Edgar Filing: CHINA TELECOM CORP LTD

Form 20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F

¨	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

¨	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

Commission file number 1-31517

LOGO

(Exact Name of Registrant as Specified in Its Charter)

China Telecom Corporation Limited

(Translation of Registrant’s Name into English)

People’s Republic of China

(Jurisdiction of Incorporation or Organization)

31 Jinrong Street, Xicheng District

Beijing, People’s Republic of China 100033

(Address of Principal Executive Offices)

Mr. Xu Fei

China Telecom Corporation Limited

31 Jinrong Street, Xicheng District

Beijing, People’s Republic of China 100033

Email: xufei@chinatelecom.com.cn

Telephone: (+86-10) 5850 2281

Fax: (+86-10) 6601 0728

(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:

Title of Each Class

Name of Each Exchange On Which Registered

American depositary shares

H shares, par value RMB1.00 per share

New York Stock Exchange, Inc.

New York Stock Exchange, Inc.*

*	Not for trading, but only in connection with the listing on the New York Stock Exchange, Inc. of American depositary shares, each representing 100 H shares.

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 issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2015, 67,054,958,321 domestic shares and 13,877,410,000 H shares, par value RMB1.00 per share, were issued and outstanding. H shares are ordinary shares of the Company listed on The Stock Exchange of Hong Kong Limited.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

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 ¨ No x

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 ¨ No x

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):

Large Accelerated Filer x Accelerated Filer ¨ Non-Accelerated Filer ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.

U.S. GAAP ¨

International Financial Reporting Standards as issued by the International Accounting Standards Board x

Other ¨

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 ¨ Item 18 ¨

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 ¨ No x

CHINA TELECOM CORPORATION LIMITED

TABLE OF CONTENTS


			Page
PART I			- 2 -

	Item 1.	Identity of Directors, Senior Management and Advisers	- 2 -
	Item 2.	Offer Statistics and Expected Timetable	- 2 -
	Item 3.	Key Information	- 2 -
	Item 4.	Information on the Company	- 16 -
	Item 4A.	Unresolved Staff Comments	- 36 -
	Item 5.	Operating and Financial Review and Prospects	- 36 -
	Item 6.	Directors, Senior Management and Employees	- 49 -
	Item 7.	Major Shareholders and Related Party Transactions	- 57 -
	Item 8.	Financial Information	- 64 -
	Item 9.	The Offer and Listing	- 65 -
	Item 10.	Additional Information	- 65 -
	Item 11.	Quantitative and Qualitative Disclosures about Market Risk	- 75 -
	Item 12.	Description of Securities Other than Equity Securities	- 79 -

PART II			- 79 -

	Item 13.	Defaults, Dividend Arrearages and Delinquencies	- 79 -
	Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	- 79 -
	Item 15.	Controls and Procedures	- 80 -
	Item 16A.	Audit Committee Financial Expert	- 81 -
	Item 16B.	Code of Ethics	- 81 -
	Item 16C.	Principal Accountant Fees and Services	- 82 -
	Item 16D.	Exemptions from the Listing Standards for Audit Committees	- 82 -
	Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	- 82 -
	Item 16F.	Change in Registrant’s Certifying Accountant	- 82 -
	Item 16G.	Corporate Governance	- 82 -
	Item 16H.	Mine Safety Disclosure	- 82 -
	Item 17.	Financial Statements	- 83 -
	Item 18.	Financial Statements	- 83 -
	Item 19.	Exhibits	- 83 -

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, or the Exchange Act. These forward-looking statements are, by their nature, subject to significant risks and uncertainties, and include, without limitation, statements relating to:

•

our business and operating strategies and our ability to successfully execute these strategies;

•

our network expansion and capital expenditure plans;

•

our operations and business prospects;

•

the expected benefit of any acquisitions or other strategic transactions;

•

our financial condition and results of operations;

•

the expected impact of new services on our business, financial condition and results of operations;

•

the future prospects of and our ability to integrate acquired businesses and assets;

•

the industry regulatory environment as well as the industry outlook generally; and

•

future developments in the telecommunications industry in the People’s Republic of China, or the PRC.

The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” “will,” “would” and similar expressions, as they relate to us, are intended to identify a number of these forward-looking statements.

These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. We are under no obligation to update these forward-looking statements and do not intend to do so. Actual results may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth in “Item 3. Key Information—D. Risk Factors” and the following:

•

any changes in the regulations or policies of the Ministry of Industry and Information Technology (prior to March 2008, the Ministry of Information Industry, or the MII), or the MIIT, and other relevant government authorities relating to, among other matters:

•

the granting and approval of licenses;

•

tariff policies;

•

interconnection and settlement arrangements;

•

capital investment priorities;

•

the provision of telephone and other telecommunications services to rural areas in the PRC;

•

the convergence of television broadcast, telecommunications and Internet access networks, or three-network convergence; and

•

spectrum and numbering resources allocation;

•

the effects of competition on the demand for and price of our services;

•

any potential further restructuring or consolidation of the PRC telecommunications industry;

•

changes in the PRC telecommunications industry as a result of the issuance of the fourth generation mobile telecommunications, or 4G, licenses by the MIIT;

•

the development of new technologies and applications or services affecting the PRC telecommunications industry and our current and future business;

•

changes in political, economic, legal and social conditions in the PRC, including changes in the PRC government’s specific policies with respect to foreign investment in and entry by foreign companies into the PRC telecommunications industry, economic growth, inflation, foreign exchange and the availability of credit;

•

results and effects of any investigation by the relevant PRC regulatory authorities;

•

implementation of a value-added tax to replace the business tax in the PRC; and

•

the uncertainties involved in the operations and the future performance of the Tower Company.

CERTAIN DEFINITIONS AND CONVENTIONS

As used in this annual report, references to “us,” “we,” the “Company,” “our Company” and “China Telecom” are to China Telecom Corporation Limited and its consolidated subsidiaries except where we make clear that the term means China Telecom Corporation Limited or a particular subsidiary or business group only. References to matters relating to our H shares or American depositary shares, or ADSs, or matters of corporate governance are to the H shares, ADSs and corporate governance of China Telecom Corporation Limited. In respect of any time prior to our incorporation, references to “us,” “we” and “China Telecom” are to the telecommunications business in which our predecessors were engaged and which were subsequently assumed by us. All references to “China Telecom Group” are to China Telecommunications Corporation, our controlling shareholder. Unless the context otherwise requires, these references include all of its subsidiaries, including us and our subsidiaries. Unless otherwise indicated, references to and statements regarding China and the PRC in this annual report do not apply to Hong Kong Special Administrative Region, Macau Special Administrative Region or Taiwan.

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 table presents our selected financial data. The selected consolidated statements of financial position data as of December 31, 2014 and 2015, and the selected consolidated statements of comprehensive income (except for earnings per ADS) and consolidated cash flow data for the years ended December 31, 2013, 2014 and 2015, are derived from our audited consolidated financial statements included elsewhere in this annual report, and should be read in conjunction with those consolidated financial statements. The selected consolidated statements of financial position data as of December 31, 2011, 2012 and 2013 and the selected consolidated statements of comprehensive income (except for earnings per ADS) and consolidated cash flow data for the years ended December 31, 2011 and 2012 are derived from our consolidated financial statements which are not included in this annual report. Our consolidated financial statements are prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board.

The selected financial data reflect the acquisitions and divestment in 2012 and 2013, the establishment of new subsidiaries in 2014 and the tower assets disposal in 2015 described under “Item 4. Information on the Company—A. History and Development of the Company—Our Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities”, “—Changes in Our Corporate Organization in 2013”, “—Changes in Our Corporate Organization in 2014” and “Establishment of the Tower Company and the Disposal and Use of the Telecommunications Towers”.

On December 31, 2012, we purchased from China Telecom Group certain assets and associated liabilities relating to the CDMA network located in 30 provinces, municipalities and autonomous regions in the PRC for a total consideration of approximately RMB87,210.35 million, of which RMB25,500 million was paid in January 2013 and the balance will be payable at any time on or before the fifth anniversary of December 31, 2012, or the Mobile Network Acquisition. The Mobile Network Acquisition was recognized as an assets acquisition and the assets and associated liabilities acquired by the Company are stated at their respective purchase prices, including related tax expenses, on December 31, 2012.

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	As of or for the year ended December 31,
	2011 RMB			2012 RMB			2013 RMB			2014 RMB			2015 RMB			2015 US$
	(in millions, except share numbers and per share and per ADS data)
Consolidated Statements of Comprehensive Income Data:
Operating revenues		245,149			283,176			321,584			324,394			331,202			51,129
Operating expenses		(221,028	)		(261,968	)		(294,116	)		(295,886	)		(304,760	)		(47,047	)
Operating income		24,121			21,208			27,468			28,508			26,442			4,082
Earnings before income tax		22,006			19,817			23,088			23,257			26,693			4,121
Income tax		(5,416	)		(4,753	)		(5,422	)		(5,498	)		(6,551	)		(1,011	)
Profit attributable to equity holders of the Company		16,494			14,949			17,545			17,680			20,054			3,096
Basic earnings per share⁽¹⁾		0.20			0.18			0.22			0.22			0.25			0.04
Basic earnings per ADS⁽¹⁾		20.38			18.47			21.68			21.85			24.78			3.83
Cash dividends declared per share		0.07			0.07			0.08			0.08			0.08			0.01


	As of or for the year ended December 31,
	2011 RMB			2012 RMB			2013 RMB			2014 RMB			2015 RMB			2015 US$
	(in millions, except share numbers and per share and per ADS data)
Consolidated Statements of Financial Position Data:
Cash and cash equivalents		27,475			30,099			16,070			20,436			31,869			4,920
Accounts receivable, net		18,486			18,782			20,022			21,562			21,105			3,258
Total current assets		59,713			65,375			52,783			59,543			78,108			12,058
Property, plant and equipment, net		268,925			373,781			374,341			372,876			373,981			57,733
Total assets		419,331			545,291			543,239			561,274			629,561			97,187
Short-term debt		9,187			6,523			27,687			43,976			51,636			7,971
Current portion of long-term debt		11,766			10,212			20,072			82			84			13
Accounts payable		44,460			68,948			81,132			88,458			118,055			18,225
Total current liabilities		127,397			193,610			200,098			206,325			255,929			39,509
Long-term debt and payable		31,150			83,070			62,617			62,494			64,830			10,008
Deferred revenues (including current portion)		4,805			3,445			2,431			1,858			2,482			383
Total liabilities		162,376			279,191			264,575			271,166			324,810			50,142
Equity attributable to equity holders of the Company		256,167			265,139			277,741			289,183			303,784			46,896

Consolidated Cash Flow Data:
Net cash generated from operating activities		73,025			70,722			88,351			96,405			108,750			16,788
Net cash used in investing activities⁽²⁾		(43,646	)		(48,295	)		(107,948	)		(81,708	)		(102,250	)		(15,785	)
Capital expenditures⁽²⁾		(48,506	)		(50,071	)		(70,921	)		(80,273	)		(101,898	)		(15,730	)
Net cash (used in) / generated from financing activities		(27,723	)		(19,802	)		5,637			(10,327	)		4,809			742

(1)

The basic earnings per share have been calculated based on the respective net profit attributable to equity holders of the Company in 2011, 2012, 2013, 2014 and 2015 and the weighted average number of shares in issue during each of the relevant years of 80,932,368,321 shares. Basic earnings per ADS have been computed as if all of our issued and outstanding shares, including domestic shares and H shares, are represented by ADSs during each of the years presented. Each ADS represents 100 H shares.

(2)	Capital expenditures are part of and not an addition to net cash used in investing activities.

Pursuant to the shareholders’ approval at the annual general meeting held on May 27, 2015, a final dividend of RMB6,160 million (RMB0.076120 per share equivalent to HK$0.095 per share, pre-tax) for the year ended December 31, 2014 was declared, all of which has been fully paid. Pursuant to a resolution passed at the Directors’ meeting on March 23, 2016, a final dividend of approximately RMB6,461 million (RMB0.079829 equivalent to HK$0.095 per share, pre-tax) for the year ended December 31, 2015 was proposed for shareholders’ approval at the forthcoming annual general meeting.

- 3 -

Exchange Rate Information

Our business is primarily conducted in China and substantially all of our revenues are denominated in Renminbi. We present our historical consolidated financial statements in Renminbi. In addition, solely for the convenience of the reader, this annual report contains translations of certain Renminbi and Hong Kong dollar amounts into U.S. dollars at specific rates. For any date and period, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board. Unless otherwise indicated, conversions of Renminbi or Hong Kong dollars into U.S. dollars in this annual report are based on the exchange rate on December 31, 2015 (RMB6.4778 to US$1.00 and HK$7.7507 to US$1.00). We make no representation that any Renminbi or Hong Kong dollar amounts could have been, or could be, converted into U.S. dollars or vice versa, as the case may be, at any particular rate, the rates stated below, or at all. For a detailed explanation of the risk of currency rate fluctuations, please see “D. Risk Factors—Risks Relating to the People’s Republic of China— Fluctuation of the Renminbi could materially affect our financial condition, results of operations and cash flows.” under this Item. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange. Examples of such government regulations and restrictions are set forth in “Risk Factors—Risks Relating to the People’s Republic of China—Government control of currency conversion may adversely affect our financial condition.”

On April 22, 2016, the daily exchange rates reported by the Federal Reserve Board was RMB6.5004 to US$1.00 and HK$7.7564 to US$1.00. The following table sets forth additional information concerning exchange rates between Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we use in this annual report or will use in the preparation of our future periodic reports or any information to be provided to you.


	RMB per US$1.00					HK$ per US$1.00
	High		Low			High		Low
October 2015		6.3591		6.3180	October 2015		7.7503		7.7495
November 2015		6.3945		6.3180	November 2015		7.7526		7.7498
December 2015		6.4896		6.3883	December 2015		7.7527		7.7496
January 2016		6.5932		6.5219	January 2016		7.8270		7.7505
February 2016		6.5795		6.5154	February 2016		7.7969		7.7700
March 2016		6.5500		6.4480	March 2016		7.7745		7.7528
April 2016 (through April 22, 2016)		6.5004		6.4571	April 2016 (through April 22, 2016)		7.7569		7.7537

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 2011, 2012, 2013, 2014 and 2015 calculated by averaging the exchange rates on the last day of each month during each of the relevant years.

Average Exchange Rate


	RMB per US$ 1.00		HK$ per US$1.00
2011		6.4475		7.7793
2012		6.2990		7.7556
2013		6.1412		7.7565
2014		6.1704		7.7554
2015		6.2869		7.7519

B.	Capitalization and Indebtedness

Not applicable.

C.	Reasons for the Offer and Use of Proceeds

Not applicable.

- 4 -

D.	Risk Factors

Risks Relating to Our Business

We face increasing competition, which may materially and adversely affect our business, financial condition and results of operations.

The telecommunications industry in the PRC is rapidly evolving.

After the industry restructuring in 2008, China Unicom (Hong Kong) Limited (formerly known as China Unicom Limited), or China Unicom, and our Company have full-service capabilities and compete with each other in both wireline and wireless telecommunications services. China Mobile Limited, or China Mobile, continues to be the leading provider of mobile telecommunications services in the PRC and competes with us in mobile telecommunications services and other telecommunications services.

In particular, in December 2013, each of China Mobile Communications Corporation, or China Mobile Group, China Telecom Group and China United Network Communications Group Company Limited (formerly known as China United Telecommunications Corporation prior to its merger with China Network Communications Group Corporation), or Unicom Group, received a license from the MIIT to operate 4G business nationwide. The licenses permit each of China Mobile Group, China Telecom Group and Unicom Group to provide 4G services based on LTE/Time Division Duplex standard, or TD-LTE technologies. In addition, in February 2015, each of China Telecom Group and Unicom Group was granted by the MIIT the permit to provide 4G service based on Frequency-Division Long-Term Evolution standard, or LTE FDD technologies nationwide. We have been authorized by China Telecom Group to operate 4G business nationwide based on both TD-LTE technologies and LTE FDD technologies. We cannot assure you that: (i) our 4G services will deliver the quality and levels of services currently anticipated; (ii) we will be able to provide all planned 4G services or we will be able to provide such services on schedule; (iii) there will be sufficient demand for 4G services for us to deliver these services profitably; (iv) our competitors’ 4G, or newer technology based, services will not be more popular among potential subscribers; or (v) we will not encounter unexpected technological difficulties in providing 4G services. The failure of any of these possible developments to occur could impede our growth, which could have a material adverse effect on our business, financial condition and results of operations. We expect that the market competition will be further intensified as a result of our competitors expanding their 4G services, which could materially and adversely affect our business and prospect.

In December 2013, China Mobile Group received permission from the MIIT to authorize China Mobile to operate fixed-line telecommunications businesses. Prior to December 2013, China Unicom, China Tietong Telecommunications Corporation, or China Railcom, which is a wholly-owned subsidiary of China Mobile Group, CITIC NETWORKS Co., Ltd., and our Company were the only operators licensed by the MIIT to provide fixed-line telecommunications services in China. At the end of December 2015, China Mobile completed its acquisition from China Mobile Group of the fixed-line telecommunications businesses operated by China Railcom. China Mobile’s entry into the fixed-line broadband market has intensified and may continue to intensify competition in this sector, which could have a material adverse effect on our business, financial condition and results of operations.

We also face increasing competition from other competitors outside the telecommunications industry. Television cable companies providing fixed-line broadband services, Internet services providers and mobile software and application developers (such as Over-the-Top messaging services providers who offer contents and services on the Internet without their proprietary telecommunications network infrastructure), are competing with us in voice or data services. During the past few years, some of our traditional revenue contributors have experienced a slowdown in the growth rate or negative growth, primarily due to the alternative means of communication becoming increasingly popular among the consumers. For example, the aggregate revenues contributed by our wireline and mobile voice services grew at a rate of 4.7% in 2013 but decreased at a rate of 8.9% in 2014 and further decreased at a rate of 11.0% in 2015. We cannot assure you that such trend will not continue with respect to some of our traditional services, or our other services will not experience slowdown amid the intense market competition, which could have a material adverse effect on our business, financial condition and results of operations.

- 5 -

In addition, the PRC government has taken various initiatives to encourage competition in the telecommunications industry, such as the three-network convergence policy and the policy encouraging non-State owned companies to enter the industry. For more details of the three-network convergence policy, please see “Item 4. Information on the Company – B. Business Overview – Three-Network Convergence Policy.” In May 2010, the PRC State Council issued Certain Opinion on Encouraging and Guiding the Sound Development of Private Investment, encouraging private investment in industry sectors that are mainly state-controlled, such as basic telecommunications services. In June 2012, the MIIT issued Opinions on Encouraging and Guiding Private Investment in the Telecommunications Industry, encouraging private-sector investment in the telecommunications industry. On May 17, 2013, the MIIT issued the Trial Plan of Mobile Telecommunications Resale Business, pursuant to which the MIIT would grant qualified companies mobile telecommunications resale business approvals on a pilot basis which would allow them to purchase mobile telecommunications services in bulk from mobile networks operators and resell such services to customers. On January 6, 2016, the MIIT issued the Guidance on the Wholesale Price Adjustments of Mobile Telecommunications Resale Business LOGO LOGO , pursuant to which the MIIT required that the wholesale price for resale of mobile telecommunications services should be lower than the per unit price (or package price) for similar businesses of the mobile networks operators. All of these measures are expected to encourage non-State owned companies to provide telecommunications services that could compete with our services. On December 25, 2014, the MIIT issued the Notice on Opening the Broadband Access Market to Private Capital, encouraging private capital to invest in the construction and operation of the broadband access network and cooperate with basic telecommunications operators in various ways to provide broadband access services and broadband resale services to customers and determining 17 cities including Beijing to be the first group of cities that would open their broadband access markets to private capital on a pilot basis. On September 23, 2015, the MIIT issued the Notice on Further Broadening the Scope of Trial Opening of the Broadband Access Business, to include another 44 cities into the trial scope that opens up the broadband access market to private capital. As of December 31, 2015, the MIIT granted broadband access pilot enterprises licenses to over 50 private companies. As of April 19, 2016, 67 cities have opened up their broadband access markets to private capital. As of December 31, 2015, we had entered into resale contracts with 25 out of the 42 mobile virtual network operators which had obtained the licenses from the MIIT, and 11 of these companies had started to offer 4G services. As a result, the competitive landscape in the PRC telecommunications industry may further diversify, causing more intensified competition.

Increasing competition from other existing telecommunications services providers, including China Mobile and China Unicom, as well as competition from new competitors, could materially and adversely affect our business and prospect by, among other factors, forcing us to lower our tariffs, reducing or reversing the growth of our customer base and reducing usage of our services. Any of these developments could materially and adversely affect our revenues and profitability. We cannot assure you that the increasingly competitive environment and any change in the competitive landscape of the telecommunications industry in the PRC would not have a material adverse effect on our business, financial condition or results of operations.

The growth of our mobile business is subject to uncertainties involved in the future operations of the Tower Company.

On July 11, 2014, the Company, China United Network Communications Corporation Limited (“CUCL”) and China Mobile Communication Company Limited (“CMCL”) entered into a Promoters’ Agreement for China Communications Facilities Services Corporation Limited to jointly establish China Communications Facilities Services Corporation Limited (later renamed as China Tower Corporation Limited, the “Tower Company”). The Tower Company will be responsible for constructing and operating telecommunications towers and ancillary facilities, while the basic telecommunications services providers, including us, will rent these telecommunications assets from the Tower Company. According to the policies of the MIIT, starting from January 1, 2015, in principle, the three telecommunications operators, including us, will no longer construct their own telecommunications towers. On October 14, 2015, the Company, CUCL, CMCL, the Tower Company and certain other parties entered into an Agreement on Purchase of Stock Tower-related Assets by Issuance of Shares and Payment of Cash, or the Transfer Agreement, pursuant to which each of the Company, CUCL and CMCL agreed to sell certain telecommunications towers and related assets to the Tower Company in exchange for new shares issued by the Tower Company, among others. On January 29, 2016, the Company and the Tower Company entered into a Share Subscription Agreement to acknowledge the number and price of the shares issued by the Tower Company to the Company. Currently, the Company and Tower Company have reached preliminary understanding and are in the process of negotiating arrangements in respect of our usage of certain telecommunications towers and related assets owned by the Tower Company. See “Item 4. Information on the Company—A. History and Development of the Company—Establishment of the Tower Company and the Disposal and Use of the Telecommunications Towers”.

- 6 -

The Tower Company will be of significant importance to the development of our mobile business and our results of operations. In particular, we are expected to use the telecommunications towers owned by the Tower Company for our mobile business. Because we do not control the Tower Company, we cannot assure you that it will act in the best interests of us. Given its short operational history, the operations of the Tower Company are subject to various uncertainties, including uncertainties as to the construction progress of the telecommunications towers and the quality of services provided by the Tower Company. In addition, we are in the process of negotiating with the Tower Company regarding the arrangements for our usage of its telecommunications towers and related assets, and we cannot assure you that we will be able to use such telecommunications towers and related assets on terms and conditions that are favorable to us. If the operations of the Tower Company cannot be carried out in a smooth and timely manner, or if we fail to use the relevant telecommunications towers and related assets at our desired locations and on terms and conditions that are favorable to us in order to expand our mobile network coverage, or if we cannot receive quality services on a timely basis from the Tower Company, the growth of our mobile business as well as our financial condition and results of operations may be materially and adversely affected.

We may further lose wireline telephone subscribers and revenues derived from our wireline voice services may continue to decline, which may adversely affect our results of operations, financial condition and prospects.

We continued to lose wireline telephone subscribers and revenues derived from our wireline voice services continued to decline during the past several years mainly due to the increasing popularity of mobile voice services and other alternative means of communication, such as Over-the-Top messaging services. Tariffs for mobile voice services have continued to decrease in recent years, which further accelerated substitution of the wireline voice services by the mobile voice services. The number of our wireline telephone subscribers decreased by 7.9% at the end of 2014 compared to that at the end of 2013 and further decreased by 6.4% at the end of 2015. Revenues from our wireline voice services decreased by 13.1% in 2014 compared to 2013 and further decreased by 11.8% in 2015. The percentage of revenues derived from our wireline voice services out of our total operating revenues continued to decrease, from 12.0% in 2013 to 10.4% in 2014 and 8.9% in 2015.

We have been taking various measures in order to mitigate the impact of loss of our wireline telephone subscribers and stabilize our revenues from wireline voice services. See “Item 4. Information on the Company—B. Business Overview—Our Products and Services—Wireline Voice Services.” However, we cannot assure you that we will be successful in mitigating the adverse impact of the substitution of wireline voice services by mobile voice services and other alternative means of communication or in slowing down the decline of our revenues generated from wireline voice services. Migration from wireline voice services to mobile services and other alternative means of communication may further intensify in the future, which may affect the financial performance of our wireline voice services and thus adversely affect our results of operations, financial condition and prospects as a whole.

We will continue to be controlled by China Telecom Group, which could cause us to take actions that may conflict with the best interests of our other shareholders.

China Telecom Group, a wholly state-owned enterprise, owned approximately 70.89% of our outstanding shares as of April 22, 2016. Accordingly, subject to our Articles of Association and applicable laws and regulations, China Telecom Group, as our controlling shareholder, will continue to be able to exercise significant influence over our management and policies by:

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controlling the election of our Directors and, in turn, indirectly controlling the selection of our senior management;

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determining the timing and amount of our dividend payments;

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approving our annual budgets;

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deciding on increases or decreases in our share capital;

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determining issuance of new securities;

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approving mergers and acquisitions; and

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amending our Articles of Association.

The interests of China Telecom Group as our controlling shareholder could conflict with our interests or the interests of our other shareholders. As a result, China Telecom Group may take actions with respect to our business that may not be in our or our other shareholders’ best interests.

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We depend on China Telecom Group and its other subsidiaries to provide certain services and facilities for which we currently have limited alternative sources of supply.

In addition to being our controlling shareholder, China Telecom Group, by itself and through its other subsidiaries, also provides us with services and facilities necessary for our business activities, including, but not limited to:

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use of international gateway facilities;

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provision of services in areas outside our service regions necessary to enable us to provide end-to-end services to our customers;

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use of certain inter-provincial optic fibers; and

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lease of properties and assets.

The interests of China Telecom Group and its other subsidiaries as providers of these services and facilities may conflict with our interests. We currently have limited alternative sources of supply for these services and facilities. Therefore, we have limited leverage in negotiating with China Telecom Group and its other subsidiaries over the terms for the provision of these services and facilities. Termination or adverse changes of the terms for the provisions of these services and facilities could materially and adversely affect our business, results of operations and financial condition. See “Item 4. Information on the Company—A. History and Development of the Company—Industry Restructuring and Our Acquisition of the CDMA Business in 2008” and “—Our Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities” and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” for a description of the services and facilities provided by China Telecom Group and its other subsidiaries.

Since our services require interconnection with networks of other operators, disruption in interconnections with those networks could have a material adverse effect on our business and results of operations.

Under the relevant telecommunications regulations, telecommunications operators are required to interconnect with networks of other operators. China Telecom Group entered into interconnection settlement agreements with other telecommunications operators, including Unicom Group and China Mobile Group. We entered into an interconnection settlement agreement, as amended, with China Telecom Group, which allows our networks to interconnect with China Telecom Group’s networks as well as networks of the other telecommunications operators, with whom China Telecom Group had interconnection arrangements. The effective provision of our wireline voice, mobile voice and other services requires interconnection between our networks and those of China Telecom Group, Unicom Group, China Mobile Group and other telecommunications operators. Any interruption in our interconnection with the networks of those operators or other international telecommunications carriers with which we interconnect due to technical or competitive reasons may affect our operations, service quality and customer satisfaction, and, in turn, our business and results of operations. In addition, any obstacles in existing interconnection arrangements and leased line agreements or any change in their terms, as a result of natural events, accidents, or for regulatory, technological, competitive or other reasons, could lead to temporary service disruptions and increased costs that may seriously jeopardize our operations and adversely affect our profitability and growth.

We may be unable to obtain sufficient financing to fund our capital requirements, which could limit our growth potential and prospects.

We believe that cash from operations, together with any necessary borrowings, will provide sufficient financial resources to meet our projected capital and other expenditure requirements. However, we may require additional funds to the extent we have underestimated our capital requirements or overestimated our future cash from operations. In addition, a significant feature of our business strategy is to continue to transform our Company into a modern integrated information services provider, which may require additional capital resources. The cost of implementing new technologies, upgrading our networks, expanding capacity or acquisitions of businesses or assets may be significant. Furthermore, in order for us to effectively respond to technological changes and more intensive competition, we may need to make substantial investments in the future.

Financing may not be available to us on acceptable terms or at all. In addition, any future issuance of equity securities, including securities convertible or exchangeable into or that represent the right to receive equity securities, may require approval from the relevant government authorities. Our ability to obtain additional financing will depend on a number of factors, including:

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our future financial condition, results of operations and cash flows;

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general market conditions for financing activities by telecommunications companies; and

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economic, political and other conditions in the markets where we operate or plan to operate.

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We cannot assure you that we can obtain sufficient financing at commercially reasonable terms or at all. If adequate capital is not available on commercially reasonable terms, our growth potential and prospects could be materially and adversely affected. Furthermore, additional issuances of equity securities will result in dilution to our shareholders. Incurrence of debt would result in increased interest expense and could require us to agree to restrictive operating and financial covenants.

If we are not able to respond successfully and cost-efficiently to technological or industry developments, our business may be materially and adversely affected.

The telecommunications market is characterized by rapid advancements in technology, evolving industry standards and changes in customer needs. We cannot assure you that we will be successful in responding to these developments. In addition, new services or technologies, such as mobile Internet, the three-network convergence, cloud computing and Internet of Things, may render our existing services or technologies less competitive. In the event we do take measures to respond to technological developments and changes in industry standards, the integration of new technology or industry standards or the upgrading of our networks may require substantial time, effort and capital investment. For example, we continue to make significant investment to improve our broadband network, including the upgrade of optic fiber coverage capacity, and our mobile network. However, we may not be able to recover our investment as expected.

Our ability to respond to technological developments may also be adversely affected by external factors, some of which are beyond our control. For example, we have started implementing Internet Protocol version 6, or IPv6, the next-generation Internet Protocol version, on our networks. However, the successful deployment and application of IPv6 depends on a number of external factors, including, among others, timely development of IPv6-compatible devices and applications by third-party suppliers. If the future transition to IPv6 is delayed due to factors beyond our control, we may face obstacles in further developing our Internet-related services in the future. We cannot assure you that we will succeed in integrating these new technologies and industry standards or adapting our network and systems in a timely and cost-effective manner, or at all. Our inability to respond successfully and cost-efficiently to technological or industry developments may materially and adversely affect our business, results of operations and competitiveness.

We face a number of risks relating to our Internet-related services.

We currently provide a range of Internet-related services, including dial-up and broadband Internet access, and Internet-related applications. We face a number of risks in providing these services.

Our network may be vulnerable to unauthorized access, computer viruses and other disruptive problems. We cannot assure you that the security measures we have implemented will not be circumvented or otherwise fail to protect the integrity of our network, including our mobile network. Unauthorized access could jeopardize the security of confidential information stored in our customers’ computer systems and mobile phone systems and may subject us to litigations, liabilities for information loss and/or reputational damage. Eliminating computer viruses and other security problems may also require interruptions, delays or suspension of our services, reduce our customer satisfaction and cause us to incur costs.

In addition, because we provide connections to the Internet and host websites for customers and develop Internet content and applications, we may be perceived as being associated with the content carried over our network or displayed on websites that we host. We cannot and do not screen all of this content and may face litigation claims due to a perceived association with this content. These types of claims have been brought against other providers of online services in the past. Regardless of the merits of the lawsuits, these types of claims can be costly to defend, divert management resources and attention, and may damage our reputation.

Risks Relating to the Telecommunications Industry in the PRC

The current and future government regulations and policies that extensively govern the telecommunications industry may limit our flexibility in responding to market conditions, competition or changes in our cost structure.

Our business is subject to extensive government regulation. The MIIT, which is the primary telecommunications industry regulator under the PRC’s State Council, regulates, among other things:

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industry policies and regulations;

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licensing;

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competition;

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telecommunications resource allocation;

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service standards;

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technical standards;

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interconnection and settlement arrangements;

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enforcement of industry regulations;

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universal service obligations;

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network information security;

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network access license approval for telecom equipment and terminals; and

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network construction plans.

Other PRC governmental authorities also take part in regulating tariff policies, capital investment and foreign investment in the telecommunications industry. The regulatory framework within which we operate may constrain our ability to implement our business strategies and limit our flexibility to respond to market conditions or to changes in our cost structure. For example, in light of the Overview of the Plan of Achieving Coordinated Development of Beijing Municipality, Tianjin Municipality and Hebei Province which was passed on April 30, 2015 by the PRC government, we cancelled the long-distance and roaming tariffs for voice services within the tariff zones of Beijing Municipality, Tianjin Municipality and Hebei Province so that our customers are only charged with local usage tariff for our voice services provided within the tariff zones. In addition, on May 20, 2015, the office of the State Council promulgated the Guidance Opinions Regarding Expediting the Development of the High-Speed Broadband Network and Promoting the Speed Upgrade and Tariff Reduction, calling for the telecommunications operators to reduce the data tariffs. In order to further implement such policy requirements, we carried out a series of measures, including launching the upgrade service in 2015 October which would allow handset data subscribers who subscribe to our monthly data packages to rollover the unused data remaining in the monthly packages to the next month. On January 6, 2016, the MIIT issued the Guidance on the Wholesale Price Adjustments of Mobile Telecommunication Resale Business LOGO , pursuant to which the MIIT required that the wholesale price for resale of mobile telecommunications services should be lower than the per unit price (or package price) for similar businesses of the mobile networks operators. We may face further policy requirements imposed by the PRC government on network speed upgrade, tariff reduction and price adjustment in the future. Any such requirements could materially adversely affect our profitability and results of operations. In addition, the PRC government has taken various initiatives and promulgated a number of regulations to encourage private capital to invest in the telecommunications industry, all of which have intensified, and are expected to continue to intensify, the competition in the telecommunications industry in the PRC. See “ – D. Risk Factors – Risks Relating to our Business – We face increasing competition, which may materially and adversely affect our business, financial condition and results of operations.”

The regulations and policies that govern the telecommunications industry in the PRC have experienced continuous changes in the past several years. The interpretation and enforcement of the PRC’s World Trade Organization commitments regarding telecommunications services may also affect telecommunications regulations. Possible future changes to regulations and policies of the PRC government governing the telecommunications industry could adversely affect our business and operations. For example, to provide a uniform regulatory framework for the orderly development of the telecommunications industry, the PRC government is currently preparing a draft telecommunications law. If and when the telecommunications law is adopted by the National People’s Congress or its Standing Committee, it is expected to provide a new regulatory framework for telecommunications regulation in the PRC. We cannot be certain how this law will affect our business and operations and whether it will contain more stringent regulatory requirements than the current telecommunications regulations. Any significant future changes in regulations or policies that govern the telecommunications industry may have a material adverse effect on our business and operations.

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The PRC government may require us, along with other providers in the PRC, 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 the PRC are required to fulfill universal service obligations in accordance with relevant regulations to be promulgated by the PRC government. The MIIT has the authority to delineate the scope of universal service obligations. The MIIT may also select universal service providers through a tendering process. The MIIT, together with other governmental authorities, is also responsible for formulating administrative rules relating to the establishment of a universal service fund and compensation schemes for universal services. The PRC government currently uses financial resources to compensate for the expenses incurred in the “Village to Village” and the “Broadband China” projects before the establishment of a universal service fund. The State Council issued the Notice on the “Broadband China” Policy and the Implementation Plan on August 1, 2013, which included the provision of broadband services to villages as part of the universal service obligations of telecommunications service providers and mentioned improving the compensation scheme for the expenses incurred by the telecommunications services providers in undertaking the “Broadband China” projects in the villages. On December 24, 2015, the MOF and the MIIT jointly promulgated the Notice on Telecommunications Universal Service Pilot Work LOGO which sets up certain goals for the telecommunication operators, including broadband coverage in 98% of the administrative villages and over 12Mbps broadband access capacity in rural villages, by 2020. Pursuant to the notice, the central government subsidies will be granted to the pilot areas determined by the MOF and the MIIT and the universal services providers will be selected through an open bidding process. However, the compensation from the PRC government may not be sufficient to cover all of our expenses for providing the telecommunications services under the relevant projects.

Under the Telecommunications Regulations, all PRC telecommunications operators shall provide universal services, and we expect to perform our duties thereunder accordingly. We may not be able to realize adequate return on investments for expanding networks to, and providing telecommunications services in, those economically less developed areas due to potentially higher capital expenditure requirements, lower usage by customers and lack of flexibility in setting our tariffs. If we are required to provide universal services with specified obligations without proper compensation by the government, our business and profitability may be materially adversely affected.

Implementation of a value-added tax to replace the business tax in the PRC has had, and in the short term will continue to have, a material and adverse effect on our revenues and profitability.

Our business operations in China are currently subject to PRC value-added tax, or VAT. On November 16, 2011, the Ministry of Finance, or the MOF, and the State Administration of Taxation, or the SAT, introduced a pilot tax program under which the PRC business tax will be replaced with a VAT. On April 29, 2014, the MOF and the SAT announced that the pilot program would be extended to cover the telecommunications industry. Effective from June 1, 2014, the pilot tax rate for basic telecommunications services (including voice communication and lease or sale of network resources) is 11% and the pilot tax rate for value-added telecommunications services (including, among others, internet access services, short and multimedia messaging services, transmission and application service of electronic data and information) is 6%. On March 18, 2016, the State Council standing committee meeting resolved to expand the VAT pilot program to all other industries which were previously subject to the PRC business tax starting from May 1, 2016. On March 23, 2016, the SAT issued the Notice on Expanding the Pilot Program of Replacing the Business Tax with VAT, promulgating the relevant implementing rules.

The operating revenues are presented in the financial statements as excluding any VAT. Some of the expenditures of the Company do not qualify for input VAT credits, including, among others, depreciation and amortization and personnel expenses. In addition, the actual deduction of some of our expenditures as input VAT credits will depend on the application of VAT to the other industries. As a result, the VAT reform has had, and is expected to continue to have, an adverse effect on the revenues and operating profit of the Company in the short term. In the long term, the overall VAT of the Company is expected to decrease. See “Item 5. Operating and Financial Review and Prospects – A. Operating Results – Year Ended December 31, 2015 Compared to Year Ended December 31, 2014 – Qualitative and Quantitative Analysis of the VAT Reform Impact.”

We have experienced incidents of executive misconduct in the past, which could adversely impact our reputation, our financial condition and results of operations as well as the trading price of our securities.

According to the information disclosed on the website of Communist Party of China Central Commission for Discipline Inspection and Ministry of Supervision of the PRC on December 27, 2015, Mr. Chang Xiaobing, the former Chairman of Unicom Group and the then Chairman of China Telecom Group was under investigation by such authorities for suspected serious disciplinary violations. Mr. Chang was appointed as the chief executive officer of the Company on September 1, 2015 and the director and chairman of the Company on October 23, 2015. On December 30, 2015, Mr. Chang resigned from his positions as the executive director, chairman and chief executive officer of the Company with effect from the same date. Prior to his resignation, Mr. Chang had worked at the Company for four months.

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The investigation conducted by the PRC authorities on Mr. Chang may harm our reputation and adversely affect our financial condition and results of operations as well as the trading price of our securities.

Risks Relating to the People’s Republic of China

Substantially all of our assets are located in the PRC and substantially all of our revenues are derived from our operations in the PRC. Accordingly, our results of operations and prospects are subject, to a significant extent, to the economic, political and legal developments in the PRC.

The PRC’s economic, political and social conditions, as well as government policies, could affect our business.

Substantially all of our business, assets and operations are located in the PRC. The PRC’s economy differs from the economies of most developed countries in many respects, including without limitation:

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government involvement;

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level of development;

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growth rate;

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control of foreign exchange; and

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allocation of resources.

While the PRC’s economy has experienced significant growth in the past 30 years, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall economy of the PRC, but may also have a negative effect on us.

Economic developments in the PRC have a significant effect on our financial condition and results of operations. Although the PRC has been one of the world’s fastest growing economies in terms of GDP growth in the past 30 years, the global financial crisis that unfolded in 2008 and continued in the past few years, coupled with the on-going structural reform of the PRC economy, has led to a marked slowdown in, and may continue to slow down, the economic growth of the PRC. For example, the GDP growth rate of the PRC decreased from 11.4% in 2007 to 6.9% in 2015. The PRC economy may continue to grow at a relatively slow pace in the next few years. There is no assurance that the GDP growth rate of the PRC will not further decline. A slowdown in economic growth could reduce business activities and demand for our services. The global economy may continue to deteriorate in the future and continue to have an adverse impact on the PRC economy. Any significant slowdown in the PRC economy could have a material adverse effect on the PRC telecommunications industry as well as our business and operations.

Government control of currency conversion may adversely affect our financial condition.

We receive substantially all of our revenues in Renminbi, which currently is not a freely convertible currency. A portion of these revenues must be converted into other currencies to meet our foreign currency obligations. These foreign currency-denominated obligations include:

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payment of interest and principal on foreign currency-denominated debt;

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payment for equipment and materials purchased offshore; and

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payment of dividends declared, if any, in respect of our H shares.

Under the PRC’s existing foreign exchange regulations, we will be able to pay dividends in foreign currencies without prior approval from the State Administration of Foreign Exchange by complying with certain procedural requirements. However, the PRC government may take measures at its discretion in the future to restrict access to foreign currencies for both current account transactions and capital account transactions. We may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs, if the PRC government restricts access to foreign currencies for current account transactions.

Foreign exchange transactions under our capital account, including foreign currency-denominated borrowings from foreign banks, issuance of foreign currency-denominated debt securities, if any, and principal payments in respect of foreign currency—denominated obligations, continue to be subject to significant foreign exchange controls and require the approval of the State Administration of Foreign Exchange. These limitations could affect our ability to obtain foreign exchange through debt or equity financing, or to obtain foreign exchange to meet our payment obligations under the debt securities, if any, or to obtain foreign exchange for capital expenditures.

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Fluctuation of the Renminbi could materially affect our financial condition, results of operations and cash flows.

We receive substantially all of our revenues, and our financial statements are presented, in Renminbi. The value of the Renminbi against U.S. dollar and other currencies fluctuates and is affected by, among other things, changes in the PRC’s and international political and economic conditions. Since 1994, the conversion of Renminbi into foreign currencies, including Hong Kong and U.S. dollars, has been based on rates set by the People’s Bank of China, which are set daily based on the previous business day’s inter—bank foreign exchange market rates and current exchange rates on the world financial markets. 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. In April 2012, the PRC government expanded the daily floating band of Renminbi trading prices against the U.S. dollar in the inter-bank spot foreign currency exchange market from 0.5% to 1.0%, which was further expanded to 2.0% in March 2014. Fluctuations in exchange rates may adversely affect the value, translated or converted into U.S. dollars or Hong Kong dollars, of our net assets, earnings and any declared dividends payable on our H shares in foreign currency terms. Our financial condition and results of operations may also be affected by changes in the value of certain currencies other than the Renminbi, in which our obligations are denominated. For further information on our foreign exchange risks and certain exchange rates, see “Item 3. Key Information—A. Selected Financial Data—Exchange Rate Information” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Foreign Exchange Rate Risk.” We cannot assure you that any future movements in the exchange rate of the Renminbi against the U.S. dollar or other foreign currencies will not adversely affect our results of operations and financial condition.

The PRC legal system has inherent uncertainties that could limit the legal protections available to you.

We were incorporated under PRC laws and are governed by our Articles of Association. The PRC legal system is based on written statutes. Prior court decisions 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, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited number of published cases and their non-binding nature, interpretation and enforcement of these laws and regulations involve uncertainties.

The ability of our shareholders to enforce their rights in respect of violations of corporate governance procedures may be limited. In this regard, our Articles of Association provide that most disputes between holders of H shares and our Company, directors, supervisors, officers or holders of domestic shares, arising out of our Articles of Association or the PRC Company Law and related regulations concerning the affairs of our Company, are to be resolved through arbitration by an arbitration tribunal in Hong Kong or the PRC, rather than by a court of law. Awards that are made by PRC arbitral authorities recognized under the Arbitration Ordinance of Hong Kong can be enforced in Hong Kong. Hong Kong arbitration awards are also enforceable in the PRC. However, to our knowledge, no action has been brought in the PRC by any holder of H shares to enforce an arbitral award, and we are uncertain as to the outcome of any action, if brought in the PRC to enforce an arbitral award made in favor of holders of H shares. See “Item 10. Additional Information—B. Memorandum and Articles of Association.”

To our knowledge, there has not been any published report of judicial enforcement in the PRC by holders of H shares of their rights under the Articles of Association of a PRC company or the PRC Company Law.

Unlike in the United States, the applicable PRC laws did not specifically allow shareholders to sue the directors, supervisors, senior management or other shareholders on behalf of the corporation to enforce a claim against such party or parties that the corporation has failed to enforce itself until January 1, 2006, when the amendments to the PRC Company Law passed on October 27, 2005 became effective. Although the amended PRC Company Law provides that shareholders, under certain circumstances, may sue the directors, supervisors and senior management on behalf of the company, no detailed implementation rules or judicial interpretations have been issued in this regard. In addition, our minority shareholders may not be able to enjoy protections to the same extent afforded to shareholders of companies incorporated under the state laws of the United States.

Although we will be subject to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, or the Listing Rules, and the Hong Kong Codes on Takeovers and Mergers and Share Buy-backs, or the Codes, the holders of H shares will not be able to bring actions on the basis of violations of the Listing Rules or the Codes, and must rely on the Hong Kong Stock Exchange and The Securities and Futures Commission of Hong Kong to enforce the Listing Rules or the Codes, as the case may be.

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You may experience difficulties in effecting service of legal process and enforcing judgments against us and our management.

We are a company incorporated under PRC laws, and substantially all of our assets and our subsidiaries are located in the PRC. In addition, most of our directors and officers reside within the PRC, and substantially all of the assets of our directors and officers are located within the PRC. As a result, it may not be possible to effect service of process within the United States or elsewhere outside the PRC upon most of our directors or officers, including with respect to matters arising under applicable laws and regulations. Moreover, our PRC counsel has advised us that the PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States, the United Kingdom or most other Western countries. 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 the PRC of judgments of a court in the United States and any of the other jurisdictions mentioned above in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.

Holders of H shares may be subject to PRC taxation.

Under the Enterprise Income Tax Law of the PRC, or the EIT Law, and its implementing regulations, holders of our H shares or ADSs which are “non-resident enterprises” for the EIT Law’s purpose are subject to enterprise income tax at the rate of 10.0% with respect to dividends paid by us and income derived from sale of our H shares or ADSs, unless reduced under an applicable tax treaty. In addition, a resident enterprise, including a foreign enterprise whose “de facto management body” is located in the PRC, is not subject to any PRC income tax with respect to dividends paid to it by us. The capital gains realized by such resident enterprise are subject to the PRC enterprise income tax. Specifically, according to the Notice of the PRC State Administration of Taxation Concerning the Withholding Enterprise Income Tax on Dividend Distributed by PRC Resident Enterprises to Overseas Non-Resident Enterprise Holders of H shares issued in November 2008 and the Approval of the PRC State Administration of Taxation Concerning the Collection of Enterprise Income Tax on Dividend from B-shares Received by Non—Resident Enterprise issued in July 2009, when PRC resident enterprises distribute dividend to overseas non-resident enterprise holders of H shares for the year 2008 and the years thereafter, the 10.0% enterprise income tax will be withhold. The Company will withhold the 10.0% enterprise income tax when it pays dividend to holders of H shares or ADSs who are non-resident enterprises. See “Item 10. Additional Information—E. Taxation—People’s Republic of China.”

