Design for Ch Telecom

China Telecom Corporation Limited
Annual Report
2009
Annual Report

31 Jinrong Street, Xicheng District, Beijing, PRC, 100140
www.chinatelecom-h.com

2009

This report is printed on environmentally friendly paper
HKEx Stock Code: 728 NYSE Stock Code: CHA

die cut die cut

contents
2 Corporate Information

3 Chairman’s Statement

5 Management Discussion and Analysis

7 Corporate Governance Report

14 Audit Committee Report

16 Director’s Report

29 Independent Auditors Report

31 Consolidated Income Statement

32 Consolidated Balance Sheet

34 Consolidated Statement of Changes in Equity

35 Consolidated Cash Flow Statement

37 Notes to the Consolidated Financial Statements

72 Financial Summary

73 Properties held for Investment

china telecom corporation limited annual report 2009

Chairman’s 06 07
Statement

2008 was a signature year for China Telecom.
We seized the opportunity brought about by the
restructuring of the telecommunications industry
For the past few years, being a wireline
and successfully completed the CDMA business
operator without a mobile license,
acquisition, accomplishing our long-awaited goal of
we actively tackled the severe market
full services integrated operations. In October 2008,
challenges. Benefi ting from the passion
we began the operation of CDMA mobile services,
of our people for excellence and their
followed by the launch of our mobile brand“ e surfi
dedication to strategic transformation, we
ng”. In December 2008, we launched our“ 189”
succeeded in maintaining the company’s
prefi x mobile number and established a brand new
robust fundamentals. Now we have obtained
image for China Telecom’s mobile service. In 2008,
a mobile license and started our full
we experienced the severe and unprecedented
services integrated operations. Our people’s
natural disasters of snowstorms and earthquakes.
long dream has fi nally come true! Their
Our management and all our people have devoted
determination to succeed and revitalise our
their full efforts towards the fi ght against the
business has nurtured in me a fi rm belief
disasters and the subsequent relief works, which
that China Telecom will be a legend again
demonstrated their high regards of responsibility as
as we advance our full services integrated
well as their tremendous contribution to the country
offering.
and its people. Benefi ting from our robust operating
fundamentals, the underlying results for the year
remained solid.

Wang Xiaochu Operating Results in 2008
Chairman and Chief Executive Officer
In 2008, the Company deepened strategic

HK$13.7 transformation with continuous rapid growth in
varioustransformation services, which effectively
million increase mitigated and offset the decline in the traditional
wireline voice services and enabled the Company to
maintain robust fundamentals. In 2008, the operating
revenues reached RMB186,801 million, out of which
the total revenue from the mobile service accounted

