
booths, customer acquisition and servicing, and other customer services.
The charges payable for the services described above are determined with reference to the
following pricing principles and limits:
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the price fixed by the PRC Government;
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where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price;
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where there is neither a government-fixed price nor a government-recommended price,
the market price; or
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where none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
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The service charges are settled between CUCL and Unicom Group as and when the relevant
services are provided.
-94-
Support Services Agreement and Framework Agreement for Support Services
CNC China and Netcom Group entered into a support services agreement on November 6, 2007,
which renewed a previous similar agreement, for a term of three years commencing on January 1,
2008. As CNC China and Netcom Group were merged into CUCL and Unicom Group, respectively, in
January 2009, the parties to the agreement became CUCL and Unicom Group. If CUCL notifies Unicom
Group at least three months prior to the expiration of the support services agreement of its
intention to renew the agreement, it can be renewed on the same terms for further three-year
periods.
CUCL and Unicom Group entered into a framework agreement for support services on August 12,
2008 to record the principles governing, and the principal terms of, the then-existing continuing
transactions between the parties relating to the provision of various support services to CUCL by
Unicom Group, including equipment leasing and maintenance services, motor vehicle services, security services, basic construction agency
services, research and development services, employee training services, advertising services and
other support services.
Pursuant to the support services agreement and the framework agreement for support services,
Unicom Group agrees to provide CUCL with various support services, including equipment leasing
(other than equipment covered under the telecommunications facilities leasing agreement discussed
below) and maintenance services, motor vehicle services, security services, basic construction
agency services, research and development services, employee training services, advertising
services and other support services.
The charges payable for the services described above are determined with reference to the
following pricing principles and limits:
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the price fixed by the PRC Government;
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where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price;
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where there is neither a government-fixed price nor a government-recommended price,
the market price; or
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where none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
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The service charges are settled between CUCL and Unicom Group as and when the relevant
services are provided.
Telecommunications Facilities Leasing Agreement and Framework Agreement for Telecommunication
Facilities Leasing
CNC China and Netcom Group entered into a telecommunications facilities leasing agreement on
November 6, 2007, which renewed a previous similar agreement, for a term of three years commencing
on January 1, 2008. As CNC China and Netcom Group were merged into CUCL and Unicom Group,
respectively, in January 2009, the parties to the agreement became CUCL and Unicom Group. If CUCL
notifies Unicom Group at least three months prior to the expiration of the telecommunications
facilities leasing agreement of its intention to renew the agreement, such agreement can be renewed
on the same terms for further three-year periods.
CUCL and Unicom Group entered into a framework agreement for telecommunications facilities
leasing on August 12, 2008 to record the principles governing, and the principal terms of, the
then-existing continuing transactions between the parties relating to the lease by Unicom Group of
certain international telecommunications resources and certain other telecommunications facilities
to CUCL.
-95-
Pursuant to the telecommunications facilities leasing agreement and the framework agreement
for telecommunications facilities leasing:
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(a)
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Unicom Group agrees to lease certain inter-provincial fiber optic cables within
CUCLs service regions to CUCL;
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(b)
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Unicom Group agrees to lease certain international telecommunications resources
(including international telecommunications channel gateways, international
telecommunications service gateways, international submarine cable capacity,
international land cables and international satellite facilities) to CUCL; and
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(c)
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Unicom Group agrees to lease to CUCL certain other telecommunications
facilities required by CUCL for its operations.
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The rental charges for the leasing of the inter-provincial fiber optic cables, international
telecommunications resources and other telecommunications facilities are based on the annual
depreciation charges of such fiber optic cables, resources and telecommunications facilities,
provided that such charges would not be higher than the relevant market rates. CUCL is responsible
for the ongoing maintenance of such inter-provincial fiber optic cables and international
telecommunications resources. CUCL and Unicom Group shall determine and agree which party is to
provide maintenance service to the telecommunications facilities referred to in clause (c) above.
Unless otherwise agreed by CUCL and Unicom Group, such maintenance service charges would be borne
by CUCL. If Unicom Group shall be responsible for maintaining any telecommunications facilities
referred to in clause (c) above, CUCL shall pay to Unicom Group the relevant maintenance service
charges, which shall be agreed between the parties and determined on a cost-plus basis. The net
rental charges and service charges due to Unicom Group under the telecommunications facilities
leasing agreement are settled between CUCL and Unicom Group on a quarterly basis.
Information and Communications Technology Agreement
China Netcom System Integration Limited Corporation, which also became one of our subsidiaries
upon the completion of our merger with China Netcom and changed its name to China Unicom System
Integration Limited Corporation, and Unicom Group entered into an information and communications
technology agreement on November 6, 2007, which replaced a previous similar agreement, for a term
of three years commencing on January 1, 2008. If both parties agree, the agreement can be renewed
with the same terms for further three-year periods.
Pursuant to the information and communications technology agreement:
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(a)
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China Unicom System Integration (and its subsidiaries) agrees to provide
information and communications technology services to Unicom Group (and its
subsidiaries, other than China Unicom and its subsidiaries), which include system
integration services, software development services, operational maintenance services,
consultancy services, equipment leasing-related services and product sales-and
distribution-related services; and
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(b)
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China Unicom System Integration agrees to subcontract services ancillary to the
provision of information and communications technology services referred to in clause
(a) above, namely, system installation and configuration services, to the subsidiaries
and branches of Unicom Group (other than China Unicom and its subsidiaries) in Unicom
Groups southern service regions in the PRC.
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The charges payable for the services provided under the information and communications
technology agreement are determined with reference to the following pricing principles and limits:
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the price fixed by the PRC Government;
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where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price; or
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where there is neither a government-fixed price nor a government-recommended price,
the market price.
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In relation to the charges payable for the services provided under the information and
communications technology agreement that are to be determined with reference to the market price:
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if the value of any single item of system installation and configuration services
provided by Unicom Group (and its subsidiaries, other than China Unicom and its
subsidiaries) to China Unicom System Integration (and its subsidiaries) is expected to
exceed RMB0.3 million, the award of such services will be subject to competitive bidding; or
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if the value of any single item of system integration, software development,
operational maintenance, consultancy and equipment leasing-related services is expected
to exceed RMB0.5 million, or where the value of any single item of product sales and
distribution related services is expected to exceed RMB2 million, the award of such
services will be subject to competitive bidding.
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Leasing of CDMA Network Capacity
Prior to our sale of CDMA business in 2008, we had leased all of the constructed CDMA network
capacity from Unicom Group and operated these CDMA networks in our cellular service areas on an
exclusive basis and received all revenue generated from the operation. We paid a lease fee of
RMB8.4 billion and RMB6.0 billion for 2007 and 2008, respectively. In addition to leasing network
capacity, we also had the option, exercisable at any time during the lease period and for an
additional year thereafter, to purchase the CDMA network in our cellular service areas. See A.
History and Development of the Company Sale of CDMA Business, Merger with China Netcom and
Related Transactions under Item 4.
Acquisitions of Fixed-Line Business in 21 Provinces in Southern China and Other Assets from Parent
Companies and Lease of Telecommunications Networks in 21 Provinces in Southern China
Under the two-step voting mechanism described in A. History and Development of the
CompanyTwo-Step Voting Arrangements under Item 4, we completed our acquisitions, through CUCL,
of certain telecommunications business and assets, including the telecommunications business across
21 provinces in southern China, from Unicom Group and Netcom Group pursuant to (1) an acquisition
agreement entered into among Unicom Group, Netcom Group and the A
Share Company on December 16,
2008, under which the A Share Company agreed to acquire the relevant business and assets and (2) a
transfer agreement entered into between the A Share Company and CUCL on December 16, 2008, under
which the A Share Company agreed to transfer all of its rights and obligations under the
acquisition agreement to CUCL. In addition, in order to operate the fixed-line business in the 21
provinces in southern China, on December 16, 2008, CUCL entered into a network lease agreement, or
the initial lease, with Unicom Group, Netcom Group and Unicom New Horizon, a wholly-owned
subsidiary of Unicom Group, to lease on an exclusive basis the telecommunications networks in those
provinces, which are held by Unicom New Horizon and are necessary for the operation of the
fixed-line business in southern China. The initial lease became effective in January 2009 upon the
completion of our acquisitions of the fixed-line business in southern China and was for an initial
term of two years effective from January 2009. In connection with the lease, Unicom New Horizon
also granted CUCL an option, but not an obligation, to purchase the telecommunications networks
leased in southern China. See A. History and Development Acquisitions of Fixed-Line Business in
21 Provinces in Southern China and Other Assets from Parent Companies and Lease of
Telecommunications Networks in 21 Provinces in Southern China under Item 4.
-97-
On October 29, 2010, CUCL entered into the 2011-2012 Network Lease Agreement, with Unicom New
Horizon, which became effective on January 1, 2011. The 2011-2012 Network Lease Agreement is for an
initial term of two years effective from January 1, 2011 and is renewable at the option of CUCL
with at least two months prior notice on the same terms and conditions, except for the future
lease fee which will remain subject to further negotiations between the parties. The annual lease
fee payable by CUCL under the initial lease for the years ending December 31, 2009 and 2010 was
RMB2.0 billion and RMB2.2 billion, respectively, and the annual lease fee payable by CUCL under the
2011-2012 Network Lease Agreement for the years ending December 31, 2011 and 2012 is RMB2.4 billion
and RMB2.6 billion, respectively. In connection with the 2011-2012 Network Lease Agreement, Unicom
New Horizon also granted CUCL an option, but not an obligation, to purchase the telecommunications
networks leased in southern China. The purchase option may be exercised, at the discretion of CUCL,
at any time during the term of the lease. No premium has been paid or will be payable by CUCL for
such purchase option. In the event that CUCL elects to exercise this purchase option, the parties
will discuss and negotiate the purchase price with reference to the appraised value of the
telecommunications networks in southern China, which is to be determined in accordance with
applicable laws of Hong Kong and the PRC, after taking into account the prevailing market conditions and other factors. Under the 2011-2012 Network Lease Agreement, CUCL is responsible
for the ongoing cost and expenses incurred in respect of the maintenance and management which may
arise from the use of the leased telecommunications networks in southern China.
Mergers of Parent Companies and Subsidiaries
As part of our integration with China Netcom, our wholly-owned subsidiary, CUCL, merged with
CNC China, a wholly-owned subsidiary of China Netcom, with effect from January 2009, and upon such
merger becoming effective, CUCL assumed all the rights and obligations of CNC China, and all the
assets, liabilities and business of CNC China were vested in CUCL. In addition, China Netcoms
parent, Netcom Group, also merged with our parent, Unicom Group, with effect from January 2009, and
upon such merger becoming effective, Unicom Group assumed all the rights and obligations of Netcom
Group, and all the assets, liabilities and business of Netcom Group were vested in Unicom Group.
Certain Agreements Relating to Our Initial Public Offering
The Reorganization Agreement
In relation to the restructuring in connection with our initial public offering, our
wholly-owned subsidiary, CUCL, entered into a reorganization agreement with Unicom Group, dated
April 21, 2000. This agreement includes the following terms:
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Unicom Groups agreement to transfer to CUCL certain assets and liabilities;
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mutual warranties and indemnities given by Unicom Group and CUCL in relation to the
assets and liabilities transferred to CUCL and in relation to the restructuring;
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undertakings by Unicom Group in favor of CUCL, including, among other things:
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to hold and maintain all licenses received from the former Ministry of
Information Industry in connection with any of our businesses for our benefit,
and to allocate spectrum and to provide other resources to us;
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subject to applicable Chinese laws and regulations in effect at the relevant
time, to take all actions necessary to obtain, maintain, renew and otherwise
extend to or for our benefit such governmental or regulatory licenses,
consents, permits or other approvals as we shall require to continue to operate
our businesses;
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to arrange for us to participate in its international roaming arrangements;
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not to engage in any business that competes with our businesses, except for
the existing competing businesses of Unicom Group;
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to grant us a right of first refusal in relation to any governmental
authorization, license or permit, or other business opportunity to develop any
new telecommunications technology, product or service;
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-98-
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to ensure that we can continue to use the premises for which title
documentation cannot be obtained at this time, for a period of three years
following the restructuring;
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not to dispose of any of our shares it beneficially owns or to take or
permit any other actions, including primary issuances of securities by us or
CUCL, which would result in us or CUCL no longer constituting majority-owned
subsidiaries of Unicom Group; and
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not to seek an overseas listing for any of its businesses or the businesses
of its subsidiaries in which we are engaged or may engage in the future except
through us;
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an option granted by Unicom Group to us to acquire Unicom Groups interest in any
telecommunications interest, such as Unicom Paging, Unicom Xingye and Unicom Groups
CDMA telephony license and business; and
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a commitment by Unicom Group that it will provide continuous financial support to us
when necessary.
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The new comprehensive services agreement entered into in 2008 provides that the determination
of whether we or CUCL would constitute majority-owned subsidiaries of the Unicom Group shall be
made in accordance with the PRC Enterprise Accounting Standards, as amended by the Ministry of
Finance from time to time.
Trademark Agreement
Unicom Group is the registered owner of the Unicom trademark in English, the trademark bearing
the Unicom logo and the trademark of the word Unicom in Chinese (
), which are registered at
the PRC State Trademark Bureau. Under a PRC trademark license agreement entered into on May 25,
2000 between Unicom Group and CUCL, CUCL and our affiliates were granted the right to use these
trademarks on a royalty-free basis for an initial period of five years, renewable at the option of
CUCL. Under the terms of this agreement, we and our affiliates are the exclusive licensees of these
trademarks, provided that Unicom Group may also license these trademarks to any of its existing or
future subsidiaries. Unicom Group also agreed to license to CUCL any trademark that it registers in
China in the future that incorporates the word Unicom.
Our Roaming Arrangements
Prior to the acquisition of Unicom Guizhou, we and Unicom Group provided roaming services to
each other. In addition, we made our long distance network available to Unicom Group in its
implementation of its roaming arrangements with other operators. CUCL previously entered into two
services agreements with Unicom Group, dated May 25, 2000 and November 22, 2001, respectively, and
each of Unicom New Century and Unicom New World previously entered into a services agreement with
Unicom Group, dated November 20, 2002 and November 20, 2003, respectively. These four services
agreements provided for our roaming arrangements with Unicom Group, under which charges for these
roaming services between us and Unicom Group were based on our respective internal costs of
providing these services, and would be on no less favorable terms than those available to any
third-party. We received 50% of Unicom Groups international roaming revenue from third-party
cellular international operators for calls using our long distance network.
-99-
Under the 2006 comprehensive services agreement between Unicom Group and us, the roaming fee
arrangements between Unicom Group and us are as follows:
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The cellular subscribers using roaming services will pay roaming fees at the agreed
rate of RMB0.60 per minute of roaming usage for both incoming and outgoing calls, based
on the guidelines of the former Ministry of Information Industry.
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If our cellular subscribers roam in the service areas of Unicom Group, we
will be entitled to receive the roaming fees, which will be apportioned in the
following way: (i) RMB0.40 per minute (the rate for local call charges under
the guidelines of the former Ministry of Information Industry) will be paid to
Unicom Group; and (ii) the remaining RMB0.20 per minute will be withheld by us;
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If the cellular subscribers of Unicom Group roam in our service areas,
Unicom Group will be entitled to receive the roaming fees, which will be
apportioned in the following way: (i) RMB0.56 per minute will be paid to us;
and (ii) RMB0.04 per minute will be withheld by Unicom Group; and
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If our cellular business expands to cover all regions throughout the PRC,
the arrangements set out above will be terminated automatically.
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If the network of a third-party cellular network operator is made available to the
cellular subscribers of Unicom Group pursuant to the international roaming arrangements
of Unicom Group, or if the network of Unicom Group is made available to the subscribers
of any third-party cellular network operator pursuant to such arrangements, we will
receive 50% of all roaming revenue to be received under such international roaming
arrangements.
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Prior to our acquisition of Unicom Guizhou, Unicom Guizhou operated the only CDMA cellular
network of Unicom Group that we did not lease and the only GSM cellular network of Unicom Group.
Upon the completion of such acquisition in December 2007, our cellular networks covered all regions
in China and Unicom Group no longer operated any cellular networks in China. As a result of such
acquisition, all transactions, including roaming arrangements, between Unicom Guizhou and us were
eliminated and not treated as related party transactions retroactively. Similarly, the roaming
arrangements for cellular networks between Unicom Group and us became no longer applicable. See A.
History and Development of the Company Unicom Acquisitions and Sales under Item 4.
C. Interests of
Experts
and Counsel
Not applicable.
Item 8. Financial Information
See Item 18 Financial Statements. Other than as disclosed elsewhere in this annual report,
no significant change has occurred since the date of the annual financial statements.
Legal Proceedings
We are not involved in any material litigation, arbitration or administrative proceedings. We
are not aware of any pending or threatened litigation, arbitration or administrative proceedings
expected to have a material effect on our financial condition and results of operations.
Policy on Dividend Distribution
The objective of our dividend policy is to achieve a long-term, sustainable and steadily
increasing dividend, with a view to maximize our shareholders value. The declaration and payment
of future dividends will depend upon, among other things, financial condition, business prospects,
future earnings, cash flow, liquidity level and cost of capital. We believe such policy will
provide our shareholders with a stable return in the long term along with the growth of our
company. We may only pay dividends out of our distributable profits.
-100-
Based on the Companys financial position in 2010 and taking into account the development
needs of the mobile and fixed-line broadband businesses, our board of directors recommended the
payment of a final dividend of RMB0.08 per share for the year ended December 31, 2010, compared to
RMB0.16 per share for the fiscal year ended December 31, 2009.
Item 9. The Offer and Listing
Market Price Information
Our ADSs, each representing ten ordinary shares, are listed and traded on the NYSE. Our
ordinary shares are listed and traded on the HKSE. The NYSE and the HKSE are the principal trading
markets for our ADSs and ordinary shares, which are not listed on any other exchanges in or outside
the United States.
The high and low closing prices of our ordinary shares on the HKSE and of our ADSs on the NYSE
since listing are as follows:
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Price per Ordinary Share
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(HK$)
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Price per ADS (US$)
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High
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Low
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High
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Low
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Annual:
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2006
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12.44
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6.25
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15.46
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8.03
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2007
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18.80
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9.18
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24.52
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11.75
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2008
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19.58
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8.53
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25.07
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10.27
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2009
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12.34
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6.84
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15.75
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8.72
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2010
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12.16
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8.31
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15.54
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10.58
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Quarterly:
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First Quarter, 2009
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10.86
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6.84
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14.06
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8.72
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Second Quarter, 2009
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11.86
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7.46
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15.50
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9.86
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Third Quarter, 2009
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12.34
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9.91
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15.75
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12.61
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Fourth Quarter, 2009
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11.22
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9.63
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14.47
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12.46
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First Quarter, 2010
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10.40
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8.31
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13.41
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10.58
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Second Quarter, 2010
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10.76
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8.84
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13.55
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11.09
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Third Quarter, 2010
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12.16
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9.96
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15.54
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12.55
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Fourth Quarter, 2010
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11.68
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10.32
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15.06
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13.34
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First Quarter, 2011
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13.58
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11.04
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17.49
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14.11
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Monthly:
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November 2010
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11.46
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10.32
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14.58
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13.17
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December 2010
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11.68
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10.44
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15.00
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13.52
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January 2011
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13.00
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11.04
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16.52
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14.11
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February 2011
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13.50
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12.40
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17.49
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15.99
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March 2011
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13.58
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12.34
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17.32
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15.30
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April 2011
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16.14
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13.40
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20.46
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17.26
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May 2011(through May 25, 2011)
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16.64
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15.12
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21.24
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19.50
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-101-
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
General
Under our Articles of Association, we have the capacity, rights, powers, liabilities and
privileges of a natural person and, in addition to and without limiting the forgoing, we may do
anything which is permitted or required to be done by any enactment or rule of law. The following
is a summary of selected provisions of our Articles of Association:
Directors
Material Interests and Voting
A director shall not vote (or be counted in the quorum) on any resolution of our board of
directors in respect of any contract or arrangement or proposal in which he or any of his
associates (as defined in the HKSE Listing Rules) is, to his knowledge, materially interested, and
if he shall do so, his vote shall not be counted (nor shall he be counted in the quorum for that
resolution), but this prohibition does
not
apply to any contract, arrangement or other
proposal for or concerning:
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the giving of any security or indemnity either (i) to the director or any of his
associates (as defined in the HKSE Listing Rules) in respect of money lent or
obligations incurred or undertaken by him or any of them at the request of or for the
benefit of Unicom or any of its subsidiaries or (ii) to a third-party in respect of a
debt or obligation of Unicom or any of its subsidiaries for which the director or any
of his associates has assumed responsibility in whole or in part and whether alone or
jointly under a guarantee or indemnity or by the giving of security;
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an offer of shares or debentures or other securities of or by Unicom (or any other
company which Unicom may promote or be interested in) where the director or any of his
associates is or will be an interested participant in the underwriting or
sub-underwriting of the offer;
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any contract or arrangement in which the director or any of his associates is
interested in the same manner as other holders of shares or debentures or other
securities of Unicom by virtue only of his interest in shares or debentures or other
securities of Unicom;
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any other company in which the director or any of his associates is interested only,
whether directly or indirectly, as an officer or shareholder or in which the director
or any of his associates is beneficially interested in shares of that company, provided
that he, together with any of his associates, is not beneficially interested in 5% or
more of (i) the issued shares of any class of such company (or of any third company
through which such interest is derived), or (ii) the voting rights attached to such
issued shares or securities (excluding for the purpose of calculating such 5% interest,
any indirect interest of such director or any of his associates by virtue of Unicoms
interest in such company); or
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the benefit of employees of Unicom or any of its subsidiaries, including (i) the
adoption, modification or operation of a pension fund or retirement, death or
disability benefits scheme which relates to directors, their associates and employees
of Unicom or any of its subsidiaries and does not provide in respect of the director or
any of his associates any privilege or advantage not generally accorded to the class of
persons to which such scheme or fund relates; or (ii) the adoption, modification or
operation of any employee share scheme involving the issue or grant of options over
shares or other securities by Unicom to, or for the benefit of, the employees of Unicom
or its subsidiaries under which the director or any of his associates may benefit.
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-102-
Remuneration and Pensions
The directors of Unicom are entitled to receive by way of remuneration for their services such
sum as is from time to time determined by Unicom in a general meeting. The directors are also
entitled to have reimbursed all traveling, hotel and other expenses reasonably incurred by them in
or about the performance of their duties as directors. The board of directors may grant special
remuneration to any director who performs services that, in the opinion of the board, are outside
the scope of the ordinary duties of a director.
The board may establish and maintain any contributory or non-contributory pension or
superannuation funds for the benefit of, or give donations, gratuities, pensions, allowances or
emoluments to, any persons (i) who are or were at any time in the employment or service of Unicom,
or of any company which is a subsidiary of Unicom, or is allied or associated with Unicom or with
any such subsidiary company, or (ii) who are or were at any time directors or officers of Unicom or
of any such other company above, and have or who have had any salaried employment or had held
office in Unicom or such other company, and the wives, widows, families and dependents of any such
persons. The board may also establish and subsidize or subscribe to any institutions, associations,
clubs or funds calculated to be for the benefit of or to advance the interests and well being of
Unicom or of any such other company above or of any such persons above, and may make payments for
or towards the insurance of any such persons, and subscribe or guarantee money for charitable or
benevolent objects or for any exhibition or for any public, general or useful object. Any director
holding any such employment or office is entitled to participate in, and retain for his own
benefit, any such donation, gratuity, pension, allowance or emolument.
Borrowing Powers
The directors may exercise all the powers of Unicom to borrow money and to mortgage or charge
all or any part of the undertaking, property and assets (present and future) and uncalled capital
of Unicom and to issue debentures, debenture stocks, bonds and other securities, whether outright
or as collateral security for any debt, liability or obligation of Unicom or of any third-party.
Qualification of Directors
A director of Unicom is not required to hold any qualification shares.
Rotation of Directors
At every annual general meeting, one-third of the directors for the time being, or, if the
number is not three or a multiple of three, then the number nearest one-third, shall retire from
office by rotation, except for any director holding office as chairman or chief executive officer.
The directors to retire in every year shall be those who have been in office the longest since
their last election. In addition, a director appointed by the board to fill in a casual vacancy or
as an addition to the board shall retire at the next following annual general meeting and shall
then be eligible for re-election, but shall not be taken into account in determining the number of
directors who are to retire by rotation at each annual general meeting. The retiring directors
shall be eligible for re-election.
-103-
Rights Attached to Ordinary Shares
Voting Rights
Under the Companies Ordinance, any action to be taken by the shareholders at a general meeting
requires an affirmative vote by either an ordinary or a special resolution passed at the meeting.
An ordinary resolution is one passed by the majority of such shareholders as are entitled to, and
do, vote in person or by proxy at a general meeting. A special resolution is one passed by not less
than three-quarters of such shareholders as are entitled to, and do, vote in person or by proxy at
a general meeting. Most shareholders decisions are passed by ordinary resolutions. However, the
Companies Ordinance and our articles of association stipulate that certain matters may only be
passed by special resolutions.
In accordance with the HKSE Listing Rules, any vote of shareholders at a general meeting will
be taken by poll.
In a poll, every shareholder present in person or, if the shareholder is a corporation, by
duly authorized representative, or by proxy has one vote for every share of which he or she is the
shareholder, and which is fully paid up or credited as fully paid up. However, no amount paid up or
credited as paid up on a share in advance of calls or installments is treated for the foregoing
purposes as paid up on the share.
Any action to be taken by the shareholders requires the affirmative vote of a majority of the
shares at a meeting of shareholders. There are no cumulative voting rights. Accordingly, the
holders of a majority of the shares voting for the election of directors can elect all the
directors if they choose to do so.
Issue of Shares
Under the Companies Ordinance, our board of directors may, without prior approval of our
shareholders, offer to issue new shares to existing shareholders proportionately according to their
shareholdings. Our board of directors may not offer to issue new shares in any other manner without
the prior approval of our shareholders at a general meeting. Any such approval given at a general
meeting will continue in force until the conclusion of the following annual general meeting or the
expiration of the period within which the next annual general meeting is required by law to be held
or when revoked or varied by an ordinary resolution of our shareholders in a general meeting,
whichever comes first. If such approval is given, the unissued shares shall be at the disposal of
our board of directors, which may offer, allot, grant options over or otherwise dispose of them to
such persons at such times and for such consideration and upon such terms and conditions as our
board of directors may determine.
In accordance with the HKSE Listing Rules, any such approval given by the shareholders must be
limited to shares with an aggregate nominal value not exceeding 20 per cent of the aggregate
nominal value of our share capital in issue plus the aggregate nominal amount of share capital
repurchased by us since the granting of such approval.
Dividends
Subject to the Companies Ordinance and as set out in our articles of association, our
shareholders at a general meeting may from time to time by ordinary resolution declare dividends to
be paid to our shareholders according to their rights and interests in the profits available for
distribution, but no dividend shall be declared in excess of the amount recommended by our board of
directors.
In addition to any dividends declared at a general meeting upon the recommendation of the
board of directors, our board of directors may, as they deem appropriate, from time to time resolve
to pay to our shareholders such interim dividends as appear to our board of directors to be
justified by our financial position. Our board of directors may also pay any fixed dividend that is
payable on any of our shares on any other dates, whenever our financial position, in the opinion of
our board of directors, justifies such payments.
All dividends or bonuses unclaimed for one year after having become payable may be invested or
otherwise made use of by the board for the benefit of Unicom until claimed. All dividends or
bonuses unclaimed for six years after having been declared may be forfeited by the board and will
revert to Unicom.
-104-
Winding Up
If we are wound up, the surplus assets remaining after payment to all creditors shall be
divided among the shareholders in proportion to the capital paid up on the shares held by them,
subject to the rights of the holders of any shares that may be issued on special terms or
conditions.
If we are wound up, the liquidator may, with the sanction of a special resolution, divide
among our shareholders in specie or in kind the whole or any part of our assets or vest any part of
our assets in trustees upon such trusts for the benefit of our shareholders or any of them as the
resolution shall provide.
Miscellaneous
Shareholders are not entitled to any redemption rights, conversion rights or preemptive rights
on the transfer of ordinary shares.
The transfer agent and registrar for the shares is Hong Kong Registrars Limited, 46th Floor,
Hopewell Centre, 183 Queens Road East, Hong Kong.
Modification of Rights
Subject to the Companies Ordinance, any of the rights from time to time attaching to any class
of shares may, subject to the provisions of the Companies Ordinance, be varied or abrogated with
the consent in writing of the holders of not less than three-fourths of the issued shares of that
class or with the sanction of a special resolution passed at a separate general meeting of the
holders of shares of that class. The provisions of our Articles of Association relating to general
meetings apply to such separate general meetings, except that the necessary quorum is not less than
two persons holding or representing by proxy one-third in nominal value of the issued shares of
that class, and that any holder of the shares of the class present in person or by proxy may demand
a poll.
Annual General and Extraordinary General Meetings
We must hold in each year a general meeting as our annual general meeting in addition to any
other meetings in that year. The annual general meeting is held at such time (within a period of
not more than fifteen months, or such longer period as the Registrar of Companies of Hong Kong may
authorize in writing, after the holding of the last preceding annual general meeting) and place as
may be determined by the board of directors. All other general meetings are called extraordinary
general meetings. The board of directors may call an extraordinary general meeting at any time or
upon request in accordance with the Hong Kong Companies Ordinance.
Subject to the Companies Ordinance and the HKSE Listing Rules, an annual general meeting and a
meeting called for the passing of a special resolution can be called by not less than 21 days
notice in writing, and any other general meeting can be called by not less than fourteen days
notice in writing. The notice must specify the place, date and time of the meeting, and, in the
case of special business, the general nature of that business. The HKSE Listing Rules provide that
notice shall be given to shareholders at least 20 clear business days before an annual general
meeting and at least 10 clear business days before all other general meetings.
Limitations on Rights to Own Securities
There are no limitations on the rights to own securities, including the rights of non-resident
or foreign shareholders to hold or exercise voting rights on the securities, imposed by Hong Kong
law or by our Memorandum of Association or our Articles of Association.
-105-
Changes in Capital
We may exercise any powers conferred or permitted by the Companies Ordinance to purchase or
otherwise acquire our own shares and warrants at any price or to give, directly or indirectly, by
means of a loan, guarantee, the provision of security or otherwise, financial assistance for the
purpose of or in connection with a purchase made by any person of any shares or warrants in Unicom.
Repurchases of our own shares may be made either by way of a general offer to all shareholders in
proportion to their shareholdings, by purchasing our shares on a stock exchange or by an off-market
contract with individual shareholders. Any such purchase or other acquisition or financial
assistance must be made or given in accordance with any relevant rules or regulations issued by the
HKSE or the Securities and Futures Commission of Hong Kong.
We may, in a general meeting, from time to time, by ordinary resolution increase our
authorized share capital by the creation of new shares, and prescribe the amount of new capital and
number of new shares. We may, from time
to time, by ordinary resolution:
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consolidate and divide all or any of our share capital into shares of a larger
amount than our existing shares;
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divide our shares into several classes and attach to them any preferential,
deferred, qualified or special rights, privileges or conditions;
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cancel any shares that at the date of the passing of the resolution have not been
taken or agreed to be taken by any person, and diminish the amount of our share capital
by the amount of the shares so cancelled;
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sub-divide our shares or any of them into shares of a smaller amount than is fixed
by our Memorandum of Association, subject nevertheless to the provisions of the
Companies Ordinance; and
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make provision for the issue and allotment of shares which do not carry any voting
rights.
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Miscellaneous
We keep our share register with our share registrar, which is Hong Kong Registrars Limited,
Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queens Road East, Wanchai, Hong Kong. In
addition, we also file certain documents with the Registrar of Companies, Hong Kong, in accordance
with the requirements of the Companies Ordinance. Our company number is 703499.
C. Material Contracts
In addition to the contracts described in B. Related Party Transactions under Item 7, Unicom
Group, we or our subsidiaries have entered into the following contracts that are not in the
ordinary course of business within the two years preceding the date of this annual report that are
or may be material:
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Share subscription agreement between us and Telefónica, dated September 6, 2009,
relating to the mutual investment of an equivalent of US$1 billion by the parties in
each other.
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Strategic Alliance Agreement between us and Telefónica, dated September 6, 2009,
relating to strengthening the business of each of the companies by cooperation based on
the network, business model and experience of each other.
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Irrevocable Offer by SK Telecom, dated September 25, 2009, to the Company, for the
sale of our shares held by SK Telecom to us.
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Irrevocable voting undertaking from China Netcom Group Corporation (BVI) Limited in
favor of SK Telecom, dated September 25, 2009.
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-106-
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Share Repurchase Agreement, dated November 3, 2009, entered into between the Company
and SK Telecom.
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Amendment Agreement to Share Repurchase Agreement, dated November 3, 2009, entered
into between the Company and SK Telecom.
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Network Leasing Agreement, dated October 29, 2010, entered into between CUCL and
Unicom New Horizon.
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Comprehensive Services Agreement, dated October 20, 2010, entered into between CUCL
and Unicom Group.
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Agreement to Enhance the Strategic Alliance, dated January 23, 2011, entered into
between the Company and Telefónica.
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D. Exchange Controls
The ability of our operating subsidiary, CUCL, to satisfy its foreign exchange obligations and
to pay dividends to us depends on existing and future exchange control regulations in China. Under
the current relevant regulations, Renminbi is convertible under the current account, which includes
trade-and service-related foreign exchange transactions, but is not convertible under the capital
account, which includes foreign direct investment. CUCL, our wholly-owned subsidiary that holds
substantially all of our assets, is a foreign investment enterprise. The foreign investment
enterprise status will allow it to purchase foreign exchange at designated foreign exchange banks
for settlement of current account transactions without the approval of the State Administration for
Foreign Exchange of the PRC, or the SAFE. These current account transactions include payment of
dividends. However, the relevant PRC Government authorities may in the future limit or eliminate
the authorizations for a foreign investment enterprise to retain its foreign exchange to satisfy
its foreign exchange obligations or to pay dividends in the future. Furthermore, certain foreign
exchange transactions of CUCL under the capital account still require approvals from the SAFE. This
requirement affects our subsidiarys ability to obtain foreign exchange through equity financing,
including by means of capital contributions from us.
Under existing Hong Kong law, (i) there are no foreign exchange controls or other laws that
restrict the import or export of capital and that would affect the availability of cash and cash
equivalents for our use, (ii) there are no foreign exchange controls or other laws, decrees or
regulations that affect the remittance of interest, dividends or other payments on our outstanding
debt and equity securities to U.S. residents and (iii) there are no limitations on the rights of
non-resident or foreign owners to hold our debt or equity securities.
E. Taxation
The taxation of income and capital gains of holders of ordinary shares or ADSs is subject to
the laws and practices of the PRC, Hong Kong and jurisdictions in which holders of ordinary shares
or ADSs are resident or otherwise subject to tax. The following summary of certain relevant
taxation provisions is based on current law and practice, is subject to change and does not
constitute legal or tax advice. The discussion does not deal with all possible tax consequences
relating to an investment in the ordinary shares or ADSs. In particular, the discussion does not
address the tax consequences under state, local and other laws, such as non-PRC, non-Hong Kong and
non-U.S. federal laws. The discussion is based upon laws and relevant interpretations in effect as
of the date of this annual report.
-107-
Peoples Republic of China
This section describes certain PRC tax consequences of the ownership and disposition of our
ordinary shares or ADSs. This section does not address all possible PRC tax considerations that may
be relevant to an investment in our ordinary shares or ADSs in light of an investors specific
circumstances, and is based on PRC tax laws and relevant interpretations as in effect as of the
date of this annual report on Form 20-F, which are subject to change, possibly with retroactive
effect. Accordingly, each prospective investor should consult its own tax advisor regarding the PRC
and other tax consequences of an investment in our ordinary shares or ADSs applicable under its
particular circumstances.
Taxation of Dividends
Under the PRC Enterprise Income Tax, or the EIT, Law and its implementing rules that became
effective on January 1, 2008, a non-resident enterprise is generally subject to PRC enterprise
income tax with respect to PRC-sourced income, including dividends received from an enterprise that
is domiciled in the PRC. The PRC enterprise income tax with respect to such dividends is currently
required to be withheld at the rate of 10%, unless there is an applicable tax treaty between the
PRC and the jurisdiction in which such non-resident enterprise resides that reduces or exempts the
tax.
On April 22, 2009, the PRC State Administration of Taxation, or the SAT, issued the Notice
Regarding the Determination of Tax Residence Status of Chinese-Controlled Offshore-Incorporated
Enterprises on the Basis of De Facto Management Bodies, or the 2009 Notice, which was retroactively
effective as of January 1, 2008. Pursuant to the 2009 Notice, an enterprise incorporated under the
laws of a jurisdiction outside the PRC but controlled by a PRC enterprise or enterprise group may
be determined to be a PRC resident enterprise with its de facto management bodies located within
the PRC for PRC tax purposes if certain criteria specified under the 2009 Notice are met. Under the
2009 Notice, dividends paid by such an off-shore incorporated enterprise are deemed to be
PRC-sourced income and subject to PRC enterprise income tax. On November 11, 2010, we were notifed
by the SAT that we are determined to be a PRC resident enterprise since January 1, 2008 for PRC tax
purposes. Accordingly, we are required to withhold the 10% EIT when we distribute dividends to our
non-resident enterprise shareholders.
Accordingly, we will withhold the 10% EIT when we distribute our final dividend for the fiscal
year ended December 31, 2010 in respect of the non-resident enterprise shareholders for PRC tax
purposes whose names appear on our register of members as of the record date for such dividends,
and who are not individuals, unless such non-individual shareholders are able to provide documents
from the relevant PRC tax authorities confirming that we are not required to withhold the 10% EIT
in respect of the dividends that such shareholders are entitled to, on the basis that dividend
income between two PRC resident enterprises is exempted from enterprise income tax, subject to
certain conditions, under the EIT Law. In addition, certain investors hold our shares or ADSs
through custodians, nominees, corporate trustees or other intermediaries and the names of these
investors do not appear on our register of members. Payments of dividends to such investors are
also subject to the 10% EIT withholding. These investors should enquire about the relevant
procedures with the relevant custodians, nominees, trustees or other intermediaries if they wish to
change the identities of the shareholders on our register of members.
Taxation of Capital Gains
Under the new PRC EIT Law, a non-resident enterprise is generally subject to PRC enterprise
income tax with respect to PRC-sourced income. Because the new EIT Law has only recently taken
effect, there remain substantial uncertainties as to its interpretation and application by the
relevant PRC tax authorities. We intend to comply with any interpretation or notice in relation to
the taxation of capital gains issued by the PRC tax authorities in the future.
Additional PRC Tax Considerations
Stamp duty
. Under the Provisional Regulations of the PRC Concerning Stamp Duty and its
implementing rules, both of which became effective on October 1, 1988, PRC stamp duty should not
apply to acquisitions or dispositions of our ordinary shares or ADSs outside of the PRC as the PRC
stamp duty is imposed only on documents executed or received within the PRC that are legally
binding in the PRC and protected under PRC law.
Estate tax
. The PRC does not currently levy estate tax.
-108-
Hong Kong
Taxation of Dividends
Under the current practices of the Hong Kong Inland Revenue Department, no tax is payable in
Hong Kong in connection with dividends paid by us, either by withholding or otherwise, unless such
dividends are attributable to a trade, profession or business carried on in Hong Kong.
Profits
No tax is imposed in Hong Kong in respect of capital gains from the sale of shares and ADSs.
Trading gains from the sale of shares or ADSs by persons carrying on a trade, profession or
business in Hong Kong where such gains are derived from or arise in Hong Kong from such trade,
profession or business will be chargeable to Hong Kong income tax rates of 16.5% on corporations
and 15.0% on individuals. Gains from sales of shares effected on the HKSE will be considered to be
derived from or arise in Hong Kong. Liability for Hong Kong profits tax would thus arise in respect
of trading gains from sales of shares or ADSs realized by persons carrying on a business of trading
or dealing in securities in Hong Kong.
Stamp Duty
Hong Kong stamp duty, currently charged at the rate of 0.1% of the higher of the consideration
for or the value of the shares, will be payable by the purchaser on every purchase and by the
seller on every sale of shares. In addition, a fixed duty of HK$5 is currently payable on any
instrument of transfer of shares. If one of the parties to the sale is a non-resident of Hong Kong
and does not pay the required stamp duty, the duty not paid will be assessed on the instrument of
transfer (if any) and the transferee will be liable for payment of such duty.
The withdrawal of shares upon the surrender of American Depository Receipts, or ADRs, and the
issuance of ADRs upon the deposit of shares, will also attract stamp duty at the rate described
above unless such withdrawal or deposit does not result in a change in the beneficial ownership of
the shares under Hong Kong law. The issuance of the ADRs upon the deposit of shares issued directly
to The Bank of New York, as depositary of the ADSs, or for the account of The Bank of New York does
not attract stamp duty. No Hong Kong stamp duty is payable upon the transfer of ADSs outside Hong
Kong.
Estate Duty
The Revenue (Abolition of Estate Duty) Ordinance 2005 became effective on February 11, 2006 in
Hong Kong. No Hong Kong estate duty is payable and no estate duty clearance papers are needed for
an application for a grant of representation in respect of a holder of the shares whose death
occurs on or after February 11, 2006.
United States
United States Federal Income Taxation
This section describes the material United States federal income tax consequences to a U.S.
holder (as defined below) of owning shares or ADSs. It applies to you only if you hold your shares
or ADSs as capital assets for tax purposes. This section does not apply to you if you are a member
of a special class of holders subject to special rules, including:
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a dealer in securities or currencies,
|
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|
a trader in securities that elects to use a mark-to-market method of accounting for
your securities holdings,
|
-109-
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a tax-exempt organization,
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a person liable for alternative minimum tax,
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a person that actually or constructively owns 10% or more of our voting stock,
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a person that holds shares or ADSs that are a hedge or as part of a straddle or a
conversion transaction, or
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a person whose functional currency is not the U.S. dollar.
|
This section is based on the Internal Revenue Code of 1986, as amended, or the Code, its
legislative history, existing and proposed regulations, published rulings and court decisions, all
as currently in effect. These laws are subject to change, possibly on a retroactive basis. In
addition, this section is based in part upon the representations of the Depositary and the
assumption that each obligation in the deposit agreement and any related agreement will be
performed in accordance with its terms.
