Annual Report 2012
China Telecom Corporation LimitedHKEx Stock Code: 728 NYSE Stock Code: CHA Annual Report 2012
China Telecom’s employees successfully
climbed Mount Everest, the world’s highest
mountain and constructed telecom base station
at 6,500 meters above sea level.
China Telecom Corporation LimitedHKEx Stock Code: 728 NYSE Stock Code: CHA Corporate Culture
Corporate Mission
Let the customers fully enjoy a new information life
Strategic Goal
Be a world-class integrated information service provider
Core Value
Comprehensive innovation, pursuing truth and pragmatism, respecting people and
creating value all together
Operation Philosophy
Pursue mutual growth of corporate value and customer value
Service Philosophy
Customer First Service Foremost
Code of Corporate Practice
• Keep promise and provide excellent service for customers
• Cooperate honestly and seek win-win result in joint innovation
• Operate prudently and enhance corporate value continuously
• Manage precisely and allocate resources scientifically
• Care the staff and tap their potential to the full
• Reward the society and be a responsible corporate citizen
Corporate Slogan
Connecting the World
Contents
Corporate Culture
Contents
2012 Milestones
Corporate Information
Financial Highlights
Chairman’s Statement
1
2
3
4
8
98 Corporate Social Responsibility Report
109 Report of the Independent International Auditor
110 Consolidated Statement of Financial Position
112 Statement of Financial Position
114 Consolidated Statement of Comprehensive Income
115 Consolidated Statement of Changes in Equity
14 Directors, Supervisors and Senior Management
116 Consolidated Statement of Cash Flows
24 Business Review
118 Notes to the Financial Statements
32 Management’s Discussion and Analysis of
175 Financial Summary
Financial Conditions and Results of Operations
177 Shareholder Information
42 Report of the Directors
60 Report of the Supervisory Committee
62 Recognition & Awards
64 Corporate Governance Report
88 Human Resources Development Report
March
China Telecom first launched CDMA
iPhone 4S
June
China Telecom successfully accomplished
the communication safety assurance of
Shenzhou – 9 spacecraft
June
China Telecom provided communication
safety assurance for Shanghai Cooperation
Organisation Beijing Summit
December
The Company has agreed with China
Telecommunications Corporation to acquire
certain assets and liabilities of CDMA network
at RMB87.2 billion and the transaction
was completed at the end of 2012
2
China Telecom Corporation LimitedAnnual Report 20122012 Milestones China Telecom Corporation Limited (“China Telecom” or the “Company”, together with its subsidiaries,
collectively the “Group”) is a full services integrated information service operator and the world’s
largest wireline telecommunications, CDMA mobile network and broadband Internet services provider,
providing basic telecommunications services such as wireline telecommunications services and mobile
telecommunications services, and value-added telecommunications services such as Internet access
services and information services in the PRC. As at the end of 2012, the Company has wireline access lines
in service of about 163 million, wireline broadband subscribers of about 90 million and mobile subscribers
of about 161 million. The Company’s H shares and American Depositary Shares (“ADSs”) are listed on The
Stock Exchange of Hong Kong Limited and the New York Stock Exchange, respectively.
Board of Directors
Executive Directors
Wang Xiaochu (Chairman)
Yang Jie
Wu Andi
Zhang Jiping
Yang Xiaowei
Sun Kangmin
Ke Ruiwen
Independent Non-Executive
Directors
Wu Jichuan
Qin Xiao
Tse Hau Yin, Aloysius
Cha May Lung, Laura
Xu Erming
Company Secretary &
Qualified Accountant
Yung Shun Loy, Jacky
Audit Committee
Tse Hau Yin, Aloysius (Chairman)
Wu Jichuan
Qin Xiao
Xu Erming
Remuneration Committee
Xu Erming (Chairman)
Wu Jichuan
Qin Xiao
Tse Hau Yin, Aloysius
Nomination Committee
Wu Jichuan (Chairman)
Tse Hau Yin, Aloysius
Cha May Lung, Laura
Xu Erming
Supervisory Committee
Shao Chunbao (Chairman)
Zhu Lihao (Independent Supervisor)
Mao Shejun (Employee Representative)
Zhang Jianbin (Employee Representative)
Hu Jing
Du Zuguo
Legal Representative
Wang Xiaochu
International Auditor
KPMG
Legal Advisers
Jingtian & Gongcheng
Freshfields Bruckhaus Deringer
Sullivan & Cromwell LLP
Stock Code
HKEx: 728
NYSE: CHA
Company Website
www.chinatelecom-h.com
3
China Telecom Corporation LimitedAnnual Report 2012Corporate Information Operating revenues (RMB millions)
Pre-leasing fee EBITDA1 (RMB millions)
Post-leasing fee EBITDA1 (RMB millions)
Net profit2 (RMB millions)
Capital expenditure (RMB millions)
Total debt/Equity4
Earnings per share (RMB)
Dividend per share (HK$)
Net asset value per share4 (RMB)
2010 5
2011 5
2012
(restated)
219,897
(restated)
245,068
88,988
75,668
15,339
43,037
29.9%
0.1895
0.085
3.035
94,371
75,360
16,500
49,551
20.3%
0.2039
0.085
3.165
283,073
96,387
70,841
14,9253
53,731
37.7%
0.1844
0.085
3.275
1 Pre-leasing fee EBITDA was calculated before CDMA network capacity lease fee. Post-leasing fee EBITDA was calculated after CDMA network capacity
lease fee.
2 Net profit represented profit attributable to equity holders of the Company.
3 Following the launch of iPhone to expand the high-end market, the Group made an appropriate increase in marketing initiatives for the profitable scale
development of its mobile services, which is expected to significantly enhance its long-term sustainable growth and value creation despite the short-
term pressure on its profitability.
4 Equity and net asset value represented equity attributable to equity holders of the Company.
5 Certain prior years figures were retrospectively restated due to the acquisition of digital trunking business. Please refer to note 1 to the audited financial
statements in this annual report for details.
For further information, please browse our website at www.chinatelecom-h.com.
4
China Telecom Corporation LimitedAnnual Report 2012Financial Highlights Operating Revenues
(RMB millions)
Pre-Leasing Fee EBITDA1
(RMB millions)
Net Profit2
(RMB millions)
8
6
0
5
4
2
,
7
9
8
9
1
2
,
3
7
0
3
8
2
,
1
7
3
4
9
,
7
8
3
6
9
,
8
8
9
8
8
,
0
0
5
6
1
,
9
3
3
5
1
,
3
5
2
9
4
1
,
20105
20115
2012
20105
20115
2012
20105
20115
2012
Dividend Per Share
(HK$)
NAV Per Share4
(RMB)
5
8
0
0
.
5
8
0
0
.
5
8
0
0
.
5
3
0
3
.
5
6
1
3
.
5
7
2
3
.
2010
2011
2012
20105
20115
2012
5
China Telecom Corporation LimitedAnnual Report 2012Financial Highlights Always do the RIGHT thing at the RIGHT time
Yes We Can
SHOW
the Track Record
World’s Largest CDMA Mobile Operator
World’s Largest Broadband Operator
World’s Largest Wireline Operator
>160,000,000
2008
Mobile subscribers
2004
>90,000,000
Wireline broadband subscribers
2004
Implemented
thorough strategic
transformation
to nurture new
growth drivers
>163,000,000
Access lines in service
2008
Acquired the CDMA mobile
business to transform into a full
services telecom operator
Yes We Can
SHOW
the Track Record
World’s Largest CDMA Mobile Operator
World’s Largest Broadband Operator
World’s Largest Wireline Operator
Always do the RIGHT thing at the RIGHT time
2012
2010
2004
2008
2004
Implemented
thorough strategic
transformation
to nurture new
growth drivers
2012
Acquired the CDMA
mobile network to
enhance future
operation and
earnings
2008
Acquired the CDMA mobile
business to transform into a full
services telecom operator
2010
Kicked off “Broadband China •
Fibre Cities” project to drive
growth and edge
>160,000,000
Mobile subscribers
>90,000,000
Wireline broadband subscribers
>163,000,000
Access lines in service
2012 was the best year ever for the
Company’s development since the
commencement of full services operation.
We persisted in deepening transformation,
firmly adhered to the main theme of
“promoting scale development through
dual-leadership in innovation and service”
and persisted in efficient scale operation
and data traffic operation, leading to rapid
expansion in the core services. Through the
successful acquisition of mobile network
from our parent company, we accomplished
unified mobile service operation with
network as a whole. We accurately
captured the development pattern of the
mobile Internet and developed sustainable
competitive advantages, resulting in
significant enhancement in our four core
capabilities in innovation, service, centralised
efficient management and operation. With
pragmatic promotion of the “Three New
Roles”1 strategy, the strategic landscape of
new businesses emerged and the corporate
development is ignited with new vitality.
Operating Results
In 2012, the Company’s operation was on
track as planned. The operating revenues
amounted to RMB283.1 billion, representing
an increase of 15.5% over last year.
Excluding the mobile terminal sales, the
operating revenues were RMB258.3 billion,
representing an increase of 11.8% over
last year, with revenue growth surpassing
industry average. The proportion from high
growth businesses increased rapidly and the
business structure continuously optimised.
EBITDA2 was RMB96.4 billion, an increase of
2.1% over last year. EBITDA margin3 was 37%.
The profit attributable to equity holders of
the Company was RMB14.9 billion, declined
by 9.5% from last year. Taking advantage of
the opportunities arising from the launch of
iPhone, the Company made an appropriate
increase in marketing initiatives for the
expansion into the high-end subscriber
market to promote the revenue growth,
which is expected to significantly enhance
the long-term sustainable growth and value
creation despite the short term pressure on
the profitability. Basic earnings per share
of the Company were RMB0.18. Capital
expenditure was RMB53.7 billion. Free cash
flow4 reached RMB12.4 billion.
At the end of 2012, we successfully
completed the acquisition of CDMA
network assets from the parent company,
enabling us to organise and coordinate the
investment and deployment, operation and
management, as well as the upgrade and
planning for the mobile network, promoting
better development of the mobile services
and enhancing the future profitability of the
Company.
Taking into account the return to
shareholders, the Company’s cash flow
and the capital requirements for the
mobile network acquisition and future
development, the Board of Directors has
decided to recommend at the forthcoming
Annual General Meeting that a dividend
being an equivalent of HK$0.085 per share
be declared, which is the same as last
1 The “Three New Roles” refers to the “Leader of Intelligent Pipeline”, the “Provider of Integrated Platforms” and the
“Participant of Content & Application Development”.
2 For convenience of investors’ comparative analysis, EBITDA is calculated before CDMA network capacity lease fee.
3 EBITDA margin is calculated based on EBITDA divided by the operating revenues excluding mobile terminal sales.
4 Free cash flow is calculated from EBITDA minus CDMA network capacity lease fee, capital expenditure and income
tax.
Nowadays, with increasing
popularity of smartphones and
flourishing mobile Internet
development, a terminal is no
longer a simple conversational
device, but more for providing
life-enriching and value-creating
information to users. Facing this
fundamental change, our people
courageously break away from
the constraints of traditional
telecommunications operation
mindset, persistently reinforcing
their efforts in learning and
exploring. They are keen for reform
and innovation, endeavouring
to offer superior and compelling
services to our customers. I feel
so proud and grateful to our team
for their unrivalled dedication
and passion. I firmly believe that
China Telecom would ride on this
momentum to achieve a vibrant
enterprise built to last!
8
9
China Telecom Corporation LimitedAnnual Report 2012China Telecom Corporation LimitedAnnual Report 2012Chairman’s StatementChairman’s Statement >160,000,000
Mobile subscribers
>90,000,000
Wireline broadband subscribers
>163,000,000
Access lines in service
2012 was the best year ever for the
Company’s development since the
commencement of full services operation.
We persisted in deepening transformation,
firmly adhered to the main theme of
“promoting scale development through
dual-leadership in innovation and service”
and persisted in efficient scale operation
and data traffic operation, leading to rapid
expansion in the core services. Through the
successful acquisition of mobile network
from our parent company, we accomplished
unified mobile service operation with
network as a whole. We accurately
captured the development pattern of the
mobile Internet and developed sustainable
competitive advantages, resulting in
significant enhancement in our four core
capabilities in innovation, service, centralised
efficient management and operation. With
pragmatic promotion of the “Three New
Roles”1 strategy, the strategic landscape of
new businesses emerged and the corporate
development is ignited with new vitality.
Operating Results
In 2012, the Company’s operation was on
track as planned. The operating revenues
amounted to RMB283.1 billion, representing
an increase of 15.5% over last year.
Excluding the mobile terminal sales, the
operating revenues were RMB258.3 billion,
representing an increase of 11.8% over
last year, with revenue growth surpassing
industry average. The proportion from high
growth businesses increased rapidly and the
business structure continuously optimised.
EBITDA2 was RMB96.4 billion, an increase of
2.1% over last year. EBITDA margin3 was 37%.
The profit attributable to equity holders of
the Company was RMB14.9 billion, declined
by 9.5% from last year. Taking advantage of
the opportunities arising from the launch of
iPhone, the Company made an appropriate
increase in marketing initiatives for the
expansion into the high-end subscriber
market to promote the revenue growth,
which is expected to significantly enhance
the long-term sustainable growth and value
creation despite the short term pressure on
the profitability. Basic earnings per share
of the Company were RMB0.18. Capital
expenditure was RMB53.7 billion. Free cash
flow4 reached RMB12.4 billion.
At the end of 2012, we successfully
completed the acquisition of CDMA
network assets from the parent company,
enabling us to organise and coordinate the
investment and deployment, operation and
management, as well as the upgrade and
planning for the mobile network, promoting
better development of the mobile services
and enhancing the future profitability of the
Company.
Taking into account the return to
shareholders, the Company’s cash flow
and the capital requirements for the
mobile network acquisition and future
development, the Board of Directors has
decided to recommend at the forthcoming
Annual General Meeting that a dividend
being an equivalent of HK$0.085 per share
be declared, which is the same as last
1 The “Three New Roles” refers to the “Leader of Intelligent Pipeline”, the “Provider of Integrated Platforms” and the
“Participant of Content & Application Development”.
2 For convenience of investors’ comparative analysis, EBITDA is calculated before CDMA network capacity lease fee.
3 EBITDA margin is calculated based on EBITDA divided by the operating revenues excluding mobile terminal sales.
4 Free cash flow is calculated from EBITDA minus CDMA network capacity lease fee, capital expenditure and income
tax.
Nowadays, with increasing
popularity of smartphones and
flourishing mobile Internet
development, a terminal is no
longer a simple conversational
device, but more for providing
life-enriching and value-creating
information to users. Facing this
fundamental change, our people
courageously break away from
the constraints of traditional
telecommunications operation
mindset, persistently reinforcing
their efforts in learning and
exploring. They are keen for reform
and innovation, endeavouring
to offer superior and compelling
services to our customers. I feel
so proud and grateful to our team
for their unrivalled dedication
and passion. I firmly believe that
China Telecom would ride on this
momentum to achieve a vibrant
enterprise built to last!
8
9
China Telecom Corporation LimitedAnnual Report 2012China Telecom Corporation LimitedAnnual Report 2012Chairman’s StatementChairman’s Statement year. The Company will strive to enhance
profitability and concurrently pave the way
for future dividend increase.
while 3G subscriber market share reached
30%, with increasing influence on the
market.
Rapid scale expansion of full
services operation
In 2012, we deepened the implementation
of the two key strategies of scale operation
and data traffic operation, persisting
in mobile operation driven by 3G and
proactively developing fibre broadband
deployment and accelerated development in
informatisation application. The three core
services integrated altogether and fostered
synergistically, resulting in strong growth
in revenues and subscriber scale of the
Company. The operating revenues achieved
double-digit growth and the wireline
revenue became stabilised with an upward
trend. The efficient scale development of full
services operation is on the “fast track”.
In 2012, mobile Internet business began to
experience exponential growth. We firmly
grasped the opportunity to accelerate
scale expansion, proactively leveraging the
network strengths, persisting in terminal-
driven mode, reinforcing scale procurement
and centralised efficient marketing of
terminals, deepened transforming self-
operated sales outlets into specialty stores,
motivating the vigorousness of open
channels, equally emphasising integrated
products and mobile single product, and
rolling out data traffic operations in full-
scale. Mobile services revenue amounted to
RMB92.8 billion for the full year, an increase
of 36% over last year, which was the highest
growth rate in the industry. The number of
mobile subscribers reached a total of 161
million, with a net addition of 34.15 million,
of which net addition of 3G subscribers was
32.76 million. 3G subscribers accounted
for 43% of total subscriber base. Mobile
subscriber market share was about 15%
In 2012, we successfully embarked on data
traffic operation. Started with establishing an
operating system, the Company built a data
traffic operation team which was vertically
integrated and horizontally coordinated.
Meanwhile, numerous initiatives were
adopted to effectively expand the data
traffic scale: enhancing the quality of data
traffic resources through strengthening
the coordination and centralised efficient
promotion of self-developed applications
such as product centre businesses and
premium external-parties applications;
strengthening the promotion of 3G
smartphones and reinforcing the 3G
applications assistance as well as sales and
marketing to enhance customers’ experience
and to cultivate users’ habits in data
traffic; precision marketing to improve the
services in data usage alert and traffic usage
enquiries to improve customers’ experience;
refining data traffic packages and focusing
on targeted markets to improve the data
traffic contribution. The data traffic of
Internet access by handset almost tripled in
2012.
In 2012, the Company reinforced its
leadership in the wireline broadband market.
The Company progressively promoted
the “Broadband China • Fibre Cities”
construction project and further expanded
fibre broadband coverage. Concurrently,
we pushed full-strength ahead with our
fibre broadband marketing campaign
“Lightening Fibre Residential Areas”, quickly
transforming the strengths of our superior
network to a competitive edge. At the same
time, the Company further penetrated into
the rural broadband market. Building on this
foundation, we comprehensively promoted
10
China Telecom Corporation LimitedAnnual Report 2012Chairman’s Statement the network bandwidth upgrade initiative
to enhance customer perception of our
broadband network and the brand value.
We deepened the integration of broadband
access with products such as Internet TV
(“iTV”) to provide premium content and
enriched value. To enhance customer
satisfaction, we promoted the research
and development of intelligent bandwidth
upgrade products, offered services for
self-served bandwidth assessment and
optimised customers experience by self-
served bandwidth upgrade. Wireline Internet
access service revenue were RMB67.8 billion
for the year, an increase of 10% over last
year. Wireline broadband subscribers base
exceeded 90 million with net addition of
13.31 million, of which the number of Fibre-
to-the-Home (“FTTH”) subscribers was
about 15 million.
We further expanded our strengths in
informatisation applications in 2012 by
separately promoting and deepening
strategic cooperation with three target
groups: “Smart Cities”, key customers and
cooperation partners. Scale expansion
achieved significant results in various target
market groups: for the key customers in
the industries, we persisted in offering a
comprehensive solution focusing on six
key applications such as administration and
tax services to extend vertical integration;
for clustered small to medium-sized
customers such as the professional market,
we concentrated on four main standardised
products such as e-Surfing RFID to promote
scale replication; for the campus market,
we launched the new application “e-Surfing
School” that specifically targets primary
and secondary schools and secured nearly
20,000 contracts for the “Smart Campus”
initiative. In 2012, the revenue growth
rate from the government and enterprise
customers was above that of the Company
as a whole. In 2012, the net addition of
government and enterprise broadband
customers was about 4 million, with a
subscriber base of more than 20 million.
The net addition of mobile subscribers of
informatisation applications was over 10
million in total, reaching a scale of more
than 20 million. Data traffic and value per
subscriber were further enhanced.
Enhancing Four Capabilities
and Developing a Sustainable
Competitive Edge
Innovation capability To liberate mindsets
and take the lead in innovation. The
intelligent upgrade of our broadband
network has progressed from trial to
commercial launch, promoting intelligent
upgrade of our mobile network with a real-
time service identification capability as
its core. We accelerated the construction
of an integrated platform and were the
pioneer in building a platform with open
and cooperative ability, congregating
customer and data traffic resources. We
deepened our innovation in systems and
mechanisms, accelerated the corporatisation
process of our product centres services
and introduced private investment to
stimulate their vitality and initiatives.
We accelerated the transformation of
electronic channels to e-commerce
channels, which is leading in the industry.
We consolidated our resources abroad
and established China Telecom Global
Limited to coordinate our overseas market
expansion. We adhered to the doctrine of
people-oriented strategy and optimised our
human resources management system as
well as strengthened the team-building of
our management staff, senior professional
talents and frontline employees.
11
China Telecom Corporation LimitedAnnual Report 2012Chairman’s Statement Service capability Deepened service
transformation and focusing on key services
to achieve service leadership. We built
an open and intelligent customer service
mechanism to provide one-stop service
solutions to customers. Leveraging on
service innovation, we vigorously enhanced
the service capabilities of Online Service
Centre and Mobile Palm Service Centre
to create comparative advantages in the
market. Customer life-cycle management
was implemented to strengthen the
effectiveness of our customer retention
efforts. As a pioneer in adopting 3G
service standards that are higher than the
industry level, and specifically targeting the
enhancement of mobile broadband service
level, our 3G service satisfaction is leading in
the industry. With further implementation of
wireline broadband services enhancement
projects and development of superior
broadband services around key customer
interfaces, we attained the highest level
of broadband service satisfaction in the
industry.
Centralised efficient management
capability Deepened centralised efficient
operation and marketing: We optimised
our brand structure, refined our service
packages, strengthened the centralised
efficient management of products, improved
the 3G terminal portfolio structure and
strengthened the efforts in centralised
procurement, further unified service codes
and standards, and reinforced “one-point
access and entire-network operation”; in
the four key areas including procurement,
IT system, government and enterprise
customers marketing, network operation
and maintenance, we fully implemented
the separation of management and
operational functions and optimised our
organisational structure, increased our
market responsiveness and enhanced our
operating efficiency. We established a
“Cloud” company to implement professional
operation and centralised efficient
management of our “Cloud” service.
Operation capability Optimised
comprehensive budgeting and performance
management: We promoted market-share
oriented and dynamic budget management
and assessment system to foster the
Company’s overall market share expansion.
We implemented precision management
and further promoted refinement of
performance evaluation units, strengthening
cost control and continually enhancing
operating efficiency. We optimised our
resource allocation and tilted our sales
initiatives towards high growth businesses,
while our investment focusing on high
return areas in fibre broadband, mobile
Internet and core business platforms. We
strengthened the synergies among our
various channels and fully mobilised the
enthusiasm of the open channels, resulting
in enhancement in channel integrated
efficiency.
Corporate Governance and
Social Responsibility
We continue to strive to maintain a high
level of corporate governance, strengthen
risk management and control, improve
corporate transparency and enhance
corporate value. Our persistent efforts in
corporate governance have been widely
recognised by the capital markets. We
were accredited with a number of awards
and recognition, including being voted the
“No. 1 Best Managed Company in Asia”
by FinanceAsia for two consecutive years,
“The Best of Asia” by Corporate Governance
Asia for three consecutive years, and also
“Overall Best Managed Company in Asia” by
Euromoney four years in a row.
12
China Telecom Corporation LimitedAnnual Report 2012Chairman’s Statement We firmly adhere to corporate social
responsibility and be a responsible corporate
citizen. We persist in operating with
integrity and proactively protecting the
industry eco-environment. We implement
environmentally friendly operation and
enhance energy saving and emissions
reduction as well as the cooperative building
and sharing of mobile base stations. We
provided telecommunications assurance
services for significant events such as the
successful launch of Shenzhou-9 spacecraft
and Shanghai Cooperation Organisation
Summit, receiving high recognition and
appreciation from the society. In 2012,
China Telecom was accredited with “China’s
Outstanding Enterprise in Corporate Social
Responsibility” by the Chinese Academy of
Social Sciences.
Outlook
Looking ahead, we are fully confident.
Currently, with the tide of mobile Internet
sweeping globally and the accelerated
industrialisation and informatisation
development in China, the information and
communications industry in the Mainland
will maintain a relatively high growth rate,
which offers the Company a promising
prospect. Meanwhile, the intensifying
market competition, uncertain regulatory
environment and rapid development of new
technology offer us not only development
opportunities but also new challenges.
We will firmly seize this valuable golden
opportunity to persevere with the
deepening of strategic transformation.
We will accelerate the scale development
of fundamental services, expedite the
nurture of emerging services as well as
closely monitor and proactively respond
to advancement of new technology and
changes in regulatory policies. We will also
adhere to the Internet’s spirit of “openness,
cooperation and innovation”, breaking
away from the constraints of traditional
telecommunications operation mindset.
We will promote the services development
through differentiation, motivate the
innovative vitality of our employees through
market-driven mechanism and promote
scale development and profitability through
“dual-leadership in innovation and service”.
Leveraging our unswerving promotion of
“Three New Roles” strategy, our unique
and sustainable competitive strengths are
created, so as to achieve a vibrant enterprise
built to last.
Finally, on behalf of the Board of Directors,
I would like to take this opportunity to
express my sincere appreciation to all
our shareholders and customers for their
support.