Furthermore, dividends paid by us to holders of our H shares or ADSs who are individuals outside the PRC are subject to a withholding tax of 20.0% unless reduced by an applicable tax treaty. For example, Hong Kong and Macau individual residents are subject to a withholding tax of 10.0% on dividends paid to them. In addition, gains realized by individuals upon the sale or other disposition of our H shares or ADSs are temporarily exempted from PRC capital gains tax. If the exemptions are withdrawn in the future, holders of our H shares or ADSs who are individuals may be required to pay PRC capital gains tax upon the sale or other disposition of our H shares. See “Item 10. Additional Information—E. Taxation— People’s Republic of China.”

Natural disasters and health hazards in the PRC may severely disrupt our business and operations and may have a material adverse effect on our financial condition and results of operations.

Several natural disasters and health hazards have struck mainland China in recent years. In 2010, a major earthquake registering 7.1 on the Richter scale struck Qinghai Province. Our network equipment and other assets in the affected areas sustained some damage in the earthquakes, leading to service stoppage and other disruptions in our operations in those areas. In March 2011, a major earthquake registering 9.0 on the Richter scale struck Japan, which affected our international communications services. In 2013, another major earthquake registering 7.0 on the Richter scale struck Sichuan Province, and floods struck 18 provinces including Gansu and Heilongjiang Provinces, causing widespread damages to telecommunications equipment in the affected areas and resulting in disruptions of the telecommunications services. In 2014, three major earthquakes registering 6.1, 6.5 and 6.6, respectively, on the Richter scale struck Yunan Province and another major earthquake registering 6.3 on the Richter scale struck Sichuan Province, causing severe damages to telecommunications equipment as well as disruptions to telecommunications services in the affected areas. We are unable to predict the effect, if any, that any 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, such natural disasters and health hazards may severely restrict the level of economic activity in affected areas, which may in turn materially and adversely affect our business and prospects. As a result, any natural disasters or health hazards in the PRC or other regions in the world may have a material adverse effect on our financial condition and results of operations.

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The audit reports included in this annual report have been prepared by our independent registered public accounting firm whose work may not be inspected fully by the Public Company Accounting Oversight Board and, as such, you may be deprived of the benefits of such inspection.

Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the U.S. Securities and Exchange Commission, as auditors of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or the PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards.

Because we have substantial operations within the PRC and the PCAOB is currently unable to conduct inspections of the work of our independent registered public accounting firm as it relates to those operations without the approval of the Chinese authorities, our independent registered public accounting firm is not currently inspected fully by the PCAOB. This lack of PCAOB inspections in the PRC prevents the PCAOB from regularly evaluating our independent registered public accounting firm’s audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

Inspections of other firms that the PCAOB has conducted outside the PRC have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The inability of the PCAOB to conduct full inspections of auditors in the PRC makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside the PRC that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

If the settlement recently reached between the SEC and the Big Four PRC-based accounting firms (including the Chinese affiliate of our independent registered public accounting firm), concerning the manner in which the SEC may seek access to audit working papers from audits in China of US-listed companies, is not or cannot be performed in a manner acceptable to authorities in China and the US, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act.

In late 2012, the SEC commenced administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the mainland Chinese affiliates of the “Big Four” accounting firms (including the mainland Chinese affiliate of our independent registered public accounting firm). A first instance trial of the proceedings in July 2013 in the SEC’s internal administrative court resulted in an adverse judgment against the firms. The administrative law judge proposed penalties on the Chinese accounting firms including a temporary suspension of their right to practice before the SEC, although that proposed penalty did not take effect pending review by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioner had taken place, the Chinese accounting firms reached a settlement with the SEC whereby the proceedings were stayed. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normally be made to the CSRC. The Chinese accounting firms will receive requests matching those under Section 106 of the Sarbanes-Oxley Act of 2002, and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If they fail to meet specified criteria, the SEC retains authority to impose a variety of additional remedial measures on the Chinese accounting firms depending on the nature of the failure. Remedies for any future noncompliance could include, as appropriate, an automatic six-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against a firm, or in extreme cases the resumption of the recently-stayed proceeding against all four firms. The SEC also reserves the right to resume those proceedings in circumstances where, notwithstanding the accounting firms’ compliance with the procedures in the settlement agreement, the SEC does not receive a production of documents which it considers satisfactory (for example because of action or inaction by the Chinese authorities).

In the event that the SEC restarts the administrative proceedings, depending upon the final outcome listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about any such future proceedings against these accounting firms may cause investor uncertainty regarding China-based, United States-listed companies and the market price of our ADSs may be adversely affected.

If the Chinese affiliate of our independent registered public accounting firm were denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our ordinary shares from the NYSE or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.

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Item 4.

Information on the Company.

A.	History and Development of the Company

Our Restructuring and Initial Public Offering in 2002

We were incorporated under PRC laws on September 10, 2002 as a joint stock company with limited liability under the name “China Telecom Corporation Limited.” As part of our initial restructuring, China Telecom Group’s telecommunications operations in Shanghai Municipality, Guangdong Province, Jiangsu Province and Zhejiang Province, together with the related assets and liabilities, were transferred to us in consideration of 68,317,270,803 of our shares.

Following our restructuring, China Telecom Group continues to be the holder of the licenses required for operating our telecommunications business. In accordance with the approval of the MIIT, we derive our exclusive rights to operate our business from our status as a subsidiary controlled by China Telecom Group, and China Telecom Group must hold and maintain all licenses received from the MIIT in connection with our business for our benefits. The government currently does not charge license fees for the telecommunications licenses held by China Telecom Group.

In 2002, we successfully completed our initial public offering of H shares and raised approximately RMB10,659 million in aggregate net proceeds for us. Upon completion of our initial public offering, our H shares have been listed for trading on the Hong Kong Stock Exchange, and ADSs representing our H shares have been listed for trading on the NYSE.

Industry Restructuring and Our Acquisition of the CDMA Business in 2008

Industry Restructuring in 2008

In 2008, pursuant to a joint announcement relating to the further reform of the telecommunications industry in the PRC issued by the MIIT, the NDRC and the MOF, the following restructuring transactions took place in the telecommunications industry: (a) the acquisition by China Telecom Group of the assets of the CDMA network and the acquisition by us of the subscriber base of the CDMA network then owned by China Unicom; (b) the acquisition by China Telecom Group of the basic telecommunications service business operated by China Satellite Communications Corporation, or China Satellite; (c) the merger between China Unicom and China Netcom; and (d) the acquisition of China Railcom by China Mobile.

Our Acquisition of the CDMA Business

On July 27, 2008, we, China Unicom and China Unicom Corporation Limited entered into an acquisition agreement, or the CDMA Acquisition Agreement, pursuant to which we agreed to acquire from China Unicom Corporation Limited the CDMA Business and related assets and liabilities (including the entire equity interest in China Unicom (Macau) Company Limited and 99.5% of the equity interest in Unicom Huasheng Telecommunications Technology Co. Ltd., or Unicom Huasheng) for a total consideration of RMB43,800 million. The cost of the acquisition had been fully paid by us by February, 2010.

Related Transactions

Lease of capacity on the CDMA Network by our Company from China Telecom Group

On July 27, 2008, China Telecom Group, Unicom Group, and Unicom New Horizon Mobile Telecommunications Company Limited, or Unicom New Horizon, a wholly-owned subsidiary of Unicom Group, entered into a CDMA network disposal agreement, pursuant to which Unicom Group and Unicom New Horizon sold the CDMA cellular telecommunications network constructed by Unicom New Horizon, or the CDMA Network, to China Telecom Group for a consideration of RMB66,200 million, or the CDMA Network Acquisition. On October 1, 2008, China Telecom Group completed the acquisition of the CDMA Network. On July 27, 2008, we entered into a CDMA network capacity lease agreement with China Telecom Group to lease the capacity on the CDMA Network from China Telecom Group. As we acquired from China Telecom Group certain assets and associated liabilities relating to the CDMA network in 2012, we did not renew the CDMA network capacity lease agreement with China Telecom Group after it expired on December 31, 2012.

Our Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities

On August 22, 2012, we and China Telecom Group entered into an acquisition agreement, or CDMA Network Acquisition Agreement, pursuant to which we agreed to purchase from China Telecom Group certain assets and associated liabilities relating to the CDMA network located in 30 provinces, municipalities and autonomous regions in the PRC for an initial consideration of RMB84,595.41 million, subject to an adjustment based on the change in the value of such assets and associated liabilities from March 31, 2012 to the completion date, or the Mobile Network Acquisition. The Mobile Network Acquisition was completed on December 31, 2012, or the Completion Date, and the final consideration of the Mobile Network Acquisition was agreed to be RMB87,210.35 million, or the Final Consideration.

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Pursuant to the CDMA Network Acquisition Agreement, (i) RMB25,500 million of the Final Consideration was paid in January 2013 and (ii) the balance of the Final Consideration, or the Deferred Payment, will be payable at any time on or before the fifth anniversary of the Completion Date. Payment of the Final Consideration was and will be funded from our internal resources and relevant debt financing sources. The Company may, from time to time, prepay all or part of the Deferred Payment at any time after the Completion Date without any penalty until the fifth anniversary of the Completion Date. The Company will pay interest on the outstanding amount of the Deferred Payment to China Telecom Group at half-yearly intervals and the interest will accrue from the day following the Completion Date. The interest rate will be set at a five basis points premium to the yield of the five-year super AAA rated Medium Term Notes most recently published by the National Association of Financial Market Institutional Investors before the Completion Date and will be adjusted once a year in accordance with the last yield of the five-year super AAA rated Medium Term Notes published by the National Association of Financial Market Institutional Investors at the end of each year. The interest rates for the first year, the second year, the third year and the fourth year after the Completion Date are 4.83%, 6.25%, 5.11% and 4.00%, respectively. In the event any amount payable by the Company under the CDMA Network Acquisition Agreement is not paid when due, the Company will be subject to liquidated damages on such amount at a daily rate of 0.03% of the arrears from the date following the applicable due date to the date when such amount has been paid in full.

Changes in Our Corporate Organization in 2013

On April 26, 2013, the Company entered into a disposal agreement with China Telecom Group, pursuant to which the Company agreed to sell to China Telecom Group an 80% equity interest in E-surfing Media, a subsidiary of the Company primarily engaging in providing platform operating services for mobile Internet video and Internet video and offering video services for subscribers through cooperation with content providers, for an initial consideration of RMB1,195 million. The initial consideration was subject to an adjustment based on 80% of the change in the book value of the net assets of E-surfing Media during the period from December 31, 2012 to the completion date of the disposal. The risks and rewards of the ownership of the equity interest in E-surfing Media were transferred to China Telecom Group on June 30, 2013. The final consideration was arrived at RMB1,248 million and received by the Company by December 31, 2013.

On June 9, 2013, we set up a wholly-owned subsidiary, iMUSIC Culture & Technology Co., Ltd., or iMUSIC, which engages in the provision of music production and related information services. The registered capital of iMUSIC is RMB250 million.

On August 19, 2013, we set up a subsidiary, Zhejiang Yixin Technology Co., Ltd., or Zhejiang Yixin, with Netease, Inc., a leading Internet technology company in China, to launch “YiChat”, a mobile Internet multimedia instant messaging application for smartphones. As of December 31, 2015, Zhejiang Yixin had a registered capital of RMB11 million, of which 65% was owned by us and the remaining 35% was owned by Netease, Inc.

On December 16, 2013, China Telecom Global, a wholly-owned subsidiary of the Company primarily engaged in the provision of international value-added network services, entered into an acquisition agreement with China Telecom Group, pursuant to which China Telecom Global agreed to purchase from China Telecom Group 100% of the equity interest in China Telecom (Europe) Limited, or China Telecom Europe, for an initial consideration of RMB261 million. The consideration was subject to an adjustment based on the change in the net asset value of China Telecom Europe from June 30, 2013 to the completion date. The initial consideration was paid within 15 business days upon the completion of the acquisition. The acquisition was completed on December 31, 2013, and the final consideration was RMB278 million, which was paid by June 30, 2014.

Changes in Our Corporate Organization in 2014

On June 17, 2014, we set up a wholly-owned subsidiary, Chengdu E-store Technology Co., Ltd., which engages in software technology development. The registered capital of Chengdu E-store Technology Co., Ltd.is RMB45 million.

Establishment of the Tower Company and the Disposal and Use of the Telecommunications Towers

On July 11, 2014, the Company, CUCL and CMCL entered into a Promoters’ Agreement for China Communications Facilities Services Corporation Limited to jointly establish the Tower Company. The registered capital of the Tower Company is RMB10 billion. The Company, CUCL and CMCL subscribed for 2.99 billion shares, 3.01 billion shares and 4.00 billion shares, respectively, of the Tower Company in cash at a par value of RMB1.00 per share, representing a shareholding percentage of 29.9%, 30.1% and 40.0%, respectively. The Tower Company was registered on July 15, 2014 and was renamed as China Tower Corporation Limited on September 2, 2014. We had paid in our subscription of the registered capital of the Tower Company by December 31, 2014.

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On October 14, 2015, the Company entered into the Transfer Agreement with (i) CMCL and related subsidiaries (together, “Mobile”), (ii) CUCL and Unicom New Horizon Telecommunications Company Limited (“New Horizon”, together with CUCL, “Unicom”), (iii) China Reform Holding Company Limited (“CRHC”) and (iv) the Tower Company. Pursuant to the Transfer Agreement, the Company agreed to sell certain telecommunications towers and related assets in an aggregate amount of RMB30,131 million and inject cash in the amount of RMB2,966 million to the Tower Company in exchange for 33,097 million new shares, with a par value of RMB1.00 per share, issued by the Tower Company. The cash injected by the Company into the Tower Company under the Transfer Agreement was funded by the Company using its internal cash resources. All conditions precedent to the completion of the transactions contemplated under this agreement were fulfilled and completion of the transactions contemplated under this agreement occurred on October 31, 2015. As a result, the Company, Mobile, Unicom and CRHC own 27.9%, 38.0%, 28.1% and 6.0%, respectively, of the share capital of the Tower Company. On January 29, 2016, the Company and the Tower Company entered into a Share Subscription Agreement to acknowledge the number and price of the shares issued by the Tower Company to the Company.

The Company realized a gain (subject to deduction of relevant expenses and taxes) from the tower assets disposal described above, which was calculated based on the surplus of the final consideration for the tower assets disposal over the book value of such assets as at the completion date. The total gain from the tower assets disposal was RMB7,231 million. As the Company holds 27.9% of the share capital of Tower Company following the completion of such tower assets disposal, 72.1% of the aforesaid gain has been recognized at the completion date of such tower assets disposal in the Company’s consolidated statement of comprehensive income for 2015 and the remaining 27.9% of the aforesaid gain is deferred over the remaining useful life of the tower assets. The Company and the Tower Company have reached preliminary understanding, and are currently in the process of negotiating the arrangements, in respect of the Company’s use of certain telecommunications towers and related assets owned by the Tower Company.

The Tower Company is primarily engaged in the construction, maintenance and operation of telecommunications towers as well as ancillary facilities. The Tower Company will have a significant effect on the growth of our mobile business and our results of operations. However, the operations of the Tower Company are subject to significant uncertainties, please see “Item 3. Key Information – D. Risk Factors - Risk Relating to Our Business – The growth of our mobile business is subject to significant uncertainties involved in the future operations of the Tower Company.” We expect that in the long term we would benefit from the operations of the Tower Company in the following aspects: (i) we would leverage the rich resources of the Tower Company to promptly and effectively expand our 4G network coverage and density, remedy the weakness of having relatively less base stations at 800 MHz bandwidth and improve our network competitive strength; (ii) we would enhance our long-term profitability by leveraging on the existing tower assets as well as the co-use synergies made possible by the Tower Company; and (iii) as one of the major shareholders of the Tower Company, we would benefit from its future earnings and value enhancement.

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Organizational Structure

Set out below is a chart illustrating our corporate structure and significant subsidiaries as of April 22, 2016:

LOGO

(1)	Formerly known as China Telecom (Hong Kong) International Limited

(2)	Formerly known as China Unicom (Macau) Company Limited.

(3)	Formerly known as Unicom Huasheng Telecommunications Technology Co., Ltd.

(4)	Formerly known as Bestpay Co., Ltd.

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In addition, our Company has a branch in each of 22 provinces, five autonomous regions and four centrally administered municipalities in the PRC. See “—Our Acquisition from China Telecom Group and Corporate Organization Restructuring” included elsewhere under this Item.

General Information

Our principal executive offices are located at 31 Jinrong Street, Xicheng District, Beijing, PRC 100033 and our telephone number is (+86-10) 6642-8166. Our website address is www.chinatelecom-h.com. The information on our website is not a part of this annual report. We have appointed CT Corporation System at 13^th floor, 111 Eighth Avenue, New York, New York 10011 as our agent for service of process in the United States.

B.	Business Overview

We are an integrated information service provider in the PRC with full-service capabilities. Following our acquisition of the CDMA Business in 2008, we began to offer a comprehensive range of telecommunications services, including wireline voice services, mobile voice services, Internet access services, value-added services, integrated information application services, telecommunications network resource services and lease of network equipment and other related services. See “—A. History and Development of the Company—Industry Restructuring and Our Acquisition of the CDMA Business in 2008.”

Since 2005, we have started to implement our business strategy of transformation from a traditional basic telecommunications service provider to a modern integrated information services provider. Specifically, we have enhanced our efforts in developing our non-voice services, such as Internet access services, value-added services and integrated information application services, while we continue to strengthen our traditional services such as the wireline voice services, in achieving a more structurally optimized business and enhanced competitive strength. We aim to provide differentiated and innovative services to create value for customers by leveraging on our integrated resources.

In January 2009, the MIIT issued to China Telecom Group, our controlling shareholder, a license to operate 3G business nationwide based on CDMA2000 technology. We have been authorized by China Telecom Group to operate CDMA2000 3G mobile business in the PRC. We launched our CDMA2000 3G mobile services in March 2009 and have extended our CDMA2000 3G mobile services nationwide in the PRC.

In December 2013, the MIIT issued to China Telecom Group, our controlling shareholder, a license to operate 4G business nationwide based on TD-LTE technology. We have been authorized by China Telecom Group to operate TD-LTE 4G mobile business in the PRC. We launched our TD-LTE 4G mobile services in February, 2014 and have extended our TD-LTE 4G mobile services to around 100 cities in the PRC.

In 2014, China Telecom Group was approved by the MIIT, and authorized us, to commence and expand the LTE FDD and TD-LTE hybrid network trial in a number of key cities in the PRC. In February, 2015, China Telecom Group was granted by the MIIT the permit, and authorized us, to provide 4G services based on LTE FDD technologies nationwide.

Our Operation Strategy

In 2015, we continued to leverage on our economies of scale and focus on our data business to further increase both of our revenues and profits. In particular, we have implemented the following six operational strategies:

•

We focused on developing our 4G business and rapidly grew our 4G customers base;

•

We continued to expand our optic fiber broadband services to enhance core competitive advantage in broadband services;

•

We made every effort to promote all-network six-mode handsets to become the national standard and cooperated with the suppliers to enrich our 4G terminals offering;

•

We reinforced our efforts in promoting Internet applications to attract more customers;

•

We accelerated the Internet-oriented transformation of marketing channels and improved marketing efficiency;

•

We focused on improving service quality for our 4G and broadband services to enhance customer experience.

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Subscribers and Service Usage

Our operating revenues depend largely on the size of our customer base, usage volume and the level and structure of our tariffs. The following table shows our selected operating data as of the dates and for the periods indicated.


	As of or for the year ended December 31,
	2013		2014		2015
Wireline Voice Services:
Local wireline access lines in service (in millions)		155.8		143.6		134.3
Residential		97.6		90.9		84.2
Government and enterprises		40.2		40.9		40.8
Public telephones		12.6		11.4		9.3
Wireless local access		5.4		0.4		—
Wireline local voice usage (in billion pulses)⁽¹⁾		148.7		130.4		110.9
Domestic long distance wireline usage (in billion minutes)⁽²⁾		33.5		29.4		26.0
International, Hong Kong, Macau and Taiwan long distance wireline usage (in billion minutes)⁽³⁾		0.8		0.6		0.5
Mobile Voice Services:
Mobile subscribers (in millions)		185.6		185.6		197.9
Mobile voice usage (in billion minutes)		603.6		655.9		667.5
Internet Access Services:
Wireline broadband subscribers (in millions)		100.1		107.0		113.1
3G + 4G handset data traffic (in KTB)		175.1		266.6		554.7
Value-added Services
Mobile SMS Usage (in billion messages)		64.2		64.6		56.8
Mobile Color Ring Tone subscribers (in millions)		102.0		96.6		76.3
Wireline caller ID service subscribers (in millions)		103.1		93.7		87.7
Wireline Color Ring Tone subscribers (in millions)		62.2		56.9		51.3

(1)	Pulses are the billing units for calculating local telephone usage fees.

(2)	Includes calls originated by mobile subscribers that are carried over our long distance networks.

(3)	Includes calls originated by subscribers of other operators that are carried through the international gateways of China Telecom Group.

Our Products and Services

Wireline Voice Services

The total number of wireline telephone subscribers decreased to 134.3 million as of December 31, 2015 from 143.6 million as of December 31, 2014.

Our wireline voice services include local wireline services, domestic long distance wireline services and international, Hong Kong, Macau and Taiwan long distance wireline services. The total local wireline usage decreased by approximately 15.0% from 130.4 billion pulses in 2014 to 110.9 billion pulses in 2015. Total domestic long distance wireline usage was 26,005 million minutes in 2015, representing a decrease of approximately 11.7% from 29,442 million minutes in 2014. Total usage of international, Hong Kong, Macau and Taiwan long distance wireline services in 2015 was 498 million minutes, representing a decrease of approximately 20.3% from 625 million minutes in 2014.

The decrease in the number of wireline telephone subscribers and wireline voice service usage was primarily attributable to the increasing penetration of mobile voice and other alternative communication means, such as Over the Top messaging services and the migration of some of our wireline telephone subscribers to our mobile services.

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Mobile Voice Services

Our mobile voice services include local calls, domestic long distance calls, international long distance calls, intra-provincial roaming, inter-provincial roaming and international roaming. Amid the intense market competition in 2015, the number of subscribers of our mobile services grew by 6.6% from 185.6 million as of December 31, 2014 to 197.9 million as of December 31, 2015. The mobile voice usage increased to 667.5 billion minutes in 2015 from 655.9 billion minutes in 2014.

In 2015, we focused on developing our 4G services. We seek to further expand our mobile subscriber base through marketing efforts in open channel sales of 4G mobile handsets.

In addition, we continued to enhance the scale development of industry applications to attract government and enterprise subscribers.

Internet Access Services

Our Internet access services consist of wireline Internet access services, including dial-up and broadband services, and mobile Internet access services. Internet access services have become increasingly important in our revenue structure. We offer Internet access services through integrated and customizable service plans along with other services, which create the synergy that mutually benefits our Internet access, mobile and other services.

In 2015, we focused promotion on 50/100Mbps broadband products and continued to accelerate the optic fiber upgrade of our network and to increase the broadband connection speed. In 2015, we completed optic fiber upgrade in 170,000 copper-network communities, and as a result, the total optic fiber upgraded communities accounted for 85% of all copper-network communities as of December 31, 2015. The number of our wireline broadband subscribers reached 113.1 million as of December 31, 2015, up by 5.7% from 107.0 million as of December 31, 2014. Among these subscribers, fiber-to-the-home subscribers, or FTTH subscribers, reached 70.99 million, accounting for approximately 62.8% of the total wireline broadband subscribers as of December 31, 2015, representing an increase of 66.6% over the number of FTTH subscribers as of December 31, 2014. In addition, by utilizing our competitive wireline broadband access capacity, we continued to develop and incorporate new applications and services in order to build customer loyalty and increase the overall value of our services. Moreover, we further enhanced the coverage and access capabilities of our wireless broadband network by focusing on developing our 4G services. In 2015, we built 330,000 new 4G base stations, including 10,000 new LTE-A base stations in 45 key cities in the PRC, reaching a total of 510,000 4G base stations as of December 31, 2015. The number of subscribers of our 3G and 4G services increased from 118.6 million as of December 31, 2014 to 143.1 million as of December 31, 2015, representing 72.3% of our mobile subscribers. As of December 31, 2015, the number of our 4G terminal users reached 58.5 million, accounting for 29.5% of our mobile subscribers. In 2015, our total 3G/4G handset data traffic reached 555 KTB, representing an increase of 108.1% over 2014, and the monthly average mobile data traffic per 4G terminal user reached 751 MB, which was nearly twice of that per 3G/4G handset subscriber, significantly contributing to the volume and revenue of our data services.

Value-Added Services

Our value-added services comprise primarily wireline and mobile value-added services.

Our wireline value-added services include our wireline voice related services, such as caller ID services, Color Ring Tone services and short messaging services, or SMS. Color Ring Tone refers to a service where subscribers can customize the answer ring tone heard by the caller from a wide selection of songs, melodies, sound effects or voice recordings to replace the monotonous ring connecting tone. Our wireline value-added services also include wireline Internet related services, such as Internet data center, or IDC, services, IP-virtual private dial-up network, or IP-VPDN, services, and Internet protocol TV (e-Surfing HD), or IPTV (e-Surfing HD), services.

Our mobile value-added services primarily consist of (i) function-based services, such as mobile Color Ring Tone services, multimedia messaging services, or MMS and email services, (ii) content-based services and applications, such as content services relating to music, as well as (iii) industry-specific applications for government and enterprises, such as government administration and supervision, transport and logistics, digital hospital and integrated e-Surfing radio-frequency identification, or RFID. Our broad portfolio of mobile Internet products and applications has gained wide market acceptance and contributed to the development of our mobile value-added services. The usage volumes of music and video content services through our mobile network increased significantly. Our industry-specific applications continue to gain market acceptance.

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The number of subscribers to our wireline caller ID services was 87.7 million as of December 31, 2015, a decrease from 93.7 million as of December 31, 2014. The usage volume of our mobile SMS decreased by 12.1% from 64.6 billion messages in 2014 to 56.8 billion messages in 2015. The number of subscribers to our mobile Color Ring Tone services decreased to 76.3 million as of December 31, 2015 from 96.6 million as of December 31, 2014. We experienced rapid growth in our IPTV (e-Surfing HD) and IDC businesses in 2015. The number of our IPTV (e-Surfing HD) subscribers had an increase of more than 9 million in 2015, reaching approximately 40 million as of December 31, 2015. We enhanced our efficiently-centralized cloud resource operating capacity by constructing the largest “8+2+X” (including eight core regional nodes, two data centers in Inner Mongolia and Guizhou and flexible urban edge nodes according to customers’ demand) cloud resource layout in China. As of December 31, 2015, approximately 155,000 cabinets were put into service. The Inner Mongolia data center was put into operation in 2014 and the construction of the Guizhou data center began in August 2015. In terms of the designed capacities, the Inner Mongolia data center and the Guizhou data center can accommodate 150,000 frames and 2,400,000 servers in the aggregate. In addition, we have begun the construction of Data Center Interconnect, or DCI, and have achieved interconnection of 15 key IDCs.

Integrated Information Application Services

Our integrated information application services consist of “Best Tone” services, IT services and IT application services as well as Internet information services. “Best Tone” service provides our customers with phone number storage, enquiry and call transfer services, as well as various information needed in daily life. IT services and IT application services include information technology-based integrated solutions such as system integration, outsourcing, special advisory, information application, knowledge services and software development. Internet information services refer to products and applications, such as music, video, software and recharge of online game cards, provided through broadband access and operated on a nationwide basis.

In 2015, our integrated information application services continued to expand primarily due to the rapid growth of our IT services and IT application services. By leveraging our strength in the government and enterprise markets, we focused on key areas to provide differentiated and innovative products and services, expand the scale of our industry informatization products, especially in the government, education and healthcare sectors, and promote the transformation from ICT to information Internet-ware technology, or IIT. To further enhance these services, we seek to develop services incorporating new technologies such as cloud computing and Internet of Things.

Telecommunications Network Resource Services and Lease of Network Equipment

Our telecommunications network resource services primarily include services relating to our optic fiber and circuits, such as optic fiber and circuit leasing; virtual private network, or VPN, and bandwidth leasing. We offer telecommunications network resource services as certain of our total telecommunications solutions to large enterprise customers, including government agencies, large corporations and institutions. Many of these customers choose to lease our circuits to form VPNs based on various technologies, and links their local area networks at different locations. We also collaborate with a number of international telecommunications service providers to provide global communications services for multinational corporations. In addition, we lease network equipment to large enterprise customers.

In 2015, we continued to focus on government, financial and large enterprise customers. Our marketing efforts focused on providing global one-stop shop, tailored services and comprehensive solutions to these customers. These customers can enjoy a full range of consulting and technical support and services by contacting any of our designated account managers.

Other Services

Our other services primarily include sales and repairs and maintenance of equipment as well as the resale of mobile services.

Our Customers and Brand Management

In 2015, we continued to promote our full-service brand names under our enterprise brand “China Telecom,” and further enhanced “e-Surfing” as our leading brand name through, among others, promoting our “e-Surfing 4G+” mobile business, all-network smartphones as well as content application services. Through providing contents to our services on a multi-dimensional level and our coordinated marketing efforts, we continue to enhance the brand recognition and market influence for “e-Surfing.”

Tariffs

Prior to May, 2014, the levels and categorization of most of our current tariffs were subject to regulation by various government authorities. As a result of the governmental effort to gradually ease the regulations on the tariffs, the MIIT and the NDRC issued the Notice on Implementing the Market Based Tariffs for Telecommunications Services, pursuant to which, effective from May 10, 2014, telecommunications operators are permitted to set the tariffs of all telecommunications services based on the cost, customers’ demand and market conditions. See “—Regulatory and Related Matters—Tariff Setting” included elsewhere under this Item.

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Wireline Voice Services

For our local wireline telephone services, we charge a usage fees based on call usage.

Currently, all domestic long distance wireline services using public switched telephone network, or PSTN, are charged at the unified rate with a discount rate during off-peak hours.

We offer international, Hong Kong, Macau and Taiwan long distance wireline services through the international gateways of China Telecom Group. China Telecom Group negotiates bilateral settlement arrangements and rates based on the international settlement standards in the telecommunications industry, and we follow those settlement arrangements and rates.

Mobile Voice Services

Generally we charge subscribers of our mobile voice services the following categories of tariffs: local usage charges, long-distance call charges and roaming charges.

With respect to international, Hong Kong, Macau and Taiwan roaming of our mobile voice services, we provide roaming services to our customers and determine the roaming charges in accordance with roaming agreements between China Telecom Group and the international, Hong Kong, Macau and Taiwan operators.

Internet Access Services, Value-added Service and Integrated Information Application Services

We determine tariffs for these services according to market conditions.

Telecommunications Network Resource Services and Lease of Network Equipment

Telecommunications Network Resource Services. We determine the tariffs for our telecommunications network resource services according to market conditions. We generally charge a fee for installation of our telecommunications network resource services and a fixed monthly fee. We offer various promotion discounts for our customers who wish to upgrade to higher bandwidth services. These promotion discounts have stimulated demand for our telecommunications network resource services in recent years.

Lease of Network Equipment. We determine the tariffs for our lease of network equipment according to market conditions. We generally charge monthly fees for leased network equipment on a discount basis and leased network equipment tariffs have generally decreased in recent years. We provide different discounts to our customers on a case by case basis.

Interconnection and Roaming Arrangements

Interconnection

Interconnection refers to various arrangements that permit the connection of our networks to other mobile or fixed-line networks. These arrangements provide for the sharing and settlement of revenues from the base usage charges and, if applicable, roaming charges and domestic and international long distance charges.

China Telecom Group entered into interconnection settlement agreements with other telecommunications operators, including Unicom Group and China Mobile Group. We entered into an interconnection settlement agreement, as amended, with China Telecom Group, which allows our networks to interconnect with China Telecom Group’s networks as well as networks of the other telecommunications operators, with whom China Telecom Group had interconnection arrangements. Our interconnection arrangements with China Telecom Group and other telecommunications operators enable our subscribers to communicate with the subscribers of those operators and to make and receive local, domestic and international long distance calls. All interconnection and settlement arrangements among public wireline telephone, mobile, and Internet networks in the PRC are governed by the Telecommunications Regulations and the rules on interconnection arrangements and settlement promulgated by the MIIT. See “— Regulatory and Related Matters—Interconnection” included elsewhere under this Item.

International Roaming

We provide international roaming services across different mobile network standards, including CDMA, CDMA to Global System for Mobile Communications, or GSM, CDMA to Wideband Code Division Multiple Access, or WCDMA, and LTE to WCDMA, as well as 4G international roaming services on LTE to LTE networks, to our subscribers, which allow them to access mobile telecommunications services and use voice, SMS and data services while they are physically outside of their registered service area but in the coverage areas of other mobile telecommunications networks in other countries and regions with which we or our GSM/WCDMA roaming sponsor have roaming arrangements.

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As of December 31, 2015, subscribers of our mobile services can roam on mobile networks in more than 200 countries and regions based on international roaming agreements between China Telecom Group and the local CDMA operators or GSM/WCDMA/LTE roaming providers. A mobile service subscriber using roaming services is charged at our roaming usage rates for both incoming and outgoing calls, plus applicable long distance tariffs. With respect to international roaming, we settle roaming revenues and expenses with international operators in accordance with roaming agreements between China Telecom Group and the international operators. China Telecom Group has also agreed to arrange for us to participate in its future international roaming arrangements.

Marketing, Sales, Distribution and Customer Services

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 marketing and distribution network. We have devoted substantial efforts in advertisements to promote recognition of and loyalty to our products and services. In order to respond to market competition as well as attract and motivate customers to use our services, we have also grouped certain of our local voice, long distance voice and data services, differentiated price for one or more products and combined certain products into one integrated service plan to targeted customers to address their telecommunications needs.

In order to achieve the scale development of our business, we tailored products and marketing strategies to target different customer groups. For the government and enterprise market, we fully leveraged the integrated edges of networks, cloud computing and security capability, vigorously developed new types of information and communication technology, or ICT, and industrial Internet services, cloud and big data business, provided differentiated and innovative services for healthcare, education, government and other key industries to expand the user base. For the family market, we focused on development of optic fiber broadband, increased the end-to-end speed and enriched the contents for e-Surfing HD and Smart Family applications to provide overall information technology solutions. For the individual market, we focused on differentiated applications, attracting new customers through “4G + Application” to accelerate the acquisition of 4G terminal users. In addition, we seek to further expand our business in the rural areas through establishing distribution channels and setting up all-network stores in towns to achieve “one town, one store” coverage. For the overseas market, we accelerated our resources layout in the key countries and areas involved in the “One Belt One Road” initiative rolled out by the PRC government, in order to provide integrated solutions for overseas carriers, overseas Chinese companies and multinational corporations.

We implement our marketing strategy through an integrated sales and distribution channel network, which covers: (i) dedicated service channel comprising customer managers specifically assigned to market our services to industrial clients, commercial clients and campus clients; (ii) electronic-based service channel such as customer service hotlines, online service centers, mobile applications and third-party e-commerce platforms; (iii) business outlets channel, including self-owned and third-party business outlets; and (iv) mobile handset chain stores, electronics chain stores, supermarkets and large-scale telecommunications equipment distribution stores. As part of our strategy to provide integrated services, we continue to enhance resources sharing with respect to information relating to sales and distribution across our sales and distribution networks. In 2015, we comprehensively promoted Internet-based channel operation by strengthening traffic flow in online channels and enhancing user experience in offline channels. We carried out “Collaboration with Strong Partners” and “e-Surfing Recommended” promotions in our business outlets channel, which resulted in significant increase in sales of terminals and mobile phone cards in open channels. In government and enterprise channels, we implemented the “Sales Elite” program, which resulted in rapid expansion of our subscriber scale. In electronic channels, we reinforced our efforts for data traffic sales, which resulted in a rapid increase in the sales volume of data traffic packages.

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In 2015, we implemented “the Excellent 100” program to encourage handset manufacturers to produce popular 4G handsets that are compatible with our network, which in turn enriched our 4G handset portfolio. We made every effort to promote “All-Network Six-Mode Handsets” to become the national standard. We also promoted signature handsets such as security handsets, video handsets and Taobao handsets to cater to the differentiated needs of our customers. The portfolio of handsets offered was further enlarged and the cost performance was further enhanced. In 2015, we offered approximately 300 4G terminal models, including approximately 70 all-network six-mode 4G terminal models and 11 4G+ terminal models to our customers.

Furthermore, we have adopted various marketing approaches and initiatives, such as customer experience, customer relationship management, SMS, telesales, sales plans and joint promotion with our business partners such as Internet portal companies and software development companies, to promote our products and services, in particular, our value-added services.

Customer Service

We provide customer services through all channels on our integrated sales and distribution channel network and continue to enrich our customer services channels by partnering with third-party Internet-based channels, including launching customer service platforms on “Yichat” and “Wechat”, two mobile messaging applications, as well as “Weibo”, a Chinese microblogging website. Our customer services typically include service inquiries, service applications, customers’ complaints, product and service promotions, service initiation and termination, payment reminder services and emergency services. Through establishing and implementing our customer full-service standard, we have significantly improved our basic customer services, such as service processing time, request responding time and providing service related and other information to customers through text messages.

Information Technology System

We employ our information technology, or IT, system to support our wireline voice services, mobile voice services and other services. In recent years, through continuous upgrading, our IT system has the capability to support our wireline, mobile and other services on an integrated basis and to support other services related operations such as account opening, billing and customer services.

Network System

Our network has extensive coverage and scale and employs a variety of advanced technologies and suitable architecture. It offers comprehensive functions and a reliable operation. In addition, it supports a comprehensive range of end-to-end telecommunications services and enables customized products to be delivered for a variety of telecommunications needs. Our network system is managed and operated by our experienced network management and maintenance teams and is supported by our strong research and development capabilities. And in light of future advances in technology, we have formulated viable plans to migrate our network system efficiently to the next generation.

On December 31, 2012, we completed the acquisition from China Telecom Group of certain assets and associated liabilities relating to the CDMA network located in 30 provinces, municipalities and autonomous regions in the PRC. In addition, we lease certain CDMA network facilities in Xizang Autonomous Region from China Telecom Group and have the exclusive right to use and operate such CDMA network to provide our CDMA mobile services. See “Item 4. Information on the Company—A. History and Development of the Company—Our Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities” and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” for details.

Network Architecture

Our network system consists of access networks, data networks, core networks, transport networks, service networks and support networks.

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Access networks: Access networks include wireline access network based on copper cables and optic fibers and wireless access network based on CDMA, TD-LTE and LTE FDD, which are directly connected to customers to provide data and voice services.

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Data networks: Data networks include Internet network and basic data network, and provide network support for all telecommunications services based on IP.

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Core networks: Core networks include our wireline telephone network, mobile core network, and support our basic telecommunications services.

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Transport networks: Transport networks provide electronic transmission of various service signals for access networks, data networks and core networks.

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Service networks: The service networks provide the platform and ancillary systems for a variety of value-added services and application products.

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Support networks: Support networks include signaling networks, digital synchronous networks and various network management systems, in order to support the reliable and effective operation of our networks and services at all levels.

Equipment procurement

We purchase most of our network equipment from leading international and domestic suppliers. We purchase a variety of network equipment from domestic suppliers, such as transport equipment and local switches. We make most of our purchases through competitive tenders primarily based on product and service quality, system compatibility and price.

Purchases from our five largest suppliers of telecommunications equipment accounted for approximately 24.1% of our total amount of annual purchases in 2015. Purchases from our single largest supplier of telecommunications equipment accounted for approximately 8.3% of our total amount of annual purchases in 2015.

Competition

Following the industry restructuring in 2008, China Unicom and our Company have full-service capabilities and compete with each other in both wireline and wireless telecommunications services. China Mobile continues to be the leading provider of mobile telecommunications services in the PRC and competes with us in mobile telecommunications services and other telecommunications services. In December 2013, China Mobile received a license from the MIIT to operate fixed-line telecommunications businesses, leading to intensified competition in this sector.

Since the PRC’s accession to the WTO, foreign operators have been permitted to gradually increase their investments in the telecommunications industry in the PRC. Like domestic service providers, foreign operators are subject to the licensing requirements of the MIIT. In addition, investments by foreign operators may not exceed limits set forth in the relevant laws and regulations with respect to the amount of investment and percentage of total ownership interests that foreign operators are permitted to make in telecommunications enterprises in the PRC. For example, the foreign ownership in basic telecommunications services will be subject to a limit of 49.0% and the foreign ownership in value-added telecommunications services other than e-commerce services will be subject to a limit of 50.0%. See “—Regulatory and Related Matters—Licensing” included elsewhere under this Item.

In recent years, the PRC Government has taken various initiatives to encourage competition in the telecommunications industry, such as the three-network convergence policy and the policy encouraging non-State owned companies to enter the industry. In May 2010, the PRC State Council issued Certain Opinion on Encouraging and Guiding the Sound Development of Private Investment, encouraging private investment in industry sectors that are mainly state-controlled, such as basic telecommunications services. In June 2012, the MIIT issued Opinions on Encouraging and Guiding Private Investment in the Telecommunications Industry, encouraging private-sector investment in the telecommunications industry. On May 17, 2013, the MIIT issued the Trial Plan of Resale of Mobile Telecommunications Services, pursuant to which the MIIT would grant qualified companies mobile telecommunications resale business approvals on a pilot basis which would allow them to purchase mobile telecommunications services in bulk from mobile networks operators and resell such services to customers. In an effort to further encourage private-sector investment in the broadband network construction and business operation, as well as encourage private capital to enter into the telecommunications market through equity investment, the State Council issued the Notice on the “Broadband China” Policy and the Implementation Plan on August 1, 2013 and Certain Opinion on Promoting Information Consumption and Stimulating Domestic Demand on August 8, 2013, and the MIIT also issued the Informatization Development Plan on September 29, 2013, the Notice on Opening the Broadband Access Market to Private Capital on December 25, 2014 and the Notice on Further Broadening the Scope of Trial Opening of the Broadband Access Business on September 23, 2015. As a result, the competitive landscape in the PRC telecommunications industry may further diversify, causing more intensified competition. As of December 31, 2015, the MIIT had granted broadband access pilot enterprises licenses to over 50 private companies. As of December 31, 2015, we had entered into resale contracts with 25 out of the 42 mobile virtual network operators which had obtained the licenses from the MIIT, and 11 of these companies had started to offer 4G services.

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Trademarks

We conduct our business under the “China Telecom” brand name and logo. Currently, China Telecom Group owns certain trademarks in the PRC, some of which have been registered with the Trademark Office of the PRC State Administration for Industry and Commerce, or the Trademark Office, and some of which are in the process of being registered with the Trademark Office. China Telecom Group has executed a trademark license agreement with us. Under this agreement, China Telecom Group agreed to grant to us and our subsidiaries the right to use these trademarks upon the completion of the registration on a royalty-free basis until December 31, 2018, which is automatically renewable for three more years at our option. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Ongoing Related Party Transactions between Us and China Telecom Group—Trademark License Agreements.”

Regulatory and Related Matters

Overview

The PRC’s telecommunications industry is subject to extensive government regulation. A number of central government authorities have regulatory responsibilities for various aspects of the telecommunications industry. These authorities primarily include:

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The MIIT, which is responsible for, among other things:

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formulating and enforcing industry policies and regulations as well as technical standards;

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granting telecommunications service licenses;

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supervising the operations and quality of service of telecommunications service providers;

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allocating and administering telecommunications resources such as spectrum and numbers;

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together with other relevant regulatory authorities, including the NDRC, regulating tariff charging mechanisms for telecommunications services;

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formulating interconnection and settlement arrangements between telecommunications networks; and

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maintaining fair and orderly market competition among service providers.

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Provincial communications administrations under the MIIT, which oversee the implementation of the Ministry’s regulations and exercise regulatory authorities delegated by the Ministry within their respective provinces, autonomous regions and centrally administered municipalities.

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The NDRC approves investment and finance projects exceeding certain capital expenditure amounts as well as foreign investment projects exceeding certain investment amounts.

In order to provide a uniform regulatory framework to encourage the orderly development of the telecommunications industry, the PRC government is in the process of drafting a telecommunications law. We expect that, if and when the telecommunications law is adopted by the National People’s Congress or its Standing Committee, the highest state legislative body in the PRC, it will become the basic telecommunications statute and provide a regulatory framework for the telecommunications industry in the PRC.

Telecommunications Regulations

The PRC’s State Council promulgated the Telecommunications Regulations, which became effective as of September 25, 2000 and were amended on July 29, 2014 by the Decision of the State Council on Amending Certain Administrative Regulations. The Telecommunications Regulations are substantially consistent with, and are primarily intended to streamline and clarify, the then existing rules and policies for the telecommunications industry. The Telecommunications Regulations provide the primary regulatory framework for the PRC’s telecommunications industry in the interim period prior to the adoption of the telecommunications law.

The Telecommunications Regulations are intended to develop a transparent and fair regulatory environment to encourage fair and orderly competition and development in the telecommunications industry. The Telecommunications Regulations address all key aspects of telecommunications operations, including, among others, entry into the telecommunications industry, network interconnection, telecommunications resource allocation, tariffs and service standards.

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Licensing

The Telecommunications Regulations adopt the existing regulatory distinction between basic and value-added telecommunications services, which are subject to different licensing requirements. Basic telecommunications services include, among others, wireline local and domestic long distance telephone services, international telecommunications services, mobile communications services (such as 900/1800MHz GSM, 800MHz CDMA, 3G and 4G mobile communications services), satellite communications services, paging services, data communications services (such as Internet data transmission services, international data communications services), trunking services, network access services and domestic and international telecommunications facility services. Value-added telecommunications services include, among others, value-added services provided over wireline telephone networks (e.g., telephone information, call center, voice mail and video conferencing services), value-added services provided over mobile networks, value-added services provided over Internet networks (e.g., Internet data center and Internet access and content services) and value-added services provided over other data networks (e.g., computer information, e-mail and electronic data interchange services).

Providers of any basic telecommunications services as well as providers of value-added services in two or more provinces, autonomous regions and centrally administered municipalities in the PRC must apply for licenses from the MIIT. In accordance with the approval of the MIIT, we derive our exclusive rights to operate our business from our status as a subsidiary controlled by China Telecom Group, which holds the licenses required for operating our telecommunications business. In January 2009, China Telecom Group received a license from the MIIT to operate 3G services nationwide, which permits China Telecom Group to provide 3G services based on CDMA2000 technology. We have been authorized by China Telecom Group to operate 3G services nationwide based on CDMA2000 technology. In December 2013, China Telecom Group, Unicom Group and China Mobile Group received licenses from the MIIT to operate 4G services nationwide based on TD-LTE technology. We have been authorized by China Telecom Group to operate 4G services nationwide based on TD-LTE technology. In 2014, China Telecom Group was approved by the MIIT, and authorized us, to expand the LTE FDD and TD-LTE hybrid network trial in a number of cities in the PRC. On February 27, 2015, China Telecom Group was granted by the MIIT the permit, and authorized us, to provide 4G services based on LTE FDD technologies nationwide.