You are a U.S. holder if you are a beneficial owner of shares or ADSs and you are:
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a citizen or resident of the United States,
|
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|
a corporation organized under the laws of the United States, any States thereof, or
the District of Columbia,
|
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|
an estate whose income is subject to United States federal income tax regardless of
its source, or
|
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|
a trust if a United States court can exercise primary supervision over the trusts
administration and one or more United States persons are authorized to control all
substantial decisions of the trust.
|
If a partnership holds the shares or ADSs, the United States federal income tax treatment of a
partner will generally depend on the status of the partner and the activities of the partnership. A
partner in a partnership holding the shares or ADSs should consult its tax advisor with regard to
the United States federal income tax treatment of its investment in the shares or ADSs.
You should consult your own tax advisor regarding the United States federal, state and local
tax consequences of owning and disposing of shares and ADSs in your particular circumstances.
This discussion addresses only United States federal income taxation.
In general, taking into account the earlier assumptions, for United States federal income tax
purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the shares
represented by those ADRs. Exchanges of shares for ADRs, and ADRs for shares, generally will not be
subject to United States federal income tax.
Taxation of Dividends
Under the United States federal income tax laws, and subject to the passive foreign investment
company rules discussed below, if you are a U.S. holder, the gross amount of any dividend we pay
out of our current or accumulated earnings and profits (as determined for United States federal
income tax purposes) is subject to United States federal taxation. If you are a non-corporate U.S.
holder, dividends paid to you in taxable years beginning before January 1, 2013 that constitute
qualified dividend income will be taxable to you at a maximum tax rate of 15%, provided that you
hold the shares or ADSs for more than 60 days during the 121-day period beginning 60 days before
the ex-dividend date and meet other holding period requirements. Dividends we pay with respect to
the shares or ADSs will be qualified dividend income, provided that, in the year that you receive
the dividend, the shares or ADSs are readily tradable on an established securities market in the
United States.
-110-
The dividend is taxable to you when you, in the case of shares, or the Depositary, in the case
of ADSs, receive the dividend, actually or constructively. The dividend will not be eligible for
the dividends-received deduction generally allowed to United States corporations in respect of
dividends received from other United States corporations. The amount of the dividend distribution
that you must include in your income as a U.S. holder will be the U.S. dollar value of the Hong
Kong Dollar payments made, determined at the spot Hong Kong/U.S. dollar rate on the date the
dividend distribution is includible in your income, regardless of whether the payment is in fact
converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange
fluctuations during the period from the date you include the dividend payment in income to the date
you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not
be eligible for the special tax rate applicable to qualified dividend income. The gain or loss
generally will be income or loss from sources within the United States for foreign tax credit
limitation purposes. Distributions in excess of current and accumulated earnings and profits, as
determined for United States federal income tax purposes, will be treated as a non-taxable return
of capital to the extent of your basis in the shares or ADSs and thereafter as capital gain.
Special rules apply in determining the foreign tax credit limitation with respect to dividends
that are subject to the maximum 15% tax rate. Dividends will be income from sources outside the
United States and, depending on your circumstances, will be either passive income or general income
for purposes of computing the foreign tax credit allowable to you. If you are subject to PRC
withholding tax (as discussed in Peoples Republic of China Taxation of Dividends, above), you
must include any such tax withheld from the dividend payment in your gross income, even though you
do not in fact receive it. The PRC tax withheld and paid over to the PRC will be creditable against
your United States federal income tax liability. To the extent a refund of the tax withheld is
available under PRC law, the amount of tax withheld that is refundable will not be eligible for
credit against your United States federal income tax liability.
Taxation of Capital Gains
Subject to the passive foreign investment company rules discussed below, if you are a U.S.
holder and you sell or otherwise dispose of your shares or ADSs, you will recognize capital gain or
loss for United States federal income tax purposes equal to the difference between the U.S. dollar
value of the amount that you realize and your tax basis, determined in U.S. dollars, in your shares
or ADSs. Capital gain of a non-corporate U.S. holder is generally taxed at preferential rates where
the property is held for more than one year. Subject to the paragraph immediately below regarding
gain subject to PRC tax, the gain or loss will generally be income or loss from sources within the
United States for foreign tax credit limitation purposes. Your ability to deduct capital losses is
subject to limitations. Any Hong Kong stamp duty that you pay will not be a creditable tax for
United States federal income tax purposes, but you may be able to deduct such stamp duty subject to
limitations under the Code.
However, in the event we are deemed to be a Chinese resident enterprise under PRC tax law,
we may be eligible for the benefits of the income tax treaty between the United States and the PRC.
Under that treaty, if PRC tax were to be imposed on any gain from the disposition of your shares or
ADSs (as discussed above in Peoples Republic of China Taxation of Capital Gains), the gain
may be treated as PRC source income. U.S. Holders should consult their tax advisors regarding the
tax consequences if a foreign withholding tax is imposed on a disposition of shares or ADSs,
including the availability of the foreign tax credit under your particular circumstances.
Passive Foreign Investment Company Rules
. We believe that we should not be treated as a
passive foreign investment company, or PFIC, for United States federal income tax purposes, but
this conclusion is a factual determination that is made annually and thus may be subject to change.
-111-
In general, if you are a U.S. holder, we will be a PFIC with respect to you if for any taxable
year in which you held our ADSs or shares:
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at least 75% of our gross income for the taxable year is passive income; or
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|
at least 50% of the value, determined on the basis of a quarterly average, of our
assets is attributable to assets that produce or are held for the production of passive income.
|
Passive income generally includes dividends, interest, royalties, rents (other than certain
rents and royalties derived in the active conduct of a trade or business), annuities and gains from
assets that produce passive income. If a foreign corporation owns, directly or indirectly, at least
25% by value of the stock of another corporation, the foreign corporation is treated for purposes
of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as
receiving directly its proportionate share of the other corporations income.
If we are treated as a PFIC and you are a U.S. holder that does not make a mark-to-market
election, as described below, you will be subject to special rules with respect to:
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any gain you realize on the sale or other disposition of your shares or ADSs; and
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any excess distribution that we make to you (generally, any distributions to you
during a single taxable year that are greater than 125% of the average annual
distributions received by you in respect of the shares or ADSs during the three
preceding taxable years or, if shorter, your holding period for the shares or ADSs).
|
Under these rules:
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the gain or excess distribution will be allocated ratably over your holding period
for the shares or ADSs;
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the amount allocated to the taxable year in which you realized the gain or excess
distribution will be taxed as ordinary income;
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the amount allocated to each prior year, with certain exceptions, will be taxed at
the highest tax rate in effect for that year; and
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the interest charge generally applicable to underpayments of tax will be imposed in
respect of the tax attributable to each such year.
|
Special rules apply for calculating the amount of the foreign tax credit with respect to
excess distributions by a PFIC.
If you own shares or ADSs in a PFIC that are treated as marketable stock, you may make a
mark-to-market election. If you make this election, you will not be subject to the PFIC rules
described above. Instead, in general, you will include as ordinary income each year the excess, if
any, of the fair market value of your shares or ADSs at the end of the taxable year over your
adjusted basis in your shares or ADSs. You will also be allowed to take an ordinary loss in respect
of the excess, if any, of the adjusted basis of your shares or ADSs over their fair market value at
the end of the taxable year (but only to the extent of the net amount of previously included income
as a result of the mark-to-market election). Your basis in the shares or ADSs will be adjusted to
reflect any such income or loss amounts. Your gain, if any, recognized upon the sale of your shares
or ADSs will be taxed as ordinary income.
-112-
In addition, notwithstanding any election you make with regard to the shares or ADSs,
dividends that you receive from us will not constitute qualified dividend income to you if we are a
PFIC either in the taxable year of the distribution or the preceding taxable year. Moreover, your
shares or ADSs will be treated as stock in a PFIC if we were a PFIC at any time during your holding
period in your shares or ADSs, even if we are not currently a PFIC. For purposes of this rule, if
you make a mark-to-market election with respect to your shares or ADSs, you will be treated as
having a new holding period in your shares or ADSs beginning on the first day of the first taxable
year beginning after the last taxable year for which the mark-to-market election applies. Dividends
that you receive that do not constitute qualified dividend income, are not eligible for taxation at
the 15% maximum rate applicable to qualified dividend
income. Instead, you must include the gross amount of any such dividend paid by us out of our
accumulated earnings and profits (as determined for United States federal income tax purposes) in
your gross income, and it will be subject to tax at rates applicable to ordinary income.
If you own shares or ADSs during any year that we are a PFIC, you must file Internal Revenue
Service Form 8621. In addition, pursuant to recently enacted legislation, if you are a U.S. person
that is a shareholder in a PFIC, you will generally be required to file an annual report with the
Internal Revenue Service. The content of this required statement and potential exemptions to this
requirement are under development by the Internal Revenue Service.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
You can read and copy documents referred to in this annual report that have been filed with
the U.S. Securities and Exchange Commission at the SECs public reference room located at 100 Fifth
Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms and their copy charges. The SEC also maintains a web site
at http://www.sec.gov that contains reports, proxy statements and other information regarding
registrants that are filed electronically with the SEC.
The SEC allows us to incorporate by reference the information we file with the SEC. This
means that we can disclose important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is considered to be part of this
annual report on Form 20-F.
I. Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risks
Our exposure to financial market risks relates primarily to changes in interest rates and
currency exchange rates.
Interest Rate Risk
The Peoples Bank of China has the sole authority in China to establish the official interest
rates for Renminbi-denominated loans. Financial institutions in China set their effective interest
rates within the range established by the Peoples Bank of China. Interest rates and payment
methods in the PRC on loans denominated in foreign currencies are set by the financial institutions
based on interest rate changes in the international financial market, cost of funds, risk levels
and other factors. The fair value of our borrowings is approximately the same as the carrying
value. These bank loans, denominated in Renminbi, are borrowed from domestic banks at interest
rates that vary in accordance with the standard guidance interest rates announced by relevant PRC
Government authorities.
-113-
We are subject to risks arising from interest-bearing borrowings, including bank loans,
corporate bonds, commercial paper and related party loans. The majority of our interest-bearing
borrowings are loans from banks in the PRC, the majority of which bear fixed interest rates. A rise
in interest rates will increase the cost of new borrowings and interest expenses of outstanding
floating rate debt. Accordingly, fluctuations in interest rates can lead to significant
fluctuations in the fair value of these instruments, and, therefore, could have a material adverse
effect on our financial position. To mitigate our exposure to interest rate risks in connection with our
borrowings denominated in foreign currencies, we may enter into designed interest rate swap
agreements from time to time in the future.
The following table provides information, by maturity date, regarding our interest
rate-sensitive financial instruments, which consist of short-term and long-term debt obligations,
as well as the expected maturity profile of such obligations as of December 31, 2010.
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As of
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December
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Expected Maturity
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31, 2010
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2011
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2012
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2013
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2014
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2015
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Thereafter
|
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Total
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Fair Value
|
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(RMB equivalent in millions, except interest rates)
|
|
Liabilities:
|
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|
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|
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|
|
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RMB-denominated loans
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|
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|
|
|
|
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Fixed rate
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2,610
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|
|
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2,610
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|
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|
2,610
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Average rate
(1)
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2.21
|
%
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|
|
|
|
|
|
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|
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Variable rate
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23,225
|
|
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|
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|
800
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24,025
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24,025
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Average rate
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2.34
|
%
|
|
|
4.59
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%
|
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4.59
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%
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HK dollar-denominated loans
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|
|
|
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|
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|
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Variable rate
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12,925
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12,925
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|
|
|
12,925
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|
Average rate
|
|
|
0.37
|
%
|
|
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|
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|
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U.S. dollar-denominated loans
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|
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|
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Fixed rate
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30
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|
25
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|
|
25
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25
|
|
|
|
25
|
|
|
|
325
|
|
|
|
455
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|
|
|
314
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|
Average rate
|
|
|
0.53
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%
|
|
|
0.47
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%
|
|
|
0.47
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%
|
|
|
0.46
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%
|
|
|
0.46
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%
|
|
|
0.45
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%
|
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|
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|
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|
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Euro-denominated loans
|
|
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
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|
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Fixed rate
|
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|
28
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|
|
|
25
|
|
|
|
25
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|
|
|
25
|
|
|
|
25
|
|
|
|
137
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|
|
|
265
|
|
|
|
255
|
|
Average rate
|
|
|
2.21
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%
|
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|
2.20
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%
|
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|
2.18
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%
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|
2.17
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%
|
|
|
2.14
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%
|
|
|
1.56
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%
|
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|
|
|
|
|
|
|
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|
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|
|
|
|
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|
|
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|
|
|
|
|
|
|
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|
RMB-denominated commercial
papers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
23,000
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|
|
|
|
|
|
|
|
|
|
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|
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23,000
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|
|
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23,000
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|
Average rate
|
|
|
2.70
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%
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
RMB-denominated promissory
notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
14,881
|
|
Average rate
|
|
|
3.39
|
%
|
|
|
3.39
|
%
|
|
|
3.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMB-denominated corporate
bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
7,000
|
|
|
|
7,205
|
|
Average rate
|
|
|
5.06
|
%
|
|
|
5.06
|
%
|
|
|
5.06
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollar-denominated
convertible bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,178
|
|
|
|
|
|
|
|
12,178
|
|
|
|
11,558
|
|
Average rate
|
|
|
1.90
|
%
|
|
|
1.90
|
%
|
|
|
1.90
|
%
|
|
|
1.90
|
%
|
|
|
1.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollar-denominated
finance lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
129
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211
|
|
|
|
204
|
|
Average rate
|
|
|
2.41
|
%
|
|
|
2.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The average interest rates for variable rate loans are calculated based on the rates reported
as of December 31, 2010.
|
-114-
For the year ended December 31, 2010, if interest rates on the floating rate borrowings had
been 10% higher/lower while all other variables were held constant, our interest expenses would
have increased/decreased by approximately RMB27 million (2009: approximately RMB3 million).
Exchange Rate Risk
We conduct our business primarily in Renminbi, which is also our functional and reporting
currency. The Renminbi is not a fully convertible currency. From 1994 to July 20, 2005, the
official exchange rate for the conversion of Renminbi to U.S. dollars was generally stable. On July
21, 2005, the PRC government introduced a managed floating exchange rate system to allow the value
of the Renminbi to fluctuate within a regulated band based on market supply and demand and by
reference to a basket of currencies. On the same day, the value of the Renminbi appreciated by 2%
against the U.S. dollar. The PRC Government has since made and in the future may make further
adjustments to the exchange rate system. Fluctuations in exchange rates may adversely affect the
value, translated or converted into United States dollars or Hong Kong dollars (which are pegged to
the U.S. dollar), of our net assets, earnings and any declared dividends. For a detailed
description of the unitary managed floating rate system used by the PRC Government to set foreign
exchange rates, see Key Information Selected Financial Data Exchange Rate Information under
Item 3.
We are exposed to foreign currency risk primarily because we receive some of our revenue from
our international operations and pay-related expenses in foreign currencies. As a result, our
foreign currency exposure relates to our foreign currency-denominated debt and, to a limited
extent, cash and cash equivalents denominated in foreign currencies.
The following table provides information regarding our foreign currency-sensitive financial
instruments, which consist of cash and cash equivalents, short-term bank deposits, short-term and
long-term debt obligations and capital commitments as of December 31, 2010 and the expected
maturity profile of these debt obligations and capital commitments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
|
|
|
|
Expected Maturity
|
|
|
31, 2010
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
|
|
(RMB equivalent in millions)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollars
|
|
|
11,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,661
|
|
|
|
11,661
|
|
HK dollars
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393
|
|
|
|
393
|
|
Japanese yen
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Euro dollars
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
|
|
213
|
|
GBP
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
Short-term bank deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollars
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148
|
|
|
|
148
|
|
HK dollars
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
43
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollar-denominated loans
|
|
|
30
|
|
|
|
25
|
|
|
|
25
|
|
|
|
25
|
|
|
|
25
|
|
|
|
325
|
|
|
|
455
|
|
|
|
284
|
|
Euro-denominated loans
|
|
|
28
|
|
|
|
25
|
|
|
|
25
|
|
|
|
25
|
|
|
|
25
|
|
|
|
137
|
|
|
|
265
|
|
|
|
227
|
|
HK dollars-denominated loans
|
|
|
12,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,925
|
|
|
|
12,925
|
|
U.S. dollar-denominated
convertible bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,178
|
|
|
|
|
|
|
|
12,178
|
|
|
|
11,558
|
|
U.S. dollar-denominated
finance lease
|
|
|
129
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211
|
|
|
|
204
|
|
Off-balance sheet commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital commitments
authorized and contracted
for in U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-115-
If the RMB had strengthened/weakened by 10% against the foreign currencies, relative to
December 31, 2010, primarily with respect to US dollars, HK dollars and Euro, while all other
variables were held constant, we would have recognized additional exchange gains/losses of
approximately RMB1.29 billion (2009: exchange losses/gains of
approximately RMB1.03 billion; 2008: exchange losses/gains of
approximately RMB22 million) for
foreign currencies-denominated cash and cash equivalents, short-term bank deposits, borrowings,
convertible bonds and other obligations under finance lease included in other obligations.
Risk Relating to Available-for-Sale Financial Assets
The investments we hold are classified in the consolidated balance sheet as available-for-sale
financial assets. These investments are subject to equity price risk, which results primarily from
changes in the level or volatility of underlying equity prices. One of our significant investments
is denominated in Euro and the fair value of such investment is also subject to risks associated
with fluctuations of foreign exchange rate between Euro and Renminbi (our functional currency). If
either (i) the share price of our invested equity securities (in Euro) had increased/decreased by
10% or (ii) the exchange rate between Euro and Renminbi had changed by 10%, in each case, relative
to December 31, 2010, while all other variables are held constant, we would have recorded
additional change in fair value of approximately RMB456.53 million, net of tax, in our
available-for-sale fair value reserve. As of April 30, 2011, the change in the foreign exchange
rate between Euro and Renminbi and, the change of the underlying equity price denominated in Euro,
to a lesser extent, resulted in a depreciation of the fair value of our relevant investment by over
10%, from October 21, 2009. If Euro-related uncertainty remains, we may suffer from further loss in
the fair value of our investments denominated in Euro and our financial condition may be materially
adversely affected.
Item 12. Description of Securities Other than Equity Securities
The Bank of New York Mellon, as the depositary of our ADSs, collects its fees for delivery and
surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of
withdrawal. The depositary collects fees for making distributions to investors by deducting those
fees from the amounts distributed or by selling a portion of distributable property to pay the
fees. The depositary may generally refuse to provide fee-attracting services until its fees for
those services are paid.
|
|
|
ADR holders must pay:
|
|
For:
|
|
|
|
US$5.00 (or less) per 100
ADRs (or portion thereof)
|
|
Each issuance of an
ADR, including as a result
of a distribution of shares
or rights or other property
|
|
|
|
|
|
Each cancellation of
an ADR, including if the
deposit agreement terminates
|
|
|
|
|
|
Each distribution of
securities, other than
shares or ADRs, treating the
securities as if they were
shares for purpose of
calculating fees
|
|
|
|
US$0.02 (or less) per ADR
|
|
Any cash distribution (not including
cash dividend distribution)
|
|
|
|
Registration or transfer fees
|
|
Transfer and
registration of shares on
the share register of our
transfer agent and the
registrar in Hong Kong from
an ADR holders name to the
name of the depositary or
its agent when the ADR
holder deposits or withdraws
shares
|
-116-
|
|
|
ADR holders must pay:
|
|
For:
|
|
|
|
Expenses of the depositary
|
|
Conversion of Hong
Kong dollars to U.S. dollars
|
|
|
|
|
|
Cable, telex and
facsimile transmission expenses
|
|
|
|
Taxes and other governmental
charges the depositary or the custodian
has to pay on any ADR or share
underlying an ADR, for example, stock
transfer taxes, stamp duty or
withholding taxes
|
|
As necessary
|
From January 1, 2010 to December 31, 2010, we received from the Bank of New York Mellon a
total of US$251,246, net of withholding tax, reimbursement for the expenses we incurred, including
but not limited to, annual stock exchange listing fee, investor relations reimbursement,
non-standard out-of-pocket maintenance costs for the ADR, charges incurred in connection with
services provided for by third party vendors, charges and out-of-pocket expenses for the servicing
of non-registered holders. The Bank of New York Mellon also waived certain costs of US$136,316 in
connection with the administration of the ADR program, investor relationship programs (including
investor relationship intelligence services) and other services provided to our registered
shareholders. In addition, the Bank of New York Mellon has agreed to reimburse us annually for our
expenses incurred in connection with administration and maintenance of the depositary receipt
facility in the future. The amount of such reimbursements is subject to certain limits and
conditions.
-117-
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of
our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act of 1934,
as amended) as of December 31, 2010, the end of the period covered by this annual report, have
concluded that, as of such date, our disclosure controls and procedures were effective.
Managements Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) of the Exchange Act of 1934, as amended) for the
Company. Our internal control over financial reporting is a process designed under the supervision
of our chief executive officer and chief financial officer to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of our financial statements
for external reporting purposes in accordance with applicable generally accepted accounting
principles. Our internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
transactions and dispositions of assets; provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with applicable
generally accepted accounting principles, and that receipts and expenditures are being made only in
accordance with authorizations of our management and our directors; and provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on our financial statements. Because of its
inherent limitations, internal control over financial reporting may not prevent or detect all
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
As of December 31, 2010, our management conducted an assessment of the effectiveness of our
internal control over financial reporting, based on the framework established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission, or COSO. Based on this assessment, our management has concluded that our Companys
internal control over financial reporting as of December 31, 2010 was effective.
The effectiveness of our internal control over financial reporting as of December 31, 2010,
has been audited by PricewaterhouseCoopers, an independent registered public accounting firm, as
stated in their report appearing on page F2.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during
the period covered by this annual report that have materially affected, or are reasonably likely to
materially affect, our internal control
over financial reporting.
-118-
We are fully aware of the importance of maintaining and improving our controls and procedures
in relation to internal control over financial reporting. Our management, with the oversight of our
audit committee and board of directors, is committed to having proper internal control over
financial reporting.
Item 16A. Audit Committee Financial Expert
Our board of directors has determined that Mr. Wong Wai Ming is an audit committee financial
expert in accordance with the terms of Item 16.A of Form 20-F. Mr. Wong satisfies the
independence requirements of Section 303A of the NYSE Manual. For Mr. Wongs biographical
information, see A. Directors and Senior Management under Item 6.
Item 16B. Code of Ethics
In 2003, we adopted a code of ethics that applies to our chief executive officer, chief
financial officer, president, vice-presidents, controller and other senior officers. A copy of our
Code of Ethics for Senior Officers was filed as Exhibit 11.1 to our annual report on Form 20-F for
the fiscal year ended December 31, 2003. In February 2006, we adopted another code of ethics that
applies to our employees generally. A copy of our Code of Ethics for Employees was filed as Exhibit
11.2 to our annual report on Form 20-F for the fiscal year ended December 31, 2005. Copies of our
Code of Ethics for Senior Officers and Code of Ethics for Employees may also be downloaded from our
website at http://www.chinaunicom.com.hk. Information on that website is not a part of this annual
report on Form 20-F.
Item 16C. Principal Accountant Fees and Services
The following table sets forth the aggregate audit fees, audit-related fees, tax fees and
other fees our principal accountant billed for audit
services, audit-related services, tax services and other services for each of the fiscal years 2009
and 2010:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(in RMB thousands)
|
|
Audit services
|
|
|
73,200
|
|
|
|
67,700
|
|
Audit-related services
|
|
|
2,200
|
|
|
|
2,154
|
|
Tax services
|
|
|
560
|
|
|
|
223
|
|
Other
|
|
|
472
|
|
|
|
401
|
|
|
|
|
|
|
|
|
Total
|
|
|
76,432
|
|
|
|
70,478
|
|
|
|
|
|
|
|
|
Audit services include the standard audit work that needs to be performed each year in order
to issue an opinion on the consolidated financial statements of the Company and its subsidiaries.
Audit services in 2009 and 2010 also include audit work in connection with the audit of the
Companys internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley
Act of 2002. They also include performing agreed-upon procedures on quarterly financial statements
and pre-issuance reviews of interim financial statements.
Audit-related services include other assurance and related services that can be reasonably
provided by the independent auditor. In 2010, audit-related services mainly include the agreed-upon
procedures in relation to the issue of convertible bonds and the implementation of Extensible
Business Reporting Language (XBRL).
Tax services include the assistance with compliance and filing of income taxes.
Other services include translation service and providing the Company with access to an online
database of
global financial reporting literature regarding new pronouncements and guidance.
-119-
Audit Committees Pre-approval Policies and Procedures
The Audit Committee of our Board of Directors is responsible, among other things, for the
oversight of the external auditor subject to the requirements of the Hong Kong Companies Ordinance
and our Articles of Association. The Audit Committee has adopted a policy regarding pre-approval of
audit and permissible non-audit services to be provided by our independent accountants. Under the
policy, proposed services either (i) may be pre-approved by the Audit Committee without
consideration of specific case-by-case services; or (ii) require the specific pre-approval of the
Audit Committee. General approval applies to services of a recurring and predictable nature. These
types of services, once approved by the Audit Committee, will not require further approval in the
future.
Specific pre-approval applies to all other services. These services must be approved by the
Audit Committee on a case-by-case basis after an application including proposed budget and scope of
services to be provided by our independent auditors is submitted to the Audit Committee.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable.
Item 16F. Change in Registrants Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
As a company listed on both the HKSE and the NYSE, we are subject to applicable Hong Kong laws
and regulations, including the HKSE Listing Rules, and the Hong Kong Companies Ordinance, as well
as applicable U.S. federal securities laws, including the Exchange Act and the Sarbanes-Oxley Act
of 2002. In addition, we are subject to the listing standards of the NYSE to the extent they apply
to non-U.S. issuers. As a non-U.S. issuer, we are not required to comply with all of the corporate
governance listing standards of the NYSE.
The following is a summary of the significant differences between our corporate governance
practices and those required to be followed by U.S. companies under the listing standards of the
NYSE.
Section 303A.01 of the NYSE Listed Company Manual provides that listed companies must have a
majority of independent directors on its board of directors. As a listed company in Hong Kong, we
are subject to the requirement under the HKSE Listing Rules that at least three members of our
board of directors be independent as determined under the HKSE Listing Rules. The standards for
establishing independence under the HKSE Listing Rules differ from those set forth in the NYSE
Listed Company Manual. We currently have five independent directors out of a total of 10 directors.
-120-
Section 303A.03 of the NYSE Listed Company Manual provides that listed companies must schedule
regular executive sessions in which non-management directors meet without management participation.
Under the applicable Hong Kong law, our board of directors is required to meet regularly and at
least four times a year, involving active
participation by a majority of the directors and affording all directors an opportunity to
include matters on the agenda. In addition, when a board meeting considers a matter in which a
substantial shareholder or a director has a conflict of interest, the independent directors with no
material interest in such matter must be present. Furthermore, it has been our practice to organize
exclusive meetings for our independent non-executive directors at least annually.
Section 303A.04 of the NYSE Listed Company Manual provides that (i) a listed company must have
a nominating/corporate governance committee that consists entirely of independent directors and
(ii) the nominating/corporate governance committee of a listed company must have a written charter
that addresses the committees purpose and responsibilities, which shall include, among others, the
development and recommendation of corporate governance guidelines to the board of directors. The
HKSE Listing Rules also contain a recommended best practice that the listed companies are
recommended to establish a nomination committee which consists of a majority of independent
non-executive directors. We currently do not have a nomination or corporate governance committee.
Our board of directors is directly in charge of developing our corporate governance guidelines.
Section 303A.07 of the NYSE Listed Company Manual also provides that if an audit committee
member simultaneously serves on the audit committee of more than three public companies, and the
listed company does not limit the number of audit committees on which its audit committee members
serve to three or less, then, the board of directors of the listed company must (i) determine that
such simultaneous service would not impair the ability of such member to effectively serve on the
audit committee of the listed company and (ii) disclose such determination. We are not required,
under applicable Hong Kong laws, to make such determination.
Section 303A.10 of the NYSE Listed Company Manual provides that listed companies must adopt
and disclose a code of business conduct and ethics for directors, officers and employees. While we
are not required to adopt any similar code under the HKSE Listing Rules, we, as required under the
Sarbanes-Oxley Act, have adopted a code of ethics that is applicable to our chief executive
officer, president, vice presidents, chief financial officer, principal accounting officer and
general managers and deputy general managers of each of our departments, provincial branches and
local branches or persons performing similar functions. We have also adopted a code of ethics that
is applicable to all of our employees.
PART III
Item 17. Financial Statements
We have elected to provide the financial statements and related information specified in Item
18 in lieu of Item 17.
Item 18. Financial Statements
See Index to Consolidated Financial Statements for a list of all financial statements filed
as part of this annual report.
-121-
Item 19. Exhibits
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Exhibit
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|
|
Number
|
|
Description of Exhibit
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1.1
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|
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Memorandum of Association of Unicom, dated January 27, 2000.
(1)
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1.2
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|
|
Amended Articles of Association of Unicom (as amended on September 16, 2008).
(12)
|
|
1.3
|
|
|
Amended Articles of Association of Unicom (as amended on May 24, 2011).
*
|
|
2.1
|
|
|
Deposit Agreement, among Unicom, The Bank of New York, as Depositary, and Owners and Beneficial
Owners of American Depositary Receipts issued thereunder, including the form of American Depositary
Receipt.
(2)
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|
2.2
|
|
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Form of specimen certificate for the shares.
(1)
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|
4.1
|
|
|
Reorganization Agreement between Unicom Group and CUCL, dated April 21, 2000 (together with English
translation).
(1)
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|
4.2
|
|
|
Equity Transfer Agreement among Unicom Group, Unicom HK, Unicom BVI and Unicom, dated April 21,
2000.
(1)
|
|
4.3
|
|
|
Trademark License Agreement between Unicom Group and CUCL, dated May 25, 2000 (together with English
translation).
(1)
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|
4.4
|
|
|
Transmission Line Lease and Services Agreement between Unicom Group, CUCL and Guoxin Paging, dated
August 1, 2001 (together with English translation).
(1)
|
|
4.5
|
|
|
Reorganization Agreement between Unicom Group and Unicom New Century, dated November 18, 2002.
(English translation)
(3)
|
|
4.6
|
|
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Conditional Sale and Purchase Agreement between Unicom BVI and us in connection with the sale of
Unicom New Century, dated November 20, 2002. (English translation)
(3)
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|
4.7
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|
|
Reorganization Agreement between Unicom Group and Unicom New World, dated November 4, 2003. (English
translation)
(4)
|
|
4.8
|
|
|
Conditional Sale and Purchase Agreement between Unicom BVI and us in connection with the sale of
Unicom New World, dated November 20, 2003. (English translation)
(4)
|
|
4.9
|
|
|
Conditional Sales and Purchase Agreement between China Unicom (Hong Kong) Group Limited and our
Company with respect to the acquisition of Unicom International, dated July 28, 2004.
(5)
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|
4.10
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|
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Subscription Agreement between Unicom and SK Telecom, dated June 20, 2006.
(6)
|
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4.11
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|
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CDMA Network Capacity Lease Agreement among Unicom New Horizon, the A Share Company and Unicom
Group, dated October 26, 2006.
(7)
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4.12
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|
|
Transfer Agreement of the CDMA Network Capacity Lease Agreement between the A Share Company and
CUCL, dated October 26, 2006. (English translation)
(7)
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|
4.13
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|
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Asset Transfer Agreement between CUCL and Unicom Group in connection with the acquisition of Unicom
Guizhou, dated November 16, 2007. (English translation)
(8)
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4.14
|
|
|
Supplement Agreement among Unicom New Horizon, Unicom Group, CUCL and the A Share Company in
connection with the acquisition of Unicom Guizhou and the 2006 CDMA Network Capacity Lease
Agreement, dated November 16, 2007.
(8)
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4.15
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|
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CDMA Business Transfer Framework Agreement between us, CUCL and China Telecom dated as of June 2,
2008. (English translation)
(8)
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|
4.16
|
|
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CDMA Business Disposal Agreement among Unicom, CUCL and China Telecom, dated July 27, 2008. (English
summary)
(12)
|
|
4.17
|
|
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Business and Assets Transfer Agreement among Unicom Parent, Netcom Parent and the A Share Company,
relating to acquisitions of certain business and assets, including the fixed-line business in 21
provinces in southern China, dated December 16, 2008. (English translation)
(9)
|
-122-
|
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Exhibit
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|
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Number
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|
Description of Exhibit
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|
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|
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4.18
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|
|
Transfer Agreement between the A Share Company and CUCL, relating to acquisitions of certain
business and assets, including the fixed-line business in 21 provinces in southern China, dated
December 16, 2008. (English translation)
(9)
|
|
4.19
|
|
|
Network Lease Agreement between CUCL and Unicom New Horizon, relating to the lease of
telecommunications networks in 21 provinces in southern China by CUCL from Unicom New Horizon, dated
December 16, 2008. (English translation)
(9)
|
|
4.20
|
|
|
Assets and Liabilities Transfer Agreement between CNC China and Netcom Group, dated June 23, 2004.
(English translation)
(10)
|
|
4.21
|
|
|
Asset Injection Agreement among Netcom Group, Netcom BVI, CNC China and China Netcom, dated June 29,
2004. (English translation)
(10)
|
|
4.22
|
|
|
Letter of Undertakings by Netcom Group, dated September 5, 2005. (English translation)
(10)
|
|
4.23
|
|
|
Restructuring Agreement among CNC China, Netcom Group and China Netcom, dated September 6, 2004.
(English translation)
(10)
|
|
4.24
|
|
|
Non-Competition Agreement among CNC China, Netcom Group and China Netcom, dated September 6, 2004.
(English translation)
(10)
|
|
4.25
|
|
|
Trademark Licensing Agreement among CNC China, Netcom Group and China Netcom, dated October 8, 2004.
(English translation)
(10)
|
|
4.26
|
|
|
Conditional Sale and Purchase Agreement among China Netcom, Netcom BVI and Netcom Group, relating to
the acquisition of CNC New Horizon BVI, dated September 12, 2005.
(12)
|
|
4.27
|
|
|
Asset Transfer Agreement between China Netcom and Netcom Group, relating to the sale of China
Netcoms telecommunications assets, liabilities and business operations in Guangdong Province and
Shanghai Municipality, dated January 15, 2007.
(12)
|
|
4.28
|
|
|
Domestic Interconnection Settlement Agreement between CNC China and Netcom Group, dated November 6,
2007. (English translation)
(12)
|
|
4.29
|
|
|
International Long Distance Voice Services Settlement Agreement between CNC China and Netcom Group,
dated November 6, 2007.
(English translation)
(12)
|
|
4.30
|
|
|
Engineering and Information Technology Services Agreement between CNC China and Netcom Group, dated
November 6, 2007.
(English translation)
(12)
|
|
4.31
|
|
|
Master Sharing Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)
(12)
|
|
4.32
|
|
|
Property Leasing Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)
(12)
|
|
4.33
|
|
|
Materials Procurement Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)
(12)
|
|
4.34
|
|
|
Ancillary Telecommunications Services Agreement between CNC China and Netcom Group, dated November
6, 2007. (English translation)
(12)
|
|
4.35
|
|
|
Support Services Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)
(12)
|
|
4.36
|
|
|
Telecommunications Facilities Leasing Agreement between CNC China and Netcom Group, dated November
6, 2007. (English translation)
(12)
|
|
4.37
|
|
|
Information and Communications Technology Agreement between China Netcom System Integration and
Netcom Group, dated November 6, 2007. (English translation)
(12)
|
-123-
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
|
|
|
4.38
|
|
|
Equity Interest Transfer Agreement between China Netcom Group System Integration and China Netcom
Group Beijing Communications Corporation, relating to the acquisition of Design Institute, dated
December 5, 2007. (English translation)
(11)
|
|
4.39
|
|
|
Framework Agreement for Interconnection Settlement between CUCL and Netcom Group, dated August 12,
2008. (English translation)
(12)
|
|
4.40
|
|
|
Framework Agreement for Engineering and Information Technology Services between CUCL and Netcom
Group, dated August 12, 2008. (English translation)
(12)
|
|
4.41
|
|
|
Framework Agreement for Property Leasing Services between CUCL and Netcom Group, dated August 12,
2008. (English translation)
(12)
|
|
4.42
|
|
|
Framework Agreement for Ancillary Telecommunications Services between CUCL and Netcom Group, dated
August 12, 2008. (English translation)
(12)
|
|
4.43
|
|
|
Framework Agreement for Support Services between CUCL and Netcom Group, dated August 12, 2008.
(English translation)
(12)
|
|
4.44
|
|
|
Framework Agreement for Telecommunications Facilities Leasing between CUCL and Netcom Group, dated
August 12, 2008. (English translation)
(12)
|
|
4.45
|
|
|
Comprehensive Services Agreement between Unicom Group and the A Share Company, dated August 12,
2008. (English translation)
(12)
|
|
4.46
|
|
|
Transfer Agreement among the A Share Company, CUCL and CNC China, in connection with the
Comprehensive Services Agreement, dated August 12, 2008. (English translation)
(12)
|
|
4.47
|
|
|
Merger Agreement between CUCL and CNC China, relating to the merger between CUCL and CNC China,
dated October 15, 2008. (English translation)
(12)
|
|
4.48
|
|
|
Pre-Global Offering Share Option Scheme, adopted by ordinary resolution of the Company on June 1,
2000 and amended by ordinary resolutions of the Company on May 13, 2002, May 11, 2007
and
May 26, 2009.
(12)
|
|
4.49
|
|
|
Share Option Scheme, adopted by ordinary resolution of the Company on June 1, 2000 and amended by
ordinary resolutions of the Company on May 13, 2002, May 11, 2007 and May 26, 2009.
(12)
|
|
4.50
|
|
|
Special Purpose Share Option Scheme, adopted by ordinary resolution of the Company on September 16,
2008 and amended by ordinary resolutions of the Company on May 26, 2009.
(12)
|
|
4.51
|
|
|
Subscription Agreement between China Unicom (Hong Kong) Limited and Telefónica, dated September
6, 2009.
(13)
|
|
4.52
|
|
|
Strategic Alliance Agreement between us and Telefónica, dated September 6, 2009.
(13)
|
|
4.53
|
|
|
Irrevocable Offer by SK Telecom, dated September 25, 2009.
(13)
|
|
4.54
|
|
|
Irrevocable voting undertaking from China Netcom Group Corporation (BVI) Limited in favor of SK
Telecom, dated September 25, 2009.
(13)
|
|
4.55
|
|
|
Share Repurchase Agreement, dated November 3, 2009.
(13)
|
|
4.56
|
|
|
Amendment Agreement to Share Repurchase Agreement, dated November 3, 2009.
(13)
|
|
4.57
|
|
|
2011-2012 Network Lease Agreement between Unicom New Horizon and CUCL, dated October 29, 2010.
(English translation)
*
|
|
4.58
|
|
|
2011-2013 Comprehensive Services Agreement between Unicom Group and CUCL, dated October 29, 2010.
(English translation)
*
|
-124-
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
|
|
|
4.59
|
|
|
Agreement to Enhance the Strategic Alliance between China Unicom (Hong Kong) Limited and Telefónica, dated January 23, 2011.
*
|
|
8.1
|
|
|
List of our significant subsidiaries.
*
|
|
11.1
|
|
|
Code of Ethics for Senior Officers.
(4)
|
|
11.2
|
|
|
Employee Code of Ethics. (English translation)
(6)
|
|
12.1
|
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
*
|
|
12.2
|
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
*
|
|
13.1
|
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(b).
*
|
|
13.2
|
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(b).
*
|
We have not included as exhibits certain instruments with respect to our long-term debt, the
amount of debt authorized under each of which does not exceed 10% of our total assets, and we agree
to furnish a copy of any such instrument to the Securities Exchange Commission upon request.
|
|
|
(1)
|
|
Incorporated by reference to our Registration Statement on Form F-1 (File No. 333-11938)
filed with the SEC in connection with our initial public offering in June 2000.
|
|
(2)
|
|
Incorporated by reference to the Registration Statement on Form F-6 (File No. 333-11952)
filed with the SEC with respect to American Depositary Shares representing our shares.
|
|
(3)
|
|
Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2002.
|
|
(4)
|
|
Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2003.
|
|
(5)
|
|
Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2004.
|
|
(6)
|
|
Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2005.
|
|
(7)
|
|
Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2006.
|
|
(8)
|
|
Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2007.
|
|
(9)
|
|
Incorporated by reference to Schedule 13D/A (File No. 5-51154) filed by China Netcom Group
Corporation (BVI) Limited, China Network Communications Group Corporation, China United
Network Communications Group Company Limited, China United Telecommunications Corporation
Limited, and China Unicom (BVI) Limited, filed on December 24, 2008.
|
|
(10)
|
|
Incorporated by reference to China Netcoms Registration Statement on Form F-1 (File No.
333-119786) filed with the SEC in connection with its initial public offering in November
2004.
|
|
(11)
|
|
Incorporated by reference to China Netcoms Annual Report on Form 20-F (File No. 1-32332) for
the year ended December 31, 2007.
|
|
(12)
|
|
Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2008.
|
|
(13)
|
|
Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2009.
|
|
*
|
|
Filed herewith.
|
-125-
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual report on its
behalf.