Wang Xiaochu
Chairman and Chief Executive Officer
Beijing, China
20 March 2013
Chairman Wang Xiaochu
received “No. 1 Best Managed
Company in Asia” award from
FinanceAsia
13
China Telecom Corporation LimitedAnnual Report 2012Chairman’s Statement Mr. Wang Xiaochu
Mr. Yang Jie
Mr. Wang Xiaochu
Age 55, is the Chairman of the Board of Directors and Chief Executive Officer of the Company. Mr. Wang graduated from
Beijing Institute of Posts and Telecommunications in 1989 and received a doctorate degree in business administration from
the Hong Kong Polytechnic University in 2005. Mr. Wang served as Deputy Director General and Director General of the
Hangzhou Telecommunications Bureau in Zhejiang province, Director General of the Tianjin Posts and Telecommunications
Administration, Chairman and Chief Executive Officer of China Mobile (Hong Kong) Limited, Vice President of China Mobile
Communications Corporation, President of China Telecommunications Corporation, Chairman of the board of directors
and a Non-executive Director of China Communications Services Corporation Limited. He is also the Chairman of China
Telecommunications Corporation and Honorary Chairman of China Communications Services Corporation Limited. He
was responsible for the development of China Telecom’s telephone network management systems and various other
information technology projects and as a result, received the Third-Class Award from the State Scientific and Technological
Progress Award and the First-Class Award from the former Ministry of Posts and Telecommunications Scientific and
Technological Progress Award. Mr. Wang has over 30 years of management experience in the telecommunications industry.
Mr. Yang Jie
Age 51, is an Executive Director, President and Chief Operating 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 and General Manager
of Business Department of the Northern Telecom of China Telecommunications Corporation. He is also the President
of China Telecommunications Corporation. Mr. Yang has 29 years of operational and managerial experience in the
telecommunications industry in China.
14
Directors, Supervisors and Senior ManagementChina Telecom Corporation LimitedAnnual Report 2012 Madam Wu Andi
Mr. Zhang Jiping
Mr. Li Ping
Madam Wu Andi
Age 58, is an Executive Director, Executive Vice President and the Chief Financial Officer of the Company. She is responsible
for the financial management of the Company. Madam Wu is a senior accountant. She graduated from the Beijing Institute
of Economics with a bachelor degree in finance and trading in 1983, and studied in a postgraduate program in business
economics management at the Chinese Academy of Social Sciences from 1996 to 1998. She studied in a master of
business administration (MBA) program at the Guanghua School of Management at Peking University from 2002 to 2003
and received an executive master degree of business administration (EMBA). Prior to joining China Telecommunications
Corporation in May 2000, she served as Director General of the Department of Economic Adjustment and Communication
Settlement of the Ministry of Information Industry (“MII”), Director General, Deputy Director General and Director of the
Department of Finance of the Ministry of Posts and Telecommunications (“MPT”). She is also a Vice President of China
Telecommunications Corporation. Madam Wu has 31 years of economic and financial management experience in the
telecommunications industry in China.
Mr. Zhang Jiping
Age 57, 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. Prior to joining China Telecommunications Corporation in May 2000, he 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. Mr. Zhang has 31 years of experience in
network operation and management in the telecommunications industry in China.
Mr. Li Ping
Age 59, is an Executive Vice President of the Company. Mr. Li graduated from the Beijing University of Posts and
Telecommunications with a major in radio telecommunications in 1976 and received a MBA degree from the State
University of New York at Buffalo, U.S.A. in 1989. He served as Executive Director of China Telecom Corporation Limited,
Chairman and President of China Telecom (Hong Kong) International Limited, Vice Chairman and Executive Vice President
of China Mobile (Hong Kong) Limited, Deputy Director General of the DGT of the MPT. He is also the Vice President of China
Telecommunications Corporation, Chairman of the board of directors and an Executive Director of China Communications
Services Corporation Limited. Mr. Li has extensive experience in managing public companies and 37 years of operational
and managerial experience in the telecommunications industry in China.
15
China Telecom Corporation LimitedAnnual Report 2012Directors, Supervisors and Senior Management Mr. Yang Xiaowei
Mr. Sun Kangmin
Mr. Ke Ruiwen
Mr. Yang Xiaowei
Age 49, is an Executive Director and Executive Vice President of the Company. Mr. Yang is a senior engineer. He received a
bachelor’s degree from the Computer Application Department of Chongqing University in 1998 and a master’s 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 and Chairman of Unicom Huasheng Telecommunications Technology Co. Ltd.. He is also a Vice President of China
Telecommunications Corporation. Mr. Yang has extensive experience in management and telecommunications industry.
Mr. Sun Kangmin
Age 56, 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 Deputy Director General and Chief Engineer of Chengdu Telecommunications Bureau,
Deputy Director General of Sichuan Posts and Telecommunications Administration, 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. Mr. Sun has 29 years of operational and managerial experience in the telecommunications industry in China.
Mr. Ke Ruiwen
Age 50, 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,
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 27 years of operational and managerial
experience in the telecommunications industry in China.
16
China Telecom Corporation LimitedAnnual Report 2012Directors, Supervisors and Senior Management Mr. Wu Jichuan
Dr. Qin Xiao
Mr. Tse Hau Yin, Aloysius
Mr. Wu Jichuan
Age 75, is an Independent Non-executive Director of the Company. Mr. Wu is a professor-level senior engineer. Mr. Wu is the
Honorary Chairman of the Expert Committee for Telecommunication Economy of MIIT, Honorary Director General of the Chinese
Institute of Electronics, and Honorary Director General of the Chinese Institute of Communications. Mr. Wu graduated from the
Beijing Institute of Posts and Telecommunications with a major in wired telecommunications engineering in 1959. Mr. Wu served
as Vice Minister and Minister of the Ministry of Posts and Telecommunications, Deputy Director of the Committee of the Radio
Management of China, Vice Leader of the Informatisation Leading Group of the State Council, Minister of Ministry of Information
Industry, a member of the Eighth & the Tenth National People’s Congress, a member of the Standing Committee of the Tenth
National People’s Congress and Vice Chairman of the Education, Science, Culture and Public Health Committee of the National
People’s Congress.
Dr. Qin Xiao
Age 65, is an Independent Non-executive Director of the Company. Dr. Qin obtained his Ph.D. in economics from University of
Cambridge. He is the Independent Non-executive Director of HKR International Limited and AIA Group Limited and China World
Trade Center Company Limited and the Non-executive Chairman of the Board of Amex Resources Limited. He is a part-time
professor at the School of Economics and Management of Tsinghua University and the Graduate School of the People’s Bank of
China, a non-official member of the Financial Services Development Council of Hong Kong. He served as the Chairman of China
Merchants Bank Co., Ltd. and China Merchants Group Limited, President and Vice Chairman of China International Trust and
Investment Corporation (CITIC), and Chairman of CITIC Industrial Bank. He was a deputy to the Ninth National People’s Congress,
a member of the Tenth and the Eleventh Chinese People’s Political Consultative Conference, an advisor on the Foreign Currency
Policy of the State Administration of Foreign Exchange, and a member of Toyota International Advisory Board, he also served as
Chairman of APEC Business Advisory Council (ABAC) for the Year 2001. His papers and books in economics, management and
social transformation have been published in China and abroad.
Mr. Tse Hau Yin, Aloysius
Age 65, is an Independent Non-executive Director of the Company. Mr. Tse is currently an Independent Non-executive Director of
CNOOC Limited, Wing Hang Bank Limited, Linmark Group Limited, Sinofert Holdings Limited and SJM Holdings Limited. He was
an independent non-executive director of China Construction Bank Corporation, which is listed on the HKSE Main Board from
2004 to 2010. 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.
17
China Telecom Corporation LimitedAnnual Report 2012Directors, Supervisors and Senior Management Madam Cha May Lung, Laura
Professor Xu Erming
Madam Cha May Lung, Laura
Age 63, 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, the Vice Chairman of the International Advisory Council of the China Securities Regulatory
Commission (“CSRC”), a Member of the Executive Council of the Government of the Hong Kong Special Administrative
Region and Chairman of the Financial Services Development Council, Government of the HKSAR. 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 a Non-executive Director. She is a member of the Yale School of Management Board of Advisors. Mrs. Cha
served as Vice Chairman of CSRC from January 2001 to September 2004 and Assistant Director of Corporate Finance, Senior
Director, Executive Director 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.
Professor Xu Erming
Age 63, 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, a member of the Third Session of the University Affairs Committee of
the Renmin University of China, Associate Convener of the Sixth Session of the Business Administration Academic Appraisal
Group of the Academic Degree Committee of the State Council and Vice Chairman of the Chinese Enterprise Management
Research Association. He is also 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, organisational 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.
18
China Telecom Corporation LimitedAnnual Report 2012Directors, Supervisors and Senior Management Mr. Yung Shun Loy, Jacky
Age 50, is the Assistant Chief Financial Officer, Qualified Accountant and the Company Secretary of the Company. Mr. Yung
is a fellow member of the Hong Kong Institute of Certified Public Accountants, a fellow member of the Association of
Chartered Certified Accountants of United Kingdom, and a Certified Practising Accountant in Australia. He has a bachelor
degree in laws and a bachelor degree in social sciences. Mr. Yung has over 20 years of experience in auditing, company
secretary and senior financial management of listed companies.
Mr. Gao Jinxing
Age 50, is the Financial Controller of the Company. Mr. Gao is a senior economist and has a master degree. Mr. Gao served
as the Deputy Chief Economist and Head of Financial Planning and Supply Department of Fuzhou Telecommunications
Bureau, Deputy Director General and Chief Accountant of Sanming Posts and Telecommunications Bureau, Deputy Director
and Director of Finance Department of the Posts and Telecommunications Administration of Fujian province, Deputy
General Manager, the Financial Controller and the Chairman of the Labour Union of China Telecom Fujian branch.
19
China Telecom Corporation LimitedAnnual Report 2012Directors, Supervisors and Senior Management Supervisors
Mr. Shao Chunbao
Age 55, is the Chairman of the Supervisory Committee of the Company. Mr. Shao is currently the head of the Discipline
Inspection Division of China Telecommunications Corporation. Mr. Shao received a doctorate degree from the Huazhong
University of Science and Technology. He served as Deputy Office Director and Deputy Director of the Scientific Research
Division of the Shanxi Taiyuan Municipal Party School, Director-grade Secretary in the General Office of CPC Committee of
Shanxi Province, Director-grade investigator of the Organisation Department of the Central Committee of CPC, Director
General-grade Deputy Director General of the Central Direct-owned Institutions Management Office, Deputy Secretary of
the Municipal Party Committee of Jiujiang of Jiangxi Province, Deputy Secretary of the Discipline Commission and Director
General of the Inspection Bureau of the State Owned Assets Supervision and Administration Commission of the State
Council. Mr. Shao has extensive government work experience and management experience.
Madam Zhu Lihao
Age 72, is an Independent Supervisor of the Supervisory Committee of the Company. Madam Zhu is a senior auditor and
a qualified accountant in the PRC. She graduated from Beijing Graduate School of Mining and Technology with a major
in engineering economics in 1963. Madam Zhu served as a Deputy Director General, Director General, Deputy Director
and Director of the Department of Industry and Communications of the National Audit Bureau of China, and the Director
General of the Department of Foreign Affairs and Foreign-related Auditing of the Audit Bureau. Madam Zhu has over 40
years of experience in management and auditing.
Mr. Mao Shejun
Age 59, is an Employee Representative Supervisor of the Supervisory Committee of the Company. Mr. Mao is currently
the senior consultant of the Labour Union of China Telecommunications Corporation. Mr. Mao holds a master degree in
management from the Australian National University and has held positions as Human Resources Officer of the former
Hubei Posts and Telecommunications Administration and Managing Director of the Human Resources Department of
China Telecom Corporation Limited. Mr. Mao is a senior economist and has over 30 years of experience in operation and
management in the telecommunications industry.
20
China Telecom Corporation LimitedAnnual Report 2012Directors, Supervisors and Senior Management Mr. Zhang Jianbin
Age 47, is an Employee Representative Supervisor of the Supervisory Committee of the Company. Mr. Zhang is currently the
Deputy Managing Director of the Corporate Strategy Department (Legal Department). Mr. Zhang graduated from the Law
School of Peking University in 1989 and received LLB and LLM degrees. He also had 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 over 20 years of experience in telecommunications legislation and regulation, corporate governance, corporate legal
affairs and risk management.
Mr. Hu Jing
Age 37, is a Supervisor of the Supervisory Committee of the Company. Mr. Hu is currently the Director in the audit
department of the Company. Mr. Hu received a bachelor’s degree in accounting from the Xi’an University of Finance and
Economics in 1997 and a master’s 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 15 years of experience in
finance and auditing.
Mr. Du Zuguo
Age 50, is a Supervisor of the Supervisory Committee of the Company. Mr. Du is a senior economist. He is the General
Manager of Zhejiang Financial Development Company (one of the domestic shareholders of China Telecom Corporation
Limited) and the Chairman and General Manager of Zhejiang Province Financial Holdings Company Limited. Mr. Du served
as Director, Deputy Director General, Deputy Secretary to the CCP Committee, Director General and Secretary to the CCP
Committee of Zhoushan Finance and Local Tax Bureau in Zhejiang province and now is a CCP Committee member of
Zhejiang Provincial Department of Finance. Mr. Du has extensive experience in government’s work and large-scale state-
owned enterprise management.
21
China Telecom Corporation LimitedAnnual Report 2012Directors, Supervisors and Senior Management Mobile Subscribers
2010: 91 million
2011: 126 million
2012: 160 million
Wireline Broadband Subscribers
2010: 63 million
2011: 77 million
2012: 90 million
Yes We Can
the Winning Path
Rapid
Expansion to
Achieve Scale
Benefit
TRACK The following table sets out key operating data for 2010, 2011 and 2012.
Unit
2010
2011
2012
Rate of change
2012
over 2011
27.0%
90.3%
17.3%
-3.9%
24.9%
11.7%
22.3%
-16.6%
-4.9%
Mobile subscribers
of which: 3G subscribers
Wireline broadband subscribers
Access lines in service
Mobile voice usage
Mobile SMS usage
million
million
million
million
90.52
12.29
63.48
126.47
160.62
36.29
76.81
69.05
90.12
175.05
169.59
163.00
million minutes
295,885
407,765
509,229
Mobile Colour Ring Tone subscribers
million
54.15
million messages
33,116
49,941
75.38
55,789
92.19
Wireline local voice usage
million pulses
251,425
206,371
172,175
Wireline caller ID service subscribers
million
118.99
115.58
109.93
China Telecom provides
its customers numerous
products and services.
24
China Telecom Corporation LimitedAnnual Report 2012Business Review In 2012, facing an external environment
featured by a slowdown in macro-economic
growth and intensified market competition
in the industry, the Company firmly
grasped opportunities arising from the
rapid development of the mobile Internet,
insisted on adopting a 3G smartphone-
led strategy and placed equal emphasis
on promoting single products and
integrated products, resulting in the rapid
development of our mobile service and
reinforcing the competitive edges in the
wireline broadband service and alleviating
operating risks resulting from wireline voice
service. At the same time, the Company
actively promoted service innovation of
industry applications for the government
and enterprise customers and the content
services business for the public customers,
and has seen satisfactory progress of the
data traffic operation and further optimised
the business structure.
Key Operating Performance
(1) Rapid growth in operating
revenues at the rate surpassing
industry-average, while business
structure optimised continuously
In 2012, the Company’s operating revenues
grew 15.5% to RMB283,073 million.
Excluding revenues from mobile terminal
sales, operating revenues were RMB258,316
million, giving an annual growth rate of
11.8%. Driven by the growth of our mobile
and broadband services, the Company’s
revenue structure was further optimised.
The proportion of mobile revenues rose
from 33.7% in the previous year to 41.6% this
year and the share of revenues from both
mobile and broadband services increased to
over 65%.
(2) Mobile services maintained
rapid growth and customers’ values
were notably enhanced while
subscriber base was expanding
In 2012, we adopted a mindset that is
terminal-led, application-driven and
places concurrent emphasis on integrated
products and centralised efficient single
products. By implementing these strategies
through measures such as focusing on
3G smart terminals, consolidating the 3G
application assistance process and boosting
synergies across channels, the Company
succeeded in continuously expanding
the 3G subscriber base. Meanwhile,
leveraging on the introduction of industry
informatisation applications, the Company
concentrated on the promotion of high-
end smartphones under contracts and dual-
mode smartphones to the government and
enterprise customers, thereby achieving
scale expansion of the medium-to-high-end
subscriber base with a net addition of 34.15
million subscribers, the Company boasted
the mobile subscriber base of 160.62 million
subscribers; mobile service revenue grew
36.0% year-on-year to RMB92,803 million;
mobile average revenue per mobile user
(ARPU) was RMB53.9, representing a growth
of 2.8% year-on-year.
(3) Wireline revenue became
stabilised with an upward trend,
market leadership in the wireline
broadband service was further
reinforced with risks from wireline
voice business being further
alleviated
In 2012, the Company continued to
strengthen its edge in wireline and
mobile integration, redoubled its efforts
in promoting its self-selected convergent
services and stabilised the number of access
lines in service. Revenue from wireline
services was RMB165,247 million and up
1.8% year-on-year, improving from the 2.2%
decline in the previous year.
25
China Telecom Corporation LimitedAnnual Report 2012Business Review In the wireline broadband service, the
Company reinforced its competitive edge
by further implementing the “Broadband
China • Fibre Cities” project, by mounting
a “Lightening Fibre Residential Areas”
campaign for public customers and by
quickening the pace of fibre upgrade of
broadband access networks for government
and enterprise customers. In 2012, the
number of wireline broadband subscribers
registered a net increase of 13.31 million,
which brings the total number of wireline
broadband subscribers to 90.12 million;
revenue from wireline broadband services
grew 9.8% to RMB66,738 million.
In developing wireline value-added services
and integrated information services,
the Company took full advantage of
technologies such as the Internet of Things
and “Cloud” computing to offer integrated
solutions to customers. Meanwhile, by
accelerating development of information
communication technology (ICT),
Internet data centre (IDC) and Internet
TV (iTV) services, the Company was able
to provide customers with integrated
information services that are convenient,
rich, differentiated, and have a high price-
performance ratio. Revenues from the
Company’s wireline value-added services
and integrated information services grew
3.0% during the year to RMB30,681 million.
In 2012, revenue from wireline voice service
as a percentage of the Company’s operating
revenues saw a further decline, signalling
a further alleviation of operational risks.
Revenue from wireline voice service in 2012
was RMB43,335 million, representing 15.3%
of the operating revenues and a drop of 5
percentage points from the previous year.
Business operating strategies
In 2012, the Company closely adhered to
the operating theme of “promoting scale
development through dual-leadership
in innovation and service”, vigorously
implemented the two key strategies of
scale operation and data traffic operation,
and carried out operational measures in
“terminal-led marketing, open channel
optimisation, strengthening centralised
efficient marketing and promotion of mobile
data traffic operation”:
Mobile Subscribers
(Millions)
Access Lines in Service
(Millions)
Wireline Broadband Subscribers
(Millions)
2 7 . 0 %
.
2
6
0
6
1
.
7
4
6
2
1
.
6
9
6
1
3.9%
.
9
0
1
.
9
3
1
.
8
6
3
.
0
8
0
1
.
0
3
6
1
5
7
.
.
3
3
1
.
7
8
3
.
5
3
0
1
1 7 . 3 %
2
1
0
9
.
1
8
6
7
.
2011
2012
2011
2012
2011
2012
PAS
Government & Enterprise
Public Telephone
Household
26
China Telecom Corporation LimitedAnnual Report 2012Business Review First, the Company maintained a
smart-terminal-led approach in
driving improvements in quantity
and quality in mobile services.
In 2012, the Company persisted in the sales
strategies of centralised efficient sales and
concentrated on achieving breakthroughs on
making key terminals available. Centralised
efficient management systems in direct
terminal supply, retail and servicing were set
up and overall competitiveness in terminal
management was systematically enhanced
through the standardisation of terminal
products, marketing, services, management,
cooperation and IT support. Subsequently,
the mobile terminal sales volume jumped
substantially, which drove the expansion of
the mobile subscriber base and continued to
improve the business structure. Meanwhile,
capitalising fully on the competitive
advantages of integrating 3G smartphones
with fibre broadband service, major efforts
were spent in developing self-selected
convergent services to effectively enhance
customer value. In 2012, the number of
available-for-sale 3G terminal models was
around 860 while the number of available-
for-sale 3G smartphone models was around
380. 3G smartphone subscribers had a
penetration rate of approximately 34%
among mobile subscribers, representing
an increase of over 20 percentage points
The Company’s management attended customer
activities and exchange and study of marketing idea.
from the end of the previous year. The high-
bandwidth (bandwidths of 4Mbps or above)
subscribers accounted for as much as 73% of
the wireline broadband subscriber base, an
increase of 23 percentage points from the
beginning of 2012, and the number of fibre
broadband subscribers was about 15 million.
Second, the distribution of the sales
channels was further optimised,
their synergies were strengthened
and efficiency was improved.
The Company attached great importance
to the improvement of sales capability of
open channels. To boost sales enthusiasm
of open channels, measures such as
reinforcing direct terminal supply, increasing
retail incentives and raising the price-
performance ratios of terminals were
adopted. Consequently, remarkable results
were achieved. In 2012, the share of mobile
subscribers acquired from open channels
rose to 64%. At the same time, the Company
continued to carry out the transformation of
self-operated stores into outlet-style stores,
improved the sales processes and innovated
new sales models, thereby significantly
increasing both the efficiency of the sales
outlets and their sales capability. In 2012, the
sales volume of terminals in the Company’s
outlet-style stores increased 35% year-on-
year. With the function of the Company’s
27
China Telecom Corporation LimitedAnnual Report 2012Business Review electronic channels changing from being
services-oriented to sales-oriented and the
realisation of basic e-commerce functions,
there were continuous improvements to the
operation standards while the self-served
services capabilities continued to perfect
and became more convenient. In 2012, the
Company’s electronic channel cumulatively
completed transactions worth RMB44,390
million in the aggregate, representing an
annual growth rate of 139%, while the
cumulative number of subscribers cultivated
reached 1.68 million.
Third, continuously stepped up
centralised efficient marketing
and sales efforts to improve
development efficiency.
In 2012, the Company optimised its brand
portfolio under the “e-Surfing” theme, and
brands such as “e-Surfing Young”, “e-Surfing
Home” and “e-Surfing Navigator” were
launched. The Company strengthened
the promotion of centralised efficient
single products such as “e-Surfing Young”,
“Enjoy 3G” packages and “e-Surfing Cloud
Cards” were promoted vigorously. Sales
& marketing of iPhones and large-screen
smart phones priced around RMB1,000
was carried out across the sales network.
To improve customer satisfaction levels,
service standards and service codes were
unified with “Satisfaction 3G” and “Five
Care” broadband service pledges covering
“excellency in installation, excellency in
users’ experience, excellency in repairing,
excellency in subscription renewal and
excellency in connection” were introduced.
In the government and enterprise market,
the Company remained focused on key
standardised informatisation application
products and aimed for scale replication
promotions through unifications in practices
and platforms. In 2012, subscribers to the
Company’s centralised efficient single
Integrating internal and external
resources to jointly provide quality
service to customers
28
China Telecom Corporation LimitedAnnual Report 2012Business Review products accounted for approximately 42%
of all new subscribers; the daily average
number of “e-Surfing Cloud Cards” sold
hit the 30,000 mark; the number of
mobile subscribers acquired via industry
applications in government and enterprise
market exceeded 10 million, which was
almost 30% of the total net addition of
mobile subscribers.
Fourth, intensive experience-based
marketing was instrumental in
propelling data traffic operation to
a new level.
The Company proactively nurtured
emerging services by capitalising on
the opportunities brought about by the
proliferation of mobile Internet. In order
to establish competitive professional
corporates and to foster the rapid
development of emerging businesses,
the Company trialed various corporate
mechanisms and flexible incentive schemes
and sped up the pace of corporatisation
and equity restructuring of emerging
services such as product centre businesses.
At the same time when the Company
expanded the self-developed businesses,
the Company enhanced the cooperation
efforts with mainstream content providers,
promoted the introduction of socially
popular applications and boosted its
content offering. The Company enhanced
its capability in providing integrated
information services by promoting the
application of new technologies and services
such as the Internet of Things and “Cloud”
computing, so that the Company was in a
position to seize head-start development
opportunities in the mobile Internet area
and to steadily advance the data traffic
operation. In 2012, mobile handset Internet
access revenue surged 137% over last year
to RMB12,163 million while 3G handset
subscriber data traffic monthly average
increased 26%, from 106MB to 134MB. Thus
Focusing on terminal-led
marketing and enriching the
terminal portfolio
29
China Telecom Corporation LimitedAnnual Report 2012Business Review value contribution from the data traffic
operation is becoming more apparent
gradually and has already become one of the
key revenue growth drivers.
Network and operation support
In 2012, the Company continued to uphold
the “return-focused“ principle investment,
controlled the investment volume, optimised
the investment structure, and implemented
differentiated investment strategies to
support the rapid scale expansion of the key
services. As a result, the Company achieved
enhanced investment efficiency and
improved resource utilisation.
To promote the “Fibre Cities Project”
strategy continuously, and to reinforce the
Company’s competitive edge in wireline
broadband network, meet the rising demand
of broadband Internet services and raise the
core competitiveness of our networks, the
Company continued with the implementation
of the “Broadband China • Fibre Cities”
project and carried out scale Fibre-to-the-
Mr. Wang Xiaochu, Chairman
introduced the China Telecom
e-Surfing 3G mobile handset
30
Home (FTTH) construction in urban areas.
In 2012, our broadband & Internet related
investments amounted to RMB35,946 million,
accounting for 66.9% of the Company’s
capital expenditure. A total of 40 million
new broadband access ports were added
and the proportion of FTTX ports to the total
number of broadband access ports was 63%,
up 12 percentage points from the end of
last year. In the southern cities, the 20Mbps
access bandwidth coverage was 82%, up 11
percentage points over the previous year.