After its accession to the WTO in December 2001, the PRC promulgated the Administrative Regulations on Telecommunications Companies with Foreign Investment, effective on January 1, 2002, implementing its commitments to the WTO. Those commitments include the gradual reduction of foreign ownership restrictions in the telecommunications industry and the step-by-step opening of the telecommunications market in the PRC to foreign operators. According to those regulations, enterprises with foreign investment may operate basic and value-added telecommunications services subject to the approval of the MIIT and the Ministry of Commerce (formerly the Ministry of Foreign Trade and Economic Cooperation). Certain limitations have been placed on the total registered capital of, and maximum foreign shareholdings in, such enterprises. However, the presence or absence of foreign investments in an applicant for telecommunications licenses will presumably bear no direct relation to the decision on whether to issue licenses, inasmuch as the issuance of new licenses is governed by a separate set of rules and regulations. In recent years, the PRC gradually fulfilled the market-opening commitments it made to the WTO and lifted many restrictions for foreign investors and service providers in respect of telecommunications services. The remaining restrictions regarding mobile services, value-added telecommunications services and fixed line services are as follows:

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For mobile voice and data services:

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there is no longer any geographic restriction and the foreign ownership shall be no more than 49.0%.

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For value-added telecommunications services:

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there is no longer any geographic restriction and the foreign ownership shall be no more than 50.0%.

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For fixed line services:

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there is no longer any geographic restriction and the ownership shall be no more than 49.0%.

The MIIT has promulgated the Administrative Measures for the Licensing of Telecommunications Business Operations, which became effective on April 10, 2009. Those regulations apply to the application for, and examination and approval of, telecommunications business licenses in the PRC.

Pursuant to the Circular on the Framework Plan for the China (Shanghai) Pilot Free Trade Zone issued by the State Council on September 18, 2013, qualified foreign investment enterprises will be permitted to provide specific value-added telecommunications services in the China (Shanghai) Pilot Free Trade Zone, subject to protections on Internet information security and approval by the State Council in case of a breakthrough in the limitations provided for under the administrative regulations.

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Tariff Setting

Prior to May 10, 2014, under the Telecommunications Regulations, telecommunications tariffs are categorized into government fixed tariffs, government guidance tariffs and market based tariffs. The telecommunications providers are permitted to set tariffs for certain services provided the tariff levels are below the tariff ceilings set by the MIIT and the NDRC.

As a result of the governmental effort to gradually ease the regulations on the tariffs, on May 5, 2014, the MIIT and the NDRC issued the Notice on Implementing the Market Based Tariffs for Telecommunications Services. Pursuant to this Notice, effective from May 10, 2014, the government fixed tariffs and the government guidance tariffs are abolished and telecommunications operators are permitted to set the tariffs of all telecommunications services based on the cost and market conditions. The Telecommunications Regulations were subsequently amended on July 29, 2014 by the Decision of the State Council on Amending Certain Administrative Regulations to reflect this policy change as well as other amendments.

Interconnection

Under the Telecommunications Regulations and the Administrative Rules on Interconnection between the Public Telecommunications Networks promulgated by the MII in May 2001, as amended in September 2014, major telecommunications operators in the PRC cannot refuse requests for interconnection and must enter into interconnection agreements upon request by other service providers. Interconnection agreements must be reported to the MIIT. Telecommunications operators must ensure the smooth interconnection pursuant to the interconnection agreements as well as the applicable regulations and may not unilaterally terminate the interconnection.

The Telecommunications Regulations further provide that the technical standards and settlement methods for network interconnections be formulated by the MIIT. In accordance with these regulations, China Telecom Group has entered into various interconnection agreements with other telecommunications service providers, including China Mobile and China Unicom.

On December 30, 2013, the MIIT issued the Guidance Opinions on Building New National Network Interconnection Hubs, pursuant to which seven new interconnection hubs altogether have been built in Chengdu, Wuhan, Xi’an, Shenyang, Nanjing, Chongqing and Zhengzhou, in addition to the three existing interconnection hubs in Beijing, Shanghai and Guangzhou. The operations of these new interconnection hubs have significantly improved the quality and speed of interconnection between the telecommunications networks.

The MIIT issued the Notice on Public Telecommunications Network Interconnection Settlement and Relay Fees Allocation in October 2003 and two Notices on Adjustment to Settlement Standards for Interconnection Fees of Wireline Local Telephone Networks in October 2006 and April 2009, respectively, which provided for interconnection settlement arrangement standards for local inter-district calls between wireline local telephone operators as well as public telecommunications network. In November 2009, the MIIT issued the Notice on Adjustment to Settlement Standards for Interconnection Fees of Public Telecommunications Network and the Notice on the Settlement Standards for Interconnection Fees of TD-SCDMA, which provided for adjustments to certain interconnections settlement standards between telecommunications operators. Effective from January 1, 2014, some of the settlement standards have been further adjusted pursuant to the Notice on Adjustment to Settlement Standards for Interconnection Fees of Public Telecommunications Network issued by the MIIT on December 17, 2013. Prior to January 1, 2014, when a mobile user of a basic telecommunications operator (excluding China Mobile’s TD-SCDMA 157 and 188 prefix numbers users) initiates a call to a mobile user of another basic telecommunications operator, the settlement charge is set uniformly at a rate of RMB0.06 per minute payable by the basic telecommunications operator originating the call to the basic telecommunications operator receiving the call. In the event a China Mobile’s TD-SCDMA 157 and 188 prefix numbers user initiates a call to a user of our Company or China Unicom within the scope of local network, China Mobile will pay a settlement charge of RMB0.012 per minute to our Company or China Unicom. With effect from January 1, 2014, when a mobile users of our Company or China Unicom initiates a call to a mobile user of China Mobile (not including TD-SCDMA 157 and 188 prefix numbers users), the interconnection settlement charges payable by our Company or China Unicom to China Mobile will be adjusted from the prevailing rate of RMB0.06 per minute to RMB0.04 per minute. Other existing voice interconnection settlement standards remain unchanged. The MIIT will assess the above interconnection settlement policy once every two years based on the development conditions of the telecommunications market and will make adjustments when appropriate. Meanwhile, the SMS interconnection settlement standard is adjusted from RMB0.03 per message to RMB0.01 per message, and the MMS interconnection settlement standard is adjusted from RMB0.10 per message to RMB0.05 per message.

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The following table sets forth selected interconnection revenues sharing and settlement arrangements for local calls and domestic long distance calls:


Network from Which Calls Originated	Network at Which Calls Terminated	Current Main Settlement Arrangement
Mobile operator	Wireline local operator or transferred through mobile operator’s long distance network to wireline local operator	(1) Mobile operator collects the cellular usage charge from its subscribers (2) Mobile operator pays RMB0.06 per minute to wireline operator. (3) Starting January 1, 2010, mobile operator (China Mobile) pays RMB0.012 per minute to wireline operator for calls originated from TD-SCDMA“157” or “188” prefix phone numbers in local areas

Wireline local operator	Mobile local operator	(1) Wireline operator collects the usage charge from its subscribers (2) No revenues sharing or settlement prior to June 1, 2010. Wireline operator pays RMB0.001 per minute to mobile operator after June 1, 2010

Wireline operator	Transferred through wireline operator’s long distance network to mobile operator	(1) Wireline operator collects the usage charge from its subscribers (2) Wireline operator pays RMB0.06 per minute to mobile operator

Wireline local operator A	Wireline local operator B	(1) Operator A collects the usage charge from its subscribers (2) In the case of local calls from operator A not using operator B’s local inter-district trunk circuit, operator A pays 50.0% of usage charge to operator B (3) In the case of local inter-district calls from operator A using operator B’s local inter-district trunk circuit, operator A pays no more than RMB0.06 per minute to operator B

Mobile operator A	Mobile local operator B or transferred through mobile operator A’s long distance network to mobile operator B	(1) Mobile operator A collects the cellular usage charge from its subscribers (2) Prior to January 1, 2014, mobile operator A pays RMB0.06 per minute to mobile operator B. Starting from January 1, 2010, mobile operator A (China Mobile) pays RMB0.012 per minute to mobile operator B for calls originated from TD-SCDMA “157” or “188” prefix phone numbers users in local areas. Starting from January 1, 2014, mobile operator A (China Telecom or China Unicom) pays RMB0.04 per minute to mobile operator B (China Mobile) for calls originated from a mobile user of operator A (China Telecom or China Unicom) to a mobile user of operator B (China Mobile) (not including TD-SCDMA 157 and 188 prefix numbers).

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The following table sets forth selected current main interconnection revenues sharing and settlement arrangements for PSTN international long distance calls, including calls originated from and terminated in Hong Kong, Macau and Taiwan:


Network from Which Calls Originated	Network at Which Calls Terminated	Current Main Settlement Arrangement
Domestic wireline local or mobile operator A	Without using the carrier identity code of operator B, through the domestic and international long distance network of operator B	(1) Operator A collects the tariff from the subscribers (2) Operator A retains RMB0.06 per minute, and operator B gets the rest of the international long distance tariff.

	Using the carrier identity code of operator B, through the domestic and international long distance network of operator B	(1) Operator B collects the tariff from the subscribers (2) Operator B pays operator A RMB0.06 per minute

International long distance operator	Operator B through domestic long distance network of operator C and international gateway of domestic operator A	(1) Operator A pays not more than RMB0.54 per minute to operator C, operator C pays not more than RMB0.06 per minute to operator B, where operator A and operator C, or operator B and operator C can be the same operator

The following table sets forth selected current main interconnection revenues sharing and settlement arrangements for SMS:

Network from Which SMS Originated

Network at Which SMS Terminated

Current Main Settlement Arrangement

Wireline or mobile operator A

Wireline or mobile operator B

(1) Operator A collects the tariff from its subscribers

(2) Operator A pays RMB0.03 per SMS to operator B. Starting January 1, 2014, operator A pays RMB0.01 per SMS to operator B.

The following table sets forth selected current main interconnection revenues sharing and settlement arrangements for MMS:

Network from Which MMS Originated

Network at Which MMS Terminated

Current Main Settlement Arrangement

Mobile operator A

Mobile operator B

(1) Operator A collects the tariff from its subscribers

(2) Operator A pays RMB0.10 per MMS to operator B. Starting January 1, 2014, operator A pays RMB0.05 per MMS to operator B.

The primary interconnection settlement arrangement for the Internet backbone networks in China is the interconnection settlement through the network access points, or the NAPs, which is determined by the MIIT. The MIIT announced in 2013 that it would reduce the interconnection settlement charges for the Internet backbone networks by 30% per year in the next five years starting from 2013. The interconnection settlement charges for the NAPs was further reduced by the MIIT starting from November 1, 2015, and is currently set as RMB280,000 per gigabyte.

Technical Standards

The MIIT sets industry technical standards for telecommunications terminal and interconnection related equipment used in the public telecommunications networks. A network access license from the MIIT and other relevant regulatory authorities is required for all such equipment. Most of the standards set by the MIIT conform to standards recommended by the International Telecommunications Union and other international telecommunications standards organizations.

Telecommunications Resources

The MIIT is responsible for the administration and allocation of telecommunications resources in the PRC, including radio frequencies and telecommunications network numbers. The use of these resources by telecommunications service providers is subject to the approval of the MIIT or the relevant provincial communications administrations and a usage fee payable to the PRC government.

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In 2015, we paid approximately RMB167 million of usage fees for the telecommunications network numbers and approximately RMB382 million of frequency usage fees, respectively.

Quality of Service

Under the Telecommunications Regulations, the MIIT and the relevant provincial communications administration have the responsibility of supervising and monitoring the quality of services provided by telecommunications service providers in the PRC. Under the Telecommunications Regulations, customers of telecommunications service providers have the right to submit complaints to the MIIT and the relevant provincial communications administration or other relevant government authorities.

On March 13, 2005, the MII promulgated the Telecommunications Services Standards which were amended in September 2014. The Telecommunications Services Standards aim to protect the rights of the customers of telecommunications services and sets forth minimum quality requirements for telecommunications services provided by telecommunications operators.

The MII promulgated the Measures on the Supervision and Administration of Quality of Service of the Public Telecommunications Networks, or the Measures on Quality of Service, effective August 1, 2005. The Measures on Quality of Service provide the supervision and administration of services of public telecommunications networks, including, among others, wireline local telephone networks, domestic long distance telephone networks, international telephone networks, and IP telephone networks. Under the Measures on Quality of Service, telecommunications operators are required to set up a unit which is responsible for solving the problems with respect to the public telecommunications network services.

Under the PRC Consumer Protection Law, Consumers’ Associations can participate in the inspection and examination of goods and services by relevant governmental authorities; and customers can lodge their complaints with Consumers’ Associations, which can investigate the goods or services involved in the complaints, and mediate the complaints.

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

Under the Telecommunications Regulations, telecommunications service providers in the PRC are required to fulfill universal service obligations in accordance with relevant regulations to be promulgated by the PRC government, and the MIIT has been given authority by the PRC government 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 other regulatory authorities, is also responsible for formulating administrative rules relating to the establishment of a universal service fund and compensation schemes for universal services. The PRC government currently uses financial resources to compensate the expenses incurred in the “Village to Village” and the “Broadband China” projects before the establishment of a universal service fund. The State Council issued the Notice on the “Broadband China” Policy and the Implementation Plan on August 1, 2013, which included the provision of broadband services to villages as part of the universal service obligations of telecommunications service providers and mentioned improving the compensation scheme for the expenses incurred in the “Broadband China” projects undertaken by telecommunications service providers in the villages. Under the compensation scheme, telecommunications operators may receive compensation from the PRC government for the “Broadband China” projects. However, the compensation from the PRC government may not be sufficient to cover all of our expenses for providing the telecommunications services under the relevant projects.

Under the Telecommunications Regulations, all PRC telecommunications operators shall provide universal services, our Company, together with other telecommunications operators, has undertaken the “Village to Village” project since 2004. Currently, the PRC government implements the “Broadband China” projects which require telecommunications operators to provide broadband services in a number of remote villages in the PRC as part of their universal service obligations. The MOF and the MIIT jointly issued the Notice of Implementation of Telecommunications Universal Services on a Trial Basis in December 2015, which provided that the telecommunications universal services should take a market-oriented approach and that the telecommunications universal services providers should be selected through a public bidding process. Under the “Broadband” projects, China Telecom Group and our Company had invested in the construction of broadband network facilities in certain remote villages of 21 provinces and autonomous regions by the end of 2015. We believe the expenses for such operation and maintenance will not have a material effect on our financial condition.

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State-Owned Assets Supervision

Under the PRC Company Law, PRC Enterprise State-Owned Assets Law, Interim Measures for the Supervision and Administration of State-Owned Assets of the Enterprises, and other administrative regulations, the State Owned Assets Supervision and Administration Commission of the State Council, or the SASAC, among others, supervises the preservation of the value of state-owned assets, guides the reform and restructuring of state-owned enterprises, and evaluates the performance of management executives of state-owned enterprises through legal procedures. Our controlling shareholder, China Telecom Group, is a wholly state-owned enterprise and subject to the SASAC’s supervision.

Three-Network Convergence Policy

In January 2010, the PRC government announced its decision to accelerate the advancement of convergence of telecommunications, television broadcast 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. In June 2010, the State Council issued the Trial Plan for Three-Network Convergence and called for 12 volunteer regions (cities) and enterprises for the first trial. Following the completion of the first trial in December 2011, the State Council announced 42 additional regions (cities) for the second phase of the trial. In September 2012, we received the Information Network Communicated Audio-Video Program License from the State Administration of Press, Publication, Radio, Film and Television (the “SARFT”, formerly, the State Administration of Radio, Film and Television). In August 2015, the General Office of the State Council issued the Notice of Plan of Furthering the Three-Network Convergence, which marked the completion of the trial plan of the three-network convergence and called for furthering the three-network convergence nationwide.

“Broadband China” Policy

In August 2013, the State Council issued the Notice on the “Broadband China” Policy and the Implementation Plan, which treats broadband as a strategic national infrastructure, strengthens the overall top-level design and planning, coordinates the research and development of the key technologies, formulation of the standard, the safety of the information technology and the construction of the emergency communication system, strengthens the synergy effect of website construction, application, innovative service and industry support, comprehensively utilizes the cable technology and the wireless technology to accelerate the convergence of telecommunications, television broadcast and Internet access networks, and accelerates the construction of the next generation national information infrastructures. In September 2013, the MIIT promulgated an Information-Based Development Plan to further elaborate the “Broadband China” Policy and to encourage private capital to enter into the telecommunications market through equity investment.

VAT Reform Applicable to the Telecommunications Industry

On November 16, 2011, the Ministry of Finance, or the MOF, and the SAT, introduced a pilot tax program under which the PRC business tax would be replaced with a VAT. On April 29, 2014, the MOF and the SAT announced that the pilot program would be extended to cover the telecommunications industry. Effective from June 1, 2014, the pilot tax rate for basic telecommunications services is 11% and the pilot tax rate for value-added telecommunications services is 6%. On March 18, 2016, the State Council standing committee meeting resolved to expand the VAT pilot program to all other industries which were previously subject to the PRC business tax starting from May 1, 2016. On March 23, 2016, the SAT issued the Notice on Expanding the Pilot Program of Replacing the Business Tax with VAT, promulgating the relevant implementing rules. The application of the VAT to the telecommunications industry has had, and is expected to continue to have, a material adverse effect on our revenues and operating profits in the short term, but such adverse effect is expected to gradually decrease in the long term. See “Item 3. Key Information — D. Risk Factors — Risks Relating to Our Business — Implementation of a value-added tax to replace the business tax in the PRC may decrease our revenues and profitability.” and “Item 5. Operating and Financial Review and Prospects – A. Operating Results – Year Ended December 31, 2015 Compared to Year Ended December 31, 2014 – Qualitative and Quantitative Analysis of the VAT Reform Impact.”

However, we expect that in the long term replacing the business tax with the VAT will be beneficial to the development of our business. We will strive to reduce the adverse effect of the application of VAT to the telecommunications industry on our revenues and profits by taking key measures and considerations such as:

(i) we would optimize development and sales models, implement stringent cost control measure, and enhance control on purchasing and vendors’ tax profiles;

(ii) as the VAT pilot program expands to other industries nationwide, it is expected that we would be able to deduct more operating costs and investments as input VAT credits in future;

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(iii) following our strategic transformation, the proportion of revenues generated from value-added telecommunications services is expected to increase, resulting in a lower average tax rate of output VAT; and

(iv) input VAT credit on capital expenditures would reduce the carrying amounts of fixed assets, resulting in a reduction of depreciation expenses, which can enhance our future profits.

Amended Employment Contract Law

The amended PRC Employment Contract Law, effective as of July 1, 2013, and the Interim Provisions on Labor Dispatch, effective as of March 1, 2014, focus on strengthening the administration of the employment practice involving dispatched employees, and provide that, among others, the dispatched employees shall have the right to receive the same compensation as that received by other employees hired by the employer for the same type of positions, shall account for no more than 10% of the total employees hired by an employer and shall only be employed for temporary, supporting or substitutive positions. The amended PRC Employment Contract Law and the Interim Provisions on Labor Dispatch have not had, and we do not believe they will have, a material adverse effect on our personnel expenses or number of employees.

Mobile Number Portability Trial

In April 2009, Hainan Province kicked off the mobile number portability trial with a team of experts from the MIIT holding a training session in the city of Haikou to introduce the relevant policies and requirements for the mobile number portability trial, which would allow mobile users to migrate from the network of one telecommunications operator to another without having to change their mobile numbers. In November 2010, Tianjin and Hainan each began mobile number portability trial for the local China Mobile subscribers. Pursuant to the relevant policy then issued by the MIIT, mobile users of China Mobile, China Unicom and our Company in Tianjin may migrate among the networks of the three operators, while mobile users in Hainan may only migrate from China Mobile to our Company or China Unicom and not from China Unicom or our Company to China Mobile. In May 2014, the MIIT promulgated the Administration Measures on Mobile Number Portability Trial, effective as of May 17, 2014, which regulated the implementation measures for mobile number portability trials. On the same date, Hainan began providing the local mobile users with mobile number portability among the local networks of our Company, China Unicom and China Mobile. On September 20, 2014, Jiangxi, Hubei and Yunnan began offering mobile number portability services to the local mobile users. In September 2015, the MIIT commenced a thorough evaluation of the mobile number portability trial in order to determine whether or not to expand the trial across the nation. As of the date of this annual report, such evaluation is still on-going.

C.	Organization Structure

See “—A. History and Development of the Company—Our Restructuring and Initial Public Offering in 2002” included elsewhere under this Item.

D.	Property, Plants and Equipment

Properties

Executive Offices

Our principal executive offices are located in Beijing and we obtained the right to occupy and use these offices pursuant to an agreement we entered into with China Telecom Group in September 2002 and supplemental agreements on October 26, 2003, April 13, 2004, December 15, 2005, December 26, 2007, March 31, 2008, August 25, 2010, August 22, 2012 and September 23, 2015, respectively. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Ongoing Related Party Transactions between Us and China Telecom Group—Centralized Services Agreement.”

Properties

We conduct our business on land and premises either owned by ourselves or leased from China Telecom Group and/or its affiliates and third parties. As to our owned properties, although the land and building titles to a majority of these properties have been registered in our name after they were acquired by us as part of our restructuring, land and building titles to the remaining properties are still registered in the name of China Telecom Group. China Telecom Group has agreed to indemnify us against any loss or damage incurred by us caused by or arising from any challenge to, or interference with, our right to use these properties. As to our leased properties, China Telecom Group has undertaken to us that it will indemnify us against any loss or damage caused by or arising from any challenge to, or interference with, such right. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Ongoing Related Party Transactions between Us and China Telecom Group—Property Leasing Framework Agreement.”

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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 our audited consolidated financial statements and our selected financial data, in each case included elsewhere in this annual report. Our consolidated financial statements have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board.

Our audited consolidated financial statements included elsewhere in this annual report reflect the acquisitions and divestment in 2013, the establishment of new subsidiaries in 2014 and the tower assets disposal in 2015 described under “Item 4. Information on the Company—A. History and Development of the Company—Industry Restructuring and Our Acquisition of the CDMA Business in 2008”, “—Our Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities”, “—Changes in Our Corporate Organization in 2013”, “—Changes in Our Corporate Organization in 2014” and “Establishment of the Tower Company and the Disposal and Use of the Telecommunications Towers”.

In addition, since we and China Telecom Europe were under common control of China Telecom Group after the completion of our acquisition of China Telecom Europe from China Telecom Group on December 31, 2013, the acquisition of China Telecom Europe has been accounted for as a combination of entities under common control in a manner similar to a pooling-of-interests. Accordingly, the assets and liabilities of China Telecom Europe have been accounted for at historical amounts and the consolidated financial statements for periods prior to the acquisition have been restated to include the financial position and results of operations of China Telecom Europe on a combined basis. Unless otherwise indicated in this section, our financial data for periods prior to the acquisition are presented based on those restated amounts. See Note 1 to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

On October 14, 2015, the Company entered into the Transfer Agreement with the Tower Company and certain other parties thereto, pursuant to which the Company agreed to sell certain telecommunications towers and related assets in an aggregate amount of RMB30,131 million and inject cash in the amount of RMB2,966 million to the Tower Company in exchange for 33,097 million new shares, with a par value of RMB1.00 per share, issued by the Tower Company. Following the completion of such this transaction, the Company holds 27.9% of the share capital of the Tower Company. The Company realized a gain (subject to deduction of relevant expenses and taxes) from such tower assets disposal, which was calculated based on the surplus of the final consideration for the tower assets disposal over the book value of such assets as at the completion date. The total gain from the tower assets disposal was RMB7,231 million. As the Company holds 27.9% of the share capital of Tower Company following the completion of such tower assets disposal, 72.1% of the aforesaid gain has been recognized at the completion date in the Company’s consolidated statement of comprehensive income for 2015 and the remaining 27.9% of the aforesaid gain is deferred over the remaining useful life of the tower assets. As a result, a gain from the tower assets disposal in the amount of RMB5,214 million was recognized in the consolidated statement of comprehensive income for the year ended December 31, 2015. The Company and the Tower Company have reached preliminary understanding, and are currently in the process of negotiating the arrangements, in respect of the Company’s use of certain telecommunications towers and related assets owned by the Tower Company. The Company estimated the telecommunications towers usage fees payable to the Tower Company in 2015 taking into account factors including the depreciation cost, maintenance cost, markup margin and sharing discount. See “Item 4. Information on the Company—A. History and Development of the Company—Establishment of the Tower Company and the Disposal and Use of the Telecommunications Towers”, and Notes 2 and 33(b) to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

Overview

We are an integrated information service provider in the PRC. We offer a comprehensive range of telecommunications services, including wireline voice services, mobile voice services, Internet access services, value-added services, integrated information application services, telecommunications network resource services and lease of network equipment and other related services. We continue to leverage our full-service capabilities to further enhance our integrated and differentiated development of operation of wireline, mobile and Internet access services, and to distinguish us from our competitors.

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Financial Overview

Our operating revenues increased by 2.1%, from RMB324,394 million in 2014 to RMB331,202 million in 2015. The increase was mainly attributable to revenues growth from Internet access services, value-added services, integrated information application services and telecommunications network resource services and lease of network equipment as well as other related services. Our total operating expenses increased by 3.0%, from RMB295,886 million in 2014 to RMB304,760 in 2015. The increase in operating expenses was primarily due to increases in network operations and support expenses, which was partially offset by the decrease in selling, general and administrative expenses. Our operating income decreased by 7.2%, from RMB28,508 million in 2014 to RMB26,442 million in 2015. The profit attributable to equity holders of the Company increased from RMB17,680 million in 2014 to RMB20,054 million in 2015.

The table below sets forth a breakdown of our operating revenues in terms of amount and as a percentage of our total operating revenues for the periods indicated:


	Year Ended December 31,
	2013					2014					2015
	Amount		Percentage of Operating Revenues			Amount		Percentage of Operating Revenues			Amount		Percentage of Operating Revenues
	(RMB in millions, except percentage data)
Operating Revenues: ⁽¹⁾
Wireline voice services⁽²⁾		38,633		12.0	%		33,587		10.4	%		29,610		8.9	%
Mobile voice services⁽³⁾		58,217		18.1	%		54,673		16.9	%		48,983		14.8	%
Internet access services⁽⁴⁾		99,394		30.9	%		112,431		34.7	%		126,546		38.2	%
Value-added services⁽⁵⁾		36,230		11.3	%		38,419		11.8	%		39,044		11.8	%
Integrated information application services⁽⁶⁾		25,233		7.8	%		26,939		8.3	%		27,299		8.3	%
Telecommunications network resource services and lease of network equipment⁽⁷⁾		17,586		5.5	%		17,332		5.3	%		17,635		5.3	%
Other services⁽⁸⁾		46,291		14.4	%		41,013		12.6	%		42,085		12.7	%

Total operating revenues		321,584		100.0	%		324,394		100.0	%		331,202		100.0	%

(1)

Before June 1, 2014, most of the Group’s operating revenues were subject to business tax levied at rates of 3%, and relevant business tax was set off against operating revenues. Pursuant to the Notice on Covering Telecommunications Industries under the VAT Reform (Caishui [2014] No.43) jointly issued by the Ministry of Finance and the State Administration of Taxation, from June 1, 2014, the pilot programme of replacing business tax with VAT is extended to cover the telecommunications industry. VAT is excluded from operating revenues. With effect from June 1, 2014, the Group is no longer required to pay business tax of 3% on telecommunications services.

(2)	Represent the aggregate amount of monthly fees, local usage fees, domestic long distance usage fees, international, Hong Kong, Macau and Taiwan long distance usage fees, interconnections fees and installation fees charged to customers for the provision of wireline telephony services.

(3)	Represent the aggregate amount of monthly fees, local usage fees, domestic long distance usage fees, international, Hong Kong, Macau and Taiwan long distance usage fees and interconnections fees charged to customers for the provision of mobile telephony services.

(4)	Represent amounts charged to customers for the provision of Internet access services.

(5)	Represent the aggregate amount of fees charged to customers for the provision of value-added services, which comprise primarily caller ID services, short messaging services, Color Ring Tone, Internet data center and Virtual Private Network services and etc.

(6)	Represent primarily the aggregate amount of fees charged to customers for Best Tone information services and IT services and applications.

(7)	Represent primarily the aggregate amount of fees charged to customers for the provision of telecommunications network resource services and lease income from other domestic telecommunications operators and enterprise customers for the usage of the Group’s telecommunications networks and equipment.

(8)	Represent primarily revenue from sale, and repair and maintenance of equipment as well as the resale of mobile services.

The following table sets forth a breakdown of our operating expenses in terms of amount and as a percentage of our total operating revenues for the periods indicated:


	Year Ended December 31,
	2013					2014					2015
	Amount		Percentage of Operating Revenues			Amount		Percentage of Operating Revenues			Amount		Percentage of Operating Revenues
	(RMB in millions, except percentage data)
Operating Expenses:
Depreciation and amortization		69,083		21.5	%		66,345		20.5	%		67,664		20.4	%
Network operations and support expenses		53,102		16.5	%		68,651		21.2	%		81,240		24.5	%
Selling, general and administrative expenses		70,448		21.9	%		62,719		19.3	%		54,472		16.4	%
Personnel expenses		46,723		14.6	%		50,653		15.6	%		52,541		15.9	%
Other operating expenses		54,760		17.0	%		47,518		14.6	%		48,843		14.8	%

Total operating expenses		294,116		91.5	%		295,886		91.2	%		304,760		92.0	%

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The following table sets forth our operating revenues, operating expenses, operating income and profit attributable to equity holders of the Company in terms of amount and as a percentage of our total operating revenues, and cash flows from operating activities for the periods indicated:


	Year Ended December 31,
	2013					2014					2015
	Amount		Percentage of Operating Revenues			Amount		Percentage of Operating Revenues			Amount		Percentage of Operating Revenues
	(RMB in millions, except percentage data)
Operating revenues		321,584		100.0	%		324,394		100.0	%		331,202		100.0	%
Operating expenses		294,116		91.5	%		295,886		91.2	%		304,760		92.0	%
Operating income		27,468		8.5	%		28,508		8.8	%		26,442		8.0	%
Profit attributable to equity holders of the Company		17,545		5.5	%		17,680		5.5	%		20,054		6.1	%
Net cash from operating activities		88,351		—			96,405		—			108,750		—

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations contained elsewhere in this annual report are based on our consolidated financial statements which have been prepared in accordance with IFRS. Our reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of our financial statements. We base our assumptions and estimates on historical experience and on various other assumptions that we believe to be reasonable and which form the basis for making judgments about matters that are not readily apparent from other sources. On an on going basis, our management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our financial statements. Our principal accounting policies are set forth in detail in Note 3 to our consolidated financial statements included elsewhere in this annual report. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.

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Revenue recognition

Our revenue recognition methods are as follows:

(i)

Revenue derived from local, domestic long distance and international, Hong Kong, Macau and Taiwan long distance usage are recognized as the services are provided.

(ii)

Fees received for wireline installation charges for periods prior to January 1, 2012 are deferred and recognized over the expected customer relationship period. The direct costs associated with the installation of wireline services are deferred to the extent of the installation fees and amortized over the same expected customer relationship period. From 2012 onwards, since the amounts of fees received and the associated direct costs incurred are insignificant, the fees and associated direct costs are not deferred, and are recognized in profit or loss when received or incurred.

(iii)

Monthly service fees are recognized in the month during which the services are provided to customers.

(iv)

Revenue from sale of prepaid calling cards is recognized as the cards are used by customers.

(v)

Revenue derived from value-added services is recognized when the services are provided to customers.

Revenue from value-added services in which no third party service providers are involved, such as caller display and Internet data center services, are presented on a gross basis. Revenues from all other value-added services are presented on either gross or net basis based on the assessment of each individual arrangement with third parties. The following factors indicate that we are acting as principal in the arrangements with third parties:

We are responsible for providing the applications or services desired by customers, and take responsibility for fulfillment of ordered applications or services, including the acceptability of the applications or services ordered or purchased by customers;

ii)

We take title of the inventory of the applications before they are ordered by customers;

iii)

We have risks and rewards of ownership, such as risks of loss for collection from customers after applications or services are provided to customers;

iv)

We establish selling prices with customers;

We can modify the applications or perform part of the services;

vi)

We have discretion in selecting suppliers used to fulfill an order; and

vii)

We determine the nature, type, characteristics, or specifications of the applications or services.

If majority of the indicators of risks and responsibilities exist in the arrangements with third parties, we are acting as the principal and have exposure to the significant risks and rewards associated with the rendering of services or the sale of applications, and revenues for these services are recognized on gross basis. If majority of the indicators of risks and responsibilities do not exist in the arrangements with third parties, we are acting as the agent, and revenues for these services are recognized on a net basis.

(vi)

Revenue from the provision of Internet and telecommunications network resource services is recognized when the services are provided to customers.

(vii)

Interconnection fees from domestic and foreign telecommunications operators are recognized when the services are rendered as measured by the minutes of traffic processed.

(viii)

Lease income from operating leases is recognized over the term of the lease.

(ix)

Revenue derived from integrated information application services is recognized when the services are provided to customers.

(x)

Sale of equipment is recognized on delivery of the equipment to customers and when the significant risks and rewards of ownership and title have been transferred to the customers. Revenue from repair and maintenance of equipment is recognized when the service is provided to customers.

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We offer promotional packages, which involve the bundled sales of terminal equipment (mobile handsets) and telecommunications services, to customers. The total contract consideration of a promotional package is allocated to revenues generated from the provision of telecommunications services and the sales of terminal equipment using the residual method. Under the residual method, the total contract consideration of the arrangement is allocated as follows: the undelivered component, which is the provision of telecommunications services, is measured at fair value, and the remainder of the contract consideration is allocated to the delivered component, which are the sales of terminal equipment. We recognize revenues generated from the delivery and sales of the terminal equipment when the title of the terminal equipment is passed to the customers whereas revenues generated from the provision of telecommunications services are recognized based upon the actual usage of such services. During each of the years in the three-year period ended December 31, 2015, a substantial portion of the total contract consideration is allocated to the provision of telecommunications services since the terminal equipment is typically provided free of charge or at a nominal amount to promote our core business of the provision of telecommunications services, and the fair value of the telecommunications services approximates the total contract consideration.

Accounting for Long-lived Assets

Depreciation. Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets after taking into account their estimated residual value. The following estimated useful lives are used for depreciation purposes. These estimated useful lives are based on our historical experience with similar assets and take into account anticipated technological changes.


		Depreciable lives primarily range from

Buildings and improvements		8 - 30 years
Telecommunications network plant and equipment		6 - 10 years
Furniture, fixture, motor vehicles and other equipment		5 - 10 years

We review the estimated useful lives of the assets regularly in order to determine the amount of depreciation expense to be recorded during any reporting period. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.

Impairment. The carrying amounts of long-lived assets, including property, plant and equipment, intangible assets with finite useful lives and construction in progress are reviewed periodically in order to determine whether there is any indication of impairment. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. For goodwill, the impairment testing is performed annually at the end of each reporting period.

The recoverable amount of an asset or a cash-generating unit is the greater of its fair value less costs of disposal and value in use. When an asset does not generate cash flows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e., a cash generating unit). In determining the value in use, expected future cash flows generated by the assets are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risk specific to the asset for which the estimates of future cash flow have not been adjusted. The goodwill arising from a business combination, for the purposes of impairment testing, is allocated to cash generating units that are expected to benefit from the synergies of the combination.

An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment loss is recognized as an expense in the profit or loss. Impairment loss recognized in respect of cash-generating units is allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in any unit (group of units) on a pro rata basis.

For the year ended December 31, 2015, provision for impairment losses of RMB51 million were made against the carrying value of long-lived assets. For the years ended December 31, 2013 and 2014, no provision for impairment loss was made against the carrying value of long-lived assets.

Impairment Losses for Bad and Doubtful Debts

We estimate impairment losses for bad and doubtful debts resulting from the inability of our customers to make the required payments. We base our estimates on the aging of our accounts receivable balance, customer credit-worthiness, and historical write-off experience. If the financial condition of our customers were to deteriorate, actual write-offs might be higher than expected.

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Amounts due from the provision of telecommunications services to residential and business customers are generally due within 30 days from the date of billing. Customers who have accounts overdue by more than 90 days will have their services disconnected.

The following table summarizes the changes in the provision for impairment losses for bad and doubtful debts for each of the years in the three-year period ended December 31, 2015:


	Year Ended December 31,
	2013			2014			2015
	(RMB in millions)

At beginning of year		2,024			2,198			2,478
Impairment losses for doubtful debts		1,740			2,075			2,172
Accounts receivable written off		(1,566	)		(1,795	)		(1,715	)

At end of year		2,198			2,478			2,935

Recently Issued International Financial Reporting Standards

Up to the date of issue of our 2015 financial statements, the International Accounting Standards Board has issued the following amendments and new standards which are not yet effective and not early adopted for the annual accounting period ended December 31, 2015:


	Effective for accounting period beginning on or after
Amendments to IFRS 11, “Accounting for Acquisitions of Interests in Joint Operations”		January 1, 2016
Amendments to IAS 1, “Disclosure Initiative”		January 1, 2016
Amendments to IAS 16 and IAS 38, “Clarification of Acceptable Methods of Depreciation and Amortization”		January 1, 2016
Amendments to IFRSs, “Annual Improvements to IFRSs 2012-2014 Cycle”		January 1, 2016
Amendments to IAS 16 and IAS 41, “Agriculture: Bearer Plants”		January 1, 2016
Amendments to IFRS 10, IFRS 12 and IAS 28, “Investment Entities: Applying the Consolidation Exception”		January 1, 2016
IFRS 14, “Regulatory Deferral Accounts”		January 1, 2016
Amendments to IAS 7, “Disclosure Initiative”		January 1, 2017
Amendments to IAS 12, “Recognition of Deferred Tax Assets for Unrealized Losses”		January 1, 2017
IFRS 9, “Financial Instruments”		January 1, 2018
IFRS 15, “Revenue from Contracts with Customers”		January 1, 2018
IFRS 16, “Leases”		January 1, 2019
Amendments to IFRS 10 and IAS 28, “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”		A date to be determined

We are in the process of making an assessment of the impact that will result from adopting the amendments and new standards issued by the IASB which are not yet effective for the accounting period ended December 31, 2015. Except for IFRS 15, “Revenue from Contracts with Customers”, and IFRS 16, “Leases”, so far we believe that the adoption of these amendments and new standards is unlikely to have a significant impact on our financial position and the results of operations.

A.	Operating Results

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Operating Revenues

Our operating revenues increased by RMB6,808 million, or 2.1%, from RMB324,394 million in 2014 to RMB331,202 million in 2015. This increase was primarily driven by the revenues growth from Internet access services, value-added services, integrated information application services, telecommunications network resource services and lease of network equipment and other services, which was partially offset by a decrease in revenues from wireline voice services and mobile voice services.

Wireline Voice Services. Revenues from our wireline voice services decreased by 11.8%, from RMB33,587 million in 2014 to RMB29,610 million in 2015. This decrease was primarily due to the increasing penetration of mobile voice services and other alternative means of communications, which continued to divert revenues from wireline voice services, as well as the migration of some of our wireline telephone subscribers to our 3G and 4G services. Revenues from our wireline voice services accounted for 8.9% of our operating revenues in 2015, compared to 10.4% in 2014.

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Mobile Voice Services. Revenues from our mobile voice services decreased by 10.4%, from RMB54,673 million in 2014 to RMB48,983 million in 2015, representing 14.8% of our operating revenues in 2015, compared to 16.9% in 2014. This decrease was primarily due to the effect of the mobile Internet services, such as Over-the-Top messaging services, as alternative means of communications.

Internet Access Services. Revenues from our Internet access services increased by 12.6% from RMB112,431 million in 2014 to RMB126,546 million in 2015, representing 38.2% of our operating revenues. This increase was primarily due to the increase in our mobile Internet access revenues, which was attributable to the rapid growth in the volume of and revenue from our mobile data traffic. The revenues attributable to mobile Internet access services in 2015 was RMB50,694 million, representing an increase of 34.1% from RMB37,809 million in 2014, of which revenues attributable to handset data traffic was RMB47,770 million, representing an increase of 40.1% from 2014. In addition, the number of our wireline broadband subscribers increased to 113.1 million as of December 31, 2015, representing an increase of 6.11 million, or 5.7%, from 107.0 million as of December 31, 2014. The wireline broadband revenue was RMB74,285 million, an increase of 1.1% from 2014.

Value-Added Services. Revenues from our value-added services increased by 1.6% from RMB38,419 million in 2014 to RMB39,044 million in 2015, representing 11.8% of our operating revenues in 2015. This increase was primarily due to the growth of revenues from our wireline value-added services such as IDC and IPTV (e-Surfing HD) services, which was partially offset by the decrease in revenues from our mobile value-added services. The revenues attributable to wireline value-added services in 2015 were RMB21,529 million, representing an increase of 16.8% from RMB18,428 million in 2014. The revenues attributable to mobile value-added services in 2015 were RMB17,515 million, representing a decrease of 12.4% from 2014.

Integrated Information Application Services. Revenues from our integrated information application services increased by 1.3% from RMB26,939 million in 2014 to RMB27,299 million, representing 8.3% of our operating revenues in 2015. This increase was primarily due to the increase in revenues from our wireline integrated information application services, which was partially offset by the decrease in revenues from our mobile integrated information application services. As a result of the rapid growth of our IT services and industry applications, the revenues attributable to wireline integrated information application services , increased by 4.5% from RMB19,619 million in 2014 to RMB20,505 million in 2015. The revenues attributable to mobile integrated information application services decreased by 7.2% from RMB7,320 million in 2014 to RMB6,794 million in 2015 due to a decrease in traditional information inquiry services.

Telecommunications Network Resource Services and Lease of Network Equipment. Revenues from our telecommunications network resource services and lease of network equipment increased by 1.7%, from RMB17,332 million in 2014 to RMB17,635 million in 2015, representing 5.3% of our operating revenues in 2015. This relatively low increase was primarily due to the slowdown in the demand for our telecommunications network resource services and lease of network equipment. Revenue from lease of mobile network equipment was RMB421 million in 2015.

Other Services. Revenues from other services increased by 2.6%, from RMB41,013 million in 2014 to RMB42,085 million in 2015. The increase in revenues from other services was primarily due to the increase in the sales of mobile terminal and wireline equipment . The revenues from sales of mobile terminal equipment increased by 2.2% to RMB32,026 million in 2015 from RMB31,343 million in 2014.

Operating Expenses

Our operating expenses increased by 3.0%, from RMB295,886 million in 2014 to RMB304,760 million in 2015. The increase in operating expenses was primarily due to the increased depreciation and amortization expenses, network operations and support expenses, personnel expenses and other operating expenses, which was partially offset by the decreases in the selling, general and administrative expenses.

Depreciation and Amortization. Our depreciation and amortization expenses increased by 2.0%, from RMB66,345 million in 2014 to RMB67,664 million in 2015, mainly due to the increase in the assets size in line with our increased investment in 4G network and optic fiber broadband network.

Network Operations and Support Expenses. Our network operations and support expenses increased by 18.3%, from RMB68,651 million in 2014 to RMB81,240 million in 2015, which was primarily due to the newly incurred telecommunications towers usage fees payable to the Tower Company as well as the increase in expenses for the network operating and maintenance for purposes of improving our network qualities.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses decreased by 13.1% from RMB62,719 million in 2014 to RMB54,472 million in 2015. The decrease was primarily due to our continued efforts to optimize our sales models, strengthen the control on sales expenses and improve the utilization efficiency of marketing resources. Commission and service expenses for third parties were RMB26,651 million, a decrease of 6.0% from 2014. Advertising and promotional expenses were RMB19,291 million, a decrease of 26.2% from 2014. The cost of mobile terminal equipment offered to customers for free or at a nominal price is recorded in advertising and promotional expenses and was RMB11,620 million in 2015, a decrease of 24.3% from 2014.

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Personnel Expenses. Personnel expenses increased by 3.7%, from RMB50,653 million in 2014 to RMB52,541 million in 2015. This increase was primarily attributable to increased remuneration for our frontline staff. The personnel expenses as a percentage of our operating revenues increased from 15.6% in 2014 to 15.9% in 2015.

Other Operating Expenses. Our other operating expenses primarily consist of interconnection charges, cost of goods sold, donations and other expenses. Our other operating expenses were RMB48,843 million in 2015, which increased by 2.8% from RMB47,518 million in 2014, which was primarily due to the increase in the cost of mobile and wireline goods sold as a result of the increased sales of these goods, as well as other surcharges related to VAT. The cost of mobile terminal equipment sold was RMB30,867 million in 2015, which increased by 3.0% from 2014.

Net Finance Costs

In 2015, our net finance costs decreased by 19.2% from RMB5,291 million in 2014 to RMB4,273 million in 2015, mainly due to the decrease in the interest rate of the deferred consideration of Mobile Network Acquisition from 6.25% per annum in 2014 to 5.11% per annum in 2015.

The net exchange loss was RMB75 million in 2015, compared to a net exchange gain of RMB55 million in 2014, which was mainly due to the depreciation of the RMB against the USD in 2015. According to the exchange rates published by the People’s Bank of China on December 31, 2015, the exchange rate of Renminbi depreciated by 5.8% against the USD from December 31, 2014.

Income Tax

In 2015, our income tax expense was RMB6,551 million with an effective tax rate of 24.5%. Our expected income tax expense at our statutory tax rate of 25.0% in 2015 would be RMB6,673 million. The difference between our effective tax rate and the statutory tax rate of 25.0% was primarily due to the preferential income tax rate applicable to some of our subsidiaries and our branches with operations in the western regions of China. See Note 27 to our consolidated financial statements included elsewhere in this annual report for further details in respect of the reconciliation of our effective tax rate to the statutory tax rate of 25.0%.

Profit Attributable to Equity Holders of the Company

As a result of the foregoing, the profit attributable to equity holders of the Company was RMB20,054 million in 2015, with a net margin of 6.1%, compared to a profit attributable to equity holders of the Company of RMB17,680 million with a net margin of 5.5% in 2014.

Foreign Currency Fluctuation Impact

See “Item 3. Key Information—D. Risk Factors—Risks Relating to the People’s Republic of China— Fluctuation of the Renminbi could materially affect our financial condition, results of operations and cash flows.” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Foreign Exchange Rate Risk.”

Qualitative and Quantitative Analysis of the VAT Reform Impact

Before the VAT applicable to the telecommunications industry took effect and replaced the business tax, or the VAT Reform (see “Item 4. Information on the Company – B. Business Overview – Regulatory and Related Matters – VAT Reform Applicable to the Telecommunications Industry”), we represented our operating revenues from provision of telecommunications services to customers after deducting business tax at a rate of approximately 3% from the amount collected from customers. After the VAT Reform, we represent our operating revenues from provision of telecommunications services to customers after deducting the related output VAT at a rate ranging from 6% to 17% from the amount collected from customers. The amount of VAT paid by us to the tax authorities were then calculated by deducting the input VAT credits, which is VAT that applies to the goods and services purchased by us, from the output VAT, which is VAT that applies to the goods and services sold or provided by us. By referring to “deducted”, it was intended to highlight that we presented operating revenues net of the output VAT. Given that the applicable output VAT rate was generally higher than the applicable business tax rate, and the overall excess of output VAT over business tax was larger than the input VAT credits, the VAT Reform had an adverse impact on our operating results in 2015.