Date:
May 26, 2011
|
|
|
|
|
|
CHINA UNICOM (HONG KONG) LIMITED
|
|
|
By:
|
/s/
Chang Xiaobing
|
|
|
|
Name:
|
Chang Xiaobing
|
|
|
|
Title:
|
Chairman and Chief Executive Officer
|
|
-126-
INDEX OF CONSOLIDATED FINANCIAL STATEMENTS
F-1
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
CHINA UNICOM (HONG KONG) LIMITED
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of income, comprehensive income, changes in equity and cash flows present fairly, in all
material respects, the financial position of China Unicom (Hong Kong) Limited and its subsidiaries
(together, the Group) at December 31, 2010 and 2009, and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2010 in conformity
with International Financial Reporting Standards as issued by the International Accounting
Standards Board and in conformity with Hong Kong Financial Reporting Standards issued by the Hong
Kong Institute of Certified Public Accountants. Also in our opinion, the Group maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2010,
based on criteria established in
Internal Control Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Groups management is responsible
for these financial statements, for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting, included
in the Managements Annual Report on Internal Control Over Financial Reporting included in Item 15
of this Annual Report on Form 20-F. Our responsibility is to express opinions on these financial
statements and on the Groups internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
As discussed in Note 2.25 (a) to the consolidated financial statements, the Group adopted the
accounting policy of relative fair value method when accounting for its preferential promotional
service packages retrospectively on January 1, 2010.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
Hong Kong
May 24, 2011
F-2
CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND 2010
(All amounts in Renminbi (RMB) millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31
|
|
|
|
Note
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
6
|
|
|
351,157
|
|
|
|
366,060
|
|
|
|
55,464
|
|
Lease prepayments
|
|
7
|
|
|
7,729
|
|
|
|
7,607
|
|
|
|
1,153
|
|
Goodwill
|
|
8
|
|
|
2,771
|
|
|
|
2,771
|
|
|
|
420
|
|
Deferred income tax assets
|
|
9
|
|
|
5,202
|
|
|
|
4,840
|
|
|
|
733
|
|
Available-for-sale financial assets
|
|
10
|
|
|
7,977
|
|
|
|
6,214
|
|
|
|
942
|
|
Other assets
|
|
12
|
|
|
11,596
|
|
|
|
11,753
|
|
|
|
1,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
386,432
|
|
|
|
399,245
|
|
|
|
60,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories and consumables
|
|
13
|
|
|
2,412
|
|
|
|
3,728
|
|
|
|
565
|
|
Accounts receivable, net
|
|
14
|
|
|
8,825
|
|
|
|
9,286
|
|
|
|
1,407
|
|
Prepayments and other current assets
|
|
15
|
|
|
4,252
|
|
|
|
5,115
|
|
|
|
775
|
|
Amounts due from related parties
|
|
40.1
|
|
|
53
|
|
|
|
50
|
|
|
|
8
|
|
Amounts due from domestic carriers
|
|
40.2
|
|
|
1,134
|
|
|
|
1,261
|
|
|
|
191
|
|
Proceeds receivable for disposal of
the CDMA business
|
|
36, 40.2
|
|
|
5,121
|
|
|
|
|
|
|
|
|
|
Short-term bank deposits
|
|
16
|
|
|
996
|
|
|
|
273
|
|
|
|
41
|
|
Cash and cash equivalents
|
|
17
|
|
|
7,820
|
|
|
|
22,495
|
|
|
|
3,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,613
|
|
|
|
42,208
|
|
|
|
6,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
417,045
|
|
|
|
441,453
|
|
|
|
66,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to owners of the parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
18
|
|
|
2,310
|
|
|
|
2,310
|
|
|
|
350
|
|
Share premium
|
|
18
|
|
|
173,435
|
|
|
|
173,436
|
|
|
|
26,278
|
|
Reserves
|
|
19
|
|
|
(18,088
|
)
|
|
|
(18,273
|
)
|
|
|
(2,769
|
)
|
Retained profits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Proposed final dividend
|
|
37
|
|
|
3,770
|
|
|
|
1,885
|
|
|
|
286
|
|
- Others
|
|
|
|
|
45,038
|
|
|
|
46,483
|
|
|
|
7,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206,465
|
|
|
|
205,841
|
|
|
|
31,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
|
|
206,467
|
|
|
|
205,841
|
|
|
|
31,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-3
CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED BALANCE SHEETS (Continued)
AS OF DECEMBER 31, 2009 AND 2010
(All amounts in RMB millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31
|
|
|
|
Note
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term bank loans
|
|
20
|
|
|
759
|
|
|
|
1,462
|
|
|
|
222
|
|
Promissory notes
|
|
21
|
|
|
|
|
|
|
15,000
|
|
|
|
2,273
|
|
Convertible bonds
|
|
22
|
|
|
|
|
|
|
11,558
|
|
|
|
1,751
|
|
Corporate bonds
|
|
23
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
1,061
|
|
Deferred income tax liabilities
|
|
9
|
|
|
245
|
|
|
|
22
|
|
|
|
3
|
|
Deferred revenue
|
|
|
|
|
2,562
|
|
|
|
2,171
|
|
|
|
328
|
|
Other obligations
|
|
24
|
|
|
187
|
|
|
|
162
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,753
|
|
|
|
37,375
|
|
|
|
5,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
25
|
|
|
104,072
|
|
|
|
97,659
|
|
|
|
14,795
|
|
Taxes payable
|
|
|
|
|
912
|
|
|
|
1,484
|
|
|
|
225
|
|
Amounts due to ultimate holding company
|
|
40.1
|
|
|
308
|
|
|
|
229
|
|
|
|
35
|
|
Amounts due to related parties
|
|
40.1
|
|
|
5,438
|
|
|
|
5,191
|
|
|
|
787
|
|
Amounts due to domestic carriers
|
|
40.2
|
|
|
1,136
|
|
|
|
873
|
|
|
|
132
|
|
Payables in
relation to disposal of the CDMA business
|
|
40.2
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Commercial papers
|
|
26
|
|
|
|
|
|
|
23,000
|
|
|
|
3,485
|
|
Short-term bank loans
|
|
27
|
|
|
63,909
|
|
|
|
36,727
|
|
|
|
5,565
|
|
Current portion of long-term bank loans
|
|
20
|
|
|
62
|
|
|
|
58
|
|
|
|
9
|
|
Dividend payable
|
|
37
|
|
|
331
|
|
|
|
431
|
|
|
|
65
|
|
Current portion of deferred revenue
|
|
|
|
|
1,397
|
|
|
|
1,042
|
|
|
|
158
|
|
Current portion of other obligations
|
|
24
|
|
|
2,534
|
|
|
|
2,637
|
|
|
|
400
|
|
Advances from customers
|
|
|
|
|
19,719
|
|
|
|
28,906
|
|
|
|
4,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199,825
|
|
|
|
198,237
|
|
|
|
30,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
210,578
|
|
|
|
235,612
|
|
|
|
35,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity and liabilities
|
|
|
|
|
417,045
|
|
|
|
441,453
|
|
|
|
66,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current liabilities
|
|
|
|
|
(169,212
|
)
|
|
|
(156,029
|
)
|
|
|
(23,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets less current liabilities
|
|
|
|
|
217,220
|
|
|
|
243,216
|
|
|
|
36,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-4
CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(All amounts in RMB millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
|
Note
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
5, 28, 40
|
|
|
159,792
|
|
|
|
153,945
|
|
|
|
171,298
|
|
|
|
25,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interconnection charges
|
|
|
|
|
(13,038
|
)
|
|
|
(12,955
|
)
|
|
|
(13,727
|
)
|
|
|
(2,082
|
)
|
Depreciation and amortization
|
|
|
|
|
(51,847
|
)
|
|
|
(47,587
|
)
|
|
|
(54,433
|
)
|
|
|
(8,247
|
)
|
Networks, operations and support
expenses
|
|
29, 43
|
|
|
(18,736
|
)
|
|
|
(23,728
|
)
|
|
|
(26,383
|
)
|
|
|
(3,997
|
)
|
Employee benefit expenses
|
|
30
|
|
|
(20,758
|
)
|
|
|
(21,931
|
)
|
|
|
(23,327
|
)
|
|
|
(3,534
|
)
|
Other operating expenses
|
|
31
|
|
|
(37,997
|
)
|
|
|
(36,723
|
)
|
|
|
(48,269
|
)
|
|
|
(7,313
|
)
|
Finance costs
|
|
32
|
|
|
(3,269
|
)
|
|
|
(1,036
|
)
|
|
|
(1,749
|
)
|
|
|
(265
|
)
|
Interest income
|
|
|
|
|
265
|
|
|
|
91
|
|
|
|
142
|
|
|
|
22
|
|
Impairment loss on property, plant
and equipment
|
|
6
|
|
|
(12,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain on changes in fair
value of derivative financial
instrument
|
|
33
|
|
|
|
|
|
|
1,239
|
|
|
|
|
|
|
|
|
|
Other income net
|
|
34
|
|
|
2,141
|
|
|
|
962
|
|
|
|
1,221
|
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income tax
|
|
|
|
|
4,059
|
|
|
|
12,277
|
|
|
|
4,773
|
|
|
|
723
|
|
Income tax expenses
|
|
9
|
|
|
(1,828
|
)
|
|
|
(2,721
|
)
|
|
|
(922
|
)
|
|
|
(140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
|
|
2,231
|
|
|
|
9,556
|
|
|
|
3,851
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
36
|
|
|
1,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal of discontinued
operations
|
|
36
|
|
|
26,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
29,804
|
|
|
|
9,556
|
|
|
|
3,851
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the parent
|
|
|
|
|
29,804
|
|
|
|
9,556
|
|
|
|
3,851
|
|
|
|
583
|
|
Non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,804
|
|
|
|
9,556
|
|
|
|
3,851
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-5
CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF INCOME (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(All amounts in RMB millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
|
Note
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Earnings per share for income
attributable to owners of the
parent during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (RMB)
|
|
38
|
|
|
1.25
|
|
|
|
0.40
|
|
|
|
0.16
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share (RMB)
|
|
38
|
|
|
1.24
|
|
|
|
0.40
|
|
|
|
0.16
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per ADS for income
attributable to owners of the
parent during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per ADS (RMB)
|
|
38
|
|
|
12.55
|
|
|
|
4.02
|
|
|
|
1.63
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per ADS (RMB)
|
|
38
|
|
|
12.45
|
|
|
|
4.00
|
|
|
|
1.62
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share for income
from continuing operations
attributable to owners of the
parent during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (RMB)
|
|
38
|
|
|
0.09
|
|
|
|
0.40
|
|
|
|
0.16
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share (RMB)
|
|
38
|
|
|
0.09
|
|
|
|
0.40
|
|
|
|
0.16
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per ADS for income
from continuing operations
attributable to owners of the
parent during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per ADS (RMB)
|
|
38
|
|
|
0.94
|
|
|
|
4.02
|
|
|
|
1.63
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per ADS (RMB)
|
|
38
|
|
|
0.93
|
|
|
|
4.00
|
|
|
|
1.62
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share for income
from discontinued operations
attributable to owners of the
parent during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (RMB)
|
|
38
|
|
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share (RMB)
|
|
38
|
|
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per ADS for income
from discontinued operations
attributable to owners of the
parent during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per ADS (RMB)
|
|
38
|
|
|
11.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per ADS (RMB)
|
|
38
|
|
|
11.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of dividends attributable to owners of the parent for the years ended December 31,
2008, 2009 and 2010 are set out in Note 37.
The accompanying notes are an integral part of the consolidated financial statements.
F-6
CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(All amounts in RMB millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
29,804
|
|
|
|
9,556
|
|
|
|
3,851
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value on
available-for-sale financial
assets
|
|
|
(188
|
)
|
|
|
(71
|
)
|
|
|
(1,777
|
)
|
|
|
(269
|
)
|
Tax effect on changes in fair
value on available-for-sale
financial assets
|
|
|
47
|
|
|
|
33
|
|
|
|
437
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value on
available-for-sale financial
assets, net of tax
|
|
|
(141
|
)
|
|
|
(38
|
)
|
|
|
(1,340
|
)
|
|
|
(203
|
)
|
Currency translation differences
|
|
|
(29
|
)
|
|
|
|
|
|
|
6
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss for
the year, net of tax
|
|
|
(170
|
)
|
|
|
(38
|
)
|
|
|
(1,334
|
)
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for
the year
|
|
|
29,634
|
|
|
|
9,518
|
|
|
|
2,517
|
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the parent
|
|
|
29,634
|
|
|
|
9,518
|
|
|
|
2,517
|
|
|
|
381
|
|
Non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,634
|
|
|
|
9,518
|
|
|
|
2,517
|
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-7
CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(All amounts in RMB millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to owners of the parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
Available-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share-based
|
|
|
|
|
|
|
for-sale fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Share
|
|
|
Share
|
|
|
compensation
|
|
|
Revaluation
|
|
|
value
|
|
|
Statutory
|
|
|
Other
|
|
|
Retained
|
|
|
|
|
|
|
controlling
|
|
|
Total
|
|
|
|
capital
|
|
|
premium
|
|
|
reserve
|
|
|
reserve
|
|
|
reserve
|
|
|
reserves
|
|
|
reserve
|
|
|
profits
|
|
|
Total
|
|
|
interests
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2008
|
|
|
1,437
|
|
|
|
64,320
|
|
|
|
516
|
|
|
|
1,145
|
|
|
|
185
|
|
|
|
18,765
|
|
|
|
56,770
|
|
|
|
30,144
|
|
|
|
173,282
|
|
|
|
7
|
|
|
|
173,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss)/income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
(29
|
)
|
|
|
29,804
|
|
|
|
29,634
|
|
|
|
|
|
|
|
29,634
|
|
Effect of 2009 Business Combination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(201
|
)
|
|
|
(3,532
|
)
|
|
|
3,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer to retained profits in respect of depreciation on revalued assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(984
|
)
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
1,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer to statutory reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
886
|
|
|
|
|
|
|
|
(886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Appropriation to statutory reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,542
|
|
|
|
|
|
|
|
(3,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-settled share option schemes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Value of employee services
|
|
|
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
96
|
|
-Issuance of shares upon exercise of options (Note 35)
|
|
|
3
|
|
|
|
252
|
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267
|
|
|
|
|
|
|
|
450
|
|
|
|
|
|
|
|
450
|
|
Issuance of shares in connection with 2008 Business Combination (Note 1)
|
|
|
889
|
|
|
|
102,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer out upon disposal of the CDMA business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Dividends relating to 2007 (Note 37)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,231
|
)
|
|
|
(6,231
|
)
|
|
|
|
|
|
|
(6,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
2,329
|
|
|
|
166,784
|
|
|
|
540
|
|
|
|
161
|
|
|
|
44
|
|
|
|
22,992
|
|
|
|
(49,695
|
)
|
|
|
54,076
|
|
|
|
197,231
|
|
|
|
2
|
|
|
|
197,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-8
CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(All amounts in RMB millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to owners of the parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
Available-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
share-based
|
|
|
|
|
|
|
for-sale fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Share
|
|
|
Share
|
|
|
redemption
|
|
|
compensation
|
|
|
Revaluation
|
|
|
value
|
|
|
Statutory
|
|
|
Other
|
|
|
Retained
|
|
|
|
|
|
|
controlling
|
|
|
Total
|
|
|
|
capital
|
|
|
premium
|
|
|
reserve
|
|
|
reserve
|
|
|
reserve
|
|
|
reserve
|
|
|
reserves
|
|
|
reserve
|
|
|
profits
|
|
|
Total
|
|
|
interests
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2009
|
|
|
2,329
|
|
|
|
166,784
|
|
|
|
|
|
|
|
540
|
|
|
|
161
|
|
|
|
44
|
|
|
|
22,992
|
|
|
|
(49,695
|
)
|
|
|
54,076
|
|
|
|
197,231
|
|
|
|
2
|
|
|
|
197,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss)/income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
9,556
|
|
|
|
9,518
|
|
|
|
|
|
|
|
9,518
|
|
Transfer of profit of entities under common control to Unicom Group in relation to 2009 Business Combination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
(64
|
)
|
Transfer of assets and liabilities under common control to Unicom Group in relation to 2009 Business Combination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,494
|
|
|
|
|
|
|
|
10,494
|
|
|
|
|
|
|
|
10,494
|
|
Consideration for 2009 Business Combination under common control (Note 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,896
|
)
|
|
|
|
|
|
|
(3,896
|
)
|
|
|
|
|
|
|
(3,896
|
)
|
Transfer to retained profits in respect of depreciation on revalued assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer to statutory reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
490
|
|
|
|
|
|
|
|
(490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Appropriation to statutory reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
769
|
|
|
|
|
|
|
|
(769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-settled share option schemes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Value of employee services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
27
|
|
Issuance of shares for mutual investment by the Company and Telefónica
(Note 18 & Note 33)
|
|
|
60
|
|
|
|
6,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,711
|
|
|
|
|
|
|
|
6,711
|
|
Off-market share repurchase (Note 18)
|
|
|
(79
|
)
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,802
|
)
|
|
|
(8,802
|
)
|
|
|
|
|
|
|
(8,802
|
)
|
Dividends relating to 2008 (Note 37)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,754
|
)
|
|
|
(4,754
|
)
|
|
|
|
|
|
|
(4,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
2,310
|
|
|
|
173,435
|
|
|
|
79
|
|
|
|
567
|
|
|
|
106
|
|
|
|
6
|
|
|
|
24,251
|
|
|
|
(43,097
|
)
|
|
|
48,808
|
|
|
|
206,465
|
|
|
|
2
|
|
|
|
206,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-9
CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(All amounts in RMB millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to owners of the parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
share-based
|
|
|
|
|
|
|
Available-
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Share
|
|
|
Share
|
|
|
redemption
|
|
|
compensation
|
|
|
Revaluation
|
|
|
for-sale fair
|
|
|
Statutory
|
|
|
bonds
|
|
|
Other
|
|
|
Retained
|
|
|
|
|
|
|
controlling
|
|
|
Total
|
|
|
|
capital
|
|
|
premium
|
|
|
reserve
|
|
|
reserve
|
|
|
reserve
|
|
|
value reserve
|
|
|
reserves
|
|
|
reserve
|
|
|
reserve
|
|
|
profits
|
|
|
Total
|
|
|
interests
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2010
|
|
|
2,310
|
|
|
|
173,435
|
|
|
|
79
|
|
|
|
567
|
|
|
|
106
|
|
|
|
6
|
|
|
|
24,251
|
|
|
|
|
|
|
|
(43,097
|
)
|
|
|
48,808
|
|
|
|
206,465
|
|
|
|
2
|
|
|
|
206,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss)/income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,340
|
)
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
3,851
|
|
|
|
2,517
|
|
|
|
|
|
|
|
2,517
|
|
Transfer to retained profits in respect of
depreciation on revalued assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer to statutory reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
(192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Appropriation to statutory reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
379
|
|
|
|
|
|
|
|
|
|
|
|
(379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-settled share option schemes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Value of employee services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
56
|
|
-Issuance of shares upon exercise of options
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Disposal of non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Issuance of convertible bonds (Note 22)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
572
|
|
|
|
|
|
|
|
|
|
|
|
572
|
|
|
|
|
|
|
|
572
|
|
Dividends relating to 2009 (Note 37)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,770
|
)
|
|
|
(3,770
|
)
|
|
|
|
|
|
|
(3,770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
2,310
|
|
|
|
173,436
|
|
|
|
79
|
|
|
|
623
|
|
|
|
56
|
|
|
|
(1,334
|
)
|
|
|
24,822
|
|
|
|
572
|
|
|
|
(43,091
|
)
|
|
|
48,368
|
|
|
|
205,841
|
|
|
|
|
|
|
|
205,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-10
CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(All amounts in RMB millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
|
Note
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash generated from continuing operations
|
|
(a)
|
|
|
67,794
|
|
|
|
63,990
|
|
|
|
69,260
|
|
|
|
10,494
|
|
Interest received
|
|
|
|
|
269
|
|
|
|
93
|
|
|
|
148
|
|
|
|
22
|
|
Interest paid
|
|
|
|
|
(3,011
|
)
|
|
|
(1,681
|
)
|
|
|
(2,025
|
)
|
|
|
(307
|
)
|
Income tax paid
|
|
|
|
|
(7,811
|
)
|
|
|
(4,669
|
)
|
|
|
(1,039
|
)
|
|
|
(157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow from operating
activities of continuing operations
|
|
|
|
|
57,241
|
|
|
|
57,733
|
|
|
|
66,344
|
|
|
|
10,052
|
|
Net cash inflow from operating
activities of discontinued operations
|
|
36
|
|
|
656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow from operating activities
|
|
|
|
|
57,897
|
|
|
|
57,733
|
|
|
|
66,344
|
|
|
|
10,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
|
|
(54,496
|
)
|
|
|
(78,130
|
)
|
|
|
(75,555
|
)
|
|
|
(11,448
|
)
|
Proceeds from disposal of property,
plant and equipment and other assets
|
|
|
|
|
573
|
|
|
|
611
|
|
|
|
375
|
|
|
|
57
|
|
Dividends received from
available-for-sale financial assets
|
|
|
|
|
3
|
|
|
|
177
|
|
|
|
416
|
|
|
|
63
|
|
Consideration for purchase of entities
and businesses under common control
|
|
|
|
|
(5,880
|
)
|
|
|
(3,896
|
)
|
|
|
|
|
|
|
|
|
Decrease/(increase) in short-term bank
deposits
|
|
|
|
|
415
|
|
|
|
(659
|
)
|
|
|
723
|
|
|
|
110
|
|
Purchase of other assets
|
|
|
|
|
(1,641
|
)
|
|
|
(3,411
|
)
|
|
|
(2,573
|
)
|
|
|
(390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash outflow from investing
activities of continuing operations
|
|
|
|
|
(61,026
|
)
|
|
|
(85,308
|
)
|
|
|
(76,614
|
)
|
|
|
(11,608
|
)
|
Net cash inflow/(outflow) from investing
activities of discontinued operations
|
|
36
|
|
|
29,489
|
|
|
|
(5,039
|
)
|
|
|
5,121
|
|
|
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash outflow from investing
activities
|
|
|
|
|
(31,537
|
)
|
|
|
(90,347
|
)
|
|
|
(71,493
|
)
|
|
|
(10,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-11
CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(All amounts in RMB millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
|
Note
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of share options
|
|
|
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from commercial papers
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
22,928
|
|
|
|
3,474
|
|
Proceeds from short-term bank loans
|
|
|
|
|
|
|
50,714
|
|
|
|
96,204
|
|
|
|
114,182
|
|
|
|
17,300
|
|
Proceeds from long-term bank loans
|
|
|
|
|
|
|
2,888
|
|
|
|
|
|
|
|
800
|
|
|
|
120
|
|
Proceeds from issuance of promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,954
|
|
|
|
2,266
|
|
Proceeds from issuance of convertible bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,145
|
|
|
|
1,840
|
|
Proceeds from issuance of corporate bonds
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from related party loan
|
|
|
|
|
|
|
6,284
|
|
|
|
2,114
|
|
|
|
|
|
|
|
|
|
Repayment of commercial papers
|
|
|
|
|
|
|
(20,000
|
)
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
Repayment of short-term bank loans
|
|
|
|
|
|
|
(51,784
|
)
|
|
|
(43,075
|
)
|
|
|
(141,364
|
)
|
|
|
(21,418
|
)
|
Repayment of long-term bank loans
|
|
|
|
|
|
|
(23,832
|
)
|
|
|
(1,406
|
)
|
|
|
(51
|
)
|
|
|
(8
|
)
|
Repayment of capital element of finance
lease payments
|
|
|
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
(36
|
)
|
|
|
(5
|
)
|
Repayment of related party loan
|
|
|
|
|
|
|
(2,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of prior year profit transfer
|
|
|
|
|
|
|
(101
|
)
|
|
|
(266
|
)
|
|
|
(64
|
)
|
|
|
(10
|
)
|
Consideration for off-market share repurchase
|
|
|
|
|
|
|
|
|
|
|
(8,802
|
)
|
|
|
|
|
|
|
|
|
Dividends paid to owners of the parent
|
|
|
37
|
|
|
|
(6,082
|
)
|
|
|
(4,572
|
)
|
|
|
(3,670
|
)
|
|
|
(556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (outflow)/inflow from financing
activities of continuing operations
|
|
|
|
|
|
|
(28,786
|
)
|
|
|
30,197
|
|
|
|
19,824
|
|
|
|
3,003
|
|
Net cash outflow from financing activities
of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (outflow)/inflow from financing
activities
|
|
|
|
|
|
|
(28,786
|
)
|
|
|
30,197
|
|
|
|
19,824
|
|
|
|
3,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (outflow)/inflow from continuing
operations
|
|
|
|
|
|
|
(32,571
|
)
|
|
|
2,622
|
|
|
|
9,554
|
|
|
|
1,447
|
|
Net cash inflow/(outflow) from discontinued
operations
|
|
|
36
|
|
|
|
30,145
|
|
|
|
(5,039
|
)
|
|
|
5,121
|
|
|
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease)/ increase in cash and cash
equivalents
|
|
|
|
|
|
|
(2,426
|
)
|
|
|
(2,417
|
)
|
|
|
14,675
|
|
|
|
2,223
|
|
Cash and cash equivalents, beginning of year
|
|
|
|
|
|
|
12,663
|
|
|
|
10,237
|
|
|
|
7,820
|
|
|
|
1,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
|
17
|
|
|
|
10,237
|
|
|
|
7,820
|
|
|
|
22,495
|
|
|
|
3,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of the balances of cash and cash
equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash balances
|
|
|
|
|
|
|
8
|
|
|
|
7
|
|
|
|
6
|
|
|
|
1
|
|
Bank balances
|
|
|
|
|
|
|
10,229
|
|
|
|
7,813
|
|
|
|
22,489
|
|
|
|
3,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,237
|
|
|
|
7,820
|
|
|
|
22,495
|
|
|
|
3,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-12
CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(All amounts in RMB millions)
|
|
|
(a)
|
|
The reconciliation of income from continuing operations before income tax to cash generated
from continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Income from continuing operations before income tax
|
|
|
4,059
|
|
|
|
12,277
|
|
|
|
4,773
|
|
|
|
723
|
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
51,847
|
|
|
|
47,587
|
|
|
|
54,433
|
|
|
|
8,247
|
|
Interest income
|
|
|
(265
|
)
|
|
|
(91
|
)
|
|
|
(142
|
)
|
|
|
(22
|
)
|
Finance costs
|
|
|
2,999
|
|
|
|
828
|
|
|
|
1,736
|
|
|
|
263
|
|
Loss/(gain) on disposal of property, plant and
equipment and other assets
|
|
|
239
|
|
|
|
(91
|
)
|
|
|
(11
|
)
|
|
|
(2
|
)
|
Gain on non-monetary assets exchange
|
|
|
(1,305
|
)
|
|
|
(38
|
)
|
|
|
(10
|
)
|
|
|
(2
|
)
|
Share-based compensation costs
|
|
|
84
|
|
|
|
27
|
|
|
|
56
|
|
|
|
8
|
|
Provision for doubtful debts
|
|
|
3,025
|
|
|
|
2,355
|
|
|
|
2,583
|
|
|
|
391
|
|
Impairment loss on property, plant and equipment
|
|
|
12,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain on changes in fair value of derivative
financial instruments
|
|
|
|
|
|
|
(1,239
|
)
|
|
|
|
|
|
|
|
|
Dividends from available-for-sale financial assets
|
|
|
(3
|
)
|
|
|
(215
|
)
|
|
|
(485
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(2,044
|
)
|
|
|
(1,839
|
)
|
|
|
(3,044
|
)
|
|
|
(461
|
)
|
Increase in inventories and consumables
|
|
|
(126
|
)
|
|
|
(1,320
|
)
|
|
|
(1,316
|
)
|
|
|
(199
|
)
|
Decrease/(increase) in other assets
|
|
|
834
|
|
|
|
(125
|
)
|
|
|
755
|
|
|
|
114
|
|
Decrease/(increase) in prepayments and other current
assets
|
|
|
1,000
|
|
|
|
(1,539
|
)
|
|
|
(868
|
)
|
|
|
(132
|
)
|
Decrease in amounts due from related parties
|
|
|
116
|
|
|
|
75
|
|
|
|
3
|
|
|
|
|
|
Decrease/(increase) in amounts due from domestic
carriers
|
|
|
267
|
|
|
|
(160
|
)
|
|
|
(127
|
)
|
|
|
(19
|
)
|
(Decrease)/increase in accounts payable and accrued
liabilities
|
|
|
(1,935
|
)
|
|
|
3,480
|
|
|
|
1,616
|
|
|
|
248
|
|
(Decrease)/increase in taxes payable
|
|
|
(265
|
)
|
|
|
1,179
|
|
|
|
1,328
|
|
|
|
201
|
|
Increase in advances from customers
|
|
|
1,653
|
|
|
|
4,805
|
|
|
|
9,187
|
|
|
|
1,392
|
|
Decrease in deferred revenue
|
|
|
(2,993
|
)
|
|
|
(1,639
|
)
|
|
|
(746
|
)
|
|
|
(113
|
)
|
Decrease in other obligations
|
|
|
(767
|
)
|
|
|
(2,101
|
)
|
|
|
|
|
|
|
|
|
(Decrease)/increase in amounts due to ultimate
holding company
|
|
|
(1,733
|
)
|
|
|
413
|
|
|
|
(79
|
)
|
|
|
(12
|
)
|
(Decrease)/increase in amounts due to related parties
|
|
|
(551
|
)
|
|
|
1,942
|
|
|
|
(112
|
)
|
|
|
(17
|
)
|
Increase/(decrease) in amounts due to domestic
carriers
|
|
|
396
|
|
|
|
180
|
|
|
|
(263
|
)
|
|
|
(40
|
)
|
Increase/(decrease) in payables in relation to
disposal of the CDMA business
|
|
|
768
|
|
|
|
(761
|
)
|
|
|
(7
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash generated from continuing operations
|
|
|
67,794
|
|
|
|
63,990
|
|
|
|
69,260
|
|
|
|
10,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(All amounts in RMB millions)
|
|
|
(b)
|
|
Major non-cash transactions:
|
|
(i)
|
|
On October 15, 2008, the Company issued 10,102,389,377 ordinary shares of HKD0.10 each
at a price of HKD11.60 per share with fair value or total price of approximately RMB103.1
billion (equivalent to approximately HKD117.2 billion) in exchange for the entire issued
share capital of China Netcom Group Corporation (Hong Kong) Limited. Please refer to Note 1
for details.
|
|
(ii)
|
|
On October 21, 2009, the Company and Telefónica S.A. (Telefónica) completed the
mutual investment of the equivalent of USD1 billion in each other, which was implemented by
way of the subscription by Telefónica for 693,912,264 new shares of the Company at a price
of HKD11.17 each, satisfied by the contribution by Telefónica of 40,730,735 Telefónica
treasury shares at a price of Euro17.24 each to the Company. Please refer to Note 18 and
Note 33 for details.
|
|
(iii)
|
|
For the years ended December 31, 2008, 2009 and 2010, the Group replaced copper cables
in some fixed-line network infrastructure with optical fibers and related equipment. Some
of this replacement was done through non-monetary assets exchanges with suppliers, through
which optical fibers and related equipment were received in exchange for the Groups own
copper cables. The cost of the assets received was recorded at the fair value of the assets
surrendered. In 2010, the net book value and fair value of copper cables surrendered were
RMB18 million (2008: RMB805 million; 2009: RMB60 million) and RMB24 million (2008: RMB2,110
million; 2009:RMB98 million), respectively. A gain on the non-monetary assets exchange of
RMB6 million (2008: RMB1,305 million; 2009:RMB38 million) was recognized in the statement
of income for the year ended December 31, 2010.
|
|
|
|
(c)
|
|
Payables to equipment suppliers for construction-in-progress during 2010 decreased by
approximately RMB8.9 billion (2008: increased approximately RMB14.1 billion; 2009: increased
approximately RMB26.8 billion).
|
F-14
CHINA UNICOM (HONG KONG) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in RMB millions unless otherwise stated)
1.
|
|
ORGANISATION AND PRINCIPAL ACTIVITIES
|
|
|
China Unicom (Hong Kong) Limited (the Company) was incorporated as a limited liability company
in the Hong Kong Special Administrative Region (Hong Kong), the Peoples Republic of China
(the PRC) on February 8, 2000. The principal activities of the Company are investment holding.
After disposal of the CDMA business to China Telecom Corporation Limited (China Telecom) on
October 1, 2008, the merger with China Netcom Group Corporation (Hong Kong) Limited (China
Netcom) on October 15, 2008 and the launch of WCDMA mobile business on October 1, 2009, the
principal activities of the Companys subsidiaries are the provision of cellular and fixed-line
voice and related value-added services, broadband and other Internet-related services,
information communications technology services, and business and data communications services in
the PRC. The GSM cellular voice, WCDMA cellular voice and related value-added services is
referred to as the Mobile business, the services aforementioned other than the Mobile business
is hereinafter collectively referred to as the Fixed-line business. The Company and its
subsidiaries are hereinafter referred to as the Group. The address of its registered office is
75th Floor, The Center, 99 Queens Road Central, Hong Kong.
|
|
|
The shares of the Company were listed on the Stock Exchange of Hong Kong Limited (SEHK) on
June 22, 2000 and the American Depositary Shares (ADS) of the Company were listed on the New
York Stock Exchange on June 21, 2000.
|
|
|
On November 15, 2008, the Company was notified by its substantial shareholders, namely China
Unicom (BVI) Limited (Unicom BVI) and China Netcom Group Corporation (BVI) Limited (Netcom
BVI), that their respective parent companies, namely, China United Network Communications Group
Company Limited (a state-owned enterprise established in the PRC, the parent company of Unicom
BVI, hereinafter referred to as Unicom Group) and China Network Communications Group
Corporation (a state-owned enterprise established in the PRC, the parent company of Netcom BVI,
hereinafter referred to as Netcom Group), had agreed to undertake a merger (the Parent
Merger). On January 6, 2009, the Company was notified by its substantial shareholders that the
Parent Merger, through the absorption of Netcom Group by Unicom Group, had been approved by the
State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and
had become effective. As a result of the Parent Merger, Unicom Group has assumed all the rights
and obligations of Netcom Group, all the assets, liabilities and business of Netcom Group
including the connected transaction agreements with the Group have vested in Unicom Group and
Unicom Group remains the ultimate holding company of the Company.
|
|
|
The substantial shareholders of the Company are Unicom BVI and Netcom BVI. The majority of
equity interests in Unicom BVI is owned by China United Network Communications Limited (A Share
Company, a joint stock company incorporated in the PRC on December 31, 2001, with its A shares
listed on the Shanghai Stock Exchange on October 9, 2002). The majority of the equity interest
in A Share Company is owned by Unicom Group. Netcom BVI is a wholly-owned subsidiary of Unicom
Group. As a result, the directors of the Company consider Unicom Group to be the ultimate
holding company.
|
F-15
1.
|
|
ORGANISATION AND PRINCIPAL ACTIVITIES (Continued)
|
|
(a)
|
|
Acquisitions of certain assets and businesses from Unicom Group and Netcom Group in
2009
|
|
|
|
On January 31, 2009, China United Network Communications Corporation Limited (CUCL, a
wholly-owned subsidiary of the Company) completed the acquisition from Unicom Group and
Netcom Group of (i) the fixed-line business, but not the underlying telecommunications
networks, across the 21 provinces in Southern China and related non-current assets and
liabilities (hereinafter referred to as the Fixed-line Business in Southern China) and the
local access telephone business and related assets in Tianjin Municipality operated by
Netcom Group and Unicom Group and/or their respective subsidiaries and branches; (ii) the
backbone transmission assets in Northern China owned by Netcom Group and/or its subsidiaries
(Target Assets); (iii) a 100% equity interest in Unicom Xingye Science and Technology
Trade Company Limited (Unicom Xingye) owned by Unicom Group; (iv) a 100% equity interest
in China Information Technology Designing & Consulting Institute Company Limited (CITDCI)
owned by Unicom Group and (v) a 100% equity interest in New Guoxin Telecom Corporation of
China Unicom (New Guoxin) owned by Unicom Group at a consideration of approximately
RMB4.43 billion. The businesses and assets described in (i), (iii), (iv) and (v) above are
hereinafter collectively referred to as the Target Business and the acquisition of the
Target Business is referred to as the 2009 Business Combination.
|
|
(b)
|
|
Lease of telecommunications networks in Southern China from Unicom New Horizon Mobile
Telecommunications Company Limited in 2009
|
|
|
|
In connection with the 2009 Business Combination, on December 16, 2008, CUCL, Unicom Group,
Netcom Group and Unicom New Horizon Mobile Telecommunications Company Limited (Unicom New
Horizon, a wholly-owned subsidiary of Unicom Group) entered into an agreement (the Network
Lease Agreement) in relation to the lease (the Lease) of the fixed-line
telecommunications networks of the 21 provinces in Southern China (Telecommunications
Networks in Southern China) by CUCL from Unicom New Horizon on an exclusive basis
immediately following and subject to the completion of the 2009 Business Combination. Under
the Network Lease Agreement, CUCL shall pay annual leasing fees of RMB2.0 billion and RMB2.2
billion for the two financial years ended December 31, 2009 and December 31, 2010,
respectively. The initial term of the Lease is two years effective from January 2009 and the
Lease is renewable at the option of CUCL with at least two months prior notice on the same
terms and conditions, except for the future lease fee which will remain subject to further
negotiations between the parties, taking into account, among others, the then prevailing
market conditions in Southern China. Moreover, in connection with the Lease, Unicom New
Horizon has granted CUCL an option to purchase the Telecommunications Networks in Southern
China and the purchase price will be referenced to the then appraised value of the networks
determined by an independent appraiser.
|
|
|
|
On October 29, 2010, CUCL and Unicom New Horizon entered into a new network lease agreement
(2011-2012 Network Lease Agreement) to renew the Lease for a term of two years expiring on
December 31, 2012 on the same terms and conditions as the Network Lease Agreement dated
December 16, 2008, except that the annual fee payable by CUCL for the Lease for the two
financial years ending December 31, 2011 and 2012 is RMB2.4 billion and RMB2.6 billion,
respectively.
|
F-16
1.
|
|
ORGANISATION AND PRINCIPAL ACTIVITIES (Continued)
|
|
(c)
|
|
Merger between CUCL and China Netcom (Group) Company Limited in 2009
|
|
|
|
On January 1, 2009, as part of the Companys integration with China Netcom, the Company
completed the reorganization of its wholly-owned subsidiaries, namely (i) CUCL and (ii)
China Netcom (Group) Company Limited (CNC China, a wholly-owned foreign enterprise
established in the PRC and a wholly-owned subsidiary of China Netcom), pursuant to which
CUCL merged with, and absorbed, CNC China. The merged company retains the name of China
United Network Communications Corporation Limited and remains a wholly-owned subsidiary of
the Company. The CNC China mentioned below represents CNC China before the merger with CUCL
on January 1, 2009.
|
|
|
|
The merger between CUCL and CNC China does not have any impact on the consolidated financial
statements.
|
|
(d)
|
|
2008 disposal and business combination activities
|
|
|
|
Disposal of the Groups CDMA business to China Telecom in 2008
|
|
|
|
On October 1, 2008, the Company completed disposal of the CDMA business to China Telecom
in accordance with the CDMA business framework agreement (the Framework Agreement) and
the CDMA business disposal agreement (the Disposal Agreement) entered into among the
Company, CUCL and China Telecom.
|
|
|
|
Merger between the Company and China Netcom by way of a scheme of arrangement of
China Netcom in 2008 (hereinafter referred to as the 2008 Business Combination)
|
|
|
|
On October 15, 2008, the Company completed its merger with China Netcom by way of a
scheme of arrangement of China Netcom (the Scheme) under Section 166 of the Hong Kong
Companies Ordinance. The consideration for the 2008 Business Combination was
approximately HKD117.2 billion which was satisfied by the issuance of 10,102,389,377
ordinary shares of HKD0.10 each of the Company to the shareholders of China Netcom.
|
F-17
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
|
The principal accounting policies applied in the preparation of these consolidated financial
statements are set out below. These policies have been consistently applied to all the years
presented, unless otherwise stated.
|
|
2.1
|
|
Statement of Compliance
|
|
|
|
These financial statements have been prepared in accordance with all applicable
International Financial Reporting Standards (IFRSs) issued by the International
Accounting Standards Board (IASB), which collective term includes all applicable
individual International Financial Reporting Standards, International Accounting Standards
(IASs) and Interpretations issued by the IASB. Hong Kong Financial Reporting Standards
(HKFRSs), which collective term includes all applicable individual Hong Kong Financial
Reporting Standards, Hong Kong Accounting Standards (HKASs) and Interpretations issued
by the Hong Kong Institute of Certified Public Accountants (HKICPA), are consistent
with IFRSs. These financial statements also comply with HKFRSs.
|
|
|
|
The consolidated financial statements have been prepared under the historical cost
convention, modified by the revaluation of property, plant and equipment (other than
buildings and telecommunications equipment of the Mobile business), available-for-sale
financial assets and derivative financial instrument at fair value through income or loss.