chairman’s statement china telecom corporation limited annual report 2009

08 09

A New Era of Full Services remarkable results. The rapid growth of the
BizNavigator” and “One Home” Integrated Operations non-voice services successfully maintained the
reached 2.53 and 23.93 million Company’s robust fundamentals. Our broadband
service has always been at the market leading
Deepening Strategic The Company was constantly innovating its business
position, laying a solid foundation for the promotion
Transformation and Laying a model and adjusting its business structure, while
of informatisation. Scale development of value-
Solid Foundation expanding the operational scale of its wireline non-
added services and integrated information services
voice services. Revenue from the wireline non-voice
In modern information society, there has been allowed us to satisfy the growing information
services reached RMB82,294 million, accounting for
rapid development and change in people’s needs of the society. The launch of mobile services
46.1% of the wireline revenue in 2008, an increase
demand for information. Several years ago, we and obtaining of the 3G license provided us with
of 8.9 percentage points from last year. In order
already realised that with the accelerating national the new energy and momentum to prepare for
to support our integrated information services,
informatisation, social communications channels a new stage of integration of our wireline and
we continued to accelerate the development of
would quickly transform from traditional voice to mobile services. In 2008, the Company continued
broadband services. Broadband access revenue
integrated information services including voice, to advocate the“ Customer-focused Innovative
for the whole year of 2008 reached RMB40,243
data, video and etc. The comprehensive usage of Informatisation Strategy”..
million, a rise of 28.6% compared to last year
the Internet and the growing popularity of mobile
and contributed 5.0 percentage points of the
telecommunications services would soon become and obtaining of the 3G license provided us with Outlook for Future
Company’s overall revenue growth. We emphasised
the mainstream in the telecommunications market. the new energy and momentum to prepare for
on cultivating the development of direct information We also launched our new mobile service brand“ e
a new stage of integration of our wireline and
services such as“ Best Tone” services and devoted surfi ng” shortly after the acquisition of the CDMA
In order to adapt to such changes in advance and mobile services. In 2008, the Company continued
our efforts to its core services including information business. We established an image of“ Internet
to grasp the new growth opportunities, we were to advocate the“ Customer-focused Innovative
search, business traveling information and handsets” and focused on the customers’ demand
the fi rst one in the Chinese telecommunications Informatisation Strategy”. We put enormous
integrated media. Revenue from direct information for informatisation to rapidly expand into the mobile
sector to implement strategic transformation to efforts into our brand operation and customer
services including“ Best Tone” services for the service market. After a few months’ efforts, the
mitigate the substitution and cannibalisation of segmentation for differentiated customer service
whole year reached RMB4,787 million, an increase Company’s mobile service has shown favourable
wireline voice usage. We confi dently innovated our offering. Thus, the scale of our brand customers
of 44.6% from 2007. Our goal is to increase the growth momentum with a net increase of 2.72
business model, adjusted our business structure, as continued to expand. As at the end of 2008,
revenue from direct information services including million customers in the fi rst two months of 2009,
well as fi rmly executed our strategies and precision customers of“ BizNavigator” and“ One Home”
“ Best Tone” services to RMB10 billion level within a turnaround from the decline in subscribers after
management. After several years of execution and reached 2.53 million and 23.93 million, respectively.
two to three years. the acquisition of the CDMA business in the fourth
exploration, the Company’s strategic transformation In 2008, revenue from government and enterprises
quarter of last year.
achieved remarkable results. The rapid growth of customers increased by 10.9%, while revenue from
Corporate Social
the non-voice services successfully maintained the household customers increased by 2.9%. We also
Responsibility
Company’s robust fundamentals. Our broadband launched our new mobile service brand“ e surfi
service has always been at the market leading ng” shortly after the acquisition of the CDMA
position, laying a solid foundation for the promotion business. We established an image of“ Internet We confi dently innovated our business model,
of informatisation. Scale development of value- handsets” and focused on the customers’ demand adjusted our business structure, as well as fi rmly
added services and integrated information services for informatisation to rapidly expand into the mobile executed our strategies and precision management.
allowed us to satisfy the growing information service market. quarter of last year. The total After several years of execution and exploration,
Wang Xiaochu
needs of the society. The launch of mobile services number of mobile subscribers reached 30.63 million the Company’s strategic transformation achieved
Chairman and Chief Executive Officer
as at the end of February 2009. customers increased
by 10.9%, while revenue from household customers
Beijing, China
increased by 2.9%.
31 March 2008


010 011


012 013
Business
Review

Wireline Transformation
The following table sets out key operating data in 2005, 2006 and 2007:
Services

Depreciation and amortisation expense increased by wireline services
revenue
Unit 2006 2007 2008 Rate of Change 19.8% from HK$81.4 million in FY2006 to HK$97.5
RMB Millions
(2008-2007) million in FY2007. This increase was primarily due to
Local wireline access lines in service Million 210.09 223.04 220.33 (1.2%) increase in depreciation and amortisation as a result
Local voice usage Million 449,404 422,562 406,268 (3.9%) of recognising a full year’s operations of certain .6
% 178,652
+0
Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8% stores opened in last year and new stores openings 177,588

in current year under review. Depreciation and
International, Hong Kong, Macau 8% 65,963
amortisation expense as a percentage to revenue 4.
+2
and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%) 65,963
decreased by 1.0% in FY2007 primarily due to
Broadband subscribers Million 21.02 28.32 35.65 25.9% strong performance of revenue.
Volume of Inbound local calls Million minutes 102,670 124,452 135,447 8.8%
Caller ID service subscribers Million 131.46 145.73 146.74 0.7% 111,623
Operating Lease Rental Expense 111,623
SMS usage volume Million messages 17,254 23,277 23,346 0.3%
Operating lease rental expense increased by 14.1%
Colour Ring Tone subscribers Million 18.16 36.68 63.19 72.2% from HK$234.7 million in FY2006 to HK$267.7
million in FY2007, primarily due to the effect of 2008 2009
recognising a full year’s operations of certain stores
Wireline Non-Voice Revenue
opened in last year and new stores openings in
Wireline Voice Revenue
current year under review. Operating lease rental