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In order to quantify the impact of the VAT Reform on our operating revenues, operating income and net profit in 2015, we first calculated the baseline numbers assuming that we were still subject to business tax instead of VAT in 2015. From January 1, 2015 to December 31, 2015, the total output VAT incurred by us was estimated to be RMB25,680 million, which was arrived at by multiplying the actual operating revenues from basic and value-added telecommunications services during that period with the respective applicable VAT rates. Such output VAT was not included in our operating revenues of RMB331,202 million in 2015, or the 2015 Reported Revenue. Assuming that the VAT Reform had not been implemented, our operating revenues before business tax in 2015 would have been RMB356,882 million, or the 2015 VAT-Inclusive Revenue, which was calculated by adding the total output VAT of RMB25,680 million to the 2015 Reported Revenue. Had we still been subject to business tax, we would have incurred a total business tax of RMB10,241 million in 2015, or the 2015 Business Tax, which was calculated by multiplying the 2015 VAT-Inclusive Revenue with the business tax rate of about 3%. Under such assumptions, we would have reported our operating revenues of RMB346,641 million in 2015, which was calculated by deducting the 2015 Business Tax from the 2015 VAT-Inclusive Revenue. As a result, the adverse impact of the VAT Reform on our operating revenues in 2015 was RMB15,439 million, which was the difference between the operating revenues of RMB346,641 million as calculated above and the 2015 Reported Revenue, representing approximately 4.5% of RMB346,641 million.

From January 1, 2015 to December 31, 2015, the total input VAT credits received by the Company was RMB9,726 million. Assuming the VAT Reform had not been implemented, our operating expenses in 2015 would have been RMB314,486 million, which was calculated by adding such input VAT credits with our operating expenses of RMB304,760 million as reported in 2015. Had the VAT Reform not been implemented, our operating income in 2015 would have been RMB32,155 million, which was arrived at by adding RMB15,439 million (which was the adverse impact of the VAT Reform on our operating revenues in 2015) to, and subtracting RMB9,726 million (which was the beneficial impact of input VAT credits on our operating expenses in 2015) from, our operating income of RMB26,442 million, or the 2015 Reported Income. As such, the adverse impact of the VAT Reform on our operating income in 2015 was RMB5,713 million, which was the difference between the operating income of RMB32,155 million as calculated above and the 2015 Reported Income, representing 17.8% of RMB32,155 million.

Taking into account the effective income tax rate of 24.5% as disclosed in “Item 5. Operating and Financial Review and Prospects – A. Operating Results – Year Ended December 31, 2015 Compared to Year Ended December 31, 2014 – Income Tax”, and assuming that the VAT Reform had not been implemented, our net profit in 2015 would have been RMB24,367 million, which was calculated by adding RMB5,713 million, being the adverse impact of the VAT Reform on our operating income in 2015, to RMB26,693 million, being the earnings before income tax as reported in 2015, and then apply the effective income tax rate of 24.5%. As such, the adverse impact of the VAT Reform on our net profit in 2015 was approximately RMB4,313 million, which was the difference between the net profit of RMB24,367 million as calculated above and our profit attributable to equity holders of RMB20,054 million as reported in 2015, representing 17.7% of RMB24,367 million.

The above quantitative analysis is based on a simplified model and a number of assumptions and estimates. As a result, it may not necessarily reflect the actual impact of the VAT Reform on our operating results in 2015 and may not be indicative of the impact of the VAT Reform on our operating results in any future periods.

Through various measures, including optimization of the development and sales and marketing models, implementation of enhanced management over cost, procurement and vendors’ tax qualifications, obtaining more input VAT credits on capital expenditure, we believe that more input VAT credits will be available to offset our VAT output tax obligation in the short-term. Besides, by actively promoting value-added telecommunications services, which are subject to a lower VAT rate, our revenue structure would be optimized and less VAT output obligation would need to be offset. As a result, our overall VAT obligation would be reduced.

On March 18, 2016, the State Council standing committee meeting resolved to expand the VAT pilot program to all other industries which were previously subject to the PRC business tax starting from May 1, 2016. On March 23, 2016, the SAT issued the Notice on Expanding the Pilot Program of Replacing the Business Tax with VAT, promulgating the relevant implementing rules. We expect that more of capital expenditures and operating expenses, such as commission and service expenses for third parties, would be entitled to input VAT credits in the future, which in turn, would further offset our VAT output tax obligations. This will be beneficial to the development of our business and further reduce the adverse impact of the VAT Reform on our operating revenues and profitability.

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Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Operating Revenues

Our operating revenues increased by RMB2,810 million, or 0.9%, from RMB321,584 million in 2013 to RMB324,394 million in 2014. This increase was primarily driven by the revenues growth from Internet access services, value-added services and integrated information application services, which was partially offset by a decrease in revenues from wireline voice services, mobile voice services, telecommunications network resource services and lease of network equipment and other services.

Wireline Voice Services. Revenues from our wireline voice services decreased by 13.1%, from RMB38,633 million in 2013 to RMB33,587 million in 2014. This decrease was primarily due to the increasing penetration of mobile voice services and other alternative means of communications, which continued to divert revenues from wireline voice services, as well as the migration of some of our wireline telephone subscribers to our 3G and 4G services. Revenues from our wireline voice services accounted for 10.4% of our operating revenues in 2014, compared to 12.0% in 2013.

Mobile Voice Services. Revenues from our mobile voice services decreased by 6.1%, from RMB58,217 million in 2013 to RMB54,673 million in 2014, representing 16.9% of our operating revenues in 2014, compared to 18.1% in 2013. This decrease was primarily due to the effect of the launch of 4G services by our competitors, the VAT reform, the change in our sales model and the mobile Internet services as alternative means of communications.

Internet Access Services. Revenues from our Internet access services increased by 13.1% from RMB99,394 million in 2013 to RMB112,431 million in 2014, representing 34.7% of our operating revenues. This increase was primarily due to the significant increase of data traffic on our wireline broadband as well as wireless broadband and the expansion of our informationization applications. The number of our wireline broadband subscribers increased to 107.0 million as of December 31, 2014, representing an increase of 6.9 million, or 6.8%, from 100.1 million as of December 31, 2013. The revenues attributable to mobile Internet access services in 2014 was RMB37,809 million, representing an increase of 35.2% from RMB27,962 million in 2013, of which revenues attributable to handset data traffic was RMB34,086 million, representing an increase of 48.8% from 2013.

Value-Added Services. Revenues from our value-added services increased by 6.0% from RMB36,230 million in 2013 to RMB38,419 million in 2014, representing 11.8% of our operating revenues in 2014. This increase was primarily due to the rapid growth of revenues from our wireline value-added services such as IDC and iTV services and, to a lesser extent, the increase in revenues from mobile value-added services. The revenues attributable to wireline value-added services in 2014 were RMB18,428 million, representing an increase of 11.8% from RMB16,482 million in 2013. The revenues attributable to mobile value-added services in 2014 were RMB19,991 million, representing an increase of 1.2% from 2013.

Integrated Information Application Services. Revenues from our integrated information application services increased by 6.8% from RMB25,233 million in 2013 to RMB26,939 million in 2014, representing 8.3% of our operating revenues in 2014. This increase was primarily due to the fact that we accelerated the promotion of industry applications, leading to a rapid growth of revenues attributable to wireline integrated information application services. The revenues attributable to wireline integrated information application services in 2014 were RMB19,619 million, representing an increase of 10.3% from RMB17,792 million in 2013, while the revenues attributable to mobile integrated information application services in 2014 were RMB7,320 million, representing a decrease of 1.6% from RMB7,441 million in 2013.

Telecommunications Network Resource Services and Lease of Network Equipment. Revenues from our telecommunications network resource services and lease of network equipment decreased by 1.4%, from RMB17,586 million in 2013 to RMB17,332 million in 2014, representing 5.3% of our operating revenues in 2014. This decrease was primarily due to the high VAT rate applicable to revenues from telecommunications network resource services and lease of network equipment. Revenue from lease of mobile network equipment was RMB463 million in 2014.

Other Services. Revenues from other services decreased by 11.4%, from RMB46,291 million in 2013 to RMB41,013 million in 2014. The decrease in revenues from other services was primarily due to the reduction of the centralized procurement and sales of mobile terminal equipment. The revenues from sales of mobile terminal equipment decreased by 16.3% to RMB31,343 million in 2014 from RMB37,435 million in 2013.

Operating Expenses

Our operating expenses increased by 0.6%, from RMB294,116 million in 2013 to RMB295,886 million in 2014. The increase in operating expenses was primarily due to the increased network operations and support expenses and personnel expenses, which was partially offset by the decreases in the depreciation and amortization, and selling, general and administrative expenses as well as other operating expenses.

Depreciation and Amortization. Our depreciation and amortization expenses decreased by 4.0%, from RMB69,083 million in 2013 to RMB66,345 million in 2014, mainly due to the saving in the amortization expenses of the customer relationships in this year.

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Network Operations and Support Expenses. Our network operations and support expenses increased by 29.3%, from RMB53,102 million in 2013 to RMB68,651 million in 2014, which was primarily due to the increased expenses on the network operating and maintenance for purposes of improving our 3G and 4G network services, wireline and wireless broadband services and the increased property rental expenses as well as the disposal of the Personal Access System assets.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses decreased by 11.0% from RMB70,448 million in 2013 to RMB62,719 million in 2014. The decrease was primarily due to the fact that we accelerated the optimization and innovation of our sales models, strengthened the management and control on selling expenses, especially on terminal subsidies, and improved the utilization efficiency of marketing resources. Commission and service expenses for third parties were RMB28,367 million, an increase of 11.2% from 2013. Advertising and promotional expenses were RMB26,122 million, a decrease of 28.4% from 2013. The cost of mobile terminal equipment offered to customers for free or at a nominal price is recorded in advertising and promotional expenses and was RMB15,340 million in 2014, a decrease of 32.7% from 2013. Our general and administrative expenses decreased by 2.5% from 2013, primarily due to our continuous detailed and fine management of such expenses.

Personnel Expenses. Personnel expenses increased by 8.4%, from RMB46,723 million in 2013 to RMB50,653 million in 2014. This increase was primarily attributable to increased remuneration for our frontline staff. The personnel expenses as a percentage of our operating revenues increased from 14.6% in 2013 to in 15.6% 2014.

Other Operating Expenses. Our other operating expenses primarily consist of interconnection charges, cost of goods sold, donations and other expenses. Our other operating expenses were RMB47,518 million in 2014, which decreased by 13.2% from RMB54,760 million in 2013, which was primarily due to reduction of the centralized procurement and sales of mobile terminal equipment and savings of mobile interconnection charges. The cost of mobile terminal equipment sold was RMB29,982 million in 2014, which decreased by 14.9% from 2013.

Net Finance Costs

In 2014, our net finance costs increased by 2.7% from RMB5,153 million in 2013 to RMB5,291 million in 2014, mainly due to the fact that the interest rate of the deferred consideration of Mobile Network Acquisition increased from 4.83% per annum in 2013 to 6.25% per annum in 2014.

The net exchange gain was RMB55 million in 2014, compared to a net exchange loss of RMB3 million in 2013, which was mainly due to the appreciation of the RMB against the Euro in 2014, which was partially offset by the depreciation of the RMB against the USD in 2014. According to the exchange rates published by the People’s Bank of China on December 31, 2014, the exchange rate of Renminbi appreciated by 12.9% against the Euro from December 31, 2013 and depreciated by 0.4% against the USD from December 31, 2013.

Income Tax

In 2014, our income tax expense was RMB5,498 million with an effective tax rate of 23.6%. Our expected income tax expense at our statutory tax rate of 25.0% in 2014 would be RMB5,814 million. The difference between our effective tax rate and the statutory tax rate of 25.0% was primarily due to the preferential income tax rate applicable to some of our subsidiaries and our branches with operations in the western regions of China. See Note 27 to our consolidated financial statements included elsewhere in this annual report for further details in respect of the reconciliation of our effective tax rate to the statutory tax rate of 25.0%.

Profit Attributable to Equity Holders of the Company

As a result of foregoing, the profit attributable to equity holders of the Company was RMB17,680 million in 2014, with a net margin of 5.5%, compared to a profit attributable to equity holders of the Company of RMB17,545 million with a net margin of 5.5% in 2013.

Foreign Currency Fluctuation Impact

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B.	Liquidity and Capital Resources

Cash Flows and Working Capital

The following table summarizes our cash flows for the periods indicated:


	Year Ended December 31,
	2013			2014			2015
	(RMB in millions)
Net cash generated from operating activities		88,351			96,405			108,750
Net cash used in investing activities		(107,948	)		(81,708	)		(102,250	)
Net cash generated from / (used in) financing activities		5,637			(10,327	)		4,809

(Decrease) / Increase in cash and cash equivalents		(13,960	)		4,370			11,309

Cash and cash equivalents increased by 55.9% from RMB20,436 million as of December 31, 2014, of which 93.1% was denominated in RMB, to RMB31,869 million as of December 31, 2015, of which 92.6% was denominated in RMB. Our net cash inflow was RMB11,309 million in 2015, as compared with RMB4,370 million in 2014.

Our principal source of liquidity is cash generated from operating activities, which was RMB108,750 million in 2015, an increase of RMB12,345 million from RMB96,405 million in 2014. The increase was mainly due to the increase in operating revenues and the decrease in the accounts receivable.

Net cash used in investing activities increased by RMB20,542 million from RMB81,708 million in 2014 to RMB102,250 million in 2015 primarily as a result of the increase in the capital expenditures.

Net cash inflow in financing activities was RMB4,809 million in 2015 compared to RMB10,327 million net cash outflow in financing activities in 2014. This increase in cash inflow was primarily due to the issuance of the short-term bonds and the increase in the government loans with below-market interest rates.

Our working capital (defined as current assets minus current liabilities) was a deficit of RMB177,821 million as of December 31, 2015, compared to a deficit of RMB146,782 million as of December 31, 2014.

We estimate that our current cash and cash equivalents, together with our existing credit facilities from domestic commercial banks, cash flows from operating activities, as well as funds available from short-term and long-term bank borrowings and commercial paper, will be sufficient to satisfy our future working capital requirements and capital expenditures through the end of 2016. We have established and maintained high credit ratings with our principal domestic commercial lenders, which have facilitated our ability to obtain short-term and long-term credit on favorable terms to meet our financing requirements. As of December 31, 2015, we had available credit facilities of RMB128,839 million with major domestic commercial banks, from which we can draw upon.

Indebtedness

Our indebtedness as of the dates indicated was as follows:


	As of December 31,
	2013		2014		2015
	(RMB in millions)
Short-term debt		27,687		43,976		51,636
Current portion of long-term debt		20,072		82		84
Finance lease obligations (including current portion)		1		—		119
Long-term debt and deferred consideration due to China Telecom Group		62,617		62,494		64,830

Total debt		110,377		106,552		116,669

Our short-term debt constituted 44.3% of our total debt as of December 31, 2015. The weighted average interest rate of our short-term debt was 3.1% as of December 31, 2015, representing a decrease of 2.0% from that as of December 31, 2014.

Our total debt increased by RMB10,117 million from RMB106,552 million as of December 31, 2014 to RMB116,669 million in 2015, primarily due to the issuance of the short-term bonds and the increase in the government loans with below-market interest rates. Our debt-to-asset ratio (total debt divided by total assets) decreased from 19.0% in 2014 to 18.5% in 2015. We believe that our Company has maintained a solid capital structure.

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Our long-term debt and deferred consideration due to China Telecom Group (including current portion) increased from RMB62,576 million as of December 31, 2014 to RMB64,914 million as of December 31, 2015.

Of our total debt as of December 31, 2015, 99.4%, 0.4% and 0.2% were denominated in Renminbi, U.S. dollars and Euros, respectively.

Our short-term and long-term debt does not contain any financial covenants which materially restrict our operations.

Capital Expenditure

The following table sets forth our historical and planned capital expenditure requirements for the periods indicated. Actual future capital expenditures for the periods after December 31, 2015 may differ from the amounts indicated below.

Year Ended December 31,

2014

2015

2016
(Planned)

(RMB in millions)

Total capital expenditure

76,889

109,094

97,000

In 2015, we increased investment in our 4G network and optic fiber broadband network and achieved the comprehensive upgrade of our network capabilities which lay a solid foundation for the scale development of our core business and our competitiveness in the market. In 2015, our capital expenditure was RMB109,094 million, an increase of 41.9% from RMB76,889 million in 2014.

Our capital expenditure for 2016 is projected to be approximately RMB97,000 million, a portion of which will be invested in continued expansion and deepening of our 4G network coverage in locations at county-level or above across the nation in order to meet the fast growing mobile data traffic and our Voice over LTE business needs, a portion of which will be invested in quickly rolling out our 4G+ network in key areas in cities based on market needs in order to further enhance customer experience, and a portion of which will be invested in expanding our optic fiber broadband network coverage to all city area.

Capital Resources

The main sources of our capital expenditure are cash generated from operating activities, bank borrowings and other indebtedness. We expect that we will have sufficient funding sources to meet our capital expenditure requirements in the future.

C.	Research and Development, Patents and Licenses, etc.

Our emphasis on research and development has contributed to the development of our advanced network, system, and the rollout of our new applications and services. Our researchers focus on network planning and support, new technology trials, market evaluation, investment-related financial analysis and other key areas. Specific areas of research include mobile communications technology, optic fiber transmission technology, next generation networks, cloud computing, big data, Internet of Things, broadband access, operation and service support systems and development of value-added services.

D.	Trend Information.

Please also refer to our discussion in each section of “—Overview” and “—A. Operating Results” included elsewhere under this Item.

E.	Off-Balance Sheet Arrangements

As of December 31, 2015, we did not have any off-balance sheet arrangements or guarantees.

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F.	Contractual Obligations and Commercial Commitments

The following table sets forth our contractual obligations as of December 31, 2015:


	Payable in
	Total		2016		2017		2018		2019		2020		After 2020
	(RMB in millions)
Contractual Obligations⁽¹⁾:
Short-term debt		51,636		51,636		—		—		—		—		—
Long-term debt and payable		64,914		84		61,832		206		206		224		2,362
Interest payable		6,727		2,851		2,517		49		44		43		1,223
Finance lease obligations		119		38		41		40		—		—		—
Operating lease commitments		14,448		3,452		2,564		2,006		1,532		1,171		3,723
Capital commitments		10,148		10,148		—		—		—		—		—

Total contractual obligations		147,992		68,209		66,954		2,301		1,782		1,438		7,308

(1)	See “Item 11. Quantitative and Qualitative Disclosures about Market Risk” for the contractual obligations relating to interest payments.

Item 6.

Directors, Senior Management and Employees.

A.	Directors and Senior Management

Directors and Senior Officers

Pursuant to our Articles of Association, our directors must be elected by our shareholders at a general meeting. Our directors are generally elected for a term of three years and may serve consecutive terms if re-elected. The term of office for the fifth session of the Board of Directors, or the Board, is three years, starting from May 29, 2014 until the date of the Company’s annual general meeting for the year 2016 to be held in 2017, upon which the sixth session of the Board will be elected.

On August 24, 2015, Mr. Wang Xiaochu resigned from his positions as the executive director, chairman and chief executive officer of the Company due to change in work arrangement.

On September 1, 2015, Mr. Chang Xiaobing was appointed as the chief executive officer of the Company. On October 23, 2015, the appointment of Mr. Chang Xiaobing as a director of the Company was approved at the extraordinary general meeting and the term of his office commences from October 23, 2015 until the annual general meeting of the Company for the year 2016 to be held in 2017. Mr. Chang was appointed by the Board as the chairman of the Company on the same date.

On December 30, 2015, Mr. Chang resigned from his positions as the executive director, chairman and chief executive officer of the Company. See “Item 3. Key Information—D. Risk Factors—We have experienced incidents of executive misconduct in the past, which could adversely impact our reputation, our business and the trading price of our securities.” in this annual report. Mr. Yang Jie, the executive director, president and chief operating officer of the Company, was approved by the Board on the same date to exercise the powers of the chairman and chief executive officer with effect from December 30, 2015 until new appointment is made by the Board.

On April 25, 2016, Mr. Yang Jie was appointed as the chairman and chief executive officer of the Company and the term of his office commences from April 25, 2016 until the annual general meeting of the Company for the year 2016 to be held in 2017. Mr. Yang Jie no longer held the offices of the president and chief operating officer of the Company. Mr. Yang Xiaowei was appointed as the president and chief operating officer of the Company on the same date and he no longer held the office of the executive vice president of the Company.

On November 1, 2015, Mr. Yung Shun Loy, Jacky resigned from his positions as the company secretary, authorised representative and the deputy chief financial officer of the Company.

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The following table sets forth certain information concerning our current Directors and executive officers. The business address of each of our Directors and executive officers is 31 Jinrong Street, Xicheng District, Beijing, PRC 100033.


Name	Age		Position
Yang Jie		53	Executive Director, Chairman and Chief Executive Officer
Yang Xiaowei		52	Executive Director, President and Chief Operating Officer
Zhang Jiping		60	Executive Director and Executive Vice President
Sun Kangmin		58	Executive Director and Executive Vice President
Ke Ruiwen		52	Executive Director and Executive Vice President
Zhu Wei		47	Non-Executive Director
Tse Hau Yin, Aloysius		68	Independent Non-Executive Director
Cha May Lung, Laura		66	Independent Non-Executive Director
Xu Erming		66	Independent Non-Executive Director
Wang Hsuehming		66	Independent Non-Executive Director
Gao Tongqing		52	Executive Vice President
Chen Zhongyue		44	Executive Vice President

Yang Jie, age 53, is an Executive Director, Chairman and Chief Executive Officer of the Company. Mr. Yang is a professor-level senior engineer. He graduated from the Beijing University of Posts and Telecommunications with a major in radio engineering in 1984 and obtained a doctorate degree in business administration (DBA) from the ESC Rennes School of Business in 2008. Mr. Yang served as Deputy Director General of Shanxi Posts and Telecommunications Administration, General Manager of Shanxi Telecommunications Corporation, Vice President of China Telecom Beijing Research Institute, General Manager of Business Department of the Northern Telecom of China Telecommunications Corporation, Executive Vice President, President and Chief Operating Officer of the Company, and Vice President and the President of China Telecommunications Corporation. He is also the Chairman of China Telecommunications Corporation. Mr. Yang has extensive experience in management and the telecommunications industry.

Yang Xiaowei, age 52, is an Executive Director, President and Chief Operating Officer of the Company. Mr. Yang is a senior engineer. He received a bachelor degree from the Computer Application Department of Chongqing University in 1998 and a master degree in engineering from the Management Engineering Department of Chongqing University in 2001. Mr. Yang was the Assistant to Director General and Deputy Director General of Chongqing Telecommunications Bureau, a Deputy Director General of the Chongqing Telecommunications Administration Bureau and a Director General of Chongqing Municipal Communication Administration Bureau. Mr. Yang served as General Manager of the Chongqing branch and the Guangdong branch of the Unicom Group, Vice President of the Unicom Group, Director of the Unicom Group, and Executive Director and Vice President of China Unicom Limited. Mr. Yang also served as Director and Vice President of China Unicom Corporation Limited, Chairman of Unicom Huasheng Telecommunications Technology Co. Ltd., Executive Vice President of the Company and Vice President of China Telecommunications Corporation. He is also the President of China Telecommunications Corporation. Mr. Yang has extensive experience in management and the telecommunications industry.

Zhang Jiping, age 60, is an Executive Director and Executive Vice President of the Company. Mr. Zhang is a professor-level senior engineer. He graduated from the Beijing University of Posts and Telecommunications with a bachelor degree in radio telecommunications engineering in 1982, studied in a postgraduate program in applied computer engineering at Northeastern Industrial University from 1986 to 1988, and received a doctorate degree in business administration from the Hong Kong Polytechnic University in 2004. Mr. Zhang served as Deputy Director General of Directorate General of Telecommunications (“DGT”) of the MPT, a Deputy Director General and Director of the Telecommunication Technology Centre of the Posts and Telecommunications Administration of Liaoning Province. He is also a Vice President of China Telecommunications Corporation and the Chairman of Supervisory Committee of China Tower Corporation Limited. Mr. Zhang has extensive experience in management and telecommunications industry.

Sun Kangmin, age 58, is an Executive Director and Executive Vice President of the Company. Mr. Sun is a senior engineer. He holds a bachelor degree. Mr. Sun served as Head of the Information Industry Department of Sichuan Province, Director General of Communication Administration Bureau of Sichuan Province, Chairman and General Manager of Sichuan Telecom Company Limited. He is also a Vice President of China Telecommunications Corporation, Chairman of the board of directors and an Executive Director of China Communications Services Corporation Limited and a Director of China Tower Corporation Limited. Mr. Sun has extensive experience in management and the telecommunications industry.

Ke Ruiwen, age 52, is an Executive Director and Executive Vice President of the Company. Mr. Ke obtained a doctorate degree in business administration (DBA) from the ESC Rennes School of Business. Mr. Ke served as Deputy Director General of Jiangxi Posts and Telecommunications Administration, Deputy General Manager of Jiangxi Telecom, Managing Director of the Marketing Department of the Company and China Telecommunications Corporation, General Manager of Jiangxi Telecom and Managing Director of the Human Resources Department of the Company and China Telecommunications Corporation. He is also a Vice President of China Telecommunications Corporation. Mr. Ke has extensive experience in management and the telecommunications industry.

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Zhu Wei, age 47, is a Non-Executive Director of the Company. Mr. Zhu received his post-graduate diploma in political economy from Jinan University. Mr. Zhu is currently the Chairman of Guangdong Rising Assets Management Co., Ltd (one of the domestic shareholders of the Company). Mr. Zhu previously served as the Deputy Manager of the Issuing Department, director of the General Office, and Deputy Manager of the Research and Development Department of Guangzhou Securities Company of the People’s Bank of China, Guangzhou Branch, Deputy General Manager of Guangzhou Securities Financial Consultancy Company, General Manager of Shenzhen Yuntong Xinda Communications Limited, assistant to the General Manager of Guangdong Technology Ventures Investment Company, General Manager of the Asset Management Department and Director of Guangdong Technology Venture Capital Group Company Limited, General Manager of Guangdong Kerui Investment Management Company, the Chairman of Guangdong Hongtu Technology (Holdings) Company Limited, Deputy Chairman and General Manager of Guangdong Southern Media Holdings Limited, and Deputy Director of Banking Supervision Department IV of the China Banking Regulatory Commission. Mr. Zhu has extensive experience in finance, securities and corporate management.

Tse Hau Yin, Aloysius, age 68, is an Independent Non-Executive Director of the Company. Mr. Tse is currently an Independent Non-Executive Director of CNOOC Limited, Daohe Global Group Limited (formerly known as Linmark Group Limited), Sinofert Holdings Limited, SJM Holdings Limited and China Huarong Asset Management Co., Ltd., all of which are listed on the Main Board of The Stock Exchange of Hong Kong Limited (“HKSE Main Board”). Mr. Tse is also an Independent Non-Executive Director of OCBC Wing Hang Bank Limited (formerly known as “Wing Hang Bank Limited”, which was listed on the HKSE Main Board until October 2014). He was an Independent Non-Executive Director of China Construction Bank Corporation, which is listed on the HKSE Main Board, from 2004 to 2010. Mr. Tse was appointed as an Independent Non-Executive Director of CCB International (Holdings) Limited, a wholly owned subsidiary of China Construction Bank Corporation in March 2013. He is also a member of the International Advisory Council of the People’s Municipal Government of Wuhan. Mr. Tse is a fellow of the Institute of Chartered Accountants in England and Wales, and the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Mr. Tse is a past President and a former member of the Audit Committee of the HKICPA. He joined KPMG in 1976, became a partner in 1984 and retired in March 2003. Mr. Tse was a Non-Executive Chairman of KPMG’s operations in China and a member of the KPMG China advisory board from 1997 to 2000. Mr. Tse is a graduate of the University of Hong Kong.

Cha May Lung, Laura, age 66, is an Independent Non-Executive Director of the Company. Mrs. Cha is currently a Hong Kong Delegate to the 12th National People’s Congress, PRC, a Member of the Executive Council of the Government of the Hong Kong Special Administrative Region and Chairman of the Financial Services Development Council of Hong Kong. She is the Non-Executive Deputy Chairman of The Hongkong and Shanghai Banking Corporation, the Asia Pacific subsidiary of HSBC Holdings plc, of which she is also an Independent Non-Executive Director. She is a Non-Executive Director of Unilever, PLC and Unilever, N.V, Vice Chairman of the International Advisory Council of the China Securities Regulatory Commission (“CSRC”), and a Member of the International Advisory Council of the China Banking Regulatory Commission. Mrs. Cha served as Vice Chairman of CSRC from January 2001 to September 2004 and Assistant Director, Senior Director, Executive Director of Corporate Finance and Deputy Chairman of the Securities and Futures Commission of Hong Kong from 1991 to 2001. She received a Juris Doctor degree from Santa Clara University of USA in 1982.

Xu Erming, age 66, is an Independent Non-Executive Director of the Company. Professor Xu is a professor and Ph.D. supervisor of the Graduate School at the Renmin University of China and Vice Chairman of the Chinese Enterprise Management Research Association. He is entitled to the State Council’s special government allowances. He is the Independent Supervisor of Harbin Electric Company Limited (formerly known as Harbin Power Equipment Company Limited). Over the years, Professor Xu has conducted research in areas related to strategic management, organizational theories, international management and education management, and has been responsible for research on many subjects put forward by the National Natural Science Foundation, the National Social Science Foundation, and other authorities at provincial and ministry level. He has received many awards such as the Ministry of Education’s Class One Excellent Higher Education Textbook Award, the State-Level Class Two Teaching Award and the National Excellent Course Award. Professor Xu has been a visiting professor at over 10 domestic universities and has been awarded the Fulbright Scholar of U.S.A. twice. Professor Xu was previously a lecturer at the New York State University at Buffalo, U.S.A., the University of Scranton, U.S.A., the University of Technology, Sydney, the Kyushu University, Japan and the Hong Kong Polytechnic University.

Wang Hsuehming, age 66, is an Independent Non-Executive Director of the Company. Madam Wang graduated from the University of Massachusetts and attended Columbia University. She is currently a Senior Advisor and former Chairman of BlackRock China. She was also formerly the Chairman of China at Goldman Sachs Asset Management, having joined Goldman Sachs in 1994, became a partner in 2000 and an Advisory Director from 2010 to 2011. Ms. Wang served as a Director of The Paulson Institute. With nearly 30 years of experience in financial services, she participated in pioneering efforts in China’s economic reform and restructuring, including serving as an advisor to the CAAC and its subsequent regional airlines on privatization and capital equipment financing.

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Gao Tongqing, age 52, is an Executive Vice President of the Company. Mr. Gao graduated from the Changchun Institute of Posts and Telecommunications with a major in telecommunications engineering and received a doctorate degree in business administration from the Hong Kong Polytechnic University. Mr. Gao served as Deputy Director General of Xinjiang Uygur Autonomous Region Posts and Telecommunications Administration, Deputy General Manager and General Manager of Xinjiang Uygur Autonomous Region Telecom Company and General Manager of China Telecom Jiangsu branch. He is also a Vice President of China Telecommunications Corporation. Mr. Gao has extensive experience in management and the telecommunications industry.

Chen Zhongyue, age 44, is an Executive Vice President of the Company. Mr. Chen received a bachelor degree in English studies from Shanghai International Studies University and a master degree in international trade economy from Zhejiang University. Mr. Chen served as Deputy General Manager of China Telecom Zhejiang branch, Managing Director of the Public Customers Department of the Company and China Telecommunications Corporation and General Manager of China Telecom Shanxi branch. He is also a Vice President of China Telecommunications Corporation. Mr. Chen has extensive experience in management and the telecommunications industry.

There is no family relationship between any of our directors or executive officers.

Supervisors

The PRC Company Law requires a joint stock company with limited liability to establish a supervisory committee. Our supervisory committee has five Supervisors. Two members of our supervisory committee are employee representatives elected by our employees. The remaining members are appointed by shareholders at a general meeting. The term of office of our Supervisors is three years, which is renewable upon re-election or re-appointment. The term of office for the fifth session of our Supervisory Committee is three years, starting from May 29, 2014 until the date of the Company’s annual general meeting for the year 2016 to be held in 2017, upon which the sixth session of the Supervisory Committee will be elected.

On May 27, 2015, Mr. Sui Yixun and Mr. Ye Zhong were approved to be appointed as supervisors of the Company at the annual general meeting of the Company for the year 2014. Their terms of office commence from May 27, 2015 until the annual general meeting of the Company for the year 2016 to be held in the year 2017.

The following table sets forth certain information concerning our current Supervisors:


Name	Age		Position
Sui Yixun		52	Supervisor (Chairman)
Tang Qi		57	Supervisor (Employee Representative)
Zhang Jianbin		50	Supervisor (Employee Representative)
Hu Jing		40	Supervisor
Ye Zhong		56	Supervisor

Sui Yixun, aged 52, is the Chairman of the Supervisory Committee of the Company. Mr. Sui is currently the Managing Director of audit department of the Company and a Supervisor of Tianyi Telecom Terminals Company Limited. Mr. Sui received a bachelor degree from Beijing Institute of Posts and Telecommunications and a master degree in business administration from Tsinghua University. Mr. Sui served as Deputy General Manager of China Telecom Shandong branch, Deputy General Manager of the Northern Telecom of China Telecommunications Corporation and General Manager of China Telecom Inner Mongolia Autonomous Region branch. Mr. Sui is a senior economist and has extensive experience in operational and financial management in the telecommunications industry.

Tang Qi, age 57, is an Employee Representative Supervisor of the Company. Mr. Tang is currently the Senior President of the Shandong branch of the Company. Mr. Tang received a doctorate degree in business administration (DBA) from the Hong Kong Polytechnic University. Mr. Tang served as the Director of the marketing department of the Posts and Telecommunications Administration of Shandong province, Manager of the marketing department of China Telecommunications Corporation, General Manager of China Telecom Shandong branch, General Manager of China Telecom Chongqing branch and Vice Chairman of the Labour Union of China Telecommunications Corporation and the Company. Mr. Tang is a senior engineer and has extensive experience in operation and management in the telecommunications industry.

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Zhang Jianbin, age 50, is an Employee Representative Supervisor of the Company. Mr. Zhang is currently the Deputy Managing Director of the Corporate Strategy Department (Legal Department) and the Deputy General Counsel of China Telecommunications Corporation. Mr. Zhang graduated from the Law School of Peking University in 1989 and received an LLM degree. He also had an EMBA degree from the Guanghua School of Management at Peking University in 2006. He previously worked at the Department of Policy and Regulation of the Ministry of Posts and Telecommunications (“MPT”) and the Directorate General of Telecommunications (“DGT”) of the MPT. He served as Deputy Director of the General Office and Deputy Director of the Legal Affairs Division of the DGT of the MPT, Director of the Corporate Strategy Department (Legal Department) of the Company. Mr. Zhang is a senior economist with extensive experience in telecommunications legislation and regulation, corporate governance, corporate legal affairs and risk management.

Hu Jing, age 40, is a Supervisor of the Company. Mr. Hu is currently the Director in the audit department of the Company. Mr. Hu received a bachelor degree in accounting from the Xi’an University of Finance and Economics in 1997 and a master degree in business administration from the Northwest University in 2003. Mr. Hu served at various financial and auditing positions at Shaanxi Telecom Company and China Telecommunications Corporation. He is a member of the Chinese Institute of Certified Public Accountants and senior accountant with extensive experience in finance and auditing.

Ye Zhong, aged 56, is a Supervisor of the Company. Mr. Ye is a senior accountant. He holds a bachelor degree. Mr. Ye is the Deputy General Manager of Zhejiang Financial Development Company (one of the domestic shareholders of the Company), Chairman and General Manager of Zhejiang Provincial Innovation and Development Investment Co. Ltd., Chairman and General Manager of Zhejiang Provincial Information Economy Investment Co. Ltd., Chairman of Zhejiang Venture Capital Fund of Funds Management Co. Ltd., Chairman of Zhejiang Financial Market Investment Co. Ltd. and Chairman and General Manager of Zhejiang Agricultural Investment and Development Fund Co., Ltd.. Mr. Ye served as Deputy Director of the Social Security Division of the Department of Finance of Zhejiang Province, Deputy Director of the Discipline Inspection Division and Director of Supervisory Office of the Department of Finance of Zhejiang Province delegated by the Discipline Inspection Commission and Department of Supervision of Zhejiang Province. Mr. Ye has extensive experience in government’s work and state-owned enterprise management.

B.	Compensation

Compensation of Key Management Personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company and its subsidiaries, directly or indirectly, including directors, supervisors and executive vice presidents of the Company and its subsidiaries. The aggregate amount of compensation we paid to our key management personnel was approximately RMB10.775 million for the year ended December 31, 2015.

Our directors and supervisors receive compensation in the form of fees, salaries, allowances and benefits in kind, including our contribution to the pension plans for our directors and supervisors. The aggregate amount of compensation we paid to our directors and supervisors as a group for the year ended December 31, 2015 was approximately RMB7.298 million. The following table sets forth the compensation received or receivable by our Company’s directors and supervisors⁽¹⁾⁽²⁾:


	Directors’/ supervisors’ fees		Salaries, allowances and benefits in kind		Discretionary bonuses		Share-based payments		Retirement scheme contributions		Total
	RMB thousands
2015
Executive Directors
Yang Jie		—		160		426		—		84		670
Yang Xiaowei		—		136		378		—		79		593
Zhang Jiping		—		143		385		—		80		608
Sun Kangmin		—		143		378		—		80		601
Ke Ruiwen		—		136		378		—		75		589
Wang Xiaochu⁽³⁾		—		111		373		—		58		542
Chang Xiaobing⁽⁴⁾		—		53		53		—		27		133
Wu Andi⁽⁵⁾		—		34		284		—		24		342

Non-Executive Directors
Zhu Wei		—		—		—		—		—		—

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	Directors’/ supervisors’ fees		Salaries, allowances and benefits in kind		Discretionary bonuses		Share-based payments		Retirement scheme contributions		Total
	RMB thousands
Independent Non-Executive Directors

Tse Hau Yin		407		—		—		—		—		407
Cha May Lung		203		—		—		—		—		203
Xu Erming		200		—		—		—		—		200
Wang Hsuehming		203		—		—		—		—		203

Supervisors
Sui Yixun⁽⁶⁾		—		104		131		—		42		277
Tang Qi		—		184		450		—		68		702
Zhang Jianbin		—		166		438		—		68		672
Hu Jing		—		98		338		—		63		499
Ye Zhong⁽⁶⁾		—		—		—		—		—		—
Shao Chunbao⁽⁷⁾		—		23		22		—		12		57
Du Zuguo⁽⁸⁾		—		—		—		—		—		—

Total		1,013		1,491		4,034		—		760		7,298

(1)	The remuneration of all Directors and Supervisors were calculated based on their respective actual terms of office within this year.

(2)	The independent non-executive directors’ remuneration were for their services as directors of the Company.

(3)	Mr. Wang Xiaochu resigned as an executive director of the Company on August 24, 2015.

(4)	Mr. Chang Xiaobing was appointed as an executive director of the Company on October 23, 2015 and resigned as an executive director of the Company on December 30, 2015.

(5)	Madam Wu Andi retired as an executive director of the Company on February 10, 2015.

(6)	Mr. Sui Yixun and Mr. Ye Zhong were appointed as supervisors of the Company on May 27, 2015.

(7)	Mr. Shao Chunbao resigned as a supervisor of the Company on February 18, 2015.

(8)	Mr. Du Zuguo resigned as a supervisor of the Company on March 12, 2015.

Discretionary Bonuses for Executive Directors

Compensation of our Executive Directors is determined pursuant to our director compensation plans thereof approved and adopted by the Board and the Remuneration Committee. Under the director compensation plan, Executive Directors receive discretionary bonuses subject to achievement of certain performance targets. The amounts of discretionary bonuses are reviewed and determined annually, with reference to certain financial indicators of the preceding year. Independent directors and non-executive directors do not receive any discretionary bonus.

Discretionary Bonuses for Employee Supervisors

Certain of our supervisors are also our employees. Such employee supervisors are entitled to receiving discretionary bonuses under our compensation policies that are generally applicable to all employees. The amounts of such discretionary bonuses are determined with reference to the performance of the department in which an employee serves as well as his or her individual performance. The amounts of discretionary bonuses are reviewed and determined annually, based on the review of performance in the preceding year. Non-employee supervisors do not receive any discretionary bonus from our Company.

Stock Appreciation Rights

We implemented a plan of stock appreciation rights for members of our management in order to provide further incentives for these employees. The plan is designed to link the financial interests of our senior management with our future results of operations and the performance of our H shares. The number of stock appreciation right units granted to a person may also be adjusted in accordance with the result of his or her performance evaluation. Under this plan, stock appreciation rights were granted in units with each unit representing one H share. No shares will be issued under the stock appreciation rights plan. Upon exercise of the stock appreciation rights, a recipient will receive, subject to any applicable withholding tax, a cash payment in Renminbi, translated from the Hong Kong dollar amount equal to the product of the number of stock appreciation rights exercised and the difference between the exercise price and market price of our Company’s H shares at the date of exercise based on the applicable exchange rate between Renminbi and Hong Kong dollar at the date of the exercise.

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In 2012, we approved the granting of 916.7 million stock appreciation right units to eligible employees. Under the terms of this grant, all stock appreciation rights will have a contractual life of five years from the date of grant and an exercise price of HK$4.76 per unit. A recipient of these stock appreciation rights may exercise the rights in stages commencing November 2013. As of each of the third, fourth and fifth anniversary of the date of grant, the total number of stock appreciation rights exercisable may not in aggregate exceed 33.3%, 66.7% and 100.0%, respectively, of the total stock appreciation rights granted to such persons.

In 2013, we did not grant any stock appreciation right units.

In 2014, we did not grant any stock appreciation right units.

In 2015, we did not grant any stock appreciation right units.

During the year ended December 31, 2013, 2014 and 2015, no stock appreciation right units were exercised.

We recognize compensation expense of the stock appreciation rights over the applicable vesting period. Changes in our payment obligation under the stock appreciation rights plan resulting from changes in fair value of our H shares for the period subsequent to the vesting period through the date of the exercise are also reflected in our earnings. For the year ended December 31, 2013, compensation expense of RMB39 million was reversed by us in respect of stock appreciation rights as a result of decline in our share price. For the year ended December 31, 2014, compensation expense recognized in respect of stock appreciation rights was RMB130 million. For the year ended December 31, 2015, compensation expense of RMB102 million was reversed by us in respect of stock appreciation rights as a result of decline in our share price.

C.	Board Practices

General

Pursuant to our Articles of Association, our directors must be elected by our shareholders at a general meeting. Our directors are generally elected for a term of three years and may serve consecutive terms if re-elected. On May 29, 2014, election of members of the Board were conducted and this election generated the fifth session of the Board consisting of 12 directors with seven Executive Directors, one Non-Executive Director, and four Independent Non-executive Directors, each having a term of office of three years. The term of the fifth session of the Board ends on the day of our annual general meeting for the year 2016 in 2017, upon which the sixth session of the Board will be elected. None of the service contracts with our directors provide benefits to them upon termination.

On August 24, 2015, Mr. Wang Xiaochu resigned from his position as the executive director, chairman and chief executive officer of the Company due to change in work arrangement. On October 23, 2015, the appointment of Mr. Chang Xiaobing as a director of the Company was approved at an extraordinary general meeting and the term of office commences from October 23, 2015 until the annual general meeting of the Company for the year 2016 to be held in 2017. On December 30, 2015, Mr. Chang Xiaobing resigned from his positions as the executive director, chairman and chief executive officer of the Company with effect from the same date. Our Board currently consists of 10 directors with five Executive Directors, one Non-Executive Director and four Independent Non-Executive Directors.

Audit Committee

The Audit Committee was established in 2002, and currently consists of three members, Mr. Tse Hau Yin, Aloysius, Professor Xu Erming and Madam Wang Hsuehming, all of whom are Independent Non-executive Directors. The Audit Committee is accountable to the Board and reports to it periodically. The Committee meets at least twice each year. The Charter of the Audit Committee was approved by our Board in March 2005 and amended in March 2009, in December 2011 and in March 2015, respectively, pursuant to which the principal responsibilities of our Audit Committee include supervision of our Company to ensure authenticity and completeness of our financial statements and effectiveness and integration of the internal control and risk management system. The Audit Committee also supervises our internal audit department, and is responsible for the review and supervision of the qualifications, independence, selection and appointment of external independent auditors, and approval of services provided by the external independent auditors. In addition, the Audit Committee is responsible for ensuring that the management performs its duty to establish and maintain an effective risk management and internal control system including the adequacy of resources and qualifications and experience of staff fulfilling the accounting, internal control and financial reporting function of the Company as well as the adequacy of the staff’s training programs and related budget. The Audit Committee has established a mechanism for receiving and handling complaints or anonymous reports in respect of our accounting, internal control and audit matters.

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In 2015, the Audit Committee held five meetings and passed two written resolutions, at which it considered matters within its responsibilities, including our Company’s financial statements, assessment of the qualifications, independence and performance of external auditors, appointment and remuneration of independent auditors, effectiveness of risk management, internal control, internal audit, renewal of continuing connected transactions and revision of annual cap for the transactions. The Audit Committee reviewed the annual audited reports, interim review reports and quarterly agreed-upon procedures reports prepared by the external independent auditors, communicated with the management and the external independent auditors with regard to the regular financial reports and proposed them for the Board’s approval after review and approval by the Audit Committee itself. The Audit Committee received quarterly reports in relation to the internal audit and connected transactions and provided guidance to the internal audit department. In addition, the Audit Committee reviewed the internal control assessment report and attestation report, followed up with the implementation procedures of the recommendations proposed by the external independent auditors, reviewed the U.S. annual report, and communicated independently with the auditors twice a year.

Remuneration Committee

The Remuneration Committee was established in 2003, and currently consists of three members, Professor Xu Erming, Mr. Tse Hau Yin, Aloysius and Madam Wang Hsuehming, all of whom are Independent Non-Executive Directors. The Remuneration Committee is accountable to the Board and reports to it on its work periodically. The Remuneration Committee meets when necessary. The Charter of the Remuneration Committee was approved by our Board in March 2005 and amended in December 2011, pursuant to which the Remuneration Committee’s principal responsibilities include supervising the compliance of the Company’s remuneration system with legal requirements, presenting the evaluation report on the Company’s remuneration system to the Board, making recommendations to the Board on our overall remuneration policies and structure relating to compensation of directors and senior management and the establishment of a formal and transparent procedure for developing remuneration policy, and determining, with delegated responsibility by the Board, the remuneration packages of individual executive directors and senior management including benefits in kind, pension rights and compensation payments (including any compensation payable for loss or termination of their office or appointment).

The Remuneration Committee did not hold any meeting in 2015.

Nomination Committee

The Nomination Committee was established in 2005. It currently consists of three members, Ms. Cha May Lung, Laura, Mr. Tse Hau Yin, Aloysius and Professor Xu Erming, all of whom are Independent Non-Executive Directors. The Nomination Committee is accountable to the Board and regularly reports to the latter on its work. The Nomination Committee meets when necessary. The Charter of the Nomination Committee was approved by our Board in September 2005 and amended in December 2011 and August 2013, respectively, pursuant to which the Nomination Committee’s principal responsibilities include reviewing the structure, size, composition and diversity (including but not limited to gender, age, educational background or professional experience, skills, knowledge and length of service) of the board on a regular basis and making recommendations to the board regarding any proposed changes; identifying individuals suitably qualified to become board members and selecting or making recommendations to the board on the selection of individuals nominated for directorships; assessing the independence of independent non-executive directors; making recommendations to the board on the appointment or re-appointment of directors and succession planning for directors; and reviewing the Board Diversity Policy as appropriate to ensure its effectiveness and if necessary, recommend any revision suggestions to the Board for consideration and approval.