The Company also advanced carefully with
its investments in WiFi construction and
continually improved the coverage of WiFi
network in public hot spot areas, thereby
realising the effective offloading of mobile
data traffic and the better extension of
wireline broadband services. In 2012, the
Company invested RMB1,360 million in WiFi
and built about 0.28 million new access
points.
The Company also continued with its work
on capacity expansion, network optimisation
and upgrade of carrier network; built up
synergy between the IP and transmission
networks; and actively carried out pilots
on next-generation Internet and high-
performance transmission networks
to set the foundation for network and
technological evolution.
The Company redoubled its efforts in
consolidating platforms and expansion
of information services. While fortifying
the network infrastructure capacity,
the Company proactively promoted the
integration of platform resources as a
way to raise operation efficiency. China
Telecom also stepped up the construction
pace of “Cloud” data centres and “Cloud”
resource pools through the scale application
of “Cloud” computing technology and
included the newly built platforms into
“Cloud” resource pool management, so
China Telecom Corporation LimitedAnnual Report 2012Business Review as to enhance the centralised support and
operation capabilities of the platforms.
Meanwhile, the Company was active in
extending the depth and breadth of the
information service offerings and leveraged
the “Smart Cities” and “Smart Agriculture”
projects as entry points in driving the
applications of integrated information
services. The investments in value-added
services and integrated information services
amounted to RMB7,039 million.
In 2012, there was marked improvement in
the Company’s IT support capability, effectively
supporting the centralised efficient marketing
and precision management. By integrating the
business data, network data and terminal data,
the Company completed the construction
of a service centre for sharing network-
wide data. As well, the Company was able to
realise network-wide end-to-end business
management and the automatic provisioning
of services such as IDC.
Development measures and
highlights for 2013
In 2013, the proliferation of 3G smart
terminals and the application of “Cloud”
computing will drive the rapid development
of the mobile Internet. At the same
time, competition in the industry for the
existing market will become more intense.
The Company will adhere to the main
theme of “promoting scale and efficiency
enhancement through dual-leadership in
innovation and service” and will continue
to promote scale operation and data traffic
operation so as to achieve collective growth
in corporate values and customer values.
In 2013, the Company will further
strengthen customer differentiation and
increase the mobile subscriber market share.
By emphasising equally on quantity and
quality, the Company will make additional
efforts in developing key services and
markets to raise corporate efficiency. China
Telecom will advance the penetration of
the fibre broadband services to maintain its
leading position in the broadband market.
The Company will adopt the approach of
offering high quality services in the high-
end market and offering more value-for-
money services in the main-stream market
to build a differentiated broadband products
portfolio. The Company will use the “Smart
Cities” project as the trigger to optimise
industry application products, drive for
product standardisation and foster scale
development of industry applications. The
Company will further data traffic operation
by sustained improvements in terminals,
content applications, networks, IT support,
marketing and services, striving for
simultaneous increases in data traffic scale
and value. The Company will continuously
raise the sales capabilities of channels
and make substantial efforts in increasing
market share of CDMA terminals while
expanding the sales network coverage. At
the same time, the Company will implement
centralised efficient management and
reinforce network optimisation, operation
and support so as to forge the competitive
advantage in services with innovation and
differentiation and advance steadily towards
the transformation into a mobile Internet
operation model.
Mr. Yang Jie, President
attended the “e-Surfing
Cloud Card” cum smartphone
festival launch ceremony
31
China Telecom Corporation LimitedAnnual Report 2012Business Review Summary
Operating Revenues
In 2012, the Group further deepened the
strategic transformation, in alignment
with the main theme of “promoting scale
development through dual-leadership in
innovation and service”, adhered to the
scale operation and data traffic operation,
endeavoured to enhance our four core
capabilities, including innovation, service,
centralised efficient management and
operation. The overall operating condition
of the Company was healthy, with the
growth of revenue beyond expectation,
and the business structure continued
to be optimised. The Group’s operating
revenues in 2012 were RMB283,073
million, an increase of 15.5%1 from 2011;
operating expenses were RMB261,887
million, an increase of 18.5% from 2011;
profit attributable to equity holders of the
Company was RMB14,925 million and basic
earnings per share were RMB0.18; EBITDA2
was RMB96,387 million and the EBITDA
margin3 was 37.3%.
In 2012, the Group firmly seized the
development opportunities, its full
services developed well, the mobile
service revenues grew rapidly, the wireline
service revenues recovered, the operating
revenues achieved a double-digit growth,
and the revenue structure continued to be
optimised. Operating revenues in 2012 were
RMB283,073 million, an increase of 15.5%
from 2011. Of this, the total mobile revenue
was RMB117,826 million, an increase of
42.5% from 2011. The wireline services
revenues were RMB165,247 million, an
increase of 1.8% from 2011. The aggregate
of mobile service revenues4, wireline
broadband revenue, wireline value-added
services and integrated information
application services revenue accounted for
67.2% of the total operating revenues, an
increase of 2.4 percentage points from 2011.
1
In 2012, the Group acquired the digital trunking business from Besttone Holding. As the transaction was recognised
as a combination of entities under common control, the comparative figures of prior years have been restated
accordingly. Please refer to note 1 to the audited financial statements in this annual report for details.
2 EBITDA was calculated from operating revenues minus operating expenses (which excluded depreciation and
amortisation and CDMA network capacity lease fee). As the telecommunications business is a capital intensive
industry, capital expenditure, the level of gearing and finance costs may have a significant impact on the net
profit of companies with similar operating results. Therefore, we believe EBITDA may be helpful in analyzing the
operating results of a telecommunications service provider such as the Company. Although EBITDA has been widely
applied in the global telecommunications industry as a benchmark to reflect operating performance, financial
capability and liquidity, it is not regarded as a measure of operating performance and liquidity under generally
accepted accounting principles. It also does not represent net cash from operating activities. In addition, our
EBITDA may not be comparable to similar indicators provided by other companies.
3 EBITDA margin was calculated from EBITDA divided by operating revenues excluding the revenue from mobile
terminal sales.
4 Mobile service revenue represents total mobile revenue minus other mobile revenue. Of this, in 2012, other mobile
revenue amounted to RMB25,023 million.
32
China Telecom Corporation LimitedAnnual Report 2012Management’s Discussion and Analysis of FinancialConditions and Results of Operations The following table sets forth a breakdown of the operating revenues of the Group for 2011
and 2012, together with their respective rates of change:
(RMB millions, except percentage data)
2012
2011
(restated)
Rates of change
For the year ended
31 December
Wireline voice
Mobile voice
Internet
Value-added services
Integrated information application services
Managed data and leased line
Others
43,335
49,166
87,660
31,104
23,174
15,710
32,924
49,764
38,628
74,992
25,554
20,473
14,273
21,286
(12.9%)
27.3%
16.9%
21.7%
13.2%
10.1%
54.7%
Upfront connection fees
–
98
(100.0%)
Total operating revenues
283,073
245,068
15.5%
Wireline Voice
Through measures of convergent packages
and wireline monthly packages, the Group
slowed down the loss of wireline voice
revenue. The negative effect of wireline
voice significantly reduced and its operating
risk was further alleviated. In 2012, revenue
from wireline voice services was RMB43,335
million, a decrease of 12.9% from RMB49,764
million in 2011, accounting for 15.3% of our
operating revenues.
Mobile Voice
In 2012, the Group rapidly expanded the
scale of mobile subscribers, and the mobile
service has maintained rapid growth.
Revenue from mobile voice services was
RMB49,166 million, an increase of 27.3%
from RMB38,628 million in 2011, accounting
for 17.4% of our operating revenues. In 2012,
the net increase in the number of mobile
subscribers was 34.15 million, reaching 161
million.
33
China Telecom Corporation LimitedAnnual Report 2012Management’s Discussion and Analysis of Financial Conditions and Results of Operations Internet
In 2012, revenue from Internet access
services was RMB87,660 million, an increase
of 16.9% from RMB74,992 million in 2011,
accounting for 31.0% of our operating
revenues. On one hand, the Group fostered
the rapid growth of broadband service
through deeply accelerating the “Broadband
China • Fibre Cities” project and the
promotion of “Lightening Fibre Residential
Areas”. At the end of 2012, the number of
wireline broadband subscribers reached
90.12 million, the wireline broadband
revenue of the Group was RMB66,738
million, an increase of 9.8% from 2011. On
the other hand, the Group fully leveraged the
advantage in 3G network and services, and
persisted in data traffic operation. Revenue
from mobile Internet access services was
RMB19,880 million, an increase of 49.5%
from 2011.
Value-Added Services
In 2012, revenue from value-added services
was RMB31,104 million, an increase of 21.7%
from RMB25,554 million in 2011, accounting
for 11.0% of our operating revenues. The
increase in revenue was mainly attributable
to the rapid growth of mobile value-added
services, such as SMS, MMS, iMusic and
caller ID services, following the rapid growth
in the number of mobile subscribers.
Revenue from mobile value-added services
was RMB16,848 million, an increase of
39.6% from 2011. As the rapid growth of
Internet Data Center and iTV contents and
applications services compensated the
decline in PAS services, the revenue from
wireline value-added services increased by
5.7% from 2011.
Integrated Information Application
Services
In 2012, revenue from integrated
information application services was
RMB23,174 million, an increase of 13.2%
from RMB20,473 million in 2011, accounting
for 8.2% of our operating revenues. The
increase in revenue was mainly due to the
rapid development of the IT services and
applications services as well as “Best Tone”
type of information services. Revenue from
mobile integrated information application
services was RMB6,749 million, an increase
of 61.8% from 2011.
Managed Data and Leased Line
In 2012, revenue from managed data and
leased line services was RMB15,710 million,
an increase of 10.1% from RMB14,273
million in 2011, accounting for 5.5% of our
operating revenues. As the demand from
government and enterprise customers
for informatisation continues to increase,
the revenue growth from domestic leased
circuits services, IP-VPN services and leased
optic fibre channel have increased quite
rapidly. Revenue from mobile managed data
and leased line services was RMB160 million.
Others
In 2012, revenue from other services was
RMB32,924 million, an increase of 54.7%
from RMB21,286 million in 2011, accounting
for 11.6% of our operating revenues.
With the growth of the scale of mobile
subscribers, the Group further increased
the effort in the procurement and sales of
mobile terminal equipment, especially 3G
smartphones. Revenue from sales of mobile
terminal equipment was RMB24,757 million,
an increase of 77.7% from 2011.
34
China Telecom Corporation LimitedAnnual Report 2012Management’s Discussion and Analysis of Financial Conditions and Results of Operations Operating Expenses
Taking advantage of the opportunities of the launch of iPhone, the Group increased cost input
with rational resource centralisation, further promoted the breakthrough into the high-end
market and the sustainable development in the future. In 2012, the operating expenses of
the Group were RMB261,887 million, an increase of 18.5% from 2011. The ratio of operating
expenses to operating revenues was 92.5%, which increased by 2.3 percentage points from
2011.
The following table sets forth a breakdown of the operating expenses of the Group in 2011
and 2012 and their respective rates of change:
(RMB millions, except percentage data)
2012
2011
(restated)
Rates of change
For the year ended
31 December
Depreciation and amortisation
Network operations and support expenses
49,655
66,003
Selling, general and administrative expenses
63,076
Personnel expenses
Other operating expenses
42,812
40,341
51,233
52,925
48,746
39,167
28,870
Total operating expenses
261,887
220,941
(3.1%)
24.7%
29.4%
9.3%
39.7%
18.5%
Depreciation and Amortisation
In 2012, depreciation and amortisation was
RMB49,655 million, a decrease of 3.1% from
RMB51,233 million in 2011, accounting for
17.5% of our operating revenues. The decline
was due to the continuous prudent control
of capital expenditure by the Group.
Network Operations and Support
Expenses
In 2012, network operations and support
expenses were RMB66,003 million, an
increase of 24.7% from RMB52,925 million
in 2011, accounting for 23.3% of our
operating revenues. The increase was
mainly attributable to the corresponding
increase in CDMA network capacity lease fee
and operating and maintenance expenses
along with the business development. The
CDMA network capacity lease fee in 2012
amounted to RMB25,546 million, an increase
of 34.4% from 2011.
35
China Telecom Corporation LimitedAnnual Report 2012Management’s Discussion and Analysis of Financial Conditions and Results of Operations Selling, General and Administrative
Expenses
In 2012, selling, general and administrative
expenses amounted to RMB63,076 million,
an increase of 29.4% from RMB48,746
million in 2011, accounting for 22.3% of our
operating revenues. The growth was mainly
because the Group seized the opportunity
of launching iPhone, expanded the high-
end subscriber market and appropriately
increased the marketing initiatives.
Advertising and promotion expenses
amounted to RMB34,901 million, an increase
of 26.9% from 2011. Commission and
service expenses for third parties amounted
to RMB19,537 million, an increase of
36.0% from 2011. In 2012, faced with the
intensified competition of mobile services,
the Group increased the cost input of
terminal equipment offered to customers for
free or at a nominal price in advertising and
promotion expenses. The cost of terminal
equipment offered to customers for free or
at a nominal price amounted to RMB21,754
million in 2012, an increase of 39.1%
from 2011. At the same time, the Group
continued its prudent control on general
and administrative expenses. Compared to
the same period of last year, general and
administrative expenses increased by 15.0%,
which was slightly lower than the rate of
increase in revenues for the same period.
Personnel Expenses
In 2012, personnel expenses were
RMB42,812 million, an increase of 9.3% from
RMB39,167 million in 2011, accounting for
15.1% of our operating revenues. The ratio
of personnel expenses to operating revenues
decreased by 0.9 percentage points when
compared to 2011. The Group strengthened
the control of personnel expenses, and the
rate of increase in personnel expenses was
lower than the increase in revenues for the
same period. In the meantime, the Group
appropriately increased the incentives for
talent and frontline staff.
Other Operating Expenses
In 2012, other operating expenses were
RMB40,341 million, an increase of 39.7%
from RMB28,870 million in 2011, accounting
for 14.3% of our operating revenues. The
increase was mainly attributable to the
increase in the cost of mobile terminal
equipment sold. The cost of mobile terminal
equipment sold amounted to RMB23,099
million, an increase of 79.5% from 2011.
Net Finance Costs
In 2012, the Group’s net finance costs were
RMB1,564 million, a decline of 30.6% from
RMB2,254 million in 2011. Net interest
expenses decreased by RMB556 million. The
decrease was mainly because the Group
repaid part of interest-bearing debt. Net
exchange losses were RMB1 million in 2012,
while net exchange gains were RMB51
million in 2011. The change in net exchange
gain/loss was mainly attributable to the
depreciation of the RMB against the Euro.
Profitability Level
Income Tax
The Group’s statutory income tax rate is 25%.
In 2012, the Group’s income tax expenses
were RMB4,753 million with the effective
income tax rate of 24.0%. The difference of
effective income tax rate and the statutory
income tax rate was mainly due to the
preferential income tax rate, which was
lower than the statutory income tax rate,
enjoyed by some of our subsidiaries, and
branches with operations in the western
region of China.
Profit Attributable To Equity
Holders of the Company
In 2012, profit attributable to equity holders
of the Company was RMB14,925 million, a
decrease of 9.5% from RMB16,500 million in
2011. The decrease was mainly because the
Group appropriately increased cost inputs
so as to firmly seize the opportunity of scale
development.
36
China Telecom Corporation LimitedAnnual Report 2012Management’s Discussion and Analysis of Financial Conditions and Results of Operations Acquisition of Mobile Network
In order to unify mobile service operation
with network as a whole and enhance
future profitability of the Company, the
Company and its controlling shareholder,
China Telecommunications Corporation
entered into the Acquisition Agreement
on 22 August 2012, pursuant to which
the Company has agreed to purchase
certain CDMA network assets and
associated liabilities, which were held by
China Telecommunications Corporation
through the network branches located
in 30 provinces, municipalities and
autonomous regions in the PRC (“Mobile
Network Acquisition”). The Mobile
Network Acquisition was completed on 31
December 2012. Pursuant to the Acquisition
Agreement, the final consideration was
approximately RMB87,210 million, of which
the assets amounting to approximately
RMB119,715 million and associated liability
amounting to approximately RMB32,505
million. The first instalment of RMB25,500
million of the final consideration was
paid in January 2013, and the deferred
consideration amounting to approximately
RMB61,710 million will be payable on
or before the fifth anniversary of the
completion date of the acquisition. The
interest rate for the first year is 4.83%.
As the transaction was recognised as an
assets acquisition, the respective assets and
associated liabilities were recognised at
purchase price on the completion date of
the acquisition5.
Capital Expenditure and Cash
Flows
Capital Expenditure
In 2012, in order to reinforce the advantages
of broadband networks and enhance the
core-competitiveness of the network, the
Group continued to increase the investment
in broadband network construction. At
the same time, the Group emphasised to
optimise investment structure, specially
guaranteed the investment in high growth
services, and strictly controlled investment in
traditional wireline services. In 2012, capital
expenditure of the Group was RMB53,731
million, an increase of 8.4% from RMB49,551
million in 2011.
Cash Flows
In 2012, net increase in cash and cash equivalents for the Group was RMB2,613 million, while
the net increase in cash and cash equivalents was RMB1,649 million in 2011.
The following table sets forth the cash flow position of the Group in 2011 and 2012:
(RMB millions)
Net cash flow from operating activities
Net cash used in investing activities
Net cash used in financing activities
Net increase in cash and cash equivalents
For the year ended 31 December
2012
2011
(restated)
70,667
(48,252)
(19,802)
2,613
73,009
(43,637)
(27,723)
1,649
5 Please refer to note 2 to the audited financial statements in this annual report for details.
37
5
Please refer to the note 3 of the “Group Results” presented in this announcement for details.
China Telecom Corporation LimitedAnnual Report 2012Management’s Discussion and Analysis of Financial Conditions and Results of Operations In 2012, the net cash inflow from operating
activities was RMB70,667 million, a decrease
of RMB2,342 million from RMB73,009 million
in 2011.
In 2012, the net cash outflow for investing
activities was RMB48,252 million, an increase
of RMB4,615 million from RMB43,637 million
in 2011, mainly resulting from an increase in
capital expenditure compared to 2011.
In 2012, the net cash outflow for financing
activities was RMB19,802 million, a decrease
of RMB7,921 million from RMB27,723 million
in 2011. The decrease in net cash outflow
was mainly due to the decrease in the
Group’s repayment of the bank loans and
other loans when compared to 2011.
Working Capital
At the end of 2012, the Group’s working
capital (total current assets minus total
current liabilities) deficit was RMB128,251
million, an increase of deficit of RMB60,570
million from RMB67,681 million in 2011,
mainly resulting from increased payables
amounting to RMB58,005 million from
Mobile Network Acquisition (including
the first installment of RMB25,500 million
of the final consideration and associated
liabilities of RMB32,505 million). As at 31
December 2012, the Group’s unutilised
committed credit facilities was RMB163,130
million (2011: RMB118,970 million). At the
end of 2012, the Group’s cash and cash
equivalents amounted to RMB29,982 million,
amongst which cash and cash equivalents
denominated in Renminbi accounted for
97.6% (2011: 94.4%).
Assets and Liabilities
In 2012, the Group continued to maintain
a solid financial position after the Mobile
Network Acquisition. By the end of 2012,
the total assets of the Group increased to
RMB545,072 million from RMB419,151
million at the end of 2011, while total
indebtedness increased to RMB99,808
million from RMB52,103 million in 2011. The
ratio of the Group’s total indebtedness to
total assets increased to 18.3% at the end of
2012 from 12.4% at the end of 2011, mainly
resulting from the deferred consideration of
the Mobile Network Acquisition.
Indebtedness
The indebtedness analysis of the Group as of the end of 2011 and 2012 is as follows:
(RMB millions)
Short-term debt
Long-term debt maturing within one year
Long-term debt and payable
(excluding current portion)
Finance lease obligations
Total debt
For the year ended 31 December
2012
2011
6,523
10,212
83,070
3
99,808
9,187
11,766
31,150
–
52,103
38
China Telecom Corporation LimitedAnnual Report 2012Management’s Discussion and Analysis of Financial Conditions and Results of Operations
By the end of 2012, the total indebtedness
of the Group was RMB99,808 million, an
increase of RMB47,705 million from the end
of 2011. The main reason for the increase
was the deferred consideration of the
Mobile Network Acquisition. Of the total
indebtedness of the Group, the Group’s
loans in Renminbi, US Dollars, Japanese Yen
and Euro accounted for 98.9% (2011: 94.7%),
0.6% (2011: 1.3%), 0% (2011: 3.1%), and
0.5% (2011: 0.9%), respectively. 37.5% (2011:
96.3%) of this indebtedness are loans with
fixed interest rates, while the remainders are
loans with floating interest rates.
As at 31 December 2012, the Group did
not pledge any assets as collateral for debt
(2011: Nil).
Most of the Group’s revenue receipts from
and payments made for its business were
denominated in Renminbi, therefore the
Group did not have significant risk exposure
to foreign exchange fluctuations.
Contractual Obligations
Payable in
1 January
1 January
1 January
1 January
1 January
2013 – 31
2014 – 31
2015 – 31
2016 – 31
2017 – 31
December
December
December
December
December
(RMB millions)
Total
2013
2014
2015
2016
2017
Thereafter
Short-term debt
6,652
6,652
–
–
–
–
Long-term debt and payable
110,705
14,571
23,997
3,075
3,074
65,292
Finance lease obligation
Operating lease commitments
Capital commitments
3
6,919
7,103
–
2,119
7,103
2
1,195
–
1
877
–
–
686
–
–
553
–
–
696
–
1,489
–
Total contractual obligations
131,382
30,445
25,194
3,953
3,760
65,845
2,185
Note: Amounts of short-term debt, long-term debt and payable, and finance lease obligation include recognised and
unrecognised interest payable, and are not discounted.
39
China Telecom Corporation LimitedAnnual Report 2012Management’s Discussion and Analysis of Financial Conditions and Results of Operations Smartphone Users
> 50,000,000
e-Surfing Apps
> 180,000
Yes We Can
the Golden Opportunities
Rapidly
Increasing Use of
Smartphones and
Mobile Internet
Applications
GRASP The Board of Directors (the “Board”) of
China Telecom Corporation Limited (the
“Company”) hereby presents its report
together with the audited financial
statements of the Company and its
subsidiaries (collectively, the “Group”)
prepared in accordance with International
Financial Reporting Standards for the year
ended 31 December 2012.
Principal Business
The principal business of the Company
and the Group is the provision of
basic communications services
including comprehensive wireline
telecommunications services, mobile
telecommunications services, value-added
services such as Internet access services,
integrated information services and other
related services within the service area of
the Group.
Results
Results of the Group for the year ended 31
December 2012 and the financial position
of the Company and the Group as at that
date are set out in the audited financial
statements on pages 110 to 174 in this
annual report.
Dividend
The Board proposes a final dividend in the
amount equivalent to HK$0.085 per share
(pre-tax), totalling approximately RMB5,522
million for the year ended 31 December
2012. The dividend proposal will be
submitted for consideration at the Annual
General Meeting to be held on 29 May 2013.
Dividends will be denominated and declared
in Renminbi. Dividends on domestic shares
will be paid in Renminbi, whereas dividends
on H shares will be paid in Hong Kong
dollars. The relevant exchange rate will be
the average offer rate of Renminbi to Hong
Kong dollars as announced by the People’s
Bank of China for the week prior to the date
of declaration of dividends at the Annual
General Meeting. The proposed 2012 final
dividends are expected to be paid on or
about 19 July 2013 upon approval at the
Annual General Meeting.
Pursuant to the Enterprise Income Tax Law
of the People’s Republic of China and the
Implementation Rules of the Enterprise
Income Tax Law of the People’s Republic of
China in 2008, the Company shall be obliged
to withhold and pay 10% enterprise income
tax when it distributes the proposed 2012
final dividends to non-resident enterprise
shareholders of overseas H shares (including
HKSCC Nominees Limited, other corporate
nominees or trustees, and other entities or
organisations) whose names appear on the
Company’s H share register of members on
11 June 2013.
42
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors According to regulations by the State
Administration of Taxation (Guo Shui
Han [2011] No.348) and relevant laws
and regulations, if the individual H share
shareholders are Hong Kong or Macau
residents and those whose country of
domicile is a country which has entered
into a tax treaty with the PRC stipulating
a dividend tax rate of 10%, the Company
will finally withhold and pay individual
income tax at the rate of 10% on behalf
of the individual H share shareholders. If
the individual H share shareholder whose
country of domicile is a country which
has entered into a tax treaty with the PRC
stipulating a dividend tax rate of less than
10%, the Company will finally withhold
and pay individual income tax at the rate
of 10% on behalf of the individual H share
shareholders. If the individual H share
shareholder whose country of domicile is a
country which has entered into a tax treaty
with the PRC stipulating a dividend tax rate
of more than 10% but less than 20%, the
Company will withhold and pay individual
income tax at the actual tax rate stipulated
in the relevant tax treaty. If the individual
H share shareholder whose country of
domicile is a country which has entered
into a tax treaty with the PRC stipulating a
dividend tax rate of 20%, or a country which
has not entered into any tax treaties with the
PRC, or under any other circumstances, the
Company will withhold and pay individual
income tax at the rate of 20% on behalf of
the individual H share shareholders.
The Company will determine the country
of domicile of the individual H share
shareholders based on the registered
address as recorded in the register of
members of the company on 11 June
2013 (the “Registered Address”). If the
country of domicile of an individual H
share shareholder is not the same as the
Registered Address or if the individual H
share shareholder would like to apply for a
refund of the additional amount of tax finally
withheld and paid, the individual H share
shareholder shall notify and provide relevant
supporting documents to the Company on
or before 5 June 2013. Upon examination of
the supporting documents by the relevant
tax authorities, the Company will follow
the guidance given by the tax authorities
to implement relevant tax withholding and
payment provisions and arrangements.