The consolidated financial statements prepared by the PRC subsidiaries for PRC statutory
reporting purposes are based on the Chinese Accounting Standards for Business Enterprises
(CAS) issued by the Ministry of Finance of the PRC, which became effective from January
1, 2007 with certain transitional provisions. There are certain differences between the
Groups IFRSs/HKFRSs financial statements and PRC statutory financial statements. The
principal adjustments made to the PRC statutory financial statements to conform to
IFRSs/HKFRSs include the following:
|
|
|
|
reversal of the revaluation surplus or deficit and related depreciation and
amortization charges arising from the revaluation of assets (mainly property, plant
and equipment) performed by independent valuers for the purpose of reporting to
relevant PRC government authorities;
|
|
|
|
recognition of the revaluation surplus or deficit and related depreciation charges
for the purpose of reporting the property, plant and equipment (other than buildings
and telecommunications equipment of the Mobile business) at revalued amounts under
IFRSs/HKFRSs;
|
|
|
|
recognition of goodwill associated with the acquisition of certain subsidiaries
prior to 2005;
|
|
|
|
additional capitalization of borrowing costs and corresponding impact on
depreciation prior to the adoption of CAS on January 1, 2007; and
|
|
|
|
adjustments for deferred taxation in relation to IFRSs/HKFRSs adjustments.
|
F-18
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.2
|
|
Basis of Preparation (Continued)
|
|
(a)
|
|
Business Combination of Entities and Businesses under Common Control and
Purchase of Target Assets
|
|
|
|
The 2009 Business Combination was considered a business combination of entities and
businesses under common control as the Target Business before and after the acquisition
was both under the control of Unicom Group, the Groups ultimate holding company.
|
|
|
|
The merger between the Company and China Netcom in 2008 was considered a business
combination of entities under common control as their respective ultimate holding
companies, namely Unicom Group and Netcom Group, were both under the common control of
SASAC. Further, the 2008 Business Combination was carried out by reference to the
Announcement on Deepening the Reform of the Structure of the Telecommunications Sector
dated May 24, 2008 jointly issued by the Ministry of Industry and Information
Technology (MIIT), the National Development and Reform Commission (NDRC) and the
Ministry of Finance of the PRC. As set out in Note 1, Unicom Group and Netcom Group had
merged on January 6, 2009 following the merger between the Company and China Netcom.
|
|
|
|
Under HKFRSs, the above transactions were accounted for using merger accounting in
accordance with the Accounting Guideline 5 Merger accounting for common control
combinations (AG 5) issued by the HKICPA. Upon the adoption of IFRSs by the Group in
2008, the Group adopted the accounting policy to account for business combinations of
entities and businesses under common control using the predecessor values method, which
is consistent with HKFRSs. Accordingly, the acquired assets and liabilities are stated
at predecessor values, and were included in the consolidated financial statements from
the beginning of the earliest period presented as if the entities and businesses
acquired had always been part of the Group.
|
|
|
|
Under IFRSs/HKFRSs, the purchase of the Target Assets in 2009 of approximately RMB0.53
billion was accounted for as an asset purchase in accordance with IAS/HKAS 16
Property, plant and equipment in the period of purchase.
|
F-19
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.2
|
|
Basis of Preparation (Continued)
|
|
(b)
|
|
Discontinued Operations
|
|
|
|
On June 2, 2008, the Company, CUCL and China Telecom entered into the Framework
Agreement to dispose of the assets and liabilities in relation to the CDMA business and
the disposal was completed on October 1, 2008. In accordance with IFRS/HKFRS 5
Non-current assets held for sale and discontinued operations issued by the
IASB/HKICPA (IFRS/HKFRS 5), the results and cash flows of the operations of the CDMA
operating segment of the Group have been presented as discontinued operations in the
consolidated statements of income and statements of cash flows of the Group for the
year ended December 31, 2008. The difference between the consideration received and
receivable and the book value of net assets disposed of is recorded as gain on
disposal of discontinued operations in the consolidated statement of income for the
year ended December 31, 2008.
|
|
|
|
For details, please refer to Note 36.
|
|
(c)
|
|
Going Concern Assumption
|
|
|
|
As of December 31, 2010, current liabilities of the Group exceeded current assets by
approximately RMB156.0 billion (2009: approximately RMB169.2 billion). Given the
current global economic conditions and the Groups expected capital expenditures in the
foreseeable future, management has comprehensively considered the Groups available
sources of funds as follows:
|
|
|
|
The Groups continuous net cash inflows from operating activities;
|
|
|
|
Revolving banking facilities of approximately RMB114.0 billion, of which
approximately RMB88.4 billion was unutilized as of December 31, 2010; and
|
|
|
|
Other available sources of financing from domestic banks and other financial
institutions given the Groups credit history.
|
|
|
|
In addition, the Group will continue to optimize its fund raising strategy from the
short, medium and long-term perspectives and maintain reasonable financing costs
through appropriate financing portfolio.
|
|
|
|
Based on the above considerations, the Board of Directors is of the opinion that the
Group has sufficient funds to meet its working capital requirements and debt
obligations. As a result, the consolidated financial statements of the Group for the
year ended December 31, 2010 have been prepared under the going concern basis.
|
|
(d)
|
|
Critical Accounting Estimates and Judgment
|
|
|
|
The preparation of the consolidated financial statements in conformity with
IFRSs/HKFRSs requires the use of certain critical accounting estimates. It also
requires management to exercise its judgment in the process of applying the Groups
accounting policies. The areas involving a higher degree of judgment or complexity, or
areas where assumptions and estimates significant to the consolidated financial
statements are disclosed in Note 4.
|
F-20
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.2
|
|
Basis of Preparation (Continued)
|
|
(e)
|
|
New Accounting Standards, Amendments and Interpretations Pronouncements
|
|
(i)
|
|
The following new and amended IFRSs/HKFRSs are adopted by the Group
as of January 1, 2010
|
|
|
|
IFRS/HKFRS 3 (revised), Business Combinations. The revised standard
continues to apply the acquisition method to business combinations with some
significant changes compared with IFRS/HKFRS 3. For example, all payments to
purchase a business are recorded at fair value at the acquisition date, with
contingent payments classified as debt subsequently re-measured through the
statement of comprehensive income. There is a choice on an
acquisition-by-acquisition basis to measure the non-controlling interests in the
acquiree either at fair value or at the non-controlling interests proportionate
share of the acquirees net assets. All acquisition-related costs should be
expensed. The revised standard does not have any significant impact on the
Groups financial statements, as it will be applied prospectively.
|
|
|
|
IAS/HKAS 27 (revised), Consolidated and separate financial statements. The
revised standard requires the effects of all transactions with non-controlling
interests to be recorded in equity if there is no change in control and these
transactions will no longer result in goodwill or gains and losses. The standard
also specifies the accounting when control is lost. Any remaining interest in the
entity is remeasured to fair value, and the resulting gain or loss is recognized
in income or loss. The revised standard does not have any significant impact on
the Groups financial statements.
|
F-21
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.2
|
|
Basis of Preparation (Continued)
|
|
(e)
|
|
New Accounting Standards, Amendments and Interpretations Pronouncements
(Continued)
|
|
(i)
|
|
The following new and amended IFRSs/HKFRSs are adopted by the Group
as of January 1, 2010 (Continued)
|
|
|
|
IASBs annual improvement project published in April 2009/HKICPAs improvements
to HKFRS published in May 2009
|
|
|
|
IAS/HKAS 1 (Amendment), Presentation of financial statements. Regarding
the liability component of convertible instruments, it clarifies that the
holders option which will result in the settlement by the issuance of equity
instruments, is not relevant to its classification as current or non-current.
By amending the definition of current liability, the amendment permits a
liability to be classified as non-current (provided that the entity has an
unconditional right to defer settlement by transfer of cash or other assets
for at least 12 months after the accounting period) notwithstanding the fact
that the entity could be required by the counterparty to settle in shares at
any time.
|
|
|
|
IAS/HKAS 17 (Amendment), Leases. The amendment deletes specific guidance
regarding classification of leases of land, so as to eliminate inconsistency
with the general guidance on lease classification. As a result, leases of land
should be classified as either finance lease or operating lease using the
general principles of IAS/HKAS 17.
|
|
|
|
IAS/HKAS 36 (Amendment), Impairment of assets. The amendment clarifies
that the largest cash-generating unit (or group of units) to which goodwill
should be allocated for the purposes of impairment testing is an operating
segment as defined by paragraph 5 of IFRS/HKFRS 8, Operating segments (that
is, before the aggregation of segments with similar economic characteristics
permitted by paragraph 12 of IFRS/HKFRS 8).
|
|
|
|
IAS/HKAS 38 (Amendment), Intangible assets. The amendment clarifies that
the description of the valuation techniques commonly used to measure
intangible assets acquired in a business combination when they are not traded
in an active market. In addition, an intangible asset acquired in a business
combination might be separable but only together with a related contract,
identifiable asset or liability. In such cases, the intangible asset is
recognized separately from goodwill but together with the related item.
|
|
|
|
The adoption of the IASBs/HKICPAs improvements does not have a
significant impact on the Groups consolidated financial statements.
|
F-22
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.2
|
|
Basis of Preparation (Continued)
|
|
(e)
|
|
New Accounting Standards, Amendments and Interpretations Pronouncements
(Continued)
|
|
(ii)
|
|
The following new and amended IFRSs/HKFRSs are not yet effective and
have not been early adopted by the Group
|
|
|
|
IFRIC/HK (IFRIC) Int 19, Extinguishing financial liabilities with equity
instruments (effective for annual periods beginning on or after July 1, 2010).
The interpretation clarifies the accounting by an entity when the terms of a
financial liability are renegotiated and result in the entity issuing equity
instruments to a creditor of the entity to extinguish all or part of the financial
liability (debt for equity swap). It requires a gain or loss to be recognized in
income or loss, which is measured as the difference between the carrying amount of
the financial liability and the fair value of the equity instruments issued. If
the fair value of the equity instruments issued cannot be reliably measured, the
equity instruments should be measured to reflect the fair value of the financial
liability extinguished. The Group will apply the interpretation from January 1,
2011 and is currently evaluating the impact of adopting such interpretation on the
Groups consolidated financial statements.
|
|
|
|
IFRS/HKFRS 9, Financial instruments: Classification and measurement
(effective January 1, 2013). It replaces the parts of IAS/HKAS 39 that relate to
the classification and measurement of financial assets. IFRS/HKFRS 9 requires
financial assets to be classified into two measurement categories: those measured
as at fair value and those measured at amortized cost. The determination is made
at initial recognition. The classification depends on the entitys business model
for managing its financial instruments and the contractual cash flow
characteristics of the instrument. In addition, classification and measurement
requirements for financial liabilities and the derecognition requirements for
financial instruments has been relocated from IAS/HKAS 39 without change, except
for financial liabilities that are designated at fair value through income or loss
and the cost exemption is removed for derivative liabilities linked to unquoted
equity instruments. The Group early adopted this standard in 2011. Upon adoption
of this standard, the balance of available-for-sale fair value reserve was
transferred to investment revaluation reserve. The Company made an irrevocable
election upon initial adoption of the standard to recognize changes in fair value
of available-for-sale financial assets only through other comprehensive
income/loss, there will be no subsequent recycling of fair value gains and losses
to the statement of income. Upon adoption, IFRS/HKFRS 9 will be applied retrospectively to all
periods presented.
|
F-23
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
|
|
The consolidated financial statements include the financial statements of the Company and
all of its subsidiaries made up to December 31.
|
|
|
|
Subsidiaries are all entities (including special purpose entities) over which the Group
has the power to govern the financial and operating policies generally accompanying a
shareholding of more than one half of the voting rights. The existence and effect of
potential voting rights that are currently exercisable or convertible are considered
when assessing whether the Group controls another entity.
|
|
|
|
Subsidiaries are fully consolidated from the date on which control is transferred to
the Group. They are de-consolidated from the date that control ceases. Upon the
disposal of subsidiaries, the difference between the consideration received and
receivable and the book value of net assets disposed of is recorded as gain/loss on
disposal in the consolidated statement of income in the year of disposal.
|
|
|
|
Under the purchase method of accounting, the cost of an acquisition is measured at the
fair value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange. Acquisition-related costs are expensed as incurred.
Identifiable assets acquired and liabilities and contingent liabilities assumed are
measured initially at their fair values at the acquisition date, irrespective of the
extent of any non-controlling interest. The excess of the cost of acquisition over the
fair value of the Groups share of the identifiable net assets acquired is recorded as
goodwill. If the cost of acquisition is less than the fair value of the Groups share
of the identifiable net assets of the subsidiary acquired, the difference is recognized
directly in the statement of income.
|
|
|
|
Upon the adoption of IFRSs in 2008, the Group adopted the accounting policy to account
for business combination of entities and businesses under common control using the
predecessor values method which is consistent with HKFRS.
|
|
|
|
Inter-company transactions, balances and unrealized gains on transactions between group
companies are eliminated. Unrealized losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. Accounting policies of
subsidiaries would be changed where necessary in the consolidated financial statements
to ensure consistency with the policies adopted by the Group.
|
F-24
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.3
|
|
Consolidation (Continued)
|
|
(b)
|
|
Non-controlling interests
|
|
|
|
Non-controlling interests at the balance sheet date, being the portion of the net
assets of subsidiaries attributable to interests that are not owned by the Company,
whether directly or indirectly through subsidiaries, are presented in the consolidated
balance sheets and statements of changes in equity within equity, separately from
equity attributable to owners of the parent. Non-controlling interests in the results
of the Group are presented on the face of the consolidated statement of incomes as an
allocation of the total income or loss for the year between non-controlling interests
and owners of the parent.
|
|
|
|
The Group treats transactions with non-controlling interests as transactions with
equity owners of the Group. For purchases from non-controlling interests, the
difference between any consideration paid and the relevant share acquired of the
carrying value of net assets of the subsidiary is recorded in equity. Gains or losses
on disposals to non-controlling interests are also recorded in equity.
|
|
|
|
When the Group ceases to have control or significant influence, any retained interest
in the entity is remeasured to its fair value, with the change in carrying amount
recognized in income or loss. The fair value is the initial carrying amount for the
purposes of subsequently accounting for the retained interest as an associate, joint
venture or financial asset. In addition, any amounts previously recognized in other
comprehensive income in respect of that entity are accounted for as if the Group had
directly disposed of the related assets or liabilities. This may mean that amounts
previously recognized in other comprehensive income are reclassified to income or loss.
|
|
|
|
The Group has changed its accounting policy for transactions with non-controlling
interests and the accounting for loss of control or significant influence from January
1, 2010 when revised IAS/HKAS 27, Consolidated and separate financial statements,
became effective. The revision to IAS/HKAS 27 contained consequential amendments to
IAS/HKAS 28, Investments in associates, and IAS/HKAS 31, Interests in joint
ventures.
|
|
|
|
Previously, transactions with non-controlling interests were treated as transactions
with parties external to the Group. Disposals therefore resulted in gains or losses in
income or loss and purchases resulted in the recognition of goodwill. On disposal or
partial disposal, a proportionate interest in reserves attributable to the subsidiary
was reclassified to income or loss or directly to retained profits.
|
|
|
|
Previously, when the Group ceased to have control or significant influence over an
entity, the carrying amount of the investment at the date of loss of control or
significant influence became its cost for the purposes of subsequently accounting for
the retained interests as associates, jointly controlled entity or financial assets.
|
|
|
|
The Group has applied the new policy prospectively to transactions occurring on or
after January 1, 2010. As a consequence, no adjustments were necessary to any of the
amounts previously recognized in the financial statements.
|
F-25
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
|
|
Operating segments are reported in a manner consistent with the internal reporting
provided to the chief operating decision-maker (CODM). The chief operating
decision-maker, who is responsible for allocating resources and assessing performance of
the operating segments regularly, has been identified as the Board of Directors that makes
strategic decisions.
|
|
2.5
|
|
Foreign Currency Translation
|
|
(a)
|
|
Functional and presentation currency
|
|
|
|
Items included in the financial statements of each of the Groups entities are measured
using the currency of the primary economic environment in which the entities operate
(the functional currency). The consolidated financial statements are presented in
RMB, which is the Companys functional and presentation currency.
|
|
(b)
|
|
Transactions and balances
|
|
|
|
Foreign currency transactions are translated into the functional currency using the
exchange rates prevailing at the dates of the transactions. Foreign exchange gains and
losses resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognized in the statement of income.
|
|
|
|
The results and financial position of all the Group entities (none of which has the
currency of a hyperinflationary economy) that have a functional currency different from
the presentation currency are translated into the presentation currency as follows:
|
|
|
|
Assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance sheet;
|
|
|
|
Income and expenses for each statement of income are translated at
average exchange rates (unless this average is not a reasonable approximation of
the cumulative effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the dates of the transactions); and
|
|
|
|
All resulting exchange differences are recognized as a separate
component of equity into other reserve.
|
|
|
|
On consolidation, exchange differences arising from the translation of the net
investment in foreign operations, and of borrowings and other currency instruments
designated as hedges of such investments, are taken to shareholders equity. When a
foreign operation is sold, such exchange differences are recognized in the statement of
income as part of the gain or loss on disposal.
|
|
|
|
For the convenience of the reader, the translation of RMB into United States dollars
(US$) has been made at the rate of RMB6.6000 to US$1.00, representing the rate as
certified by the H.10 weekly statistical release of Federal Reserve Board on December
31, 2010.
|
F-26
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.6
|
|
Property, Plant and Equipment
|
|
(a)
|
|
Construction-in-progress
|
|
|
|
Construction-in-progress (CIP) represents buildings, plant and equipment under
construction and pending installation, and is stated at cost less accumulated
impairment losses. Costs include construction and acquisition costs, and interest
charges arising from borrowings used to finance the assets during the construction
period. No provision for depreciation is made on construction-in-progress until such
time as the assets are completed and ready for use. When the asset being constructed
becomes available for use, the CIP is transferred to the appropriate category of
property, plant and equipment.
|
|
|
|
Buildings held by the Group are stated at cost less accumulated depreciation and
accumulated impairment losses, and are depreciated over their expected useful lives.
|
|
(c)
|
|
Other property, plant and equipment
|
|
|
|
Other property, plant and equipment comprise telecommunications equipment, leasehold
improvements, office furniture, fixtures, motor vehicles and others. The cost of an
asset, except for those acquired in exchange for a non-monetary asset or assets,
comprises its purchase price and any directly attributable costs of bringing the asset
to its working condition and location for its intended use.
|
|
|
|
If an item of property, plant and equipment is acquired in exchange for another item of
property, plant and equipment, the cost of such an item of property, plant and
equipment is measured at fair value unless (i) the exchange transactions lacks
commercial substance or (ii) the fair value of neither the asset received nor the asset
given up is reliably measurable. If the acquired item is not measured at fair value,
its cost is measured at the carrying amount of the asset given up.
|
|
|
|
Subsequent costs are included in the assets carrying amount or recognized as a
separate asset, as appropriate, only when it is probable at the time the costs are
incurred that future economic benefits associated with the item will flow to the Group,
and the cost of the item can be measured reliably. The carrying amount of the replaced
part is derecognized. All other repairs and maintenance are charged to the statement of
income during the financial period in which they are incurred.
|
|
|
|
Telecommunications equipment of the Mobile business are stated at cost less accumulated
depreciation and accumulated impairment losses. All other property, plant and equipment
are stated at revalued amounts less accumulated depreciation and accumulated impairment
losses.
|
F-27
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.6
|
|
Property, Plant and Equipment (Continued)
|
|
(c)
|
|
Other property, plant and equipment (Continued)
|
|
|
|
When an item of fixed asset is revalued, any accumulated depreciation at the date of
the revaluation is restated proportionately together with the change in the gross
carrying amount of the asset so that the carrying amount of the asset after revaluation
equals its revalued amount. Increases in valuation are credited to the revaluation
reserve. Decreases in valuation are first set off against any revaluation surplus on
earlier valuations in respect of the same item and thereafter are debited to statement
of income. Any subsequent increases are credited to the statement of income up to the
amount previously debited. Each year the difference between depreciation based on the
revalued carrying amount of the asset expensed in the statement of income and
depreciation based on the assets original cost is transferred from the revaluation
reserve to retained profits.
|
|
|
|
Revaluations on fixed assets will be performed with sufficient regularity by
independent valuers and in each of the intervening years, valuations are reviewed by
directors of the Group. The revalued amount is the fair value at the date of
revaluation.
|
|
|
|
Depreciation on property, plant and equipment is calculated using the straight-line
method to allocate their costs or revalued amounts less their residual values over
their estimated useful lives, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciable life
|
|
|
Residual rate
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
10 30 years
|
|
|
3 5
|
%
|
Telecommunications equipment
of Mobile business
|
|
5 10 years
|
|
|
3 5
|
%
|
Telecommunications equipment
of Fixed-line business
|
|
5 10 years
|
|
|
3 5
|
%
|
Office furniture, fixtures, motor vehicles
and others
|
|
5 10 years
|
|
|
3 5
|
%
|
|
|
|
Leasehold improvements are depreciated over the shorter of their estimated useful lives
and the lease periods.
|
|
|
|
The assets residual values and useful lives are reviewed, and adjusted if appropriate,
at each balance sheet date.
|
|
|
|
An assets carrying amount is written down immediately to its recoverable amount if the
assets carrying amount is greater than its estimated recoverable amount (Note 2.11).
|
|
(e)
|
|
Gain or loss on disposal of property, plant or equipment
|
|
|
|
Gains or losses on disposal of property, plant or equipment are determined by comparing
the net sales proceeds with the carrying amounts, and are recognized in the statement
of income. When revalued assets are sold, the residual amounts included in the
revaluation reserve are transferred to retained profits.
|
F-28
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
|
|
Goodwill represents the excess of the cost of an acquisition over the fair value of the
Groups share of the net identifiable assets of the acquired subsidiaries at the date of
acquisition. Goodwill is tested annually for impairment and carried at cost less
accumulated impairment losses. Impairment losses on goodwill are not reversed. Gain or
loss on the disposal of an entity includes the carrying amount of goodwill relating to the
entity sold.
|
|
|
|
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The
allocation is made to those cash-generating units or groups of cash-generating units that
are expected to benefit from the business combination in which the goodwill arose.
|
|
|
|
Lease prepayments represent payments for land use rights. Lease prepayments for land use
rights are stated at cost initially and expensed on a straight line basis over the lease
period.
|
|
|
|
Other assets mainly represent (i) capitalized direct incremental costs for activating
mobile subscribers; (ii) capitalized installation costs of Fixed-line business; (iii)
computer software and (iv) prepaid rental for premises and leased lines.
|
|
(i)
|
|
Capitalized direct incremental costs for activating mobile subscribers,
including costs of SIM/USIM cards and commissions which are directly associated with
upfront non-refundable revenue received upon activation of mobile services, are
deferred and amortized over the expected customer service periods of 3 years except
when the direct incremental costs exceed the corresponding upfront non-refundable
revenue. In such cases, the excess of the direct incremental costs over the
non-refundable revenue are recorded immediately as expenses in the statement of
income.
|
|
(ii)
|
|
Capitalized installation costs of Fixed-line business are deferred and
expensed to the statement of income over the expected customer service period of 10
years except when the direct incremental costs exceed the corresponding upfront
installation fees. In such cases, the excess of the direct incremental costs over the
installation fees are recorded immediately as expenses in the statement of income.
|
|
(iii)
|
|
Acquired computer software licenses are capitalized on the basis of the
costs incurred to acquire and bring to use the specific software. These costs are
amortized over their estimated useful lives on a straight-line basis.
|
|
(iv)
|
|
Long-term prepaid rental for premises and leased lines are amortized using
a straight-line method over the lease period.
|
F-29
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.10.1
|
|
Classification
|
|
|
|
|
The Group classifies its financial assets in the following categories: loans and
receivables and available-for-sale. The classification depends on the purpose for
which the financial assets were acquired. Management determines the classification
of its financial assets at initial recognition.
|
|
(a)
|
|
Loans and receivables
|
|
|
|
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are
included in current assets, except for maturities greater than 12 months after
the end of the reporting period. These are classified as non-current assets.
The Groups loans and receivables comprise accounts receivable and other
receivables, short-term bank deposits and cash and cash equivalents in
the balance sheet (Note 2.14, 2.15 and 2.16).
|
|
(b)
|
|
Available-for-sale financial assets
|
|
|
|
Available-for-sale financial assets are non-derivatives that are either
designated in this category or not classified in any of the other categories.
They are included in non-current assets unless the investment matures or
management intends to dispose of it within 12 months of the end of the
reporting period.
|
|
2.10.2
|
|
Recognition and measurement
|
|
|
|
Available-for-sale financial assets are carried at fair value. Loans and
receivables are recognized initially at fair value and subsequently carried at
amortized cost using the effective interest method.
|
|
|
|
The translation differences on non-monetary securities are recognized in other
comprehensive income/loss. Changes in the fair value of non-monetary securities
classified as available-for-sale are recognized in other comprehensive income/loss
until impairment.
|
|
|
|
When securities classified as available-for-sale are sold or impaired, the
accumulated fair value adjustments recognized in equity are included in the
statement of income as gains and losses from investment securities.
|
|
|
|
Interest on available-for-sale securities calculated using the effective interest
method is recognized in the statement of income as part of other income. Dividends
on available-for-sale equity instruments are recognized in the statement of income
as part of other income when the right to receive payments is established.
|
F-30
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.11
|
|
Impairment of Non-Financial Assets
|
|
|
|
Assets that have an indefinite useful life or are not yet available for use are not
subject to amortization and are tested for impairment at each balance sheet date. Assets
are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognized for the amount by
which the assets carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of (i) an assets fair value less costs to sell and (ii) value in use. For
the purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units). Assets other than
goodwill that suffered from impairment are reviewed for possible reversal of the
impairment at each reporting date.
|
|
2.12
|
|
Impairment of Financial Assets
|
|
(a)
|
|
Accounts receivable and other receivables
|
|
|
|
The Group assesses at the end of each reporting period whether there
is objective evidence that accounts receivable and other receivable are
impaired. A provision for impairment of accounts receivable and other
receivables is established when there is objective evidence that the Group will
not be able to collect all amounts due according to the original terms of the
receivables. The amount of the provision is the difference between the assets
carrying amount and the present value of estimated future cash flows which is
discounted at the original effective interest rate. The carrying amount of the
assets is reduced through the use of a provision account, and the amount of the
loss is recognized in the statement of income. When a receivable is proven to be
uncollectible with sufficient evidence, it is written off against the provision
account for receivables. Subsequent recoveries of amounts previously written off
are credited in the statement of income.
|
|
(b)
|
|
Available-for-sale financial assets
|
|
|
|
The Group assesses at the end of each reporting period whether there is objective
evidence that available-for-sale financial assets are impaired. For equity
investments classified as available-for-sale, a significant or prolonged decline in
the fair value of the security below its cost is evidence that the assets are
impaired. If any such evidence exists for available-for-sale financial assets, the
cumulative loss measured as the difference between the acquisition cost and the
current fair value, less any impairment loss on that financial asset previously
recognized in income or loss is removed from equity and recognized in the statement
of income. Impairment losses recognized in the statement of income on equity
instruments are not reversed.
|
F-31
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.13
|
|
Inventories and Consumables
|
|
|
|
Inventories, which primarily comprise handsets, SIM/USIM cards and accessories, are
stated at the lower of cost and net realizable value. Cost is based on the
first-in-first-out method and comprises all costs of purchase and other costs incurred in
bringing the inventories to their present location and condition. Net realizable value
for all the inventories is determined on the basis of anticipated sales proceeds less
estimated selling expenses.
|
|
|
|
Consumables consist of materials and supplies used in maintaining the Groups
telecommunication networks and are charged to the statement of income when brought into
use. Consumables are stated at cost less any provision for obsolescence.
|
|
2.14
|
|
Accounts Receivable and Other Receivables
|
|
|
|
Accounts receivable are amounts due from customers for services performed in the ordinary
course of business. If collection of accounts receivable and other receivables is expected
in one year or less (or in the normal operating cycle of the business if longer), they are
classified as current assets. If not, they are presented as non-current assets.
|
|
2.15
|
|
Short-term Bank Deposits
|
|
|
|
Short-term bank deposits are cash invested in fixed-term deposits with original maturities
ranging from more than 3 months to 1 year.
|
|
2.16
|
|
Cash and Cash Equivalents
|
|
|
|
Cash and cash equivalents include cash in hand, deposits held at call with banks and other
short-term highly liquid investments with original maturities of 3 months or less.
|
|
|
|
Compound financial instruments issued by the Group comprise convertible bonds that can be
converted to share capital at the option of the holder, and the number of shares to be
issued does not vary with changes in their fair value.
|
|
|
|
The liability component of convertible bonds is recognized initially at the fair value of
a similar liability that does not have an equity conversion option. The equity component
is recognized initially at the difference between the fair value of the convertible bonds
as a whole and the fair value of the liability component. Any directly attributable
transaction costs are allocated to the liability and equity components in proportion to
their initial carrying amounts.
|
|
|
|
Subsequent to initial recognition, the liability component of convertible bonds is
measured at amortized cost using the effective interest method. The equity component of a
convertible bond is not re-measured subsequent to initial recognition except on conversion
or expiry.
|
F-32
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.18
|
|
Deferred Revenue, Advances from Customers and Subscriber Point Rewards Program
|
|
|
|
Deferred revenue mainly represents upfront non-refundable revenue, including
upfront connection fees and installation fees of Fixed-line business and receipts
from the activation of SIM/USIM cards relating to the Mobile business, which are
deferred and recognized over the expected customer service period.
|
|
(b)
|
|
Advances from customers
|
|
|
|
Advances from customers are amounts paid by customers for prepaid cards, other
calling cards and prepaid service fees, which cover future telecommunications
services. Advances from customers are stated at the amount of proceeds received
less the amount already recognized as revenue upon the rendering of services.
|
|
(c)
|
|
Subscriber point rewards program
|
|
|
|
The fair value of providing telecommunications services and the subscriber points
reward are allocated based on their relative fair values. The allocated portion
of fair value for the subscriber points reward is recorded as deferred revenue
when the rewards are granted and recognized as revenue when the points are
redeemed or expired. The fair value of deferred revenue is estimated based on (i)
the value of each bonus point awarded to subscribers, (ii) the number of bonus
points related to subscribers who are qualified or expected to be qualified to
exercise their redemption right at each balance sheet date, and (iii) the
expected bonus points redemption rate. The fair value of the outstanding
subscriber points reward is subject to review by management on a periodic basis.
|
|
|
|
Borrowings are recognized initially at fair value, net of transaction costs incurred.
Borrowings are subsequently stated at amortized cost, any difference between the
proceeds (net of transaction costs) and the redemption value is recognized in the
statement of income over the period of the borrowings using the effective interest
method.
|
|
|
|
Borrowings are classified as current liabilities unless the Group has an unconditional
right to defer settlement of the liability for at least 12 months after the balance
sheet date.
|
F-33
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
|
|
Ordinary shares are classified as equity.
|
|
|
|
Incremental costs directly attributable to the issuance of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.
|
|
|
|
Where any group company purchases the Companys equity share capital (treasury shares),
the consideration paid, including any directly attributable incremental costs (net of
tax) is deducted from equity attributable to owners of the parent and no gain or loss
shall be recognized in the statement of income. The par value of the Companys shares
cancelled is transferred from share capital to the capital redemption reserve.
|
|
|
|
The Group participates in defined contribution pension schemes. For defined
contribution plans, the Group pays contributions to publicly or privately administered
pension insurance plans on a mandatory, contractual or voluntary basis. The Group has
no further payment obligations once the contributions have been paid. The contributions
are recognized as employee benefit expenses when they are due. Prepaid contributions
are recognized as an asset to the extent that a reduction in the future payments is
available.
|
|
(b)
|
|
Early retirement benefits
|
|
|
|
Early retirement benefits are recognized as expenses when the Group reaches agreement
with the relevant employees for early retirement.
|
|
|
|
One-off cash housing subsidies paid to PRC employees are charged to the statement of
income in the year in which it is determined that the payment of such subsidies is
probable and the amounts can be reasonably estimated.
|
|
|
|
The Groups contributions to the housing fund, special monetary housing benefits and
other housing benefits are expensed as incurred. The Group has no further payment
obligations once the contributions have been paid.
|
|
(d)
|
|
Share-based compensation costs
|
|
|
|
The Group operates an equity-settled, share-based compensation plan. The fair value of
the employee services received in exchange for the grant of the share options is
recognized as an expense. The total amount to be expensed over the vesting period is
determined by reference to the fair value of the share options granted at the grant
date excluding the impact of any non-market vesting conditions (for example, revenue
and profit targets) and is not subsequently remeasured. However, non-market vesting
conditions are considered in determining the number of options that are expected to
vest. At each balance sheet date, the Group revises its estimates of the number of
share options that are expected to vest. The Group recognizes the impact of the
revision of original estimates, if any, in the statement of income of the period in
which the revision occurs, with a corresponding adjustment to equity.
|
F-34
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.21
|
|
Employee Benefits (Continued)
|
|
(d)
|
|
Share-based compensation costs (Continued)
|
|
|
|
The proceeds received net of any directly attributable transaction costs are credited
to share capital (nominal value) and share premium when the share options are
exercised. The corresponding employee share-based compensation reserve is transferred
to share premium.
|
|
|
|
In connection with the 2008 Business Combination (Note 1), the exchange of China
Netcoms options to the Companys options was accounted for as a modification in
accordance with IFRS/HKFRS 2 Share-based payment issued by the IASB/HKICPA
(IFRS/HKFRS 2). The incremental fair value of the exchanged options measured before
and after the modification is to be recognized as follows:
|
|
|
|
For vested options, the incremental share-based compensation costs
are recognized in the statement of income immediately;
|
|
|
|
For non-vested options, the incremental share-based compensation
costs are recognized in the statement of income over the remaining vesting period.
|
|
|
|
Accounts payable are obligations to pay for goods or services that have been acquired in
the ordinary course of business from suppliers. Accounts payable are classified as current
liabilities if payment is due within one year or less (or in the normal operating cycle of
the business if longer). If not, they are presented as non-current liabilities.
|
|
|
|
Accounts payable are recognized initially at fair value and subsequently measured at
amortized cost using the effective interest method.
|
|
|
|
Provisions are recognized when the Group has present legal or constructive obligations as
a result of past events, it is probable that an outflow of resources will be required to
settle the obligation, and the amount has been reliably estimated. Where there are a
number of similar obligations, the likelihood that an outflow will be required in
settlement is determined by considering the class of obligations as a whole. A provision
is recognized even if the likelihood of an outflow with respect to any one item included
in the same class of obligations may be small.
|
|
|
|
Provisions are measured at the present value of the pre-tax amount of expenditures
expected to be required to settle the obligation that reflects current market assessments
of the time value of money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognized as interest expense.
|
F-35
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.24
|
|
Discontinued Operations
|
|
|
|
A discontinued operation is a component of the Group that may be a major line of business
or geographical area of operations that has been disposed of or is held for sale. The
results and cash flows of that component are separately reported as discontinued
operations in the statement of income and statement of cash flows, respectively. The
difference between the consideration received and receivable and the book value of net
assets disposed of is recorded as gain/loss on disposal in the consolidated statement of
income in the year of disposal. The comparative statement of income and statement of cash
flows are also reclassified as discontinued operations. The assets and liabilities of
such component classified as held for sale is presented separately in assets and
liabilities, respectively, of the consolidated balance sheet, from the date it is first
determined to be discontinued operations or assets/liabilities held for sale, and are
de-recognized upon the completion of the disposal.
|
|
|
|
Revenue comprises the fair value of the consideration received or receivable for the
services and sales of goods or telecommunications products in the ordinary course of the
Groups activities. Revenue is shown net of business tax, government surcharges, returns
and discounts and after eliminating sales within the Group.
|
|
|
|
The Group recognizes revenue when the amount of revenue can be reliably measured, it is
probable that future economic benefits will flow to the entity and specific criteria have
been met for each of the Groups activities as described below. The amount of revenue is
not considered to be reliably measurable until all contingencies relating to the sale have
been resolved. The Group bases its estimates on historical results, taking into
consideration of the type of customer, the type of transaction and the specifics of each
arrangement.
|
|
(a)
|
|
Sales of services and goods
|
|
|
|
Usage fees and monthly fees are recognized when the service are rendered;
|
|
|
|
Revenue from the provision of broadband, data and other
Internet-related services are recognized when the services are provided to
customers;
|
|
|
|
Revenue from telephone cards, which represents service fees received
from customers for telephone services, is recognized when the related service is
rendered upon actual usage of the telephone cards by customers;
|
|
|
|
Lease income from leasing of lines and customer-end equipment are
treated as operating leases with rental income recognized on a straight-line basis
over the lease term;
|
|
|
|
Value-added services revenue, which mainly represents revenue from
the provision of services such as short message, cool ringtone, personalized ring,
caller number display and secretarial services to subscribers, is recognized when
service is rendered;
|
|
|
|
Standalone sales of telecommunications products, which mainly
represent handsets and accessories, are recognized when title has been passed to
the buyers;
|
F-36
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.25
|
|
Revenue Recognition (Continued)
|
|
(a)
|
|
Sales of services and goods (Continued)
|
|
|
|
The Group offers promotional packages to the customers which include
the bundled sale of mobile handset and provision of service. Prior to the fourth
quarter of 2010, the Group determined the amount of revenue allocated to the
handset using the residual value method. Under such method, the Group determined
the revenue from the sale of the mobile handset by deducting the fair value of the
service element from the total contract consideration. The Group recognised
revenue related to the sale of the handset when the title is passed to the
customer whereas service revenue was recognized based upon the actual usage of
mobile services. The cost of the mobile handset sold was expensed immediately to the
statement of income.
|
|
|
|
During 2010, the Group has offered preferential promotional packages with more
attractive terms to new subscribers, and more new subscribers were developed under
such preferential packages during the year. In order to provide reliable and more
relevant information to users of the financial statements, starting from the fourth
quarter of 2010, the Group determined to adopt the accounting policy of relative
fair value method retrospectively from January 1, 2010 to account for such
preferential promotional packages, considering that each deliverable in the
promotional packages has standalone value to the customer and there is objective
and reliable evidence of the fair value regarding each deliverable in the services
packages. Under the relative fair value method, the total contract consideration of
such preferential packages is allocated to service revenue and sales of handsets
based on their relative fair values. The Group recognizes revenue relating to the
sale of the handset when the title is passed to the customer whereas service
revenue is recognised based upon the actual usage of mobile services. The cost of
the mobile handset sold is expensed immediately to the statement of income upon revenue
recognition.
|
|
|
|
This change in accounting policy resulted in an increase in the Groups revenue,
income before income tax, net income and earnings per share of RMB3,208 million,
RMB3,208 million, RMB2,406 million and RMB0.11, respectively, for the year ended
December 31, 2010; and a decrease in advance from customers of RMB3,317 million as
of December 31, 2010. In addition, this change in accounting policy resulted in an
increase in the Groups revenue, income before income tax, income for the period
and earnings per share of RMB527 million, RMB527 million, RMB396 million and
RMB0.02, respectively, for the six months ended June 30, 2010 (unaudited); and a
decrease in advance from customers of RMB545 million as of June 30, 2010
(unaudited). The above change in accounting policy did not have significant impact
on the financial statements for the years ended December 31,
2009 and 2008, and accordingly,
the Group did not restate the comparative figures.
|
F-37
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.25
|
|
Revenue Recognition (Continued)
|
|
(a)
|
|
Sales of services and goods (Continued)
|
|
|
|
Revenue from information communications technology services are recognized when
goods are delivered to the customers (which generally coincides with the time when
the customers have accepted the goods and the related risks and rewards of
ownership have been transferred to the customers) or when services are rendered to
the customers using the percentage of completion method when the outcome
of the services provided can be estimated reliably. If the outcome of the services
provided cannot be estimated reliably, the treatment should be as follows: (i) if
it is probable that the costs incurred for the services provided is recoverable,
services revenue should be recognized only to the extent of recoverable costs
incurred, and costs should be recognized as current expenses in the period in
which they are incurred; (ii) if it is probable that costs incurred will not be
recoverable, costs should be recognized as current expenses immediately and
services revenue should not be recognized.
|
|
|
|
Interest income from deposits in banks or other financial institutions is recognized on
a time proportion basis, using the effective interest method.
|
|
|
|
Dividend income is recognized when the right to receive payment is established.
|
|
2.26
|
|
Leases (as the lessee)
|
|
|
|
Leases in which a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor), including long-term
prepayment for land use rights, are expensed in the statement of income on a
straight-line basis over the period of the lease.
|
|
|
|
Leases of assets where the Group has substantially all the risks and rewards of
ownership are classified as finance leases. Finance leases are capitalized at the
commencement of the lease at the lower of the fair value of the leased property and the
present value of the minimum lease payments. Each lease payment is allocated between
the liability and finance charges so as to achieve a constant rate of interest on the
liability balance outstanding. The corresponding liabilities, net of finance charges,
are recorded as obligations under finance leases. The interest element implicit in the
lease payment is recognized in the statement of income over the lease period so as to
produce a constant periodic rate of interest on the remaining balance of the liability
for each period.
|
F-38
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.27
|
|
Borrowing Costs (Continued)
|
|
|
|
Borrowing costs are expensed as incurred, except for interest directly attributable to the
acquisition, construction or production of an asset that necessarily takes a substantial
period of time to get ready for its intended use, in which case they are capitalized as
part of the cost of that asset. Capitalization of borrowing costs commences when
expenditures for the asset and borrowing costs are being incurred and the activities to
prepare the asset for its intended use are in progress. Borrowing costs are capitalized up
to the date when the project is completed and ready for its intended use.
|
|
|
|
To the extent that funds are borrowed specifically for the purpose of obtaining a
qualifying asset, the amount of borrowing costs eligible for capitalization is determined
at the actual borrowing costs incurred on that borrowing during the period less any
investment income on the temporary investment of those borrowings.
|
|
|
|
To the extent that funds are borrowed generally and used for the purpose of obtaining a
qualifying asset, the amount of borrowing costs eligible for capitalization is determined
by applying a capitalization rate to the expenditures on that asset. The capitalization
rate is the weighted average of the borrowing costs applicable to the borrowings of the
Group that are outstanding during the period, other than borrowings made specifically for
the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalized
during a period should not exceed the amount of borrowing cost incurred during that
period. Other borrowing costs are recognized as expenses when incurred.
|
|
|
|
The current income tax charge is calculated on the basis of the tax laws enacted or
substantially enacted at the balance sheet date in the countries where the Company and
its subsidiaries operate and generate taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in which applicable tax
regulation is subject to interpretation and establishes provisions where appropriate on
the basis of the amount expected to be paid to the tax authorities.
|
|
|
|
Deferred income tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their carrying
amounts in the consolidated financial statements. However, if the deferred income tax
arises from initial recognition of an asset or liability in a transaction other than a
business combination that at the time of the transaction affects neither accounting nor
taxable income or loss, it is not accounted for. Deferred income tax is determined
using tax rates (and laws) that have been enacted or substantially enacted by the
balance sheet date and are expected to apply when the related deferred income tax asset
is realized or the deferred income tax liability is settled.
|
|
|
|
Deferred income tax assets are recognized only to the extent that it is probable that
future taxable income will be available against which the temporary differences can be
utilized.
|
|
|
|
Deferred income tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities and when
the deferred income taxes assets and liabilities relate to income taxes levied by the
same taxation authority on either the taxable entity or different taxable entities
where there is an intention to settle the balances on a net basis.
|
F-39
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
2.29
|
|
Dividend Distribution
|
|
|
|
Dividend distribution to the Companys shareholders is recognized as a liability in the
Companys financial statements in the period in which the dividends are approved by the
Companys shareholders.
|
|
2.30
|
|
Contingent Liabilities and Contingent Assets
|
|
|
|
A contingent liability is a possible obligation that arises from past events and whose
existence will only be confirmed by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the Group. It can also be a
present obligation arising from past events that is not recognized because it is not
probable that outflow of economic resources will be required or the amount of obligation
cannot be measured reliably.
|
|
|
|
A contingent liability is not recognized but is disclosed in the notes to the financial
statements. When a change in the probability of an outflow occurs so that outflow is
probable, the liability will then be recognized as a provision.
|
|
|
|
A contingent asset is a possible asset that arises from past events and whose existence
will be confirmed only by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the Group.
|
|
|
|
Contingent assets are not recognized but are disclosed in the notes to the financial
statements when an inflow of economic benefits is probable. When an inflow is virtually
certain, an asset is recognized.
|
|
2.31
|
|
Earnings per Share and per American Depositary Share (ADS)
|
|
|
|
Basic earnings per share is computed by dividing the income attributable to owners of the
parent by the weighted average number of ordinary shares outstanding during the year.
|
|
|
|
Diluted earnings per share is computed by dividing the income attributable to owners of
the parent by the weighted average number of ordinary shares, after adjusting for the
effects of the dilutive potential ordinary shares.
|
|
|
|
Basic and diluted earnings per ADS are computed by multiplying earnings per share by 10,
which is the number of shares represented by each ADS.
|
F-40
3.
|
|
FINANCIAL RISK MANAGEMENT
|
|
3.1
|
|
Financial risk factors
|
|
|
|
The Groups operating activities expose it to a variety of financial risks: market risk
(including foreign exchange risk, price risk, cash flow risk and fair value interest rate
risk), credit risk and liquidity risk. The Groups overall risk management program focuses
on the unpredictability of financial markets and seeks to minimize potential adverse
effects on the Groups financial performance.
|
|
|
|
Financial risk management is carried out by the Groups finance department at its
headquarters, following the overall direction determined by the Board of Directors. The
Groups finance department identifies and evaluates financial risks in close co-operation
with the Groups operating units.
|
|
(i)
|
|
Foreign exchange risk
|
|
|
|
The Groups major operational activities are carried out in Mainland China and a
majority of the transactions are denominated in RMB. The Group is exposed to
foreign exchange risk arising from various currency exposures, primarily with
respect to US dollars, HK dollars and Euro. Exchange risk mainly exists with
respect to the repayment of indebtedness to foreign lenders and payables to
equipment suppliers and contractors.
|
|
|
|
The Groups finance department at its headquarters is responsible for monitoring
the amount of monetary assets and liabilities denominated in foreign currencies.