The Nomination Committee held one meeting and passed two written resolutions in 2015, where it performed a review of the structure and operations of the Board and discussed the issue in relation to the appointment of Director and other related matters.

Independent Board Committee

The Independent Board Committee consists of all Independent Non-Executive Directors. Meetings of the Independent Board Committee are convened to review certain connected transactions on a case by case basis pursuant to the Listing Rules of the Hong Kong Stock Exchange.

The Independent Board Committee held one meeting in 2015, where it reviewed the renewal of and revised annual cap for continuing related party transactions and gave the relevant confirmation as well as submitted the recommendations on these matters to the independent shareholders.

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D.	Employees

General

As of December 31, 2015, we had 291,526 employees. The table below sets forth the numbers of our employees according to their functions as of December 31, 2013, 2014 and 2015:


	As of December 31,
	2013					2014					2015
	Number of Employees		Percentage of Total			Number of Employees		Percentage of Total			Number of Employees		Percentage of Total
Management, finance and administrative		49,113		16.0	%		49,180		16.3	%		43,998		15.1	%
Sales and marketing		157,915		51.5			154,456		51.3			151,448		51.9
Operations and maintenance		97,264		31.7			95,348		31.7			94,055		32.3
Others		2,253		0.8			1,976		0.7			2,025		0.7

Total		306,545		100.0	%		300,960		100.0	%		291,526		100.0	%

We have implemented a short-term and long-term combined incentive remuneration scheme. The primary components of an employee’s remuneration include basic salary, a performance based bonus, compensation based on seniority and stock appreciation rights (stock appreciation rights are exclusively for members of our management). In addition, we also emphasize the importance of employee training and use various means of training to improve the quality and capability of our key employees. We have not been subjected to any material labor disturbances that have interfered with our operations, and we believe that the relationship between our management and the labor union of our Company is good.

E.	Share Ownership

As of December 31, 2015, none of our directors, supervisors or other senior executives was a legal or beneficial owner of any shares of our share capital.

Item 7.

Major Shareholders and Related Party Transactions.

A.	Major Shareholders

The table below sets forth information regarding the ownership of our share capital as of April 22, 2016 by all persons who are known to us to be the beneficial owners of 5.0% or more of each class of our voting securities.


Title of Shares	Identity of Person or Group	Amount Owned		Nature of Interest		Percentage of the Respective Type of Shares⁽¹⁾			Percentage of Total Shares⁽¹⁾
Domestic shares	China Telecom Group		57,377,053,317		long position		85.57	%		70.89	%
Domestic shares	Guangdong Rising Assets Management Co., Ltd.		5,614,082,653		long position		8.37	%		6.94	%

Title of Shares	Identity of Person or Group	Amount Owned		Nature of Interest		Percentage of the Respective Type of Shares⁽¹⁾			Percentage of Total Shares⁽¹⁾
H shares	JPMorgan Chase & Co.		1,665,425,988		long position		12.00	%		2.06	%
			26,856,748		short position		0.19	%		0.03	%
			1,073,314,869		lending pool		7.73	%		1.33	%
H shares	BlackRock, Inc.		1,141,239,295		long position		8.22	%		1.41	%
H shares	The Bank of New York Mellon Corporation		834,090,669		long position		6.01	%		1.03	%
	The Bank of New York Mellon Corporation		805,835,485		lending pool		5.81	%		1.00	%
H shares	UBS Group AG		794,738,122		long position		5.73	%		0.98	%
			47,487,176		short position		0.34	%		0.06	%
H shares	Templeton Investment Counsel, LLC		694,050,154		long position		5.00	%		0.86	%

(1)	The percentage figures above have been rounded off to the nearest second decimal place.

(2)	Information disclosed hereby is based on the information available on the website of the Hong Kong Stock Exchange at www.hkexnews.hk.

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China Telecom Group, located at 31 Jinrong Street, Xicheng District, Beijing, PRC 100033, is our controlling shareholder and is a wholly state-owned enterprise regulated by the State Council. Guangdong Rising Assets Management Co., Ltd., located at 17 Pearl River West Road, Pearl River New Town, Tianhe District, Guangzhou, Guangdong Province, PRC, is a state-owned enterprise owned and controlled by the provincial governments in Guangdong Province. JP Morgan Chase & Co. is located at 270 Park Avenue, New York, New York 10017, U.S.A. BlackRock, Inc. is located at 1209 Orange Street, Wilmington DE 19801. The Bank of New York Mellon Corporation is located at Corporate Trust Center 1209 Orange Street Wilmington, Delaware, 19801 USA. UBS Group AG is located at BAHNHOFSTRASSE 45 8001 Zurich Switzerland. Templeton Investment Counsel, LLC is located at 300 S.E. 2nd Street, Fort Lauderdale, FL, 33301, United States.

Based solely on information contained in an Amendment No. 9 to Schedule 13G, or the FRI Schedule 13G/A, jointly filed with the SEC, on February 4, 2016 by Franklin Resources, Inc., or FRI, Charles B. Johnson and Rupert H. Johnson, Jr., 1,552,402,519 shares of our Company, or the FRI Shares, representing approximately 11.2% of the total number of our H shares outstanding as of December 31, 2015, were beneficially owned either by investment companies that were direct or indirect subsidiaries of FRI or by other managed accounts that were investment management clients of investment managers that were direct or indirect subsidiaries of FRI. These subsidiaries of FRI were generally granted all investment and/or voting power over the FRI Shares owned and, as a result, may be deemed to be the beneficial owners of the FRI Shares for the purposes of Rule 13d-3 of the Exchange Act. Each of Charles B. Johnson and Rupert H. Johnson, Jr. owned in excess of 10% of the outstanding common stock of FRI and was a principal shareholder of FRI. Each of FRI, Charles B. Johnson and Rupert H. Johnson, Jr. could be deemed a beneficial owner of securities held by persons and entities for whom or for which the subsidiaries of FRI provided investment management services. However, each of FRI, Charles B. Johnson and Rupert H. Johnson, Jr. disclaims beneficial ownership of any of the FRI Shares. The principal place of business of each of FRI, Charles B. Johnson and Rupert H. Johnson, Jr., is One Franklin Parkway, San Mateo, CA 94403-1906, U.S.A. The above disclosure is based solely on the information contained in the FRI Schedule 13G/A. For the numbers of our H shares that each of the subsidiaries of FRI has sole power to vote or to direct the voting of, or sole power to dispose or to direct the disposition of, or shared power to dispose or to direct the disposition of, and other details of the FRI Schedule 13G/A, please see the Schedule 13G/A jointly filed with the SEC by FRI, Charles B. Johnson and Rupert H. Johnson, Jr. on February 4, 2016.

None of our major shareholders has voting rights that differ from the voting rights of other shareholders. We are not aware of any arrangement which may at a subsequent date result in a change of control of our Company.

B.	Related Party Transactions

As of April 22, 2016, China Telecom Group, a wholly state-owned enterprise, directly owned and controlled 70.89% of our issued share capital. Accordingly, transactions between China Telecom Group and us constitute connected transactions under the Listing Rules.

In connection with our restructuring in 2001, our acquisitions of telecommunications assets from China Telecom Group on December 31, 2003 and June 30, 2004, respectively, our acquisition of the CDMA Business in 2008, the Mobile Network Acquisition in 2012, and our sale of E-surfing Media in 2013, we have entered into various agreements with China Telecom Group relating to the mutual provision of ongoing telecommunications and other services. Such agreements include those for trademark licensing, centralized services, interconnection arrangements, optic fiber leasing, property leasing, land use right leasing, CDMA network capacity leasing, CDMA facilities leasing, Internet applications channel services and other services.

Our Independent Non-Executive Directors have confirmed that all connected transactions for the year ended December 31, 2015 to which our Company was a party:

•

had been entered into, and the agreements governing those transactions were entered into, by our Company in the ordinary and usual course of business;

•

had been entered into either:

•

on normal commercial terms or better; or

•

if there were not sufficient comparable transactions to judge whether they were on normal commercial terms, on terms no less favorable to the Company than those available to or (if applicable) from independent third parties; and

•

had been entered into in accordance with the relevant terms that are fair and reasonable and in the overall interests of the shareholders of the Company as a whole.

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The details of the related party arrangements are described below.

Arrangements Relating to Certain Acquisitions

Indemnification

In connection with the acquisition of telecommunications assets from China Telecom Group by our Company, under the Sale and Purchase Agreement, dated October 26, 2003, between our Company and China Telecom Group, China Telecom Group has undertaken to indemnify Anhui Telecom Company Limited, Fujian Telecom Company Limited, Jiangxi Telecom Company Limited, Guangxi Telecom Company Limited, Chongqing Telecom Company Limited and Sichuan Telecom Company Limited for any loss or damages suffered by those companies as a result of, or related to, the reorganization of those companies under which China Telecom Group transferred to those companies the telecommunications operations of China Telecom Group in Anhui Province, Fujian Province, Jiangxi Province, Guangxi Zhuang Autonomous Region, Chongqing Municipality and Sichuan Province, and for any loss or damages suffered by those companies in connection with events preceding such reorganization.

In connection with the acquisition of telecommunications assets from China Telecom Group by our Company, under the Conditional Sale and Purchase Agreement, dated April 13, 2004, between our Company and China Telecom Group, China Telecom Group has undertaken to indemnify us and keep us indemnified against any loss or liability suffered by us or any acquired company including, but not limited to, any diminution in the value of the assets of or shares in any acquired company, any payment made or required to be made by us or any acquired company and any costs and expenses incurred as a result of or in connection with any claim falling on any acquired company resulting from or by reference to any income, profits or gains earned, accrued or received on or before the date of the acquisition or any event on or before the date of the acquisition whether alone or in conjunction with other circumstances and whether or not such taxation is chargeable against or attributable to any other person, firm or company.

Ongoing Related Party Transactions between Us and China Telecom Group

The following table sets out the amounts of ongoing related party transactions between us and China Telecom Group for the year ended December 31, 2015:


Transactions	Transaction Amounts (RMB millions)
Net transaction amount of centralized services		486
Net expenses for interconnection settlement		409
Lease of property from China Telecom Group		673
Lease of property to China Telecom Group		47
Provision of IT services by China Telecom Group		1,365
Provision of IT services to China Telecom Group		181
Provision of supplies procurement services by China Telecom Group		5,288
Provision of supplies procurement services to China Telecom Group		2,855
Provision of engineering services by China Telecom Group		19,888
Provision of community services by China Telecom Group		2,860
Provision of ancillary telecommunications services by China Telecom Group		12,718
Provision of Internet applications channel services to China Telecom Group		368
Interest on amounts due to and loans from China Telecom Group*		4,048
Lease of CDMA network facilities from China Telecom Group*		226
Lease of inter-provincial transmission optic fibers from China Telecom Group*		22
Lease of land use rights from China Telecom Group*		13

*	These transactions are conducted on normal commercial terms and are fully exempted from compliance with the reporting, announcement, independent shareholders’ approval and/or annual review requirements either under Rules 14A.76 or 14A.90 of the Listing Rules.

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Centralized Services Agreement

Pursuant to the centralized services agreement signed between the Company and China Telecommunications Corporation on September 10, 2002 and the related supplemental agreements subsequently entered into between the two parties (collectively, the “Centralized Services Agreement”), centralized services include centralized business management and operational services provided by the Company to China Telecommunications Corporation in relation to key corporate customers, its network management center and business support center. Centralized services also include the provision of certain premises by China Telecommunications Corporation to the Company and the common use of international telecommunications facilities by both parties. In accordance with the Centralized Services Agreement, the aggregate costs incurred by the Company and China Telecommunications Corporation for the provision of management and operation services will be apportioned between the Company and China Telecommunications Corporation on a pro rata basis according to the revenues generated by each party. Where the Company uses the premises provided by China Telecommunications Corporation, the Company will pay premises usage fees to China Telecommunications Corporation on a pro rata basis according to the apportioned actual area allocated to the Company. The premises usage fees shall be determined through negotiation between the two parties based on comparable market rates. When both parties use international telecommunications facilities provided by third parties and accept services by such third parties, such as restoration maintenance costs, the annual utilization fee and related service costs, and when both parties use the international telecommunications facilities of China Telecommunications Corporation, the associated costs shall be shared on a pro rata basis according to volume of the inbound and outbound voice calls to and from international regions, Hong Kong, Macau and Taiwan originating from each party divided by the proportion of the aggregate volume of the inbound and outbound voice calls to and from international regions, Hong Kong, Macau and Taiwan originating from both parties. When the two parties use international telecommunications facilities provided by a third party and accept restoration maintenance costs, such fees shall be determined according to the actual utilization fee each year. The utilization fee associated with the shared use of the international telecommunications facilities provided by China Telecommunications Corporation shall be determined through negotiation between the two parties based on market rates.

The Company and China Telecommunications Corporation agreed on August 22, 2012 to renew the Centralized Services Agreement in accordance with its provisions for a further term of three years expiring on December 31, 2015. No later than 30 days prior to the expiry of the Centralized Services Agreement, the Company is entitled to serve a written notice to China Telecommunications Corporation to renew the Centralized Services Agreement, and the parties shall consult and decide on matters relating to such renewal.

Interconnection Settlement Agreement

Pursuant to the interconnection settlement agreement signed between the Company and China Telecommunications Corporation on September 10, 2002 and the related supplemental agreements subsequently entered into between the two parties (collectively, the “Interconnection Settlement Agreement”), the telephone operator connecting a telephone call made to its local access network shall be entitled to receive from the operator from which the telephone call originated a fee prescribed by the MIIT from time to time, which is currently RMB0.06 per minute. Interconnection charges are RMB0.06 per minute for local calls originated from the Company to China Telecommunications Corporation. The settlement regions include Beijing Municipality, Tianjin Municipality, Hebei Province, Heilongjiang Province, Jilin Province, Liaoning Province, Shanxi Province, Henan Province, Shandong Province, Inner Mongolia Autonomous Region and Xizang Autonomous Region.

The Company and China Telecommunications Corporation agreed on August 22, 2012 to renew the Interconnection Settlement Agreement in accordance with its provisions for a further term of three years expiring on December 31, 2015. No later than 30 days prior to the expiry of the Interconnection Settlement Agreement, the Company is entitled to serve a written notice to China Telecommunications Corporation to renew the Interconnection Settlement Agreement, and the parties shall consult and decide on matters relating to such renewal. In addition, the Company and China Telecommunications Corporation have agreed that interconnection settlement charges will be calculated according to the rules and regulations of the relevant telecommunications regulators. If the telecommunications regulators amend existing, or promulgate new rules or regulations in respect of the interconnection settlement, the parties shall apply such amended or new rules and regulations as acknowledged by both parties.

Property Leasing Framework Agreement

Pursuant to the property leasing framework agreement signed between the Company and China Telecommunications Corporation on August 30, 2006 and the related supplemental agreement subsequently entered into between the two parties (collectively, the “Property Leasing Framework Agreement”), the Company and China Telecommunications Corporation and/or its associates can lease properties from the other party for use as business premises, offices, equipment storage facilities and sites for network equipment. The rental charges under the Property Leasing Framework Agreement shall be determined according to market rates with reference to the standards set forth by local pricing authorities. The rental charges are subject to review every three years.

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The Company and China Telecommunications Corporation agreed on August 22, 2012 to renew the Property Leasing Framework Agreement in accordance with its provisions for a further term of three years expiring on December 31, 2015. No later than 30 days prior to the expiry of the Property Leasing Framework Agreement, the Company is entitled to serve a written notice to China Telecommunications Corporation to renew the Property Leasing Framework Agreement, and the parties shall consult and decide on matters relating to such renewal.

IT Services Framework Agreement

Pursuant to the IT services framework agreement signed between the Company and China Telecommunications Corporation on August 30, 2006 and the related supplemental agreements subsequently entered into between the two parties (collectively, the “IT Services Framework Agreement”), the Company and China Telecommunications Corporation and/or its associates can provide the other party with information technology services, including office automation and software testing. Each of the Company and China Telecommunications Corporation and/or its associates is entitled to participate in bidding for the right to provide information technology services to the other party in accordance with the IT Services Framework Agreement. The charges payable for such services shall be determined by reference to the market rates or rates obtained through a tender process. If the terms offered by the Company or China Telecommunications Corporation and/or its associates are no less favorable than those offered by an independent third-party provider, the Company or China Telecommunications Corporation and/or its associates may award the tender to the other party.

The Company and China Telecommunications Corporation agreed on August 22, 2012 to renew the IT Services Framework Agreement in accordance with its provisions for a further term of three years expiring on December 31, 2015. No later than 30 days prior to the expiry of the IT Services Framework Agreement, the Company is entitled to serve a written notice to China Telecommunications Corporation to renew the IT Services Framework Agreement, and the parties shall consult and decide on matters relating to such renewal.

Community Services Framework Agreement

Pursuant to the community services framework agreement signed between the Company and China Telecommunications Corporation on August 30, 2006 and the related supplemental agreements subsequently entered into between the two parties (collectively, the “Community Services Framework Agreement”), China Telecommunications Corporation and/or its associates provide the Company with community services such as culture, education, property management, vehicle service, health and medical care, hotel and conference service, community and sanitary service. The community services under the Community Services Framework Agreement are provided at:

(1) the government-prescribed prices (if any);

(2) where there are no government-prescribed prices but there are government-guided prices, the government-guided prices;

(3) where there are neither government-prescribed prices nor government-guided prices, the market prices (if any), which are the prices at which the same type of services are provided by independent third parties in the ordinary course of business; or

(4) where none of the above is applicable, the prices are to be agreed between the parties based on the reasonable costs incurred in providing the services plus reasonable profit margin (for this purpose, “reasonable costs” means such costs as confirmed by both parties after negotiations).

The Company and China Telecommunications Corporation agreed on August 22, 2012 to renew the Community Services Framework Agreement in accordance with its provisions for a further term of three years expiring on December 31, 2015. No later than 30 days prior to the expiry of the Community Services Framework Agreement, the Company is entitled to serve a written notice to China Telecommunications Corporation to renew the Community Services Framework Agreement, and the parties shall consult and decide on matters relating to such renewal.

Supplies Procurement Services Framework Agreement

Pursuant to the supplies procurement services framework agreement signed between the Company and China Telecommunications Corporation on August 30, 2006 and the related supplemental agreements subsequently entered into between the two parties (collectively, the “Supplies Procurement Services Framework Agreement”), China Telecommunications Corporation and/or its associates and the Company provide each other with supplies procurement services, including the comprehensive procurement services, the sale of proprietary telecommunications equipment, resale of third-party equipment, management of tenders, verification of technical specifications, storage, transportation and installation services.

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Where the procurement services are provided on an agency basis, the maximum commission for such procurement services shall be calculated at: (1) not more than 1% of the contract value for procurement of imported telecommunications supplies; or (2) not more than 3% of the contract value for the procurement of domestic telecommunications supplies and domestic non-telecommunication supplies. The pricing basis of the services for the provision of supplies procurement other than on an agency basis under the Supplies Procurement Services Framework Agreement is the same as those set out in the Community Services Framework Agreement.

The Company and China Telecommunications Corporation agreed on August 22, 2012 to renew the Supplies Procurement Services Framework Agreement in accordance with its provisions for a further term of three years expiring on December 31, 2015. No later than 30 days prior to the expiry of the Supplies Procurement Services Framework Agreement, the Company is entitled to serve a written notice to China Telecommunications Corporation to renew the Supplies Procurement Services Framework Agreement, and the parties shall consult and decide on matters relating to such renewal.

Engineering Framework Agreement

Pursuant to the engineering framework agreement signed between the Company and China Telecommunications Corporation on August 30, 2006 and the related supplemental agreements subsequently entered into between the two parties (collectively, the “Engineering Framework Agreement”), China Telecommunications Corporation and/or its associates through bids provide to the Company services such as construction, design, equipment installation and testing and/or engineering project supervision services. The charges payable for such engineering services shall be determined by reference to market rates. The charges payable for the design or supervision of engineering projects with a value of over RMB500,000 or engineering construction projects with a value of over RMB2 million shall be determined by the tender award price.

The Company does not accord any priority to China Telecommunications Corporation and/or its associates to provide such services, and the tender may be awarded to an independent third party. However, if the terms of an offer from China Telecommunications Corporation and/or its associates are at least as favourable as those offered by other tenderers, the Company may award the tender to China Telecommunications Corporation and/or its associates.

The Company and China Telecommunications Corporation agreed on August 22, 2012 to renew the Engineering Framework Agreement in accordance with its provisions for a further term of three years expiring on December 31, 2015. No later than 30 days prior to the expiry of the Engineering Framework Agreement, the Company is entitled to serve a written notice to China Telecommunications Corporation to renew the Engineering Framework Agreement, and the parties shall consult and decide on matters relating to such renewal.

Ancillary Telecommunications Services Framework Agreement

Pursuant to the ancillary telecommunications services framework agreement signed between the Company and China Telecommunications Corporation on August 30, 2006 and the related supplemental agreements subsequently entered into between the two parties (collectively, the “Ancillary Telecommunications Services Framework Agreement”), China Telecommunications Corporation and/or its associates provide the Company with certain repair and maintenance services, including repair of telecommunications equipment, maintenance of fire equipment and telephone booths, as well as other customer services. The pricing terms for such services are the same as those set out in the Community Services Framework Agreement.

The Company and China Telecommunications Corporation agreed on August 22, 2012 to renew the Ancillary Telecommunications Services Framework Agreement in accordance with its provisions for a further term of 3 years expiring on December 31, 2015. No later than 30 days prior to the expiry of the Ancillary Telecommunications Services Framework Agreement, the Company is entitled to serve a written notice to China Telecommunications Corporation to renew the Ancillary Telecommunications Services Framework Agreement, and the parties shall consult and decide on matters relating to such renewal.

Trademark License Agreement

China Telecommunications Corporation has registered a number of trademarks, and is in the process of registering other trademarks with the Trademark Office. Under the trademark license agreement, dated September 10, 2002, and the related supplemental agreements (collectively, the “Trademark License Agreement”), China Telecommunications Corporation has granted to the Company a right to use its registered trademarks and its trademarks pending registration on a royalty-free basis.

The Company and China Telecommunications Corporation agreed on August 22, 2012 to renew the Trademark License Agreement pursuant to its terms for a further term expiring on December 31, 2015. The Company may renew the Trademark License Agreement for such further periods as the parties may agree, by 30 days’ written notification to China Telecommunications Corporation.

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Optic Fiber Leasing Agreement

The Company leases from China Telecom Group the inter-provincial transmission optic fibers in Shanghai Municipality, Guangdong Province, Jiangsu Province and Zhejiang Province, which the Company’s telecommunications services are dependent upon, under the Optic Fiber Leasing Agreement dated September 10, 2002 and the related supplemental agreements (collectively, the “Optic Fiber Leasing Agreement”). The rent payable by the Company to China Telecom Group to lease the relevant parts of the inter-provincial transmission optic fibers will be based on negotiations between the parties with reference to the market price. In addition, The Company agreed to be responsible for the maintenance of these optic fibers within those service regions.

The Company and China Telecommunications Corporation agreed on August 22, 2012 to renew the Optic Fiber Leasing Agreement pursuant to its terms for a further term expiring on December 31, 2015. The Company may renew the Optic Fiber Leasing Agreement for such further periods as the parties may agree, by 30 days’ written notification to China Telecommunications Corporation.

Internet Applications Channel Services Framework Agreement

Pursuant to the Internet applications channel services framework agreement signed between the Company and China Telecommunications Corporation on December 16, 2013 (the “Internet Applications Channel Services Framework Agreement”), the Company will provide Internet applications channel services to China Telecommunications Corporation and/or its associates. The channel services mainly include the provision of telecommunications channel and applications support platform, provision of billing and deduction services, coordination of sales promotion and development of customers services, etc.

The charges payable for the services under the Internet Applications Channel Services Framework Agreement are calculated on the following basis:

(1)

the government-prescribed prices (if any);

(2)

where there are no government-prescribed prices but there are government-guided prices, the government-guided prices;

(3)

where there are neither government-prescribed prices nor government-guided prices, the market prices. Market prices shall mean the prices at which the same type of services are provided by independent third parties in the ordinary course of business; or

(4)

where none of the above is applicable, the prices are to be agreed between the parties based on the reasonable costs incurred in providing the services plus reasonable profit margin (for this purpose, “reasonable costs” means such costs as confirmed by both parties after negotiations).

The Internet Applications Channel Services Framework Agreement became effective from January 1, 2014 and will expire on December 31, 2015. No later than 30 days prior to the expiry of the Internet Applications Channel Services Framework Agreement, the Company is entitled to serve a written notice to China Telecommunications Corporation to renew the agreement, and the parties shall consult and decide on matters relating to such renewal.

Renewal of Continuing Connected Transactions

On September 23, 2015, the Company and the China Telecommunications Corporation entered into supplemental agreements and renewed the Engineering Framework Agreement, the Ancillary Telecommunications Services Framework Agreement, the Interconnection Settlement Agreement, the Community Services Framework Agreement, the Centralized Services Agreement, the Property Leasing Framework Agreement, the IT Services Framework Agreement, the Supplies Procurement Services Framework Agreement, the Internet Applications Channel Services Framework Agreement and the Optic Fiber Leasing Agreement on the same terms (except the pricing terms) for a further term of three years expiring on December 31, 2018. The pricing terms of the agreements were elaborated or amended with a view to complying with the guidance letter on pricing policies for continuing connected transactions and their disclosure published by the Hong Kong Stock Exchange in March 2014 (HKEx-GL73-14) and aligning with the transactions contemplated under the agreements. The renewal of the Engineering Framework Agreement and the Ancillary Telecommunications Services Framework Agreement were approved at the second extraordinary general meeting of the Company on November 27, 2015. The Trademark License Agreement was renewed upon mutual consent on the same terms for a further term of three years expiring on December 31, 2018.

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Our Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities

See “Item 4—Information on the Company—A. History and Development of the Company—Our Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities.”

Our Short Term Borrowings from China Telecom Group

We from time to time borrow short term unsecured loans from China Telecom Group to supplement our working capital needs. As of December 31, 2015, the aggregate outstanding principal amount of such loans was RMB12,098 million, which bear interest at fixed rates ranging from 3.5% to 4.5% per annum. See Note 16 to our audited financial statements included elsewhere in this report for details.

Our Sale of E-surfing Media

See “Item 4—Information on the Company—A. History and Development of the Company—Changes in Our Corporate Organization in 2013”.

Our Acquisition from China Telecommunications Corporation the 100% equity interest of China Telecom Europe

See “Item 4—Information on the Company—A. History and Development of the Company—Changes in Our Corporate Organization in 2013”.

Our Transfer of Assets to and Tower Usage Arrangements with the Tower Company

See “Item 4—Information on the Company—A. History and Development of the Company—Establishment of the Tower Company and the Disposal and Use of the Telecommunications Towers”.

C.	Interests of Experts and Counsel

Not applicable.

Item 8.

Financial Information.

A.	Consolidated Statements and Other Financial Information

Our consolidated financial statements are set forth beginning on page F-1. No significant change has occurred since the date of the annual financial statements.

Legal Proceeding

We are the defendant in certain lawsuits and a named party in other legal proceedings arising in the ordinary course of business. While the outcomes of such contingencies, lawsuits or other legal proceedings cannot be determined at present, we believe that the outcomes of such contingencies, lawsuits or other legal proceedings will not likely result in any material adverse effect on our financial position, results of operations or cash flows.

Policy on Dividend Distributions

The declaration and payment of dividends for years following 2015 will depend upon our financial results, our shareholders’ interests, general business conditions and strategies, our capital requirements, contractual restrictions on the payment of dividends by us to our shareholders or by our subsidiaries, if any, to us, possible effects on our creditworthiness and other factors our directors may deem relevant. Our Board will declare dividends, if any, in Renminbi with respect to our H shares on a per share basis and will pay such dividends in Hong Kong dollars. Any final dividend for a fiscal year will be subject to shareholders’ approval. Under the PRC Company Law and our Articles of Association, all of our shareholders have equal rights to dividends and distributions. The holders of our H shares will share proportionately on a per share basis in all dividends and other distributions declared by our Company.

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The Bank of New York Mellon, as depositary, will convert the Hong Kong dollar dividend payment and distribute it to holders of ADSs in U.S. dollars, less related fees and expenses and any withholding tax.

Item 9.

The Offer and Listing.

In connection with our initial public offering, our ADSs were listed and commenced trading on the NYSE on November 14, 2002 under the symbol “CHA.” Our H shares were listed and commenced trading on the Hong Kong Stock Exchange on November 15, 2002. Prior to these listings, there was no public market for our equity securities. The NYSE and the Hong Kong Stock Exchange are the principal trading markets for our ADSs and H shares, which are not listed on any other exchanges in or outside the United States.

As of December 31, 2015 and April 22, 2016, there were 13,877,410,000 H shares issued and outstanding. As of December 31, 2015 and April 22, 2016, there were, respectively, 53 and 49 registered holders of American depositary receipts evidencing 5,179,596 and 5,218,776 ADSs. Since certain of the ADSs are held by nominees, the above number may not be representative of the actual number of U.S. beneficial holders of ADSs or the number of ADSs beneficially held by U.S. persons. The depositary for the ADSs is The Bank of New York Mellon.

The high and low closing sale prices of the shares on the Hong Kong Stock Exchange and of the ADSs on the NYSE for the periods indicated are as follows.


	Price per Share (HK$)				Price per ADS (US$)
	High		Low		High		Low
Annual
2011		5.23		4.08		67.13		52.68
2012		4.91		3.29		63.48		42.05
2013		4.40		3.56		57.97		45.35
2014		5.17		3.15		66.61		40.35
2015		6.02		3.44		78.28		43.67
Quarterly
Fourth Quarter, 2013		4.20		3.81		54.56		48.94
First Quarter, 2014		3.86		3.15		49.16		40.35
Second Quarter, 2014		4.19		3.45		53.73		44.70
Third Quarter, 2014		5.17		3.88		66.61		49.17
Fourth Quarter, 2014		5.04		4.31		64.79		55.30
First Quarter, 2015		5.04		4.22		65.85		56.01
Second Quarter, 2015		6.02		4.5		78.28		57.72
Third Quarter, 2015		4.66		3.65		59.29		47.04
Fourth Quarter, 2015		4.20		3.44		54.36		43.67
First Quarter, 2016		4.10		3.31		52.57		43.00
Monthly
October 2015		4.20		3.69		54.36		47.76
November 2015		4.20		3.80		54.23		49.13
December 2015		3.85		3.44		49.62		43.67
January 2016		3.61		3.31		46.84		43.00
February 2016		3.80		3.57		49.58		45.01
March 2016		4.10		3.72		52.57		47.93
April 2016 (through April 22, 2016)		4.29		3.93		55.66		50.61

Item 10.

Additional Information.

A.	Share Capital

Not applicable.

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B.	Memorandum and Articles of Association

The following is a summary of certain provisions of our Articles of Association, as amended. Such summary does not purport to be complete. For further information, you and your advisors should refer to the text of our Articles of Association, as amended, and to the texts of applicable laws and regulations. A copy of our Articles of Association is filed as an exhibit to this annual report, which is incorporated herein by reference.

Holders of our domestic shares and H shares are deemed to be shareholders of different classes for various matters, which affect their respective interests. For instance, if we propose an increase in domestic shares, holders of H shares would be entitled to vote on that proposal as a separate class. See “—Voting Rights and Shareholders’ Meetings” included elsewhere under this Item.

Objects and Purposes

We are a joint stock limited company established in accordance with the PRC Company Law, the State Council’s Special Regulations Regarding the Issue of Shares Overseas and the Listing of Shares Overseas by Companies Limited by Shares and other relevant laws and regulations of the State. We registered with the PRC State Administration for Industry and Commerce with business license number 1000001003712. Article 13 of our Articles of Association provides that our scope of business includes, among other things, operation of basic and value-added telecommunications businesses.

Directors

Our Articles of Association provide that each of our directors is obligated to each shareholder to act honestly in our Company’s best interests; not to exploit corporate assets for personal gain; and not to expropriate the rights of our shareholders.

Where a director is materially interested, directly or indirectly, in a contract, transaction or arrangement (including any proposed contract, transaction or arrangement) with us, he or she shall declare the nature and extent of his or her interests to the Board at the earliest opportunity, whether or not such contract, transaction or arrangement is otherwise subject to the approval of the Board. A director shall not vote, and shall not be counted in the quorum of the meeting, on any resolution concerning any contract, transaction or arrangement where the director owns material rights or interests therein. A director is deemed to be interested in a contract, transaction or arrangement in which his associate (as defined in the Listing Rules of the Hong Kong Stock Exchange) is interested.

Unless the interested director discloses his interests to the board and the contract, transaction or arrangement in which the director is materially interested is approved by the board of directors at a meeting in which the director neither votes nor is counted in the quorum, such contract, transaction or arrangement may be revoked by us except with respect to a bona fide party thereto who does not have notice of the breach of duty by the interested director.

Further, we may not make loans or provide guarantees to directors or any of their associates, except where such loan or guarantee is made or provided under a service contract as approved by shareholders at the shareholders’ general meeting and to meet expenditure requirement incurred or for the purpose of enabling the director to perform his or her duties properly or made in the ordinary course of business.

All decisions relating to the compensation of directors are made at shareholders’ meetings.

There are no provisions under our articles of association which relate to:

•

the retirement or non-retirement of directors under any age limit requirement;

•

directors’ borrowing power; or

•

number of shares required for director’s qualification.

Dividends

Our Board may propose dividend distributions at any time. Our Board may declare interim and special dividends under general authorization by a shareholders’ ordinary resolution. A distribution of final dividends for any fiscal year is subject to shareholders’ approval. Dividends may be distributed in the form of cash or shares. A distribution of shares, however, must be approved by special resolution of the shareholders.

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We may only distribute dividends from our retained earnings as determined in accordance with the accounting principles of the PRC or IFRS, whichever is lower, after allowance has been made for:

•

recovery of losses, if any;

•

allocations to the statutory common reserve fund of 10.0% of our profit; and

•

allocations to a discretionary common reserve fund if approved by the shareholders.

Our Articles of Association require us to appoint on behalf of the holders of H shares a receiving agent that is registered as a trust company under the Trustee Ordinance of Hong Kong to receive dividends declared by us in respect of the H shares on behalf of such shareholders. Our Articles of Association require that cash dividends in respect of H shares be declared in Renminbi and paid by us in Hong Kong dollars. The Bank of New York Mellon, as the ADS depositary, will convert these proceeds into U.S. dollars and will remit the converted proceeds to holders of our ADSs after deduction of related fees and expenses and any withholding tax.

Dividends payments may be subject to the PRC withholding tax. See “—E. Taxation—People’s Republic of China—Taxation of Dividends” included elsewhere under this Item.

Voting Rights and Shareholders’ Meetings

Our Board will convene a shareholders’ annual general meeting once every year and within six months from the end of the preceding fiscal year. Our Board must convene an extraordinary general meeting within two months of the occurrence of any of the following events:

•

where the number of directors is less than the number stipulated in the PRC Company Law or two-thirds of the number specified in our Articles of Association;

•

where our unrecovered losses reach one-third of the total amount of our share capital;

•

where shareholder(s) holding 10.0% or more of our issued and outstanding voting shares so request(s) in writing;

•

whenever our Board deems necessary or our supervisory board so requests; or

•

whenever two or more of our independent directors so request.

Resolutions proposed by shareholder(s) holding 5.0% or more of the total voting shares shall be included in the agenda for the relevant annual general meeting if they are within the functions and powers of shareholders in general meetings.

All shareholders’ meetings must be convened by our Board by written notice given to shareholders not less than 45 days before the meeting. We may convene a shareholders’ general meeting where the number of voting shares represented by those shareholders from whom we have received 20 days before the meeting notices of intention to attend the meeting reaches one half or more of our voting shares; or, if that number is not reached, we shall within five days notify the shareholders again of the matters proposed to be considered at the meeting, the date and the place of the meeting by way of public announcement. After such public announcement, we may hold the shareholders’ general meeting. The accidental omission by us to give notice of a meeting to, or the non-receipt of notice of a meeting by, a shareholder will not invalidate the proceedings at that shareholders’ meeting.

Shareholders at meetings have the power, among other matters, to approve or reject our profit distribution plans, annual budget, financial statements, increases or decreases in share capital, issuances of debentures, mergers, liquidation and any amendment to our Articles of Association. In addition, the rights of a class of shareholders may not be modified or abrogated, unless approved by a special resolution of shareholders at a general shareholders’ meeting and by a special resolution of shareholders of that class of shares at a separate meeting. Our Articles of Association enumerate various amendments which would be deemed to be a modification or abrogation of the rights of a class of shareholders, including, among others, increasing or decreasing the number of shares of a class disproportionate to increases or decreases of other classes of shares, removing or reducing rights to receive dividends in a particular currency or creating shares with voting or equity rights superior to those of shares of that class. There are no restrictions under PRC law or our Articles of Association on the ability of investors that are not PRC residents to hold H shares and exercise voting rights.

Each share is entitled to one vote on all matters submitted for vote at all shareholders’ meetings, except for meetings of a special class of shareholders where only holders of shares of the affected class are entitled to vote on the basis of one vote per share of the affected class.

Shareholders are entitled to attend and vote at meetings either in person or by proxy. Proxies must be in writing and deposited at our legal address or such other place as is specified in the meeting notice, not less than 24 hours before the time for holding the meeting at which the proxy proposes to vote or the time appointed for the passing of the relevant resolution(s). When the instrument appointing a proxy is executed by the shareholder’s attorney-in-fact, such proxy when deposited must be accompanied by a notary certified copy of the relevant power of attorney or other authority under which the proxy was executed.

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Resolutions on any of the following matters must be approved by more than two-thirds of the voting rights held by shareholders who are present in person or by proxy:

•

an increase or decrease in our share capital or the issuance of shares, warrants and other similar securities;

•

issuance of debentures;

•

our division, merger, dissolution or liquidation (shareholders who object to a proposed merger are entitled to demand that either we or the shareholders who approved the merger purchase their shares at a fair price);

•

amendments to our Articles of Association;

•

amendment of shareholders’ rights of any class of shares; and

•

any other matters determined by a majority of shareholders at a general meeting to have a material impact on us and which should be approved by two-thirds of the voting rights.

All other actions taken by the shareholders will be approved by a majority of the voting rights held by shareholders.

Any shareholder resolution that is in violation of any PRC laws or regulations or the Articles of Association will be null and void.

Liquidation Rights

In the event of our liquidation, the H shares will rank pari passu with the domestic shares, and any of our assets remaining after payment (in order of priority) of (a) the costs of liquidation (b) wages and social insurance fees payable to or for our employees, (c) outstanding taxes and (d) bank loans, and company bonds and other debts, will be divided among our shareholders in accordance with the class of shares and their proportional shareholdings.

Increases in Share Capital

Under our Articles of Association, issuance of new securities, including ordinary shares, securities convertible into ordinary shares, options, warrants or similar rights to subscribe for any ordinary shares or convertible securities, must be approved by two-thirds of all shareholders and two-thirds of each of the class of domestic shares and the H shares, respectively. No such approval is required if, but only to the extent that, we issue domestic shares and H shares, either separately or concurrently, in numbers not exceeding 20.0% of the number of domestic shares and H shares then outstanding, respectively, in any 12-month period, as already approved by two-thirds of all shareholders. New issues of shares must also be approved by relevant PRC authorities.

Shareholders are not liable to make any further contribution to the share capital other than according to the terms that were agreed upon by the subscriber of the relevant shares at the time of subscription.

Shareholders do not have preemptive rights with respect to new issues of shares of the Company.

Decrease in Share Capital and Repurchase

We may reduce our registered share capital only upon obtaining the approval of at least two-thirds of our shareholders and, in certain circumstances, of relevant PRC authorities. The number of H shares that may be repurchased is subject to the Hong Kong Codes on Takeovers and Mergers and Share Buy-backs.

Ownership Threshold

There are no provisions under our Articles of Association which relate to ownership thresholds above which shareholder ownership is required to be disclosed.

Restrictions on Large or Controlling Shareholders

Our Articles of Association define a controlling shareholder as any person who acting alone or in concert with others:

•

is in a position to elect more than one-half of the Board;

•

has the power to exercise, or to control the exercise of, 30.0% or more of our voting rights;

•

holds 30.0% or more of our issued and outstanding shares; or

•

has de facto control of us in any other way.

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As of the date of this annual report, China Telecom Group, a wholly state-owned company, is our only controlling shareholder.

Our Articles of Association provide that, in addition to any obligation imposed by laws and administrative regulations or required by the Listing Rules, a controlling shareholder shall not exercise its voting rights in a manner prejudicial to the interests of all or some shareholders:

•

to relieve a director or supervisor from his or her duty to act honestly in our best interests;

•

to approve the appropriation by a director or supervisor (for his or her own benefit or for the benefit of any other person) of our assets in any way, including, without limitation, opportunities which may benefit us; or

•

to approve the appropriation by a director or supervisor (for his or her own benefit or for the benefit of any other person) of the individual rights of any other shareholders, including, without limitation, rights to distributions and voting rights (except in accordance with a restructuring of our company which has been submitted for approval by the shareholders at a general meeting in accordance with our Articles of Association).

If a controlling shareholder exercises its voting rights in violation of the provisions set forth above, a shareholder can sue such controlling shareholder and enforce its rights through arbitration in the PRC or Hong Kong.

Sources of Shareholders’ Rights

Currently, the primary sources of shareholders’ rights are our Articles of Association, the PRC Company Law and the Listing Rules of the Hong Kong Stock Exchange that, among other things, impose certain standards of conduct, fairness and disclosure on us, our directors and our controlling shareholder. Our Articles of Association have incorporated the provisions set forth in the Mandatory Provisions for the Articles of Association of Companies Listed Overseas, or the Mandatory Provisions, adopted in 1994, pursuant to the requirement of the China Securities Regulatory Commission. Any amendment to those provisions will only become effective after approval by the relevant governmental department authorized by the State Council and the China Securities Regulatory Commission. The Listing Rules of the Hong Kong Stock Exchange require a number of additional provisions to the Mandatory Provisions to be included in our Articles of Association.

The listing agreement between us and the Hong Kong Stock Exchange provides that we may not amend certain provisions of our Articles of Association that have been mandated by the Hong Kong Stock Exchange. These provisions relate to:

•

varying the rights of existing classes of shares;

•

voting rights;

•

our power to purchase our own shares;

•

rights of minority shareholders; and

•

liquidation procedures.

In addition, for so long as our H shares are listed on the Hong Kong Stock Exchange, we will be subject to the relevant ordinances, rules and regulations applicable to companies listed on the Hong Kong Stock Exchange, including, among other things, the Listing Rules of the Hong Kong Stock Exchange, the Securities & Futures Ordinance and the Hong Kong Codes on Takeovers and Mergers and Share Buy-backs.

Unless otherwise specified, all rights, obligations and protection discussed below are derived from our Articles of Association and the PRC Company Law.

Enforceability of Shareholders’ Rights

Enforceability of our shareholders’ rights may be limited. See “Item 3. Key Information—D. Risk Factors—Risks Relating to the People’s Republic of China—The PRC legal system has inherent uncertainties that could limit the legal protections available to you.”

Restrictions on Transferability and the Share Register

Under our Articles of Association, in order for any PRC shareholder to sell its domestic shares to persons outside the PRC who will receive H shares upon the sale, such sales must be approved by two-thirds of our domestic shareholders and H shareholders at duly convened meetings of domestic shareholders and H shareholders held separately and at a duly convened joint meeting of domestic shareholders and H shareholders. Such sales are also subject to approval by the State-Owned Assets Supervision and Administration Commission of the State Council, the China Securities Regulatory Commission and other relevant governmental authorities.

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We are required to keep a register of our shareholders which shall be comprised of various parts, including one part which is to be maintained in Hong Kong in relation to holders of H shares. Shareholders have the right to inspect and, for a reasonable charge, to copy the share register. No transfers of ordinary shares shall be recorded in our share register within 30 days prior to the date of a shareholders’ general meeting or within five days prior to the record date established for the purpose of distributing a dividend.

We have appointed Computershare Hong Kong Investor Services Limited to act as the registrar of our H shares. This registrar maintains our register of holders of H shares at our offices in Hong Kong and enters transfers of H shares in such register upon the presentation of the documents described above.

C.	Material Contracts

See “Item 4. Information on the Company—A. History and Development of the Company” and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” for certain arrangements we have entered into with China Telecom Group and/or other entities.

D.	Exchange Controls

We conduct our business primarily in Renminbi, which is also our functional and reporting currency. The Renminbi is not a fully-convertible currency. Under the existing PRC foreign exchange regulations, we will be able to pay dividends in foreign currencies without prior approval from the State Administration of Foreign Exchange by complying with certain procedural requirements. However, the PRC government may take measures at its discretion in the future to restrict access to foreign currencies for both current account transactions and capital account transactions if foreign currencies become scarce in the PRC. We may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs, if the PRC government restricts access to foreign currencies for current account transactions.

Foreign exchange transactions under our capital account, including foreign currency-denominated borrowings from foreign banks, issuance of foreign currency-denominated debt securities and principal payments in respect of foreign currency-denominated obligations, continue to be subject to significant foreign exchange controls and require the approval of the State Administration of Foreign Exchange. These limitations could affect our ability to obtain foreign exchange through debt or equity financing, or to obtain foreign exchange to meet our payment obligations under the debt securities or foreign exchange for capital expenditures.

There are no limitations on the right of non-resident or foreign owners to remit dividends or to hold or vote the ordinary shares or the ADSs imposed by Hong Kong law or by our Articles of Association or other constituent documents.

E.	Taxation

The taxation of income and capital gains of holders of H shares or ADSs is subject to the PRC laws and practices and of jurisdictions in which holders of H 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 H shares or ADSs. In particular, the discussion does not address the tax consequences under state, local and other laws, such as non-U.S. federal laws. Accordingly, you should consult your own tax adviser regarding the tax consequences of an investment in the H shares and ADSs.

The discussion is based upon laws and relevant interpretations in effect as of the date of this annual report, all of which are subject to change.

People’s Republic of China

The following is a summary of certain PRC tax provisions relating to the ownership and disposition of H shares or ADSs held by the investors as capital assets. This summary does not purport to address all material tax consequences of the ownership of H shares, and does not take into account the specific circumstances of any particular investors. This summary is based on the PRC tax laws as in effect on the date of this annual report, as well as on the Agreement between the United States of America and the PRC for the Avoidance of Double Taxation, or the PRC-US Treaty, all of which are subject to change (or changes in interpretation), possibly with retroactive effect.

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This discussion does not address any aspects of PRC taxation other than income taxation, capital taxation, stamp taxation and estate taxation. Prospective investors are urged to consult their tax advisors regarding Chinese, Hong Kong and other tax consequences of owning and disposing of H shares.