Individual H share shareholders may either
personally or appoint a representative to
attend to the procedures in accordance with
the requirements under the tax treaties
notice if they do not provide the relevant
supporting documents to the Company
within the time period stated above.
The Company assumes no responsibility
and disclaims all liabilities whatsoever in
relation to the tax status or tax treatment
of the individual H share shareholders and
for any claims arising from any delay in or
inaccurate determination of the tax status
or tax treatment of the individual H share
shareholders or any disputes over the
withholding mechanism or arrangements.
43
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors Directors and Senior Management of the Company
The following table sets out certain information of the Directors and senior management of the Company as at the date of
this Report:
Name
Age
Position in the Company
Date of Appointment
Wang Xiaochu
Yang Jie
Wu Andi
Zhang Jiping
Li Ping
Yang Xiaowei
Sun Kangmin
Ke Ruiwen
Wu Jichuan
Qin Xiao
Tse Hau Yin, Aloysius
Cha May Lung, Laura
Xu Erming
Yung Shun Loy, Jacky
55
51
58
57
59
49
56
50
75
65
65
63
63
50
Chairman and Chief Executive Officer
20 December 2004
Executive Director, President and Chief Operating Officer
20 October 2004
Executive Director, Executive Vice President and
Chief Financial Officer
10 September 2002
Executive Director and Executive Vice President
10 September 2002
Executive Vice President
10 September 2002
Executive Director and Executive Vice President
9 September 2008
Executive Director and Executive Vice President
20 October 2004
Executive Director and Executive Vice President
30 May 2012
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Assistant Chief Financial Officer, Qualified
Accountant and Company Secretary
9 September 2008
9 September 2008
9 September 2005
9 September 2008
9 September 2005
1 February 2005
Gao Jinxing
50
Financial Controller
1 February 2012
44
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors On 20 March 2012, Mr. Zhang Chenshuang
retired as Executive Director and Executive
Vice President of the Company due to his
age. On the same day, the Board appointed
Mr. Ke Ruiwen as Executive Vice President
of the Company and on 30 May 2012, Mr.
Ke Ruiwen was approved to be appointed
as Executive Director of the Company at
the Annual General Meeting. On 22 August
2012, Mr. Li Jinming retired as Non-Executive
Director of the Company due to his age.
On 16 October 2012, Mr. Chen Liangxian
was approved in the extraordinary general
meeting to be appointed as Non-Executive
Director of the Company. On 20 March
2013, Mr. Chen Liangxian resigned as Non-
Executive Director of the Company due to
change in work arrangement. On the same
date, the Board proposed to appoint Mr.
Xie Liang as the Non-Executive Director of
the Company. The proposed appointment
of Mr. Xie Liang as Non-Executive Director
of the Company is subject to shareholders’
approval at the Annual General Meeting to
be held on 29 May 2013.
Supervisors of the Company
The following table sets out certain
information of the supervisors of the
Company as at the date of this Report:
Name
Age
Position in the Company
Date of Appointment
Shao Chunbao
Zhu Lihao
Mao Shejun
Zhang Jianbin
Hu Jing
Du Zuguo
55
72
59
47
37
50
Chairman of the Supervisory Committee
16 October 2012
Independent Supervisor
10 September 2002
Supervisor (Employee Representative)
Supervisor (Employee Representative)
Supervisor
Supervisor
20 May 2011
16 October 2012
16 October 2012
20 May 2011
45
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors On 22 August 2012, Mr. Miao Jianhua,
Chairman of the Supervisory Committee,
retired from his position as a Supervisor of
the Company due to his age, and on the
same day Mr. Xu Cailiao and Madam Han
Fang also resigned from their positions as
Supervisors of the Company due to changes
in work arrangement. On 16 October 2012,
Mr. Shao Chunbao and Mr. Hu Jing were
appointed as Supervisors of the Company
at the extraordinary general meeting. After
the extraordinary general meeting and on
the same day, the Supervisory Committee
passed a written resolution to elect Mr.
Shao Chunbao as the Chairman of the
Supervisory Committee while Mr. Zhang
Jianbin was elected by the employees of the
Company democratically as an Employee
Representative Supervisor.
Share Capital
The share capital of the Company as at 31
December 2012 was RMB80,932,368,321,
divided into 80,932,368,321 shares of
RMB1.00 each. As at 31 December 2012, the
share capital of the Company comprised:
Share category
Domestic shares (total):
Domestic shares held by:
China Telecommunications Corporation
Guangdong Rising Assets Management Co., Ltd.
Zhejiang Financial Development Company
Fujian Investment & Development Group Co., Ltd
Jiangsu Guoxin Investment Group Co., Ltd.
Total number of H shares (including ADSs)
Total
Number of shares
as at
31 December 2012
Percentage of the
total number of shares
in issue as at
31 December 2012
(%)
67,054,958,321
57,377,053,317
5,614,082,653
2,137,473,626
969,317,182
957,031,543
13,877,410,000
80,932,368,321
82.85
70.89
6.94
2.64
1.20
1.18
17.15
100.00
46
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors
Material Interests and Short
Positions in Shares and
Underlying Shares of the
Company
As at 31 December 2012, the interests or
short position of persons who are entitled
to exercise or control the exercise of 5%
or more of the voting power at any of the
Company’s general meetings (excluding
the Directors and Supervisors) in the shares
and underlying shares of equity derivatives
of the Company as recorded in the register
required to be maintained under Section
336 of the Securities and Futures Ordinance
(the “SFO”) are as follows:
Name of
shareholders
Number of
shares
Type of shares
Percentage of
the respective
type of shares
Percentage of
the total
number of
shares in issue
Capacity
China
Telecommunications
Corporation
57,377,053,317
(Long Position)
Guangdong Rising
Assets Management
Co., Ltd.
5,614,082,653
(Long Position)
Domestic shares
85.57%
70.89%
Beneficial owner
Domestic shares
8.37%
6.94%
Beneficial owner
Commonwealth Bank
of Australia
1,528,811,281
(Long Position)
H shares
Blackrock, Inc.
JPMorgan Chase & Co.
1,515,862,222
(Long Position)
H shares
168,170,541
(Short Position)
H shares
1,387,102,999
(Long Position)
H shares
11.02%
1.89%
Interest of controlled
10.92%
1.87%
corporation
Interest of controlled
corporation
1.21%
0.21%
Interest of controlled
corporation
9.99%
1.71%
155,132,334 shares as
beneficial owner;
104,000,000 shares as
investment manager; and
1,127,970,665 shares as
custodian corporation/
approved lending agent
56,147,625
(Short Position)
H shares
0.40%
0.07%
Beneficial owner
1,127,970,665
(Shares available
for lending)
H shares
8.13%
1.39%
Custodian corporation/
approved lending agent
Save as stated above, as at 31 December
2012, in the register required to be
maintained under Section 336 of the SFO,
no other persons were recorded to hold any
interests or short positions in the shares or
underlying shares of the equity derivatives of
the Company.
47
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors Directors’ and Supervisors’
Interests and Short Positions in
Shares, Underlying Shares and
Debentures
As at 31 December 2012, none of the
directors and supervisors of the Company
had any interests or short positions in
the shares, underlying shares of equity
derivatives or debentures of the Company
or its associated corporations (as defined
in Part XV of the SFO) as recorded in the
register required to be maintained under
section 352 of the SFO or as otherwise
notified to the Company and The Stock
Exchange of Hong Kong Limited pursuant to
the Model Code for Securities Transactions
by Directors of Listed Issuers.
As at 31 December 2012, the Company had
not granted its directors or supervisors, or
their respective spouses or children below
the age of 18 any rights to subscribe for the
shares or debentures of the Company or any
of its associated corporations and none of
them has ever exercised any such right.
Directors’ and Supervisors’
Interests in Contracts
For the year ended 31 December 2012,
none of the Directors and Supervisors of the
Company had any material interest, whether
directly or indirectly, in any of the contracts
of significance entered into by the Company,
any of its holding companies or subsidiaries
or subsidiaries of the Company’s holding
company, apart from their service contracts.
None of the directors and supervisors of
the Company has entered into any service
contract which is not determinable by the
Company within one year without payment
of compensation (other than statutory
compensation).
Emoluments of the Directors and
Supervisors
Please refer to note 29 of the audited
financial statements for details of the
emoluments of all Directors and Supervisors
of the Company in 2012.
Purchase, Sale and Redemption
of Shares
Neither the Company nor any of its
subsidiaries has purchased, sold or
redeemed any securities of the Company
during the reporting period.
Public Float
As at the date of this Report, based on the
information that is publicly available to the
Company and within the knowledge of the
Directors, the Company has maintained
the prescribed public float under the
Listing Rules and as agreed with The Stock
Exchange of Hong Kong Limited.
Summary of Financial
Information
Please refer to pages 175 to 176 of this
annual report for a summary of the
operating results, assets and liabilities of the
Group for each of the years in the five-year
period ended 31 December 2012.
Bank Loans and Other
Borrowings
Please refer to note 16 of the audited
financial statements for details of bank loans
and other borrowings of the Group.
48
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors Capitalised Interest
Please refer to note 27 of the audited
financial statements for details of the
Group’s capitalised interest for the year
ended 31 December 2012.
Fixed Assets
Please refer to note 4 of the audited financial
statements for movements in the fixed
assets of the Group for the year ended 31
December 2012.
Reserves
Pursuant to Article 147 of the Company’s
articles of association (the “Articles
of Association”), where the financial
statements prepared in accordance with
PRC Accounting Standards for Business
Enterprises, materially differ from those
prepared in accordance with either
International Financial Reporting Standards,
or accounting standards at a place outside
the PRC where the Company’s shares
are listed, the distributable profit for the
relevant accounting period shall be deemed
to be the lesser of the amounts shown
in those respective financial statements.
Distributable reserves of the Company as at
31 December 2012, calculated on the above
basis and before deducting the proposed
final dividends for 2012, amounted to
RMB74,494 million.
Please refer to note 21 of the audited
financial statements for details of the
movements in the reserves of the Company
and the Group for the year ended 31
December 2012.
Donations
For the year ended 31 December 2012, the
Group made charitable and other donations
with a total amount of RMB12 million.
Subsidiaries and Associated
Companies
Please refer to note 8 and note 9 of the
audited financial statements for details of
the Company’s subsidiaries and the Group’s
interests in associated companies as at 31
December 2012.
Changes in Equity
Please refer to the consolidated statement
of changes in equity as contained in the
audited financial statements of this year
(page 115 of this annual report).
Retirement Benefits
Please refer to note 38 of the audited
financial statements for details of the
retirement benefits provided by the Group.
Stock Appreciation Rights
Please refer to note 39 of the audited
financial statements for details of the stock
appreciation rights offered by the Company.
Pre-Emptive Rights
There are no provisions for pre-emptive
rights in the Articles of Association requiring
the Company to offer new shares to the
existing shareholders in proportion to their
shareholdings.
Major Customers and Suppliers
For the year ended 31 December 2012, sales
to the five largest customers of the Group
accounted for an amount no more than 30%
of the operating revenues of the Group.
49
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors For the year ended 31 December 2012,
purchases from the five largest suppliers
of the Group accounted for approximately
38.2% of the total annual purchases of the
Group.
For the year ended 31 December 2012,
purchases from the Group’s largest supplier
accounted for approximately 13.4% of the
total annual purchases of the Group. The
amount of the Group’s annual purchases
mainly includes terminals purchases,
equipment purchases and investments in
infrastructure.
To the knowledge of the Board, no Director
of the Company, their associates, or any
person holding more than 5% of the issued
share capital in the Company has any
interests in such suppliers.
Connected transactions in
respect of the acquisition of
certain CDMA network assets
and associated liabilities
On 22 August 2012, the Company and the
controlling shareholder of the Company,
China Telecommunications Corporation,
entered into an acquisition agreement,
pursuant to which the Company has agreed
to purchase, and China Telecommunications
Corporation has agreed to sell, certain
assets and associated liabilities relating
to the CDMA network held by China
Telecommunications Corporation through
the network branches located in 30
provinces, municipalities and autonomous
regions in the PRC (which do not include
Xizang Autonomous Region).
The acquisition has been approved at the
extraordinary general meeting convened on
16 October 2012. The final consideration of
the acquisition would be payable in cash by
the Company to China Telecommunications
Corporation as follows: (i) RMB25,500
million to be paid within five business days
following the completion date and (ii) the
balance of the final consideration (the
“Deferred Payment”) to be paid on or before
the fifth anniversary of the completion
date. The Company will pay interest on
the outstanding amount of the Deferred
Payment to China Telecommunications
Corporation at half-yearly intervals and the
interest will accrue from the day following
the completion date. The interest rate will
be 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 and will be adjusted once
a year in accordance with the last yield of
the 5-year super AAA rated Medium Term
Notes published by the National Association
of Financial Market Institutional Investors
at the end of each year. The Company has
not pledged any assets for the Deferred
Payment. The acquisition has been
completed on 31 December 2012 and the
final consideration is RMB87,210 million.
The above arrangements will save the
significant CDMA network capacity lease
fees that result from the rapid growth of
mobile service, allow the Company to gain
direct control over future CDMA network
investment decisions and to remove the
risk of potential increase in mobile network
capacity lease fee rate. They will also allow
the Company to better concentrate on
network expansion and optimisation, provide
better mobile service to satisfy the market’s
ever-increasing demand on data traffic flow,
to better integrate the mobile network and
service offerings in a manner that similar
to the Company’s wireline service, and to
increase the overall operational efficiency
and value of the Company’s mobile service.
As mentioned above, as the acquisition has
been completed on 31 December 2012,
the statement of financial position as at 31
December 2012 has already reflected the
relevant changes in asset and liabilities but it did
not have any impact on the Company’s profit
in 2012. Please refer to note 2 to the audited
financial statements in this annual report for
details.
50
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors Continuing Connected Transactions
The following table sets out the amounts of continuing connected transactions between the Group and China Telecom
Group for the year ended 31 December 2012:
Transactions
Transaction Amounts
(RMB millions)
Annual monetary cap
for continuing
connected transactions
(RMB millions)
Net transaction amount of centralised services
Net expenses for interconnection settlement
Mutual leasing of properties
Provision of IT services by China Telecommunications Corporation and
its subsidiaries (except for the Group) (the “China Telecom Group”)1
Provision of IT services to China Telecom Group
Provision of supplies procurement services by China Telecom Group
Provision of supplies procurement services to China Telecom Group
Provision of engineering services by China Telecom Group
Provision of community services by China Telecom Group
Provision of ancillary telecommunications services by
China Telecom Group
CDMA network capacity lease fee
570
366
420
764
370
3,029
2,685
10,203
2,652
9,541
23,0272
800
1,000
600
1,200
500
3,800
3,000
11,000
2,900
10,500
33,000
1 China Telecommunications Corporation is a controlling shareholder of the Company. Each of China Telecommunications Corporation and its subsidiaries
(except for the Group) constitutes a connected person of the Company under the Listing Rules.
2 The CDMA network capacity lease fee has already deducted the capacity maintenance related costs of CDMA network payable to the Company by China
Telecommunications Corporation amounted to RMB2,519 million.
51
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors
Centralised Services Agreement
Pursuant to the centralised services
agreement signed between the Company
and China Telecommunications Corporation
on 10 September 2002 and the related
supplemental agreements subsequently
entered into between the two parties
(collectively, the “Centralised Services
Agreement”), centralised services include
centralised business management and
operational services provided by the Group
to China Telecommunications Corporation
in relation to key corporate customers, its
network management centre and business
support centre. Centralised services also
include the provision of certain premises
by China Telecommunications Corporation
to the Group and the common use of
international telecommunications facilities
by both parties. In accordance with the
Centralised Services Agreement, the
aggregate costs incurred by the Group and
China Telecommunications Corporation for
the provision of management and operation
services will be apportioned between the
Group and China Telecommunications
Corporation on a pro rata basis according
to the revenues generated by each party.
Where the Group uses the premises
provided by China Telecommunications
Corporation, the Group will pay premises
usage fees to China Telecommunications
Corporation on a pro rata basis according
to the apportioned actual area allocated to
the Group. 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 (for example,
restoration maintenance costs, the annual
utilisation 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
utilisation fee each year. The utilisation
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 22 August 2012 to
renew the Centralised Services Agreement
in accordance with its provisions for a
further term of three years expiring on
31 December 2015. No later than 30
days prior to the expiry of the Centralised
Services Agreement, the Company is
entitled to serve a written notice to China
Telecommunications Corporation to renew
the Centralised 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 10 September 2002 and the related
supplemental agreements subsequently
entered into between the two parties
52
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors (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 Ministry of Industry and
Information Technology from time to time,
which is currently RMB0.06 per minute.
Interconnection charges are RMB0.06
per minute for local calls originated from
the Group 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 22 August 2012
to renew the Interconnection Settlement
Agreement in accordance with its provisions
for a further term of three years expiring on
31 December 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 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 30 August 2006 and the related
supplemental agreement subsequently
entered into between the two parties
(collectively, the “Property Leasing
Framework Agreement”), the Group 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.
The Company and China Telecommunications
Corporation agreed on 22 August 2012 to
renew the Property Leasing Framework
Agreement in accordance with its provisions
for a further term of three years expiring on
31 December 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 30 August 2006 and the related
supplemental agreements subsequently
entered into between the two parties
(collectively, the “IT Services Framework
53
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors Agreement”), the Group 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 Group 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 Group
or China Telecommunications Corporation
and/or its associates are no less favourable
than those offered by an independent
third-party provider, the Group or China
Telecommunications Corporation and/or
its associates may award the tender to the
other party.
The Company and China Telecommunications
Corporation agreed on 22 August 2012
to renew the IT Services Framework
Agreement in accordance with its provisions
for a further term of three years expiring
on 31 December 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.
two parties (collectively, the “Community
Services Framework Agreement”), China
Telecommunications Corporation and/
or its associates provide the Group 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. 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).
Community Services Framework
Agreement
Pursuant to the community services
framework agreement signed between the
Company and China Telecommunications
Corporation on 30 August 2006 and
the related supplemental agreements
subsequently entered into between the
The Company and China Telecommunications
Corporation agreed on 22 August 2012 to
renew the Community Services Framework
Agreement in accordance with its provisions
for a further term of three years expiring
on 31 December 2015. No later than 30
days prior to the expiry of the Community
Services Framework Agreement, the
54
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors 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.
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.
Supplies Procurement Services
Framework Agreement
Pursuant to the supplies procurement
services framework agreement signed
between the Company and China
Telecommunications Corporation on 30
August 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 Group provide each other with
supplies procurement services, including
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.
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-telecommunications
supplies.
The pricing basis of the services for
the provision of supplies procurement
The Company and China Telecommunications
Corporation agreed on 22 August 2012 to
renew the Supplies Procurement Services
Framework Agreement in accordance with
its provisions for a further term of three
years expiring on 31 December 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 30 August 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 Group 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.
55
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors The Group 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
Group may award the tender to China
Telecommunications Corporation and/or its
associates.
The Company and China Telecommunications
Corporation agreed on 22 August 2012
to renew the Engineering Framework
Agreement in accordance with its provisions
for a further term of three years expiring
on 31 December 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 30 August 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 Group 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 22 August 2012 to
renew the Ancillary Telecommunications
Services Framework Agreement in
accordance with its provisions for a further
term of three years expiring on 31 December
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.
CDMA Network Capacity Lease
Agreement
Pursuant to the CDMA network capacity
lease agreement signed between the
Company and China Telecommunications
Corporation on 27 July 2008 and the related
supplemental agreement subsequently
entered into between the two parties
(collectively, the “CDMA Network
Capacity Lease Agreement”), China
Telecommunications Corporation agreed to
lease its capacity under the CDMA Network
to the Company and the Company shall have
the exclusive right to use and operate the
CDMA Network to provide CDMA services in
its service areas. The leasing fee is 28% of the
Company’s audited CDMA service revenue
per year (which is calculated by the total
revenue from the CDMA services operations
minus any upfront non-refundable revenue
arising out of the CDMA operations and any
revenue from sale of telecommunications
products in connection with the CDMA
56
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors operations, as derived from the Company’s
financial statements). Regardless of the
revenue of the CDMA operations, the
minimum annual leasing fee shall be 90% of
the total amount of the leasing fee paid by
the Company to China Telecommunications
Corporation in the previous year. The cost
of network construction shall be borne by
China Telecommunications Corporation,
while the maintenance-related costs shall be
shared as agreed between the two parties.
Pursuant to the CDMA Network
Capacity Lease Agreement, China
Telecommunications Corporation has
granted the Company an option to purchase
the CDMA Network. The option may be
exercised, at the discretion of the Company,
at any time during the term of the lease
or within one year after the expiry of the
lease. No premium has been paid or will be
payable by the Company for the grant of the
option.
The Company and China Telecommunications
Corporation have agreed that the CDMA
Network Capacity Lease Agreement would
not be renewed upon its expiry on 31
December 2012.
Strategic Agreement between
Our Company and China
Communications Services
Corporation Limited
Pursuant to the strategic agreement
signed between the Company and China
Communications Services Corporation
Limited (“China Communications Services”)
on 30 August 2006 and the related
supplemental agreements (collectively,
the “Strategic Agreement”), the Company
agreed that, in the period between 1 January
2007 and 31 December 2009, if the service
terms relating to the design, implementation
and supervision of the communications
engineering projects provided by China
Communications Services are basically the
same as those of other service providers,
the provincial branches of the Company in
the service area of China Communications
Services shall receive such services from the
relevant wholly-owned subsidiaries of China
Communications Services annually with a
total annual value of no less than 10.6% of
the total annual capital expenditure of the
relevant provincial branches of the Company
in that year. China Communications
Services will offer at least 5% price discount
to the Company based on the applicable
standard prices for the services such as
design, implementation and supervision
of communications engineering projects.
Meanwhile, the Company agreed that, in
the period between 1 January 2007 and 31
December 2009, if the terms relating to
certain maintenance management services
provided by China Communications Services
are basically the same as those of other
service providers, the provincial branches
of the Company in the service area of China
Communication Services shall receive such
services from the relevant wholly-owned
subsidiaries of China Communications
Services with a total value of not less than
RMB1,780 million annually.
The business areas of the strategic alliance
between the two parties governed by
the terms and conditions in the Strategic
Agreement include: design, implementation
and supervision of the communications
engineering projects, maintenance
management service, contents application
service, sales channel service, usage of
telecommunications service and other
new businesses arising from time to
time which are appropriate for the
collaboration between the two parties.
57
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors China Communications Services pledges
its support to the strategic transformation
of the Company from a traditional basic
telecommunications operator to an
integrated information service provider, its
active support to the Company’s business
development, and its active use of the
Company’s products and services in its own
business. Such services shall comply with
the related PRC standards or the standards
agreed by both parties, and shall be on
terms no less favourable than those available
to any third parties to which the same or
similar services are provided by either party.
Without breaching the requirements under
PRC laws, where the terms and conditions
of services provided by either party to the
Strategic Agreement are as favourable as
those provided by an independent third
party in respect of the same services, the
party under the Strategic Agreement shall
have the priority to be appointed as the
service provider by the other party.
The Company and China Communications
Services have agreed that the Strategic
Agreement would not be renewed upon its
expiry on 31 December 2012.
The Strategic Agreement does not set
out any annual caps for the transactions
thereunder as China Telecommunications
Corporation, the holding company of China
Communications Services, has signed
certain framework agreements with the
Company (including the Engineering
Framework Agreement, the Ancillary
Telecommunications Services Framework
Agreement and the Community Services
Framework Agreement), which cover the
transactions contemplated under the
Strategic Agreement. These frameworks
agreements are subject to annual caps,
and the proposed annual caps for the
transactions under the Strategic Agreement
are subsumed under the annual caps of
these framework agreements.
The Company confirms that it has complied
with the disclosure requirements in
accordance with Chapter 14A of the Listing
Rules in respect of the above connected
transactions.
The Company’s auditor was engaged to
report on the Group’s continuing connected
transactions in accordance with Hong
Kong Standard on Assurance Engagements
3000 “Assurance Engagements Other Than
Audits or Reviews of Historical Financial
Information” and with reference to Practice
Note 740 “Auditor’s Letter on Continuing
Connected Transaction under the Hong
Kong Listing Rules” issued by the Hong Kong
Institute of Certified Public Accountants.
The Independent Non-executive Directors
of the Company have confirmed that all
continuing connected transactions for the
year ended 31 December 2012 to which the
Group was a party:
1. had been entered into, and the
agreements governing those
transactions were entered into, by the
Group in the ordinary and usual course
of business;
2. had been entered into either:
(i) on normal commercial terms; or
(ii) if there are not sufficient comparable
transactions to judge whether they
are on normal commercial terms,
on terms no less favourable to the
Company than those available to or
(if applicable) from independent
third parties; and
58
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors 3. had been entered into in accordance
Material Legal Proceedings
As at 31 December 2012, the Company
was not involved in any material litigation
or arbitration, and as far as the Company is
aware, no material litigation or claims were
pending or threatened or made against the
Company.
Auditors
KPMG and KPMG Huazhen (Special
General Partnership) were appointed as
the international and domestic auditors
of the Company for the year ended 31
December 2012. KPMG has audited the
accompanying financial statements, which
have been prepared in accordance with
International Financial Reporting Standards.
The Board of the Company, as proposed
by the Audit Committee of the Company,
has resolved to appoint Deloitte Touche
Tohmatsu and Deloitte Touche Tohmatsu
Certified Public Accountants LLP as the
Company’s international and domestic
auditors, respectively for the year ending 31
December 2013. The relevant appointments
will be proposed to the annual general
meeting of the Company to be held on 29
May 2013.