From time to time, the Group may consider entering into forward exchange contracts
or currency swap contracts to mitigate the foreign exchange risk. During the year,
the Group had not entered into any forward exchange contracts or currency swap
contracts.
|
|
|
|
As of December 31, 2010 and 2009, the Group had cash and cash equivalents and
short-term bank deposits denominated in foreign currencies amounting to RMB12,467
million and RMB1,545 million, respectively. As of December 31, 2010 and 2009, the
Group had borrowings, convertible bonds and other obligations under finance lease
included in other obligations denominated in foreign currencies amounting to
RMB25,407 million and RMB11,859 million, respectively.
|
|
|
|
As of December 31, 2010, if the RMB had strengthened/weakened by 10% against
foreign currencies, primarily with respect to US dollars, HK dollars and Euro,
while all other variables are held constant, the Group would have recognized
additional exchange gains/losses of approximately RMB1,294 million (2009: exchange
losses/gains of approximately RMB1,031 million; 2008:
exchange
losses/gains of approximately RMB22 million) for cash and cash equivalents,
short-term bank deposits, borrowings, convertible bonds and other obligations under
finance lease included in other obligations denominated in foreign currencies.
|
F-41
3.
|
|
FINANCIAL RISK MANAGEMENT (Continued)
|
|
3.1
|
|
Financial risk factors (Continued)
|
|
(a)
|
|
Market risk (Continued)
|
|
|
|
The Group is exposed to equity securities price risk because investments held by
the Group are classified in the consolidated balance sheet as available-for-sale
financial assets.
|
|
|
|
The available-for-sale financial assets comprise primarily equity securities of
Telefónica. As of December 31, 2010, if the share price of Telefónica had changed
by 10%, while all other variables are held constant, the Group would have recorded
additional change in fair value of approximately RMB609 million in
available-for-sale fair value reserve.
|
|
(iii)
|
|
Cash flow and fair value interest rate risk
|
|
|
|
The Groups interest-bearing assets are mainly represented by bank deposits.
Management does not expect the changes in market deposit interest rates will have
significant impact on the financial statements as the deposits are all short-term
in nature and the interest involved will not be significant.
|
|
|
|
The Groups interest rate risk mainly arises from interest-bearing borrowings
including bank loans, commercial papers, promissory notes, convertible
bonds, corporate bonds,and related party loan. Borrowings issued at floating rates
expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates
expose the Group to fair value interest rate risk. The Group determines the amount
of its fixed rate or floating rate borrowings depending on the prevailing market
conditions. During 2010 and 2009, the Groups borrowings were mainly at fixed rates
and denominated in RMB.
|
|
|
|
Increases in interest rates will increase the cost of new borrowing and the interest
expense with respect to the Groups outstanding floating rate borrowings, and
therefore could have a material adverse effect on the Groups financial position.
Management continuously monitors the interest rate position of the Group and makes
decisions with reference to the latest market conditions. From time to time, the
Group may enter into interest rate swap agreements designed to mitigate its exposure
to interest rate risks in connection with the floating rate borrowings, although the
Group did not consider it was necessary to do so in 2010 and 2009.
|
|
|
|
As of December 31, 2010, the Group had approximately RMB60,092 million (2009:
approximately RMB62,925 million) of bank loans, commercial papers, promissory
notes, convertible bonds, corporate bonds and other obligations under
finance lease included in other obligations at fixed rates and approximately
RMB36,950 million (2009: approximately RMB10,909 million) of bank loans and related
party loan at floating rates.
|
|
|
|
For the year ended December 31, 2010, if interest rates on the floating rate
borrowings had been 10% higher/lower while all other variables are held constant,
the interest expenses would have increased/decreased by approximately RMB27 million
(2008: approximately RMB125 million; 2009: approximately RMB3 million).
|
F-42
3.
|
|
FINANCIAL RISK MANAGEMENT (Continued)
|
|
3.1
|
|
Financial risk factors (Continued)
|
|
|
|
Credit risk is managed on a group basis. Credit risk arises from cash and cash
equivalents and short-term bank deposits with banks, as well as credit exposures to
corporate customers, individual subscribers, related parties and other operators.
|
|
|
|
The table below shows the bank deposits and cash and cash equivalents balances held at
the major banks by the Group as of December 31, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Short-term bank deposits
|
|
|
|
|
|
|
|
|
State-owned banks in the PRC
|
|
|
861
|
|
|
|
131
|
|
Other banks
|
|
|
135
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
996
|
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
State-owned banks in the PRC
|
|
|
7,485
|
|
|
|
21,937
|
|
Other banks
|
|
|
335
|
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
|
7,820
|
|
|
|
22,495
|
|
|
|
|
|
|
|
|
|
|
|
The Group expects that there is no significant credit risk associated with the
bank deposits and cash and cash equivalents since the state-owned banks have support
from the government and other banks are medium or large size listed banks. Management
does not expect that there will be any significant losses from non-performance by these
counterparties.
|
|
|
|
In addition, the Group has no significant concentrations of credit risk with respect to
corporate customers and individual subscribers. The extent of the Groups credit
exposure is mainly represented by the fair value of accounts receivable for services.
The Group has policies to limit the credit exposure on accounts receivable for
services. The Group assesses the credit quality of and sets credit limits on all its
customers by taking into account their financial position, the availability of
guarantee from third parties, their credit history and other factors such as current
market conditions. The normal credit period granted by the Group is on average between
30 days to 90 days from the date of billing. The utilization of credit limits and the
settlement pattern of the customers are regularly monitored by the Group.
|
|
|
|
Credit risk relating to amounts due from related parties and other operators is not
considered to be significant as these companies are reputable and their receivables are
settled on a regular basis.
|
F-43
3.
|
|
FINANCIAL RISK MANAGEMENT (Continued)
|
|
3.1
|
|
Financial risk factors (Continued)
|
|
|
|
Prudent liquidity risk management includes maintaining sufficient cash and availability
of funds including raising of bank loans, and issuance of commercial papers, promissory
notes, corporate bonds and convertible bonds. Due to the dynamic nature of the
underlying businesses, the Groups finance department at its headquarters maintains
flexibility in funding through having adequate amount of cash and cash equivalents and
utilizing different sources of financing when necessary.
|
|
|
|
The following tables show the undiscounted balances of the financial liabilities
(including interest expense) categorized by time period from the balance sheet date to
the contractual maturity date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1
|
|
|
Between 1
|
|
|
Between 2
|
|
|
Over 5
|
|
|
|
year
|
|
|
and 2 years
|
|
|
and 5 years
|
|
|
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term bank loans
|
|
|
72
|
|
|
|
62
|
|
|
|
185
|
|
|
|
562
|
|
Corporate bonds
|
|
|
355
|
|
|
|
355
|
|
|
|
5,726
|
|
|
|
2,229
|
|
Other obligations
|
|
|
2,537
|
|
|
|
111
|
|
|
|
18
|
|
|
|
60
|
|
Accounts payable and accrued liabilities
|
|
|
101,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to related parties
|
|
|
5,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to ultimate holding company
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to domestic carriers
|
|
|
1,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables in relation to disposal of the
CDMA business
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bank loans
|
|
|
64,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,166
|
|
|
|
528
|
|
|
|
5,929
|
|
|
|
2,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term bank loans
|
|
|
103
|
|
|
|
94
|
|
|
|
1,004
|
|
|
|
533
|
|
Corporate bonds
|
|
|
355
|
|
|
|
355
|
|
|
|
5,535
|
|
|
|
2,180
|
|
Convertible bonds
|
|
|
91
|
|
|
|
91
|
|
|
|
12,452
|
|
|
|
|
|
Promissory notes
|
|
|
509
|
|
|
|
509
|
|
|
|
15,510
|
|
|
|
|
|
Other obligations
|
|
|
2,640
|
|
|
|
92
|
|
|
|
27
|
|
|
|
47
|
|
Accounts payable and accrued liabilities
|
|
|
94,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to related parties
|
|
|
5,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to ultimate holding company
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to domestic carriers
|
|
|
873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial papers
|
|
|
23,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bank loans
|
|
|
37,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165,859
|
|
|
|
1,141
|
|
|
|
34,528
|
|
|
|
2,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regarding the Groups use of the going concern basis for the preparation of its
financial statements, please refer to Note 2.2(c) for details.
|
F-44
3.
|
|
FINANCIAL RISK MANAGEMENT (Continued)
|
|
3.2
|
|
Capital risk management
|
|
|
|
|
The Groups objectives when managing capital are:
|
|
|
|
To safeguard the Groups ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders.
|
|
|
|
To support the Groups stability and growth.
|
|
|
|
To provide capital for the purpose of strengthening the Groups risk
management capability.
|
|
|
|
In order to maintain or adjust the capital structure, the Group reviews and manages its
capital structure actively and regularly to ensure optimal capital structure and
shareholder returns, taking into account the future capital requirements of the Group and
capital efficiency, prevailing and projected profitability, projected operating cash
flows, projected capital expenditures and projected strategic investment opportunities.
|
|
|
|
The Group monitors capital on the basis of the debt-to-capitalization ratio. This ratio is
calculated as interest bearing debts plus non-controlling interests over interest bearing
debts plus total equity. Interest bearing debts represent commercial papers, short-term
bank loans, long-term bank loans, promissory notes, convertible bonds, corporate bonds,
obligations under finance lease included in other obligations, notes payables (included in
accounts payable and accrued liabilities) and certain amounts due to related parties, as
shown in the consolidated balance sheet. Total equity represents equity attributable to
owners of the parent plus non-controlling interests as shown in the consolidated balance
sheet.
|
F-45
3.
|
|
FINANCIAL RISK MANAGEMENT (Continued)
|
|
3.2
|
|
Capital risk management (Continued)
|
|
|
|
The Groups debt-to-capitalization ratios at December 31, 2009 and 2010 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
Interest bearing debts:
|
|
|
|
|
|
|
|
|
- Commercial papers
|
|
|
|
|
|
|
23,000
|
|
- Short-term bank loans
|
|
|
63,909
|
|
|
|
36,727
|
|
- Promissory notes
|
|
|
|
|
|
|
15,000
|
|
- Long-term bank loans
|
|
|
759
|
|
|
|
1,462
|
|
- Convertible bonds
|
|
|
|
|
|
|
11,558
|
|
- Corporate bonds
|
|
|
7,000
|
|
|
|
7,000
|
|
- Obligation under finance lease
|
|
|
103
|
|
|
|
78
|
|
- Amounts due to related parties
|
|
|
2,104
|
|
|
|
2,033
|
|
- Notes payables included in accounts payable and
accrued liabilities
|
|
|
500
|
|
|
|
|
|
- Current portion of long-term bank loans
|
|
|
62
|
|
|
|
58
|
|
- Current portion of obligation under finance lease
|
|
|
26
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
74,463
|
|
|
|
97,042
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing debts plus non-controlling interests
|
|
|
74,465
|
|
|
|
97,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity:
|
|
|
|
|
|
|
|
|
- Equity attributable to owners of the parent
|
|
|
206,465
|
|
|
|
205,841
|
|
- Non-controlling interests
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206,467
|
|
|
|
205,841
|
|
|
|
|
|
|
|
|
|
|
Interest bearing debts plus total equity
|
|
|
280,930
|
|
|
|
302,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt-to-capitalization ratio
|
|
|
26.5
|
%
|
|
|
32.0
|
%
|
|
|
|
|
|
|
|
|
|
|
The increase in debt-to-capitalization ratio during 2010 resulted primarily from the
issuance of commercial papers, promissory notes and convertible bonds to finance the
telecommunications networks construction which partially offset by repayment of short-term
bank loans.
|
F-46
3.
|
|
FINANCIAL RISK MANAGEMENT (Continued)
|
|
3.3
|
|
Fair value estimation
|
|
|
|
The table below analyzes financial instruments carried at fair value, by valuation method.
The different levels have been defined as follows:
|
|
|
|
Quoted prices (unadjusted) in active markets for identical assets or liabilities (level
1).
|
|
|
|
Inputs other than quoted prices included within level 1 that are observable
for the asset or liability, either directly (that is, as prices) or indirectly (that
is, derived from prices) (level 2).
|
|
|
|
Inputs for the asset or liability that are not based on observable market
data (that is, unobservable inputs) (level 3).
|
|
|
|
The following table presents the Groups assets that are measured at fair value at
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Equity securities
|
|
|
7,977
|
|
|
|
|
|
|
|
|
|
|
|
7,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Groups assets that are measured at fair value at
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Equity securities
|
|
|
6,214
|
|
|
|
|
|
|
|
|
|
|
|
6,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of financial instruments traded in active markets is based on quoted
market prices at the balance sheet date. A market is regarded as active if quoted prices
are readily and regularly available from an exchange, dealer, broker, industry group,
pricing service, or regulatory agency, and those prices represent actual and regularly
occurring market transactions on an arms length basis. The quoted market price used for
financial assets held by the Group is the current bid price. These instruments are
included in level 1 and comprise primarily equity securities of Telefónica which are
classified as available-for-sale.
|
|
|
|
During the years ended December 31, 2009 and 2010, there were no transfers of financial
instruments between Level 1 and Level 2 of the fair value hierarchy.
|
F-47
4.
|
|
CRITICAL ACCOUNTING
ESTIMATES AND JUDGMENTS
|
|
|
|
Estimates and judgments are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under
the circumstances.
|
|
4.1
|
|
Critical accounting estimates and assumptions
|
|
|
|
The Group makes estimates and assumptions concerning the future. The resulting accounting
estimates may not be equal to the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below.
|
|
(a)
|
|
Depreciation on property, plant and equipment
|
|
|
|
Depreciation on the Groups property, plant and equipment is calculated using the
straight-line method to allocate cost or revalued amounts up to residual values over the
estimated useful lives of the assets. The Group reviews the useful lives and residual
values periodically to ensure that the method and rates of depreciation are consistent
with the expected pattern of realization of economic benefits from property, plant and
equipment. The Group estimates the useful lives of property, plant and equipment based
on historical experience, taking into account anticipated technological changes. If
there are significant changes from previously estimated useful lives, the amount of
depreciation expenses may change.
|
|
(b)
|
|
Revaluation of property, plant and equipment
|
|
|
|
Property, plant and equipment other than buildings and telecommunications equipment of
the Mobile business (Note 2.6 (c)) is carried at revalued amounts, being the fair value
at the date of revaluation, less subsequent accumulated depreciation and accumulated
impairment losses. Such equipment is revalued on a depreciated replacement cost or open
market value approach, as appropriate, by an independent valuer on a regular basis.
|
|
|
|
During the intervals of independent revaluations, management performs the analysis and
assessment annually to determine whether the fair value of revalued property, plant and
equipment are materially different from their carrying amounts. If the revalued amounts
differ significantly from the carrying amounts of such equipment in the future, the
carrying amounts will be adjusted to the revalued amounts. The key assumptions made to
determine the revalued amounts include the estimated replacement costs and the estimated
useful lives of the equipment. This will have an impact on the Groups future results,
since any subsequent decreases in valuation are first set off against increases on
earlier valuations in respect of the same item and thereafter are charged as an expense
to the statement of income and any subsequent increases are credited as income to the
statement of income up to the amount previously charged to the statement of income and
thereafter are credited to equity. In addition, the depreciation expenses in future
periods will change as the carrying amounts of such equipment change as a result of the
revaluation.
|
|
|
|
Most of the Groups property, plant and equipment which are carried at revalued amounts
were revaluated as of December 31, 2006 by an independent valuation firm. The directors
of the Company consider the fair values of these revalued property, plant and equipment
were not materially different from their carrying values as of December 31, 2010.
|
F-48
4.
|
|
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)
|
|
4.1
|
|
Critical accounting estimates and assumptions (Continued)
|
|
(c)
|
|
Impairment of non-financial assets
|
|
|
|
The Group tests whether non-financial assets have suffered from any impairment, in
accordance with the accounting policy stated in Note 2.11. The recoverable amount of an
asset is the higher of its fair value less costs to sell and its value in use.
Management estimates value in use based on estimated discounted pre-tax future cash
flows of the cash generating unit at the lowest level to which the asset belongs. If
there is any significant change in managements assumptions, including discount rates or
growth rates in the future cash flow projection, the estimated recoverable amounts of
the non-financial assets and the Groups results would be significantly affected. Such
impairment losses are recognized in the statement of income, except where the asset is
carried at valuation and the impairment loss does not exceed the revaluation surplus for
that same asset, in which case the impairment loss is treated as a revaluation decrease
and charged to the revaluation reserve. Accordingly, there will be an impact to the
future results if there is a significant change in the recoverable amounts of the
non-financial assets.
|
|
|
|
Impairment loss on property, plant and equipment of RMB12,494 was recognized for the
year ended December 31, 2008. No impairment loss was recognized for the years ended
December 31, 2008 and 2009. For details, please refer to Note 6.
|
|
(d)
|
|
Provision for doubtful debts
|
|
|
|
Accounts receivables are recognized initially at fair value and subsequently measured at
amortized cost using the effective interest method, less provision for impairment. The
Group evaluates specific accounts receivable where there are indications that the
receivable may be doubtful or is not collectible. The Group records a provision based on
its best estimates to reduce the receivable balance to the amount that is expected to be
collected. For the remaining receivable balances as of each reporting date, the Group
makes a provision based on observable data indicating that there is a measurable
decrease in the estimated future cash flows from the remaining balances. The Group makes
such estimates based on its past experience, historical collection patterns,
subscribers creditworthiness and collection trends. For general subscribers, the Group
makes a full provision for receivables aged over 3 months, which is consistent with its
credit policy with respect to the relevant subscribers.
|
|
|
|
The Groups estimates described above are based on past experience, historical
collection patterns, subscribers creditworthiness and collection trends. If
circumstances change (e.g. due to factors including developments in the Groups business
and the external market environment), the Group may need to re-evaluate its policies on
doubtful debts, and make additional provisions in the future.
|
F-49
4.
|
|
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)
|
|
4.1
|
|
Critical accounting estimates and assumptions (Continued)
|
|
(e)
|
|
Income tax and deferred taxation
|
|
|
|
The Group estimates its income tax provision and deferred taxation in accordance with
the prevailing tax rules and regulations, taking into account any special approvals
obtained from relevant tax authorities and any preferential tax treatment to which it is
entitled in each location or jurisdiction in which the Group operates. There are many
transactions and calculations for which the ultimate tax determination is uncertain
during the ordinary course of business. The Group recognizes liabilities for anticipated
tax audit issues based on estimates of whether additional taxes will be due. Where the
final tax outcome of these matters is different from the amounts that were initially
recorded, such differences will impact the income tax and deferred tax provisions in the
period in which such determination is made.
|
|
|
|
For temporary differences which give rise to deferred tax assets, the Group has assessed
the likelihood that the deferred tax assets could be recovered. Major deferred tax
assets relate to unrecognized revaluation surplus on property, plant and equipment under
PRC regulations, impairment loss on property, plant and equipment, and
provision for doubtful debts. Due to the effects of these temporary differences on
income tax, the Group has recorded deferred tax assets amounting to approximately
RMB4,840 million as of December 31, 2010 (2009: approximately RMB5,202 million).
Deferred tax assets are recognized based on the Groups estimates and assumptions that
they will be recovered from taxable income arising from continuing operations in the
foreseeable future.
|
|
|
|
The Group believes it has recorded adequate current tax provision and deferred taxes
based on the prevailing tax rules and regulations and its current best estimates and
assumptions. In the event that future tax rules and regulations or related circumstances
change, adjustments to current and deferred taxation may be necessary which would impact
the Groups results or financial position.
|
F-50
4.
|
|
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)
|
|
4.2
|
|
Critical judgments in applying the Groups accounting policies
|
|
(a)
|
|
Recognition of upfront non-refundable revenue and direct incremental costs
|
|
|
|
The Group defers and amortizes upfront activation fees of SIM/USIM cards of the Mobile
business over the expected customer service period of 3 years (2008: approximately 3
years; 2009: approximately 3 years). The related direct incremental costs of acquiring
and activating mobile subscribers, including costs of SIM/USIM cards and commissions,
are also capitalized and amortized over the same expected customer service period of 3
years.
|
|
|
|
The Group defers and amortizes upfront customer connection and installation fees
of the Fixed-line business over the expected customer service period of 10 years (2008:
approximately 10 years; 2009: approximately 10 years). The related direct incremental
installation costs are deferred and amortized over the same expected customer service
period of 10 years.
|
|
|
|
The Group only capitalizes costs to the extent that they will generate future
economic benefits. The excess of the direct incremental costs over the corresponding
upfront non-refundable revenue, if any, are expensed to the statement of income
immediately.
|
|
|
|
The Group estimates the expected customer service period based on the
historical customer retention experience and after factoring in the expected
level of future competition, the risk of technological or functional obsolescence
to the Groups services, technological innovation, and the expected changes in
the regulatory and social environment. If the Groups estimate of the expected
customer service period changes as a result of increased competition, changes in
telecommunications technology or other factors, the amount and timing of
recognition of the deferred revenue and direct incremental costs may change for
future periods.
|
F-51
4.
|
|
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)
|
|
4.2
|
|
Critical judgments in applying the Groups accounting policies (Continued)
|
|
(b)
|
|
2009 Business Combination
|
|
|
|
The 2009 Business Combination was considered as a business combination of entities
and business under common control, and has been accounted for using merger accounting
under HKFRS, which is consistent with the predecessor values method under IFRS.
|
|
|
|
When applying the merger accounting/predecessor values method to account for 2009
Business Combination, the Group included all the assets and liabilities, revenue and
expenses associated with the Target Business and the Telecommunications Networks in
Southern China in the consolidated balance sheet and the consolidated statement of
income throughout the periods presented. Pursuant to the agreement dated December 16,
2008, the 2009 Business Combination excluded the Telecommunications Networks in
Southern China, which are retained by Unicom New Horizon and are leased from Unicom New
Horizon to CUCL effective from January 2009. To reflect the economic substance that the
Group has not taken on the risks and rewards associated with the property, plant and
equipment and related assets and liabilities relating to the Fixed-line business in
Southern China, the Group is deemed to have disposed of the assets not acquired and
liabilities not assumed and has recorded the deemed disposal of these assets and
liabilities as a distribution from reserves by the Group to Unicom Group upon the
completion of the 2009 Business Combination effective from January 2009.
|
|
|
|
Subsequent to the completion of the 2009 Business Combination, the Group recorded
leasing fees amounting to approximately RMB2.2 billion (2009: RMB2.0 billion) charged
by Unicom New Horizon for the lease of the Telecommunications Networks in Southern
China for the year ended December 31, 2010 (Note 4.2(c)).
|
F-52
4.
|
|
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)
|
|
4.2
|
|
Critical judgments in applying the Groups accounting policies (Continued)
|
|
(c)
|
|
Lease of Telecommunications Networks in Southern China
|
|
|
|
Pursuant to the Network Lease Agreement dated December 16, 2008 (Note 1(b)), Unicom New
Horizon has the legal ownership of the Telecommunications Networks in Southern China.
The Group believes it only bears the risks associated with the operation of the
Fixed-line business in Southern China during the relevant leasing periods and is free
from any ownership risks of the telecommunications networks, and the risks and rewards
of ownership of the leased assets rest substantially with the lessor. In addition, at
the inception of the Network Lease Agreement, there was a high degree of uncertainty
related to the market condition and operating results of the fixed line business in
Southern China. It was highly uncertain whether the Group would continue to lease the
network in the future, and was also unable to determine whether or not it would
exercise the purchase option in future. Given these uncertainties and due to the fact
that the risks associated with the ownership of the Telecommunications Networks in
Southern China substantially remained with Unicom New Horizon, accordingly, the Group
accounted for the leasing of the Telecommunications Networks in Southern China as an
operating lease. The operating lease expense was recorded in the consolidated statement
of income for the years ended December 31, 2009 and 2010, but the carrying value of the
Telecommunications Networks in Southern China and the related liabilities were not
reflected in the consolidated balance sheets as of December 31, 2009 and 2010.
|
|
|
|
At the beginning of each lease term, the Group assesses the appropriate
classification based on the relevant factors and circumstances at that time. The
2011-2012 Network Lease Agreement has a term of two years expiring on December 31, 2012
on the same terms and conditions as the Network Lease Agreement, except that the annual
fee payable by CUCL for such lease for the two years ending December 31, 2011 and 2012
is RMB2.4 billion and RMB2.6 billion, respectively. At the time of entering the
2011-2012 Network Lease Agreement, the Group still believed the uncertainties of the
fixed line business in Southern China continue to exist, particularly due to the fact
that (i) the growth of the fixed line business in Southern China was not significant;
(ii) the uncertainty of the future success of the Fixed-line business in Southern China
arising from keen market competition; and (iii) the uncertainty in the future changes
in technology, technological standards and government regulatory environment.
Accordingly, at the inception of the 2011-2012 Network Lease Agreement, the Group was
still unable to determine whether it would renew the lease after the initial two-year
lease term or whether it would exercise the purchase option. As a result, the Group
considered the risks associated with the ownership of the Telecommunications Networks
in Southern China still substantially remain with Unicom New Horizon, and concluded the
leasing of Telecommunications Networks in Southern China in accordance with the
2011-2012 Network Lease Agreement will be accounted for as an operating lease.
|
F-53
4.
|
|
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)
|
|
4.2
|
|
Critical judgments in applying the Groups accounting policies (Continued)
|
|
(d)
|
|
Impairment of available-for-sale financial assets
|
|
|
|
The Group assesses at the end of each reporting period whether there is objective
evidence that available-for-sale financial assets are impaired. For equity investments
classified as available-for-sale, a significant or prolonged decline in the fair value
of the security below its cost is evidence that the assets are impaired. If
available-for-sale equity investments are impaired, the accumulated reduction in fair
value will be reclassified from equity to the statement of income as impairment loss of
available-for-sale financial assets. The Group considers all available relevant
factors, including the fair value of the shares, the period of the decline of fair
value, exchange rate and share price volatility and future business prospects, when
determining whether there is any impairment.
|
|
|
|
As of December 31, 2010, the Groups available-for-sale financial assets are
principally the equity investment in Telefónica (Refer to Note 33 for details). The net
decline in fair value during 2010 was partially due to the depreciation of Euro against
RMB of approximately 10% in 2010. In addition, the quoted Euro market price of
Telefónica shares experienced fluctuations as a result of the credit rating downgrades
for certain Euro zone countries in the middle of 2010. The Euro share price of
Telefónica increased and exceeded the initial Euro share value in a certain period
during the third quarter of 2010 but it had decreased on a net basis by approximately
13% for the year 2010. Subsequently, during the period from
January 1, 2011 to May 24, 2011, there was an appreciation of Euro against RMB of
approximately 4%, and a decrease in share price in Euro of
approximately 2%, as compared to December 31, 2010.
|
|
|
|
In addition, the Group received cash dividends of RMB209 million and RMB480
million from this strategic investment for the years ended December 31, 2009 and 2010,
respectively. Based on the judgment of the Group, the observed decline in the fair
value below the cost of the equity investments in Telefónica was not considered to be
significant or prolonged, in light of the ongoing exchange rate and share price
volatility, the solid operating results and business prospects of Telefónica, its
regular dividend distribution and strategic relationships with the Group, and therefore
did not indicate any impairment as of December 31, 2010.
|
F-54
|
|
The CODM has been identified as the Board of Directors (the BOD) of the Company which
regularly reviews the Groups internal reporting in order to assess performance and allocate
resources, and determines the operating segments based on these reports. The BOD considers the
business from the provision of services perspective instead of the geographic perspective.
Accordingly, the Groups continuing operations comprise two operating segments based on the
various types of telecommunications services, mainly provided to customers in Mainland China.
|
|
|
The major operating segments of the Group are classified as follows:
|
|
|
|
Mobile business the provision of GSM and WCDMA cellular and related services in all
31 provinces, municipalities and autonomous regions in Mainland China;
|
|
|
|
Fixed-line business the provision of fixed-line telecommunications and related
services, domestic and international data and Internet related services, and domestic and
international long distance and related services in all 31 provinces, municipalities and
autonomous regions in Mainland China.
|
|
|
|
CDMA business the provision of the CDMA telephone and related services, through a
leasing arrangement for the CDMA network capacity from Unicom New Horizon. The CDMA
business was disposed of in October 2008.
|
|
|
The CODM evaluates results of each operating segment based on revenue and costs that are
directly attributable to the operating segments. The unallocated amounts primarily represent
corporate and shared service expenses that are not directly allocated to one of the
aforementioned operating segments. The unallocated amounts also included other statement of
income items such as employee benefit expenses, interest income, income tax expenses, finance
costs and other income, which cannot be directly identified to specific operating segments.
Segment assets primarily comprise property, plant and equipment, other assets, inventories and
receivables. Segment liabilities primarily comprise operating liabilities.
|
|
|
Revenues between segments are carried out on terms comparable to those transactions conducted
with third parties or at standards promulgated by relevant government authorities. Revenue from
external customers reported to the CODM is measured in a manner consistent with that in the
consolidated statement of income.
|
F-55
5.
|
|
SEGMENT INFORMATION (Continued)
|
|
5.1
|
|
Operating Segments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
Continuing operations
|
|
|
Discontinued operations
(up to effective date of disposal)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile
|
|
|
Fixed-line
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
business
|
|
|
business
|
|
|
Subtotal
|
|
|
amounts
|
|
|
Eliminations
|
|
|
continuing operations
|
|
|
CDMA business
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecommunications service revenue
|
|
|
64,240
|
|
|
|
88,254
|
|
|
|
152,494
|
|
|
|
337
|
|
|
|
|
|
|
|
152,831
|
|
|
|
18,951
|
|
|
|
171,782
|
|
Information communication technology
services and other revenue
|
|
|
359
|
|
|
|
4,339
|
|
|
|
4,698
|
|
|
|
364
|
|
|
|
|
|
|
|
5,062
|
|
|
|
92
|
|
|
|
5,154
|
|
Sales of telecommunications products
|
|
|
532
|
|
|
|
1,362
|
|
|
|
1,894
|
|
|
|
5
|
|
|
|
|
|
|
|
1,899
|
|
|
|
3,253
|
|
|
|
5,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from external customers
|
|
|
65,131
|
|
|
|
93,955
|
|
|
|
159,086
|
|
|
|
706
|
|
|
|
|
|
|
|
159,792
|
|
|
|
22,296
|
|
|
|
182,088
|
|
Intersegment revenue
|
|
|
265
|
|
|
|
3,407
|
|
|
|
3,672
|
|
|
|
1,214
|
|
|
|
(4,886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
65,396
|
|
|
|
97,362
|
|
|
|
162,758
|
|
|
|
1,920
|
|
|
|
(4,886
|
)
|
|
|
159,792
|
|
|
|
22,296
|
|
|
|
182,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interconnection charges
|
|
|
(10,753
|
)
|
|
|
(5,776
|
)
|
|
|
(16,529
|
)
|
|
|
|
|
|
|
3,491
|
|
|
|
(13,038
|
)
|
|
|
(1,661
|
)
|
|
|
(14,699
|
)
|
Depreciation and amortization
|
|
|
(18,551
|
)
|
|
|
(31,668
|
)
|
|
|
(50,219
|
)
|
|
|
(1,628
|
)
|
|
|
|
|
|
|
(51,847
|
)
|
|
|
(411
|
)
|
|
|
(52,258
|
)
|
Networks, operations and support expenses
|
|
|
(2,279
|
)
|
|
|
(5,757
|
)
|
|
|
(8,036
|
)
|
|
|
(10,873
|
)
|
|
|
173
|
|
|
|
(18,736
|
)
|
|
|
(7,777
|
)
|
|
|
(26,513
|
)
|
Employee benefit expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,967
|
)
|
|
|
209
|
|
|
|
(20,758
|
)
|
|
|
(1,600
|
)
|
|
|
(22,358
|
)
|
Other operating expenses
|
|
|
(9,054
|
)
|
|
|
(14,150
|
)
|
|
|
(23,204
|
)
|
|
|
(15,746
|
)
|
|
|
953
|
|
|
|
(37,997
|
)
|
|
|
(8,966
|
)
|
|
|
(46,963
|
)
|
Finance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,983
|
)
|
|
|
714
|
|
|
|
(3,269
|
)
|
|
|
(6
|
)
|
|
|
(3,275
|
)
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
979
|
|
|
|
(714
|
)
|
|
|
265
|
|
|
|
10
|
|
|
|
275
|
|
Impairment loss on property, plant and
equipment
|
|
|
|
|
|
|
(12,494
|
)
|
|
|
(12,494
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,494
|
)
|
|
|
|
|
|
|
(12,494
|
)
|
Other income net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,141
|
|
|
|
|
|
|
|
2,141
|
|
|
|
22
|
|
|
|
2,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income/(loss) before income tax
|
|
|
24,759
|
|
|
|
27,517
|
|
|
|
52,276
|
|
|
|
(48,157
|
)
|
|
|
(60
|
)
|
|
|
4,059
|
|
|
|
1,907
|
|
|
|
5,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,828
|
)
|
|
|
(469
|
)
|
|
|
(2,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal of the CDMA business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,135
|
|
|
|
26,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,231
|
|
|
|
27,573
|
|
|
|
29,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,232
|
|
|
|
27,572
|
|
|
|
29,804
|
|
Non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,231
|
|
|
|
27,573
|
|
|
|
29,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful debts
|
|
|
(1,371
|
)
|
|
|
(1,639
|
)
|
|
|
(3,010
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
(3,025
|
)
|
|
|
(383
|
)
|
|
|
(3,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for segment assets (a)
|
|
|
33,852
|
|
|
|
37,774
|
|
|
|
71,626
|
|
|
|
5,471
|
|
|
|
|
|
|
|
77,097
|
|
|
|
|
|
|
|
77,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-56
5.
|
|
SEGMENT INFORMATION (Continued)
|
|
5.1
|
|
Operating Segments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling items
|
|
|
|
|
|
|
Mobile
|
|
|
Fixed-line
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
business
|
|
|
business
|
|
|
Subtotal
|
|
|
amounts
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecommunications service revenue
|
|
|
69,769
|
|
|
|
79,549
|
|
|
|
149,318
|
|
|
|
275
|
|
|
|
|
|
|
|
149,593
|
|
Information communication technology
services and other revenue
|
|
|
252
|
|
|
|
1,611
|
|
|
|
1,863
|
|
|
|
326
|
|
|
|
|
|
|
|
2,189
|
|
Sales of telecommunications products
|
|
|
1,970
|
|
|
|
193
|
|
|
|
2,163
|
|
|
|
|
|
|
|
|
|
|
|
2,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from external customers
|
|
|
71,991
|
|
|
|
81,353
|
|
|
|
153,344
|
|
|
|
601
|
|
|
|
|
|
|
|
153,945
|
|
Intersegment revenue
|
|
|
219
|
|
|
|
4,237
|
|
|
|
4,456
|
|
|
|
1,587
|
|
|
|
(6,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
72,210
|
|
|
|
85,590
|
|
|
|
157,800
|
|
|
|
2,188
|
|
|
|
(6,043
|
)
|
|
|
153,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interconnection charges
|
|
|
(13,104
|
)
|
|
|
(4,292
|
)
|
|
|
(17,396
|
)
|
|
|
|
|
|
|
4,441
|
|
|
|
(12,955
|
)
|
Depreciation and amortization
|
|
|
(17,847
|
)
|
|
|
(28,264
|
)
|
|
|
(46,111
|
)
|
|
|
(1,505
|
)
|
|
|
29
|
|
|
|
(47,587
|
)
|
Networks, operations and support expenses
|
|
|
(2,496
|
)
|
|
|
(7,780
|
)
|
|
|
(10,276
|
)
|
|
|
(13,471
|
)
|
|
|
19
|
|
|
|
(23,728
|
)
|
Employee benefit expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,104
|
)
|
|
|
173
|
|
|
|
(21,931
|
)
|
Other operating expenses
|
|
|
(11,671
|
)
|
|
|
(8,783
|
)
|
|
|
(20,454
|
)
|
|
|
(17,465
|
)
|
|
|
1,196
|
|
|
|
(36,723
|
)
|
Finance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,214
|
)
|
|
|
178
|
|
|
|
(1,036
|
)
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269
|
|
|
|
(178
|
)
|
|
|
91
|
|
Realized gain on changes in fair value of
derivative financial instrument
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,239
|
|
|
|
|
|
|
|
1,239
|
|
Other income net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
962
|
|
|
|
|
|
|
|
962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income/(loss) before income tax
|
|
|
27,092
|
|
|
|
36,471
|
|
|
|
63,563
|
|
|
|
(51,101
|
)
|
|
|
(185
|
)
|
|
|
12,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,556
|
|
Non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful debts
|
|
|
(1,494
|
)
|
|
|
(858
|
)
|
|
|
(2,352
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(2,355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for segment assets (a)
|
|
|
56,984
|
|
|
|
46,494
|
|
|
|
103,478
|
|
|
|
8,996
|
|
|
|
|
|
|
|
112,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-57
5.