Taxation of Dividends

Individual Investors. According to the PRC Individual Income Tax Law and its implementing regulations, dividends paid by PRC companies are ordinarily subject to a PRC withholding tax levied at a flat rate of 20.0%. For a foreign individual who is not a PRC resident, the receipt of dividends from a PRC company is normally subject to a withholding tax of 20.0% unless reduced by an applicable tax treaty. For example, Hong Kong and Macau individual residents are subject to a withholding tax of 10% on dividends paid to them. According to the Notice on Tax Policies for Shanghai-Hong Kong Stock Connect Pilot Program (Cai Shui [2014] No. 81), the Company shall withhold individual income tax at the rate of 20% with respect to dividends received by the mainland individual investors for investing in our H shares through the Southbound Trading Link. The tax levied on dividends derived from the investment by mainland securities investment funds in our H shares through the Southbound Trading Link shall be ascertained by reference to the rules applicable to the individual investors. We are not required to withhold income tax on dividends derived by the mainland enterprise investors through the Southbound Trading Link, and such enterprises shall report the income and make tax payment by themselves.

Enterprises. According to the EIT Law and its implementing regulations, dividends paid by a PRC company to a foreign enterprise which is a “non-resident enterprise,” which is established under the law of a non-PRC jurisdiction and has no establishment or residence in the PRC or whose dividends from the PRC do not relate to its establishment or residence in the PRC, are subject to a 10.0% tax, unless reduced by an applicable tax treaty. A resident enterprise, including an enterprise which is established under the law of a non-PRC jurisdiction but whose “de facto management body” is located in the PRC, is not subject to any PRC withholding tax with respect to dividends paid to it by a PRC company.

Tax Treaties. Investors who do not reside in the PRC and reside in countries that have entered into double-taxation treaties with the PRC may be entitled to a reduction of the withholding tax imposed on the payment of dividends to investors of our Company who do not reside in the PRC. The PRC currently has double-taxation treaties with a number of other countries, which include:

•

Australia;

•

Canada;

•

France;

•

Germany;

•

Japan;

•

Malaysia;

•

the Netherlands;

•

Singapore;

•

the United Kingdom; and

•

the United States.

Under the PRC-US Treaty, the PRC may tax a dividend paid by us to an Eligible U.S. Holder up to a maximum of 10.0% of the gross amount of such dividend. It is arguable that under the PRC-US Treaty, the PRC may only tax gains from the sale or disposition by an Eligible U.S. Holder of H shares or ADSs representing an interest in the Company of 25.0% or more, but this position is uncertain and the PRC authorities may take a different position. For the purposes of this discussion, an “Eligible U.S. Holder” is a U.S. holder that (i) is a resident of the United States for the purposes of the PRC-US Treaty, (ii) does not maintain a permanent establishment or fixed base in the PRC to which H shares or ADSs are attributable and through which the beneficial owner carries on or has carried on business (or, in the case of an individual, performs or has performed independent personal services) and (iii) is not otherwise ineligible for benefits under the PRC-US Treaty with respect to income and gains derived in connection with the H shares or ADSs.

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Taxation of Capital Gains

With respect to individual holders of H shares or ADSs, the PRC Individual Income Tax Law and its implementation regulations stipulate that gains realized on the sale of equity shares would be subject to income tax at a rate of 20.0%, and empower the MOF to draft detailed tax rules on the mechanism for collecting such tax subject to approval of the State Council. However, as of the date of this annual report, no such tax rules have been enacted and no income tax on gains realized on the sale of equity shares has been collected. Gains on the sale of shares issued by listed companies by individuals were temporarily exempted from individual income tax pursuant to notices issued by the State Administration of Taxation dated March 30, 1998. In the event this temporary exemption is withdrawn or ceases to be effective, individual holders of H shares or ADSs may be subject to capital gains tax at the rate of 20.0% unless such tax is reduced or eliminated by an applicable double-taxation treaty. If tax on capital gains from the sale of H shares or ADSs become applicable, it is arguable that under the PRC-US Treaty, the PRC may only tax gains from the sale or disposition by an Eligible U.S. Holder of H shares or ADSs representing an interest in our Company of 25.0% or more, but this position is uncertain and the PRC authorities may take a different position.

Under the EIT Law and its implementing regulations, capital gains realized by a foreign enterprise which is a “non-resident enterprise” upon the sale of the overseas-listed shares of a PRC company are subject to a 10.0% tax, unless reduced by an applicable double-taxation treaty. Capital gains realized by a resident enterprise, including an enterprise which is established under the law of a non-PRC jurisdiction but whose “de facto management body” is located in the PRC, are subject to the PRC enterprise income tax.

Additional PRC Tax Considerations

PRC Stamp Duty. PRC stamp duty imposed on the transfer of shares of PRC publicly traded companies under the PRC Provisional Regulations Concerning Stamp Duty, or the Provisional Regulations, should not apply to the acquisition and disposal by non-PRC investors of H shares or ADSs outside of the PRC by virtue of the Provisional Regulations, which became effective on October 1, 1988 and which provide that PRC stamp duty is imposed only on documents executed or received within the PRC that are legally binding in the PRC and are protected under PRC law.

Estate Tax. No liability for estate tax under PRC law will arise from non-PRC nationals holding H shares or ADSs.

Hong Kong

Tax on Dividends

Under the current practice of the Hong Kong Inland Revenue Department, no tax is payable in Hong Kong in respect of dividends paid by us.

Profits

No tax is imposed in Hong Kong in respect of capital gains from the sale of H shares. Trading gains from the sale of shares 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 profits tax, which is currently (for the year of assessment 2008-2009 onwards) imposed at the rate of 16.5% on corporations and 15.0% on unincorporated businesses. Gains from sales of H shares effected on the Hong Kong Stock Exchange 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 H shares realized by persons carrying on a business of trading or dealing in securities in Hong Kong. There is no tax treaty in effect between the United States and Hong Kong, and the PRC-US Treaty does not apply to Hong Kong.

There will be no liability for Hong Kong profits tax in respect of profits from the sale of ADSs, where purchases and sales of ADSs are effected outside Hong Kong, e.g., on the NYSE.

Stamp Duty

Hong Kong stamp duty will be payable by the purchaser on every purchase and by the seller on every sale of H shares registered on the Hong Kong branch register. The duty is charged at the ad valorem rate of 0.1% of the consideration for, or (if greater) the value of, the H shares transferred on each of the seller and the purchaser. In other words, a total 0.2% is currently payable on a typical sale and purchase transaction of H shares. In addition, a fixed duty of HK$5 is currently payable on any instrument of transfer of shares.

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The withdrawal of H shares upon the surrender of American Depositary Receipts, or ADRs, and the issuance of ADRs upon the deposit of H shares, will also attract stamp duty at the rate described above for sale and purchase transactions unless such withdrawal or deposit does not result in a change in the beneficial ownership of the H shares under Hong Kong law. The issuance of the ADRs upon the deposit of H shares issued directly to the Depositary, as depositary of the ADSs, or for the account of the Depositary, will not be subject to any stamp duty. No Hong Kong stamp duty is payable upon the transfer of ADSs outside Hong Kong.

Estate Duty

No Hong Kong estate duty is currently payable.

United States

Material United States Federal Income Taxation

This section describes the material United States federal income tax consequences to a U.S. holder of the acquisition, ownership and disposition of H shares or ADSs. It applies to you only if you hold your H shares or ADSs as capital assets for United States federal income 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:

•

a dealer in securities or currencies;

•

a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings;

•

a tax-exempt organization;

•

an insurance company;

•

a person liable for alternative minimum tax;

•

a person that actually or constructively owns 10.0% or more of our voting stock;

•

a person that holds H shares or ADSs as part of a straddle or a hedging or conversion transaction;

•

a person that purchases or sells shares or ADSs as part of a wash sale for tax purposes; or

•

a person whose functional currency is not the U.S. dollar.

This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions, all as currently in effect, as well as the PRC-US Treaty. 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 H shares or ADSs and you are:

•

a citizen or resident of the United States;

•

a domestic corporation;

•

an estate whose income is subject to United States federal income tax regardless of its source; or

•

a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.

If a partnership holds the H shares or ADSs, the United States federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. If you hold the H shares or ADSs as a partner in a partnership you should consult your tax advisor with regard to the United States federal income tax treatment of an investment in the H 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 H shares and ADSs in your particular circumstances.

In general, and 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 H shares represented by those ADSs. Exchanges of H shares for ADRs, and ADRs for H shares, generally will not be subject to United States federal income tax.

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Taxation of Dividends

Under the United States federal income tax laws, and subject to the passive foreign investment company, or PFIC, 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 income taxation. If you are a noncorporate U.S. holder, dividends that constitute qualified dividend income will be taxable to you at the preferential rates applicable to long-term capital gains, provided that you hold H 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 H shares or ADSs generally will be qualified dividend income.

You must include any PRC tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend is taxable to you when you, in the case of H 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. Subject to certain limitations, the PRC tax withheld and paid over to the PRC will be creditable or deductible 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 creditable against your United States federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the preferential tax rates.

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 Hong Kong dollar/U.S. dollar spot 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 preferential tax rates 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 H shares or ADSs and thereafter as capital gain. However, we do not expect to calculate earnings and profits in accordance with United States federal income tax principles. Accordingly, you should expect to generally treat distributions we make as dividends.

For foreign tax credit purposes, dividends will generally be income from sources outside the United States and will, depending on your circumstances, be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to you.

Taxation of Capital Gains

Subject to the PFIC rules discussed below, if you are a U.S. holder and you sell or otherwise dispose of your H 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 H shares or ADSs. Capital gain of a noncorporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. 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.

However, under the U.S.-PRC Treaty, if PRC tax were to be imposed on any gain from the disposition of your H shares or ADSs (as discussed above in “People’s Republic of China — Taxation of Capital Gains”) in accordance with the U.S.-PRC Treaty, then such gain will generally be treated as PRC source income. If you are an Eligible U.S. Holder (as defined above), subject to certain limitations, any such PRC tax will be creditable against your United States federal income tax liability. U.S. holders should consult their tax advisors regarding the tax consequences if a PRC tax were to be imposed on a disposition of H shares or ADSs, including the availability of the foreign tax credit under your particular circumstances.

Hong Kong Stamp Duty

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.

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PFIC Rules

We believe that H shares and ADSs should not be treated as stock of a 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. If we were to be treated as a PFIC, gain realized on the sale or other disposition of your H shares or ADSs would in general not be treated as capital gain. Instead, unless you elect to be taxed annually on a mark-to-market basis with respect to your H shares or ADSs, you would be treated as if you had realized such gain and certain “excess distributions” ratably over your holding period for the H shares or ADSs and would generally be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. With certain exceptions, your H 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 H shares or ADSs. Dividends that you receive from us will not be eligible for the special tax rates applicable to qualified dividend income if we are a PFIC (or are treated as a PFIC with respect to you) either in the taxable year of the distribution or the preceding taxable year, but instead will be taxable at rates applicable to ordinary income.

F.	Dividends and Paying Agents.

Not applicable.

G.	Statement by Experts.

Not applicable.

H.	Documents on Display

You may read and copy documents referred to in this annual report on Form 20-F that have been filed with the SEC, at its public reference room located at 450 Fifth Street, NW, 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 website at http://www.sec.gov that contains reports, proxy statements and other information regarding registrants that file 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 Risk.

Our primary market risk exposures are fluctuations in exchange rates and interest rates.

Foreign 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. The value of the Renminbi against the U.S. dollar and other foreign currencies fluctuates and is affected by, among other things, changes in the PRC’s and international political and economic conditions. Since 1994, the conversion of Renminbi into foreign currencies, including Hong Kong and U.S. dollars, has been based on rates set by the People’s Bank of China, which are set daily based on the previous business day’s inter-bank foreign exchange market rates and current exchange rates on the world financial markets. 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. In April 2012, the PRC government expanded the floating band of Renminbi trading prices against the U.S. dollar in the inter-bank spot foreign currency exchange market from 0.5% to 1.0%. Fluctuations in exchange rates may adversely affect the value, translated or converted into United States dollars or Hong Kong dollars, of our net assets, earnings and any declared dividends. We cannot give any assurance that any future movements in the exchange rate of the Renminbi against the United States dollar or other foreign currencies will not adversely affect our results of operations and financial condition. See “Item 3. Key Information—D. Risk Factors—Risks Relating to the People’s Republic of China—Government control of currency conversion may adversely affect our financial condition” and “—Fluctuation of the Renminbi could materially affect our financial condition, results of operations and cash flows.”

- 75 -

The following tables provide information regarding our financial instruments that are sensitive to foreign exchange rates as of December 31, 2015 and 2014, respectively. For debt obligations, the tables present principal cash flows and related weighted average interest rates by expected maturity dates.

As of December 31, 2015:


	Expected Maturity
	2016			2017			2018			2019			2020			Thereafter			Total		Fair Value
	(RMB equivalent in millions, except interest rates)
Assets:
Cash and cash equivalents
United States dollars		1,873			—			—			—			—			—			1,873		1,873
Japanese yen		28			—			—			—			—			—			28		28
Euro		48			—			—			—			—			—			48		48
Hong Kong dollars		142			—			—			—			—			—			142		142
Other currencies		279			—			—			—			—			—			279		279
Short-term bank deposits
United States dollars		287			—			—			—			—			—			287		287
Other currencies		3			—			—			—			—			—			3		3
Liabilities:
Debts in Japanese yen
Fixed rate		—			—			—			—			—			—			—		—
Average interest rate		—			—			—			—			—			—
Debts in United States dollars
Fixed rate		50			50			50			50			47			223			470		407
Average interest rate		1.2	%		1.2	%		1.2	%		1.2	%		1.2	%		1.2	%
Variable rate		—			—			—			—			—			—			—		—
Average interest rate⁽¹⁾		—			—			—			—			—			—
Debts in Euro
Fixed rate		30			30			24			24			24			129			261		236
Average interest rate		2.3	%		2.3	%		2.3	%		2.3	%		2.3	%		2.3	%
Variable rate		—			—			—			—			—			—			—		—
Average interest rate⁽¹⁾		—			—			—			—			—			—
Debts in other currencies
Fixed rate		4			5			—			—			—			—			9		9
Average interest rate⁽¹⁾		3	%		3	%		—			—			—			—

⁽¹⁾	The average interest rates for variable rate debts are calculated based on the rates reported as of December 31, 2015.

- 76 -

As of December 31, 2014:


	Expected Maturity
	2015			2016			2017			2018			2019			Thereafter			Total		Fair Value
	(RMB equivalent in millions, except interest rates)
Assets:
Cash and cash equivalents
United States dollars		845			—			—			—			—			—			845		845
Japanese yen		39			—			—			—			—			—			39		39
Euro		26			—			—			—			—			—			26		26
Hong Kong dollars		172			—			—			—			—			—			172		172
Other currencies		327			—			—			—			—			—			327		327
Short-term bank deposits
United States dollars		218			—			—			—			—			—			218		218
Japanese yen		—			—			—			—			—			—			—		—
Liabilities:
Debts in Japanese yen
Fixed rate		—			—			—			—			—			—			—		—
Average interest rate		—			—			—			—			—			—
Debts in United States dollars
Fixed rate		46			46			46			47			47			259			491		414
Average interest rate		1.2	%		1.2	%		1.2	%		1.2	%		1.2	%		1.2	%
Variable rate		—			—			—			—			—			—			—		—
Average interest rate⁽¹⁾		—			—			—			—			—			—
Debts in Euro
Fixed rate		30			31			31			24			24			209			349		304
Average interest rate		2.3	%		2.3	%		2.3	%		2.3	%		2.3	%		2.3	%
Variable rate		—			—			—			—			—			—			—		—
Average interest rate⁽¹⁾		—			—			—			—			—			—
Debts in other currencies
Fixed rate		5			5			5			—			—			—			15		15
Average interest rate⁽¹⁾		3.0	%		3.0	%		3.0	%		—			—			—

⁽¹⁾	The average interest rates for variable rate debts are calculated based on the rates reported as of December 31, 2014.

Interest Rate Risk

The People’s Bank of China has the sole authority in the PRC to establish the official interest rates for Renminbi-denominated loans. Financial institutions in the PRC set their effective interest rates within the range established by the People’s Bank of China. Interest rates and payment methods on loans denominated in foreign currencies are set by financial institutions based on interest rate changes in the international financial market, cost of funds, risk levels and other factors.

We are exposed to interest rate risk resulting from fluctuations in interest rates on our short-term and long-term debts. Increases in interest rates will increase the cost of new borrowing and the interest expense with respect to outstanding floating rate debt. As of December 31, 2014 and 2015, our debt consisted of fixed and variable rate debt obligations with maturities from 2015 to 2060 and from 2016 to 2060, respectively.

The following tables present cash flows and related weighted average interest rates by expected maturity dates of our interest rate sensitive financial instruments as of December 31, 2014 and 2015, respectively.

- 77 -

As of December 31, 2015:


	Expected Maturity
	2016			2017			2018			2019			2020			Thereafter			Total		Fair Value
	(RMB equivalent in millions, except interest rates)
Liabilities:
Debts in Renminbi
Fixed rate		50,806			37			132			132			153			3,050			54,310		53,372
Average interest rate		3.0	%		1.1	%		1.1	%		1.1	%		1.1	%		1.1	%
Variable rate		830			61,710			—			—			—			—			62,540		62,768
Average interest rate⁽¹⁾		4.8	%		4.0	%		—			—			—			—
Debts in Japanese yen
Fixed rate		—			—			—			—			—			—			—		—
Average interest rate		—			—			—			—			—			—
Debts in United States dollars
Fixed rate		50			50			50			50			47			223			470		407
Average interest rate		1.2	%		1.2	%		1.2	%		1.2	%		1.2	%		1.2	%
Variable rate		—			—			—			—			—			—			—		—
Average interest rate⁽¹⁾		—			—			—			—			—			—
Debts in Euro
Fixed rate		30			30			24			24			24			129			261		236
Average interest rate		2.3	%		2.3	%		2.3	%		2.3	%		2.3	%		2.3	%
Variable rate		—			—			—			—			—			—			—		—
Average interest rate⁽¹⁾		—			—			—			—			—			—
Debts in other currencies
Fixed rate		4			5			—			—			—			—			9		9
Average interest rate⁽¹⁾		3	%		3	%		—			—			—			—

As of December 31, 2014:


	Expected Maturity
	2015			2016			2017			2018			2019			Thereafter			Total		Fair Value
	(RMB equivalent in millions, except interest rates)
Liabilities:
Debts in Renminbi
Fixed rate		43,157			—			—			—			—			10			43,167		43,164
Average interest rate		5.1	%		—			—			—			—			7.9	%
Variable rate		820			—			61,710			—			—			—			62,530		62,765
Average interest rate⁽¹⁾		5.6	%		—			5.1	%		—			—			—
Debts in Japanese yen
Fixed rate		—			—			—			—			—			—			—		—
Average interest rate		—			—			—			—			—			—
Debts in United States dollars
Fixed rate		46			46			46			47			47			259			491		414
Average interest rate		1.2	%		1.2	%		1.2	%		1.2	%		1.2	%		1.2	%
Variable rate		—			—			—			—			—			—			—		—
Average interest rate⁽¹⁾		—			—			—			—			—			—
Debts in Euro
Fixed rate		30			31			31			24			24			209			349		304
Average interest rate		2.3	%		2.3	%		2.3	%		2.3	%		2.3	%		2.3	%
Variable rate		—			—			—			—			—			—			—		—
Average interest rate⁽¹⁾		—			—			—			—			—			—
Debts in other currencies
Fixed rate		5			5			5			—			—			—			15		15
Average interest rate⁽¹⁾		3.0	%		3.0	%		3.0	%		—			—			—

⁽¹⁾	The average interest rates for variable rate debts are calculated based on the rates reported as of December 31, 2014.

- 78 -

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 (if applicable)	•	Transfer and registration of shares on the share register of our transfer agent and the registrar in Hong Kong from an ADR holder’s name to the name of the depositary or its agent when the ADR holder deposit or withdraw shares

•	Expenses of the depositary	•	Conversion of foreign currency 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

•	Any other charge incurred by the depository or its agents (including the custodian) for servicing of the deposited securities	•	As necessary

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. The amount of such reimbursements is subject to certain conditions and limits. From April 23, 2015 to April 22, 2016, with respect to certain expenses incurred by us in connection with our depositary facility, including listing and legal fees and expenses related to our attendance at the annual ADR training seminar, we received from the Bank of New York Mellon a total of US$45,000 reimbursement, net of withholding tax. The Bank of New York Mellon also waived certain costs of US$130,351.42 in connection with the administration of the ADR program and other services provided to our registered shareholders for the year 2015.

PART II

Item 13.

Defaults, Dividend Arrearages and Delinquencies.

None.

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds.

Material Modifications to the Rights of Security Holders

None.

Use of Proceeds

Not applicable.

- 79 -

Item 15.

Controls and Procedures.

Disclosure Controls and Procedures

Our management, with the participation of the person exercising the power of chief executive officer and the person performing the functions of the principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this annual report. Based on this evaluation, the person exercising the power of chief executive officer and the person performing the functions of the principal financial officer have concluded that, as of the end of the fiscal year covered by this annual report, our disclosure controls and procedures were designed, and were effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and were also effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including the person exercising the power of chief executive officer and the person performing the functions of the principal financial officer, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is 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.

Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and/or our Board; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s 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.

As of December 31, 2015, our management, with the participation of the person exercising the power of chief executive officer and the person performing the functions of the principal financial officer, conducted an evaluation of the effectiveness of the internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2015.

The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by Deloitte Touche Tohmatsu, an independent registered public accounting firm, as stated in their report which is included herein.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of China Telecom Corporation Limited:

We have audited China Telecom Corporation Limited and subsidiaries’ internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The management of China Telecom Corporation Limited and subsidiaries is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on China Telecom Corporation Limited and subsidiaries’ internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit 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, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

- 80 -

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel 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 company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of effectiveness of the internal control over financial reporting 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.

In our opinion, China Telecom Corporation Limited and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of China Telecom Corporation Limited and subsidiaries as of and for the year ended December 31, 2015, and our report dated March 23, 2016 expressed an unqualified opinion on those financial statements.

/s/ Deloitte Touche Tohmatsu

Deloitte Touche Tohmatsu

Hong Kong, the People’s Republic of China

March 23, 2016

Changes in Internal Control Over Financial Reporting

During the fiscal year ended December 31, 2015, there was no change to our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 16A.

Audit Committee Financial Expert.

Our Audit Committee currently consists of three members, Mr. Tse Hau Yin, Aloysius, Professor Xu Erming and Madam Wang Hsuehming. They are all independent non-executive directors. See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Audit Committee,” Our Board has determined that Mr. Tse Hau Yin, Aloysius, our independent non-executive director, is qualified as an “audit committee financial expert,” as defined in Item 16A of Form 20-F.

Item 16B.

Code of Ethics.

We have adopted a code of ethics that applies to our chief executive officer, chief financial officer, controller and other senior officers of our Company. We have filed this code of ethics as an exhibit to our annual report for the fiscal year ended December 31, 2003 and we hereby incorporate that exhibit into this annual report. The text of this code of ethics is also posted on our Internet website at http://www.chinatelecom-h.com/eng/company/pdf/gaoguan.pdf.

- 81 -

Item 16C.

Principal Accountant Fees and Services.

The following table sets forth the aggregate audit fees, audit-related fees, tax fees of our principal accountants and all other fees billed for products and services provided by our principal accountants other than the audit fees, audit-related fees and tax fees for each of the fiscal years 2014 and 2015:

Audit Fees
(including VAT)

Audit-Related Fees

Tax Fees

Other Fees

2014

RMB

66.01 million

RMB

1.07 million

RMB

1.96 million

RMB

3.00 million

2015

RMB

68.80 million

RMB

1.27 million

⁽¹⁾

RMB

0.45 million

⁽²⁾

RMB

0.15 million

⁽³⁾

(1)	Audit-related fees in the amount of RMB1.27 million were paid for the advisory services provided to us regarding our internal control.

(2)	Tax fees in the amount of RMB0.45 million were paid for profit tax filing assistance service.

(3)	Other fees in the amount of RMB0.15 million were paid for other advisory service.

Before our principal accountants were engaged by our Company or our subsidiaries to render audit or non-audit services, the engagements were approved by our 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.

None.

Item 16F.

Change in Registrant’s Certifying Accountant.

Not applicable.

Item 16G.

Corporate Governance.

Our Company was incorporated under the PRC laws on September 10, 2002 as a joint stock company with limited liability. Our H shares are listed on the Hong Kong Stock Exchange. Our ADSs are listed on the NYSE. As a foreign private issuer, we are not required to comply with all the corporate governance rules of Section 303A of the Listed Company Manual of the NYSE. However, we are required to disclose the significant ways in which our corporate governance practices differ from those followed by U.S. domestic companies under the listing standards of the NYSE.

Pursuant to the requirements of the Listed Company Manual of the NYSE, the Board of Directors of all U.S. domestic companies listed on the NYSE must have a majority of independent directors. Under currently applicable PRC and Hong Kong laws and regulations, our Board is not required to have a majority of independent directors. Under the Listing Rules, at least one third of the board of directors and at least three directors of a listed company shall be independent non-executive directors. Our Board currently consists of 10 directors, of which four are independent directors, representing over one third of the total number of directors on our Board. These independent directors satisfy the requirements on “independence” under the Listing Rules, which, however differ from the requirements of Section 303A.02 of the Listed Company Manual of the NYSE.

Pursuant to the requirements of the Listed Company Manual of the NYSE, U.S. domestic companies whose securities are listed on the NYSE shall formulate corporate governance rules. Pursuant to the currently applicable PRC and Hong Kong laws and regulations, we are not required to formulate any rules for corporate governance. Therefore, our Company has not formulated any separate corporate governance rules. However, our Company has implemented the Corporate Governance Code of the Hong Kong Stock Exchange for the year ended December 31, 2015.

Item 16H.

Mine Safety Disclosure.

Not applicable.

- 82 -

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 Financial Statements for a list of all financial statements filed as part of this annual report.

Item 19.

Exhibits.

(a)

See Item 18 for a list of the financial statements filed as part of this annual report.

(b)

Exhibits to this annual report:


Exhibits		Description

1.1		Articles of Association (as amended) (English translation)

2.1		Form of H Share Certificate.⁽¹⁾

2.2		Form of Deposit Agreement among the Registrant, The Bank of New York, as depositary, and Owners and Beneficial Owners from time to time of American Depositary Shares evidenced by American Depositary Receipts issued thereunder, including the form of American Depositary Receipt.⁽²⁾

2.3		We agree to provide the Securities and Exchange Commission, upon request, copies of instruments defining the rights of holders of our long-term debt.

4.1		Supplemental Trademark License Agreement, dated October 26, 2003, between the Registrant and China Telecommunications Corporation (English translation).⁽³⁾

4.2		Sale and Purchase Agreement, dated October 26, 2003, between the Registrant and China Telecommunications Corporation (English translation).⁽³⁾

4.3		Supplemental Connected Transactions Agreement, dated October 26, 2003, between the Registrant and China Telecommunications Corporation (English translation).⁽³⁾

4.4		Form of Underwriting Agreement.⁽⁴⁾

4.5		Supplemental Trademark License Agreement, dated April 13, 2004, between the Registrant and China Telecommunications Corporation (English translation).⁽⁵⁾

4.6		Supplemental Connected Transactions Agreement, dated April 13, 2004, between the Registrant and China Telecommunications Corporation (English translation).⁽⁶⁾

4.7		Conditional Sale and Purchase Agreement, dated April 13, 2004, between the Registrant and China Telecommunications Corporation (English translation).⁽⁷⁾

4.8		Supplemental Conditional Sale and Purchase Agreement, dated June 9, 2005, between the Registrant and China Telecommunications Corporation (English summary).⁽⁸⁾

4.9		Supplemental Centralized Services Agreement, dated December 15, 2005, between the Registrant and China Telecommunications Corporation (English summary).⁽⁹⁾

4.10		Property Leasing Framework Agreement, dated August 30, 2006, between the Registrant and China Telecommunications Corporation (English summary).⁽¹⁰⁾

4.11		IT Services Framework Agreement, dated August 30, 2006, between the Registrant and China Telecommunications Corporation (English summary).⁽¹⁰⁾

4.12		Equipment Procurement Services Framework Agreement, dated August 30, 2006, between the Registrant and China Telecommunications Corporation (English summary).⁽¹⁰⁾

4.13		Engineering Framework Agreement, dated August 30, 2006, between the Registrant and China Telecommunications Corporation (English summary).⁽¹⁰⁾

4.14		Community Services Framework Agreement, dated August 30, 2006, between the Registrant and China Telecommunications Corporation (English summary).⁽¹⁰⁾

- 83 -


Exhibits		Description

4.15		Ancillary Telecommunications Service Framework Agreement, dated August 30, 2006, between the Registrant and China Telecommunications Corporation (English summary).⁽¹⁰⁾

4.16		Strategic Agreement, dated August 30, 2006, between the Registrant and China Communications Services Corporation Limited (English summary).⁽¹⁰⁾

4.17		Supplemental Agreement to the Strategic Agreement, dated June 15, 2007, between the Registrant and the China Communications Services Corporation Limited (English Summary).⁽¹⁰⁾

4.18		Supplemental Agreement to the Strategic Agreement, dated October 29, 2009, between the Registrant and the China Communications Services Corporation Limited (English Summary).⁽¹³⁾

4.19		Master Agreement for sales and purchase of equity interests in China Telecom (Hong Kong) International Limited, China Telecom System Group Integration Co., Ltd. and China Telecom (USA) Corporation, dated June 15, 2007, between China Telecommunications Corporation and China Telecom Corporation Limited.⁽¹⁰⁾

4.20		Stock Purchase Agreement in respect of sales and purchase of shares in China Telecom (USA) Corporation, dated June 15, 2007, between China Telecommunications Corporation and China Telecom Corporation Limited.⁽¹⁰⁾

4.21		Share Purchase Agreement in respect of sales and purchase of shares in China Telecom (Hong Kong) International Limited, dated June 15, 2007, between China Telecommunications Corporation and China Telecom Corporation Limited.⁽¹⁰⁾

4.22		Share Transfer Agreement in respect of transfer of shareholdings in China Telecom System Integration Co., Limited, dated June 15, 2007, among China Telecommunications Corporation, China Huaxin Post and Telecommunications Economy Development Center and China Telecom Corporation Limited.⁽¹⁰⁾

4.23		Agreement on the Transfer of the Entire Equity Interests in China Telecom Group Beijing Corporation, dated March 31, 2008, between the Registrant and China Telecommunications Corporation (English Translation).⁽¹¹⁾

4.24		Form Merger Agreement, dated January 10, 2008, between the Registrant and each of certain subsidiaries wholly owned by the Registrant (English Translation).⁽¹¹⁾

4.25		Supplemental Agreement to the Centralized Services Agreement, dated December 26, 2007, between the Registrant and China Telecommunications Corporation (English Summary).⁽¹¹⁾

4.26		Supplemental Agreement to the Centralized Services Agreement, dated March 31, 2008, between the Registrant and China Telecommunications Corporation (English Summary). ⁽¹¹⁾

4.27		Framework Agreement for Transfer of CDMA Business, dated June 2, 2008, among the Registrant, China Unicom Limited and China Unicom Corporation Limited (English Summary).⁽¹¹⁾

4.28		Supplemental Agreement to the Interconnection Settlement Agreement, dated July 27, 2008, between the Registrant and China Telecommunications Corporation (English summary).⁽¹²⁾

4.29		Supplemental Agreement to the IT Services Framework Agreement, dated December 15, 2008, between the Registrant and China Telecommunications Corporation (English summary).⁽¹²⁾

4.30		Supplemental Agreement to the Supplies Procurement Services Framework Agreement, dated December 15, 2008, between the Registrant and China Telecommunications Corporation (English summary).⁽¹²⁾

4.31		Supplemental Agreement to the Engineering Framework Agreement, dated July 27, 2008, between the Registrant and China Telecommunications Corporation (English summary).⁽¹²⁾

4.32		Supplemental Agreement to the Community Services Framework Agreement, dated December 15, 2008, between the Registrant and China Telecommunications Corporation (English summary).⁽¹²⁾

4.33		Supplemental Agreement to the Ancillary Telecommunications Services Framework Agreement, dated July 27, 2008, between the Registrant and China Telecommunications Corporation (English summary).⁽¹²⁾

4.34		CDMA Network Capacity Lease Agreement, dated July 27, 2008, between the Registrant and China Telecommunications Corporation (English translation).⁽¹²⁾

4.35		Agreement for Transfer of CDMA Business, dated July 27, 2008, between the Registrant, China Unicom Limited and China Unicom Corporation Limited (English summary).⁽¹²⁾

- 84 -


Exhibits		Description

4.36		Merger Agreement, dated November 14, 2008, between the Registrant and China Telecommunications Corporation Beijing Corporation (English translation).⁽¹²⁾

4.37		Supplemental Agreement to the Optic Fiber Leasing Agreement, dated July 10, 2008, between the Registrant and China Telecommunications Corporation (English summary).⁽¹²⁾

4.38		Underwriting Agreement regarding Medium Term Notes of China Telecom Corporation Limited in 2008, dated April 15, 2008, among the Registrant, Industrial and Commercial Bank of China Limited and CITIC Securities Company Limited (English summary), and its Supplemental Agreement, dated December 15, 2008 (English summary).⁽¹²⁾

4.39		Underwriting Agreement regarding the First Tranche of Short-Term Commercial Paper of China Telecom Corporation Limited in 2008, dated July 7, 2008, among the Registrant, Bank of Communications Co., Ltd. and China Development Bank (English summary).⁽¹²⁾

4.40		Underwriting Agreement regarding the First Tranche of Medium Term Notes of China Telecom Corporation Limited in 2009, dated September 8, 2009 (as supplemented on September 9, 2009), among the Registrant, Bank of Communications Co., Ltd. and Agricultural Bank of China Limited (English summary).⁽¹³⁾

4.41		Underwriting Agreement regarding the Second Tranche of Medium Term Notes of China Telecom Corporation Limited in 2009, dated October 19, 2009 (as supplemented respectively on October 20, 2009 and December 4, 2009), among the Registrant, Agriculture Bank of China Limited and China Merchants Bank Co., Ltd. (English summary).⁽¹³⁾

4.42		Underwriting Agreement regarding the Third Tranche of Medium Term Notes of China Telecom Corporation Limited in 2009, dated October 19, 2009 (as supplemented respectively on October 20, 2009 and December 4, 2009), among the Registrant, China Construction Bank Corporation and Industrial and Commercial Bank of China Ltd. (English summary).⁽¹³⁾

4.43		Supplemental Agreement to the Centralized Services Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary) ⁽¹⁴⁾

4.44		Supplemental Agreement to the Interconnection Settlement Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary) ⁽¹⁴⁾

4.45		Supplemental Agreement to the Property Leasing Framework Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary)⁽¹⁴⁾

4.46		Supplemental Agreement to the IT services Framework Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary) ⁽¹⁴⁾

4.47		Supplemental Agreement to the Community Services Framework Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary) ⁽¹⁴⁾

4.48		Supplemental Agreement to the Supplies Procurement Services Framework Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary) ⁽¹⁴⁾

4.49		Supplemental Agreement to the Engineering Framework Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary) ⁽¹⁴⁾

4.50		Supplemental Agreement to the Ancillary Telecommunications Services Framework Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary) ⁽¹⁴⁾

4.51		Supplemental Agreement to the CDMA Network Capacity Lease Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary) ⁽¹⁴⁾

4.52		Supplemental Agreement to the Trademark License Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary) ⁽¹⁴⁾

4.53		Supplemental Agreement to the Optic Fiber Leasing Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary) ⁽¹⁴⁾

4.54		Agreement on the Acquisition of CDMA Network Assets and Associated Liabilities, dated August 20, 2012, between the Registrant and China Telecommunications Corporation (English summary)⁽¹⁵⁾

4.55		Agreement on the Disposal of Equity Interest in E-surfing Media Co., Ltd., dated April 26, 2013, between the Registrant and China Telecommunications Corporation (English Summary)⁽¹⁵⁾

- 85 -


Exhibits		Description

4.56		Agreement on the Acquisition of China Telecom (Europe) Limited, dated December 16, 2013, between the Registrant and China Telecommunications Corporation ⁽¹⁶⁾

4.57		Internet Applications Channel Services Framework Agreement, dated December 16, 2013, between the Registrant and China Telecommunications Corporation (English Summary) ⁽¹⁶⁾

4.58		Promoters’ Agreement for China Communications Facilities Services Corporation Limited (currently known as China Tower Corporation Limited) dated July 11, 2014, among the Registrant, China United Network Communications Corporation Limited and China Mobile Communication Company Limited ⁽¹⁷⁾

4.59		Agreement on Purchase of Stock Tower-related Assets by Issuance of Shares and Payment of Cash, dated October 14, 2015, among the Registrant, the Tower Company, CUCL, CMCL, CRHC and other parties thereto (English translation)

4.60		Share Subscription Agreement, dated January 29, 2016, between the Registrant and the Tower Company (English translation)

4.61		Supplemental Agreement to the Centralized Services Agreement, dated September 23, 2015, between the Registrant and China Telecommunications Corporation (English summary)

4.62		Supplemental Agreement to the Interconnection Settlement Agreement, dated September 23, 2015, between the Registrant and China Telecommunications Corporation (English summary)

4.63		Supplemental Agreement to the Property Leasing Framework Agreement, dated September 23, 2015, between the Registrant and China Telecommunications Corporation (English summary)

4.64		Supplemental Agreement to the IT Services Framework Agreement, dated September 23, 2015, between the Registrant and China Telecommunications Corporation (English summary)

4.65		Supplemental Agreement to the Community Services Framework Agreement, dated September 23, 2015, between the Registrant and China Telecommunications Corporation (English summary)

4.66		Supplemental Agreement to the Supplies Procurement Services Framework Agreement, dated September 23, 2015, between the Registrant and China Telecommunications Corporation (English summary)

4.67		Supplemental Agreement to the Engineering Framework Agreement, dated September 23, 2015, between the Registrant and China Telecommunications Corporation (English summary)

4.68		Supplemental Agreement to the Ancillary Telecommunications Services Framework Agreement, dated September 23, 2015, between the Registrant and China Telecommunications Corporation (English summary)

4.69		Supplemental Agreement to the Internet Applications Channel Services Framework Agreement, dated September 23, 2015, between the Registrant and China Telecommunications Corporation (English summary)

4.70		Supplemental Agreement to the Optic Fiber Leasing Agreement, dated September 23, 2015, between the Registrant and China Telecommunications Corporation (English summary)

8.1		List of subsidiaries of the Registrant

11.1		Code of Ethics (English translation).⁽³⁾

12.1		Certification of CEO pursuant to Rule 13a-14(a)

12.2		Certification of CFO pursuant to Rule 13a-14(a)

13.1		Certification of CEO pursuant to Rule 13a-14(b)

13.2		Certification of CFO pursuant to Rule 13a-14(b)

(1)	Incorporated by reference to our Registration Statement on Form F-1 (File No. 333-100042), filed with the Securities and Exchange Commission on November 5, 2002.

(2)	Incorporated by reference to our Registration Statement on Form F-6 (File No. 333-100617), filed with the Securities and Exchange Commission with respect to American Depositary Shares representing our H shares.

(3)	Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2003 (File No. 001-31517), filed with the Securities and Exchange Commission.

(4)	Incorporated by reference to Exhibit 1.1 to our Form 6-K filed on April 29, 2004

(5)	Incorporated by reference to Exhibit 1.2 to our Form 6-K filed on April 29, 2004.

(6)	Incorporated by reference to Exhibit 1.3 to our Form 6-K filed on April 29, 2004.

(7)	Incorporated by reference to Exhibit 1.5 to our Form 6-K filed on April 29, 2004.

(8)	Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2004 (File No. 001-31517), filed with the Securities and Exchange Commission.

- 86 -

(9)	Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2005 (File No. 001-31517), filed with the Securities and Exchange Commission.

(10)	Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-31517), filed with the Securities and Exchange Commission.

(11)	Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2007 (File No. 001-31517), filed with the Securities and Exchange Commission.

(12)	Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2008 (File No. 001-31517), filed with the Securities and Exchange Commission.

(13)	Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2009 (File No. 001-31517), filed with the Securities and Exchange Commission.

(14)	Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2010 (File No. 001-31517), filed with the Securities and Exchange Commission.

(15)	Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2012 (File No. 001-31517), filed with the Securities and Exchange Commission.

(16)	Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2013 (File No. 001-31517), filed with the Securities and Exchange Commission.

(17)	Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2014 (File No. 001-31517), filed with the Securities and Exchange Commission.

- 87 -

SIGNATURES

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.


CHINA TELECOM CORPORATION LIMITED

By:		/s/ Yang Jie
Name:		Yang Jie
Title:		Chairman and Chief Executive Officer

Date: April 28, 2016

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


	Pages
Report of independent registered public accounting firm		F-2

Consolidated statements of financial position as of December 31, 2014 and 2015		F-3

Consolidated statements of comprehensive income for the years ended December 31, 2013, 2014 and 2015		F-4

Consolidated statements of changes in equity for the years ended December 31, 2013, 2014 and 2015		F-5

Consolidated statements of cash flows for the years ended December 31, 2013, 2014 and 2015		F-6

Notes to the consolidated financial statements		F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

China Telecom Corporation Limited:

We have audited the accompanying consolidated statements of financial position of China Telecom Corporation Limited and subsidiaries (the “Group”) as of December 31, 2014 and 2015, and the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of China Telecom Corporation Limited and subsidiaries as of December 31, 2014 and 2015, and the consolidated results of their operations and their consolidated cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Group’s internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 23, 2016 expressed an unqualified opinion on the effectiveness of the Group’s internal control over financial reporting.

/s/ Deloitte Touche Tohmatsu

Deloitte Touche Tohmatsu

Hong Kong, the People’s Republic of China

March 23, 2016

F-2

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2014 AND 2015

(Amounts in millions)


	Note		December 31, 2014		December 31, 2015
			RMB		RMB
ASSETS

Current assets
Cash and cash equivalents		5		20,436		31,869
Short-term bank deposits				1,379		2,519
Accounts receivable, net		6		21,562		21,105
Inventories		7		4,225		6,281
Prepayments and other current assets		8		10,581		16,229
Income tax recoverable				1,360		105

Total current assets				59,543		78,108
Non-current assets
Property, plant and equipment, net		9		372,876		373,981
Construction in progress		10		53,181		69,103
Lease prepayments				24,410		23,609
Goodwill		11		29,917		29,920
Intangible assets		12		8,984		10,739
Interests in associates		13		4,106		34,473
Investments		14		972		1,624
Deferred tax assets		15		3,232		4,655
Other assets		19		4,053		3,349

Total non-current assets				501,731		551,453

Total assets				561,274		629,561


LIABILITIES AND EQUITY
Current liabilities
Short-term debt		16		43,976		51,636
Current portion of long-term debt		16		82		84
Accounts payable		17		88,458		118,055
Accrued expenses and other payables		18		72,442		82,934
Income tax payable				307		2,154
Current portion of finance lease obligations				—		38
Current portion of deferred revenues		19		1,060		1,028

Total current liabilities				206,325		255,929
Non-current liabilities
Long-term debt and payable		16		62,494		64,830
Finance lease obligations				—		81
Deferred revenues		19		798		1,454
Deferred tax liabilities		15		1,125		2,061
Other non-current liabilities				424		455

Total non-current liabilities				64,841		68,881

Total liabilities				271,166		324,810
Equity
Share capital		20		80,932		80,932
Reserves		21		208,251		222,852

Total equity attributable to equity holders of the Company				289,183		303,784
Non-controlling interests				925		967

Total equity				290,108		304,751

Total liabilities and equity				561,274		629,561

See accompanying notes to consolidated financial statements.

F-3

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015

(Amounts in millions, except per share data)


			Year ended December 31,
	Note		2013			2014			2015
			RMB			RMB			RMB
Operating revenues		22		321,584			324,394			331,202

Operating expenses
Depreciation and amortization				(69,083	)		(66,345	)		(67,664	)
Network operations and support		23		(53,102	)		(68,651	)		(81,240	)
Selling, general and administrative				(70,448	)		(62,719	)		(54,472	)
Personnel expenses		24		(46,723	)		(50,653	)		(52,541	)
Other operating expenses		25		(54,760	)		(47,518	)		(48,843	)

Total operating expenses				(294,116	)		(295,886	)		(304,760	)


Operating income				27,468			28,508			26,442

Gain from Tower Assets Disposal		2		—			—			5,214

Net finance costs		26		(5,153	)		(5,291	)		(4,273	)

Investment income				670			6			8

Equity in income / (loss) of associates				103			34			(698	)


Earnings before income tax				23,088			23,257			26,693

Income tax		27		(5,422	)		(5,498	)		(6,551	)


Profit for the year				17,666			17,759			20,142


Other comprehensive income for the year
Items that may be reclassified subsequently to profit or loss:
Change in fair value of available-for-sale equity securities				414			(54	)		652
Deferred tax on change in fair value of available-for-sale equity securities				(104	)		14			(163	)
Exchange difference on translation of financial statements of subsidiaries outside mainland China				(79	)		3			129
Share of other comprehensive income of associates				5			(3	)		3

Other comprehensive income for the year, net of tax				236			(40	)		621


Total comprehensive income for the year				17,902			17,719			20,763

Profit attributable to
Equity holders of the Company				17,545			17,680			20,054
Non-controlling interests				121			79			88

Profit for the year				17,666			17,759			20,142

Total comprehensive income attributable to
Equity holders of the Company				17,781			17,640			20,675
Non-controlling interests				121			79			88


Total comprehensive income for the year				17,902			17,719			20,763


Basic earnings per share		29		0.22			0.22			0.25


Number of shares (in millions)		29		80,932			80,932			80,932

See accompanying notes to consolidated financial statements.

F-4

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015

(Amounts in millions)


	Attributable to equity holders of the Company
	Note		Share capital		Capital reserve			Share premium		Statutory reserves		Other reserves			Exchange reserve			Retained earnings			Total			Non-controlling interests			Total Equity
			RMB		RMB			RMB		RMB		RMB			RMB			RMB			RMB			RMB			RMB
Balance as of January 1, 2013				80,932		16,821			10,746		65,729		112			(865	)		91,664			265,139			961			266,100

Profit for the year				—		—			—		—		—			—			17,545			17,545			121			17,666
Other comprehensive income				—		—			—		—		315			(79	)		—			236			—			236

Total comprehensive income				—		—			—		—		315			(79	)		17,545			17,781			121			17,902

Contribution from non-controlling interests				—		141			—		—		—			—			—			141			59			200
Distribution to non-controlling interests				—		—			—		—		—			—			—			—			(74	)		(74	)
Acquisition of the Seventh Acquired Company		1		—		(278	)		—		—		—			—			—			(278	)		—			(278	)
Dividends		28		—		—			—		—		—			—			(5,433	)		(5,433	)		—			(5,433	)
Appropriations		21		—		—			—		1,663		—			—			(1,663	)		—			—			—
Disposal of a subsidiary		1		—		380			—		—		—			—			11			391			(144	)		247

Balance as of December 31, 2013				80,932		17,064			10,746		67,392		427			(944	)		102,124			277,741			923			278,664

Profit for the year				—		—			—		—		—			—			17,680			17,680			79			17,759
Other comprehensive income				—		—			—		—		(43	)		3			—			(40	)		—			(40	)

Total comprehensive income				—		—			—		—		(43	)		3			17,680			17,640			79			17,719

Distribution to non-controlling interests				—		—			—		—		—			—			—			—			(77	)		(77	)
Dividends		28		—		—			—		—		—			—			(6,198	)		(6,198	)		—			(6,198	)
Appropriations		21		—		—			—		1,680		—			—			(1,680	)		—			—			—

Balance as of December 31, 2014				80,932		17,064			10,746		69,072		384			(941	)		111,926			289,183			925			290,108



Profit for the year				—		—			—		—		—			—			20,054			20,054			88			20,142
Other comprehensive income				—		—			—		—		492			129			—			621			—			621

Total comprehensive income				—		—			—		—		492			129			20,054			20,675			88			20,763

Acquisition of non-controlling interests				—		(1	)		—		—		—			—			—			(1	)		(6	)		(7	)
Contribution from non-controlling interests				—		87			—		—		—			—			—			87			40			127
Distribution to non-controlling interests				—		—			—		—		—			—			—			—			(80	)		(80	)
Dividends		28		—		—			—		—		—			—			(6,160	)		(6,160	)		—			(6,160	)
Appropriations		21		—		—			—		1,901		—			—			(1,901	)		—			—			—

Balance as of December 31, 2015				80,932		17,150			10,746		70,973		876			(812	)		123,919			303,784			967			304,751

See accompanying notes to consolidated financial statements.