By Order of the Board
Wang Xiaochu
Chairman and Chief Executive Officer
Beijing, PRC
20 March 2013
with the relevant terms that are fair and
reasonable and in the overall interests
of the shareholders of the Company as a
whole.
The Independent Non-executive Directors
have further confirmed that:
The values of continuing connected
transactions entered into between the
Group and its connected persons which are
subject to annual caps have not exceeded
their respective annual caps.
The auditors of the Group have reviewed the
continuing connected transactions of the
Group and have confirmed to the Board that
the transactions:
1. have received the approval of the Board;
2. have been entered into in accordance
with the pricing policies as stated in the
relevant agreements; and
3. have been entered into in accordance
with the terms of the agreements
governing such transactions; and
the values of continuing connected
transactions entered into between the
Group and its connected persons which
are subject to annual caps have not
exceeded their respective annual caps.
Compliance with the Code on
Corporate Governance Practices
and the Corporate Governance
Code
Please refer to the “Corporate Governance
Report” set out in page 64 of this 2012
annual report of the Company for details of
our compliance with the Code on Corporate
Governance Practices and the Corporate
Governance Code.
59
China Telecom Corporation LimitedAnnual Report 2012Report of the Directors During the reporting period, all members
of the Supervisory Committee acted in
accordance with the Company Law of the
People’s Republic of China and the Articles
of Association of the Company, followed
the principles of integrity and diligently in
carrying out their supervisory function to
safeguard the interests of shareholders and
the Company.
During the reporting period, the Supervisory
Committee held three meetings and passed
one written resolution. At the second
meeting of the Fourth Session of the
Supervisory Committee held on 16 March
2012, the Supervisory Committee reviewed
and approved agenda items, including the
financial statements for the year 2011,
the independent auditor’s report, the
profit distribution and dividend proposal,
the Supervisory Committee’s report for
the year 2011, the working plan of the
Supervisory Committee for the year 2012,
etc. On 16 August 2012 at the third meeting
of the Fourth Session of the Supervisory
Committee, the Supervisory Committee
reviewed the interim financial statements
and the independent auditor’s review report
for the year 2012. At the fourth meeting
of the Fourth Session of the Supervisory
Committee held on 21 August 2012, the
Supervisory Committee reviewed and
approved the change in the composition of
the Supervisory Committee. On 16 October
2012, through the written resolution of the
entire Supervisory Committee, Mr. Shao
Chunbao was elected as the Chairman
of the Fourth Session of the Supervisory
Committee. During the reporting period,
members of the Supervisory Committee
supervised the major decision-making
process of the Company and the
performance of duties by the members
of the Board and the senior management
through their attendance at the relevant
meetings such as the extraordinary
general meeting held in 2012, meetings
of the Board, and meetings of the Audit
Committee.
The Supervisory Committee is of the view
that in 2012, the Company persisted in
deepening its transformation, firmly adhered
to the main theme of “promoting scale
development through dual-leadership in
innovation and service”, and persisted in
efficient scale operation and data traffic
operation. While accelerating the scale
development of fundamental services, the
Company further stimulated the vitality
of emerging services through system
and institution innovation, integrated the
operation of core services altogether and
these services fostered synergetically. The
Company achieved its best development
since the commencement of full services
operation. The business structure continued
to optimise, resulting in significant
enhancement in our core capabilities in
innovation, service, centralised efficient
management and operation. The corporate
development is ignited with vitality. In 2012,
the operating revenues of the Company
reached RMB283,073 million, an increase of
15.5% from last year, which exceeded the
industry average. Mobile subscriber market
share was about 15% while 3G subscriber
market share reached 30%. The Company
reinforced its leadership position in the
wireline broadband market, expanded
its competitive edges in informatisation
applications and increased its influence on
the market. Pre-leasing fee EBITDA reached
RMB96,387 million, representing an increase
of 2.1% from last year. Profit attributable
to equity holders of the Company reached
RMB14,925 million, representing a decline of
9.5% from last year. The Company made an
60
Report of the Supervisory CommitteeChina Telecom Corporation LimitedAnnual Report 2012 appropriate increase in marketing initiatives
for the expansion into the high-end
subscriber market to promote the revenue
growth, which is believed to significantly
enhance the long-term sustainable growth
and value creation despite the short term
pressure on the profitability. In summary,
the Board and the management have
grasped the industry development trend
and directed the strategic development of
the Company accurately, while they have
continuously enhanced the Company’s
operation capability and efficiency, resulting
in remarkable results in transformation.
Meanwhile, the Company attached great
importance to corporate governance and
operation in good faith. In accordance with
Section 404 of the US Sarbanes-Oxley Act
of 2002 and other regulatory rules, the
Company stepped up the development of
its internal control system and strengthened
the exercise of its internal control. As a
result, the internal control environment and
precision management of the Company
continued to improve, and the Company’s
development is soundly and steadily on
track. In addition, while conscientiously
fulfilling its responsibility to shareholders,
the Company voluntarily committed itself
to the sustainable economic, social and
environmental development and excelled in
fulfilling its own corporate responsibilities,
responsibilities towards customers,
responsibilities towards employees,
environmental responsibilities and public
welfare responsibilities. The Supervisory
Committee is satisfied with the performance
of the Company in 2012 and is confident of
the Company’s prospects.
The Supervisory Committee believes that
during 2012, all members of the Board
and members of senior management have
complied with rules and regulations, upheld
the principles of diligence and integrity,
safeguarded the interests of shareholders,
fulfilled their responsibilities fully in
accordance with the Articles of Association
of the Company, diligently implemented
the resolutions of the shareholders’
general meetings and the Board meetings,
and strictly complied with the relevant
regulations for listed companies. The
Supervisory Committee has not observed
any behaviors that breached the laws, rules,
and Articles of Association of the Company,
or damaged the interests of shareholders.
Upon the review of the unqualified financial
statements for the year 2012 and other
relevant information, which were prepared
in accordance with PRC Accounting
Standards for Business Enterprises and
regulations and International Financial
Reporting Standards as audited by PRC
certified accountants and international
auditors of the Company, the Supervisory
Committee is of the opinion that the
financial statements truly and fairly reflect
the Company’s financial position, operating
results and cash flows.
In 2013, the Supervisory Committee will
continue to strictly adhere to the Articles of
Association of the Company and relevant
regulations, assume its responsibility to
protect the interests of the shareholders
and the Company, monitor the Company to
fulfill its commitment to its shareholders,
further broaden the planning of supervision
and strengthen its efforts in monitoring to
protect the interests of all investors.
By Order of the Supervisory Committee
Shao Chunbao
Chairman of the Supervisory Committee
Beijing, PRC
20 March 2013
61
China Telecom Corporation LimitedAnnual Report 2012Report of the Supervisory Committee Recognition & Awards
1
2
11
12
10
14
15
16
1. The Company has been voted
by investors the “Overall Best
Managed Company in Asia” across
all industries in the “Asia Best
Managed Companies 2012” by
Euromoney.
2. The Company has been
voted by investors the “Best
Managed Company in Asia’s
Telecommunications Sector”
in the “Asia Best Managed
Companies 2012” by Euromoney.
3. The Company was awarded the
“No. 1 Best Managed Company in
Asia” by FinanceAsia in the Asia’s
Best Companies Poll 2012.
4. Mr. Wang Xiaochu, Chairman and
CEO, was awarded the “Best CEO
in China” by FinanceAsia in the
Asia’s Best Companies Poll 2012.
5. Madam Wu Andi, Executive
Vice President and CFO, was
awarded the “Best CFO in China”
by FinanceAsia in the Asia’s Best
Companies Poll 2012.
6. The Company has been voted
by professional investors as the
“Asia’s Most Honored Companies”
in 2012 All-Asia-Executive-Team
ranking organised by Institutional
Investor.
7. Mr. Wang Xiaochu, Chairman and
CEO, was voted by professional
investors as “Asia’s Best CEO in
Telecommunications Sector” in
2012 All-Asia-Executive-Team
ranking organised by Institutional
Investor.
8. Madam Wu Andi, Executive Vice
President and CFO, was voted by
professional investors as “Asia’s
Best CFO in Telecommunications
Sector” in 2012 All-Asia-
Executive-Team ranking organised
by Institutional Investor.
62
China Telecom Corporation LimitedAnnual Report 2012 3
4
5
6
8
13
7
9
9. The Company has been voted by
professional investors as “Asia’s
Best Investor Relations Company
in Telecommunications Sector”
in 2012 All-Asia-Executive-Team
ranking organised by Institutional
Investor.
10. The Company was awarded the
“Platinum Award for All-Round
Excellence” in 2012 The Asset
Corporate Awards.
11. The Company was awarded
“The Best of Asia” by Corporate
Governance Asia’s Annual
Recognition Awards 2012.
12. Mr. Wang Xiaochu, Chairman and
CEO, was honoured with “Asian
Corporate Director Recognition
Awards 2012” by Corporate
Governance Asia.
13. The Company was honoured with
the “Grand Prix for Best Overall
Investor Relations for Large-cap
Companies”, at the IR Magazine
Awards – Greater China 2012.
14. The Company’s 2011 annual
report won total 5 gold awards
in the “2012 International ARC
Awards” and the “Vision Awards”
Annual Report Competition
by The League of American
Communications Professionals
LLC (LACP).
15. The corporate website of the
Company (www.chinatelecom-h.
com) won the “No.1 Best Investor
Relations Website in Asia &
Pacific” in IR Global Rankings
2012.
16. The Company’s 2011 online
annual report won the “No.1 Best
Online Annual Report in Asia and
Pacific” in IR Global Rankings
2012.
63
China Telecom Corporation LimitedAnnual Report 2012 An Overview of Corporate
Governance
The Company strives to maintain a high
level of corporate governance and has
inherited an excellent, prudent and efficient
corporate governance style and continuously
improves its corporate governance
methodology, regulates its operations,
improves its internal control mechanism,
implements sound corporate governance
and disclosure measures, and ensures that
the Company’s operations are in line with
the long-term interests of the Company and
its shareholders as a whole. In 2012, the
Shareholders’ General Meeting, the Board
and the Supervisory Committee maintained
efficient operations in accordance with
the rules, and the Company continued
to optimise the organisational structure
and has achieved a breakthrough in its
organisation structure, which well supported
the Company’s strategic transformation
to the Three New Roles – “a leader of
intelligent pipeline, a provider of integrated
platforms, and a participant in content and
application development”. The Company
further optimised its internal control and
integrated comprehensive risk management
into its operational practice. The sustained
enhancement of the Company’s corporate
governance ensured alignment with the
long-term best interest of shareholders
and firmly protected the interests of
shareholders.
As a company incorporated in the PRC, the
Company adopts the Company Law of the
People’s Republic of China, the Securities
Law of the People’s Republic of China
and other related laws and regulations as
the basic guidelines for the Company’s
corporate governance. As a company dual-
listed in Hong Kong and the United States,
the current Articles of Association are in
compliance with the Rules Governing the
Listing of Securities on The Stock Exchange
of Hong Kong Limited (“the Listing Rules”)
and the regulatory requirements for non-
US companies listed in the United States,
and these rules serve as guidances for the
Company to improve the foundation of its
corporate governance. The Company has
regularly published statements relating
to its internal control in accordance with
the US Sarbanes-Oxley Act of 2002 and
the regulatory requirements of the U.S.
Securities and Exchange Commission
(SEC) and the New York Stock Exchange to
confirm its compliance with related financial
reporting, information disclosure and
corporate internal control requirements.
For the financial year ended 31 December
2012, save that (i) the roles of Chairman
and Chief Executive Officer of the Company
were performed by the same individual
and (ii) certain Independent Non-executive
Directors did not attend the shareholders’
general meetings due to other business
commitments or being overseas, the
Company has been in compliance with
all the code provisions under the Code on
Corporate Governance Practices (effective
until 31 March 2012) and the Corporate
Governance Code (effective from 1 April
2012) as set out in Appendix 14 to the
Listing Rules. In the Company’s opinion,
through supervision of the Board and the
Independent Non-executive Directors, and
effective control of the Company’s internal
check and balance mechanism, the same
individual performing the roles of Chairman
and Chief Executive Officer can achieve the
goal of improving the Company’s efficiency
in decision-making and execution and
effectively capturing business opportunities.
Many leading international corporations also
have similar arrangements.
64
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report and Chief Executive Officer of the Company,
was awarded “Asian Corporate Director
Recognition Awards 2012” by Corporate
Governance Asia for three consecutive years.
The Company’s website was awarded the
“No. 1 Best Investor Relations Website in
Asia & Pacific” in IR Global Rankings 2012 for
two consecutive years.
Overall Structure of the
Corporate Governance
A double-tier structure has been adopted
as the overall structure for corporate
governance: the Board and the Supervisory
Committee are established under the
Shareholders’ General Meeting. The Audit
Committee, Remuneration Committee and
Nomination Committee were established
under the Board. The Board is authorised by
the Articles of Association to make major
decisions on the Company’s operation
and to oversee the daily management and
operations of the senior management. The
Supervisory Committee is mainly responsible
for the supervision of the performance
of duties by the Board and the senior
management. Each of the Board and the
Supervisory Committee is independently
accountable to the Shareholders’ General
Meeting.
In 2012, the Company’s continuous efforts
in corporate governance gained wide
recognition from the capital market and was
accredited with a number of awards. The
Company was being voted the “Overall Best
Managed Company in Asia” by Euromoney
for four consecutive years, while at the
same time being ranked as the “No. 1 Best
Corporate Governance in Asia”, the “No. 1
Most Convincing and Coherent Strategy in
Asia” and the “No. 1 Best Shareholder Value
in Asia” in the individual categories. The
Company was accredited by the investors
as the “No. 1 Best Managed Company in
Asia”, the “No. 1 Best Managed Company in
China” and the “No. 1 Best Investor Relations
in China” for two consecutive years in the
Asia’s Best Companies Poll 2012 organised
by FinanceAsia. The Company was voted
by investors as the “Asia’s Most Honored
Companies” and “Asia’s Best Investor
Relations Company in telecommunications
sector” for two consecutive years in 2012
All-Asia-Executive-Team ranking organised
by Institutional Investor. In addition, Mr.
Wang Xiaochu, Chairman and CEO was voted
as “Asia’s Best CEO in telecommunications
sector” and Madam Wu Andi, Executive
Vice President and CFO was voted as
“Asia’s Best CFO in telecommunications
sector”.The Company swept several top
awards including the “Grand Prix for Best
Overall Investor Relations for Large-cap
Companies”, “Best Investor Relations by
a CEO” for mainland China for Mr. Wang
Xiaochu, Chairman and CEO and “Best
Investor Relations by a CFO” for mainland
China for Madam Wu Andi, Executive Vice
President and CFO at the IR Magazine
Awards – Greater China 2012. The Company
was awarded the “Platinum Award for
All-Round Excellence” in 2012 The Asset
“Corporate Awards”, for four consecutive
years. In addition, the Company was
awarded the “The Best of Asia” by Corporate
Governance Asia for three consecutive
years, and Mr. Wang Xiaochu, Chairman
The Annual General Meeting held
in Hong Kong on 30 May 2012
65
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report Shareholders’ General Meeting
In 2012, the Company convened two
shareholders’ general meetings, the
Annual General Meeting (“AGM”) for the
year 2011 and one Extraordinary General
Meeting (“EGM”). The AGM held on 30 May
2012 reviewed and approved numerous
resolutions such as the financial statements
for the year 2011, Report of the Independent
International Auditor, proposal for profit and
dividends distribution, authorisation to the
Board for the formulation of a budget for
2012, re-appointment and remuneration
of auditors, authorisation to the Board
to issue debentures and appointment of
directors and supervisors. The EGM held on
16 October 2012 reviewed and approved the
acquisition of certain CDMA network assets
and associated liabilities, the renewal of
certain continuing connected transactions
and the annual caps applicable thereto and
appointment of directors and supervisors.
The amendments to the Articles of
Association of the Company were approved
at the shareholders’ general meetings, which
mainly include the change in the business
scope of the Company, change in the
composition of the Supervisory Committee
and change in the name of the domestic
shareholder.
Since the Company’s listing in 2002, at
each of the shareholders’ general meetings
a separate shareholders’ resolution was
proposed by the Company in respect of
each independent item. The circulars to
shareholders also provided details about
the resolutions. All resolutions tabled at
the shareholders’ general meetings of
the Company were already conducted by
poll and all voting results were published
on the websites of the Company and The
Stock Exchange of Hong Kong Limited.
The Company attaches great importance
to the shareholders’ general meetings and
the communication between Directors
and shareholders. The Directors provided
detailed and complete answers to the
questions raised by shareholders at the
shareholders’ general meetings. The Board
adopted the shareholders communication
policy to ensure that the shareholders
are provided with comprehensive, equal,
understandable and publicised information
of the Company on a timely basis and to
strengthen the communication between
the Company, and the shareholders and
investors.
Board of Directors
As at 31 December 2012, the Board
comprises 13 Directors with seven Executive
Directors, one Non-executive Director
and five Independent Non-executive
Directors. The Board is composed of
experts from diversified professions such
as telecommunications, finance, economics
and law, resulting in a more comprehensive
and balanced board structure and giving
more comprehensive and balanced
viewpoints in the decision-making process.
The term of office for the fourth session of
the Board lasts for three years, starting from
May 2011 until the day of the Company’s
Annual General Meeting in 2014, upon
which the fifth session of the Board will be
elected.
The number of Independent Non-executive
Directors constitutes more than one-third
of the members of the Board. Mr. Tse Hau
Yin, Aloysius, the Chairman of the Audit
Committee, is an internationally renowned
financial expert with expertise in accounting
and financial management. The Audit
Committee, Remuneration Committee and
Nomination Committee under the Board
all comprise solely Independent Non-
executive Directors, which ensures that the
committees are able to provide sufficient
review and check and balance, and make
effective independent judgments to protect
the interests of shareholders and the
Company as a whole.
66
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report The Company strictly complies with the
Code on Corporate Governance Practices
(effective until 31 March 2012) and the
Corporate Governance Code (effective
from 1 April 2012) of the Listing Rules to
rigorously regulate the operating procedures
of the Board and the committees under it,
and to ensure that the procedures of Board
meetings are in compliance with related
rules in terms of organisation, regulations
and personnel. The Board responsibly and
effectively supervises the preparation of
financial statements for each financial
period, so that such financial statements
truly and fairly reflect the operational
position, the operating results and cash
flows of the Company for such period. In
preparing the financial statements for the
year ended 31 December 2012, the Directors
adopted appropriate accounting policies
and made prudent, fair and reasonable
judgments and estimates, and prepared the
financial statements on a going concern
basis.
The Articles of Association of the Company
provide that the Board is accountable to
the shareholders’ general meetings, and its
duties include the execution of resolutions,
formulation of major operational decisions,
financial proposals and policies, the
Company’s basic management system,
and the appointment of managers and
other senior management personnel of
the Company. The Articles of Association
also clearly define the respective duties
of the Board and the management.
The management is responsible for
the operation and management of the
Company, the implementation of the Board
resolutions and the annual operation plans
and investment proposals of the Company,
formulating the proposal of the Company’s
internal administrative organisations
and sub-organisations, and performing
other duties as authorised by the Articles
of Association and the Board. In order to
maintain highly efficient operations, as well
as flexibility and swiftness in operational
decision-making, the Board may delegate
its management and administrative powers
to the management when necessary, and
shall provide clear guidance regarding such
delegation so as to avoid seriously impeding
or undermining the capabilities of the Board
when exercising its powers as a whole.
All members of the Board/Committees
are informed of the meeting schedule for
the Board/Committees for the year at the
beginning of each year. In addition, all
Directors will receive a meeting notification
at least 14 days prior to the meeting under
normal circumstances. The Company
Secretary is responsible for ensuring that the
Board meetings comply with all procedures,
related rules and regulations while all
Directors can make inquiries to the Company
Secretary for details to ensure that they have
received sufficient information on various
matters set out in the meeting agenda.
The Board meets at least four times a year.
Additional Board meetings will be held
as necessary. In 2012, the Board played a
pivotal role in the Company’s operation,
budgeting, decision-making, supervision,
internal control, organisational restructuring
and corporate governance. The Company
convened four Board meetings, four Audit
Committee meetings, one Independent
Board Committee Meeting, and several
board and committee written resolutions
were passed in this year.
At the Board meetings, the Board reviewed
significant matters including the Company’s
annual, interim and quarterly financial
statements, annual operational, financial
and investment budgets, internal control
implementation and assessment report,
proposal for annual profit distribution,
annual report, interim report and quarterly
reports, acquisition of certain CDMA network
assets and associated liabilities, renewal of
certain continuing connected transactions
and the annual caps applicable thereto and
appointment and remuneration of auditors.
67
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report All directors performed their fiduciary
duties and devoted sufficient time and
commitments in the affairs of the Company.
The Company determines the Directors’
remuneration with reference to factors such
as their respective responsibilities and duties
in the Company, as well as their experiences
and market conditions at the relevant time.
The Board should develop and review
the Company’s policies and practices
on corporate governance; review and
monitor the training and continuous
professional development of directors and
senior management; review and monitor
the Company’s policies and practices on
compliance with legal and regulatory
requirements; develop, review and monitor
the code of conducts for employees;
review the Company’s compliance with the
Corporate Governance Code and disclosure
in the Corporate Governance Report.
Directors’ training and continuous
professional development
The Company also arranges induction
activities including the duties and continuing
obligations of directors, relevant laws and
regulations, the operation and business of
the Company, so that all newly appointed
Directors
Executive Directors
Wang Xiaochu
Yang Jie
Wu Andi
Zhang Jiping
Zhang Chenshuang (retired on 20 March 2012)
Yang Xiaowei
Sun Kangmin
Ke Ruiwen (Appointed on 30 May 2012)
Directors are provided with updated data on
industry development. To ensure that the
Directors are familiar with the Company’s
latest operations for decision-making, the
Company arranges for key financial data
and operational data to be provided to the
Directors on a monthly basis since 2009.
Through regular Board meetings and reports
from management, the Directors are able to
clearly understand the operations, business
strategy and latest development of the
Company and the industry. In addition, the
Company reminds the Directors of their
functions and responsibilities by continuously
providing them with information about the
latest development of the Listing Rules and
other applicable regulations. The Directors
also pay regular visits to our provincial
branches to exchange ideas and study so
as to achieve a better understanding of the
latest business developments and share
their valuable experiences. The Directors
actively participate in training and continuous
professional development to develop and
refresh their knowledge and skills to ensure
their contribution to the Company.
In 2012, the Directors have participated
in training and continuous professional
development activities and the summary is
as follows:
Training categories
A, B, C
A, B, C
A, B, C
A, B, C
A, B, C
A, B, C
A, B, C
A, B, C
68
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report Directors
Non-Executive Directors
Li Jinming (retired on 22 August 2012)
Chen Liangxian (appointed on 16 October 2012)
Independent Non-executive Directors
Wu Jichuan
Qin Xiao
Tse Hau Yin, Aloysius
Cha May Lung, Laura
Xu Erming
Training categories
A, B, C, D
A, B, C
A, B, C, D
A, B, C, D
A, C
A, B, C
A, C, D
A: attending relevant seminars and/or conferences and/or forums
B: delivering speeches at relevant seminars and/or conferences and/or forums
C: reading relevant newspaper, journals and updates relating to general economy, general business,
telecommunications, corporate governance or directors’ duties
D: writing articles relating to general economy, general business, telecommunications, corporate governance or
directors’ duties
The Company has adopted the Model Code
for Securities Transactions by Directors of
Listed Issuers as set out in Appendix 10
to the Listing Rules to govern securities
transactions by the Directors. Based on the
written confirmation from the Directors,
all of the Company’s Directors have
strictly complied with the Model Code for
Securities Transactions by Directors of Listed
Issuers in Appendix 10 to the Listing Rules
regarding the requirements for directors
in conducting securities transactions. The
Company has received annual independence
confirmations from each of the Independent
Non-executive Directors, and considers them
to be independent.
Audit Committee
The Audit Committee comprises four
Independent Non-executive Directors,
Mr. Tse Hau Yin, Aloysius as the chairman
and Mr. Wu Jichuan, Dr. Qin Xiao and
Mr. Xu Erming as the members. The
Charter of the Audit Committee clearly
defines the status, qualifications, work
procedures, duties and responsibilities,
funding and remuneration, etc. of the
Audit Committee. The Audit Committee’s
principal duties include the supervision
of the truthfulness and completeness
of the Company’s financial statements,
the effectiveness and completeness of
the Company’s internal control and risk
management systems as well as the work of
the Company’s internal audit department.
It is also responsible for the supervision
and review of the qualifications, selection
and appointment, independence and
services of external independent auditors.
The Audit Committee ensures that the
management has discharged its duty to
establish and maintain an effective internal
69
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report control system including the adequacy of
resources, qualifications and experience of
staff fulfilling the accounting and financial
reporting function of the Company together
with the adequacy of the staff’s training
programmes and the related budget. The
Audit Committee also has the authority to
set up a reporting system to receive and
handle cases of complaints or complaints
made on an anonymous basis regarding
the Company’s accounting, internal control
and audit matters. The Audit Committee is
responsible to and regularly reports its work
to the Board.
In 2012, pursuant to the requirements of
the governing laws and regulations of the
places of listing and the Charter of the Audit
Committee, the Audit Committee fully
assumed its responsibilities within the scope
of the clear mandate from the Board. The
Audit Committee proposed a number of
practical and professional recommendations
for improvement based on the Company’s
actual circumstances in order to promote
the continuous improvement and perfection
of corporate management. The Audit
Committee has provided important support
to the Board and played a significant role
in protecting the interests of independent
shareholders.