|
|
SEGMENT INFORMATION (Continued)
|
|
5.1
|
|
Operating Segments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling items
|
|
|
|
|
|
|
Mobile
|
|
|
Fixed-line
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
business
|
|
|
business
|
|
|
Subtotal
|
|
|
amounts
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecommunications service revenue
|
|
|
82,362
|
|
|
|
78,896
|
|
|
|
161,258
|
|
|
|
737
|
|
|
|
|
|
|
|
161,995
|
|
Information communication technology
services and other revenue
|
|
|
15
|
|
|
|
1,046
|
|
|
|
1,061
|
|
|
|
955
|
|
|
|
|
|
|
|
2,016
|
|
Sales of telecommunications products
|
|
|
7,173
|
|
|
|
114
|
|
|
|
7,287
|
|
|
|
|
|
|
|
|
|
|
|
7,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from external customers
|
|
|
89,550
|
|
|
|
80,056
|
|
|
|
169,606
|
|
|
|
1,692
|
|
|
|
|
|
|
|
171,298
|
|
Intersegment revenue
|
|
|
205
|
|
|
|
4,233
|
|
|
|
4,438
|
|
|
|
742
|
|
|
|
(5,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
89,755
|
|
|
|
84,289
|
|
|
|
174,044
|
|
|
|
2,434
|
|
|
|
(5,180
|
)
|
|
|
171,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interconnection charges
|
|
|
(14,452
|
)
|
|
|
(3,706
|
)
|
|
|
(18,158
|
)
|
|
|
|
|
|
|
4,431
|
|
|
|
(13,727
|
)
|
Depreciation and amortization
|
|
|
(23,358
|
)
|
|
|
(28,830
|
)
|
|
|
(52,188
|
)
|
|
|
(2,317
|
)
|
|
|
72
|
|
|
|
(54,433
|
)
|
Networks, operations and support expenses
|
|
|
(3,102
|
)
|
|
|
(9,409
|
)
|
|
|
(12,511
|
)
|
|
|
(13,876
|
)
|
|
|
4
|
|
|
|
(26,383
|
)
|
Employee benefit expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,517
|
)
|
|
|
190
|
|
|
|
(23,327
|
)
|
Other operating expenses
|
|
|
(22,056
|
)
|
|
|
(8,491
|
)
|
|
|
(30,547
|
)
|
|
|
(18,032
|
)
|
|
|
310
|
|
|
|
(48,269
|
)
|
Finance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,985
|
)
|
|
|
236
|
|
|
|
(1,749
|
)
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378
|
|
|
|
(236
|
)
|
|
|
142
|
|
Other income net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,221
|
|
|
|
|
|
|
|
1,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income/(loss) before income tax
|
|
|
26,787
|
|
|
|
33,853
|
|
|
|
60,640
|
|
|
|
(55,694
|
)
|
|
|
(173
|
)
|
|
|
4,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,851
|
|
Non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful debts
|
|
|
(1,927
|
)
|
|
|
(649
|
)
|
|
|
(2,576
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
(2,583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for segment assets (a)
|
|
|
29,620
|
|
|
|
34,393
|
|
|
|
64,013
|
|
|
|
6,176
|
|
|
|
|
|
|
|
70,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-58
5.
|
|
SEGMENT INFORMATION (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Fixed-
|
|
|
|
|
|
|
Reconciling items
|
|
|
|
|
|
|
Mobile
|
|
|
line
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
business
|
|
|
business
|
|
|
Subtotal
|
|
|
amounts
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment assets
|
|
|
170,577
|
|
|
|
213,172
|
|
|
|
383,749
|
|
|
|
34,470
|
|
|
|
(1,174
|
)
|
|
|
417,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment liabilities
|
|
|
74,411
|
|
|
|
51,066
|
|
|
|
125,477
|
|
|
|
85,948
|
|
|
|
(847
|
)
|
|
|
210,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
Fixed-
|
|
|
|
|
|
|
Reconciling items
|
|
|
|
|
|
|
Mobile
|
|
|
line
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
|
|
|
business
|
|
|
business
|
|
|
Subtotal
|
|
|
amounts
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment assets
|
|
|
170,839
|
|
|
|
225,769
|
|
|
|
396,608
|
|
|
|
46,446
|
|
|
|
(1,601
|
)
|
|
|
441,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment liabilities
|
|
|
74,141
|
|
|
|
48,386
|
|
|
|
122,527
|
|
|
|
114,184
|
|
|
|
(1,099
|
)
|
|
|
235,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Capital expenditures under unallocated amounts represent capital expenditures on
common facilities, which benefit all operating segments.
|
F-59
6.
|
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
The movement of property, plant and equipment for the years ended December 31, 2009 and 2010 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tele-
|
|
|
furniture,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tele-
|
|
|
communications
|
|
|
fixtures,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
communications
|
|
|
equipment of
|
|
|
motor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equipment of
|
|
|
Fixed-line
|
|
|
vehicles and
|
|
|
Leasehold
|
|
|
Construction-
|
|
|
|
|
|
|
Buildings
|
|
|
Mobile business
|
|
|
business
|
|
|
others
|
|
|
improvements
|
|
|
in-progress
|
|
|
Total
|
|
Cost or valuation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
48,160
|
|
|
|
163,279
|
|
|
|
382,091
|
|
|
|
39,035
|
|
|
|
1,975
|
|
|
|
44,995
|
|
|
|
679,535
|
|
Additions
|
|
|
644
|
|
|
|
430
|
|
|
|
1,518
|
|
|
|
503
|
|
|
|
208
|
|
|
|
109,171
|
|
|
|
112,474
|
|
Transfer from CIP
|
|
|
3,329
|
|
|
|
54,031
|
|
|
|
24,565
|
|
|
|
3,674
|
|
|
|
271
|
|
|
|
(85,870
|
)
|
|
|
|
|
Disposals
|
|
|
(297
|
)
|
|
|
(10,817
|
)
|
|
|
(2,203
|
)
|
|
|
(957
|
)
|
|
|
(251
|
)
|
|
|
|
|
|
|
(14,525
|
)
|
Effect of 2009
Business Combination
|
|
|
(2,472
|
)
|
|
|
|
|
|
|
(36,948
|
)
|
|
|
(841
|
)
|
|
|
(317
|
)
|
|
|
(4,124
|
)
|
|
|
(44,702
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
49,364
|
|
|
|
206,923
|
|
|
|
369,023
|
|
|
|
41,414
|
|
|
|
1,886
|
|
|
|
64,172
|
|
|
|
732,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost
|
|
|
49,364
|
|
|
|
206,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,172
|
|
|
|
320,459
|
|
At valuation
|
|
|
|
|
|
|
|
|
|
|
369,023
|
|
|
|
41,414
|
|
|
|
1,886
|
|
|
|
|
|
|
|
412,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,364
|
|
|
|
206,923
|
|
|
|
369,023
|
|
|
|
41,414
|
|
|
|
1,886
|
|
|
|
64,172
|
|
|
|
732,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation and
impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
(13,561
|
)
|
|
|
(95,942
|
)
|
|
|
(230,949
|
)
|
|
|
(22,406
|
)
|
|
|
(1,021
|
)
|
|
|
(110
|
)
|
|
|
(363,989
|
)
|
Charge for the year
|
|
|
(1,859
|
)
|
|
|
(12,286
|
)
|
|
|
(27,693
|
)
|
|
|
(4,077
|
)
|
|
|
(327
|
)
|
|
|
|
|
|
|
(46,242
|
)
|
Disposals
|
|
|
286
|
|
|
|
10,387
|
|
|
|
1,969
|
|
|
|
930
|
|
|
|
251
|
|
|
|
|
|
|
|
13,823
|
|
Effect of 2009 Business
Combination
|
|
|
476
|
|
|
|
|
|
|
|
13,467
|
|
|
|
416
|
|
|
|
188
|
|
|
|
78
|
|
|
|
14,625
|
|
Impairment transfer out
|
|
|
|
|
|
|
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
(14,658
|
)
|
|
|
(97,841
|
)
|
|
|
(243,055
|
)
|
|
|
(25,137
|
)
|
|
|
(909
|
)
|
|
|
(25
|
)
|
|
|
(381,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
34,706
|
|
|
|
109,082
|
|
|
|
125,968
|
|
|
|
16,277
|
|
|
|
977
|
|
|
|
64,147
|
|
|
|
351,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
34,599
|
|
|
|
67,337
|
|
|
|
151,142
|
|
|
|
16,629
|
|
|
|
954
|
|
|
|
44,885
|
|
|
|
315,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-60
6.
|
|
PROPERTY, PLANT AND EQUIPMENT (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tele-
|
|
|
furniture,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tele-
|
|
|
communications
|
|
|
fixtures,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
communications
|
|
|
equipment of
|
|
|
motor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equipment of
|
|
|
Fixed-line
|
|
|
vehicles and
|
|
|
Leasehold
|
|
|
Construction-
|
|
|
|
|
|
|
Buildings
|
|
|
Mobile business
|
|
|
business
|
|
|
others
|
|
|
improvements
|
|
|
in-progress
|
|
|
Total
|
|
Cost or valuation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
49,364
|
|
|
|
206,923
|
|
|
|
369,023
|
|
|
|
41,414
|
|
|
|
1,886
|
|
|
|
64,172
|
|
|
|
732,782
|
|
Additions
|
|
|
147
|
|
|
|
536
|
|
|
|
1,260
|
|
|
|
82
|
|
|
|
114
|
|
|
|
65,778
|
|
|
|
67,917
|
|
Transfer from CIP
|
|
|
4,336
|
|
|
|
33,505
|
|
|
|
30,199
|
|
|
|
2,087
|
|
|
|
578
|
|
|
|
(70,705
|
)
|
|
|
|
|
Disposals
|
|
|
(65
|
)
|
|
|
(1,360
|
)
|
|
|
(2,142
|
)
|
|
|
(689
|
)
|
|
|
(257
|
)
|
|
|
|
|
|
|
(4,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
53,782
|
|
|
|
239,604
|
|
|
|
398,340
|
|
|
|
42,894
|
|
|
|
2,321
|
|
|
|
59,245
|
|
|
|
796,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Representing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost
|
|
|
53,782
|
|
|
|
239,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,245
|
|
|
|
352,631
|
|
At valuation
|
|
|
|
|
|
|
|
|
|
|
398,340
|
|
|
|
42,894
|
|
|
|
2,321
|
|
|
|
|
|
|
|
443,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,782
|
|
|
|
239,604
|
|
|
|
398,340
|
|
|
|
42,894
|
|
|
|
2,321
|
|
|
|
59,245
|
|
|
|
796,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation and
impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
(14,658
|
)
|
|
|
(97,841
|
)
|
|
|
(243,055
|
)
|
|
|
(25,137
|
)
|
|
|
(909
|
)
|
|
|
(25
|
)
|
|
|
(381,625
|
)
|
Charge for the year
|
|
|
(2,075
|
)
|
|
|
(16,345
|
)
|
|
|
(29,519
|
)
|
|
|
(4,315
|
)
|
|
|
(408
|
)
|
|
|
|
|
|
|
(52,662
|
)
|
Disposals
|
|
|
62
|
|
|
|
1,236
|
|
|
|
1,940
|
|
|
|
656
|
|
|
|
257
|
|
|
|
|
|
|
|
4,151
|
|
Impairment transfer out
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
(16,671
|
)
|
|
|
(112,950
|
)
|
|
|
(270,633
|
)
|
|
|
(28,796
|
)
|
|
|
(1,060
|
)
|
|
|
(16
|
)
|
|
|
(430,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
37,111
|
|
|
|
126,654
|
|
|
|
127,707
|
|
|
|
14,098
|
|
|
|
1,261
|
|
|
|
59,229
|
|
|
|
366,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
34,706
|
|
|
|
109,082
|
|
|
|
125,968
|
|
|
|
16,277
|
|
|
|
977
|
|
|
|
64,147
|
|
|
|
351,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-61
6.
|
|
PROPERTY, PLANT AND EQUIPMENT (Continued)
|
|
|
The last valuation was performed as of December 31, 2006 by an independent valuation firm on a
depreciated replacement cost basis. As of December 31, 2010, the carrying value of all the
revalued property, plant and equipment would have been approximately RMB147,148 million (2009:
approximately RMB149,960 million) had they been stated at cost less accumulated depreciation and
accumulated impairment losses. The directors of the Company consider the fair values
of these revalued property, plant and equipment were not materially different from their
carrying values as of December 31, 2010.
|
|
|
As of December 31, 2010, the net book value of assets held under finance leases was
approximately RMB219 million (2009: approximately RMB128 million).
|
|
|
For the year ended December 31, 2010, interest expense of approximately RMB804 million (2008:
approximately RMB430 million; 2009: approximately RMB806 million) was capitalized to
construction-in-progress. The capitalized borrowing rate represents the cost of capital for
raising the related borrowings externally and varied from 3.60% to 4.56% for the year ended
December 31, 2010 (2008: 3.51% to 6.80%; 2009: 4.27% to 4.80%).
|
|
|
For the year ended December 31, 2010, the Group recognized a loss on disposal of property,
plant and equipment of approximately RMB17 million (2008: a loss of approximately RMB273
million; 2009: a gain of approximately RMB79 million).
|
|
|
After the completion of the merger with China Netcom (Note 1) in 2008, management reconsidered
the Groups strategy regarding the Personal Handyphone System (PHS) services business at the
end of 2008 and expected to gradually phase out this operation over the subsequent 3 years.
Accordingly, it was expected that the economic performance of PHS services business would
deteriorate significantly. The test for impairment was conducted for the PHS services related
equipment, after considering the expected significant decline in revenue and profitability in
2009 and onwards. The impaired PHS services related equipment was written down to their
recoverable values, which was determined based on their estimated value in use. Estimated value
in use was determined based on the present value of estimated future net cash flows expected to
arise from the continuing use of the PHS services related equipment. In estimating the future
net cash flows, the Group has made key assumptions and estimates on the appropriate discount
rate of 15%, the period covered by the cash flow forecast of 3 years, the future loss of
customers at an annual rate of decline ranging from 60% to 80%, and the decrease in average
revenue per subscriber at an annual rate of decline of 15%.
|
|
|
These assumptions and estimates are made after considering the historical trends, the
prevailing market trends, expected remaining life of the PHS services business and the physical
conditions of the PHS services related equipment. Based on the above, the Group recognized an
impairment loss on PHS services related equipment of approximately RMB11,837 million for the
year ended December 31, 2008.
|
|
|
As of December 31, 2009 and 2010, management updated the impairment analysis for the PHS
services related equipment and concluded there was no need for additional recognition or
reversal of the impairment provision on PHS services related equipment.
|
F-62
|
|
The Groups long-term prepayment for land use rights represents prepaid operating lease payments
for land use rights in Mainland China and their net book value is analyzed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
Held on:
|
|
|
|
|
|
|
|
|
Leases of between 10 to 50 years
|
|
|
7,653
|
|
|
|
7,533
|
|
Leases of less than 10 years
|
|
|
76
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,729
|
|
|
|
7,607
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2010, the long-term prepayment for land use rights expensed
in the statement of income amounted to approximately RMB249 million (2008: approximately RMB253
million; 2009: approximately 224 million).
|
|
|
Goodwill arising from the acquisitions of Unicom New Century Telecommunications Co., Ltd. and
Unicom New World Telecommunications Co., Ltd. by the Group in 2002 and 2003, respectively,
represented the excess of the purchase consideration over the Groups shares of the fair
values of the separately identifiable net assets acquired prior to the adoption of HKFRS
and AG 5 in 2005.
|
|
|
Goodwill is allocated to the Groups cash-generating units (CGU). As of December 31, 2009 and
2010, all the carrying value of goodwill was attributable to the Mobile business. The
recoverable amount of goodwill is determined based on value in use calculations. These
calculations use pre-tax cash flow projections for 5 years based on financial budgets approved
by management, including revenue annual growth rate of 6% and the applicable discount rate of
12%. Management determined expected operation results based on past performance and its
expectations in relation to market developments. The expected growth rates used are consistent
with the forecasts of the operating segments. The discount rate used is pre-tax and reflects
specific risks relating to the CGU. Based on managements assessment results, there was no
impairment of goodwill as of December 31, 2009 and 2010 and no reasonable change to the
assumptions would lead to an impairment charge.
|
F-63
|
|
Hong Kong income tax has been provided at the rate of 16.5% (2008: 16.5%; 2009: 16.5%) on
the estimated assessable income for the year. Taxation on income from outside Hong Kong has been
calculated on the estimated assessable income for the year at the rates of taxation prevailing
in the countries in which the Group operates, the Companys subsidiaries mainly operated in the
PRC and the applicable standard enterprise income tax rate is 25% (2008: 25%; 2009: 25%).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax on the estimated
taxable income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
- Hong Kong
|
|
|
24
|
|
|
|
45
|
|
|
|
18
|
|
- Outside Hong Kong
|
|
|
4,661
|
|
|
|
2,282
|
|
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,685
|
|
|
|
2,327
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxation
|
|
|
(2,857
|
)
|
|
|
394
|
|
|
|
576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
1,828
|
|
|
|
2,721
|
|
|
|
922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation between applicable statutory tax rate and the effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applicable PRC statutory tax rate
|
|
|
|
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Non-deductible expenses
|
|
|
|
|
|
|
5.2
|
%
|
|
|
1.7
|
%
|
|
|
1.7
|
%
|
Tax effect of 2009 Business Combination
|
|
|
(a)
|
|
|
|
26.1
|
%
|
|
|
|
|
|
|
|
|
Non-taxable income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Upfront installation fees arising from
Fixed-line business
|
|
|
|
|
|
|
(7.8
|
%)
|
|
|
(1.4
|
%)
|
|
|
(1.9
|
%)
|
Impact of PRC preferential tax rates and tax holiday
|
|
|
|
|
|
|
(2.1
|
%)
|
|
|
(1.1
|
%)
|
|
|
(2.1
|
%)
|
Utilization of previously unrecognized tax losses
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
%)
|
|
|
(1.7
|
%)
|
Others
|
|
|
|
|
|
|
(1.4
|
%)
|
|
|
(1.4
|
%)
|
|
|
(1.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
|
|
|
|
45.0
|
%
|
|
|
22.2
|
%
|
|
|
19.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a):
|
|
The income tax of Fixed-line business in Southern China, local access telephone
business in Tianjin Municipality and New Guoxin was reported on a consolidated basis with
Netcom Group and Unicom Group prior to the 2009 Business Combination and no separate tax
returns were prepared. No income tax expenses/benefits were therefore recorded for the
Fixed-line Business in Southern China, local access telephone business in Tianjin
Municipality and New Guoxin in 2008 or prior years in accounting for the Fixed-line
business in Southern China, local access telephone business in Tianjin Municipality and New
Guoxin using merger accounting/predecessor values method.
|
F-64
|
|
The analysis of deferred tax assets and deferred tax liabilities are as follow:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
- Deferred tax asset to be recovered after 12 months
|
|
|
3,254
|
|
|
|
4,364
|
|
- Deferred tax asset to be recovered within 12 months
|
|
|
2,913
|
|
|
|
1,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,167
|
|
|
|
5,575
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
- Deferred tax liabilities to be settled after 12 months
|
|
|
(699
|
)
|
|
|
(505
|
)
|
- Deferred tax liabilities to be settled within 12 months
|
|
|
(266
|
)
|
|
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(965
|
)
|
|
|
(735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets after offsetting
|
|
|
5,202
|
|
|
|
4,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
- Deferred tax asset to be recovered after 12 months
|
|
|
6
|
|
|
|
18
|
|
- Deferred tax asset to be recovered within 12 months
|
|
|
59
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
25
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
- Deferred tax liabilities to be settled after 12 months
|
|
|
(16
|
)
|
|
|
(43
|
)
|
- Deferred tax liabilities to be settled within 12 months
|
|
|
(294
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(310
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities after offsetting
|
|
|
(245
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
There were no material unrecognized deferred tax assets and liabilities as of December 31,
2009 and 2010.
|
F-65
|
|
The movement of the net deferred tax assets/liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
Net deferred tax assets after offsetting:
|
|
|
|
|
|
|
|
|
|
|
|
|
- Beginning of year
|
|
|
2,473
|
|
|
|
5,334
|
|
|
|
5,202
|
|
- Deferred tax credited/(charged) to the statement
of income
|
|
|
|
|
|
|
|
|
|
|
|
|
- Continuing operations
|
|
|
2,856
|
|
|
|
(132
|
)
|
|
|
(519
|
)
|
- Discontinued operations
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
- Deferred tax credited to other comprehensive income
|
|
|
46
|
|
|
|
|
|
|
|
157
|
|
- Disposal of discontinued operation
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- End of year
|
|
|
5,334
|
|
|
|
5,202
|
|
|
|
4,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities after offsetting:
|
|
|
|
|
|
|
|
|
|
|
|
|
- Beginning of year
|
|
|
(18
|
)
|
|
|
(16
|
)
|
|
|
(245
|
)
|
- Deferred tax credited/(charged) to the statement
of income
|
|
|
1
|
|
|
|
(262
|
)
|
|
|
(57
|
)
|
- Deferred tax credited to other comprehensive income
|
|
|
1
|
|
|
|
33
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- End of year
|
|
|
(16
|
)
|
|
|
(245
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
F-66
|
|
Deferred taxation as of year-end represents the taxation effect of the following temporary
differences, taking into consideration the offsetting of balances related to the same tax
authority:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets after offsetting:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful debts
|
|
|
|
|
|
|
1,064
|
|
|
|
1,047
|
|
Impairment loss on property, plant and equipment
|
|
|
|
|
|
|
2,034
|
|
|
|
1,093
|
|
Unrecognized revaluation surplus on property, plant and
equipment under PRC regulations
|
|
|
i
|
|
|
|
1,917
|
|
|
|
1,835
|
|
Revaluation deficit on property, plant and equipment
|
|
|
ii
|
|
|
|
116
|
|
|
|
67
|
|
Accruals of expenses not yet deductible for tax purpose
|
|
|
|
|
|
|
418
|
|
|
|
709
|
|
Deferral and amortization of upfront non-refundable revenue
|
|
|
|
|
|
|
142
|
|
|
|
126
|
|
Deferred revenue on subscriber points reward programme
|
|
|
|
|
|
|
48
|
|
|
|
63
|
|
Deferred revenue in relation to the provision of supporting
services upon the disposal of the CDMA business
|
|
|
|
|
|
|
32
|
|
|
|
28
|
|
Accruals of retirement benefits
|
|
|
|
|
|
|
25
|
|
|
|
13
|
|
Unrealized profit for the inter-company transactions
|
|
|
|
|
|
|
214
|
|
|
|
224
|
|
Deductible tax losses
|
|
|
|
|
|
|
|
|
|
|
203
|
|
Changes in fair value on available-for-sale financial assets
|
|
|
33
|
|
|
|
|
|
|
|
467
|
|
Others
|
|
|
|
|
|
|
157
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,167
|
|
|
|
5,917
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization and amortization of direct incremental costs
|
|
|
|
|
|
|
(108
|
)
|
|
|
(106
|
)
|
Capitalized interest already deducted for tax purpose
|
|
|
|
|
|
|
(528
|
)
|
|
|
(392
|
)
|
Revaluation surplus on property, plant and equipment
|
|
|
ii
|
|
|
|
(299
|
)
|
|
|
(242
|
)
|
Realized gain on changes in fair value of
derivative financial instrument
|
|
|
33
|
|
|
|
|
|
|
|
(310
|
)
|
Others
|
|
|
|
|
|
|
(30
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(965
|
)
|
|
|
(1,077
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,202
|
|
|
|
4,840
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities after offsetting:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deductible tax losses carried forward
|
|
|
|
|
|
|
37
|
|
|
|
|
|
Changes in fair value on available-for-sale financial assets
|
|
|
33
|
|
|
|
41
|
|
|
|
|
|
Others
|
|
|
|
|
|
|
28
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain on changes in fair value of derivative
financial instrument
|
|
|
33
|
|
|
|
(310
|
)
|
|
|
|
|
Changes in fair value on available-for-sale financial assets
|
|
|
|
|
|
|
(23
|
)
|
|
|
(12
|
)
|
Accelerated depreciation for tax purpose
|
|
|
|
|
|
|
(18
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(351
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(245
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
F-67
|
(i)
|
|
The prepayments for the leasehold land and buildings held by China Netcom were revalued
for PRC tax purposes as of December 31, 2003 and 2004. However, the resulting revaluations
of the prepayments for the leasehold land and buildings were not recognized under
IFRSs/HKFRSs. Accordingly, deferred tax assets were recorded by the Group under
IFRSs/HKFRSs.
|
|
|
(ii)
|
|
The property, plant and equipment other than buildings and telecommunications equipment
of Mobile business are carried at revalued amount under IFRSs/HKFRSs, which are not used
for PRC tax reporting purposes. As a result, the Group recorded the deferred tax assets or
liabilities arising from the revaluation deficit or surplus under IFRSs/HKFRSs.
|
10.
|
|
AVAILABLE-FOR-SALE FINANCIAL ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities issued by corporates
|
|
|
|
|
|
|
7,977
|
|
|
|
6,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analyzed by place of listing:
|
|
|
|
|
|
|
|
|
|
|
|
|
Listed in the PRC
|
|
|
|
|
|
|
188
|
|
|
|
127
|
|
Listed outside the PRC
|
|
|
33
|
|
|
|
7,789
|
|
|
|
6,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,977
|
|
|
|
6,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2010, changes in fair value of available-for-sale financial
assets amounted to approximately RMB1,777 million (2008: approximately RMB188 million; 2009:
approximately RMB71 million). The changes in fair value, net of tax impact of approximately
RMB437 million (2008: approximately RMB47 million; 2009: approximately RMB33 million) were
recorded in the consolidated statement of comprehensive income.
|
|
|
As of December 31, 2010, the details of the Companys subsidiaries are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
Place and date of
|
|
of equity
|
|
Particulars
|
|
Principal activities
|
|
|
incorporation and
|
|
interests held
|
|
of issued
|
|
and place of
|
Name
|
|
nature of legal entity
|
|
Direct Indirect
|
|
share capital
|
|
operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China United Network
Communications
Corporation Limited
(merge with China
Netcom (Group)
Company Limited
(CNC China)
on January 1, 2009)
|
|
The PRC,
April 21, 2000,
lilimited liability
company
|
|
|
100
|
%
|
|
|
|
RMB
138,091,677,828
|
|
Telecommunications
operation in the
PRC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Netcom Group
Corporation (Hong
Kong) Limited
|
|
Hong Kong,
October 22, 1999,
limited company
|
|
|
100
|
%
|
|
|
|
6,699,197,200
ordinary shares,
USD0.04 each
|
|
Investment holding
in Hong Kong
|
F-68
11.
|
|
SUBSIDIARIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
Place and date of
|
|
of equity
|
|
|
Particulars
|
|
Principal activities
|
|
|
incorporation and
|
|
interests held
|
|
|
of issued
|
|
and place of
|
Name
|
|
nature of legal entity
|
|
Direct Indirect
|
|
|
share capital
|
|
operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unicom New World
(BVI) Limited
|
|
British Virgin
Islands (BVI),
November 5, 2003,
limited company
|
|
|
100
|
%
|
|
|
|
|
|
1,000 shares,
HKD1 each
|
|
Dormant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Unicom (Hong
Kong) Operations
Limited
|
|
Hong Kong,
May 24, 2000,
limited company
|
|
|
100
|
%
|
|
|
|
|
|
60,100,000 ordinary
shares,
HKD1 each
|
|
Telecommunications
service in Hong
Kong
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Netcom (Hong
Kong) Operations
Limited
|
|
Hong Kong,
May 2, 2001,
limited company
|
|
|
|
|
|
|
100
|
%
|
|
1,000 ordinary
shares,
HKD1 each
|
|
Dormant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Unicom
(Americas)
Operations Limited
|
|
The United States
of America (the
USA),
May 24, 2002,
limited company
|
|
|
100
|
%
|
|
|
|
|
|
5,000 shares,
USD100 each
|
|
Telecommunications
service in the USA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Unicom
(Europe) Operations
Limited
|
|
United Kingdom,
November 8, 2006,
limited company
|
|
|
100
|
%
|
|
|
|
|
|
4,861,000 shares,
GBP1 each
|
|
Telecommunications
operation in the
United Kingdom
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Unicom
(Japan) Operations
Corporation
|
|
Japan,
January 25, 2007,
limited company
|
|
|
100
|
%
|
|
|
|
|
|
1,000 shares,
JPY366,000 each
|
|
Telecommunications
operation in Japan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Unicom
(Singapore)
Operations Pte
Limited
|
|
Singapore,
August 5, 2009,
limited company
|
|
|
100
|
%
|
|
|
|
|
|
1 share,
USD1 each and
15,000,000 shares,
RMB1 each
|
|
Telecommunications
operation in
Singapore
|
F-69
11.
|
|
SUBSIDIARIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
Place and date of
|
|
of equity
|
|
|
Particulars
|
|
Principal activities
|
|
|
incorporation and
|
|
interests held
|
|
|
of issued
|
|
and place of
|
Name
|
|
nature of legal entity
|
|
Direct Indirect
|
|
|
share capital
|
|
operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billion Express
Investments Limited
(Billion Express)
|
|
British Virgin Islands,
August 15, 2007,
limited company
|
|
|
100
|
%
|
|
|
|
|
|
1 share,
USD1 each
|
|
Investment holding
and financing
subsidiary of the
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Unicom Limited
|
|
Hong Kong,
August 31, 2007,
limited company
|
|
|
100
|
%
|
|
|
|
|
|
2 ordinary shares,
HKD1 each
|
|
Dormant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unicom Vsens
Telecommunications
Company Limited
|
|
The PRC,
August 19, 2008,
limited liability
company
|
|
|
|
|
|
|
100
|
%
|
|
RMB
500,000,000
|
|
Sales of handsets,
telecommunication
equipment and
provision of
technical services
in the PRC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Unicom Mobile
Network Company
Limited
|
|
The PRC,
December 31, 2008,
limited liability
company
|
|
|
|
|
|
|
100
|
%
|
|
RMB
500,000,000
|
|
Dormant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Unicom System
Integration Limited
Corporation
|
|
The PRC,
April 30, 2006,
limited liability
company
|
|
|
|
|
|
|
100
|
%
|
|
RMB
550,000,000
|
|
Provision of
information
communications
technology services
in the PRC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Unicom
Broadband Online
Limited Corporation
|
|
The PRC,
March 29, 2006,
limited liability
company
|
|
|
|
|
|
|
100
|
%
|
|
RMB
30,000,000
|
|
Provision of
internet
information
services and
value-added
telecommunications
services in the PRC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beijing
Telecommunications
Planning and
Designing Institute
Corporation Limited
|
|
The PRC,
June 1, 2007
limited liability
company
|
|
|
|
|
|
|
100
|
%
|
|
RMB
264,227,115
|
|
Provision of
telecommunications
network
construction,
planning and
technical
consulting services
in the PRC
|
F-70
11.
|
|
SUBSIDIARIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
Place and date of
|
|
of equity
|
|
|
Particulars
|
|
Principal activities
|
|
|
incorporation and
|
|
interests held
|
|
|
of issued
|
|
and place of
|
Name
|
|
nature of legal entity
|
|
Direct Indirect
|
|
|
share capital
|
|
operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zhongrong
Information Service
Limited Corporation
|
|
The PRC,
March 31, 2008
limited liability
company
|
|
|
|
|
100
|
%
|
|
RMB
50,000,000
|
|
Provision of
information
consulting and
technology
development
outsourcing
services in the PRC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Information
Technology
Designing &
Consulting
Institute Company
Limited
|
|
The PRC,
September 27, 2008
limited liability
company
|
|
|
|
|
100
|
%
|
|
RMB
430,000,000
|
|
Provision of
consultancy,
survey, design and
contract services
relating to
information
projects and
construction
projects in the
telecommunications
industry in the PRC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unicom Xingye
Science and
Technology Trade
Company Limited
|
|
The PRC,
October 30, 2000,
limited liability
company
|
|
|
|
|
100
|
%
|
|
RMB
30,000,000
|
|
Provision of
technical support,
manufacturing,
research and design
services for
SIM/USIM cards and
other
telecommunication
cards in the PRC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Guoxin Telecom
Corporation of
China Unicom
|
|
The PRC,
September 17, 1998,
limited liability
company
|
|
|
|
|
100
|
%
|
|
RMB
6,825,087,800
|
|
Provision of
customer services
in the PRC
|
F-71
11. SUBSIDIARIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
Place and date of
|
|
of equity
|
|
|
Particulars
|
|
Principal activities
|
|
|
incorporation and
|
|
interests held
|
|
|
of issued
|
|
and place of
|
Name
|
|
nature of legal entity
|
|
Direct Indirect
|
|
|
share capital
|
|
operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Huaxia P&T Project
Consultation and
Management Company
Limited
|
|
The PRC,
March 5, 1998,
limited liability
company
|
|
|
|
|
100
|
%
|
|
RMB
10,000,000
|
|
Provision of
project
consultation and
management services
in the PRC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zhengzhou Kaicheng
Industrial Company
Limited
|
|
The PRC,
December 21, 2005,
limited liability
company
|
|
|
|
|
100
|
%
|
|
RMB
2,200,000
|
|
Provision of
property management
services in the
PRC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zhengzhou
Information and
Design Technology
Publishing Company
|
|
The PRC,
February 17, 2003,
limited liability
company
|
|
|
|
|
100
|
%
|
|
RMB
300,000
|
|
Provision of
magazine publishing
services in the PRC
|
F-72
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Direct incremental costs for activating mobile subscribers
|
|
|
433
|
|
|
|
423
|
|
Installation costs of Fixed-line business
|
|
|
1,732
|
|
|
|
1,309
|
|
Prepaid rental for premises and leased lines
|
|
|
3,454
|
|
|
|
3,521
|
|
Purchased software
|
|
|
3,954
|
|
|
|
4,440
|
|
Others
|
|
|
2,023
|
|
|
|
2,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,596
|
|
|
|
11,753
|
|
|
|
|
|
|
|
|
13.
|
|
INVENTORIES AND CONSUMABLES
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Handsets and other customer end products
|
|
|
1,637
|
|
|
|
2,461
|
|
Telephone cards
|
|
|
264
|
|
|
|
308
|
|
Consumables
|
|
|
449
|
|
|
|
860
|
|
Others
|
|
|
62
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,412
|
|
|
|
3,728
|
|
|
|
|
|
|
|
|
F-73
14.
|
|
ACCOUNTS RECEIVABLE, NET
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable for Mobile business
|
|
|
3,850
|
|
|
|
5,022
|
|
Accounts receivable for Fixed-line business
|
|
|
8,783
|
|
|
|
8,042
|
|
Accounts receivable for other business
|
|
|
262
|
|
|
|
202
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
12,895
|
|
|
|
13,266
|
|
|
|
|
|
|
|
|
|
|
Less: Provision for doubtful debts for Mobile business
|
|
|
(1,874
|
)
|
|
|
(2,074
|
)
|
Provision for doubtful debts for Fixed-line business
|
|
|
(2,115
|
)
|
|
|
(1,829
|
)
|
Provision for doubtful debts for other business
|
|
|
(81
|
)
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,825
|
|
|
|
9,286
|
|
|
|
|
|
|
|
|
|
|
The aging analysis of accounts receivable is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Within one month
|
|
|
6,384
|
|
|
|
6,625
|
|
More than one month to three months
|
|
|
1,235
|
|
|
|
1,316
|
|
More than three months to one year
|
|
|
2,936
|
|
|
|
3,054
|
|
More than one year
|
|
|
2,340
|
|
|
|
2,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,895
|
|
|
|
13,266
|
|
|
|
|
|
|
|
|
|
|
The normal credit period granted by the Group is on average between 30 days to 90 days
from the date of billing.
|
|
|
There is no significant concentration of credit risk with respect to customer receivables, as
the Group has a large number of customers.
|
|
|
As of December 31, 2010, accounts receivable of approximately RMB2,661 million (2009:
approximately RMB2,441 million) were past due but not impaired. These relate to customers for
which there is no recent history of default. The aged analysis of these receivables was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
More than one month to three months
|
|
|
1,235
|
|
|
|
1,316
|
|
More than three months to one year
|
|
|
882
|
|
|
|
1,056
|
|
More than one year
|
|
|
324
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,441
|
|
|
|
2,661
|
|
|
|
|
|
|
|
|
F-74
14.
|
|
ACCOUNTS RECEIVABLE, NET (Continued)
|
|
|
As of December 31, 2010, accounts receivable of approximately RMB3,980 million (2009:
approximately RMB4,070 million) were impaired. The individually impaired receivables mainly
relate to subscriber service fees. The aging of these receivables is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
More than three months to one year
|
|
|
2,054
|
|
|
|
1,998
|
|
More than one year
|
|
|
2,016
|
|
|
|
1,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,070
|
|
|
|
3,980
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful debts is analyzed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
3,462
|
|
|
|
4,070
|
|
Provision for the year
|
|
|
2,334
|
|
|
|
2,573
|
|
Written-off during the year
|
|
|
(1,726
|
)
|
|
|
(2,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
4,070
|
|
|
|
3,980
|
|
|
|
|
|
|
|
|
|
|
The creation and release of provisions for impaired receivables have been recognized in the
statement of income. Amounts charged to the allowance account are generally written-off when
there is reliable evidence to indicate no expectation of recovering additional cash.
|
|
|
The maximum exposure to credit risk at the reporting date is the carrying value of accounts
receivable mentioned above. The Group does not hold any collateral as security.
|
F-75
15.
|
|
PREPAYMENTS AND OTHER CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Prepaid rental
|
|
|
845
|
|
|
|
1,318
|
|
Deposits and prepayments
|
|
|
1,379
|
|
|
|
2,006
|
|
Prepaid income taxes
|
|
|
1,060
|
|
|
|
620
|
|
Advances to employees
|
|
|
274
|
|
|
|
321
|
|
Others
|
|
|
694
|
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,252
|
|
|
|
5,115
|
|
|
|
|
|
|
|
|
|
|
The aging analysis of prepayments and other current assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
|
3,806
|
|
|
|
4,629
|
|
More than one year
|
|
|
446
|
|
|
|
486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,252
|
|
|
|
5,115
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, there was no impairment for the prepayments and other current
assets.
|
16.
|
|
SHORT-TERM BANK DEPOSITS
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Bank deposits with maturity exceeding three months
|
|
|
970
|
|
|
|
254
|
|
Restricted bank deposits
|
|
|
26
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
996
|
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, restricted bank deposits primarily represented deposits that were
subject to externally imposed restrictions as requested by contractors in relation to payables
owed to the contractors.
|
F-76
17.
|
|
CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Cash at bank and in hand
|
|
|
7,210
|
|
|
|
12,520
|
|
Bank deposits with original maturities
of three months or less
|
|
|
610
|
|
|
|
9,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,820
|
|
|
|
22,495
|
|
|
|
|
|
|
|
|
18. SHARE CAPITAL
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
HKD millions
|
|
|
HKD millions
|
|
Authorized:
|
|
|
|
|
|
|
|
|
30,000,000,000 ordinary shares of HKD0.10 each
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares, par
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
value of
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
|
|
|
HKD0.1 each
|
|
|
Share
|
|
|
Share
|
|
|
|
|
Issued and fully paid:
|
|
millions
|
|
|
HKD millions
|
|
|
capital
|
|
|
premium
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2009
|
|
|
23,768
|
|
|
|
2,376
|
|
|
|
2,329
|
|
|
|
166,784
|
|
|
|
169,113
|
|
Issuance of shares for
mutual investment by the
Company and Telefónica
(Note a)
|
|
|
694
|
|
|
|
69
|
|
|
|
60
|
|
|
|
6,651
|
|
|
|
6,711
|
|
Off-market share repurchase
(Note b)
|
|
|
(900
|
)
|
|
|
(90
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
23,562
|
|
|
|
2,355
|
|
|
|
2,310
|
|
|
|
173,435
|
|
|
|
175,745
|
|
Issuance of shares upon
exercise of options (Note
35)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010
|
|
|
23,562
|
|
|
|
2,355
|
|
|
|
2,310
|
|
|
|
173,436
|
|
|
|
175,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note a :
|
|
On October 21, 2009, the Company issued 693,912,264 ordinary shares of HKD0.10
each at a price of HKD11.17 per share in exchange for 40,730,735 Telefónica treasury shares
at a price of Euro17.24 each. Please refer to Note 33 for details.
|
|
Note b:
|
|
Pursuant to a special resolution passed at the extraordinary general meeting held on
November 3, 2009, the Company repurchased 899,745,075 shares, being all the shares owned by
SK Telecom Co., Ltd, by way of an off-market share repurchase. The total consideration of
HKD9,991,669,058, being HKD11.105 for each share, was satisfied in cash upon completion.
The total consideration of HKD9,991,669,058 (equivalent to RMB8,801,661,273) was charged to
retained profits. The repurchased shares were cancelled subsequently.
|
|
|
|
In addition, pursuant to Section 49H of the Hong Kong Companies Ordinance, an amount
equivalent to the par value of the shares cancelled of HKD89,974,508 (equivalent to
RMB79,258,544) was transferred from share capital to the capital redemption reserve.
|
F-77
|
(i)
|
|
Statutory reserves
|
|
|
|
|
CUCL and CNC China are registered as foreign investment enterprises in the PRC. In
accordance with the respective Articles of Association, they are required to provide for
certain statutory reserves, namely, general reserve fund and staff bonus and welfare
fund, which are appropriated from income after tax and non-controlling interests but
before dividend distribution.
|
|
|
|
|
CUCL and CNC China are required to allocate at least 10% of their income after tax and
non-controlling interests determined under the PRC Company Law to the general reserve
fund until the cumulative amounts reach 50% of the registered capital. The statutory
reserve can only be used, upon approval obtained from the relevant authority, to offset
accumulated losses or increase capital.
|
|
|
|
|
Accordingly, CUCL appropriated approximately RMB379 million (2008: approximately
RMB3,523 million and RMB19 million by CUCL and CNC China, respectively; 2009:
approximately RMB769 million) to the general reserve fund for the year ended December
31, 2010.
|
|
|
|
|
Appropriation to the staff bonus and welfare fund is at the discretion of the directors.