F-5

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015

(Amounts in millions)


				Year ended December 31,
	Note			2013			2014			2015
				RMB			RMB			RMB
Net cash from operating activities		(a	)		88,351			96,405			108,750


Cash flows used in investing activities
Capital expenditure					(70,921	)		(80,273	)		(101,898	)
Purchase of investments		(b	)		—			(2,990	)		(10	)
Lease prepayments					(111	)		(184	)		(124	)
Proceeds from disposal of property, plant and equipment					1,538			710			755
Proceeds from disposal of lease prepayments					360			121			58
Net cash inflow from disposal of a subsidiary					512			—			—
Proceeds from disposal of Investments					—			—			2
Purchase of short-term bank deposits					(2,750	)		(2,566	)		(3,764	)
Maturity of short-term bank deposits					3,193			3,474			2,731
Payment of the payable to China Telecommunications Corporation related to the Mobile Network Acquisition					(14,269	)		—			—
Payment for the first installment of the Mobile Network Acquisition					(25,500	)		—			—

Net cash used in investing activities					(107,948	)		(81,708	)		(102,250	)


Cash flows from / (used in) financing activities
Principal element of finance lease payments					(2	)		(1	)		(14	)
Proceeds from bank debt and other loans					54,983			53,022			67,875
Repayment of bank debt and other loans					(44,053	)		(56,819	)		(56,862	)
Payment of dividends					(5,433	)		(6,198	)		(6,160	)
Payment for the acquisition of non-controlling interests					—			—			(7	)
Contribution from non-controlling interests					—			—			127
Payment for the acquisition price of the Seventh Acquisition		(c	)		—			(278	)		—
Net cash contributions from/ (distributions to) non-controlling interests					142			(53	)		(150	)

Net cash from / (used in) financing activities					5,637			(10,327	)		4,809

Net (decrease) / increase in cash and cash equivalents					(13,960	)		4,370			11,309
Cash and cash equivalents at beginning of year					30,099			16,070			20,436
Effect of changes in foreign exchange rate					(69	)		(4	)		124

Cash and cash equivalents at end of year					16,070			20,436			31,869

See accompanying notes to consolidated financial statements.

F-6

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015

(Amounts in millions)

(a)

Reconciliation of earnings before income tax to net cash from operating activities


	Year ended December 31,
	2013			2014			2015
	RMB			RMB			RMB
Earnings before income tax		23,088			23,257			26,693
Adjustments for:
Depreciation and amortization		69,083			66,345			67,664
Impairment losses for doubtful debts		1,744			2,084			2,231
Impairment losses for long-lived assets		—			—			51
Write down of inventories		360			151			147
Investment income		(670	)		(6	)		(8	)
Equity in (income) / loss of associates		(103	)		(34	)		698
Interest income		(361	)		(304	)		(375	)
Interest expense		5,511			5,650			4,573
Foreign exchange loss / (gain)		3			(55	)		75
Net (gain) / loss on retirement and disposal of long-lived assets		(1,021	)		2,287			1,573
Gain from Tower Assets Disposal		—			—			(5,214	)
Increase in accounts receivable		(3,156	)		(3,594	)		(1,778	)
(Increase) / decrease in inventories		(955	)		2,280			(2,199	)
Increase in prepayments and other current assets		(1,077	)		(2,359	)		(5,854	)
Decrease / (increase) in other assets		294			(2	)		(87	)
Increase in accounts payable		3,210			6,473			22,156
Increase in accrued expenses and other payables		3,148			6,571			7,119
Decrease in deferred revenues		(1,014	)		(573	)		(417	)

Cash generated from operations		98,084			108,171			117,048
Interest received		358			305			375
Interest paid		(5,573	)		(5,693	)		(4,601	)
Investment income received		21			29			27
Income tax paid		(4,539	)		(6,407	)		(4,099	)

Net cash from operating activities		88,351			96,405			108,750

(b) Major non-cash transaction: The Company completed the disposal of certain telecommunications towers and related assets and injecting cash to China Tower Corporation limited (“China Tower”) in return for new shares issued by China Tower on October 31, 2015. The cash injection was not paid by December 31, 2015, therefore the transaction has no impact on the consolidated statement of cash flows for the year ended December 31, 2015.

(c) The Seventh Acquisition represents the acquisition of the 100% equity interest in China Telecom (Europe) Limited, a wholly owned subsidiary of China Telecommunications Corporation, by China Telecom Global Limited (“CT Global”, a subsidiary of the Company) from China Telecommunications Corporation on December 31, 2013.

See accompanying notes to consolidated financial statements.

F-7

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

1.	PRINCIPAL ACTIVITIES, ORGANIZATION AND BASIS OF PRESENTATION

Principal activities

China Telecom Corporation Limited (the “Company”) and its subsidiaries (hereinafter, collectively referred to as the “Group”) offers a comprehensive range of wireline and mobile telecommunications services including wireline voice, mobile voice, Internet, telecommunication network resource services and lease of network equipment, value-added services, integrated information application services and other related services. The Group provides wireline telecommunications services and related services in Beijing Municipality, Shanghai Municipality, Guangdong Province, Jiangsu Province, Zhejiang Province, Anhui Province, Fujian Province, Jiangxi Province, Guangxi Zhuang Autonomous Region, Chongqing Municipality, Sichuan Province, Hubei Province, Hunan Province, Hainan Province, Guizhou Province, Yunnan Province, Shaanxi Province, Gansu Province, Qinghai Province, Ningxia Hui Autonomous Region and Xinjiang Uygur Autonomous Region of the People’s Republic of China (the “PRC”). Following the acquisition of Code Division Multiple Access (“CDMA”) mobile telecommunications business in October 2008, the Group also provides mobile telecommunications and related services in the mainland China and Macau Special Administrative Region (“Macau”) of the PRC. The Group also provides international telecommunications services, including lease of network equipment, International Internet access and transit, and Internet data center service in certain countries of the Asia Pacific, Europe, Africa, South America and North America regions. The operations of the Group in the mainland China are subject to the supervision and regulation by the PRC government.

Organization

As part of the reorganization (the “Restructuring”) of China Telecommunications Corporation, the Company was incorporated in the PRC on September 10, 2002. In connection with the Restructuring, China Telecommunications Corporation transferred to the Company the wireline telecommunications business and related operations in Shanghai Municipality, Guangdong Province, Jiangsu Province and Zhejiang Province together with the related assets and liabilities (the “Predecessor Operations”) in consideration for 68,317 million ordinary domestic shares of the Company. The shares issued to China Telecommunications Corporation have a par value of RMB1.00 each and represented the entire registered and issued share capital of the Company at that date.

On December 31, 2003, the Company acquired the entire equity interests in Anhui Telecom Company Limited, Fujian Telecom Company Limited, Jiangxi Telecom Company Limited, Guangxi Telecom Company Limited, Chongqing Telecom Company Limited and Sichuan Telecom Company Limited (collectively the “First Acquired Group”) and certain network management and research and development facilities from China Telecommunications Corporation for a total purchase price of RMB46,000 (hereinafter, referred to as the “First Acquisition”).

On June 30, 2004, the Company acquired the entire equity interests in Hubei Telecom Company Limited, Hunan Telecom Company Limited, Hainan Telecom Company Limited, Guizhou Telecom Company Limited, Yunnan Telecom Company Limited, Shaanxi Telecom Company Limited, Gansu Telecom Company Limited, Qinghai Telecom Company Limited, Ningxia Telecom Company Limited and Xinjiang Telecom Company Limited (collectively the “Second Acquired Group”) from China Telecommunications Corporation for a total purchase price of RMB27,800 (hereinafter, referred to as the “Second Acquisition”).

On June 30, 2007, the Company acquired the entire equity interests in China Telecom System Integration Co., Ltd. (“CTSI”), CT Global and China Telecom (Americas) Corporation (“CT Americas”) (collectively the “Third Acquired Group”) from China Telecommunications Corporation for a total purchase price of RMB1,408 (hereinafter, referred to as the “Third Acquisition”).

On June 30, 2008, the Company acquired the entire equity interest in China Telecom Group Beijing Corporation (“Beijing Telecom” or the “Fourth Acquired Company”) from China Telecommunications Corporation for a total purchase price of RMB5,557 (hereinafter, referred to as the “Fourth Acquisition”).

On August 1, 2011 and December 1, 2011, the subsidiaries of the Company, E-surfing Pay Co., Ltd and E-surfing Media Co., Ltd., acquired the e-commerce business and video media business (collectively the “Fifth Acquired Group”) from China Telecommunications Corporation and its subsidiaries for a total purchase price of RMB61 (hereinafter, referred to as the “Fifth Acquisition”).

F-8

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

1.	PRINCIPAL ACTIVITIES, ORGANIZATION AND BASIS OF PRESENTATION (continued)

Organization (continued)

On April 30, 2012, the Company acquired the digital trunking business (the “Sixth Acquired Business”) from Besttone Holding Co., Ltd., a subsidiary of China Telecommunications Corporation, at a purchase price of RMB48 (hereinafter, referred to as the “Sixth Acquisition”).

On June 30, 2013, the Company disposed of an 80% equity interest in E-surfing Media Co., Ltd. (“E-surfing Media”), a subsidiary of the Company primarily engaged in the provision of video media services, to China Telecommunications Corporation. The final consideration for the disposal of the equity interest in E-surfing was arrived at RMB1,248.

Gain on disposal of a subsidiary:


	2013
	RMB
Consideration received		1,248
Net assets disposed of		(722	)
Non-controlling interests		144

Gain on disposal		670

The gain on disposal of E-surfing Media has been included in investment income of the consolidated statement of comprehensive income.

Net cash inflow from disposal of a subsidiary:


	2013
	RMB
Consideration received in cash and cash equivalents		1,248
Less: cash and cash equivalents disposed of		(736	)

Net cash inflow from disposal of a subsidiary		512

On December 31, 2013, the subsidiary of the Company, CT Global acquired 100% equity interest in China Telecom (Europe) Limited (“CT Europe” or the “Seventh Acquired Company”), a wholly owned subsidiary of China Telecommunications Corporation, from China Telecommunications Corporation for a total purchase price of RMB278 (hereinafter, referred to as the “Seventh Acquisition”), and was paid by June 30, 2014.

Hereinafter, the First Acquired Group, the Second Acquired Group, the Third Acquired Group, the Fourth Acquired Company, the Fifth Acquired Group, the Sixth Acquired Business and the Seventh Acquired Company are collectively referred to as the “Acquired Groups”.

Basis of presentation

Since the Group and the Acquired Groups are under common control of China Telecommunications Corporation, the Group’s acquisitions of the Acquired Groups have been accounted for as a combination of entities under common control in a manner similar to a pooling-of-interests. Accordingly, the assets and liabilities of these entities have been accounted for at historical amounts and the consolidated financial statements of the Group prior to the acquisitions are combined with the financial statements of the Acquired Groups. The considerations for the acquisition of the Acquired Groups are accounted for as an equity transaction in the consolidated statement of changes in equity.

Merger with subsidiaries

Pursuant to the resolution passed by the Company’s shareholders at an Extraordinary General Meeting held on February 25, 2008, the Company entered into merger agreements with each of the following subsidiaries: Shanghai Telecom Company Limited, Guangdong Telecom Company Limited, Jiangsu Telecom Company Limited, Zhejiang Telecom Company Limited, Anhui Telecom Company Limited, Fujian Telecom Company Limited, Jiangxi Telecom Company Limited, Guangxi Telecom Company Limited, Chongqing Telecom Company Limited, Sichuan Telecom Company Limited, Hubei Telecom Company Limited, Hunan Telecom Company Limited, Hainan Telecom Company Limited, Guizhou Telecom Company Limited, Yunnan Telecom Company Limited, Shaanxi Telecom Company Limited, Gansu Telecom Company Limited, Qinghai Telecom Company Limited, Ningxia Telecom Company Limited and Xinjiang Telecom Company Limited. In addition, the Company entered into merger agreements with Beijing Telecom on July 1, 2008. Pursuant to these merger agreements, the Company merged with these subsidiaries and the assets, liabilities and business operations of these subsidiaries were transferred to the Company’s branches in the respective regions.

F-9

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

2.	DISPOSAL OF CERTAIN TELECOMMUNICATIONS TOWERS AND RELATED ASSETS

On July 11, 2014, the Company, China United Network Communications Corporation Limited (“CUCL”) and China Mobile Communication Company Limited entered into an agreement to establish China Tower. Pursuant to the agreement, the Company, CUCL and China Mobile Communication Company Limited each subscribed for 2.99 billion shares, 3.01 billion shares and 4.00 billion shares of the China Tower, respectively in cash at a par value of RMB1.00 per share, representing a shareholding percentage of 29.9%, 30.1% and 40.0%, respectively. The China Tower primarily engages in the construction, maintenance and operation of telecommunications towers, and also engages in the construction, maintenance and operation of ancillary facilities such as control rooms, power supply systems and air conditioning systems of base stations, etc. and indoor distribution systems as well as the provision of outsourcing maintenance services for base station equipment.

On October 14, 2015, the Company, China Mobile Communication Company Limited and related subsidiaries (together, “China Mobile”), CUCL and Unicom New Horizon Telecommunications Company Limited (together “China Unicom”), China Reform Holding Company Limited (“CRHC”) and China Tower entered into a transfer agreement (the “Transfer Agreement”). Pursuant to the Transfer Agreement, the Company sold certain telecommunications towers and related assets (“Tower Assets”) to China Tower (hereinafter referred to as “Tower Assets Disposal”) and injected cash to China Tower in return for new shares (the “Consideration Shares”) issued by China Tower. China Mobile and China Unicom also sold certain telecommunications towers and related assets to China Tower in return for new shares issued by China Tower and for cash; and CRHC made cash subscription for new shares issued by China Tower.

The Tower Assets Disposal was completed on October 31, 2015 (“Completion Date”). The final consideration amount of the Tower Assets Disposal was determined as RMB30.131 billion. China Tower issued 33.097 billion Consideration Shares to the Company at an issue price of RMB1.00 per share under the Transfer Agreement in return for the Tower Assets and RMB2.966 billion cash (“Cash Consideration”) from the Company. The Cash Consideration was paid in February 2016.

Upon the issuance of the Consideration Shares by China Tower, the Company, China Unicom , China Mobile, and CRHC hold 27.9%, 28.1% , 38.0%, and 6.0% of the share capital of China Tower, respectively.

The Tower Assets Disposal was recognized as an assets disposal. The Company realized a gain (subject to deduction of relevant expenses and taxes) from the Tower Assets Disposal, which was calculated based on the surplus of the final consideration amount for the Tower Assets Disposal over the book value of the Tower Assets as of the Completion Date as set out below. As the Company held 27.9% of the share capital of China Tower, only 72.1% of the aforesaid gain was recognized at the Completion Date and the remaining 27.9% of the aforesaid gain is deferred over the remaining useful life of the Tower Assets.


	Note		RMB
Final consideration amount of the Tower Assets Disposal				30,131

Less: Book value of the Tower Assets:
Property, plant and equipment, net		9		18,365
Construction in progress		10		2,959
Net other assets and liabilities				1,403
Total book value of the Tower Assets				22,727

Less: Relevant expenses and taxes				173

Total gain from the Tower Assets Disposal				7,231

Less: Deferred gain				2,017

Gain recognized at the Completion Date of the Tower Assets Disposal				5,214

F-10

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

3.	SIGNIFICANT ACCOUNTING POLICIES

(a)

Basis of preparation

The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These consolidated financial statements were approved and authorized by the Board of Directors on March 23, 2016.

The consolidated financial statements are prepared on the historical cost basis as modified by the revaluation of certain available-for-sale equity securities at fair value (Note 3(l)).

The preparation of consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and associated assumptions are based on historical experience and various other factors that management believes are reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Judgments made by management in the application of IFRS that have significant effect on the consolidated financial statements and major sources of estimation uncertainty are discussed in Note 37.

(b)

Basis of consolidation

The consolidated financial statements comprise the Company and its subsidiaries and the Group’s interests in associates.

A subsidiary is an entity controlled by the Company. When fulfilling the following conditions, the Company has control over an entity: (a) has power over the investee, (b) has exposure, or rights, to variable returns from its involvement with the investee, and (c) has the ability to use its power over the investee to affect the amount of the investor’s returns.

When assessing whether the Company has power over that entity, only substantive rights (held by the Company and other parties) are considered.

The financial results of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases, and the profit attributable to non-controlling interests is separately presented on the face of the consolidated statement of comprehensive income as an allocation of the profit or loss for the year between the non-controlling interests and the equity holders of the Company. Non-controlling interests represent the equity in subsidiaries not attributable directly or indirectly to the Company. For each business combination, the Group measures the non-controlling interests at the proportionate share, of the acquisition date, of fair value of the subsidiary’s net identifiable assets. Non-controlling interests at the end of the reporting period are presented in the consolidated statement of financial position within equity and consolidated statement of changes in equity, separately from the equity of the Company’s equity holders. Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognized. When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognized in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognized at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an investment in an associate or a joint venture.

F-11

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

3.	SIGNIFICANT ACCOUNTING POLICIES (continued)

(b)

Basis of consolidation (continued)

An associate is an entity, not being a subsidiary, in which the Group exercises significant influence, but not control, over its management. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

An investment in an associate is accounted for in the consolidated financial statements under the equity method and is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date fair values of the investee’s net identifiable assets over the cost of the investment (if any) after reassessment. Thereafter, the investment is adjusted for the Group’s equity share of the post-acquisition changes in the associate’s net assets and any impairment loss relating to the investment. When the Group ceases to have significant influence over an associate, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognized in profit or loss. Any interest retained in that former investee at the date when significant influence is lost is recognized at fair value and this amount is regarded as the fair value on initial recognition of a financial asset.

All significant intercompany balances and transactions and unrealized gains arising from intercompany transactions are eliminated on consolidation. Unrealized gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the entity. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

(c)

Foreign currencies

The accompanying consolidated financial statements are presented in Renminbi (“RMB”). The functional currency of the Company and its subsidiaries in mainland China is RMB. The functional currency of the Group’s foreign operations is the currency of the primary economic environment in which the foreign operations operate. Transactions denominated in currencies other than the functional currency during the year are translated into the functional currency at the applicable rates of exchange prevailing on the transaction dates. Foreign currency monetary assets and liabilities are translated into the functional currency using the applicable exchange rates at the end of the reporting period. The resulting exchange differences, other than those capitalized as construction in progress (Note 3(i)), are recognized as income or expense in profit or loss. For the periods presented, no exchange differences were capitalized.

When preparing the Group’s consolidated financial statements, the results of operations of the Group’s foreign operations are translated into RMB at average rate prevailing during the year. Assets and liabilities of the Group’s foreign operations are translated into RMB at the foreign exchange rates ruling at the end of the reporting period. The resulting exchange differences are recognized in other comprehensive income and accumulated separately in equity in the exchange reserve.

(d)

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand and time deposits with original maturities of three months or less when purchased. Cash equivalents are stated at cost, which approximates fair value. None of the Group’s cash and cash equivalents is restricted as to withdrawal.

(e)

Accounts and other receivables

Accounts and other receivables are initially recognized at fair value and thereafter stated at amortized cost using the effective interest method, less allowance for doubtful debts (Note 3(n)) unless the effect of discounting would be immaterial, in which case they are stated at cost less allowance for doubtful debts.

(f)

Inventories

Inventories consist of materials and supplies used in maintaining the telecommunications network and goods for resale. Inventories are valued at cost using the specific identification method or the weighted average cost method, less a provision for obsolescence.

Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion, the estimated costs to make the sale and the related tax expenses.

F-12

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

3.	SIGNIFICANT ACCOUNTING POLICIES (continued)

(g)

Property, plant and equipment

Property, plant and equipment are initially recorded at cost, less subsequent accumulated depreciation and impairment losses (Note 3(n)). The cost of an asset comprises its purchase price, any directly attributable costs of bringing the asset to working condition and location for its intended use and the cost of borrowed funds used during the periods of construction. Expenditure incurred after the asset has been put into operation, including cost of replacing part of such an item, is capitalized only when it increases the future economic benefits embodied in the item of property, plant and equipment and the cost can be measured reliably. All other expenditure is expensed as it is incurred.

Assets acquired under leasing agreements which effectively transfer substantially all the risks and benefits incidental to ownership from the lessor to the lessee are classified as assets under finance leases. Assets held under finance leases are initially recorded at amounts equivalent to the lower of the fair value of the leased assets at the inception of the lease or the present value of the minimum lease payments (computed using the rate of interest implicit in the lease). The net present value of the future minimum lease payments is recorded correspondingly as a finance lease obligation. Assets held under finance leases are amortized over their estimated useful lives on a straight-line basis. As of December 31, 2015 no asset was held by the Group under finance leases (2014: RMB18).

Gains or losses arising from retirement or disposal of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the respective asset and are recognized as income or expense in the profit or loss on the date of disposal.

Depreciation is provided to write off the cost of each asset over its estimated useful life on a straight-line basis, after taking into account its estimated residual value, as follows:


		Depreciable lives primarily range from
Buildings and improvements		8 to 30 years
Telecommunications network plant and equipment		6 to 10 years
Furniture, fixture, motor vehicles and other equipment		5 to 10 years

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value are reviewed annually.

(h)

Lease prepayments

Lease prepayments represent land use rights paid. Land use rights are initially carried at cost or deemed cost and then charged to profit or loss on a straight-line basis over the respective periods of the rights which range from 20 years to 70 years.

(i)

Construction in progress

Construction in progress represents buildings, telecommunications network plant and equipment and other equipment and intangible assets under construction and pending installation, and is stated at cost less impairment losses (Note 3(n)). The cost of an item comprises direct costs of construction, capitalization of interest charge, and foreign exchange differences on related borrowed funds to the extent that they are regarded as an adjustment to interest charges during the periods of construction. Capitalization of these costs ceases and the construction in progress is transferred to property, plant and equipment and intangible assets when the asset is substantially ready for its intended use.

No depreciation is provided in respect of construction in progress.

F-13

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

3.	SIGNIFICANT ACCOUNTING POLICIES (continued)

(j)

Goodwill

Goodwill represents the excess of the cost over the Group’s interest in the fair value of the net assets acquired in the CDMA business (as defined in Note 11) acquisition.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment (Note 3(n)). On disposal of a cash generating unit during the year, any attributable amount of the goodwill is included in the calculation of the profit or loss on disposal.

(k)

Intangible assets

The Group’s intangible assets are computer software.

Computer software that is not an integral part of any tangible assets, is recorded at cost less subsequent accumulated amortization and impairment losses (Note 3(n)). Amortization of computer software is calculated on a straight-line basis over the estimated useful lives, which mainly range from three to five years.

(l)

Investments

Investments in available-for-sale equity securities are carried at fair value with any change in fair value being recognized in other comprehensive income and accumulated separately in equity. For investments in available-for-sale equity securities, a significant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment. When these investments are derecognized or impaired, the cumulative gain or loss previously recognized in other comprehensive income is recognized in profit or loss. Investments in unlisted equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are stated at cost less impairment losses (Note 3(n)).

(m)

Operating lease charges

Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal installments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognized in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

(n)

Impairment

(i)	Impairment of accounts and other receivables and investments in equity securities carried at cost

Accounts and other receivables and investments in equity securities carried at cost are reviewed at the end of each reporting period to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:

- significant financial difficulty of the debtor or issuer;

- a breach of contract, such as a default or delinquency in interest or principal payments;

- it becoming probable that the debtor will enter bankruptcy or other financial reorganization; and

- significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor/ issuer.

F-14

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

3.	SIGNIFICANT ACCOUNTING POLICIES (continued)

(n)

Impairment (continued)

(i)	Impairment of accounts and other receivables and investments in equity securities carried at cost (continued)

The impairment loss for accounts and other receivables is measured as the difference between the asset’s carrying amount and the estimated future cash flows, discounted at the financial asset’s original effective interest rate where the effect of discounting is material, and is recognized as an expense in profit or loss.

The impairment loss for investments in equity securities carried at cost is measured as the difference between the asset’s carrying amount and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material, and is recognized as an expense in profit or loss.

Impairment losses for accounts and other receivables are reversed through profit or loss if in a subsequent period the amount of the impairment losses decreases. Impairment losses for equity securities carried at cost are not reversed.

(ii)	Impairment of long-lived assets

The carrying amounts of the Group’s long-lived assets, including property, plant and equipment, intangible assets with finite useful lives and construction in progress are reviewed periodically to determine whether there is any indication of impairment. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. For goodwill, the impairment testing is performed annually at each year end.

The recoverable amount of an asset or cash-generating unit is the greater of its fair value less costs of disposal and value in use. When an asset does not generate cash flows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit). In determining the value in use, expected future cash flows generated by the assets are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. The goodwill arising from a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination.

An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment loss is recognized as an expense in profit or loss. Impairment loss recognized in respect of cash-generating units is allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.

The Group assesses at the end of each reporting period whether there is any indication that an impairment loss recognized for an asset in prior years may no longer exist. An impairment loss is reversed if there has been a favorable change in the estimates used to determine the recoverable amount. A subsequent increase in the recoverable amount of an asset, when the circumstances and events that led to the write-down cease to exist, is recognized as an income in profit or loss. The reversal is reduced by the amount that would have been recognized as depreciation and amortization had the write-down not occurred. An impairment loss in respect of goodwill is not reversed. For the years presented, no reversal of impairment loss was recognized in profit or loss.

(o)

Revenue recognition

The revenue recognition methods of the Group are as follows:

(i)

Revenue derived from local, domestic long distance and international, Hong Kong, Macau and Taiwan long distance usage are recognized as the services are provided.

(ii)

F-15

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

3.	SIGNIFICANT ACCOUNTING POLICIES (continued)

(o)

Revenue recognition (continued)

(iii)

Monthly service fees are recognized in the month during which the services are provided to customers.

(iv)

Revenue from sale of prepaid calling cards are recognized as the cards are used by customers.

(v)

Revenue derived from value-added services is recognized when the services are provided to customers.

Revenue from value-added services in which no third party service providers are involved, such as caller display and Internet data center services, are presented on a gross basis. Revenues from all other value-added services are presented on either gross or net basis based on the assessment of each individual arrangement with third parties. The following factors indicate that the Group is acting as principal in the arrangements with third parties:

The Group is primarily responsible for providing the applications or services desired by customers, and takes responsibility for fulfillment of ordered applications or services, including the acceptability of the applications or services ordered or purchased by customers;

ii)

The Group takes title of the inventory of the applications before they are ordered by customers;

iii)

The Group has risks and rewards of ownership, such as risks of loss for collection from customers after applications or services are provided to customers;

iv)

The Group has latitude in establishing selling prices with customers;

The Group can modify the applications or perform part of the services;

vi)

The Group has discretion in selecting suppliers used to fulfill an order; and

vii)

The Group determines the nature, type, characteristics, or specifications of the applications or services.

If majority of the indicators of risks and responsibilities exist in the arrangements with third parties, the Group is acting as a principal and has exposure to the significant risks and rewards associated with the rendering of services or the sale of applications, and revenues for these services are recognized on a gross basis. If majority of the indicators of risks and responsibilities do not exist in the arrangements with third parties, the Group is acting as an agent, and revenues for these services are recognized on a net basis.

(vi)

Revenue from the provision of Internet and telecommunications network resource services are recognized when the services are provided to customers.

(vii)

Interconnection fees from domestic and foreign telecommunications operators are recognized when the services are rendered as measured by the minutes of traffic processed.

(viii)

Lease income from operating leases is recognized over the term of the lease.

(ix)

Revenue derived from integrated information application services are recognized when the services are provided to customers.

(x)

F-16

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

3.	SIGNIFICANT ACCOUNTING POLICIES (continued)

(o)

Revenue recognition (continued)

The Group offers promotional packages, which involve the bundled sales of terminal equipment (mobile handsets) and telecommunications services, to customers. The total contract consideration of a promotional package is allocated to revenues generated from the provision of telecommunications services and the sales of terminal equipment using the residual method. Under the residual method, the total contract consideration of the arrangement is allocated as follows: The undelivered component, which is the provision of telecommunications services, is measured at fair value, and the remainder of the contract consideration is allocated to the delivered component, which is the sales of terminal equipment. The Group recognizes revenues generated from the delivery and sales of the terminal equipment when the title of the terminal equipment is passed to the customers whereas revenues generated from the provision of telecommunications services are recognized based upon the actual usage of such services. During each of the years in the three-year period ended December 31, 2015, a substantial portion of the total contract consideration is allocated to the provision of telecommunications services since the terminal equipment is typically provided free of charge or at a nominal amount to promote the Group’s core business of the provision of telecommunications services, and the fair value of the telecommunication services approximates the total contract consideration.

(p)

Advertising and promotion expense

The costs for advertising and promoting the Group’s telecommunications services are expensed as incurred. Advertising and promotion expense, which is included in selling, general and administrative expenses, was RMB36,490, RMB26,122 and RMB19,291 for the years ended December 31, 2013, 2014 and 2015 respectively, among which, the costs of terminal equipment offered as part of a promotional package to our customers for free or at a nominal amount to promote the Group’s telecommunication service amounted to RMB22,795, RMB15,340 and RMB11,620 for the years ended December 31, 2013, 2014 and 2015 respectively.

(q)

Net finance costs

Net finance costs comprise interest income on bank deposits, interest costs on borrowings, and foreign exchange gains and losses. Interest income from bank deposits is recognized as it accrues using the effective interest method.

Interest costs incurred in connection with borrowings are calculated using the effective interest method and are expensed as incurred, except to the extent that they are capitalized as being directly attributable to the construction of an asset which necessarily takes a substantial period of time to get ready for its intended use.

(r)

Research and development expense

Research and development expenditure is expensed as incurred. For the years ended December 31, 2013, 2014 and 2015, research and development expense was RMB630, RMB607 and RMB792 respectively.

(s)

Employee benefits

The Group’s contributions to defined contribution retirement plans administered by the PRC government and defined contribution retirement plans administered by independent external parties are recognized in profit or loss as incurred. Further information is set out in Note 34.

Compensation expense in respect of the stock appreciation rights granted is accrued as a charge to the profit or loss over the applicable vesting period based on the fair value of the stock appreciation rights. The liability of the accrued compensation expense is re-measured to fair value at the end of each reporting period with the effect of changes in the fair value of the liability charged or credited to profit or loss. Further details of the Group’s stock appreciation rights scheme are set out in Note 35.

F-17

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

3.	SIGNIFICANT ACCOUNTING POLICIES (continued)

(t)

Government grants

The Group’s government grants are mainly related to the government loans with below-market rate of interest.

Government grants shall only be recognized until there is reasonable assurance that:

(i)

the Group will comply with all the conditions attaching to them; and

(ii)

the grants will be received.

Government grants that compensate expenses incurred are recognized in the consolidated statement of comprehensive income in the same periods in which the expenses are incurred.

Government grants relating to assets are recognized in deferred revenue and are credited to the consolidated statement of comprehensive income on a straight-line basis over the expected lives of the related assets.

(u)

Interest-bearing borrowings

Interest-bearing borrowings are recognized initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortized cost with any difference between the amount initially recognized and the redemption value recognized in profit or loss over the period of the borrowings, together with any interest, using the effective interest method.

(v)

Accounts and other payables

Accounts and other payables are initially recognized at fair value and thereafter stated at amortized cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(w)

Provisions and contingent liabilities

A provision is recognized in the consolidated statement of financial position when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(x)

Value-added tax

Under current PRC tax rules and regulations, output VAT rate for basic telecommunications services (including voice communication, lease or sale of network resources) is 11% while the output VAT rate for value-added telecommunications services (including Internet access services, short and multimedia messaging services, transmission and application service of electronic data and information) is 6%, and the output VAT for sales of telecommunications terminals and equipment is 17%. Input VAT rate depends on the type of services received and the assets purchased as well as the VAT rate applicable to a specific industry, and ranges from 3% to 17%.

Output VAT is excluded from operating revenues while input VAT, which is incurred as a result of the Company’s receipt of services and purchases of telecommunications equipment and materials, is excluded from operating expenses or the original cost of equipment purchased and can be netted against the output VAT, arriving at the net amount of VAT recoverable or payable. As the VAT obligations are borne by branches and subsidiaries of the Company, input and output VAT are set off at branches and subsidiaries levels, and the net amount of VAT recoverable or payable of branches and subsidiaries are not offset at the consolidation level. Such net amount of VAT recoverable or payable is recorded in the line item of prepayments and other current assets and accrued expenses and other payables, respectively on the face of consolidated statements of financial position.

F-18

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

3.	SIGNIFICANT ACCOUNTING POLICIES (continued)

(y)

Income tax

Income tax for the year comprises current tax and movement in deferred tax assets and liabilities. Income tax is recognized in profit or loss except to the extent that it relates to items recognized in other comprehensive income, or directly in equity, in which case the relevant amounts of tax are recognized in other comprehensive income or directly in equity respectively. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. The amount of deferred tax is calculated on the basis of the enacted or substantively enacted tax rates that are expected to apply in the period when the asset is realized or the liability is settled. The effect on deferred tax of any changes in tax rates is charged or credited to profit or loss, except for the effect of a change in tax rate on the carrying amount of deferred tax assets and liabilities which were previously recognized in other comprehensive income, in such case the effect of a change in tax rate is also recognized in other comprehensive income.

A deferred tax asset is recognized only to the extent that it is probable that future taxable income will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

(z)

Dividends

Dividends are recognized as a liability in the period in which they are declared.

(aa)

Related parties

(a)

A person, or a close member of that person’s family, is related to the Group if that person:

(i)

has control or joint control over the Group;

(ii)

has significant influence over the Group; or

(iii)

is a member of the key management personnel of the Group or the Group’s parent.

(b)

An entity is related to the Group if any of the following conditions applies:

(i)

The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others);

(ii)

The entity is an associate or joint venture of the Group (or an associate or joint venture of a member of a group of which the Group is a member); or the Group is an associate or joint venture of the entity (or an associate or joint venture of a member of a group of which the entity is a member);

(iii)

The entity and the Group are joint ventures of the same third party;

(iv)

The entity is a joint venture of a third entity and the Group is an associate of the third entity; or the Group is a joint venture of a third entity and the entity is an associate of the third entity;

(v)

The entity is controlled or jointly controlled by a person identified in (a);

(vi)

A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

F-19

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

3.	SIGNIFICANT ACCOUNTING POLICIES (continued)

(ab)

Segmental reporting

An operating segment is a component of an entity that engages in business activities from which revenues are earned and expenses are incurred, and is identified on the basis of the internal financial reports that are regularly reviewed by the chief operating decision maker in order to allocate resource and assess performance of the segment. For the periods presented, management has determined that the Group has one operating segment as the Group is only engaged in the integrated telecommunications business. The Group’s assets located outside mainland China and operating revenues derived from activities outside mainland China are less than 10% of the Group’s assets and operating revenues, respectively. No geographical area information has been presented as such amount is immaterial. No single external customer accounts for 10 percent or more of the Group’s operating revenues.

4.	APPLICATION OF REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

In the current year, the Group has applied, for the first time, the following amendments to IFRS issued by the IASB that are mandatorily effective for the current year:

•

Amendments to International Accounting Standard (“IAS”) 19, “Defined Benefit Plans: Employee Contributions”

•

Annual Improvements to IFRSs 2010–2012 Cycle

•

Annual Improvements to IFRSs 2011–2013 Cycle

The application of the above amendments to IFRSs has had no material effect on the Group’s consolidated financial statements.

The Group has not yet applied any other new and revised standard that is not yet effective for the current year (Note 38).

5.	CASH AND CASH EQUIVALENTS


	December 31,
	2014		2015
	RMB		RMB
Cash at bank and in hand		18,660		30,916
Time deposits with original maturity within three months		1,776		953

		20,436		31,869

6.	ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, are analyzed as follows:


		December 31,
	Note	2014			2015
		RMB			RMB
Accounts receivable
Third parties			22,853			22,766
China Telecom Group	(i)		329			492
Other telecommunications operators in the PRC			858			782

			24,040			24,040
Less: Allowance for doubtful debts			(2,478	)		(2,935	)

			21,562			21,105

Note:

(i)	China Telecommunications Corporation together with its subsidiaries other than the Group are referred to as “China Telecom Group”.

F-20

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

6.	ACCOUNTS RECEIVABLE, NET (continued)

The following table summarizes the changes in allowance for doubtful debts for each of the years in the three-year period ended December 31, 2015:


	Year ended December 31,
	2013			2014			2015
	RMB			RMB			RMB
At beginning of year		2,024			2,198			2,478
Impairment losses for doubtful debts		1,740			2,075			2,172
Accounts receivable written off		(1,566	)		(1,795	)		(1,715	)

At end of year		2,198			2,478			2,935

Ageing analysis of accounts receivable from telephone and Internet subscribers based on the billing dates is as follows:


	December 31,
	2014			2015
	RMB			RMB
Current, within 1 month		11,273			10,001
1 to 3 months		2,600			2,181
4 to 12 months		1,865			1,821
More than 12 months		660			731

		16,398			14,734
Less: Allowance for doubtful debts		(2,355	)		(2,393	)

		14,043			12,341

Ageing analysis of accounts receivable from other telecommunications operators and enterprise customers based on date of rendering of services is as follows:


	December 31,
	2014			2015
	RMB			RMB
Current, within 1 month		3,012			3,648
1 to 3 months		1,679			1,618
4 to 12 months		1,924			2,199
More than 12 months		1,027			1,841

		7,642			9,306
Less: Allowance for doubtful debts		(123	)		(542	)

		7,519			8,764

Ageing analysis of accounts receivable that are not impaired is as follows:


	December 31,
	2014		2015
	RMB		RMB
Not past due		19,408		19,263

Less than 1 month past due		1,356		1,154
1 to 3 months past due		798		688

Amounts past due		2,154		1,842

		21,562		21,105

7.	INVENTORIES

Inventories represent:


	December 31,
	2014		2015
	RMB		RMB
Materials and supplies		789		1,236
Goods for resale		3,436		5,045

		4,225		6,281

F-21

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

8.	PREPAYMENTS AND OTHER CURRENT ASSETS

Prepayments and other current assets represent:


	December 31,
	2014		2015
	RMB		RMB
Amounts due from China Telecom Group		818		732
Amounts due from China Tower		—		1,789
Amounts due from other telecommunications operators in the PRC		414		375
Prepayments in connection with construction work and equipment purchases		1,895		2,119
Prepaid expenses and deposits		3,398		3,622
Value-added tax recoverable		1,072		3,797
Other receivables		2,984		3,795
		10,581		16,229

9.	PROPERTY, PLANT AND EQUIPMENT, NET


	Buildings and improvements			Telecommunications network plant and equipment			Furniture, fixture, motor vehicles and other equipment			Total
	RMB			RMB			RMB			RMB
Cost/Deemed cost:
Balance at January 1, 2014,		95,411			835,860			28,346			959,617
Additions		726			1,254			703			2,683
Transferred from construction in progress		2,661			57,880			1,497			62,038
Disposals		(642	)		(74,688	)		(1,670	)		(77,000	)
Reclassification		(2	)		67			(65	)		—

Balance at December 31, 2014		98,154			820,373			28,811			947,338

Additions		509			883			733			2,125
Transferred from construction in progress		3,161			79,569			1,738			84,468
Tower Assets Disposal (Note 2)		(3,646	)		(29,221	)		(121	)		(32,988	)
Other disposals		(732	)		(51,994	)		(1,894	)		(54,620	)
Reclassification		13			(353)			340			—

Balance at December 31, 2015		97,459			819,257			29,607			946,323


Accumulated depreciation and impairment:
Balance at January 1, 2014,		(40,505	)		(524,863	)		(19,908	)		(585,276	)
Depreciation charge for the year		(4,735	)		(55,687	)		(2,266	)		(62,688	)
Written back on disposals		592			71,351			1,559			73,502
Reclassification		2			(7	)		5			—

Balance at December 31, 2014		(44,646	)		(509,206	)		(20,610	)		(574,462	)

Depreciation and impairment charge for the year		(4,662	)		(56,862	)		(2,332	)		(63,856	)
Written back on Tower Assets Disposal (Note 2)		1,520			13,051			52			14,623
Written back on other disposals		697			48,869			1,787			51,353
Reclassification		(11	)		133			(122	)		—

Balance at December 31, 2015		(47,102	)		(504,015	)		(21,225	)		(572,342	)

Net book value at December 31, 2015		50,357			315,242			8,382			373,981

Net book value at December 31, 2014		53,508			311,167			8,201			372,876

10.

CONSTRUCTION IN PROGRESS


	RMB
Balance at January 1, 2014		44,157
Additions		74,585
Transferred to property, plant and equipment		(62,038	)
Transferred to intangible assets		(3,523	)

Balance at December 31, 2014		53,181
Additions		107,762
Tower Assets Disposal (Note 2)		(2,959	)
Transferred to property, plant and equipment		(84,468	)
Transferred to intangible assets		(4,413	)

Balance at December 31, 2015		69,103

F-22

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

11.

GOODWILL


	December 31,
	2014		2015
	RMB		RMB
Cost:
Goodwill arising from acquisition of CDMA business		29,917		29,920

On October 1, 2008, the Group acquired the CDMA mobile communication business and related assets and liabilities, which also included the entire equity interests of China Unicom (Macau) Company Limited (currently known as China Telecom (Macau) Company Limited) and 99.5% equity interests of Unicom Huasheng Telecommunications Technology Company Limited (currently known as Tianyi Telecom Terminals Company Limited) (collectively the “CDMA business”) from China Unicom Limited and China Unicom Corporation Limited (collectively “China Unicom”). The purchase price of the business combination was RMB43,800, which was fully settled as of December 31, 2010. In addition, pursuant to the acquisition agreement, the Group acquired the customer-related assets and assumed the customer-related liabilities of CDMA business for a net settlement amount of RMB3,471 due from China Unicom. This amount was subsequently settled by China Unicom in 2009. The business combination was accounted for using the purchase method.

The goodwill recognized in the business combination is attributable to the skills and technical talent of the acquired business’s workforce, and the synergies expected to be achieved from integrating and combining the CDMA mobile communication business into the Group’s telecommunications business.

For the purpose of goodwill impairment testing, the goodwill arising from the acquisition of CDMA business was allocated to the appropriate cash-generating unit of the Group, which is the Group’s telecommunications business. The recoverable amount of the Group’s telecommunications business is estimated based on the value in use model, which considers the Group’s financial budgets covering a five-year period and a pre-tax discount rate of 9.7% (2014: 10.3%). Cash flows beyond the five-year period are projected to perpetuity at annual growth rate of 1.5%. Management performed impairment tests for the goodwill at the end of the reporting period and determined that goodwill was not impaired. Management believes any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause its recoverable amount to be less than carrying amount.

Key assumptions used for the value in use calculation model are the number of subscribers, average revenue per subscriber and gross margin. Management determined the number of subscribers, average revenue per subscriber and gross margin based on historical trends and financial information and operational data.

12.

INTANGIBLE ASSETS


	Computer software
	RMB
Cost:
Balance at January 1, 2014		18,091
Additions		378
Transferred from construction in progress		3,523
Disposals		(239	)

Balance at December 31, 2014		21,753
Additions		511
Transferred from construction in progress		4,413
Disposals		(376	)

Balance at December 31, 2015		26,301

Accumulated amortization and impairment:
Balance at January 1, 2014		(10,046	)
Amortization charge for the year		(2,923	)
Written back on disposals		200

Balance at December 31, 2014		(12,769	)
Amortization charge for the year		(3,093	)
Written back on disposals		300

Balance at December 31, 2015		(15,562	)

Net book value at December 31, 2015		10,739

Net book value at December 31, 2014		8,984

F-23

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

13.

INTERESTS IN ASSOCIATES


	December 31,
	2014		2015
	RMB		RMB
Unlisted equity investments, at cost		3,219		36,325
Share of post-acquisition changes in net assets		887		(1,852	)

		4,106		34,473

The Group’s interests in associates are accounted for under the equity method. Details of the Group’s principal associates are as follows:


Name of company	Attributable equity interest			Principal activities
China Tower Corporation Limited		27.9	%	Construction, maintenance and operation of telecommunications towers as well as ancillary facilities
Shanghai Information Investment Incorporation		24.0	%	Provision of information technology consultancy services

The above associates are established in the PRC and are not traded on any stock exchange.

Summarized financial information of the Group’s principal associates and reconciled to the carrying amounts of interests in associates in the Group’s consolidated financial statements are disclosed below:


	China Tower Corporation Limited
	2014	2015
	RMB	RMB
Current assets	9,676	38,586
Non-current assets	454	231,793
Current liabilities	244	47,717
Non-current liabilities	—	96,535

Operating revenues	—	10,325
Loss for the year	(114)	(2,944)
Other comprehensive income for the year	—	—
Total comprehensive income for the year	(114)	(2,944)

Dividend received from the associate	—	—

Reconciled to the Group’s interests in the associate
Net assets of the associate	9,886	126,127
Non-controlling interests of the associate	—	—
Group’s effective interest in the associate (Note 2)	29.9%	27.9%
Group’s share of net assets of the associate	2,956	35,189
Adjustment for the remaining balance of the deferred gain from the Tower Assets Disposal (Note 2)	—	(1,939)

Carrying amount of the associate in the consolidated financial statements of the Group	2,956	33,250

F-24

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

13.

INTERESTS IN ASSOCIATES (continued)


	Shanghai Information Investment Incorporation
	2014			2015
	RMB			RMB
Current assets		6,309			6,872
Non-current assets		7,773			7,943
Current liabilities		4,887			5,228
Non-current liabilities		3,680			3,716

Operating revenues		3,740			4,094
Profit for the year		236			342
Other comprehensive income for the year		—			—
Total comprehensive income for the year		236			342

Dividend received from the associate		10			9

Reconciled to the Group’s interests in the associate
Net assets of the associate		5,515			5,871
Non-controlling interests of the associate		(1,738	)		(1,850	)
Group’s effective interest in the associate		24.0	%		24.0	%
Group’s share of net assets of the associate		906			965

Carrying amount of the associate in the consolidated financial statements of the Group		906			965

14.

INVESTMENTS


	December 31,
	2014		2015
	RMB		RMB
Available-for-sale equity securities		945		1,597
Other unlisted equity investments		27		27

		972		1,624

Other unlisted equity investments mainly represent the Group’s various interests in PRC private enterprises which are mainly engaged in the provision of information technology services and Internet contents.

15.