In 2012, the Audit Committee convened
four meetings, in which it reviewed
important matters related to the Company’s
annual, interim and quarterly financial
statements, assessment of the qualifications,
independence and performance of the
external auditors and their appointments,
effectiveness of internal control, internal
audit, acquisition of certain CDMA
network assets and associated liabilities
and connected transactions. The Audit
Committee received quarterly reports in
relation to the internal audit and connected
transactions and provided guidance to the
internal audit department. Additionally,
the Audit Committee reviewed the
internal control assessment report and the
attestation report, followed up with the
recommendations proposed by the external
auditors, reviewed the U.S. annual report,
and communicated independently with the
auditors twice a year.
Remuneration Committee
The Remuneration Committee comprises
four Independent Non-executive Directors.
Mr. Xu Erming as the chairman and Mr. Wu
Jichuan, Dr. Qin Xiao and Mr. Tse Hau Yin,
Aloysius as the members. The Charter of the
Remuneration Committee clearly defines
the status, qualifications, work procedures,
duties and responsibilities, funding and
remuneration, etc. of the Remuneration
Committee. The Remuneration Committee
assists the Company’s Board to formulate
overall remuneration policy and structure
for the Company’s Directors and senior
management personnel, and to establish
related remuneration procedures that
are standardised and transparent. The
Remuneration Committee’s principal
duties 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, giving
recommendations to the Board in respect
of the overall remuneration policy and
structure for the Company’s Directors
and senior management personnel
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
70
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report any compensation payable for loss or
termination of their office or appointment).
Its responsibilities comply with the
requirements of the Corporate Governance
Code. The Remuneration Committee is
responsible to and regularly reports its work
to the Board. No meeting was held by the
Remuneration Committee in year 2012.
Nomination Committee
The Company’s Nomination Committee
comprises four Independent Non-executive
Directors, Mr. Wu Jichuan as the chairman
and Mr. Tse Hau Yin, Aloysius, Madam Cha
May Lung, Laura and Mr. Xu Erming as the
members. The Charter of the Nomination
Committee clearly defines the status,
qualifications, work procedures, duties and
responsibilities, funding and remuneration,
etc. of the Nomination Committee, and it
specifically requires that the Nomination
Committee members shall have no
significant connection to the Company, and
comply with the regulatory requirements
related to “independence”. The Nomination
Committee assists the Board to formulate
standardised, prudent and transparent
procedures and succession plans for the
appointment of Directors, and to further
optimise the composition of the Board.
The principal duties of the Nomination
Committee include regularly reviewing
the structure, number of members and
composition of the Board; identifying
candidates and advising the Board with the
appropriate qualifications for the position
of Directors; evaluating the independence
of Independent Non-executive Directors;
advising the Board on matters regarding the
appointment or re-appointment of Directors
and succession plans for the Directors. The
Nomination Committee is accountable to
and regularly reports its work to the Board.
The Company will identify suitable candidates
through multiple channels such as internal
recruitment and recruiting from the labour
market. The criteria of identifying candidates
include, but are not limited to, their
background, experience, professional skills,
personal qualities, capability to commit to
the affairs of the Company and, in case of
Independent Non-executive Director, the
candidates should fulfill the independence
requirements set out in the Listing Rules
from time to time. Upon the Nomination
Committee and the Board reviewed
and resolved to appoint the appropriate
candidate, the relevant proposal will be put
forward to the shareholders’ general meeting
in writing for approval.
Directors shall be elected at the
shareholders’ general meeting for a term
of three years. At the expiry of a director’s
term, the director may stand for re-election
and re-appointment. According to the
Articles of Association, before the convening
of the annual general meeting, shareholders
holding 5% or more of the total voting
shares of the Company shall have the right
to propose new motions (such as election of
directors) in writing, and the Company shall
place such proposed motions on the agenda
for such annual general meeting if there
are matters falling within the functions and
powers of shareholders in general meetings.
According to the Articles of Association,
shareholders can also request for the
convening of extraordinary general meeting
provided that the shareholders holding
in aggregate 10% or more of the shares
carrying the right to vote at the meeting
sought to be held and they shall sign one
or more written requisitions in the same
format and with the same content, requiring
the Board to convene an extraordinary
general meeting and stating the resolutions
of meeting (such as election of directors).
The Board shall convene an extraordinary
general meeting within two months. The
71
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report minimum period during which written
notice given to the Company of the intention
to propose a person for election as a director,
and during which written notice to the
Company by such person of his willingness
to be elected may be given, will be at least
seven days. Such period will commence no
earlier than the day after the despatch of
the notice of the meeting for the purpose
of considering such election and shall end
no later than seven days prior to the date
of such meeting. The ordinary resolution to
approve the appointment of Directors shall
be passed by votes representing more than
one-half of the voting rights represented by
the shareholders (including proxies) present
at the meeting.
In 2012, there were two written resolutions
passed by the Nomination Committee,
which approved the nomination of director
candidates.
Independent Board Committee
Pursuant to the requirements under the
Listing Rules, the Company’s Independent
Board Committee convened one meeting
in 2012, with all five Independent Non-
executive Directors attended where it
reviewed the acquisition of certain CDMA
network assets and associated liabilities and
the renewal of certain continuing connected
transactions and the annual caps applicable
thereto and gave the relevant confirmation
as well as submitted the recommendations
on these matters to the independent
shareholders.
The number of attendance15/meetings of the members of the Board and committees in
year 2012
Board
Audit
Committee
Independent
Board
Committee
Shareholders
meeting
Executive Directors
Wang Xiaochu (Chairman)
Yang Jie
Wu Andi
Zhang Chenshuang*
Zhang Jiping
Yang Xiaowei
Sun Kangmin
Ke Ruiwen**
Non-Executive Directors
Chen Liangxian***
Li Jinming****
Independent Non-Executive Directors
Wu Jichuan
Qin Xiao
Tse Hau Yin, Aloysius
Cha May Lung, Laura
Xu Erming
4/4
4/4
4/4
N/A
4/4
4/4
4/4
3/3
2/2
1/1
4/4
4/4
4/4
4/4
4/4
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
4/4
4/4
4/4
N/A
4/4
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
1/1
1/1
1/1
1/1
1/1
1/2
1/2
1/2
N/A
0/2
0/2
0/2
0/1
N/A
1/1
1/2
1/2
2/2
0/2
1/2
72
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report Note: Certain Independent Non-executive Directors did not attend the shareholders meeting due to other business commitments or being overseas.
*
Mr. Zhang Chenshuang retired as the Executive Director and Executive Vice President of the Company on 20 March 2012 due to his age.
** Mr. Ke Ruiwen was appointed as the Executive Director of the Company on 30 May 2012.
*** Mr. Chen Liangxian was appointed as the Non-Executive Director of the Company on 16 October 2012.
**** Mr. Li Jinming retired as the Non-Executive Director of the Company on 22 August 2012 due to his age.
1.
Mr. Wang Xiaochu attended 4 board meetings in person and did not appoint alternates to attend the meeting.
2.
3.
4.
5.
6.
7.
8.
9.
Mr. Yang Jie attended 4 board meetings in person and did not appoint alternates to attend the meeting.
Madam Wu Andi attended 4 board meetings in person and did not appoint alternates to attend the meeting.
Mr. Zhang Jiping attended 2 board meetings in person and appointed alternates to attend the meeting twice.
Mr. Yang Xiaowei attended 3 board meetings in person and appointed alternates to attend the meeting once.
Mr. Sun Kangmin attended 3 board meetings in person and appointed alternates to attend the meeting once.
Mr. Ke Ruiwen attended 3 board meetings in person and did not appoint alternates to attend the meeting.
Mr. Chen Liangxian did not attend board meetings in person and appointed alternates to attend the meeting twice.
Mr. Li Jinming did not attend the board meeting in person and appointed alternates to attend the meeting.
10. Mr. Wu Jichuan attended 3 board meetings in person and appointed alternates to attend the meeting once. Mr. Wu Jichuan attended 4
audit committee meetings in person and did not appoint alternates to attend the meeting. Mr. Wu Jichuan attended 1 independent board
committee meeting in person and did not appoint alternates to attend the meeting.
11. Dr. Qin Xiao attended 3 board meetings in person and appointed alternates to attend the meeting once. Dr. Qin Xiao attended 3 audit
committee meetings in person and appointed alternates to attend the meeting once. Dr. Qin Xiao attended 1 independent board committee
meeting in person and did not appoint alternates to attend the meeting.
12. Mr. Tse Hau Yin, Aloysius attended 4 board meetings in person and did not appoint alternates to attend the meeting. Mr. Tse Hau Yin, Aloysius
attended 4 audit committee meetings in person and did not appoint alternates to attend the meeting. Mr. Tse Hau Yin, Aloysius attended 1
independent board committee meeting in person and did not appoint alternates to attend the meeting.
13. Madam Cha May Lung, Laura attended 4 board meetings in person and did not appoint alternates to attend the meeting. Madam Cha May
Lung, Laura attended 1 independent board committee meeting in person and did not appoint alternates to attend the meeting.
14. Mr. Xu Erming attended 4 board meetings in person and did not appoint alternates to attend the meeting. Mr. Xu Erming attended 3
audit committee meetings in person and appointed alternates to attend the meeting once. Mr. Xu Erming attended 1 independent board
committee meeting in person and did not appoint alternates to attend the meeting.
15.
Include attendance in person, by telephone, by video conference, and by proxy.
Supervisory Committee
The Company’s Supervisory Committee
comprises six Supervisors, with one External
Independent Supervisor and two Employee
Representative Supervisors. On 22 August
2012, Mr. Miao Jianhua, Chairman of the
Supervisory Committee, retired from the
Supervisory Committee due to his age. On
the same date, Mr. Xu Cailiao and Madam
Han Fang resigned as the Supervisors
of the Company due to change in work
arrangement. On 16 October 2012, the
appointment of Mr. Shao Chunbao and Mr.
Hu Jing as the Supervisors were approved at
the EGM. On the same date after the close of
the EGM, a written resolution was passed to
appoint Mr. Shao Chunbao as the chairman
of the Supervisory Committee. Meanwhile,
Mr. Zhang Jianbin has been elected by the
employees of the Company democratically
as an Employee Representative Supervisor.
The principal duties of the Supervisory
Committee include supervising, in
accordance with the law, the Company’s
financials and performance of its Directors,
managers and other senior management
so as to prevent them from abusing their
powers. The Supervisory Committee is a
standing supervisory organisation within
the Company, which is accountable to and
reports to all shareholders. The Supervisory
Committee holds meetings at least once or
twice a year.
73
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report Attendance rates of individual members of the Supervisory Committee in 2012
The Fourth Session of the Supervisory Committee
Number of Supervisors (Fourth Session)
Number of meetings in 2012
Supervisors
Shao Chunbao (newly appointed Chairman of the fourth session
of the Supervisory Committee)
Miao Jianhua (ex-Chairman of the fourth session of
the Supervisory Committee)
Zhu Lihao (Independent Supervisor)
Mao Shejun (Employee Representative Supervisor of
the fourth session of the Supervisory Committee)
Zhang Jianbin (newly appointed Employee Representative
Supervisor of the fourth session of the Supervisory Committee)
Xu Cailiao (ex-Supervisor of the fourth session of
the Supervisory Committee)
Han Fang (ex-Supervisor of the fourth session of
the Supervisory Committee)
Hu Jing (newly appointed Supervisor of the fourth session of
the Supervisory Committee)
Du Zuguo (Supervisor of the fourth session of
the Supervisory Committee)
6
3
Number of
Attendance/Meetings
0/0
3/3
3/3
3/3
0/0
3/3
3/3
0/0
3/3
External Auditors
The international and domestic auditors of
the Company are KPMG and KPMG Huazhen
(Special General Partnership), respectively.
In order to maintain their independence,
the non-audit services provided by the
external auditors did not contravene the
requirements of the US Sarbanes-Oxley Act
of 2002.
A breakdown of the remuneration received
by the external auditors for audit and non-
audit services provided to the Company
for the year ended 31 December 2012 is as
follows:
74
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report
Service item
Audit services (inclusive of services provided for mobile network
acquisition)
Non-audit services (mainly include internal control advisory and
other advisory services)
Total
Fee
(RMB millions)
90.0
6.0
96.0
The Directors of the Company are
responsible for the preparation of
consolidated financial statements that give
a true and fair view in accordance with
International Financial Reporting Standards
as issued by the International Accounting
Standards Board and the disclosure
requirements of the Hong Kong Companies
Ordinance, and for such internal control
as the directors determine is necessary
to enable the preparation of consolidated
financial statements that are free from
material misstatement, whether due to fraud
or error.
The statements by the external auditors
of the Company, KPMG, regarding their
reporting responsibilities on the financial
statements of the Company is set out in
the Report of the Independent International
Auditor on page 109.
The service term of KPMG and KPMG
Huazhen (Special General Partnership),
the international and domestic auditors of
the Company for 2012, will expire at the
annual general meeting for 2012. The Audit
Committee and the Board have resolved
to appoint Deloitte Touche Tohmatsu and
Deloitte Touche Tohmatsu Certified Public
Accountants LLP as the international and
domestic auditors for the financial year
2013, subject to the approval at the 2012
Annual General Meeting.
Internal Control
Internal Control System
The Board attaches great importance to
the construction and perfection of the
internal control system, and takes effective
approaches to supervise the implementation
of related control measures, whilst enhancing
operation efficiency and effectiveness,
and enhancing corporate governance, risk
assessment, risk management and internal
control so as to protect shareholders’
investment and ensure the safety of the
Company’s assets. In this way, the Company
can achieve long-term development goals.
The Company’s management is responsible
for the establishment and implementation
of the internal control system. The internal
control system of the Company is built
on clear organisational structure and
management duties, an effective delegation
and accountability system, definite targets,
policies and procedures, comprehensive
risk assessment and management, a sound
financial accounting system, and continuing
analysis and supervision of operational
performance. It covers all services and
transactions of the Company. The Company
has formulated a code of conduct for the
senior management and employees which
ensures their ethical value and competency.
The Company has formulated its internal
reporting system, which encourages
anonymous reporting of situations where
employees, especially Directors and senior
management personnel, breach the rules.
75
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report Since the year 2003, based on the
requirements of the U.S. securities regulatory
authorities and the COSO Internal Control
Framework, and with the assistance of KPMG
Advisory (China) Limited (Beijing office) and
other advisory institutions, the Company
has formulated manuals, implementation
rules and related rules in relation to internal
control, and has developed the Policies on
Internal Control Management and Internal
Control Accountability Management to
ensure the effective implementation of
the above systems. Over more than nine
years, the Company has continuously
revised and improved the manuals and
implementation rules in view of the ever
changing internal and external operation
environment as well as the requirements
of business development. In particular, the
Company has further strengthened the
control over key business processes based
on the distinguishing features of mobile
services since the commencement of the
full services operation. While continuing to
improve the internal control related policies,
the Company has also been strengthening
its IT internal control capabilities, which has
improved the efficiency and effectiveness of
internal control, enhancing the safety of the
Company’s information system so that the
integrity, timeliness and reliability of data and
information are maintained.
In 2012, the Company further enhanced
the construction of internal control system,
strengthened the key aspects of risk control,
continuously improved the Company’s
internal control manuals and implementation
rules, and focused on solving new problems
arising from the innovation in connection
with services, operation, collaboration and
emerging services based on the adjustment
requirements to the service and financial
management processes under the promotion
of the centralised efficient operation. Pursuant
to the service development and risk analysis,
key service processes were developed and
certain key services processes management
were perfected, such as electronic channel
management, Best Pay management,
information security of the Internet assess
and of the users. We strengthened the risk
control on certain key aspects such as service
cooperation, agency management and
supplies procurement. We also enhanced
the control requirements in relation to
the segregation of “incompatible duties”
and defined a list of “incompatible duties”
in accordance with the characteristics of
different services. We reinforced the internal
control management mechanism for the
newly established subordinated organisations
to prevent internal control risk. The Company
implemented the information system for
the construction of internal control systems
in certain provincial-level branches of the
Company to improve the efficiency of the
internal control systems construction and to
regulate the system construction. In addition,
we promoted the standardisation of the key
control points within the internal control
processes to reduce human intervention,
so as to improve the effectiveness of the
implementation of the internal control
system.
Comprehensive Risk
Management
The Company views comprehensive risk
management as an important task within
the Company’s daily operation. Pursuant to
regulatory requirements in capital markets
of the United States and Hong Kong, the
Company has formulated a unique five-step
risk management approach based on risk
management theory and practice, including
risk identification, risk assessment, key risk
analysis, risk reaction and risk management
assessment. The Company has also designed
76
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report a risk management template, implemented
a standardised risk management procedure,
established and refined the centralised
risk directories and case studies database
of the Company, so that risk management
terminology is unified across all levels of
the Company and the effectiveness of risk
management was improved. Following the
efforts made in the past five years, China
Telecom has established a comprehensive
risk management system and has gradually
perfected its comprehensive risk monitoring
and prevention mechanism.
In 2012, pursuant to the requirement of
provision C2 of the Code on Corporate
Governance Practices and the Corporate
Governance Code of The Stock Exchange
of Hong Kong Limited, the Company
further incorporated comprehensive risk
management into its daily operation. The
Company continued to strengthen the
level-oriented, category-oriented and
centralised risk management, with resources
concentrated on the prevention of two types
of major potential risk, including the external
environment risk and operational risk, and
has achieved satisfactory results. In 2012, the
Company was not confronted with any major
risk event.
After rigorous risk identification, assessment
and analysis, the Company has conducted a
preliminary assessment of potential major
risks to the Company in 2013, such as the
external environment risk and operational
risk, and has put forward detailed responding
measures. Through the strict and appropriate
risk management procedures, the Company
will ensure the impact from the above risks
to the Company are limited to and within an
expected range.
Annual Internal Control Evaluation
The Company has been continuously
improving its internal control system. In order
to meet the regulatory requirements of its
places of listing, including the United States
and Hong Kong, and strengthen its internal
control while guarding against operational
risk, the Company’s internal audit department
is responsible for coordinating the supervision
and assessment of internal control.
The Company has adopted the COSO
Internal Control Framework as the standard
for the internal control assessment. With
the management’s internal control testing
guidelines and the Audit Standard No. 5 that
were issued by PCAOB as its directives, the
Company’s internal control assessment is
composed of the self-assessment conducted
by the persons responsible for internal control
together with the independent assessment
conducted by the internal audit department.
In order to evaluate the nature of internal
control deficiencies and reach a conclusion
as to the effectiveness of the internal control
system, the Company adopts the following
four major steps of assessment: (1) analyse
and identify areas which require assessment,
(2) assess the effectiveness of the design of
internal control, (3) assess the effectiveness of
the execution of internal control, (4) analyse
the impact of deficiencies in internal control.
At the same time, the Company rectifies any
deficiencies found during the assessment. By
formulating “Interim Measures for the Internal
Control Assessment”, “Manual for the Self-
Assessment of Internal Control”, “Manual
for the Independent Assessment of Internal
Control” and other documents, the Company
has ensured the assessment procedures are in
compliance with related rules and regulations.
In 2012, the Company’s internal audit
department initiated and coordinated the
assessment of internal control at the Company
level, and reported the results to the Audit
Committee and the Board.
77
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report Self-assessment of internal control adopts
a top-down approach which reinforces
assessment in respect of control points
at the corporate level and control points
corresponding to major accounting items.
The Company insisted on risk-oriented
principles and, on the basis of comprehensive
assessment, identified key control areas and
control points for major assessment through
risk analysis. In 2012, the Company, on the
basis of a comprehensive self-evaluation,
launched a special self-assessment work
organised and led by the operational
department and conducted self-assessment
based on six selected hotspot issues in
relation to operation and risk management.
Meanwhile, we further enhanced the function
of the internal control seminars, emphasised
on solving the difficult issues on the cross-
departmental and cross-processing internal
control, and improved the level and quality of
the self-assessment of internal control. During
the period of conducting self-assessment, the
Company organised self-assessment patrol
inspections to facilitate the improvement of
internal control evaluation quality and the
implementation of the rectification work.
The above measures effectively promoted
the participation by various departments
and units and ensured the self-assessment
work covering 100% of the Company, and
timely detected and rectified internal control
deficiencies so as to effectively control and
eliminate potential risks.
The Company, in respect of the independent
assessment, has put forth the guiding
principle that “independent assessment
shall focus on the major risks in relation
to enterprise operation and management
and be based on complete internal control
system, so as to ensure that the nature of
risks and problems will be identified and
captured, and to improve the overall efficiency
of auditing”, which has actively assisted all
departments and branches in raising the
quality and efficiency of the independent
assessment. In 2012, in accordance with the
principle and arrangement of assessment for
the Company, all units launched a proactive
independent assessment, timely identified
potential risk and oversaw the process to
rectify the problems. This achieved positive
results. The Company guided all units to
launch independent assessments and also
launched independent assessment focusing
on key aspects of main service processes
and risk control. The Company organised
independent assessment for six provincial
branches, assessed the effectiveness of the
internal control and its implementation, and
analysed and rectified the identified internal
control deficiencies. Through independent
assessment, the Company not only grasped
the overall situation of internal control,
but also developed key tests for its high-
risk processes. In addition, the Company
inspected the related units in respect of their
rectification of internal control deficiencies
and focused on the key issues in order to
ensure the depth and quality of assessment.
Furthermore, the Company organised the
internal control assessment team and other
relevant departments to closely coordinate
with the external auditors’ internal control
audit related to financial statements. The
internal control audit covered the Company
and all its subsidiaries as well as the key
processes and control points in relation
to major accounting items. The external
auditors regularly communicated with the
management in respect of the audit results.
All levels of the Company have been
attaching great importance to rectifying
internal control deficiencies. The Company
pushes all units to carry out rectification in
relation to deficiencies identified through
self-assessment, independent assessment
78
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report and the internal control audit. The Company
also highlighted the participation of
professional departments whilst exploring
the establishment of an internal control
mechanism with long-term efficiency. To
ensure effective rectification, the Company
also strengthened the verification and
supervision of the rectification of internal
control deficiencies. Pursuant to requests
from the Company, all provincial branches
launched rectification on any deficiencies
identified from the assessment (including the
internal control audit) in a positive manner.
Through self-assessments and independent
assessments conducted by branches at
different levels, the Company carried out
multi-layered and full-dimensional reviews of
its internal control system, and put its utmost
efforts into rectifying the problems which
were identified. Through this method, the
Company was able to ensure the effectiveness
of its internal control and successfully passed
the year-end attestation undertaken by the
external auditors.
The Board, through the Audit Committee,
reviewed the internal control system of
the Company and its subsidiaries for the
financial year ended 31 December 2012,
which covered its controls on financial
reporting, operation and compliance, as well
as its risk management functions. The Board
is of the view that the Company’s internal
control system is solid, well-established and
effective. The annual review also considers
the adequacy of resources, qualifications and
experience of staff fulfilling the Company’s
accounting and financial reporting functions,
together with the adequacy of the staff’s
training programmes and the relevant budget.
Investor Relations and
Transparent Information
Disclosure Mechanism
The Company establishes an Investor
Relations Department which is responsible
for providing shareholders and investors with
the necessary information, data and services
in a timely manner. It also maintains proactive
communications with shareholders, investors
and other capital market participants so as to
allow them to fully understand the operation
and development of the Company. The
Company’s senior management presents the
annual results and interim results in Hong
Kong every year. Through various activities
such as analyst meetings, press conferences,
global investor telephone conferences and
2012 Interim Results and CDMA
Network Acquisition Announcement
on 22 August 2012
79
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report 2012 Annual Results
Announcement on
20 March 2013
investors road shows, the senior management
provides the capital markets and the media
with important information related to
key issues of which the investors are of
prime concerns. This has helped reinforce
the understanding of the Company’s
business and the overall development of
the telecommunications industry in China.
Since 2004, the Company has been holding
the Annual General Meetings in Hong Kong
to provide convenience and encourage its
shareholders, especially public shareholders,
to actively participate in the Company’s
Annual General Meetings and to promote the
direct communication and exchange of ideas
between the Board and shareholders. During
the year, the Company proposed to acquire
certain CDMA network assets and associated
liabilities (“the Transaction”) and the
Company’s senior management proactively
communicated with investors and the media
through analyst meetings, press conference,
global investor telephone conferences
and investors road shows (in Hong Kong,
Singapore, Europe and the United States),
providing them with detailed information in
relation to and the long-term benefits of the
Transaction. The Transaction was duly passed
by majority of the independent shareholders.
With an aim of strengthening communications
with the capital market and enhancing the
transparency of information disclosure,
the Company has provided the quarterly
disclosure of revenue, operating expenses,
EBITDA, net profit figures and other
key operational data, and the monthly
announcements of the number of access
lines in service, mobile subscribers
(including 3G subscribers) and wireline
broadband subscribers. The Company
attaches great importance to maintaining
daily communication with shareholders,
investors and analysts. In 2012, the Company
has participated in a number of investors
conferences held by a number of major
international investment banks in order
to maintain active communication with
institutional investors.