Employee benefit expense increased by 14.4% expense as a percentage to revenue decreased by

from HK$128.8 million in FY2006 to HK$147.4 4.0% in FY2007 mainly as a result of operating

million in FY2007. This increase was primarily leverage of the expense.Other operating expenses broadband subscribers
due to increase in wages and salaries and other increased by 23.8% from HK$149.8 million in Millions

employment benefits as a result of recognising a full FY2006 to HK$185.5 million in FY2007. This

year’s operations of certain stores opened in last increase was primarily due to a HK$13.7 million
44.27
year and new stores openings in current year under increase in water and electricity expenses relating
8 %
review. Employee benefit expense as a percentage to primarily to the newly opened stores and the effect 4.
+2

revenue decreased by 2.2% in FY2007 primarily due of recognising a full year’s operations of certain 35.75

to improved operating efficiency. stores in current year, a HK$6.4 million increase in
promotion, advertising and related expenses. Other

Depreciation and amortisation expense increased by operating expenses as a percentage to revenue

19.8% from HK$81.4 million in FY2006 to HK$97.5 decreased by 1.1% in FY2007.

million in FY2007. This increase was primarily due to One Home — Integrated Communications and Information services
increase in depreciation and amortisation as a result for household customers
Gain on disposal of subsidiaries of HK$58.0 million
of recognising a full year’s operations of certain was primarily a result of the HK$31.9 million gain
stores opened in last year and new stores in FY2007 on disposal of Dalian Store on 1 July 2006 and
2008 2009
primarily due to strong performance of revenue. the remaining HK$26.1 million gain on disposal of
Wireline Non-Voice Revenue
subsidiaries mainly represented the gain on disposal
Wireline Voice Revenue
of Kunming Store and Ningbo Trendy Store to Solar


014 015


Directors, 016 017
Supervisors and
Senior Management
the Department of Economic Adjustment and Communication
Settlement of the Ministry of Information Industry “ MII”), Director
(
General, Deputy Director General and Director of the Department
of Finance of the MPT. She is also a Vice President of China
Telecommunications Corporation.