The staff bonus and welfare fund can only be used for special bonuses or the collective
welfare of the employees and cannot be distributed as cash dividends. Under
IFRSs/HKFRSs, the appropriations to the staff bonus and welfare fund will be charged to
the statement of income as expenses incurred since any assets acquired through this fund
belong to the employees. For the years ended December 31, 2008, 2009 and 2010, no
appropriation to staff bonus and welfare fund has been made by CUCL nor CNC China.
|
|
|
|
|
According to the PRC tax approval document issued by the Ministry of Finance and State
Administration of Taxation to the Group, the Groups upfront connection fees in respect
of the Fixed-line business are not subject to the PRC enterprise income tax and an
amount equal to the upfront connection fees recognized in the retained profits should be
transferred from retained profits to the statutory reserve. Up to December 31, 2010, the
Group has made an accumulated appropriation of approximately RMB12,274 million to the
statutory reserve (Up to December 31, 2008 : approximately RMB11,592 million; up to
December 31, 2009: approximately RMB12,082 million;).
|
F-78
|
(ii)
|
|
Share premium and capital redemption reserve
|
|
|
|
|
The application of the share premium account and the capital redemption reserve is
governed by Sections 48B and 49H, respectively, of the Hong Kong Companies Ordinance and
these reserves cannot be distributed to shareholders by way of dividend.
|
|
|
(iii)
|
|
Available-for-sale fair value reserve
|
|
|
|
|
The available-for-sale fair value reserve represents the changes in the fair value of
available-for-sale financial assets, net of tax, until the financial assets are
derecognized or impaired.
|
|
|
(iv)
|
|
Convertible bonds reserve
|
|
|
|
|
The convertible bonds reserve represents the equity component of the convertible bonds
at initial recognition.
|
F-79
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates and final maturity
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
RMB denominated
bank loans
|
|
Floating interest rate, 15% downward
on the benchmark interest rate issued
by the Peoples Bank of China for
three years bank borrowings on
quarterly basis with maturity through
2013
|
|
|
|
|
|
|
|
|
- secured
|
|
|
|
|
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD denominated
bank loans
|
|
Fixed interest rates ranging from Nil
to 5.00% (2009: Nil to 5.00%) per
annum with maturity through 2039
(2009: maturity through 2039)
|
|
|
|
|
|
|
|
|
- secured
|
|
|
|
|
137
|
|
|
|
128
|
|
- unsecured
|
|
|
|
|
357
|
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
494
|
|
|
|
455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro denominated
bank loans
|
|
Fixed interest rates ranging from
1.10% to 2.50% (2009: 1.10% to 2.50%)
per annum with maturity through 2034
(2009: maturity through 2034)
|
|
|
|
|
|
|
|
|
- unsecured
|
|
|
|
|
327
|
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
|
|
821
|
|
|
|
1,520
|
|
Less: Current portion
|
|
|
|
|
(62
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
759
|
|
|
|
1,462
|
|
|
|
|
|
|
|
|
|
|
|
|
The repayment schedule of the long-term bank loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Balances due:
|
|
|
|
|
|
|
|
|
- not later than one year
|
|
|
62
|
|
|
|
58
|
|
- later than one year and
not later than two years
|
|
|
54
|
|
|
|
50
|
|
- later than two years and
not later than five years
|
|
|
165
|
|
|
|
950
|
|
- later than five years
|
|
|
540
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
821
|
|
|
|
1,520
|
|
|
|
|
|
|
|
|
|
|
Less: Portion classified as current liabilities
|
|
|
(62
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
759
|
|
|
|
1,462
|
|
|
|
|
|
|
|
|
F-80
20.
|
|
LONG-TERM BANK LOANS (Continued)
|
|
(a)
|
|
The fair values of the Groups non-current portion of long-term bank loans at December
31, 2009 and 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Long-term bank loans
|
|
|
552
|
|
|
|
1,311
|
|
|
|
|
|
|
|
|
|
|
The fair value is based on cash flows discounted using rates based on the market rates
ranging from 4.28% to 4.97% (2009: 4.48% to 4.72%) per annum.
|
|
(b)
|
|
As of December 31, 2010, bank loans of approximately RMB128 million (2009:
approximately RMB137 million) were secured by corporate guarantees granted by third
parties.
|
|
|
On April 2, 2010, CUCL issued tranche one of a promissory note in the amount of RMB3 billion,
with a maturity date of 3 years from the date of issue and carries interests at 3.73% per annum.
|
|
|
On September 20, 2010, CUCL issued tranche two of a promissory note in the amount of RMB12
billion, with a maturity date of 3 years from the date of issue and carries interests at 3.31%
per annum.
|
|
|
The fair value of the Groups promissory notes at December 31, 2010 amounted to approximately
RMB14,881 million. The fair value is computed based on the expected cash flows discounted on
market rates ranging from 4.15% to 4.25% per annum.
|
|
|
On October 18, 2010, Billion Express, a wholly-owned subsidiary of the Company, issued 0.75%
guaranteed convertible bonds in an aggregate principal amount of USD1,838,800,000 (at the fixed
exchange rate of USD1 equivalent to HKD7.7576) which are due in October 2015 at a redemption
price of 100% of the principal amount. The bonds are guaranteed by the Company as to repayments,
and are convertible into ordinary shares of HKD0.10 per share of the Company at an initial
conversion price of HKD15.85 per share. The conversion price is subject to adjustment in certain
events set out in the Trust deed dated October 18, 2010. The bondholders may exercise conversion
rights at any time on or after November 28, 2010 up to the close of business on October 8, 2015
or, if such convertible bonds shall have been called for redemption by the Company before
October 18, 2015, then up to the close of business on a date not later than seven days prior to
the date fixed for redemption thereof. Billion Express will, at the option of a bondholder,
redeem all and not some only of such bondholders convertible bonds on October 18, 2013 at their
principal amount together with interest accrued and unpaid to the date fixed for redemption. In
addition, on or at any time after October 18, 2013 and prior to October 18, 2015, Billion
Express may redeem all and not some only of the convertible bonds for the time being outstanding
at their principal amount together with interest accrued and unpaid to the date fixed for
redemption.
|
|
|
During the year ended
December 31, 2010, there was no conversion of the convertible bonds into shares of the Company by the bondholders and no redemption of the convertible bonds made by
Billion Express.
|
|
|
The fair value of the liability component, which was calculated using market interest rate for a
bond with the same tenure but with no conversion features, was determined upon the issuance of
the convertible bonds. The difference between the face value (net of direct issue costs) and the
fair value of the liability component represented the equity component,
which was credited to the convertible bonds reserve under equity
attributable to owners of the parent.
|
F-81
22.
|
|
CONVERTIBLE BONDS (Continued)
|
|
|
The convertible bonds recognized in the consolidated balance sheet are calculated as follows:
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
Face value of convertible bonds at issue date
|
|
|
12,236
|
|
Less: direct issue costs
|
|
|
(96
|
)
|
|
|
|
|
Face value of convertible bonds at issue date, net
|
|
|
12,140
|
|
|
|
|
|
|
|
|
|
|
Including:
|
|
|
|
|
Equity component on initial recognition
|
|
|
572
|
|
Liability component on initial recognition
|
|
|
11,568
|
|
|
|
|
|
|
|
|
12,140
|
|
|
|
|
|
|
|
|
|
|
Movement of liability component:
|
|
|
|
|
Liability component on initial recognition
|
|
|
11,568
|
|
Less: effect of exchange gain on liability component
|
|
|
(55
|
)
|
Add: imputed finance cost
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
Liability component at December 31, 2010
|
|
|
11,558
|
|
|
|
|
|
|
|
The liability component of the convertible bonds at December 31, 2010 amounted to approximately
RMB11,558 million (equivalent to USD1,745 million) and was calculated using cash flows
discounted at a rate based on the borrowing rate of 1.90% per annum taking into the effect of
direct issue costs.
|
F-82
|
|
On June 8, 2007, the Group issued RMB2 billion 10-year corporate bonds, bearing interest at 4.5%
per annum. The corporate bonds are secured by a corporate guarantee granted by Bank of China
Limited.
|
|
|
On September 3, 2008, the Group issued another RMB5 billion 5-year corporate bonds, bearing
interest at 5.29% per annum. The corporate bonds are secured by a corporate guarantee granted by
State Grid Corporation of China.
|
|
|
The fair values of the Groups corporate bonds at December 31, 2009 and 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
7,143
|
|
|
|
7,205
|
|
|
|
|
|
|
|
|
|
|
The fair value is based on cash flows discounted using rates based on the market rates
ranging from 4.28% to 5.01% (2009: 4.18% to 4.86%) per annum.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-off cash housing subsidies
|
|
|
(a)
|
|
|
|
2,502
|
|
|
|
2,502
|
|
Obligations under finance lease
|
|
|
(b)
|
|
|
|
129
|
|
|
|
204
|
|
Others
|
|
|
|
|
|
|
90
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
|
|
|
|
2,721
|
|
|
|
2,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current portion
|
|
|
|
|
|
|
(2,534
|
)
|
|
|
(2,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
F-83
24.
|
|
OTHER OBLIGATIONS (Continued)
|
(a)
|
|
The movement of early retirement benefits and one-off cash housing subsidies is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Early retirement benefits
|
|
|
One-off cash housing subsidies
|
|
|
|
Note (ii)
|
|
|
Note (i) & (ii)
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2009
|
|
|
2,109
|
|
|
|
2,502
|
|
Additions during the year
|
|
|
|
|
|
|
|
|
Payments during the year
|
|
|
(2,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
2,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2010 and
December 31, 2010
|
|
|
|
|
|
|
2,502
|
|
|
|
|
|
|
|
|
(i)
|
|
Certain staff quarters, prior to 1998, have been sold to certain of the Groups
employees at preferential prices, subject to a number of eligibility requirements. In
1998, the State Council issued a circular which stipulated that the sale of quarters to
employees at preferential prices should be terminated. In 2000, the State Council issued a
further circular stating that cash subsidies should be made to certain eligible employees
following the withdrawal of the allocation of staff quarters. However, the specific
timetable and procedures for the implementation of these policies were to be determined by
individual provincial or municipal governments based on the particular situation of the
provinces or municipality.
|
|
|
|
Based on the relevant detailed local government regulations promulgated, certain entities
within the Group have adopted cash housing subsidy plans. In accordance with these plans,
for those eligible employees who had not been allocated with quarters or who had not been
allocated with quarters up to the prescribed standards before the discounted sales of
quarters were terminated, the Group has determined to pay them one-off cash housing
subsidies based on their years of service, positions and other criteria. Based on the
available information, the Group estimated the required provision for these cash housing
subsidies amounted to RMB4,142 million, which was charged to the statement of income for
the year ended December 31, 2000 (the year in which the Council circular in respect of cash
subsidies was issued).
|
|
(ii)
|
|
Pursuant to the reorganization undertaken on June 30, 2004 between China Netcom,
China Netcom (Holding) Company Limited and Netcom Group and the acquisition of the
principal telecommunications operations, assets and liabilities in the four Northern
provinces/autonomous region, namely Shanxi province, Neimenggu autonomous region, Jilin
province and Heilongjiang province from Netcom Group (the Acquisition of New Horizon) in
2005, if the actual payments required for housing subsidies and early retirement benefits
differ from the amount provided as of June 30, 2004 and June 30, 2005, Netcom Group would
bear any additional payments required or would be paid the difference if the actual
payments are lower than the amount provided. Upon the completion of the Parent Merger,
Unicom Group has assumed all the rights and obligations of Netcom Group. In 2009, the
Group fully repaid the amount in relation to early retirement benefits to Unicom Group.
|
F-84
24.
|
|
OTHER OBLIGATIONS (Continued)
|
(b)
|
|
Obligations under finance lease
|
|
|
|
The obligations under finance lease represent the payables for the finance lease of
telecommunications equipment. The lease payments under finance lease are analyzed as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments under finance lease:
|
|
|
|
|
|
|
|
|
- not later than one year
|
|
|
29
|
|
|
|
129
|
|
- later than one year and not later than two years
|
|
|
105
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
134
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
Less: Future finance charges
|
|
|
(5
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum obligations
|
|
|
129
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Representing obligations under finance lease:
|
|
|
|
|
|
|
|
|
- current liabilities
|
|
|
26
|
|
|
|
126
|
|
|
|
|
|
|
|
|
- non-current liabilities
|
|
|
103
|
|
|
|
78
|
|
|
|
|
|
|
|
|
F-85
25.
|
|
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Payables to contractors and equipment suppliers
|
|
|
85,941
|
|
|
|
76,534
|
|
Payables to telecommunications product suppliers
|
|
|
3,193
|
|
|
|
3,189
|
|
Customer/contractor deposits
|
|
|
2,522
|
|
|
|
3,200
|
|
Repair and maintenance expense payables
|
|
|
1,900
|
|
|
|
2,449
|
|
Salary and welfare payables
|
|
|
1,364
|
|
|
|
1,017
|
|
Interest payable
|
|
|
212
|
|
|
|
740
|
|
Amounts due to services providers / content providers
|
|
|
1,069
|
|
|
|
1,034
|
|
Accrued expenses
|
|
|
4,268
|
|
|
|
5,394
|
|
Others
|
|
|
3,603
|
|
|
|
4,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,072
|
|
|
|
97,659
|
|
|
|
|
|
|
|
|
|
|
The aging analysis of payables and accrued liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Less than six months
|
|
|
90,983
|
|
|
|
85,485
|
|
Six months to one year
|
|
|
4,031
|
|
|
|
3,866
|
|
More than one year
|
|
|
9,058
|
|
|
|
8,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,072
|
|
|
|
97,659
|
|
|
|
|
|
|
|
|
F-86
|
|
CNC China issued RMB10 billion unsecured commercial paper with repayment periods of 365 days on
October 6, 2008 in the PRC capital market. The effective interest rate is 4.47% per annum. The
net cash proceeds raised in the PRC capital market were RMB10 billion. The commercial paper was
fully repaid on October 8, 2009.
|
|
|
On April 1, 2010, CUCL issued tranche one of a commercial paper in the amount of RMB15 billion,
with a maturity date of 365 days from the date of issue and carries interests at 2.64% per
annum.
|
|
|
On September 20, 2010, CUCL issued tranche two of a commercial paper in the amount of RMB8
billion, with a maturity date of 365 days from the date of issue and carries interests at 2.81%
per annum.
|
27.
|
|
SHORT-TERM BANK LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates and final maturity
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
RMB denominated
bank loans
|
|
Fixed interest rates ranging from
2.88% to 4.59% (2009: 3.50% to 4.37%)
per annum with maturity through 2011
(2009: maturity through 2010)
|
|
|
|
|
|
|
|
|
- unsecured
|
|
|
|
|
55,104
|
|
|
|
2,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMB denominated
bank loans
|
|
Floating interests rates, 10%
downward on the benchmark interest
rate issued by the Peoples Bank of
China with maturity through 2011
|
|
|
|
|
|
|
|
|
- unsecured
|
|
|
|
|
|
|
|
|
23,195
|
|
- secured
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HKD denominated
bank loans
|
|
Floating interest rates of HKD HIBOR
plus interest margin from 0.4% to
1.0% (2009: plus 0.42%) per annum
with maturity through 2011 (2009: maturity through 2010)
|
|
|
|
|
|
|
|
|
- unsecured
|
|
|
|
|
8,805
|
|
|
|
10,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
63,909
|
|
|
|
36,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
|
The carrying values of short-term bank loans approximate their fair values as of the
balance sheet date.
|
F-87
|
|
The tariffs for the services provided by the Group are subject to regulations by various
government authorities, including the NDRC, the MIIT and the provincial price regulatory
authorities.
|
|
|
Revenue from continuing operations is presented net of business tax and government surcharges.
Relevant business tax and government surcharges amounted to approximately RMB4,870 million for
the year ended December 31, 2010 (2008: approximately RMB4,598 million; 2009: approximately
RMB4,487 million).
|
|
|
The major components of revenue for continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile business
|
|
|
|
|
|
|
|
|
|
|
|
|
- Usage and monthly fees
|
|
|
40,462
|
|
|
|
42,297
|
|
|
|
47,004
|
|
- Value-added services revenue
|
|
|
16,263
|
|
|
|
19,070
|
|
|
|
25,852
|
|
-
Interconnection fees
|
|
|
6,775
|
|
|
|
8,220
|
|
|
|
9,022
|
|
- Other service revenue
|
|
|
740
|
|
|
|
182
|
|
|
|
484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mobile telecommunications service revenue
|
|
|
64,240
|
|
|
|
69,769
|
|
|
|
82,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-line business
|
|
|
|
|
|
|
|
|
|
|
|
|
- Usage and monthly fees
|
|
|
41,489
|
|
|
|
34,369
|
|
|
|
29,085
|
|
- Broadband, data and other Internet-related services revenue
|
|
|
23,624
|
|
|
|
26,364
|
|
|
|
32,595
|
|
- Interconnection fees
|
|
|
7,342
|
|
|
|
5,599
|
|
|
|
5,243
|
|
- Value-added services revenue
|
|
|
7,074
|
|
|
|
5,238
|
|
|
|
4,860
|
|
- Leased line income
|
|
|
5,492
|
|
|
|
5,683
|
|
|
|
5,589
|
|
- Upfront connection fees
|
|
|
886
|
|
|
|
490
|
|
|
|
192
|
|
- Other service revenue
|
|
|
2,347
|
|
|
|
1,806
|
|
|
|
1,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-line telecommunications service revenue
|
|
|
88,254
|
|
|
|
79,549
|
|
|
|
78,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated telecommunications service revenue
|
|
|
337
|
|
|
|
275
|
|
|
|
737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total telecommunications service revenue
|
|
|
152,831
|
|
|
|
149,593
|
|
|
|
161,995
|
|
Information communication technology services and other revenue
|
|
|
5,062
|
|
|
|
2,189
|
|
|
|
2,016
|
|
Sales of telecommunications products
|
|
|
1,899
|
|
|
|
2,163
|
|
|
|
7,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from external customers
|
|
|
159,792
|
|
|
|
153,945
|
|
|
|
171,298
|
|
|
|
|
|
|
|
|
|
|
|
F-88
29.
|
|
NETWORKS, OPERATIONS AND SUPPORT EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repair and maintenance
|
|
|
7,761
|
|
|
|
8,606
|
|
|
|
8,781
|
|
Power and water charges
|
|
|
5,901
|
|
|
|
7,414
|
|
|
|
8,884
|
|
Operating leases for networks, premises,
equipment and facilities
|
|
|
4,362
|
|
|
|
6,778
|
|
|
|
7,848
|
|
Others
|
|
|
712
|
|
|
|
930
|
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total networks, operations and support expenses
|
|
|
18,736
|
|
|
|
23,728
|
|
|
|
26,383
|
|
|
|
|
|
|
|
|
|
|
|
30.
|
|
EMPLOYEE BENEFIT EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages
|
|
|
|
|
|
|
17,115
|
|
|
|
17,842
|
|
|
|
18,993
|
|
Contributions to defined
contribution pension schemes
|
|
|
|
|
|
|
2,288
|
|
|
|
2,558
|
|
|
|
2,670
|
|
Contributions to housing fund
|
|
|
|
|
|
|
1,099
|
|
|
|
1,321
|
|
|
|
1,422
|
|
Other housing benefits
|
|
|
|
|
|
|
172
|
|
|
|
183
|
|
|
|
186
|
|
Share-based compensation
|
|
|
35
|
|
|
|
84
|
|
|
|
27
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee benefit expenses
|
|
|
|
|
|
|
20,758
|
|
|
|
21,931
|
|
|
|
23,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.
|
|
OTHER OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful debts
|
|
|
3,025
|
|
|
|
2,355
|
|
|
|
2,583
|
|
Cost of telecommunications products sold
|
|
|
2,156
|
|
|
|
2,689
|
|
|
|
10,688
|
|
Cost in relation to information
communications technology services
|
|
|
3,010
|
|
|
|
839
|
|
|
|
895
|
|
Commission expenses
|
|
|
11,773
|
|
|
|
11,994
|
|
|
|
13,776
|
|
Advertising and promotion expenses
|
|
|
3,036
|
|
|
|
4,290
|
|
|
|
3,931
|
|
Customer installation cost
|
|
|
2,256
|
|
|
|
2,449
|
|
|
|
2,435
|
|
Customer acquisition and retention cost
|
|
|
2,549
|
|
|
|
2,287
|
|
|
|
3,591
|
|
Auditors remuneration
|
|
|
131
|
|
|
|
73
|
|
|
|
68
|
|
Property management fee
|
|
|
1,186
|
|
|
|
1,434
|
|
|
|
1,503
|
|
Office and administrative expenses
|
|
|
2,831
|
|
|
|
2,915
|
|
|
|
3,422
|
|
Transportation expense
|
|
|
1,892
|
|
|
|
1,825
|
|
|
|
1,805
|
|
Miscellaneous taxes and fees
|
|
|
607
|
|
|
|
583
|
|
|
|
653
|
|
Others
|
|
|
3,545
|
|
|
|
2,990
|
|
|
|
2,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses
|
|
|
37,997
|
|
|
|
36,723
|
|
|
|
48,269
|
|
|
|
|
|
|
|
|
|
|
|
F-89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Interest on bank loans repayable within 5 years
|
|
|
|
|
|
|
1,787
|
|
|
|
911
|
|
|
|
1,726
|
|
- Interest on long-term loans due to ultimate holding
company
|
|
|
40.1(c)
|
|
|
|
1,016
|
|
|
|
|
|
|
|
|
|
- Interest on corporate bonds, promissory notes and
commercial papers repayable within 5 years
|
|
|
|
|
|
|
580
|
|
|
|
607
|
|
|
|
824
|
|
- Interest on convertible bonds repayable within 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
- Interest on related party loan repayable within 5 years
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
25
|
|
- Interest on bank loans repayable over 5 years
|
|
|
|
|
|
|
54
|
|
|
|
5
|
|
|
|
4
|
|
- Interest on corporate bonds repayable over 5 years
|
|
|
|
|
|
|
90
|
|
|
|
90
|
|
|
|
90
|
|
- Interest on deferred consideration
|
|
|
(a)
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
- Less: Amounts capitalized in construction-in-progress
|
|
|
6
|
|
|
|
(430
|
)
|
|
|
(806
|
)
|
|
|
(804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
|
|
|
|
3,321
|
|
|
|
823
|
|
|
|
1,910
|
|
- Exchange (gain)/loss, net
|
|
|
|
|
|
|
(270
|
)
|
|
|
15
|
|
|
|
(388
|
)
|
- Others
|
|
|
|
|
|
|
218
|
|
|
|
198
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance costs
|
|
|
|
|
|
|
3,269
|
|
|
|
1,036
|
|
|
|
1,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a):
|
|
In 2005, China Netcom completed the Acquisition of New Horizon. The consideration for
the Acquisition of New Horizon was RMB12,800 million which consisted of an initial cash
payment of RMB3,000 million and deferred payments of RMB9,800 million. The deferred
payments were being settled in half-yearly installments over five years. The interest
charged on the deferred payments was calculated at 5.265% per annum. In 2008, the Group
fully repaid the amount.
|
F-90
33.
|
|
MUTUAL INVESTMENT OF THE COMPANY AND TELEFÓNICA IN EACH OTHER
|
|
|
On September 6, 2009, the Company announced that in order to strengthen the cooperation between
the Company and Telefónica, the parties entered into a subscription agreement (Subscription
Agreement), pursuant to which each party conditionally agreed to invest an equivalent of USD1
billion in each other through an acquisition of each others shares. On October 21, 2009
(Completion Date), the Company and Telefónica completed the mutual investment of the
equivalent of USD1 billion in each other, which was implemented by way of the subscription by
Telefónica for 693,912,264 new shares of the Company at a price of HKD11.17 each, satisfied by
the contribution by Telefónica of 40,730,735 Telefónica treasury shares at a price of Euro17.24
each to the Company.
|
|
|
At the inception of the subscription agreement on September 6, 2009, the Companys agreement to
undertake the above mutual investment with Telefónica is treated as a derivative financial
instrument in accordance with IAS/HKAS 39 Financial instrument: Recognition and measurement as
it represents a forward contract for the purchase of shares by the Company and Telefónica in
each other at predetermined fixed prices and is denominated in a foreign currency. The
derivative financial instrument would be remeasured at fair value at each balance sheet date
with all subsequent changes in fair value being charged or credited to the statement of income
in the period when the change occurs until the completion of the mutual investment by the
Company and Telefónica in each other at the Completion Date. On October 21, 2009, the derivative
financial instrument was derecognized and an available-for-sale financial asset, representing
the investment in the Telefónica shares, was recognized correspondingly at the then fair value
of the Telefónica shares.
|
|
|
As of the Completion Date, October 21, 2009, the fair value of the Telefónica shares was
determined to be approximately RMB7,952 million and the changes in the fair value of the
derivative financial instrument during the period from September 6, 2009 to October 21, 2009
resulted in a fair value gain of approximately RMB1,239 million, which has been recorded as
Realized gain on changes in fair value of derivative financial instrument in the consolidated
statement of income for the year ended December 31, 2009.
|
|
|
As of December 31, 2010, the related available-for-sale financial asset amounted to
approximately RMB6,087 million (2009: approximately RMB7,789 million). For the year ended
December 31, 2010, changes in fair value of available-for-sale financial asset amounted to
approximately RMB1,702 million (2009: approximately RMB163 million). The changes in fair value,
net of tax impact of approximately RMB426 million (2009: approximately RMB41 million), was
recorded in the consolidated statement of comprehensive income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income from available-for-sale financial assets
|
|
|
3
|
|
|
|
215
|
|
|
|
485
|
|
Gain on the non-monetary assets exchange
|
|
|
1,305
|
|
|
|
38
|
|
|
|
10
|
|
Others
|
|
|
833
|
|
|
|
709
|
|
|
|
726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,141
|
|
|
|
962
|
|
|
|
1,221
|
|
|
|
|
|
|
|
|
|
|
|
F-91
35.
|
|
EQUITY-SETTLED SHARE OPTION SCHEMES
|
|
35.1
|
|
Fixed award pre-global offering share option scheme (the Pre-Global Offering Share
Option Scheme)
|
|
|
|
|
Pursuant to the resolution passed by the Board of Directors in June 2000, the Company
adopted the Pre-Global Offering Share Option Scheme on June 1, 2000 for the granting of
share options to qualified employees on the following terms:
|
|
(i)
|
|
the exercise price is equivalent to the share issue price of the Global
Offering of HKD15.42 per share (excluding the brokerage fee and SEHK transaction
levy); and
|
|
|
(ii)
|
|
the share options are vested and exercisable after 2 years from the grant
date and expire 10 years from the date of grant.
|
|
|
|
No further options can be granted under the Pre-Global Offering Option Scheme.
|
|
|
|
|
The Pre-Global Offering Option Scheme had been amended in conjunction with the amended
terms of the share option scheme (Note 35.2) in May 2002, May 2007 and May 2009,
respectively. Apart from the above two terms, the principal terms are substantially the
same as the amended Share Option Scheme in all material aspects.
|
|
35.2
|
|
Share option scheme (the Share Option Scheme)
|
|
|
|
On June 1, 2000, the Company adopted the Share Option Scheme pursuant to which the
directors of the Company may, at their discretion, invite employees, including executive
directors, of the Company or any of its subsidiaries, to take up share options to
subscribe for shares up to a maximum aggregate number of shares (including those that
could be subscribed for under the Pre-Global Offering Share Option Scheme as described
above) not exceeding 10% of the total issued share capital of the Company. Pursuant to the
Share Option Scheme, the nominal consideration payable by a participant for the grant of
share options will be HKD1.00. The exercise price payable by a participant upon the
exercise of an option will be determined by the directors at their discretion at the date
of grant, except that such price may not be set below a minimum price which is the higher
of:
|
|
(i)
|
|
the nominal value of the share; and
|
|
|
(ii)
|
|
80% of the average of the closing prices of shares on the SEHK on the five
trading days immediately preceding the date of grant of the option on which there
were dealings in the shares on the SEHK.
|
|
|
|
The period during which an option may be exercised will be determined by the Board of
Directors at their discretion, except that no option may be exercised later than 10 years
from June 22, 2000.
|
F-92
35.
|
|
EQUITY-SETTLED SHARE OPTION SCHEMES (Continued)
|
|
35.2
|
|
Share option scheme (the Share Option Scheme) (Continued)
|
|
|
|
The terms of the Share Option Scheme were amended on May 13, 2002 to comply with the
requirements set out in the Chapter 17 of the Listing Rules of SEHK which came into effect
on September 1, 2001 with the following major amendments:
|
|
(i)
|
|
share options may be granted to employees including executive directors of
the Group or any of the non-executive directors;
|
|
|
(ii)
|
|
the option period commences on a day after the date on which an option is
offered but not later than 10 years from the offer date; and
|
|
|
(iii)
|
|
minimum subscription price shall not be less than the higher of:
|
|
|
|
|
the nominal value of the shares;
|
|
|
|
|
the closing price of the shares of the stock exchange as stated in the
stock exchanges quotation sheets on the offer date in respect of the share options;
and
|
|
|
|
|
the average closing price of the shares on the stock exchanges quotation
sheets for the five trading days immediately preceding the offer date.
|
|
|
|
In May 2007 and May 2009, the Company further amended the Share Option Scheme with major
amendments related to the exercise period.
|
|
|
|
All of the share options granted under Note 35.1 and 35.2 are governed by the amended
terms of the Pre-Global Share Option Scheme and the Share Option Scheme as mentioned
above.
|
F-93
35.
|
|
EQUITY-SETTLED SHARE OPTION SCHEMES (Continued)
|
|
35.3
|
|
Special purpose Unicom share option scheme (the Special Purpose Share Option Scheme)
|
|
|
|
Prior to the 2008 Business Combination, China Netcom granted share options to its directors
and employees (including employees of its subsidiaries) in years 2004 (First Grant) and
2005 (Second Grant) pursuant to a shareholders resolution passed on September 30, 2004.
|
|
|
|
|
Pursuant to the ordinary resolution passed by the shareholders on September 16, 2008, the
Company adopted the Special Purpose Share Option Scheme in connection with the merger of
the Company and China Netcom by way of a scheme of arrangement of China Netcom under
Section 166 of the Companies Ordinance for the granting of options to holders of China
Netcom options outstanding at October 14, 2008 (Eligible Participants). Pursuant to this
scheme, no fractional options can be granted and the maximum number of shares which may be
issued upon the exercise of all options granted under this scheme and any other share
options schemes of the Company must not in aggregate exceed 10% of the issued share capital
of the Company as of the date of approval of this scheme.
|
|
|
|
|
The number of options and exercise price of options granted under the Special Purpose Share
Option Scheme are as follows:
|
|
(i)
|
|
The exercise price of options under this scheme is equal to (a) the exercise
price of an outstanding China Netcom option held by the Eligible Participants divided
by (b) the share exchange ratio 1.508.
|
|
|
(ii)
|
|
The total number of options granted by the Company to all Eligible
Participants under this scheme shall be equal to the product of (a) the share exchange
ratio and (b) the number of China Netcom options outstanding as of October 14, 2008.
|
|
|
|
The above formula ensures that the value of options granted under this scheme received by a
holder of China Netcom options is equivalent to the see-through price of that holders
outstanding China Netcom options.
|
|
|
|
In May 2009, the Company amended the Special Purpose Share Option Scheme relating to the
exercise period.
|
|
|
|
No further options can be granted under the Special Purpose Share Option Scheme.
|
F-94
35.
|
|
EQUITY-SETTLED SHARE OPTION SCHEMES (Continued)
|
|
35.3
|
|
Special purpose Unicom share option scheme (the Special Purpose Share Option Scheme)
(Continued)
|
|
|
|
Details of share options granted and outstanding by China Netcom, immediately prior to the
merger between the Company and China Netcom (i.e. October 14, 2008) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the period from January 1, 2008 to
|
|
|
|
October 14, 2008
|
|
|
|
Average exercise
|
|
|
|
|
|
|
price
|
|
|
Number of share
|
|
|
|
in HKD per share
|
|
|
options involved
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of the year
|
|
|
10.32
|
|
|
|
150,844,560
|
|
Granted
|
|
|
|
|
|
|
|
|
Forfeited/cancelled
|
|
|
9.55
|
|
|
|
(139,620
|
)
|
Cancelled in exchange for the Companys options
|
|
|
10.30
|
|
|
|
(125,836,140
|
)
|
Exercised
|
|
|
10.45
|
|
|
|
(24,868,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-95
35.
|
|
EQUITY-SETTLED SHARE OPTION SCHEMES (Continued)
|
|
|
|
Details of share options of China Netcom exercised during the period from January 1, 2008
to October 14, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
closing price per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share at respective
|
|
|
|
|
|
|
|
|
|
|
|
|
|
days immediately
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before date of
|
|
|
|
|
|
|
|
|
|
Exercise price
|
|
|
exercise of options
|
|
|
Proceeds received
|
|
|
Number of
|
|
Grant
|
|
HKD
|
|
|
HKD
|
|
|
HKD
|
|
|
shares involved
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Grant
|
|
|
8.40
|
|
|
|
26.17
|
|
|
|
103,316,640
|
|
|
|
12,299,600
|
|
Second Grant
|
|
|
12.45
|
|
|
|
25.46
|
|
|
|
156,486,540
|
|
|
|
12,569,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259,803,180
|
|
|
|
24,868,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Group accounted for the exchange of options based on the estimated fair value of
share options at the modification date by using the Black-Scholes valuation model. Because
the Black-Scholes valuation model requires the input of subjective assumptions, including
the volatility of share price, change in subjective input assumptions can materially
affect the fair value estimate. Accordingly, the weighted average fair values of 2004 and
2005 Special Purpose Share Options granted under the Special Purpose Share Option Scheme
was HKD6.01 and HKD4.00, respectively. The significant assumptions used and the numbers of
options granted are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
|
Special Purpose
|
|
|
Special Purpose
|
|
|
|
Share Option
|
|
|
Share Option
|
|
Stock price
|
|
HKD11.60
|
|
|
HKD11.60
|
|
Exercise price
|
|
HKD5.57
|
|
|
HKD8.26
|
|
Volatility
|
|
|
55
|
%
|
|
|
49
|
%
|
Dividend yield
|
|
|
2
|
%
|
|
|
2
|
%
|
Risk-free rate
|
|
|
0.24-1.06
|
%
|
|
|
0.28-1.54
|
%
|
Expected life
|
|
0.30-1.09 years
|
|
|
0.32-2.32 years
|
|
Weighted average option value
|
|
HKD6.01
|
|
|
HKD4.00
|
|
Number of options granted
|
|
|
100,831,432
|
|
|
|
88,929,468
|
|
|
|
|
The volatility measured at the standard deviation of expected share price returns was
based on statistical analysis of daily share prices over the last 2 to 3 years. Expected
dividends were based on historical dividends. Risk-free rate was by reference to the yield
of Hong Kong Exchange Fund Notes with a term similar to the expected option life.
|
|
|
|
|
The total incremental fair value of the exchanged options was determined to be RMB21
million which was measured by reference to the incremental fair value of the options
granted under the Special Purpose Share Option Scheme as of October 15, 2008 (the
modification date) over the fair value of China Netcom options as of October 15, 2008. For
the year ended December 31, 2010, share-based compensation expense of approximately RMB2
million (2008: approximately RMB9 million; 2009: approximately RMB10 million) was recorded
by the Group as a result of this modification.
|
F-96
35.
|
|
EQUITY-SETTLED SHARE OPTION SCHEMES (Continued)
|
|
35.4
|
|
Share option information
|
|
|
|
Movements in the number of share options outstanding and their related weighted average
exercise prices are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
exercise
|
|
|
|
|
|
|
exercise
|
|
|
Number of
|
|
|
exercise
|
|
|
|
|
|
|
price
|
|
|
Number of
|
|
|
price
|
|
|
share
|
|
|
price
|
|
|
Number of
|
|
|
|
in HKD
|
|
|
share options
|
|
|
in HKD
|
|
|
options
|
|
|
in HKD
|
|
|
share options
|
|
|
|
per share
|
|
|
involved
|
|
|
per share
|
|
|
involved
|
|
|
per share
|
|
|
involved
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
7.12
|
|
|
|
257,279,600
|
|
|
|
6.95
|
|
|
|
413,074,166
|
|
|
|
6.95
|
|
|
|
413,074,166
|
|
Granted
|
|
|
6.83
|
|
|
|
189,760,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/lapsed
|
|
|
6.37
|
|
|
|
(2,720,334
|
)
|
|
|
|
|
|
|
|
|
|
|
15.42
|
|
|
|
(16,977,600
|
)
|
Exercised
|
|
|
7.62
|
|
|
|
(31,246,000
|
)
|
|
|
|
|
|
|
|
|
|
|
5.57
|
|
|
|
(84,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
6.95
|
|
|
|
413,074,166
|
|
|
|
6.95
|
|
|
|
413,074,166
|
|
|
|
6.59
|
|
|
|
396,012,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
7.14
|
|
|
|
245,359,027
|
|
|
|
6.88
|
|
|
|
390,841,799
|
|
|
|
6.59
|
|
|
|
396,012,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of share options during the year ended December 31, 2010 resulted in 84,448
shares being issued (2008: 31,246,000 shares; 2009: nil), with exercise proceeds of
approximately RMB0.41 million (2008: approximately RMB216 million; 2009: nil).
|
F-97
35.
|
|
EQUITY-SETTLED SHARE OPTION SCHEME (Continued)
|
|
35.4
|
|
Share option information (Continued)
|
|
|
|
As of balance sheet date, information of outstanding share options is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The price
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
per share to
|
|
share options
|
|
|
share options
|
|
|
|
|
|
|
|
be paid on
|
|
outstanding as
|
|
|
outstanding as
|
|
|
|
|
|
Exercisable period
|
|
exercise of
|
|
of December
|
|
|
of December
|
|
Date of options grant
|
|
Vesting period
|
|
(Note i)
|
|
options
|
|
31, 2009
|
|
|
31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share options granted under the Pre-Global Offering Share Option Scheme (Note iii):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 22, 2000
|
|
June 22, 2000 to
June 21, 2002
|
|
June 22, 2002 to
June 21, 2010
|
|
HKD15.42
|
|
|
16,977,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share options granted under the Share Option Scheme (Note ii):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2001
|
|
June 30, 2001
|
|
June 30, 2001 to
June 22, 2011
|
|
HKD15.42
|
|
|
4,350,000
|
|
|
|
4,350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 21, 2003
|
|
May 21, 2003 to
May 21, 2006
|
|
May 21, 2004 to
May 20, 2011
|
|
HKD4.30
|
|
|
8,956,000
|
|
|
|
8,956,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 20, 2004
|
|
July 20, 2004 to
July 20, 2007
|
|
July 20, 2005 to
July 19, 2011
|
|
HKD5.92
|
|
|
41,024,000
|
|
|
|
41,024,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 21, 2004
|
|
December 21, 2004 to
December 21, 2007
|
|
December 21, 2005 to
December 20, 2011
|
|
HKD6.20
|
|
|
654,000
|
|
|
|
654,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 15, 2006
|
|
February 15, 2006 to
February 15, 2009
|
|
February 15, 2008 to
February 14, 2012
|
|
HKD6.35
|
|
|
151,556,000
|
|
|
|
151,556,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share options granted under the Special Purpose Share Option Scheme (Note ii):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 15, 2008
(2004 Special
Purpose Share
Options)
|
|
October 15, 2008 to
May 17, 2009
|
|
October 15, 2008 to
November 16, 2011
|
|
HKD5.57
|
|
|
100,627,098
|
|
|
|
100,542,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 15, 2008
(2005 Special
Purpose Share
Options)
|
|
October 15, 2008 to
December 6, 2010
|
|
October 15, 2008 to
December 5, 2011
|
|
HKD8.26
|
|
|
88,929,468
|
|
|
|
88,929,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
413,074,166
|
|
|
|
396,012,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The options outstanding as of December 31, 2010 had a weighted average remaining
contractual life of 0.93 years (2009: 1.50 years).
|
F-98
35.
|
|
EQUITY-SETTLED SHARE OPTION SCHEME (Continued)
|
|
35.4
|
|
Share option information (Continued)
|
|
|
|
Note i:
|
|
In 2009, the exercise periods of approximately 25,000,000 share options were
extended by one year by the Board of Directors pursuant to the terms of each of the
Pre-Global Offering Share Option Scheme and the Share Option Scheme. The reasons for such
extension were that (i) the holders of those share options were determined by the Board of
Directors as Transferred Personnel under the respective terms of the Pre-Global Offering
Share Option Scheme and the Share Option Scheme due to the transfers of those option
holders to other telecommunications operators as part of the 2008 industry restructuring,
and (ii) those share options were not exercisable due to a Mandatory Moratorium under the
respective terms of each of the Pre-Global Offering Share Option Scheme and the Share
Option Scheme. Due to the Mandatory Moratorium continuing to be in force, the
Board of Directors further extended the exercise periods of certain share options by one
year in each of March 2010 and March 2011 under the respective terms of the Share Option
Scheme. As of December 31, 2010, approximately 23,600,000 share options held by Transferred
Personnel remained valid.
|
|
|
|
Note ii:
|
|
In each of March 2010 and March 2011, the expiry dates for certain share options
were extended by one year by the Board of Directors pursuant to the terms of each of the
Share Option Scheme and the Special Purpose Share Option Scheme, because those share
options were not exercisable due to a Mandatory Moratorium, which is still in effect,
under the respective terms of each of the Share Option Scheme and the Special Purpose Share
Option Scheme. The modifications did not expect to have significant impact on the
consolidated statement of income for the year ending December 31, 2011.
|
|
|
|
Note iii:
|
|
All share options remained outstanding on June 21, 2010 have been expired on the
same date.
|
F-99
35.
|
|
EQUITY-SETTLED SHARE OPTION SCHEME (Continued)
|
|
|
No option was exercised for the year ended December 31, 2009.
|
|
|
Details of share options exercised for the years ended December 31, 2008 and 2010 are as
follows:
|
|
|
For the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
closing price per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share at respective
|
|
|
|
|
|
|
|
|
|
|
|
|
|
days immediately
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before days of
|
|
|
|
|
|
|
|
|
|
Exercise price
|
|
|
exercise of options
|
|
|
Proceeds received
|
|
|
Number of
|
|
Grant date
|
|
HKD
|
|
|
HKD
|
|
|
HKD
|
|
|
shares involved
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 22, 2000
|
|
|
15.42
|
|
|
|
18.73
|
|
|
|
63,980,664
|
|
|
|
4,149,200
|
|
June 30, 2001
|
|
|
15.42
|
|
|
|
18.38
|
|
|
|
18,781,560
|
|
|
|
1,218,000
|
|
July 10, 2002
|
|
|
6.18
|
|
|
|
15.88
|
|
|
|
20,443,440
|
|
|
|
3,308,000
|
|
May 21, 2003
|
|
|
4.30
|
|
|
|
16.90
|
|
|
|
8,947,440
|
|
|
|
2,080,800
|
|
July 20, 2004
|
|
|
5.92
|
|
|
|
17.81
|
|
|
|
58,240,960
|
|
|
|
9,838,000
|
|
February 15, 2006
|
|
|
6.35
|
|
|
|
17.62
|
|
|
|
67,640,200
|
|
|
|
10,652,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238,034,264
|
|
|
|
31,246,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
closing price per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share at respective
|
|
|
|
|
|
|
|
|
|
|
|
|
|
days immediately
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before days of
|
|
|
|
|
|
|
|
|
|
Exercise price
|
|
|
exercise of options
|
|
|
Proceeds received
|
|
|
Number of
|
|
Grant date
|
|
HKD
|
|
|
HKD
|
|
|
HKD
|
|
|
shares involved
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 15, 2008
|
|
|
5.57
|
|
|
|
11.76
|
|
|
|
470,375
|
|
|
|
84,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
470,375
|
|
|
|
84,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2010, employee share-based compensation expense recorded
for continuing operations amounted to approximately RMB56 million (2008: approximately RMB84
million; 2009: approximately RMB27 million).