80
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report In 2012, the Company attended the following investors conferences held by major international
investment banks:
Date
Name of Conference
January 2012
Deutsche Bank Access China Conference 2012
January 2012
UBS Greater China Conference 2012
January 2012
Standard Chartered Bank Non-Deal Roadshow 2012
March 2012
Credit Suisse Asian Investment Conference 2012
April 2012
ICBC Non-Deal Roadshow 2012
May 2012
May 2012
May 2012
May 2012
May 2012
May 2012
May 2012
May 2012
June 2012
June 2012
June 2012
June 2012
June 2012
June 2012
July 2012
Macquarie Greater China Conference 2012
Morgan Stanley Hong Kong Investor Summit 2012
UBS Asian Telecom Conference 2012
BNP Paribas Asia Pacific TMT Conference 2012
Mitsubishi UFJ Securities Non-Deal Roadshow 2012
BOC International 10th Investors Conference 2012
CLSA China Investment Forum 2012
Deutsche Bank 3rd Annual Asia Conference
Goldman Sachs Telecom & Internet Corporate Day 2012
Nomura Asia Equity Forum 2012
Piper Jaffray 9th Annual China Conference 2012
UBS Non-Deal Roadshow 2012
DBS Vickers Non-Deal Roadshow 2012
Credit Suisse China Investment Conference 2012
Daiwa Hong Kong China Investment Seminar 2012
September 2012
CLSA Hong Kong Investors’ Forum 2012
September 2012
J.P. Morgan Asia Pacific Equity Conference 2012
October 2012
Goldman Sachs Greater China Summit 2012
November 2012
BNP Paribas 19th Annual China Conference 2012
November 2012
Citi Greater China Investor Conference 2012
November 2012
J.P. Morgan Asia Pacific TMT Conference 2012
November 2012
Daiwa Investment Conference Hong Kong 2012
November 2012 Morgan Stanley Asia Pacific Investor Conference 2012
November 2012
CIMB 8th Hong Kong/China Conference 2012
November 2012
Bank of America Merrill Lynch China Conference 2012
December 2012
Societe-Generale/Ji Asia Pan Asian Conference 2012
81
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report The Company’s investor relations website
(www.chinatelecom-h.com) not only
serves as an important channel for the
Company to disseminate press releases and
corporate information to investors and the
capital market, but also plays a significant
role in the Company’s valuation and our
compliance with regulatory requirements
for information disclosure. In 2012, a
number of new functions and contents were
added, including debt information and debt
maturity schedule of the Company, to the
corporate website to further enhance the
functions and the level of transparency of
the Company’s information disclosure on its
website, so as to meet the international best
practices. In addition, a mobile version of the
Company’s website was also offered, which
allows the investors, shareholders, media
and the general public to easily browse the
updated information on the Company’s
website through mobile devices at any time
and any place. The Company’s website was
awarded, for the second consecutive year,
the “No. 1 Best Investor Relations Website
in Asia & Pacific” in IR Global Rankings,
indicating that the Company’s website
is highly recognised by professionals.
The Company also actively seeks
recommendations on how to improve the
Company’s annual report from shareholders
through survey, and in accordance with its
shareholders’ recommendations prepared
and distributed the annual report in a more
environmentally friendly and cost-saving
manner. The shareholders can ascertain
their choice of receiving the annual reports
and communications by electronic means,
or receiving English version only, Chinese
version only or both English and Chinese
versions.
The Company has always maintained a good
information disclosure mechanism. While
keeping highly transparent communications
with media, analysts and investors, we
attach great importance to the handling
of inside information. In general, the
authorised speaker only makes clarification
and explanation on the data available on the
market, and avoid providing or divulging any
unpublished inside information either by an
individual or by a team. Before conducting
any external interview, if the authorised
speaker has any doubt about the data to be
disclosed, he/she would seek verification
from the relevant person or the person-
in-charge of the relevant department, so
as to determine if such data is accurate. In
addition, discussions on the Company’s key
financial data or other financial indicators
are avoided during the black-out period.
Shareholder Rights
According to the Articles of Association,
shareholders who request for the convening
of an extraordinary general meeting or
a class meeting shall comply with the
following procedures:
Two or more shareholders holding in
aggregate 10% or more of the shares
carrying the right to vote at the meeting
sought to be held shall sign one or more
written requisitions in the same format and
with the same content, stating the proposed
matters to be discussed at the meeting,
and requiring the Board to convene a
shareholders’ extraordinary general meeting
or a class meeting thereof.
82
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report If the board of directors fails to issue a
notice of such a meeting within 30 days
from the date of receipt of the requisitions,
the shareholders who make the requisitions
may themselves convene such a meeting
(in a manner as similar as possible to the
manner in which shareholders’ meetings are
convened by the board of directors) within
four months from the date of receipt of the
requisitions by the board of directors.
When the Company convenes an annual
general meeting, shareholders holding 5%
or more of the total voting shares of the
Company shall have the right to propose
new motions in writing, and the Company
shall place such proposed motions on the
agenda for such annual general meeting if
they are matters falling within the functions
and powers of shareholders in general
meetings.
Process of forwarding shareholders’
enquiries to the Board:
Shareholders may at any time send their
enquiries and concerns to the Board in
writing through the Company Secretary
and the Investor Relations Department. The
contact details of the Company Secretary are
as follows:
The Company Secretary
China Telecom Corporation Limited
38th Floor, Dah Sing Financial Center
108 Gloucester Road, Wanchai
Hong Kong
Email: ir@chinatelecom-h.com
Tel No.: (852) 2877 9777
Fax No.: (852) 2877 0988
A dedicated “Investor” section is available
on the Company’s website (www.
chinatelecom-h.com). There is a FAQ
function in the “Investor” section designated
to enable the Company, shareholders and
investors to have timely, effective and
interactive communication. Company
Secretary and the Investor Relations
Department of the Company handle both
telephone and written enquiries from
shareholders of the Company from time to
time. Shareholders’ enquiries and concerns
will be forwarded to the Board and/or
the relevant Board Committees of the
Company, where appropriate, to answer the
shareholders’ questions. Information on the
Company’s website is updated on a timely
basis.
Significant Differences Between the
Corporate Governance Practices
followed by the Company and
those followed by NYSE-Listed U.S.
Companies
The Company was established in the
PRC and is currently listed on The Stock
Exchange of Hong Kong Limited and the
New York Stock Exchange (“NYSE”). As a
foreign private issuer in respect of its listing
on the NYSE, the Company is not required
to comply with all the corporate governance
rules of Section 303A of the NYSE Listed
Company Manual. However, the Company
is required to disclose the significant
differences between the Corporate
Governance Practices followed by the
Company and the listing standards followed
by NYSE-listed U.S. companies.
83
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report Pursuant to the requirements of the NYSE
Listed Company Manual, the board of
directors of all NYSE-listed U.S. companies
must be made up by a majority of
independent directors. Under currently
applicable PRC and Hong Kong laws and
regulations, the Board of the Company is
not required to be formed with a majority
of independent directors. As a listed
company on The Stock Exchange of Hong
Kong Limited, the Company needs to
comply with the Listing Rules. These rules
require that at least one-third of the board
of directors of a listed company in Hong
Kong be independent directors. The Board
of the Company currently comprises of
12 Directors, of which 5 are Independent
Directors, making the number of
Independent Directors exceed one-third of
the total number of Directors on the Board,
in compliance with the requirements of the
Corporate Governance Code of the Listing
Rules. These Independent Directors also
satisfy the requirements on “independence”
under the Listing Rules. However, the related
standard is different from the requirements
in Section 303A.02 of the NYSE Listed
Company Manual.
Pursuant to the requirements of the NYSE
Listed Company Manual, companies shall
formulate separate corporate governance
rules. Under the currently applicable PRC
and Hong Kong laws and regulations, the
Company is not required to formulate any
rules for corporate governance; therefore,
the Company has not formulated any
separate corporate governance rules.
However, the Company has been in
compliance with all the code provisions
under the Code on Corporate Governance
Practices (effective until 31 March 2012) and
the Corporate Governance Code (effective
from 1 April 2012) as set out in Appendix
14 of the Listing Rules throughout the year
2012.
Mechanism innovation of the
Company
The Company has a long-term commitment
towards solving its mechanism impediments
and defects in order to stimulate
business development through structure
optimisation. In 2012, the Company
established China Telecom Global Limited,
by integrating the Overseas Expansion
Division and three overseas companies,
which will form a set of system and
mechanism suitable for overseas business
development, realise centralised efficient
operation and coordinated management of
overseas operation, build an overseas talents
base, and expand the scale of overseas
operation. In 2012, the Company established
“Cloud” company to perform centralised
efficient operation and management of the
IDC and the “Cloud” services. In 2012, the
84
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report Company separated the management and
operation and optimised the structure of
departments in the headquarters, including
the government and enterprise customer
department, network operation department,
IT department and merchandising
department, which further enhanced the
centralised efficient management capability
of the headquarters.
Continuous Evolution of Corporate
Governance
The Company continuously analyses the
corporate governance development of
international advanced enterprises and
the investors’ desires, constantly examines
and strengthens the corporate control
system and practice, and improves the
current practices at the appropriate time;
we strongly believe that by adhering to
good corporate governance principles, and
improving the transparency, independence
and the establishment of the effective
accountability system, we can ensure
the long-term stable development of the
Company and to seek sustainable returns for
the shareholders and investors.
The homepage of corporate website (www.chinatelecom-h.com).
To access our mobile website,
please simply scan this QR code
with your smartphone right away.
85
China Telecom Corporation LimitedAnnual Report 2012Corporate Governance Report Euromoney
Overall Best Managed Company in Asia
FinanceAsia
No. 1 Best Managed Company in Asia
Corporate Governance Asia
Asia’s Best Companies in Corporate Governance
Yes We Can
the Great Excellence
Dedication by Our Joyful Talents
ACHIEVE In 2012, we thoroughly implemented the
Company’s strategy of “Three New Roles”
in our human resources management and
firmly adhered to the work focus of “dual-
leadership in innovation and service”. We
focused on “centralised efficient operations
and scale development” of our services
and adhered to the principle of supporting
development and serving our employees.
The Company further broadened its mindset,
deepened its understanding and tackled its
challenges. Through continuously adapting
to new situations, new environments
and new businesses, and adhering to the
doctrine of people-oriented strategy and
pragmatic innovation, the Company’s
human resources management achieved
new development.
Firstly, the Company exerted every effort
in implementing a competitive promotion
system and proactively rejuvenating its
management team. The Company adopted
“entrepreneurship” as the basic standard
for the selection, engagement, assessment
and cultivation of new management
members. In order to achieve sustainable
assurance for the rapid business growth,
the Company further defined the values and
competence standards of the management
team of China Telecom, systematically
established teams comprising professionals
with different expertise, continued with
the enhancement of the competence and
quality in full services operation of its staff,
and strengthened its resources management
innovation and incentives allocation system.
Secondly, the Company comprehensively
summarised the experience gained from
the transformation of human resources
management integrated pilot scheme
into fundamental services and accelerated
the roll-out of this scheme nationwide.
Provincial branches in four pilot regions,
namely Jiangsu, Anhui, Sichuan and
Shandong, have implemented the scheme
across the relevant provinces. Each of the
other 27 provincial branches selected to
trial the scheme in one or two prefecture-
level cities. The promotion of this two
scheme has a positive effect in four areas,
namely the adjustment and optimisation of
the employee structure, the reinforcement
of efficient management of all of the
Company’s employees, the improvement
of frontline employee income, and the
active exploration of the employee career
development mechanism.
Mr. Wang Xiaochu, Chairman
visited aged retired former employees
88
China Telecom Corporation LimitedAnnual Report 2012Human Resources Development Report Thirdly, for areas of emerging services
the Company has actively promoted
the innovation in the human resources
management system. The Company
timely identified and selected outstanding
talents for promotion and provided them
with nurturing and support, and adopted
numerous measures to progressively build
up a new China Telecom army of mobile
Internet talents that has core competitive
edges. By adhering to its market-oriented
approach, and through the incubation of
new business development teams and
new business development companies,
the Company has shifted its human
resources development direction towards
innovation, pioneer spirit and growing
within the marketplace. The Company has
achieved a breakthrough in its organisation
structure, and has introduced the system
where a new business venture will adopt a
flexible management system and incentive
measures that is similar to a privately-
owned enterprise, with its founders having a
controlling stake in the venture. By settling
personnel costs attributable to the business
development team at the provincial branch
level, the Company encourages employees
to develop of new lines of service. The
Company also established a management
and interactive sharing platform for business
development personnel, which includes a
database of business development talents
to facilitate communication and interaction
between members of the business
development team.
Fourthly, the Company cared for its frontline
employees and employees with special
needs, built and maintained a harmonious
corporate environment. The Company took
concrete steps to support and cared for the
frontline employees and persisted in tilting
the distribution of remuneration in favour of
employees at the frontline, which resulted
in the steady increase of income of frontline
employees. In addition, the Company
timely provided necessary assistance and
expressed its care and concern to the barren
regions and regions suffering from natural
disasters. In order to provide assistance to
employees in difficulty, including retired and
early retired employees, the Company has
steadily progressed in the regulation of the
annuity plan of the Group and has refined
the social security systems for its employees.
In this way, the Company has addressed
incumbent employees’ concerns of their
living standards after their retirement. We
pragmatically maintained the harmonious
and stable corporate environment by
regulating business expenses incurred
by management personnel and dutifully
improved the channels for employees to
express their opinions and grievances.
Lastly, the Company strengthened the
production safety management and
created a safe workplace for its employees.
The Company diligently and thoroughly
implemented the strategies of adhering
to scientific outlook on development and
implementing safe development, and
thoroughly established the main bodies
that are accountable for safe production.
Through continuously strengthening
the Company’s efforts in building an
organisational structure, refining rules and
regulations, providing training courses
about production safety at the production
team unit level, defining the duties of
frontline employees, implementing the
safe production supervision, inspection,
and risk treatment initiatives, taking a
strict view in dealing with accidents,
strengthening the audit of the accountability
mechanism, and increasing the number
of emergency drills, the Company has
made progress in establishing a long-
term efficient mechanism for corporate
safe production. At the same time when
the Company strengthened its safe
production management, it also increased
its investment into production safety
and diligently improved the working
environment and conditions for its
employees. In particular, the Company
grouped its frontline production staff into
production team units to carry out risk
assessment and hazard identification of
the operational environment on site. This
has significantly improved the employees’
awareness in self-protection. The Company
also pushed forward and lowered the centre-
of-gravity of the safety control checkpoints
towards the frontline and has effectively
prevented the occurrence of incidents,
which in turn ensured scientific and safe
development.
89
China Telecom Corporation LimitedAnnual Report 2012Human Resources Development Report Information of Employees
As at the end of 2012, the Group had 305,676 employees. Numbers of employees working
under each classification and their respective proportions were as follows:
Management, Finance and Administration
Sales and Marketing
Operations and Maintenance
Research and Development
Total
Number of
employees
Percentage
49,566
156,260
97,658
2,192
305,676
16.2%
51.1%
32.0%
0.7%
100%
Seminar for outstanding employees
90
China Telecom Corporation LimitedAnnual Report 2012Human Resources Development Report Corporate-Employee
Relationship
Communication between
Management and Employees
In order to provide a smooth channel for
employees to express their opinions and
for the management to understand the
working and living conditions of employees
and their views, the labour union of the
Group formulated and issued “Notice on
Further Enhancement of Investigation
and Analysis and Reporting of Views
and Working and Living Conditions of
Employees” and established a monthly
reporting mechanism on the state of the
Group’s employees, a biannual analysis
and reporting mechanism of employees’
views and a real time reporting mechanism
of contingencies. Through surveys with
the employees through various channels
such as face-to-face meetings, Internet
weibo, mailbox, hotlines, and seminars, the
labour unions at the provincial branches
took full advantage of the functions of the
representatives, employee representatives
and cadres of the frontline employee labour
unions, organised and conducted numerous
communication and feedback activities,
and have timely discovered and grasped
the employees’ thoughts and ideas. The
Company conscientiously dealt with such
ideas and thoughts, dealt with and resolved
the relevant issues and addressed our
employees’ rational requests and concerns.
Managers and union leaders at various levels
and labour unions visited branches at the
cities and counties level and production
units and sub-branches in rural areas, and
visited employees to help them resolve
difficulties that they face.
Roles and Duties of Labour Unions
Within the Company, labour unions of
the Company persisted in the principle of
“promoting both corporate development
and the employee’s growth” and further
promoted corporate development to
better protect employees’ interests, with
focus on “pragmatically developing the
foundation and building two brands”,
meaning the continuous promotion of the
“Four Smalls” construction projects, and
building a “Four Small” brand as a brand
that solves the employees’ difficulties. The
Company further promoted job innovation
of employees, satisfied the high-level
needs of our employees and improved
the “employee happiness quotient” so as
to promote our employees from being
good to being excellent, which played an
important role in areas such as corporate
governance, transformation and full services
operation and development. In order to
facilitate the development of full services
operation of the Company, the labour
unions proactively became involved in the
Company’s core operations and jointly
organised on-the-job innovation activities,
labour competitions and skill competitions
with the relevant functional departments.
The union also mobilised and organised
the employees to diligently achieve the
production and operation targets of the
Company. The labour unions organised
the assessment of on-the-job innovation
of the employees and their expertise, and
will soon commence with the promotion
and replication of excellent innovative
ideas, boosting the transformation of such
ideas. The labour unions organised the
“Be the First in e-Surfing Flying” series of
skill competitions with over one million
employees participating, which played an
important role in boosting the Company’s
full services development and improving the
skills and quality of employees.
The Company pays close attention
to comprehensive development of
employees and the enhancement of their
quality. According to the requirement of
building a team of the “Four First-Class”
employees, namely employees with first-
class professionalism, first-class service
skills, first-class work style and first-class
91
China Telecom Corporation LimitedAnnual Report 2012Human Resources Development Report job performance, the labour unions of
the Company organised and conducted
activities such as on-the-job training, skills
competitions and building up learning teams
to create a knowledge-sharing platform, so
as to help employees improve their service
skills that are suitable for the full services
development needs of the Company. The
labour unions proactively assisted relevant
departments with the establishment of
production teams and organised training
courses to cultivate frontline innovative
team leaders for excellent learning teams.
In addition, the labour unions also organised
a team to participate in the finals of the
Telecommunication Business Salesperson
competition and the finals of the Operators
(Core Network Switch) competition in the
2012 Skills Competition of employees in
state-owned enterprises. The team achieved
a delightful result with 5 gold, 13 silver and
7 bronze awards, and was the team that won
the most gold awards and the most awards
overall.
In relation to the on-the-job innovation
activities, labour competitions and skill
competitions in 2012, a new group of
exemplary employees were identified. Two
units were awarded the “National May 1st
Labour Award”, ten units were awarded the
“National Pioneer Workers”, eight employees
were awarded the National May 1st Labour
Medal”, five employees were named as
“National Technical Master of China”, and 30
employees were named as “Technical Master
of China’s State-owned Enterprises”. The
Company also selected 40 employees and
awarded them with the title of “Technical
Master of China Telecom”, selected 10
employees and awarded them with the title
of “Labour Master of China Telecom”, and
selected 10 employees and awarded them
with the title of “Experts of job Innovation of
China Telecom”.
Through democratic management systems
such as the Employees’ Representative
Congress, the labour unions organised
the employees to participate in the
decision-making on major employee-
benefit matters and the formulation of the
relevant corporate rules and regulations
of the Company. The labour unions of the
Group organised and convened six joint
conferences of provincial labour unions
chairmen, considered and approved
regulatory documents democratically,
including the “Position and Remuneration
System of Full Services Operation”,
“Corporate Annuity Plan”and Interim
Measures on the Regulation of Business
Expenses Incurred by Management
Personnel”, and democratically elected the
employee representative supervisors of the
Company and employee representative
director of the China Telecommunications
Corporation group.
Labour unions in all levels pragmatically
promoted the “face-to-face, heart-to-
heart, being practicable and down-to-
earth and serving employees at the front
line” initiative. The cadres of the labour
unions visited base-level branches at the
prefecture-level cities, county-level and
sub-branches in rural areas to conduct field
research to better understand the working
conditions of the frontline employees and
the works of labour unions, and proactively
made recommendations and provided
them to the administrative management.
Labour unions at all levels organised various
forms of activities to visit employees in
difficulty, showed their concerns for these
employees, and committed to successfully
accomplishing ten objectives for the
employees within a year. The labour unions
also organised the “Guaranteed Visits to Five
Categories of Enterprises and Five Categories
of Employees” visiting activities, and did
everything possible to help these employees.
92
China Telecom Corporation LimitedAnnual Report 2012Human Resources Development Report Coordination and Communication
between the Company and the
Labour Unions
The Company continued to strengthen
our efforts in caring for our employees
and promoting harmonious development,
reinforcing coordination and
communication with the labour unions.
In order to achieve the strategic goal
of full services operation, the Company
coordinated and communicated with
the labour unions in the organisation of
activities such as skill competitions through
the Labour Emulation Committee. The
Company focused on organising three “Be
the First in e-Surfing Flying” competitions
in the three professional areas: government
and enterprise customers marketing,
public customers marketing and customer
services. The Company, jointly together
with the relevant departments, organised
the 7th session of “Excellent Innovation
Cup”, a competition on marketing skills to
government and enterprises customers, a
competition on Best Tones customers service
skills and a competition on skills in providing
application assistance on applications of
3G phones. 150,000 counts of on-the-job
training were delivered as a result of such
competitions with a 100% participation rate
and a 90% qualification rate, and the skills of
the employees were effectively enhanced.
The labour unions earnestly implemented
the Company’s directive to “diligently
transfer ordinary employees into employees
with superior qualities and efficiency”
by actively communicating with relevant
departments of the Company. Through
establishing a sustainable multi-level
incentive system for employees with wide
coverage with realisation of the employees’
senses of value, loyalty and pride as
both the starting point and the ultimate
goal, employees are able to identify their
own development directions and their
own personal goals. The Company will
systematically develop and rationalise
its various honors such as “National
Outstanding Worker” and encourage its
employees to progress from being good to
being excellent.
The Company deepened the implementation
of the terms of reference for the
Employees’ Representative Congress of
the provincial branches, and maximised
the role of Employee Representatives.
In 2012, the Company convened 33
employees’ representative congresses of
provincial branches, 90 joint conferences
of team leaders of provincial employees’
representative teams and 79 meetings of
special committee (group) of provincial
Employees’ Representative Congress. 90%
of documents regarding the interests of
the employees formulated by departments
at different levels were democratically
approved by the Employees’ Representative
Congress. 50% of the provincial branches
established or optimised a comprehensive
“Five systems” management mechanism for
employees’ representatives and organised
60 site visits for employees’ representatives
of the provincial branches. The democratic
management of frontline Employees’
Representative Congress was standardised
and their management was continuously
improved.
Caring for Employees
In 2012, based on the principle of deepening
the implementation of the “Four-Smalls”
initiative, the labour unions at all levels
focused on resolving problems that concern
the employees the most, that affect the
employees the most and that are most
practical to the employees by pragmatically
promoting the various projects that show
their concern and care for the employees.
By reinforcing the achievements of the
“Four-Smalls” initiative, the working and
living conditions of frontline employees
were further improved. The systematic
management of the established
infrastructure was strengthened, which
further enhanced the utility of these
infrastructure and projects, which improved
and further promoted the improvement
of the working and living conditions of
employees.
93
China Telecom Corporation LimitedAnnual Report 2012Human Resources Development Report The enterprises and labour unions at all
levels organised care delivery activities
during critical times in the Company’s
operations or where there are natural
disasters, including the “Delivering Warmth
and Care” initiative during New Year, the
“Cool Summer” initiative during the hot
summer, which lent comfort to the frontline
employees. During the New Year and
the Lunar New Year, senior management
of the Group and the Company visited
frontline units in 19 provinces, autonomous
regions, municipalities, prefecture-level
cities, counties and rural level branches
and enterprises units to show their care
for the employees. The enterprises and
the labour unions at all levels recorded
302,000 counts of employee visit and
13,734 counts of production teams visit.
Provincial branches spent RMB20.23
million (of which RMB11.78 million was
contributed by the labour unions) and
recorded 66,726 counts of employee visits.
RMB28.96 million of assistance funds
was dispersed by the provincial branches
to employees in difficulty. The Company
required all group companies at all levels to
“maintain the focus on delivering care and
concern to frontline employees located in
remote areas”, showing care and concern
on outstanding frontline employees who
have worked in areas with severe conditions
for a long time. The Company organised
the 2nd phase of recuperation programme
for 26 outstanding employees who have
worked in remote areas in six provinces with
a difficult working environment, namely
Tibet, Xinjiang, Qinghai, Gansu, Yunnan and
Sichuan.
The Company also launched psychological
counselling programmes for its employees.
To effectively relieve the psychological
pressures of employees and encourage
employees to take a positive attitude
towards their lives, provincial-level labour
unions actively started counselling,
psychological consultation and assistance
programmes for the employees. The
Company organised activities surrounding
the theme of “Female Employees pursuing
strength in happiness” with creating
happiness as the core. The Group held
training courses for female employees, and
organised female employee committees
at all levels to enhance the quality and
capabilities of female employees around
the theme “creating happiness”. These
measures have maintained the harmonious
working environment within the Company
and have continuously promoted the
“Female Employees pursuing strength in
happiness” theme.
The enterprises and labour unions at all
levels organised various cultural and sports
activities titled “Let’s go, I am healthy, I am
happy”. The Company organised the first
swimming and table tennis competitions
of China Telecom and organised the
China Telecom Photography Society.
The Company also organised a team to
participate in the badminton competitions of
telecommunications industry and achieved
favourable results.
Strengthening Human Capital
Focusing on our strategic development
priorities, the Company continued to
strengthen the development of talent teams,
and actively promoted the capabilities
improvement of our operation managers,
professionals and technical personnel.