4. Mr. Zhang Jiping
1. Mr. Wang Xiaochu
Age 53, is an Executive Director and Executive Vice President
Age 51, is the Chairman of the Board of Directors and Chief
of the Company. Mr. Zhang is a professor-level senior
Executive Offi cer of the Company. Mr. Wang graduated from
engineer. He graduated from the Beijing University of Posts
Beijing Institute of Posts and Telecommunications in 1989 and
and Telecommunications with a bachelor degree in radio
received a doctorate degree in business administration from the
1. Mr. Wang Xiaochu telecommunications engineering in 1982, studied in a
Hong Kong Polytechnic University in 2005. Mr. Wang served as
postgraduate program in applied computer engineering at
Deputy Director General and Director General of the Hangzhou
Northeastern Industrial University from 1986 to 1988, and
Telecommunications Bureau in Zhejiang province, Director General
received a doctorate degree in business administration from the
of the Tianjin Posts and Telecommunications Administration,
Hong Kong Polytechnic University in 2004. Prior to joining China
Chairman and Chief Executive Offi cer of China Mobile (Hong
Telecommunications Corporation in May 2000, he served as
Kong) Limited, Vice President of China Mobile Communications
4. Mr. Zhang Jiping Deputy Director General of DGT of the MPT, a Deputy Director
Corporation, Chairman of the board of directors and a Non-
General and Director of the Telecommunication Technology Centre
Executive Director of China Communications Services Corporation
of the Posts and Telecommunications Administration of Liaoning
Limited. He is also the President of China Telecommunications
Province.
Corporation and Honorary Chairman of China Communications
Services Corporation Limited. He was responsible for the
5. Mr. Zhang Chenshuang
development of China Telecom’s telephone network management
systems and various other information technology projects. Age 57, is an Executive Director and Executive Vice President of
the Company. Mr. Zhang is a senior economist. He graduated
2. Mr. Shang Bing from the Party School of the Communist Party of China (CPC)
and received a MBA degree from the Hong Kong Polytechnic
Age 53, is an Executive Director, President and Chief Operating
2. Mr. Shang Bing
University. Mr. Zhang served as Executive Director and Vice
Offi cer of the Company. Mr. Shang is a senior economist. He
President of China Mobile Limited, Vice President of China
graduated in 1982 from Shenyang Chemical Industry Institution
Mobile Communications Corporation, Director of China Mobile
with a bachelor’s degree in chemical industry and received a
Communication Co., Ltd., the Assistant to the President of China
master’s degree in business administration from New York State
Mobile Communications Corporation, Director General of the
University in 2002. He received a doctorate degree in business
Inner Mongolia Posts and Telecommunications Administration
administration from the Hong Kong Polytechnic University in 5. Mr. Zhang Chenshuang
Bureau, Deputy Director General of the Offi ce of the Ministry of
2005. Mr. Shang served as a Director of Industrial Technology
Posts and Telecommunications. He is also a Vice President of China
Development Centre in Liaoning Province, a Deputy General
Telecommunications Corporation. .
Manager and General Manager of Economic and Technological
Development Company in Liaoning Province. Mr. Shang served as
6. Mr. Li Ping
a Deputy General Manager and General Manager of China United
Telecommunications Corporation “ Unicom Group”) Liaoning
( Age 55, is an Executive Vice President of the Company.
Branch, a Vice President of Unicom Group, a Director of Unicom Mr. Li graduated from the Beijing University of Posts and
Group, the President of Unicom Group and an Executive Director Telecommunications with a major in radio telecommunications in
and President of China Unicom Limited. 1976 and received an MBA degree from the State University of
New York at Buffalo, U.S.A. in 1989. He served as Chairman and
3. Madam Wu Andi President of China Telecom (Hong Kong) International Limited,
3. Madam Wu Andi Vice Chairman and Executive Vice President of China Mobile (Hong
Age 54, is an Executive Director, Executive Vice President and
Kong) Limited, Deputy Director General of the DGT of the MPT
the Chief Financial Offi cer of the Company. She is responsible
and Executive Director of China Telecom Corporation Limited. He
for the fi nancial management of the Company. Madam Wu is
is also Vice President of China Telecommunications Corporation,
a senior accountant. She graduated from the Beijing Institute
and Chairman of the board of directors and an Executive Director
of Economics with a bachelor degree in fi nance and trading 6. Mr. Li Ping
of China Communications Services Corporation Limited. Mr.
in 1983, and studied in a postgraduate program in business
Li has extensive experience in managing public companies
economics management at the Chinese Academy of Social Sciences
and 33 years of operational and managerial experience in the
from 1996 to 1998. Prior to joining China Telecommunications
telecommunications industry in China.
Corporation in May 2000, she served as Director General of