|
F-100
36
|
|
DISPOSAL GROUP AND DISCONTINUED OPERATIONS
|
|
|
On June 2, 2008 and July 27, 2008, the Company, CUCL and China Telecom entered into the
Framework Agreement and the Disposal Agreement, respectively, to sell the CDMA business to China
Telecom. The disposal was completed on October 1, 2008. The gain on disposal, net of
corresponding income tax of approximately RMB9.0 billion, amounted to approximately RMB26.1
billion.
|
|
|
The net assets of the CDMA business as of the effective date of disposal of the CDMA business
were as listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
Net assets disposed of:
|
|
Note
|
|
|
October 1, 2008
|
|
Cash and cash equivalents
|
|
|
(a)
|
|
|
|
4,612
|
|
Property, plant and equipment
|
|
|
|
|
|
|
2,997
|
|
Goodwill
|
|
|
|
|
|
|
373
|
|
Deferred tax assets
|
|
|
|
|
|
|
6
|
|
Other assets
|
|
|
|
|
|
|
3,958
|
|
Inventories
|
|
|
|
|
|
|
525
|
|
Accounts receivable, net
|
|
|
|
|
|
|
690
|
|
Prepayments and other current assets
|
|
|
|
|
|
|
808
|
|
Deferred revenue
|
|
|
|
|
|
|
(444
|
)
|
Accounts payable and accrued liabilities
|
|
|
|
|
|
|
(1,144
|
)
|
Advances from customers
|
|
|
|
|
|
|
(4,428
|
)
|
Non-controlling interests
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,948
|
|
|
Fair value of future service agreed in the Disposal Agreement
|
|
|
40.2(c)
|
|
|
|
517
|
|
Transaction cost and taxation
|
|
|
|
|
|
|
184
|
|
|
Income tax expense arising from the disposal of the CDMA
business
|
|
|
|
|
|
|
9,016
|
|
Gain on disposal of the CDMA business recognized in the
statement of income
|
|
|
|
|
|
|
26,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash consideration on disposal of the CDMA business
|
|
|
|
|
|
|
43,800
|
|
Less: Cash consideration receivable from disposal of the
CDMA business
|
|
|
|
|
|
|
(13,140
|
)
|
Cash and cash equivalents transferred
|
|
|
|
|
|
|
(1,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow
|
|
|
|
|
|
|
29,512
|
|
|
|
|
|
|
|
|
|
|
|
|
Note a:
|
|
The balance represents cash and cash equivalent of approximately RMB1,148 million
transferred and RMB3,464 million to be transferred to China Telecom in accordance with the
Disposal Agreement. For details, please refer to Note 40.2(c).
|
F-101
36
|
|
DISPOSAL GROUP AND DISCONTINUED OPERATIONS (Continued)
|
|
|
The results and cash flows
of the CDMA business for the period from January 1, 2008 to September 30, 2008 are
presented as discontinued operations as follows:
|
|
|
|
|
|
|
|
For the period from
|
|
|
|
January 1, 2008 to
|
|
|
|
September
|
|
|
|
30, 2008
|
|
Revenue
|
|
|
22,296
|
|
Expenses
|
|
|
(20,389
|
)
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before income tax
|
|
|
1,907
|
|
Income tax expenses
|
|
|
(469
|
)
|
|
|
|
|
|
|
|
|
|
Income for the period from discontinued operations
|
|
|
1,438
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal of discontinued operations before income tax
|
|
|
35,151
|
|
Income tax expenses
|
|
|
(9,016
|
)
|
|
|
|
|
|
|
|
|
|
Gain on disposal of discontinued operations after income tax
|
|
|
26,135
|
|
|
|
|
|
|
|
|
|
|
Income for the period from discontinued operations
|
|
|
27,573
|
|
|
|
|
|
F-102
36
|
|
DISPOSAL GROUP AND DISCONTINUED OPERATIONS (Continued)
|
|
|
Discontinued operations (Continued)
|
|
|
|
|
|
|
|
For the period
|
|
|
|
from
|
|
|
|
January 1, 2008
|
|
|
|
to September
|
|
|
|
30, 2008
|
|
|
|
|
|
|
Net cash inflow from operating activities
|
|
|
656
|
|
|
|
|
|
|
|
|
|
|
Net cash outflow from investing activities
|
|
|
(23
|
)
|
Cash inflow from disposal of discontinued operations
|
|
|
29,512
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow from investing activities
|
|
|
29,489
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow from discontinued operations
|
|
|
30,145
|
|
|
|
|
|
|
|
The net cash outflow of approximately RMB5,039 million for discontinued operations for the year
ended December 31, 2009 represents the income tax paid on the gain on disposal of the CDMA
business in 2008 and related professional service fees paid totaling RMB9,329 million, offset by
proceeds received of approximately RMB4,290 million from the disposal of the CDMA business.
|
|
|
In addition, for the year ended December 31, 2009, proceeds receivable from disposal of the CDMA
business of approximately RMB3,729 million was offset against payables in relation to disposal
of the CDMA business in accordance with a settlement agreement entered into in 2009.
|
|
|
For the year ended December 31, 2010, the Group received the proceeds of approximately RMB5,121
million from China Telecom in relation to disposal of the CDMA business.
|
F-103
|
|
At the annual general meeting held on May 26, 2009, the shareholders of the Company approved the
payment of a final dividend of RMB0.20 per ordinary share for the year ended December 31, 2008
totaling approximately RMB4,754 million which has been reflected as a reduction of retained
profits for the year ended December 31, 2009. As of December 31, 2009, such dividends have been
paid by the Company, except for dividends payable of approximately RMB307 million and RMB24
million due to Unicom BVI and Netcom BVI, respectively.
|
|
|
At the annual general meeting held on May 12, 2010, the shareholders of the Company approved the
payment of a final dividend of RMB0.16 per ordinary share for the year ended December 31, 2009
totaling approximately RMB3,770 million which has been reflected as a reduction of retained
profits for the year ended December 31, 2010. As of December 31, 2010, such dividends have been
paid by the Company, except for dividends payable of approximately RMB431 million due to Unicom
BVI.
|
|
|
At a meeting held on March 29, 2011, the Board of Directors of the Company proposed the payment
of a final dividend of RMB0.08 per ordinary share to the shareholders for the year ended
December 31, 2010 totaling approximately RMB1,885 million. This proposed dividend has not been
reflected as a dividend payable in the financial statements as of December 31, 2010, but will be
reflected as an appropriation of retained profits in the financial statements for the year
ending December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
Proposed final dividend:
|
|
|
|
|
|
|
|
|
|
|
|
|
RMB0.08 (2008: RMB0.20; 2009:RMB0.16) per
ordinary share by the Company
|
|
|
4,754
|
|
|
|
3,770
|
|
|
|
1,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
By the Company
|
|
|
2,732
|
|
|
|
4,754
|
|
|
|
3,770
|
|
By China Netcom (Note a)
|
|
|
3,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,231
|
|
|
|
4,754
|
|
|
|
3,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note a :
|
|
Since the 2008 Business Combination is accounted for as a business combination of
entities under common control, accordingly, the proposed final dividend and dividend paid
include the proposed final dividend and dividend paid by China Netcom as if it had always
been part of the Group.
|
|
|
Pursuant to the PRC enterprise income tax law, a 10% withholding income tax is levied on
dividends declared on or after January 1, 2008 by foreign investment enterprises to their
foreign enterprise shareholders unless the enterprise investor is deemed as a PRC Tax Resident
Enterprise (TRE). On November 11, 2010, the Company obtained an approval from State
Administration of Taxation, pursuant to which the Company qualifies as a PRC TRE from January
1, 2008. Therefore, as of December 31, 2010, the Companys subsidiaries in the PRC did not
accrue for withholding tax on dividends distributed to the Company and there has been no
deferred tax liability accrued in the Groups consolidated financial statements for the
undistributed income of the Companys subsidiaries in the PRC.
|
|
|
For the Companys non-TRE enterprise shareholders, the Company would distribute dividends after
deducting the amount of enterprise income tax payable by these non-TRE enterprise shareholders
thereon and reclassify the related dividend payable to withholding tax payable upon the
declaration of such dividends. The requirement to withhold tax does not apply to the Companys
shareholders appearing as individuals in its share register.
|
F-104
38.
|
|
EARNINGS PER SHARE AND ADS
|
|
|
Basic earnings per share for the years ended December 31, 2008, 2009 and 2010 were computed by
dividing the income attributable to owners of the parent by the weighted average number of
ordinary shares outstanding during the years, as adjusted by the number of ordinary shares in
issue had the merger with China Netcom been completed on January 1, 2008.
|
|
|
Diluted earnings per share for the years ended December 31, 2008, 2009 and 2010 were computed by
dividing the income attributable to owners of the parent by the weighted average number of
ordinary shares outstanding during the years, as adjusted by the number of ordinary shares in
issue had the merger with China Netcom been completed on January 1, 2008, after adjusting for
the effects of the dilutive potential ordinary shares. All potential ordinary shares for the
year ended December 31, 2010 arose from (i) share options granted under the amended Share Option
Scheme, (ii) share options granted under the amended Special Purpose Share Option Scheme, and
(iii) the convertible bonds, while all potential ordinary shares
for the years ended December 31,
2008 and 2009 arose from (i) share options granted under the amended Pre-Global Offering Share
Option Scheme; (ii) share options granted under the amended Share Option Scheme, (iii) share
options granted under the amended Special Purpose Share Option Scheme.
|
|
|
The potential ordinary shares which are not dilutive for the year ended December 31, 2010 arose
from (i) share options with exercise price of HKD15.42 granted under the amended Share Option
Scheme and (ii) the convertible bonds with initial conversion price of HKD15.85, while the
potential ordinary shares which are not dilutive for the years ended December 31, 2008 and 2009
arose from share options with exercise price of HKD15.42 granted under the amended Pre-Global
Offering Share Option Scheme and amended Share Option Scheme, which are excluded from the
weighted average number of ordinary shares for the purpose of computation of diluted earnings
per share.
|
F-105
38.
|
|
EARNINGS PER SHARE AND ADS (Continued)
|
|
|
The following table sets forth the computation of basic and diluted earnings per share and ADS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
Numerator (in RMB millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Income attributable to owners of the parent
|
|
|
|
|
|
|
|
|
|
|
|
|
- Continuing operations
|
|
|
2,231
|
|
|
|
9,556
|
|
|
|
3,851
|
|
- Discontinued operations
|
|
|
27,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,804
|
|
|
|
9,556
|
|
|
|
3,851
|
|
|
|
|
|
|
|
|
|
|
|
Denominator (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares
outstanding used in computing basic earnings per
share
|
|
|
23,751
|
|
|
|
23,767
|
|
|
|
23,562
|
|
Dilutive equivalent shares arising from share options
|
|
|
190
|
|
|
|
128
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted earnings per share
|
|
|
23,941
|
|
|
|
23,895
|
|
|
|
23,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (in RMB)
|
|
|
|
|
|
|
|
|
|
|
|
|
- Continuing operations
|
|
|
0.09
|
|
|
|
0.40
|
|
|
|
0.16
|
|
- Discontinued operations
|
|
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.25
|
|
|
|
0.40
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per ADS (in RMB)
|
|
|
|
|
|
|
|
|
|
|
|
|
- Continuing operations
|
|
|
0.94
|
|
|
|
4.02
|
|
|
|
1.63
|
|
- Discontinued operations
|
|
|
11.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.55
|
|
|
|
4.02
|
|
|
|
1.63
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share (in RMB)
|
|
|
|
|
|
|
|
|
|
|
|
|
- Continuing operations
|
|
|
0.09
|
|
|
|
0.40
|
|
|
|
0.16
|
|
- Discontinued operations
|
|
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.24
|
|
|
|
0.40
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per ADS (in RMB)
|
|
|
|
|
|
|
|
|
|
|
|
|
- Continuing operations
|
|
|
0.93
|
|
|
|
4.00
|
|
|
|
1.62
|
|
- Discontinued operations
|
|
|
11.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.45
|
|
|
|
4.00
|
|
|
|
1.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per ADS have been computed by multiplying the earnings per share
by 10, which is the number of shares represented by each ADS.
|
F-106
39.
|
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
|
|
Financial assets of the Group mainly include cash and cash equivalents, short-term bank
deposits, available-for-sale financial assets, accounts receivable, amounts due from related
parties and domestic carriers. Financial liabilities of the Group mainly include accounts
payable and accrued liabilities, short-term bank loans, commercial papers, corporate bonds,
promissory notes, long-term bank loans, convertible bonds, other obligations and amounts
due to ultimate holding company, related parties and domestic carriers.
|
|
|
Cash and cash equivalents, short-term bank deposits and available-for-sale financial assets
denominated in foreign currencies, as summarized below, have been translated to RMB at the
applicable rates prevailing as of December 31, 2009 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
Original
|
|
|
|
|
|
|
RMB
|
|
|
Original
|
|
|
|
|
|
|
RMB
|
|
|
|
currency
|
|
|
|
|
|
|
equivalent
|
|
|
currency
|
|
|
|
|
|
|
equivalent
|
|
|
|
millions
|
|
|
Exchange rate
|
|
|
millions
|
|
|
millions
|
|
|
Exchange rate
|
|
|
millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- denominated in HK dollars
|
|
|
324
|
|
|
|
0.88
|
|
|
|
285
|
|
|
|
462
|
|
|
|
0.85
|
|
|
|
393
|
|
- denominated in US dollars
|
|
|
86
|
|
|
|
6.83
|
|
|
|
585
|
|
|
|
1,761
|
|
|
|
6.62
|
|
|
|
11,661
|
|
- denominated in Euro
|
|
|
26
|
|
|
|
9.80
|
|
|
|
258
|
|
|
|
24
|
|
|
|
8.81
|
|
|
|
213
|
|
- denominated in Japanese Yen
|
|
|
14
|
|
|
|
0.07
|
|
|
|
1
|
|
|
|
12
|
|
|
|
0.08
|
|
|
|
1
|
|
- denominated in GBP
|
|
|
0.4
|
|
|
|
10.98
|
|
|
|
4
|
|
|
|
0.8
|
|
|
|
10.22
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
|
|
|
|
|
|
|
|
1,133
|
|
|
|
|
|
|
|
|
|
|
|
12,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bank deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- denominated in HK dollars
|
|
|
86
|
|
|
|
0.88
|
|
|
|
76
|
|
|
|
51
|
|
|
|
0.85
|
|
|
|
43
|
|
- denominated in US dollars
|
|
|
49
|
|
|
|
6.83
|
|
|
|
336
|
|
|
|
22
|
|
|
|
6.62
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
|
|
|
|
|
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- denominated in Euro
|
|
|
795
|
|
|
|
9.80
|
|
|
|
7,789
|
|
|
|
691
|
|
|
|
8.81
|
|
|
|
6,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
9,334
|
|
|
|
|
|
|
|
|
|
|
|
18,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-107
39.
|
|
FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
|
|
|
The Group did not have and does not believe it will have any difficulties in exchanging its
foreign currency cash into RMB. The carrying amounts of the Groups cash and cash equivalents,
short-term bank deposits, available-for-sale financial assets, other current financial assets
and liabilities approximated their fair values as of December 31, 2009 and 2010 due to the
nature or short maturity of those instruments.
|
|
|
The carrying amounts of receivables and payables which are all subject to normal trade credit
terms approximated their fair values as of the balance sheet date.
|
|
|
In connection with the fair
values of the Groups non-current portion of long-term bank loans,
promissory notes, corporate bonds and the convertible bonds, please refer to respective notes
for details.
|
F-108
40.
|
|
RELATED PARTY TRANSACTIONS
|
|
|
Unicom Group is a state-owned enterprise directly controlled by the PRC government. The PRC
government is the Companys ultimate controlling party. Neither Unicom Group nor the PRC
government publishes financial statements available for public use.
|
|
|
The PRC government controls a significant portion of the productive assets and entities in the
PRC. The Group provides telecommunications services as part of its retail transactions, thus, is
likely to have extensive transactions with the employees of other state-controlled entities,
including their key management personnel and their close family members. These transactions are
carried out on commercial terms that are consistently applied to all customers.
|
|
|
Management considers certain state-owned enterprises, which mainly include other
telecommunications service operators, have material transactions with the Group in its ordinary
course of business. These transactions are mainly carried out on terms comparable to
those conducted with third parties or standards promulgated by relevant government authorities
and have been reflected in the financial statements. The Groups telecommunications networks
depend, in large part, on interconnection with the networks and on transmission lines leased
from other domestic carriers. Management believes that meaningful information relating to
related party transactions has been disclosed below.
|
F-109
40.
|
|
RELATED PARTY TRANSACTIONS (Continued)
|
|
40.1
|
|
Transactions with Unicom Group and its subsidiaries
|
|
(a)
|
|
Recurring transactions
|
|
|
|
The following is a summary of significant recurring transactions carried out by the Group
with Unicom Group and its subsidiaries. In the directors opinion, these transactions were
carried out in the ordinary course of business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
Transactions with Unicom Group, Netcom Group
and their subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing fee of Telecommunications Networks
in Southern China
|
|
(ii)
|
|
|
|
|
|
|
2,000
|
|
|
|
2,200
|
|
Charges for mobile subscriber value-added
service
|
|
(i), (iii)
|
|
|
153
|
|
|
|
122
|
|
|
|
103
|
|
Rental charges for premises, equipment and
facilities
|
|
(i), (iv)
|
|
|
678
|
|
|
|
820
|
|
|
|
867
|
|
Charges for the international gateway services
|
|
(i), (v)
|
|
|
7
|
|
|
|
5
|
|
|
|
2
|
|
Agency fee incurred for procurement of
telecommunications equipment
|
|
(i), (vi)
|
|
|
21
|
|
|
|
12
|
|
|
|
|
|
Charge for engineering and information
technology-related services
|
|
(i), (vii)
|
|
|
2,603
|
|
|
|
2,786
|
|
|
|
2,248
|
|
Common corporate services income
|
|
(viii)
|
|
|
140
|
|
|
|
3
|
|
|
|
3
|
|
Charges for common corporate services
|
|
(viii)
|
|
|
563
|
|
|
|
266
|
|
|
|
308
|
|
Charges for purchases of materials
|
|
(ix)
|
|
|
516
|
|
|
|
375
|
|
|
|
382
|
|
Charges for ancillary telecommunications
support services
|
|
(x)
|
|
|
558
|
|
|
|
689
|
|
|
|
953
|
|
Charges for support services
|
|
(xi)
|
|
|
461
|
|
|
|
273
|
|
|
|
162
|
|
Charges for lease of telecommunications
facilities
|
|
(xii)
|
|
|
306
|
|
|
|
148
|
|
|
|
149
|
|
Income from information communication
technologies services
|
|
(i), (xiii)
|
|
|
118
|
|
|
|
70
|
|
|
|
8
|
|
Interest expenses for long-term loans due to
ultimate holding company
|
|
40.1(c)
|
|
|
1,016
|
|
|
|
|
|
|
|
|
|
F-110
40.
|
|
RELATED PARTY TRANSACTIONS (Continued)
|
|
40.1
|
|
Transactions with Unicom Group and its subsidiaries (Continued)
|
|
(a)
|
|
Recurring transactions (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
Transactions with Unicom Group, Netcom
Group and their subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges for mobile subscriber value-added
services
|
|
(i), (iii)
|
|
|
46
|
|
|
|
|
|
|
|
|
|
CDMA network capacity lease rental charges
|
|
(xiv)
|
|
|
6,009
|
|
|
|
|
|
|
|
|
|
Constructed capacity related cost of the
CDMA network
|
|
(xv)
|
|
|
234
|
|
|
|
|
|
|
|
|
|
F-111
40.
|
|
RELATED PARTY TRANSACTIONS (Continued)
|
|
40.1
|
|
Transactions with Unicom Group and its subsidiaries (Continued)
|
|
(a)
|
|
Recurring transactions (Continued)
|
|
(i)
|
|
On October 26, 2006, CUCL entered into a new agreement 2006
Comprehensive Services Agreement to continue to carry out related party
transactions. The new agreement was approved by the independent shareholders of
the Company on December 1, 2006, and become effective from January 1, 2007.
|
|
|
|
|
Pursuant to the ordinary resolution passed at the extraordinary general meeting
held on September 16, 2008, the independent shareholders of the Company
approved the amendment of the 2006 Comprehensive Services Agreement with effect
from October 15, 2008 to include CNC China as a party (the Second 2006
Comprehensive Services Agreement).
|
|
|
|
|
Also, the independent shareholders of the Company approved the following
agreements:
|
|
|
|
Framework Agreement for Engineering and
Information Technology Services dated August 12, 2008
|
|
|
|
|
Engineering and Information Technology Services
Agreement 2008-2010
|
|
|
|
|
Domestic Interconnection Settlement Agreement
2008-2010
|
|
|
|
|
International Long Distance Voice Services
Settlement Agreement 2008-2010
|
|
|
|
|
Framework Agreement for Interconnection
Settlement dated August 12, 2008
|
|
(ii)
|
|
On December 16, 2008, CUCL, Unicom Group, Netcom Group and Unicom
New Horizon entered into the Network Lease Agreement in relation to the Lease of
the Telecommunications Networks in Southern China by CUCL from Unicom New
Horizon on an exclusive basis immediately following and subject to the
completion of the 2009 Business Combination. Under the Network Lease Agreement,
CUCL shall pay annual leasing fees of RMB2.0 billion and RMB2.2 billion for the
years ended December 31, 2009 and 2010, respectively. The Lease became effective
in January 2009.
|
F-112
40.
|
|
RELATED PARTY TRANSACTIONS (Continued)
|
|
40.1
|
|
Transactions with Unicom Group and its subsidiaries (Continued)
|
|
(a)
|
|
Recurring transactions (Continued)
|
|
(iii)
|
|
Pursuant to 2006 Comprehensive Services Agreement and the Second
2006 Comprehensive Services Agreement, UNISK (Beijing) Information Technology
Corporation Limited (UNISK) and Unicom NewSpace Corporation Limited (Unicom
NewSpace) agreed to provide the mobile subscribers of CUCL with various types of
value-added services through its cellular communication network and data platform.
The Group retains a portion of the revenue generated from the value-added services
provided to the Groups subscribers (and actually received by the Group) and
allocates a portion of such fees to UNISK and Unicom NewSpace for settlement, on
the condition that such proportion allocated to UNISK and Unicom NewSpace does not
exceed the average proportion allocated to independent value-added
telecommunications content providers who provide value-added telecommunications
content to the Group in the same region. The percentage of revenue to be allocated
to UNISK and Unicom NewSpace by the Group varies depending on the types of
value-added service provided to the Group.
|
|
|
(iv)
|
|
Pursuant to 2006 Comprehensive Services Agreement and the Second 2006
Comprehensive Services Agreement, CUCL and Unicom Group agreed to mutually lease
premises, equipment and facilities from each other. Rentals are based on the lower
of depreciation costs and market rates.
|
|
|
(v)
|
|
Pursuant to 2006 Comprehensive Services Agreement and the Second 2006
Comprehensive Services Agreement, charges for international gateway services
represent the amounts paid or payable to Unicom Group for international gateway
services provided for the Groups international long distance networks. The charge
for this service is based on the cost of operation and maintenance of the
international gateway facilities incurred by Unicom Group, including depreciation,
together with a margin of 10% over cost.
|
|
|
(vi)
|
|
Pursuant to 2006 Comprehensive Services Agreement and the Second 2006
Comprehensive Services Agreement, Unicom Import and Export Company Limited
(Unicom I/E Co) agreed to provide equipment procurement services to the Group.
Unicom I/E Co. charges the Group 0.55% (for contracts up to an amount of USD30
million (inclusive)) and 0.35% (for contracts with an amount of more than USD30
million) of the value of imported equipment, and 0.25% (for contracts up to an
amount of RMB200 million (inclusive)) and 0.15% (for contracts with an amount of
more than RMB200 million) of the value of domestic equipment for such services.
|
F-113
40.
|
|
RELATED PARTY TRANSACTIONS (Continued)
|
|
40.1
|
|
Transactions with Unicom Group and its subsidiaries (Continued)
|
|
(a)
|
|
Recurring transactions (Continued)
|
|
(vii)
|
|
Pursuant to the Framework Agreement for Engineering and Information
Technology Services dated August 12, 2008 and Engineering and Information
Technology Services Agreement 2008-2010 entered between CUCL and Unicom Group, the
charges payable by CUCL for the above services are determined with reference to
market rates and are settled when the relevant services are provided.
|
|
|
(viii)
|
|
Pursuant to Master Sharing Agreement 2008-2010 entered between CUCL and Unicom
Group, expenses associated with common corporate services is allocated between CUCL
and Unicom Group based on total assets as appropriate.
|
|
|
(ix)
|
|
Pursuant to Materials Procurement Agreement 2008-2010 entered between
CUCL and Unicom Group, the charges payable by CUCL to Unicom Group are based on
market rates or cost-plus basis.
|
|
|
(x)
|
|
Pursuant to the Framework Agreement for Ancillary Telecommunications
Services dated August 12, 2008 and Ancillary Telecommunications Services Agreement
2008-2010 entered between CUCL and Unicom Group, Unicom Group agreed to provide
services including certain telecommunications pre-sale, on-sale and after-sale
services, certain sales agency services, the printing and delivery of invoice
services, the maintenance of certain air-conditioning, fire alarm equipment and
telephone booths and other customer services. The charges are based on market rates
and are settled as and when the relevant services are provided.
|
|
|
(xi)
|
|
Pursuant to the Framework Agreement for Support Services dated August
12, 2008 and Support Services Agreement 2008-2010 entered between CUCL and Unicom
Group, Unicom Group agreed to provide services including equipment leasing
services, motor vehicles services, safety and security services, conference
services, basic construction agency services, equipment maintenance services,
employee training services, advertising services, printing services and other
support services. The charges are based on market rates and are settled as and when
the relevant services are provided.
|
|
|
(xii)
|
|
Pursuant to the Framework Agreement for Telecommunications Facilities
Leasing dated August 12, 2008 and Telecommunications Facilities Leasing Agreement
2008-2010 entered between CUCL and Unicom Group, CUCL agreed to lease the
international telecommunications facilities and inter-provincial transmission optic
fibers from Unicom Group. The lease payment is based on the depreciation charge of
the leased assets.
|
F-114
40.
|
|
RELATED PARTY TRANSACTIONS (Continued)
|
|
40.1
|
|
Transactions with Unicom Group and its subsidiaries (Continued)
|
|
(a)
|
|
Recurring transactions (Continued)
|
|
(xiii)
|
|
Pursuant to Information and Communications Technology Agreement 2008-2010 entered
between System Integration Corporation and Unicom Group, System Integration
Corporation, agreed to provide information communications technology services to
Unicom Group and also to subcontract services ancillary to the provision of
information communications technology services, namely, the system installation and
configuration services, to the subsidiaries and branches of Unicom Group in Unicom
Groups southern service region in the PRC. The charges payable by Unicom Group are
based on market value.
|
|
|
(xiv)
|
|
On October 26, 2006, CUCL entered into the new agreement 2006 CDMA
Lease Agreement with Unicom Group and Unicom New Horizon to continue to lease the
CDMA networks. The new agreement was approved by the independent shareholders of
the Company on December 1, 2006, and became effective from January 1, 2007.
The Group accounted for the lease of the CDMA networks as an
operating lease.
As
disclosed in the announcement dated July 28, 2008, the Company, CUCL and China
Telecom agreed on the CDMA business disposal and the Company agreed to waive the
CDMA network purchase option and terminate the 2006 CDMA Lease Agreement, in each
case with effect from the completion of the CDMA business disposal. During the
Companys extraordinary general meeting of shareholders held on September 16, 2008,
the Companys independent shareholders approved the waiver of the CDMA network
purchase option and the termination of the 2006 CDMA Lease Agreement. Upon the
completion of the CDMA business disposal on October 1, 2008, the 2006 CDMA Lease
Agreement was terminated.
|
|
|
(xv)
|
|
Pursuant to 2006 CDMA Lease Agreement, the constructed capacity related
costs in connection with the CDMA network capacity used by the Group, including the
rentals for the exchange centers and the base stations, water and electricity
charges, heating charges and fuel charges for the relevant equipment etc., as well
as the maintenance costs of a non-capital nature, are charged to the Group. The
proportion of the constructed capacity related costs to be borne by the Group is
calculated on a monthly basis by reference to the actual number of cumulative CDMA
subscribers of the Group at the end of the month prior to the occurrence of the
costs divided by 90%, as a percentage of the total capacity available on the CDMA
network.
|
|
|
(xvi)
|
|
Unicom Group is the registered proprietor of the Unicom trademark in
English and the trademark bearing the Unicom logo, which are registered at the
PRC State Trademark Bureau. Pursuant to an exclusive PRC trademark licence
agreement between Unicom Group and the Group, the Group has been granted the right
to use these trademarks on a royalty free and periodic renewal basis.
|
F-115
40.
|
|
RELATED PARTY TRANSACTIONS (Continued)
|
|
40.1
|
|
Transactions with Unicom Group and its subsidiaries (Continued)
|
|
(b)
|
|
None-recurring transaction
|
|
|
|
|
In January 2009, CUCL completed the acquisitions of the Target Business and the
Target Assets from Unicom Group and Netcom Group while in 2008, the Company completed
the merger with China Netcom by way of a scheme of arrangement. For details, please
refer to Note 1.
|
|
|
(c)
|
|
Amounts due from and to related parties/Unicom Group and its subsidiaries
|
|
|
|
|
Amounts due to related parties as of December 31, 2010 included an unsecured
short-term loan from Netcom BVI of approximately HKD2,390 million
(equivalent to RMB2,033 million) (2009: HKD2,390 million
(equivalent to RMB2,104 million)) obtained for the purpose of payment of the 2008
final dividend of the Company. The loan carries an interest rate of six-month HIBOR
plus 0.8% per annum and is repayable on June 16, 2010. The loan was
extended for another one year on June 12, 2010 and is repayable on June 16, 2011 with
an interest rate of HIBOR plus 0.8% per annum.
|
|
|
|
|
Long-term loans due to ultimate holding company primarily represented the long-term
intercompany loans for the financing of the construction of the Telecommunications
Networks in Southern China, amounting to approximately RMB35,652 million as of
December 31, 2008. The loans are unsecured, interest bearing, and repayable on demand
after the period of twelve months from the balance sheet date as of December 31,
2008. The interest expenses in relation to the long-term loans due to ultimate
holding company were calculated based on the interest rate of 5.40% per annum for the
years ended December 31, 2008. Upon the completion of the 2009 Business Combination
effective from January 2009, the long-term loans have been treated as a distribution
from reserves by the Group to ultimate holding company. For details, please refer to
note 4.2(b).
|
|
|
|
|
Apart from the short-term loan from Netcom BVI and long-term loans due to ultimate
holding company as aforementioned, amounts due from and to related parties, Unicom
Group, and its subsidiaries are unsecured, interest-free, repayable on demand/on
contract terms and arise in the ordinary course of business in respect of
transactions with related parties/Unicom Group and its subsidiaries as described in
(a) and (b) above.
|
F-116
40.
|
|
RELATED PARTY TRANSACTIONS (Continued)
|
|
40.1
|
|
Transactions with Unicom Group and its subsidiaries (Continued)
|
|
(d)
|
|
Renewal of continuing connected transactions in October 2010
|
|
|
|
|
The agreements governing the recurring related party transactions disclosed in (a)
above between the Group and Unicom Group and its subsidiaries were expired on
December 31, 2010. Accordingly, on October 29, 2010, CUCL entered into the new
agreements, 2011-2012 Network Lease Agreement with Unicom New Horizon, and 2011
Comprehensive Services Agreement with Unicom Group to renew certain continuing
connected transactions. Major changes of the key terms between the new agreements and
the previous agreements are set out as follows:
|
|
|
|
|
2011-2012 Network Lease Agreement
|
|
|
|
|
Pursuant to 2011-2012 Network Lease Agreement, the Lease has extended to another two
years effective from January 1, 2011 to December 31, 2012 and is renewable at the
option of CUCL with at least two months prior notice on the same terms and
conditions, except for the future lease fee which will remain subject to further
negotiations between the parties, taking into account, among others, the then
prevailing market conditions in Southern China. The annual fee payable by CUCL for
the Lease for the two years ending December 31, 2011 and 2012 is RMB2.4 billion and
RMB2.6 billion, respectively.
|
|
|
|
|
2011 Comprehensive Services Agreement
|
|
|
|
|
2011 Comprehensive Services Agreement has a term of three years commencing on January
1, 2011 and expiring on December 31, 2013, and the service fees payable shall be
calculated on the same basis as under previous agreements. In addition, as a result
of the 2009 Business Combination, certain connected transactions under previous
agreements are not regarded as related party transactions under 2011 Comprehensive
Services Agreement, but as inter-company transactions within the Group.
|
F-117
40.
|
|
RELATED PARTY TRANSACTIONS (Continued)
|
|
(a)
|
|
Significant recurring transactions with domestic carriers
|
|
|
|
|
The following is a summary of significant transactions with domestic carriers in the
ordinary course of business for the continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Group
|
|
|
|
Note
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Interconnection revenue
|
|
(i)
|
|
|
11,135
|
|
|
|
12,083
|
|
|
|
12,165
|
|
Interconnection charges
|
|
(i)
|
|
|
10,901
|
|
|
|
11,740
|
|
|
|
12,564
|
|
Leased line revenue
|
|
(ii)
|
|
|
608
|
|
|
|
433
|
|
|
|
346
|
|
Leased line charges
|
|
(ii)
|
|
|
252
|
|
|
|
102
|
|
|
|
113
|
|
Engineering design and technical service revenue
|
|
(iii)
|
|
|
197
|
|
|
|
287
|
|
|
|
208
|
|
(i)
|
|
The interconnection revenue and charges mainly represent the amounts due
from or to domestic carriers for telephone calls made between the Groups
networks and the networks of domestic carriers. The interconnection settlements
are calculated in accordance with interconnection agreements reached between the
branches of the Group and domestic carriers on a provincial basis. The terms of
these agreements are set in accordance with the standard settlement arrangement
stipulated by the MIIT.
|
|
(ii)
|
|
Leased line charges are paid or payable to domestic carriers by
the Group for the provision of transmission lines. At the same time, the Group
leases transmission lines to domestic carriers in return for leased line rental
income. The charges are calculated at a fixed charge per line, depending on the
number of lines being used by the Group and domestic carriers.
|
|
(iii)
|
|
Engineering design and technical service revenue mainly
represents the amounts due from domestic carriers for the provision of
engineering design and technical services based on their demands and
requirements. The prices are determined based on standards promulgated by the
relevant government authorities.
|
F-118
40.
|
|
RELATED PARTY TRANSACTIONS (Continued)
|
|
(b)
|
|
Amounts due from and to domestic carriers
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Amounts due from domestic carriers
|
|
|
|
|
|
|
|
|
- Receivables for interconnection
revenue, leased line revenue and
engineering design and technical
service revenue
|
|
|
1,205
|
|
|
|
1,296
|
|
|
|
|
|
|
|
|
|
|
- Less: Provision for doubtful debts
|
|
|
(71
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,134
|
|
|
|
1,261
|
|
|
|
|
|
|
|
|
Amounts due to domestic carriers
|
|
|
|
|
|
|
|
|
- Payables for interconnection
charges and leased lines charges
|
|
|
1,136
|
|
|
|
873
|
|
|
|
|
|
|
|
|
|
|
All amounts due from and to domestic carriers are unsecured, interest-free and
repayable within one year.
|
F-119
40.
|
|
RELATED PARTY TRANSACTIONS (Continued)
|
|
40.2
|
|
Domestic carriers (Continued)
|
|
(c)
|
|
Disposal of the Groups CDMA business to China Telecom
|
|
|
|
|
In 2008, the Company completed disposal of the CDMA business to China Telecom. For
details, please refer to Note 1 and Note 36.
|
|
|
|
|
Pursuant to the Disposal Agreement, the Group is committed to providing certain
supporting services to China Telecom at no consideration during the transitional
period. Such services include providing the use of certain telecommunications
equipment, properties and information technology services in certain regions. The
value of such services are estimated by the Group based on the costs of the
underlying equipment or properties plus a margin. A portion of the consideration for
disposal of the CDMA business equal to the estimated value of such services has been
deferred and will be recognized over the expected service period.
|
|
|
|
|
In addition, pursuant to the Disposal Agreement, upon the completion of the CDMA
business disposal, CUCL and China Telecom entered into agreements with respect to the
swapping and operation of certain jointly used network assets in accordance with the
terms set out in the Disposal Agreement. Based on the agreements, the Group concluded
that the swapping and operation of these jointly used network assets would not have a
significant impact on the consolidated financial statements.
|
|
|
|
|
As of December 31, 2009 and 2010, the balances due (to)/from China Telecom in
relation to disposal of the CDMA business are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Payables
|
|
|
|
|
|
|
|
|
- Advances from customers received on behalf of
China Telecom
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds receivable
|
|
|
5,121
|
|
|
|
|
|
|
|
|
|
|
|
|
F-120
41.
|
|
CONTINGENCIES AND COMMITMENTS
|
|
|
|
As of December 31, 2009 and 2010, the Group had capital commitments, mainly in relation
to the construction of telecommunications networks, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
Land and
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
buildings
|
|
|
Equipment
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized and contracted for
|
|
|
8,810
|
|
|
|
393
|
|
|
|
5,687
|
|
|
|
6,080
|
|
Authorized but not contracted for
|
|
|
4,030
|
|
|
|
180
|
|
|
|
2,123
|
|
|
|
2,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,840
|
|
|
|
573
|
|
|
|
7,810
|
|
|
|
8,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2010, no capital commitments were denominated in US
dollars.
|
F-121
41.
|
|
CONTINGENCIES AND COMMITMENTS (Continued)
|
|
41.2
|
|
Operating lease commitments
|
|
|
|
As of December 31, 2009 and 2010, the Group had total future aggregate minimum lease
payments under non-cancellable operating leases as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tele-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
networks in
|
|
|
|
|
|
|
|
|
|
|
Land and
|
|
|
|
|
|
|
Southern China
|
|
|
|
|
|
|
Total
|
|
|
buildings
|
|
|
Equipment
|
|
|
(Note 1(b))
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases expiring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- not later than one year
|
|
|
4,109
|
|
|
|
1,713
|
|
|
|
133
|
|
|
|
2,400
|
|
|
|
4,246
|
|
- later than one year
and not later than five
years
|
|
|
3,615
|
|
|
|
3,401
|
|
|
|
206
|
|
|
|
2,600
|
|
|
|
6,207
|
|
- later than five years
|
|
|
1,179
|
|
|
|
907
|
|
|
|
43
|
|
|
|
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,903
|
|
|
|
6,021
|
|
|
|
382
|
|
|
|
5,000
|
|
|
|
11,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41.3
|
|
Contingent liabilities
|
|
|
|
As aforementioned in Note 28, the tariffs for the services provided by the Group
are subject to regulations by various government authorities. In 2008, the NDRC
investigated the compliance with tariffs regulations of several branches of CUCL and CNC
China. Based on managements assessment and continuous discussions with MIIT and NDRC,
management considered that the Group complied with the regulations issued by the
relevant government authorities, and the likelihood of material future cash outflow as a
result of the investigation is remote. Accordingly, no provisions were recorded as of
December 31, 2009 and 2010.
|
|
|
|
The Company provides guarantee in favour of the convertible bondholders in respect
of the outstanding convertible bonds issued by Billion Express amounted to
USD1,838,800,000 as of December 31, 2010 (Note 22).
|
F-122
42.
|
|
EVENTS AFTER THE REPORTING PERIOD
|
|
|
|
After the reporting period, the Board of Directors proposed a final dividend for 2010. For
details, please refer to Note 37.
|
|
|
(b)
|
|
Agreement of additional investments between the Company and Telefónica
|
|
|
|
On January 23, 2011, the Company entered into a strategic agreement with Telefónica that:
(a) Telefónica would purchase ordinary shares of the Company for a consideration of USD500
million through acquisition from third parties; and (b) the Company would acquire from
Telefónica 21,827,499 ordinary shares of Telefónica held in treasury (Telefónica Treasury
Shares) for an aggregate purchase price of Euro374,559,882.84. On January 25, 2011, the
Company completed the purchase of Telefónica Treasury Shares in accordance with the
strategic agreement.
|
|
|
(c)
|
|
Issue of super and short-term commercial papers
|
|
|
|
On March 10, 2011, CUCL issued two tranches of super and short-term commercial papers in the
amount of RMB8 billion for each tranche. The paper has a maturity period of 180 days and
carries interests at 3.88% per annum.
|
F-123
|
|
The comparative figure has been reclassified to conform to current year presentation by
including Leasing fee for telecommunications networks in Southern China of RMB2.0 billion into
Networks, operations and support expenses in the consolidated statement of income for the year
ended December 31, 2009.
|
44.
|
|
APPROVAL OF FINANCIAL STATEMENTS
|
|
|
The financial statements were approved by the Board of Directors on May 24, 2011.
|
F-124