DEFERRED TAX ASSETS AND LIABILITIES

The components of deferred tax assets and deferred tax liabilities recognized in the consolidated statement of financial position and the movements are as follows:


	Assets				Liabilities						Net Balance
	2015		2014		2015			2014			2015			2014
	RMB		RMB		RMB			RMB			RMB			RMB
Provisions and impairment losses, primarily for doubtful debts		1,291		1,156		—			—			1,291			1,156
Property, plant and equipment		3,174		1,788		(1,605	)		(773	)		1,569			1,015
Deferred revenues and installation costs		190		288		(130	)		(189	)		60			99

Available-for-sale equity securities		—		—		(326	)		(163	)		(326	)		(163	)


Deferred tax assets/(liabilities)		4,655		3,232		(2,061	)		(1,125	)		2,594			2,107

F-25

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

15.

DEFERRED TAX ASSETS AND LIABILITIES (continued)


	Balance at January 1, 2013			Recognized in consolidated statement of comprehensive income			Disposal of a subsidiary			Balance at December 31, 2013
	RMB			RMB			RMB			RMB
Provisions and impairment losses, primarily for doubtful debts		1,028			43			—			1,071
Property, plant and equipment		1,013			238			(4	)		1,247
Deferred revenues and installation costs		237			(82	)		—			155
Available-for-sale equity securities		(73	)		(104	)		—			(177	)

Net deferred tax assets		2,205			95			(4	)		2,296


	Balance at January 1, 2014			Recognized in consolidated statement of comprehensive income			Balance at December 31, 2014
	RMB			RMB			RMB
Provisions and impairment losses, primarily for doubtful debts		1,071			85			1,156
Property, plant and equipment		1,247			(232	)		1,015
Deferred revenues and installation costs		155			(56	)		99
Available-for-sale equity securities		(177	)		14			(163	)

Net deferred tax assets		2,296			(189	)		2,107


	Balance at January 1, 2015			Recognized in consolidated statement of comprehensive income			Balance at December 31, 2015
	RMB			RMB			RMB
Provisions and impairment losses, primarily for doubtful debts		1,156			135			1,291
Property, plant and equipment		1,015			554			1,569
Deferred revenues and installation costs		99			(39	)		60
Available-for-sale equity securities		(163	)		(163	)		(326	)

Net deferred tax assets		2,107			487			2,594

16.

SHORT-TERM AND LONG-TERM DEBT AND PAYABLE

Short-term debt comprises:


	December 31,
	2014		2015
	RMB		RMB
Loans from banks – unsecured		5,399		5,361
Super short-term commercial papers – unsecured		18,997		33,995
Other loans – unsecured		182		182
Loans from China Telecom Group – unsecured		19,398		12,098

Total short-term debt		43,976		51,636

The weighted average interest rate of the Group’s total short-term debt as of December 31, 2014 and 2015 was 5.1% per annum and 3.1% per annum, respectively. As of December 31, 2015, the Group’s loans from banks and other loans bear interest at rates ranging from 3.9% to 5.6% (2014: 4.5% to 11.0%) per annum, and are repayable within one year; as of December 31, 2015, super short-term commercial papers bear interest at rates ranging from 2.1% to 3.0% (2014: 5.3% to 5.6%) per annum and were fully repaid by March 2016; the loans from China Telecom Group bear interest at rates from 3.5% to 4.5% per annum and are repayable within one year.

F-26

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

16.

SHORT-TERM AND LONG-TERM DEBT AND PAYABLE (continued)

Long-term debt and payable comprises:


		December 31,
	Interest rates and final maturity	2014			2015
		RMB			RMB
Bank loans – unsecured

Renminbi denominated (Note (i))	Interest rates ranging from 1.08% to 7.04% per annum with maturities through 2030		10			2,463

US Dollars denominated	Interest rates ranging from 1.00% to 8.30% per annum with maturities through 2060		491			470

Euro denominated	Interest rate of 2.30% per annum with maturities through 2032		349			261

Other currencies denominated			15			9


			865			3,203
Other loans – unsecured

Renminbi denominated			1			1

Amount due to China Telecommunications Corporation - unsecured
Deferred consideration of Mobile Network Acquisition – Renminbi denominated (Note (ii))			61,710			61,710


Total long-term debt and payable			62,576			64,914


Less: Current portion			(82	)		(84	)


Non-current portion			62,494			64,830

Note:

(i)

The Group obtained long-term RMB denominated government loans with below-market interest rate ranging from 1.08% to 1.20% per annum through banks, and recognized the loans at their fair value on initial recognition, and accreted the discount to profit or loss using the effective interest rate method. The difference between the fair value and face value of the loans was recognized as government grants in deferred revenue (Note 19).

(ii)

Represents the remaining balance of the deferred consideration payable to China Telecommunications Corporation in respect of the acquisition of certain CDMA network assets and associated liabilities, which were held by China Telecommunications Corporation through network branches located in 30 provinces , municipalities and autonomous regions in the PRC on December 31, 2012 (hereinafter referred to as the “Mobile Network Acquisition”). The Group may, from time to time, pay all or part of the deferred payment at any time after the completion date without penalty until the fifth anniversary of the completion date of the Mobile Network Acquisition. The Group pays interest on the deferred payment to China Telecommunications Corporation at half-yearly intervals and the interest accrues from the day following the completion of the Mobile Network Acquisition. The interest rate is set at a 5 basis points premium to the yield of the 5-year super AAA rated Medium Term Notes most recently published by the National Association of Financial Market Institutional Investors before the completion date of the Mobile Network Acquisition and will be adjusted once a year in accordance with the last yield of the 5-year super AAA rated Medium Term Notes most recently published by the National Association of Financial Market Institutional Investors at the end of each year. The interest rates for 2015 and 2016 are 5.11% and 4.00%, respectively.

If the amount is not paid when due, the Group is required to pay the liquidated damages on such amount at a daily rate of 0.03% of the amount in arrears from the day following the applicable due date to the date that such amount has actually been paid in full.

F-27

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

16.

SHORT-TERM AND LONG-TERM DEBT AND PAYABLE (continued)

The aggregate maturities of the Group’s long-term debt and payable subsequent to December 31, 2015 are as follows:


	RMB
2016		84
2017		61,832
2018		206
2019		206
2020		224
Thereafter		2,362

		64,914

The Group’s short-term and long-term debt and payable do not contain any financial covenants. As of December 31, 2014 and 2015, the Group had unutilized committed credit facilities amounting to RMB130,488 and RMB128,839 respectively.

17.

ACCOUNTS PAYABLE

Accounts payable are analyzed as follows:


	December 31, 2014		December 31, 2015
	RMB		RMB
Third parties		71,934		95,305
China Telecom Group		15,667		18,702
China Tower		—		3,272
Other telecommunications operators in the PRC		857		776

		88,458		118,055

Amounts due to China Telecom Group are payable in accordance with contractual terms which are similar to those terms offered by third parties.

18.

ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables represent:


				December 31, 2014		December 31, 2015
	Note			RMB		RMB
Amounts due to China Telecom Group					1,043		1,464
Amounts due to China Tower		(i	)		—		3,097
Amounts due to other telecommunications operators in the PRC					72		31
Accrued expenses					16,289		17,715
Value-added tax payable					953		1,112
Customer deposits and receipts in advance					54,014		59,514
Dividend payable					71		1

					72,442		82,934

Note:

(i)	The amounts due to China Tower as of December 31, 2015 includes the cash injection amounting to RMB2,966 pursuant to the Transfer Agreement. The amount was paid in February 2016.

F-28

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

19.

DEFERRED REVENUES

Deferred revenues mainly represent the unearned portion of installation fees for wireline services received from customers, the unused portion of calling cards, and the unamortized portion of government grants (Note 16).


	December 31,
	2014			2015
	RMB			RMB
Balance at beginning of year		2,431			1,858
Additions for the year
— calling cards		547			600
— government grants		—			1,041

		547			1,641

Reductions for the year
— amortization of installation fees		(586	)		(416	)
— usage of calling cards		(534	)		(582	)
— amortization of government grants		—			(19	)

Balance at end of year		1,858			2,482

Representing:
— current portion		1,060			1,028
— non-current portion		798			1,454

		1,858			2,482

Included in other assets are primarily capitalized direct costs associated with the installation of wireline services. As of December 31, 2014 and 2015, the unamortized portion of these costs was RMB818 and RMB560 respectively.

20.

SHARE CAPITAL


	December 31,
	2014		2015
	RMB		RMB
Registered, issued and fully paid
67,054,958,321 ordinary domestic shares of RMB1.00 each		67,055		67,055
13,877,410,000 overseas listed H shares of RMB1.00 each		13,877		13,877

		80,932		80,932

All ordinary domestic shares and H shares rank pari passu in all material respects.

21.

RESERVES


	Capital reserve			Share premium		Statutory reserves		Other reserves			Exchange reserve			Retained earnings			Total
	RMB			RMB		RMB		RMB			RMB			RMB			RMB
	(Note (i))					(Note (iii))		(Note (ii))
Balance as of January 1, 2013		16,821			10,746		65,729		112			(865	)		91,664			184,207
Acquisition of the Seventh Acquired Business (Note 1)		(278	)		—		—		—			—			—			(278	)
Disposal of a subsidiary		380			—		—		—			—			11			391
Contribution from non-controlling interests		141			—		—		—			—			—			141
Dividends (Note 28)		—			—		—		—			—			(5,433	)		(5,433	)
Appropriations (Note (iii))		—			—		1,663		—			—			(1,663	)		—
Total comprehensive income for the year		—			—		—		315			(79	)		17,545			17,781

Balance as of December 31, 2013		17,064			10,746		67,392		427			(944	)		102,124			196,809
Dividends (Note 28)		—			—		—		—			—			(6,198	)		(6,198	)
Appropriations (Note (iii))		—			—		1,680		—			—			(1,680	)		—
Total comprehensive income for the year,		—			—		—		(43	)		3			17,680			17,640

Balance as of December 31, 2014,		17,064			10,746		69,072		384			(941	)		111,926			208,251
Acquisition of non-controlling interests		(1	)		—		—		—			—			—			(1	)
Contribution from non-controlling interests		87			—		—		—			—			—			87
Dividends (Note 28)		—			—		—		—			—			(6,160	)		(6,160	)
Appropriations (Note (iii))		—			—		1,901		—			—			(1,901	)		—
Total comprehensive income for the year		—			—		—		492			129			20,054			20,675

Balance as of December 31, 2015		17,150			10,746		70,973		876			(812	)		123,919			222,852

F-29

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

21.

RESERVES (continued)

Note:

(i)

Capital reserve of the Group mainly represents the sum of (a) the difference between the carrying amount of the Company’s net assets and the par value of the Company’s shares issued upon its formation; and (b) the difference between the consideration paid by the Group for the entities acquired, other than the Fifth Acquired Group, from China Telecommunications Corporation as described in Note 1, which were accounted for as equity transactions as disclosed in Note 1 to the consolidated financial statements, and the historical carrying amount of the net assets of these acquired entities.

The difference between the consideration paid by the Group and the historical carrying amount of the net assets of the Fifth Acquisition was recorded as a deduction of retained earnings.

(ii)	Other reserves of the Group represent primarily the change in the fair value of available-for-sale equity securities and the deferred tax liabilities recognized due to the change in fair value of available-for-sale equity securities.

(iii)

The statutory reserves consist of statutory surplus reserve and discretionary surplus reserve.

According to the Company’s Articles of Association, the Company is required to transfer 10% of its net profit, as determined in accordance with the lower of the amount determined under the PRC Accounting Standards for Business Enterprises and the amount determined under IFRS, to the statutory surplus reserve until such reserve balance reaches 50% of the registered capital. The transfer to this reserve must be made before distribution of any dividend to shareholders. For the year ended December 31, 2015, the net profit of the Company determined in accordance with the PRC Accounting Standards for Business Enterprises and IFRS are the same. For the year ended December 31, 2015, the Company transferred RMB1,901, being 10% of the year’s net profit, to this reserve. For the year ended December 31, 2014, the Company transferred RMB1,680, being 10% of the year’s net profit determined in accordance with the IFRS.

The Company did not transfer any discretionary surplus reserve for the years ended December 31, 2014 and 2015.

The statutory and discretionary surplus reserves are non-distributable other than in liquidation and can be used to make good of previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholdings or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

(iv)

According to the Company’s Articles of Association, the amount of retained earnings available for distribution to shareholders of the Company is the lower of the amount of the Company’s retained earnings determined in accordance with the PRC Accounting Standards for Business Enterprises and the amount determined in accordance with IFRS. As of December 31, 2014 and 2015, the amount of retained earnings available for distribution was RMB93,635 and RMB105,079 respectively, being the amount determined in accordance with IFRS. Final dividend of approximately RMB6,461 in respect of the financial year 2015 proposed after the end of the reporting period has not been recognized as a liability in the consolidated financial statements at the end of the reporting period (Note 28).

22.

OPERATING REVENUES

Operating revenues represent revenues from the provision of telecommunications services. The components of the Group’s operating revenues are as follows:


				Year ended December 31,
	Note			2013		2014		2015
				RMB		RMB		RMB
Wireline voice		(i	)		38,633		33,587		29,610
Mobile voice		(ii	)		58,217		54,673		48,983
Internet		(iii	)		99,394		112,431		126,546
Value-added services		(iv	)		36,230		38,419		39,044
Integrated information application services		(v	)		25,233		26,939		27,299
Telecommunications network resource services and lease of network equipment		(vi	)		17,586		17,332		17,635
Others		(vii	)		46,291		41,013		42,085

					321,584		324,394		331,202

F-30

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

22.

OPERATING REVENUES (continued)

Note:

(i)	Represent the aggregate amount of monthly fees, local usage fees, domestic long distance usage fees, international, Hong Kong, Macau and Taiwan long distance usage fees, interconnections fees and installation fees charged to customers for the provision of wireline telephony services.

(ii)	Represent the aggregate amount of monthly fees, local usage fees, domestic long distance usage fees, international, Hong Kong, Macau and Taiwan long distance usage fees and interconnections fees charged to customers for the provision of mobile telephony services.

(iii)

Represent amounts charged to customers for the provision of Internet access services.

(iv)	Represent the aggregate amount of fees charged to customers for the provision of value-added services, which comprise primarily caller ID services, short messaging services, Color Ring Tone, Internet data center and Virtual Private Network services and etc.

(v)	Represent primarily the aggregate amount of fees charged to customers for Best Tone information services and IT services and applications.

(vi)	Represent primarily the aggregate amount of fees charged to customers for the provision of telecommunications network resource services and lease income from other domestic telecommunications operators and enterprise customers for the usage of the Group’s telecommunications networks and equipment.

(vii)

Represent primarily revenue from sale, and repair and maintenance of equipment as well as the resale of mobile services (MVNO).

23.

NETWORK OPERATIONS AND SUPPORT EXPENSES

Included in the Group’s network operations and support expenses are as follows:


	Year ended December 31,
	2013		2014		2015
	RMB		RMB		RMB
Operating and maintenance		29,963		38,159		46,018
Utility		11,404		11,644		12,519
Property rental and management fee		7,284		9,224		14,117
Others		4,451		9,624		8,586

		53,102		68,651		81,240

24.

PERSONNEL EXPENSES

Personnel expenses are attributable to the following functions:


	Year ended December 31,
	2013		2014		2015
	RMB		RMB		RMB
Network operations and support		30,551		32,855		33,810
Selling, general and administrative		16,172		17,798		18,731

		46,723		50,653		52,541

F-31

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

25.

OTHER OPERATING EXPENSES

Other operating expenses consist of:


				Year ended December 31,
	Note			2013		2014		2015
				RMB		RMB		RMB
Interconnection charges		(i	)		15,916		12,483		12,329
Cost of goods sold		(ii	)		38,764		33,836		34,963
Donations					11		23		18
Others		(iii	)		69		1,176		1,533

					54,760		47,518		48,843

Note:

(i)	Interconnection charges represent amounts incurred for the use of other domestic and foreign telecommunications operators’ networks for delivery of voice and data traffic that originate from the Group’s telecommunications networks.

(ii)	Cost of goods sold primarily represents cost of telecommunications equipment sold.

(iii)

Others mainly include other surcharges related to VAT.

26.

NET FINANCE COSTS

Net finance costs comprise:


	Year ended December 31,
	2013			2014			2015
	RMB			RMB			RMB
Interest expense incurred		5,840			5,958			4,900
Less: Interest expense capitalized*		(329	)		(308	)		(327	)

Net interest expense		5,511			5,650			4,573
Interest income		(361	)		(304	)		(375	)
Foreign exchange losses		61			21			154
Foreign exchange gains		(58	)		(76	)		(79	)

		5,153			5,291			4,273


* Interest expense was capitalized in construction in progress at the following rates per annum		4.5%-5.8%			4.5%-6.0%			3.5%-5.5%

27.

INCOME TAX

Income tax in the profit or loss comprises:


	Year ended December 31,
	2013			2014		2015
	RMB			RMB		RMB
Provision for PRC income tax		5,590			5,237		7,127
Provision for income tax of other tax jurisdictions		31			58		74
Deferred taxation		(199	)		203		(650	)

		5,422			5,498		6,551

F-32

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

27.

INCOME TAX (continued)

A reconciliation of the expected tax expense with the actual tax expense is as follows:


				Year ended December 31,
	Note			2013			2014			2015
				RMB			RMB			RMB
Earnings before income tax					23,088			23,257			26,693

Expected income tax expense at statutory tax rate of 25%		(i	)		5,772			5,814			6,673
Differential tax rate on PRC subsidiaries’ and branches’ income		(i	)		(216	)		(248	)		(400	)
Differential tax rate on other subsidiaries’ income		(ii	)		(31	)		(31	)		(25	)
Non-deductible expenses		(iii	)		428			347			431
Non-taxable income		(iv	)		(120	)		(243	)		(75	)
Effect of change in tax rate					4			—			—
Others		(v	)		(415	)		(141	)		(53	)

Actual income tax expense					5,422			5,498			6,551

Note:

(i)

Except for certain subsidiaries and branches which are mainly taxed at a preferential rate of 15%, the provision for mainland China income tax is based on a statutory rate of 25% of the assessable income of the Company, its mainland China subsidiaries and branches as determined in accordance with the relevant income tax rules and regulations of the PRC.

(ii)	Income tax provisions of the Company’s subsidiaries in Hong Kong and Macau Special Administrative Regions of the PRC, and in other countries are based on the subsidiaries’ assessable income and income tax rates applicable in the respective tax jurisdictions which range from 12% to 38%.

(iii)

Amounts represent miscellaneous expenses in excess of statutory deductible limits for tax purposes.

(iv)	Amounts represent miscellaneous income which are not subject to income tax.

(v)	Amounts primarily represent tax deduction on prior year research and development expenses, losses on disposal of property, plant and equipment approved by tax authorities and other tax benefits.

28.

DIVIDENDS

Pursuant to a resolution passed at the Board of Directors’ meeting on March 23, 2016, a final dividend of equivalent to HK$0.095 per share totaling approximately RMB6,461 for the year ended December 31, 2015 was proposed for shareholders’ approval at the annual general meeting. The dividend has not been provided for in the consolidated financial statements for the year ended December 31, 2015.

Pursuant to the shareholders’ approval at the annual general meeting held on May 27, 2015, a final dividend of RMB0.076120 (equivalent to HK$0.095) per share totaling RMB6,160 in respect of the year ended December 31, 2014 was declared and paid by July 17, 2015.

Pursuant to the shareholders’ approval at the annual general meeting held on May 29, 2014, a final dividend of RMB0.076583 (equivalent to HK$0.095) per share totaling RMB6,198 in respect of the year ended December 31, 2013 was declared and paid by July 18, 2014.

29.

BASIC EARNINGS PER SHARE

The calculation of basic earnings per share for the years ended December 31, 2013, 2014 and 2015 is based on the profit attributable to equity holders of the Company of RMB17,545, RMB17,680 and RMB20,054 respectively, divided by 80,932,368,321 shares.

The amount of diluted earnings per share is not presented as there were no dilutive potential ordinary shares in existence for the periods presented.

F-33

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

30.

COMMITMENTS AND CONTINGENCIES

Operating lease commitments

The Group leases business premises and equipment through non-cancellable operating leases. These operating leases do not contain provisions for contingent lease rentals. None of the rental agreements contain escalation provisions that may require higher future rental payments nor impose restrictions on dividends, additional debt and/or further leasing.

As of December 31, 2015, the Group’s future minimum lease payments under non-cancellable operating leases are as follows:


	RMB
2016		3,452
2017		2,564
2018		2,006
2019		1,532
2020		1,171
Thereafter		3,723

Total minimum lease payments		14,448

Total rental expense in respect of operating leases charged to profit or loss for the years ended December 31, 2013, 2014 and 2015 were RMB6,057, RMB7,779 and RMB10,331, respectively.

Capital commitments

As of December 31, 2015, the Group had capital commitments as follows:


	RMB
Contracted for but not provided
- property		403
- telecommunications network plant and equipment		9,745

		10,148

Contingent liabilities

(a)	The Group was advised by their PRC lawyers that, no material contingent liabilities were assumed by the Group.

(b)	As of December 31, 2014 and 2015, the Group did not have contingent liabilities in respect of guarantees given to banks in respect of banking facilities granted to other parties, or other forms of contingent liabilities.

Legal contingencies

The Group is a defendant in certain lawsuits as well as the named party in other proceedings arising in the ordinary course of business. Management has assessed the likelihood of an unfavorable outcome of such contingencies, lawsuits or other proceedings and based on such assessment, believes that any resulting liabilities will not have a material adverse effect on the financial position, operating results or cash flows of the Group.

F-34

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

31.

FINANCIAL INSTRUMENTS

Financial assets of the Group include cash and cash equivalents, bank deposits, investments, accounts receivable, prepayments and other receivables. Financial liabilities of the Group include short-term and long-term debt and payable, other non-current liabilities, accounts payable, accrued expenses and other payables. The Group does not hold nor issue financial instruments for trading purposes.

(a) Fair Value Measurements

Based on IFRS 13, Fair Value Measurement, the fair value of each financial instrument is categorized in its entirety based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows:

•

Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments

•

Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data

•

Level 3: fair values measured using valuation techniques in which any significant input is not based on observable market data

The fair values of the Group’s financial instruments (other than long-term debt and payable, other non-current liabilities and available-for-sale equity investment securities) approximate their carrying amounts due to the short-term maturity of these instruments.

The Group’s available-for-sale equity investment securities are categorized as level 1 financial instruments. The fair value of the Group’s available-for-sale equity investment securities, which amounted to RMB945 and RMB1,597 as of December 31, 2014 and 2015 respectively was based on quoted market price on PRC stock exchanges. The Group’s long-term investments, other than the available-for-sale equity investment securities, are unlisted equity interests for which no quoted market prices exist in the PRC and because their fair values cannot be measured reliably, so their fair values were not disclosed.

The fair values of long-term debt and payable and other non-current liabilities are estimated by discounting future cash flows using current market interest rates offered to the Group for debt with substantially the same characteristics and maturities. The fair value measurement of long-term debt and payable and other non-current liabilities is categorized as level 2. The interest rates used by the Group in estimating the fair values of long-term debt and payable and other non-current liabilities, having considered the foreign currency denomination of the debt, ranged from 1.0% to 4.9% (2014: 1.0% to 6.6%). As of December 31, 2014 and 2015, the carrying amounts and fair values of the Group’s long-term debt and payable and other non-current liabilities were as follows:


	December 31, 2014				December 31, 2015
	Carrying amount		Fair value		Carrying amount		Fair value
	RMB		RMB		RMB		RMB
Long-term debt and payable		62,576		62,686		64,914		65,156
Other non-current liabilities		424		357		455		419

During the year, there were no transfers among instruments in level 1, level 2 or level 3.

(b) Risks

The Group’s financial instruments are exposed to three main types of risks, namely, credit risk, liquidity risk and market risk (which comprises of interest rate risk and foreign currency exchange rate risk). The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. Risk management is carried out under policies approved by the Board of Directors. The Board provides principles for overall risk management, as well as policies covering specific areas, such as liquidity risk, credit risk, and market risk. The Board regularly reviews these policies and authorizes changes if necessary based on operating and market conditions and other relevant risks. The following summarizes the qualitative and quantitative disclosures for each of the three main types of risks:

F-35

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

31.

FINANCIAL INSTRUMENTS(continued)

(b) Risks (continued)

(i) Credit risk

Credit risk refers to the risk that a counterparty will be unable to pay amounts in full when due. For the Group, this arises mainly from deposits it maintains at financial institutions and credit it provides to customers for the provision of telecommunications services. To limit exposure to credit risk relating to deposits, the Group primarily places cash deposits only with large state-owned financial institutions in the PRC with acceptable credit ratings. For accounts receivable, management performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on accounts receivable. Furthermore, the Group has a diversified base of customers with no single customer contributing more than 10% of revenues for the periods presented. Further details of the quantitative disclosures in respect of the Group’s exposure on credit risk for accounts receivable are set out in Note 6.

(ii) Liquidity risk

Liquidity risk refers to the risk that funds will not be available to meet liabilities as they fall due, and results from timing and amount mismatches of cash inflow and outflow. The Group manages liquidity risk by maintaining sufficient cash balances and adequate amount of committed banking facilities to meet its funding needs, including working capital, principal and interest payments on debts, dividend payments, capital expenditures and new investments for a set minimum period of between 3 to 6 months.

The following table sets out the remaining contractual maturities at the end of the reporting period of the Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on prevailing rates at the end of the reporting period) and the earliest date the Group would be required to repay:


	2014
	Carrying amount		Total contractual undiscounted cash flow		Within 1 year or on demand		More than 1 year but less than 2 years		More than 2 years but less than 5 years		More than 5 years
	RMB		RMB		RMB		RMB		RMB		RMB
Short-term debt		43,976		44,133		44,133		—		—		—
Long-term debt and payable		62,576		72,093		3,243		3,243		65,107		500
Accounts payable		88,458		88,458		88,458		—		—		—
Accrued expenses and other payables		72,442		72,442		72,442		—		—		—
Other non-current liabilities		424		424		—		—		—		424

		267,876		277,550		208,276		3,243		65,107		924


	2015
	Carrying amount		Total contractual undiscounted cash flow		Within 1 year or on demand		More than 1 year but less than 2 years		More than 2 years but less than 5 years		More than 5 years
	RMB		RMB		RMB		RMB		RMB		RMB
Short-term debt		51,636		51,967		51,967		—		—		—
Long-term debt and payable		64,914		71,295		2,597		64,345		768		3,585
Accounts payable		118,055		118,055		118,055		—		—		—
Accrued expenses and other payables		82,934		82,934		82,934		—		—		—
Finance lease obligations		119		134		48		43		43		—
Other non-current liabilities		455		455		—		—		408		47

		318,113		324,840		255,601		64,388		1,219		3,632

Management believes that the Group’s current cash on hand, expected cash flows from operations and available credit facilities from banks (Note 16) will be sufficient to meet the Group’s working capital requirements and repay its borrowings and obligations when they become due.

F-36

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

31.

FINANCIAL INSTRUMENTS (continued)

(b)

Risks (continued)

(iii) Interest rate risk

The Group’s interest rate risk exposure arises primarily from its short-term debt and long-term debt and payable. Debts carrying interest at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The Group manages its exposure to interest rate risk by closely monitoring the change in the market interest rate.

The following table sets out the interest rate profile of the Group’s debt at the end of the reporting period:


	2014					2015
	Effective interest rate					Effective interest rate
	%		RMB			%		RMB
Fixed rate debt:
Short-term debt		5.0		43,156			3.0		50,806
Long-term debt		2.4		866			1.2		3,204

				44,022					54,010
Variable rate debt:
Short-term debt		5.6		820			4.8		830
Deferred consideration due to China Telecommunications Corporation (as defined in Note 16)		5.1		61,710			4.0		61,710

				62,530					62,540

Total debt				106,552					116,550

Fixed rate debt as a percentage of total debt				41.3	%				46.3	%

As of December 31, 2014 and 2015, it is estimated that an increase of 100 basis points in interest rate, with all other variables held constant, would decrease the Group’s net profit for the year and retained earnings by approximately RMB469 and RMB469 respectively.

The above sensitivity analysis has been prepared on the assumptions that the change of interest rate was applied to the Group’s debt in existence at the end of the reporting period with exposure to cash flow interest rate risk. The analysis is prepared on the same basis for 2014.

(iv) Foreign currency exchange rate risk

Foreign currency exchange rate risk arises on financial instruments that are denominated in a currency other than the functional currency in which they are measured. The Group’s foreign currency risk exposure relates to bank deposits and borrowings denominated primarily in US dollars, Euros and Hong Kong dollars.

Management does not expect the appreciation or depreciation of the Renminbi against foreign currencies will materially affect the Group’s financial position and result of operations because 92.6% (2014: 93.1%) of the Group’s cash and cash equivalents and 99.4% (2014: 99.2%) of the Group’s short-term and long-term debt and payable as of December 31, 2015 are denominated in Renminbi. Details of bank loans denominated in other currencies are set out in Note 16.

32.

CAPITAL MANAGEMENT

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide investment returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost.

Management regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

Management monitors its capital structure on the basis of total debt-to-total assets ratio. For this purpose the Group defines total debt as the sum of short-term debt and long-term debt payable, and finance lease obligations. As of December 31, 2014 and 2015, the Group’s total debt-to-total assets ratio was 19.0% and 18.5% respectively, which is within the range of management’s expectation.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

F-37

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

33.

RELATED PARTY TRANSACTIONS

(a)

Transactions with China Telecom Group

The Group is a part of companies under China Telecommunications Corporation, a company owned by the PRC government, and has significant transactions and business relationships with members of China Telecom Group.

The principal transactions with China Telecom Group which were carried out in the ordinary course of business are as follows.


		Year ended December 31,
	Note	2013		2014		2015
		RMB		RMB		RMB
Purchases of telecommunications equipment and materials.	(i)		3,563		3,729		5,288
Sales of telecommunications equipment and materials.	(i)		3,885		3,089		2,855
Construction and engineering services.	(ii)		14,543		15,478		19,888
Provision of IT services	(iii)		192		167		181
Receiving IT services	(iii)		1,136		1,171		1,365
Receiving community services	(iv)		2,826		2,885		2,860
Receiving ancillary services.	(v)		11,208		11,549		12,718
Property lease income	(vi)		46		39		47
Property lease expenses	(vi)		673		695		673
Net transaction amount of centralized services	(vii)		616		246		486
Interconnection revenues	(viii)		44		45		59
Interconnection charges	(viii)		394		391		468
Internet applications channel services	(ix)		—		366		368
Interest on amounts due to and loans from China Telecom Group	(x)		3,912		4,431		4,048
Lease of CDMA network facilities	(xi)		157		193		226
Lease of inter-provincial transmission optic fibres	(xii)		25		22		22
Lease of land use rights	(xiii)		16		15		13

Note:

(i)	Represent the amount of telecommunications equipment and materials purchased from/sold to China Telecom Group and commission paid and payable for procurement services provided by China Telecom Group.

(ii)	Represent construction and engineering as well as design and supervisory services provided by China Telecom Group.

(iii)

Represent IT services provided to and received from China Telecom Group.

(iv)	Represent amounts paid and payable to China Telecom Group in respect of cultural, educational, health care and other community services.

(v)	Represent amounts paid and payable to China Telecom Group in respect of ancillary services such as repairs and maintenance of telecommunications equipment and facilities and certain customer services.

(vi)	Represent amounts of property lease fee received and receivable from/paid and payable to China Telecom Group for mutual leasing of properties.

(vii)

Represent net amount shared between the Company and China Telecom Group for costs associated with centralized services. The amount represents amounts received or receivable for the net amount of centralized services.

(viii)

Represent amounts received and receivable from/paid and payable to China Telecom Group for interconnection of local and domestic long distance calls.

(ix)	Represent amounts received and receivable from China Telecom Group in respect of Internet applications channel services, including the provision of telecommunications channel and applications support platform and billing and deduction services, etc.

(x)	Represent interest paid and payable to China Telecom Group with respect to the amounts due to China Telecommunications Corporation and loans from China Telecom Group (Note 16).

F-38

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

33.

RELATED PARTY TRANSACTIONS (continued)

(a)

Transactions with China Telecom Group (continued)

Note (continued) :

(xi)	Represent amounts paid and payable to China Telecom Group primarily for lease of certain CDMA mobile telecommunications network (“CDMA network”) facilities located in Xizang Autonomous Region.

(xii)

Represent amounts paid and payable to China Telecom Group for lease of certain inter-provincial transmission optic fibres within its service regions.

(xiii)

Represent amounts paid and payable to China Telecom Group for leases of land use rights.

Amounts due from/to China Telecom Group are summarized as follows:


	December 31,
	2014		2015
	RMB		RMB
Accounts receivable		329		492
Prepayments and other current assets		818		732

Total amounts due from China Telecom Group		1,147		1,224

Accounts payable		15,667		18,702
Accrued expenses and other payables		1,043		1,464
Short-term debt		19,398		12,098
Long-term debt and payable		61,710		61,710

Total amounts due to China Telecom Group		97,818		93,974

Amounts due from/to China Telecom Group, other than short-term debt and long-term debt and payable, bear no interest, are unsecured and are repayable in accordance with contractual terms which are similar to those terms offered by third parties. The terms and conditions associated with short-term debt and long-term debt and payable due to China Telecom Group are set out in Note 16.

As of December 31, 2014 and 2015, no material allowance for doubtful debts was recognized in respect of amounts due from China Telecom Group.

(b)

Transactions with China Tower

The principal transactions with China Tower are as follows:

Note

2014

2015

RMB

Tower Assets Disposal (Note 2)

—

30,131

Tower assets usage fee

)

—

2,742

Note:

(i)	Represent amounts paid and payable to China Tower for the usage of telecommunications tower and related assets.

Amounts due from/to China Tower are summarized as follows:


	2014		2015
	RMB		RMB
Prepayments and other current assets		—		1,789

Total amounts due from China Tower		—		1,789

Accounts payable		—		3,272
Accrued expenses and other payables		—		3,097

Total amounts due to China Tower		—		6,369

F-39

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

33.

RELATED PARTY TRANSACTIONS (continued)

(b)

Transactions with China Tower (continued)

Amounts due from/to China Tower bear no interest, are unsecured and are repayable in accordance with contractual terms which are similar to those terms offered by third parties.

As of December 31, 2014 and 2015, no material allowance for doubtful debts was recognized in respect of amounts due from China Tower.

(c)

Key management personnel compensation

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including directors, supervisors and executive vice presidents of the Group.

Key management personnel compensation of the Group is summarized as follows:


	Year ended December 31,
	2013		2014		2015
	RMB		RMB		RMB
	thousands		thousands		thousands
Short-term employee benefits .		14,329		11,598		9,859
Post-employment benefits.		794		1,069		916

		15,123		12,667		10,775

The above remuneration is included in personnel expenses.

(d)

Contributions to post-employment benefit plans

The Group participates in various defined contribution post-employment benefit plans organized by municipal, autonomous regional and provincial governments for its employees. Further details of the Group’s post-employment benefit plans are disclosed in Note 34.

(e)

Transactions with other government-related entities in the PRC

The Group is a government-related enterprise and operates in an economic regime currently dominated by entities directly or indirectly controlled by the People’s Republic of China through government authorities, agencies, affiliations and other organizations (collectively referred to as “government-related entities”).

Apart from transactions with parent company and its fellow subsidiaries(Note 33(a)), the Group has transactions that are collectively but not individually significant with other government-related entities, which include but not limited to the following:

•

rendering and receiving services, including but not limited to telecommunications services

•

sales and purchases of goods, properties and other assets

•

lease of assets

•

depositing and borrowing

•

use of public utilities

These transactions are conducted in the ordinary course of the Group’s business on terms comparable to the terms of transactions with other entities that are not government-related. The Group prices its telecommunications services and products based on government-regulated tariff rates, where applicable, or based on commercial negotiations. The Group has also established procurement policies and approval processes for purchases of products and services, which do not depend on whether the counterparties are government-related entities or not.

The directors of the Company believe the above information provides appropriate disclosure of related party transactions.

F-40

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

34.

POST-EMPLOYMENT BENEFITS PLANS

As stipulated by the regulations of the PRC, the Group participates in various defined contribution retirement plans organized by municipal, autonomous regional and provincial governments for its employees. The Group is required to make contributions to the retirement plans at rates ranging from 14% to 21% of the salaries, bonuses and certain allowances of the employees. A member of the plan is entitled to a pension equal to a fixed proportion of the salary prevailing at the member’s retirement date. Other than the above, the Group also participates in supplementary defined contribution retirement plans managed by independent external parties whereby the Group is required to make contributions to the retirement plans at fixed rates of the employees’ salaries, bonuses and certain allowances. The Group has no other material obligation for the payment of pension benefits associated with these plans beyond the annual contributions described above.

The Group’s contributions for the above plans for the years ended December 31, 2013, 2014 and 2015 were RMB5,682 and RMB6,229 and RMB6,584 respectively.

The amount payable for contributions to the above defined contribution retirement plans as of December 31, 2014 and 2015 was RMB669 and RMB791 respectively.

35.

STOCK APPRECIATION RIGHTS

The Group implemented a stock appreciation rights plan for members of its management to provide incentives to these employees. Under this plan, stock appreciation rights are granted in units with each unit representing one H share. No shares will be issued under the stock appreciation rights plan. Upon exercise of the stock appreciation rights, a recipient will receive, subject to any applicable withholding tax, a cash payment in RMB, translated from the Hong Kong dollar amount equal to the product of the number of stock appreciation rights exercised and the difference between the exercise price and market price of the Company’s H shares at the date of exercise based on the applicable exchange rate between RMB and Hong Kong dollar at the date of the exercise. The Company recognizes compensation expense of the stock appreciation rights over the applicable vesting period.

In 2012, the Company approved the granting of 916.7 million stock appreciation right units to eligible employees. Under the terms of this grant, all stock appreciation rights had a contractual life of five years from date of grant and an exercise price of HK$4.76 per unit. A recipient of stock appreciation rights may exercise the rights in stages commencing November 2013. As of each of the third, fourth and fifth anniversary of the date of grant, the total number of stock appreciation rights exercisable may not in aggregate exceed 33.3%, 66.7% and 100.0%, respectively, of the total stock appreciation rights granted to such person.

During the years ended December 31, 2013, 2014 and 2015, no stock appreciation right units were exercised. For the year ended December 31, 2015, compensation expense of RMB102 was reversed by the Group in respect of stock appreciation rights as a result of decline in share price of the Company. For the year ended December 31, 2014, compensation expense of RMB130 was recognized by the Group in respect of stock appreciation rights. For the year ended December 31, 2013, compensation expense of RMB39 was reversed by the Group in respect of stock appreciation rights as a result of decline in share price of the Company.

As of December 31, 2014 and 2015, the carrying amount of the liability arising from stock appreciation rights was RMB254 and RMB152 respectively. As of December 31, 2014, 609 million stock appreciation right units vested but were not exercised. The carrying amount of the corresponding liability was RMB183. As of December 31, 2015, 908 million stock appreciation right units vested but were not exercised, and 8.7 million stock appreciation right units were forfeited. The carrying amount of the corresponding liability was RMB152.

F-41

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

36.

PRINCIPAL SUBSIDIARIES

Details of the Company’s subsidiaries which principally affected the results, assets and liabilities of the Group as of December 31, 2015 are as follows:

Name of company

Type of

legal entity

Date of incorporation

Place of incorporation and

operation

Registered /issued capital
(in RMB millions unless
otherwise stated)

Principal

activities

China Telecom System Integration Co., Limited

Limited

Company

September 13, 2001

PRC

392

Provision of system integration and consulting services

China Telecom Global Limited

Limited

Company

February 25, 2000

Hong Kong Special Administrative Region of the PRC

HK$168 million

Provision of international

value-added network services

China Telecom

(Americas) Corporation

Limited

Company

November 22, 2001

The United States of America

US$43 million

Provision of telecommunications services

China Telecom Best Tone Information Service Co., Limited

Limited

Company

August 15, 2007

PRC

350

Provision of Best

Tone information services

China Telecom (Macau) Company Limited

Limited

Company

October 15, 2004

Macau Special Administrative Region of the PRC

MOP60 million

Provision of telecommunications services

Tianyi Telecom Terminals Company Limited

Limited

Company

July 1, 2005

PRC

500

Sales of telecommunications terminals

China Telecom

(Singapore) Pte. Limited

Limited

Company

October 5, 2006

Singapore

S$1

Provision of international

value-added network services

E-surfing Pay Co., Ltd

Limited

Company

March 3, 2011

PRC

300

Provision of e-commerce service

Shenzhen Shekou Telecommunications Company Limited

Limited

Company

May 5, 1984

PRC

Provision of telecommunications services

China Telecom (Australia) Pty Ltd

Limited

Company

January 10, 2011

Australia

AUD1 million

Provision of international value-added network services

China Telecom Korea Co.,Ltd

Limited

Company

May 16, 2012

South Korea

KRW500
million

Provision of international value-added network services

China Telecom (Malaysia) SDN BHD

Limited

Company

June 26, 2012

Malaysia

RM500,000

Provision of international value-added network services

China Telecom

Information Technology (Vietnam) Co., Ltd

Limited

Company

July 9, 2012

Vietnam

VND6,300
million

Provision of international value-added network services

F-42

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

36.

PRINCIPAL SUBSIDIARIES (continued)

Name of company

Type of

legal entity

Date of incorporation

Place of incorporation and

operation

Registered /issued capital
(in RMB millions unless
otherwise stated)

Principal

activities

iMUSIC Culture & Technology Co., Ltd.

Limited

Company

June 9, 2013

PRC

250

Provision of music production and related information services

China Telecom (Europe) Limited

Limited

Company

March 2, 2006

The United Kingdom of Great Britain and Northern Ireland

GBP16.15
million

Provision of international value-added network services

Zhejiang Yixin Technology Co., Ltd.

Limited Company

August 19, 2013

PRC

Provision of instant messenger service

Chengdu E-store Technology Co., Ltd

Limited Company

June 17, 2014

PRC

Provision of software technology

Except for Shenzhen Shekou Telecommunications Company Limited which is 51% owned by the Company and Zhejiang Yixin Technology Co., Ltd. which is 65% owned by the Company, all of the above subsidiaries are directly or indirectly wholly owned by the Company. No subsidiaries of the Group have material non-controlling interest.

37.

ACCOUNTING ESTIMATES AND JUDGMENTS

The Group’s financial position and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the consolidated financial statements. Management bases the assumptions and estimates on historical experience and on other factors that the management believes to be reasonable and which form the basis for making judgments about matters that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

The selection of significant accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the consolidated financial statements. The significant accounting policies are set forth in Note 3. Management believes the following significant accounting policies involve the most significant judgments and estimates used in the preparation of the consolidated financial statements.

Allowance for doubtful debts

Management estimates an allowance for doubtful debts resulting from the inability of the customers to make the required payments. Management bases its estimates on the ageing of the accounts receivable balance, customer credit-worthiness, and historical write-off experience. If the financial condition of the customers were to deteriorate, actual write-offs might be higher than expected and could significantly affect the results of future periods.

F-43

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

37. ACCOUNTING ESTIMATES AND JUDGMENTS (continued)

Impairment of long-lived assets

If circumstances indicate that the carrying amount of a long-lived asset may not be recoverable, the asset may be considered “impaired”, and an impairment loss would be recognized in accordance with accounting policy for impairment of long-lived assets as described in Note 3(n). The carrying amounts of the Group’s long-lived assets, including property, plant and equipment, intangible assets with finite useful lives and construction in progress are reviewed periodically to determine whether there is any indication of impairment. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. For goodwill, the impairment testing is performed annually at the end of each reporting period. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and fair value less costs of disposal. When an asset does not generate cash flows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit). In determining the value in use, expected future cash flows generated by the assets are discounted to their present value. An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. It is difficult to precisely estimate fair value of the Group’s long-lived assets because quoted market prices for such assets may not be readily available. In determining the value in use, expected future cash flows generated by the asset are discounted to their present value, which requires significant judgment relating to level of revenue, amount of operating costs and applicable discount rate. Management uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of revenue and amount of operating costs.

For the year ended December 31, 2015, provision for impairment losses of RMB51 were made against the carrying value of long-lived assets. For the years ended December 31, 2013 and 2014, no provision for impairment loss was made against the carrying value of long-lived assets. In determining the recoverable amount of these equipment, significant judgments were required in estimating future cash flows, level of revenue, amount of operating costs and applicable discount rate.

Changes in these estimates could have a significant impact on the carrying value of the assets and could result in additional impairment charge or reversal of impairment in future periods.

Depreciation and amortization

Property, plant and equipment and intangible assets are depreciated and amortized on a straight-line basis over the estimated useful lives of the assets, after taking into account their estimated residual value. Management reviews the estimated useful lives and residual values of the assets annually in order to determine the amount of depreciation and amortization expense to be recorded during any reporting period. The useful lives and residual values are based on the Group’s historical experience with similar assets and take into account anticipated technological changes. The depreciation and amortization expense for future periods is adjusted if there are significant changes from previous estimates.

38.

POSSIBLE IMPACT OF AMENDMENTS AND NEW STANDARDS ISSUED BUT NOT YET EFFECTIVE FOR THE ANNUAL ACCOUNTING PERIOD ENDED DECEMBER 31, 2015

Up to the date of issue of these consolidated financial statements, the IASB has issued the following amendments and new standards which are not yet effective and not early adopted for the annual accounting period ended December 31, 2015:


		Effective for accounting period beginning on or after
Amendments to IFRS 11, “Accounting for Acquisitions of Interests in Joint Operations”		January 1, 2016
Amendments to IAS 1, “Disclosure Initiative”		January 1, 2016
Amendments to IAS 16 and IAS 38, “Clarification of Acceptable Methods of Depreciation and Amortization”		January 1, 2016
Amendments to IFRSs, “Annual Improvements to IFRSs 2012-2014 Cycle”		January 1, 2016
Amendments to IAS 16 and IAS 41, “Agriculture: Bearer Plants”		January 1, 2016
Amendments to IFRS 10, IFRS 12 and IAS 28, “Investment Entities: Applying the Consolidation Exception”		January 1, 2016
IFRS 14, “Regulatory Deferral Accounts”		January 1, 2016
Amendments to IAS 7, “Disclosure Initiative”		January 1, 2017
Amendments to IAS 12, “Recognition of Deferred Tax Assets for Unrealized Losses”		January 1, 2017
IFRS 9, “Financial Instruments”		January 1, 2018
IFRS 15, “Revenue from Contracts with Customers”		January 1, 2018
IFRS 16, “Leases”		January 1, 2019
Amendments to IFRS 10 and IAS 28, “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”		A date to be determined

F-44

CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(All Renminbi amounts in millions, except per share data and except otherwise stated)

38.

POSSIBLE IMPACT OF AMENDMENTS AND NEW STANDARDS ISSUED BUT NOT YET EFFECTIVE FOR THE ANNUAL ACCOUNTING PERIOD ENDED DECEMBER 31, 2015 (continued)

The Group is in the process of making an assessment of the impact that will result from adopting the amendments and new standards issued by the IASB which are not yet effective for the accounting period ended on December 31, 2015. Except for IFRS 15, “Revenue from Contracts with Customers”, and IFRS 16, “Leases”, so far the Group believes that the adoption of these amendments and new standards is unlikely to have a significant impact on its financial position and the results of operations.

39.

PARENT AND ULTIMATE HOLDING COMPANY

The parent and ultimate holding company of the Group as of December 31, 2015 is China Telecommunications Corporation, a state-owned enterprise established in the PRC.

F-45