Corporate 018 019
Governance Report

Overall Structure of
Corporate Governance
A double-tier structure has been adopted as
the overall structure for corporate governance:
the Board and the SupervisoryCommittee are
The Company is dedicated to enhance corporate established under the Shareholders’ Meeting.
values and ensure long term sustainable The Board is authorised by the Articles of
development. Inheriting an excellent andprudent Association to make majordecisions in regard
management style, and insisting on practicing to the Company’s operations and to oversee
corporate governance with effi cient management the daily operations of the senior management.
and operations, theCompany strongly believes Audit Committee,Remuneration Committee
that sound corporate governance can ensure and Nomination Committee were established
management effectiveness, prosperous corporate under the Board. The Supervisory Committee
culture,successful business development and a The Annual General Meeting held in Hong Kong on
30 May 2008 is mainlyresponsible for the supervision of the
sustainable increase in shareholders’ value. In performance of duties by the Board and the senior
2008, the Company increasingly improvedthe daily management. Each of the Board ofDirectors and the
operations of the Board of Directors and its sub- of Corporate GovernanceAs a company incorporated The Company’s continuous efforts in corporate Supervisory Committee is independently accountable
committees, continued to perfect and optimise in the PRC, the Company adopts the PRC Company governance have gained wide recognition from to the Shareholders’ Meeting.
the Company’sorganisational structure, and put Law and other related laws and regulations as the capital market and received anumber of Pursuant to the Company’s strategic transformation
comprehensive risk management into operational thebasic guidelines for the Company’s corporate awards. The Company was accredited as the and centralised management requirements, the
practice, so as to continuously enhance itsstandard governance. As a company listed both in Hong “ Best Managed Company — China 2008” by Company was approved, at theshareholder meeting
of corporate governance and fi rmly protect the Kong and the United States, thecurrent Articles FinanceAsia. In addition, theCompany has been in February 2008, to merge with its twenty wholly-
interests of shareholders. of Association are in compliance with the Rules awarded the“ Asia’s Best Managed Fixed Telecom owned subsidiaries “ provincial subsidiaries”),
(
Governing the Listing of Securities on The Stock Company” by Euromoney for two consecutive years, such asShanghai Telecom Company Limited,
Overview of Corporate Exchange of HongKong Limited “ the Listing Rules”)
( “ TheCAPITAL Outstanding China Enterprise Awards by way of absorption and to establish twenty
Governance in Hong Kong and the regulatory requirements for — Telecommunications” by CAPITAL for three provincial branches to take over themanagement
Save for the roles of Chairman and Chief Executive non-US companies listed in the United States,and consecutive years. The Company’sannual report also and operation of the Company’s former provincial
Offi cer of the Company being performed by these rules serve as guidance for the Company to won the Gold Award in the category of“ Annual subsidiaries. In the second half of 2008, the
the same individual in the fi scal yearended improve its foundation of corporate governance. The Reports: Telecommunications” in the“ GALAXY Company merged withBeijing Telecom, which it
31 December 2008, the Company has been in Company has regularly 2008 Awards”. acquired earlier, by way of absorption. Beijing
compliance with all of the code provisions as set published responsibility statements relating to its branch was established to be responsible for the
out in Appendix 14“ Codeon Corporate Governance internal control in accordance with the US Sarbanes- operationof wireline and mobile telecommunication
Practices” of the Listing Rules. In the Company’s Oxley Act of 2002 and theregulatory requirements
opinion, through effective supervision of the Board of the U.S. Securities and Exchange Commission
andindependent non-executive directors, and with (SEC) and the New York Stock Exchange, to confi
the Company’s effective internal control mechanism, rm itscompliance with related fi nancial reporting,
the same individual performingthe roles of Chairman information disclosure and corporate internal
and Chief Executive Offi cer can achieve the goal controls requirements.
of improving the Company’s effi ciency in decision-
makingand executions, and effectively capture
business opportunities. Many international leading
1 2 3
corporations have a similar arrangement.Overview
1. China Telecom accredited with “The CAPITAL Outstanding China Enterprise Awards — Telecommunications” by CAPITAL for three consecutive years
2. China Telecom’s annual report awarded Gold Winner in “Galaxy Awards”
3. China Telecom’s corporate website accredited as the “Best Investor Relations Website in China” by IR Global Ranking


Corporate 020 021
Social Responsibility
Report
become practically benefi cial to townships and
villages. Capitalising on the service branches widely
distributed in the townships and villages, the
Company has introduced“ E-farm” services, which
integrates information resources that are related
As the main national integrated information services to construction in rural areas, such as technology,
provider with a long history of development and education and commerce, making use of voice, SMS,
extensive scope of business, the Company has telephone, radio and broadband networks to build
always adhered to its core philosophy of all-around up a“ Golden Bridge of Science and Technology” for
innovation, pursuit of truth and pragmatism, human the prosperity of rural areas. Responding proactively
resources as a foundation and joint creation of to the call from government, the Company has
values”, which provides returns to society, services formed partnerships with other manufacturers in
to clients, caring for employees and returns to the industry chain, such as mobile terminals and
shareholders as its top priority. The Company computer manufacturers. Under the full support
insists on scientifi c development and dedicates and active participation of the Company in the
itself to providing convenient, smooth and effi “ Home Appliance Goes to Countryside” project,
cient integrated information services to the society. people in rural areas are able to enjoy improved
While maintaining these stable and solid operations, strategy towards becoming an“ integrated living conditions, enhanced information technology
the Company remains responsible to all interested information services provider”. The Company, Assistance for Rural Development and living standards and other substantial benefi
parties concerned in order to achieve harmony through the integration and innovation of services, The Company has made great efforts in developing ts. Despite the negative impacts brought by the
between corporate development, society and the has expanded the channels for its customers communication in rural areas, improving global fi nancial crisis, the Company has assisted
environment. to obtain and exchange information, as well as their infrastructure, reducing and eliminating with socialist rural development by actively boosting
enhance the efficiency of information applications. information barriers and effectively promoting a domestic demand.
Facing the general public’s increasing demand for While helping promote the popularisation of coordinated economic and social development
widespread application of information technology, information technology and improve living between different regions, cities and townships. Participation in Public Welfare Activities
the Company has proposed a transformation standards, this has allowed the Company to achieve While meeting the basic requirements for voice With a strong sense of responsibility, the Company
sustainable and healthy development. communication services in rural areas, the has actively taken the lead in assuming its duties as
Company is devoted to the continuous and overall an excellent corporate citizen whilst accelerating its
China Telecom and Society enhancement of the standards of information self-development and promoting applications for
Business operations with integrity and in technology in rural areas. Taking the lead in information technology. In this regard, the Company
compliance with legal regulations establishing the notion of“ Broadband Goes to
Every Township, Information Technology Goes to
The Company has been a model for the compliance
Every Villager’s Home”, the Company has been
of laws and regulations, social morality, business
successful in building a platform and creating helping promote the popularisation of information
ethics and industry practices, making full tax
innovative programs for the informatisation of rural technology and improve living standards
payments in a timely manner. The Company also
areas. Through the implementation of a model
protects intellectual property rights, honors contract
information facility project,“ Serving Thousands
agreements and strictly abides by its commercial
of Townships and Villages”, the Company has
credit. Additionally, the Company opposes unfair
been the pioneer in incorporating information
competition and corruption in business activities. To
technology into construction in rural areas, allowing
understand and respond to public opinion through
the advancements of information technology to
different channels, the Company strives to increase
corporate transparency and establish an effective
and standardised communication mechanism.


Consolidated Statement 022 023
of Changes in Equity
(For the year ended 31 December 2007)

Unit 2006 2007 2008 Rate of Change
(2008-2007)
Local wireline access lines in service Million 210.09 223.04 220.33 (1.2%)

Other Operating Expenses Local voice usage Million 449,404 422,562 406,268 (3.9%)
Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8%
1. Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5
International, Hong Kong, Macau
million in FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of
recognising a full year’s operations of certain stores opened in last year and new stores openings in current and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%)
year under review. Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in Broadband subscribers Million 21.02 28.32 35.65 25.9%
FY2007 primarily due to strong performance of revenue. Operating lease rental expense increased by 14.1% Volume of Inbound local calls Million minutes 102,670 124,452 135,447 8.8%
from HK$234.7 million in FY2006 to HK$267.7 million in FY2007, primarily due to the effect of recognising a full Caller ID service subscribers Million 131.46 145.73 146.74 0.7%
year’s operations of certain stores opened in last year and new stores openings in current year under review. SMS usage volume Million messages 17,254 23,277 23,346 0.3%
Operating lease rental expense as a percentage to revenue decreased by 4.0% in FY2007 mainly as a result of
Colour Ring Tone subscribers Million 18.16 36.68 63.19 72.2%
operating leverage of the expense.
Local voice usage Million 449,404 422,562 406,268 (3.9%)
2. Other operating expenses increased by 23.8% from HK$149.8 million in FY2006 to HK$185.5 million in FY2007.
Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8%
This increase was primarily due to a HK$13.7 million increase in water and electricity expenses relating primarily
to the newly opened stores and the effect of recognising a full year’s operations of certain stores in current International, Hong Kong, Macau
year, a HK$6.4 million increase in promotion, advertising and related expenses. Other operating expenses as a and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%)
percentage to revenue decreased by 1.1% in FY2007Gain on disposal of subsidiaries of HK$58.0 million was Broadband subscribers Million 21.02 28.32 35.65 25.9%
primarily a result of the HK$31.9 million gain on disposal of Dalian Store on 1 July 2006 and the remaining Volume of Inbound local calls Million minutes 102,670 124,452 135,447 8.8%
HK$26.1 million gain on disposal of subsidiaries mainly represented the gain on disposal of Kunming Store and
Caller ID service subscribers Million 131.46 145.73 146.74 0.7%
Ningbo Trendy Store to Solar Leader Limited, a related company of the Group, on 1 January 2007.Employee
benefit expense increased by 14.4% from HK$128.8 million in FY2006 to HK$147.4 million in FY2007. This
increase was primarily due to increase in wages and salaries and other employment benefits as a result of
recognising a full year’s operations of certain stores opened in last year and new stores openings in current year Local wireline access lines in service Million 210.09 223.04 220.33 (1.2%)
under review. Employee benefit expense as a percentage to revenue decreased by 2.2% in FY2007 primarily due Local voice usage Million 449,404 422,562 406,268 (3.9%)
to improved operating efficiency. Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8%
Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5 million
and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%)
in FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of recognising
Broadband subscribers Million 21.02 28.32 35.65 25.9%
a full year’s operations of certain stores opened in last year and new stores openings in current year under review.
Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in FY2007 primarily due to
strong performance of revenue. Caller ID service subscribers Million 131.46 145.73 146.74 0.7%
Operating lease rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in
FY2007, primarily due to the effect of recognising a full year’s operations of certain stores opened in last year
and new stores openings in current year under review. Operating lease rental expense as a percentage to revenue
decreased by 4.0% in FY2007 mainly as a result of operating leverage of the expense.


Consolidated Statement 024 025
of Changes in Equity
(For the year ended 31 December 2007)

Other Operating Expenses
1. Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5
million in FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of
recognising a full year’s operations of certain stores opened in last year and new stores openings in current
year under review. Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in
Unit 2006 2007 2008 Rate of Change
FY2007 primarily due to strong performance of revenue. Operating lease rental expense increased by 14.1%
(2008-2007)
from HK$234.7 million in FY2006 to HK$267.7 million in FY2007, primarily due to the effect of recognising a full
year’s operations of certain stores opened in last year and new stores openings in current year under review.
Operating lease rental expense as a percentage to revenue decreased by 4.0% in FY2007 mainly as a result of
Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8% operating leverage of the expense.
and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%) 2. Other operating expenses increased by 23.8% from HK$149.8 million in FY2006 to HK$185.5 million in FY2007.
Broadband subscribers Million 21.02 28.32 35.65 25.9% This increase was primarily due to a HK$13.7 million increase in water and electricity expenses relating primarily
Volume of Inbound local calls Million minutes 102,670 124,452 135,447 8.8% to the newly opened stores and the effect of recognising a full year’s operations of certain stores in current
Caller ID service subscribers Million 131.46 145.73 146.74 0.7% year, a HK$6.4 million increase in promotion, advertising and related expenses. Other operating expenses as a
percentage to revenue decreased by 1.1% in FY2007Gain on disposal of subsidiaries of HK$58.0 million was
primarily a result of the HK$31.9 million gain on disposal of Dalian Store on 1 July 2006 and the remaining
HK$26.1 million gain on disposal of subsidiaries mainly represented the gain on disposal of Kunming Store and
Ningbo Trendy Store to Solar Leader Limited, a related company of the Group, on 1 January 2007.Employee
Local voice usage Million 449,404 422,562 406,268 (3.9%) benefit expense increased by 14.4% from HK$128.8 million in FY2006 to HK$147.4 million in FY2007. This
Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8% increase was primarily due to increase in wages and salaries and other employment benefits as a result of
International, Hong Kong, Macau recognising a full year’s operations of certain stores opened in last year and new stores openings in current year
and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%) under review. Employee benefit expense as a percentage to revenue decreased by 2.2% in FY2007 primarily due
to improved operating efficiency.
SMS usage volume Million messages 17,254 23,277 23,346 0.3% a full year’s operations of certain stores opened in last year and new stores openings in current year under review.
Colour Ring Tone subscribers Million 18.16 36.68 63.19 72.2% Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in FY2007 primarily due to
Local wireline access lines in service Million 210.09 223.04 220.33 (1.2%) strong performance of revenue.
Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8% Operating lease rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in

International, Hong Kong, Macau FY2007, primarily due to the effect of recognising a full year’s operations of certain stores opened in last year
and new stores openings in current year under review. Operating lease rental expense as a percentage to revenue
and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%)
decreased by 4.0% in FY2007 mainly as a result of operating leverage of the expense.
Depreciation and Amortisation
a full year’s operations of certain stores opened in last year and new stores openings in current year under review.
Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in FY2007 primarily due to
strong performance of revenue.

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