Developing Leadership Skills
The Company focused on the training
of leaders at all levels. The Company
emphasised “entrepreneurship” as the basic
standard in selecting, engaging, evaluating
and cultivating young leaders, and has
94
China Telecom Corporation LimitedAnnual Report 2012Human Resources Development Report further clarified what a China Telecom
leader should have in terms of their values,
their abilities and their qualities, which
updated and enriched the connotations
of our leadership team. The Company
organised a consolidated performance
assessment for the senior management
of provincial branches with an office term
from 2010 to 2012, and also organised
annual performance evaluations and end
of probation performance evaluations for
deputies of the provincial branches. In 2012,
the Company provided various training
courses for senior management of group
companies at all levels, and has directly
organised four research and study sessions
for 388 general managers of prefecture-level
cities branches. The Company also organised
two training sessions for 62 county-level
branch chiefs with outstanding performance
from various provincial branches. In addition,
12 chiefs of departments and directly-
owned enterprises of the group companies
participated in centralised trainings held
by other institutions such as the Chinese
Academy of Governance.
Cultivating Professional Talents
The Company strengthened the selection,
engagement and cultivation of professional
talents. The Company continued to
implement China Telecom’s talent
development plan and continued to expand
the coverage of professional of talents so as
to establish a 4-tier team for professional
talents. In 2012, China Telecom completed
the selection of 257 Rank B talents with
knowledge in wireless and mobile, core
network, optical transmission and access as
well as platform and terminal professionals
through technical skill assessment, interview,
question and answer sessions and public
selection. On the basis of the selected
talents, 13 Rank A talents were selected
through recommendation, interview and
Mr. Yang Jie, President exchanging ideas
cordially with frontline staff
95
China Telecom Corporation LimitedAnnual Report 2012Human Resources Development Report assessment. As at the end of 2012, China
Telecom has formed a team of professional
experts comprising 17 Rank A talents, 657
Rank B talents, 1,617 Rank C talents and
3,070 Rank D talents with expertise in seven
major business aspects. The Company
continued with the engagement, cultivation
and development of professional experts.
According to major corporate goals for
the year, the Company formulated annual
working and training plans for Rank A and
B talents. In 2012, a total of five training
courses for three specialties were organised,
namely IP, IT and marketing, which nurtured
312 Rank B talents. The Company will adopt
measures to further expand the professional
developments of professional experts, and
make the best use of professionals in the
Company’s operations.
Enhancing Employees’ Skills
The Company actively commenced
frontline employees’ skills training and skills
certification. In order to support the scale
development of and focus on data traffic
operation, in 2012, the Group held 199
training sessions covering various areas,
including marketing, product, sales service,
corporate informatisation, maintenance
and service support, network development
construction and integrated management,
with 12,261 attendees in total. The
Company also organised and conducted
skills certification for six types of positions,
namely maintenance, government and
enterprises customer service, customer
service representative of “Best Tone”, VIP
customer service, “10000” call service
representative and optical access network
construction. A total of 30,800 employees in
21 batches participated in the certification
examinations. Four provincial FTTH network
construction training sessions for instructors
and 29 optical access network installation
and maintenance training sessions for
instructors were organised and conducted,
which nurtured 1,550 in-house instructors.
14 smartphone training sessions were held,
which trained 1,249 in-house instructors.
The Company also conducted professional
open channel manager examinations, and
14,000 open channel managers, channel
managers and supporting staff in provincial
branches participated in the examinations,
with a passing rate of 63.4%.
The Company cultivated and retained talents
for its future long-term growth by organising
the recruitment of college and graduate
school graduates with good qualifications.
In 2012, the Company entered into
employment contracts with 4,679 graduates,
representing 88.4% of its intended target,
approximately 18 percentage points above
2011. The proportion of graduates majoring
in positions such as products, operation
support and information operations further
increased. The Company also proactively
cultivated excellent graduates in order to
retain talents for the future development of
the Company.
Remuneration and Performance
Management
The remuneration of the Company’s
employees comprises base salary and
performance based salary, and takes
into account both short and medium-
to-long term incentives. The Company
further strengthened the management
of remuneration costs to the Company:
firstly, the Company endeavoured to
create a favourable external environment
that meets the pay-out requirements
of remuneration to support enterprise
development; secondly, it established a
differentiated remuneration budget model
to classify and manage provincial branches,
specialised companies and cost centres
according to their special features; thirdly, it
proactively adjusted and optimised the cost
allocation model of remuneration, which
adjusted the allocation of remuneration
based on each unit’s real-time income
and its market share goal; and fourthly,
96
China Telecom Corporation LimitedAnnual Report 2012Human Resources Development Report it proactively explored the separation of
management and operation functions at
the Group headquarters and implemented
the separation of management and control
functions in the departments responsible
for management and operation centres of
the business department. The Company
formulated and implemented the “Position
and Remuneration System of Full Services
Operation” and related ancillary documents
relating to remuneration, which instructed
each business unit to gradually implement
the system based on trial-run results. The
Company also persisted in determining
employees’ remuneration based on
their value and contribution and tilting
towards of core frontline employees, and
implemented a medium-to-long term
incentive programme for middle and senior
management and core staff members of the
Company.
At present, China Telecom has established
a relatively comprehensive employees’
performance evaluation system. The
headquarters, the provincial and prefecture-
level city branches have set up employees’
performance evaluation teams led by the
respective general manager of the relevant
branch. The teams have formulated
evaluation methods for deputies, functional
departments, subordinated units and
general employees. On the basis of this well-
established system, in 2012 the Company
focused on its implementation to ensure
that each assessment system was properly
in place and implemented. Firstly, the
Company perfected the leadership and
working structures responsible for all-
employee assessment and evaluation and
the persons-in-charge of business units shall
also be in charge of the evaluation body for
that business unit. Secondly, it established
a comprehensive employee incentive
mechanism and related supervision system
to secure the fairness and reliability of
the performance evaluation. Thirdly, it
has further optimised and improved the
performance evaluation system to appraise
the performance of business units, deputies,
middle management and employees by
level. Fourthly, the Company reinforced its
supervision and examination of performance
evaluation system by providing guidance
throughout the entire performance
evaluation process. Fifthly, it clarified the
operational standards of performance
evaluation and the implementation
requirements to enhance their rationality
and standardisation.
Guaranteeing Employee Welfare
The Company strictly abides by the laws
and regulations such as the “Labour
Law of the People’s Republic of China”
and the “Labour Contract Law of the
People’s Republic of China” to regulate
its employment practices. The Company
offers equality of remuneration and work,
implements special regulations to protect
female employees’ rights and interests,
and there were no gender discrimination
policies or regulation, and there had been no
circumstance whereby child labour or forced
labour was employed. Based on the theme
of “Dreaming for happiness”, “Creating
happiness”, “Experiencing happiness” and
“Spreading happiness”, the labour unions
of the Company organised a campaign
with a theme of “pursuing happiness” for
guiding and assisting all female employees
of China Telecom to build up a positive
view on happiness and pursuit their own
happiness, contributing to harmonious
corporate development and happy families.
The Company has strengthened the
training on knowledge and capability for
the Employee Assistance Programme (EAP)
and organised psychological health lectures
and psychological counselling to increase
employees’ capacities for self-adjustment
and ease their pressure.
97
China Telecom Corporation LimitedAnnual Report 2012Human Resources Development Report Responsibilities Management
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Being a Green Integrated
Information Services Provide r
Model of Corporate Social Responsibility
By adhering to the core philosophy of
“comprehensive innovation, pursuing truth
and pragmatism, respecting people and
creating value all together”, China Telecom
perseveres in scientific development. While
conscientiously fulfilling its responsibility
to shareholders and rewarding them, the
Company has associated its development
with sustainable economic, social and
environmental development and integrated
its corporate social responsibilities into the
provision of products and services. The
Company has been committed to serving
its customers, caring for its employees,
protecting the environment and offering
returns to the society, aiming to promote a
harmonious society. In 2012, China Telecom
was accredited with “China’s Outstanding
Enterprise in Corporate Social Responsibility”
by the Chinese Academy of Social Sciences.
98
I. Operating with integrity and
in compliance with the laws
The Company operates with integrity and
in compliance with relevant laws and
regulations, industry regulations, business
ethics and social ethics and persists in
operation complying with the law . We
have established an all-rounded and
seamless compliance system featuring
legal education, industrial regulation
compliance, strengthening internal control,
audit supervision, anti-corruption and
comprehensive risk management. We have
created a lasting, effective and standard
communication mechanism in order
to enhance information disclosure and
increase company transparency. We have
taken the initiative in receiving government
regulation and social supervision. In
2012, we continued to strengthen system
construction, supervision and inspection,
and made timely rectification when
problems were discovered.
China Telecom Corporation LimitedAnnual Report 2012Corporate Social Responsibility Report
II. Fulfilling our essential
responsibilities as a telecom
operator
China Telecom regards the construction
of a complete and comprehensive
basic networks, developing universal
telecommunications services, guaranteeing
emergency communications, maintaining
information health, promoting
indigenous innovation and facilitating
industrial development as our inherent
responsibilities.
Promoting the “Broadband China •
Fibre Cities” project
As a key player for constructing China’s
broadband network, after launching its
“Broadband China • Fibre Cities” project in
2011, China Telecom further accelerated the
construction of broadband infrastructure by
promoting the FTTH construction in urban
areas and applying customised techniques
in broadband network construction in
rural areas to speed up the installation of
broadband lines in administrative villages.
To accelerate the broadband penetration,
China Telecom established 25 FTTH
training bases across China. As at the
end of 2012, the Company has provided
trainings to constructors and maintenance
personnel with over 50,000 attendees in
total. The Company launched a campaign
of “Lightening Fibre Residential Areas” to
promote the installation of optical fibres,
and 112,000 residential areas participated
in such campaign. The Company also
implemented the broadband penetration
and upgraded the network bandwidth in
schools and non-profit organisations in
poverty areas of Hubei, Guangxi and Gansu.
All of planned projects for 2012 were
implemented and completed. By using the
“Broadband Self-service System”, which was
established and promoted across China,
customers can measure the broadband
access speed and website response time by
themselves, so as to allow customers clearly
know their spending on these. The Company
took an active part in formulating technique
standards for the installation of FTTH for
local telecommunications network, and
assisted local governments in accelerating
the formulation of relevant policies and
regulations to promote the development of
information technology.
As at the end of 2012, the coverage of
China Telecom FTTH reached 55 million
households. The number of FTTH subscribers
reached 15 million. The number of wireline
broadband users was over 90 million.
Over 290,000 administrative villages in
21 provinces in Southern China installed
broadband lines. 73% of China Telecom
wireline broadband users subscribed for
bandwidth products with 4Mbps or above.
Progressing the “Village-to-
Village” projects
China Telecom continued the
implementation of the “Village-to-Village”
projects to speed up the construction of
service outlets in rural areas and raise the
standard of informatisation for township
governments, agricultural enterprises and
individual farmers and bridge the digital
divide between cities and the countryside. In
2012, the installation of broadband lines in
over 10,000 administrative villages and 2,100
natural villages was completed.
99
China Telecom Corporation LimitedAnnual Report 2012Corporate Social Responsibility Report Securing emergency
communications
China Telecom is dedicated to securing
smooth national communications. A unified
emergency system was established at three
levels: the headquarters, provincial branches
and prefecture-level cities branches. The
Company continued to optimise the flood
control, disaster relief as well as disaster
inspection and warning. The Company
improved the contingency plan of flood
control and disaster relief through carrying
out communication drills to ensure prompt
response and communication security
under emergency circumstances. In 2012,
there were a number of disasters, such
as heavy rainfall, typhoons and floods,
frequently happening in various regions,
especially Beijing and its surrounding
provinces, three provinces in Northeast
China, Guangdong, Fujian, Hunan, Sichuan
and Yunnan. Provincial, prefecture-level
cities and county-level branches quickly
responded and took initiatives to restore
communication services in the affected
areas to guarantee smooth communications,
completing all tasks in respect of disaster
relief and communication guarantee
with remarkable results. In 2012, the
Company accomplished a total of over
3,100 emergency tasks involving more than
35,000 attendees and over 12,000 units of
equipment.
III. Fulfilling our responsibilities
towards our customers
Adhering to the operation philosophy of
“pursuing the mutual growth of corporate
value and customer value” and the service
philosophy of “Customer First, Service
Foremost” with customer perception as a
starting point, China Telecom continuously
perfected the methods of service and
enhanced its service quality to provide
all our customers, whether individuals,
The Company’s emergency response vehicles
rushing to the typhoon disaster area to ensure
smooth communications
100
China Telecom Corporation LimitedAnnual Report 2012Corporate Social Responsibility Report households, corporations, government or
social undertakings, with a high-quality
and convenient information service and
enable the customers to fully enjoy a new
informatisation lifestyle.
Implementing the campaign to
“serve the public and achieve
excellence in performance” and
“protect customer rights”
In 2012, China Telecom further promoted
the campaign to “serve the public and
achieve excellence in performance” which
had made remarkable achievement in
2011. The Company improved our services
at outlets and online service centers and
our installation and maintenance capability
to further fulfil our commitment of 5
“No. 1” to provide “single billing – clear
consumption records; one-click access
– convenient communication; one-stop
service – first point of contact being the
responsible person; single-point queries –
self-determined subscription/termination;
single reminder – friendliness and care”. In
response to feedbacks from the customers,
the Company solved frequent issues
regarding value-added services, card validity
and the international roaming service,
resulting in a higher rate of customer
satisfaction.
China Telecom carried out self-examination,
random inspection and rectification
according to the requirements of the
“campaign to correct violation of consumer
rights in the telecommunications industry”
proposed by six ministries in the PRC,
including the Ministry of Industry and
Information Technology. To regulate tariff
rates and enhance the security inspection
of customer information, the Company
formulated a tariff rate manual, adopted
a strict tariff rate reporting and approval
system and terminated the provision of
5,166 service packages. The Company also
formulated the Administrative Measures on
Customer Information Security, pursuant
to which employees at each level shall sign
a letter of responsibility. The Company
rectified the problem of spam messages,
commenced “three enforcements”,
including forced suspension, forced
subscription and compulsory bundled
services, and regulated and standardised
“three forms” which were forms of service
pre-acceptance, service registration and
customer bills. There has been remarkable
achievements in special campaigns, and
the monthly average number of complaints
decreased by 823, which won the Company
praises from the six ministries in the PRC.
In the 2012 customer satisfaction
assessment organised by the Ministry of
Industry and Information Technology, 3G
and wireline internet services provided by
China Telecom ranked first in the industry.
Facilitating the establishment of
“Smart Cities”
China aims to build informatised “Smart
Cities” in the process of urbanisation.
Informatisation is the essence of building
“Smart Cities”. China Telecom provided
comprehensive supports to governments
at all levels for the establishment of “Smart
Cities”. On the one hand, a comprehensive
and reliable information infrastructure
and an information security system were
constructed, laying a comprehensive
foundation for various informatisation
applications in cities. On the other hand, the
Company actively developed and promoted
the informatisation applications in the
industry to promote intelligent lifestyle in
fields of community, economy and daily
life so that citizens can benefit from the
informatisation.
101
China Telecom Corporation LimitedAnnual Report 2012Corporate Social Responsibility Report In 2012, China Telecom participated in
“Smart Cities” programmes in more than
160 cities in 28 provinces, autonomous
regions or municipalities. The Company
promoted the informatisation applications
in various areas in daily life through our
information channel, integrated platform,
content application and portal site.
At the level of information channel,
China Telecom further improved the
network infrastructure to develop the
competitiveness of its network. The
cognitive devices for the Internet of Things
provided by China Telecom are very effective
in data collection. The telecommunications
network, which integrated wireline,
wireless and satellite network, provided
fast, intelligent and liable information
transmission.
At the level of integrated platform, the
Company established a service platform
for general use and data communication
of various intelligent communication
applications. The open platform integrated
internal and external resources and
China Telecom is responsible for telecommunications
assurance of satellite launch centre
supported rapid development,
implementation and replication of various
applications.
At the level of content application, the
Company focused on the development
of intelligent applications in government
services, livelihood and commercial
activities and has developed and launched
36 intelligent applications for 15 industries,
including government services, social
management, healthcare, culture and
education, transportation and logistics,
business and finance. The platform enabled
the intelligent application of information
technology to meet the increasing demands
for the application of information technology
in various fields.
At the level of portal site, an integrated
service platform was established at the
city level as a gateway for applications
and services. The integrated portal site of
“Smart Cities” was provided for the use of
“Smart Cities” applications by governments,
enterprises and the public.
102
China Telecom Corporation LimitedAnnual Report 2012Corporate Social Responsibility Report Addressing the problem of spam
messages
Malicious information on the Internet
jeopardised the legal rights of customers and
hampered the harmony of the society. Under
the leadership of the relevant authorities in
the industry and the guidance of the relevant
social organisations, China Telecom has
strengthened its control on spam messages
since March 2012. The headquarters,
provincial and prefecture-city level branches
of the Company local their management
systems and standardised and strengthened
the censorship of spam messages by the
use of advanced technology. The Company
also further improved its regulations and
working procedures and organised regular
examination and purging of malicious
information on the Internet. The results
of our efforts on the elimination of spam
message were remarkable. The number of
complaints on spam messages in December
2012 dropped by 42% when compared with
that in March 2012.
IV. Fulfilling our responsibility
towards our employees
We consider our employees to be our most
valuable resource. China Telecom adheres
to the principle of respecting people and
cherishing every employee. We value the
various types of professional and technical
staff and seek to align the development of
the Company with its staff. In accordance
with relevant state laws and regulations, we
safeguard the interests of our employees
and focus on the establishment of
harmonious labour relations. We support
labour unions in carrying out their functions
and encourage our employees to participate
in management and protect their right to be
masters of their own affairs.
In 2012, we continued to carry out
production safety publicity, education and
training to implement our production
safety accountability system and safety
management system so as to create a
favourable safety environment. In response
to industrial reform and enterprise
transformation, we conducted various staff
trainings to update their knowledge and
improve their skills. The Company persisted
in determining employees’ remuneration
based on their value and contribution and
tilted in favour of frontline employees,
which resulted in the steady increase of
their income. The Company will provide
necessary and prompt care to employees
from areas affected by disasters and poverty.
The Company expanded the coverage and
enhanced the quality of the “Four Smalls”,
namely small canteens, small bathrooms,
small washrooms and small activity rooms
at the workplace. It also strengthened
the establishment of corporate culture to
improve the working and living conditions of
the frontline staff.
V. Fulfilling our responsibility
towards the environment
China Telecom has established the concept
of “Low-Carbon Telecommunications and
Environmentally Friendly Development” and
is committed to being an “Environmentally
Friendly Information Service Provider”
by further promoting energy saving
and emission reduction in the areas of
procurement, construction and operations.
In 2012, we focused on adopting green
systems and technologies selectively for
energy saving and further improved the
energy efficiency of our supporting systems.
We completed the construction of over
1,800 intelligent ventilation units, more
than 2,400 sets of e-green power switches,
approximately 900 accurate air supply
devices and approximately 600 intelligent
heat transfer devices. The growth of energy
consumption was controlled effectively.
103
China Telecom Corporation LimitedAnnual Report 2012Corporate Social Responsibility Report In addition to the promotion of
environmentally friendly operation, the
Company further developed and promoted
the environmentally friendly information
products to help our customers’ energy
saving and emission reduction as well as
environmentally friendly development.
Moreover, to avoid redundant
construction and improve the efficiency
of telecommunications infrastructures,
the Company cooperated with its parent
company and various telecommunications
operators to jointly construct and share
internet infrastructures. It also helped
to protect the natural environment and
landscape, and reduced the use of land,
energy and raw materials.
Prevention of electromagnetic
radiation pollution
In order to prevent electromagnetic
radiation pollution and protect environment
and public health, China Telecom
implemented strict management on
the source of electromagnetic radiation
pollution and conducted environment
assessments on equipment to be used in
the base stations. Indicators of equipment
shall meet the requirements of Regulations
for Electromagnetic Radiation Protection
(GB8702-88) and Hygienic Standard for
Environmental Electromagnetic Waves
(GB9175-88). The Company conducted
theoretical calculation of electromagnetic
radiation indicator during the feasibility
study and design of projects. After the
completion of base station construction, the
Company monitored the electromagnetic
radiation level in the surrounding areas to
ensure the compliance with the relevant
national standards. The Company also
conducted in-depth study on the proposal
of base station construction in and around
residential districts. By establishing single
access points, distribution system in districts
and microcellular systems, the Company
improved the distribution of base stations in
residential districts with its electromagnetic
China Telecom donated rice to a charitable “Food Bank”
Feeding Hong Kong
radiation indices below national standards.
VI. Contributing to Community
Well-being
China Telecom was consciously involved
in social welfare undertakings. Through
various forms of public service activities, we
supported the development of science and
technology, education, culture, sports and
health undertakings, cared for vulnerable
groups in society and helped those in
distress and poverty. We advocated and
encouraged our employees to foster the
volunteering spirit and participate in various
forms of voluntary service activities. In
2012, we continued to assist the parent
company in promoting poverty alleviation
and assistance in Tibet. We participated
in a variety of assistance programmes in
Bianba County, Tibet, such as infrastructure
construction, informatisation construction,
promotion, education and trainings. In
Yanyuan County and Muli County, Liangshan
Yi Autonomous Prefecture, Sichuan, we
participated in 21 poverty alleviation projects
104
China Telecom Corporation LimitedAnnual Report 2012Corporate Social Responsibility Report in relation to the construction of information
technology, agriculture, education, health
and science and technology demonstration.
In 2012, China Telecom demonstrated
its commitment to corporate social
responsibility, and held a free coffee
campaign “Enjoy Coffee & Share Love” on
Thanksgiving Day. Under this campaign,
2,000 cups of coffee were offered for free
in Hong Kong, and China Telecom promised
that for every cup of coffee redeemed
through the campaign would be matched
by the donation of a pack of rice weighing
2 kilograms to a charitable “Food Bank”,
Feeding Hong Kong. This has delivered China
Telecom’s message of care to the people in
need in the society. At the same time, the
Company wishes to thank the shareholders
for their support, on which the Company has
again won numerous accolades. The 2,000
packs of rice donated by China Telecom
will be distributed in stages to a network
of charity partners to support those in
need, including shelters for the homeless,
children’s homes, senior day centres and
migrant worker support centres.
In 2013, China Telecom will continue
to shoulder its own responsibilities and
responsibilities towards its shareholders,
customers, employees, environment and
public welfare in a coordinated manner.
We will continue to foster our strengths
as a large-scale telecommunications
enterprise and integrated information
services provider to achieve continuous
and stable development so as to make
due contributions to various customers’
lives and undertakings, industrialisation,
informatisation, urbanisation and
agricultural modernisation, and the
construction of a resource-efficient and
environment-friendly society.
The Company was accredited with
“China’s Outstanding Enterprise in
Corporate Social Responsibility”
105
China Telecom Corporation LimitedAnnual Report 2012Corporate Social Responsibility Report Yes We Can
THRIVE
Financial
Statements
To the Shareholders of
China Telecom Corporation Limited
(Incorporated in The People’s Republic of China with limited liability)
We have audited the consolidated financial statements of China Telecom Corporation Limited (“the Company”) and its subsidiaries
(together “the Group”) set out on pages 110 to 174, which comprise the consolidated and company statements of financial
position as at 31 December 2012, and the consolidated statement of comprehensive income, the consolidated statement of
changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting
policies and other explanatory information.
Directors’ responsibility for the consolidated financial statements
The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair
view in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board
and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine
is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due
to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. This report is made
solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person
for the contents of the report.
We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified
Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity’s preparation of the consolidated financial statements that give a true and
fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation
of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the
Group as at 31 December 2012 and of the Group’s profit and cash flows for the year then ended in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board and the disclosure requirements of the
Hong Kong Companies Ordinance.
KPMG
Certified Public Accountants
8th Floor, Prince’s Building
10 Chater Road
Central, Hong Kong
20 March 2013
109
China Telecom Corporation LimitedAnnual Report 2012Report of the Independent International Auditor ASSETS
Non-current assets
Property, plant and equipment, net
Construction in progress
Lease prepayments
Goodwill
Intangible assets
Interests in associates
Investments
Deferred tax assets
Other assets
Total non-current assets
Current assets
Inventories
Income tax recoverable
Accounts receivable, net
Prepayments and other current assets
Time deposits with original maturity over three months
Cash and cash equivalents
Total current assets
Total assets
31 December
2012
RMB
Note
31 December
2011
RMB
(restated)
1 January
2011
RMB
(restated)
4
5
6
7
9
10
11
19
12
13
14
15
373,743
32,484
25,759
29,918
9,214
1,016
616
2,922
4,190
479,862
5,928
1,505
18,768
6,297
2,730
29,982
65,210
268,904
18,448
26,280
29,918
7,715
985
648
3,070
3,602
359,570
4,843
2,425
18,471
4,666
1,804
27,372
59,581
272,514
14,445
27,078
29,920
9,968
1,123
854
5,024
4,399
365,325
3,174
1,882
17,328
5,074
1,968
25,824
55,250
545,072
419,151
420,575
The notes on pages 118 to 174 form part of these financial statements.
110
China Telecom Corporation LimitedAnnual Report 2012Consolidated Statement of Financial Positionat 31 December 2012 (Amounts in millions)
31 December
2012
RMB
Note
31 December
2011
RMB
(restated)
1 January
2011
RMB
(restated)
LIABILITIES AND EQUITY
Current liabilities
Short-term debt
Current portion of long-term debt
Accounts payable
Accrued expenses and other payables
Income tax payable
Current portion of deferred revenues
Total current liabilities
Net current liabilities
Total assets less current liabilities
Non-current liabilities
Long-term debt and payable
Finance lease obligations
Deferred revenues
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital
Reserves
16
16
17
18
19
16
19
11
20
21
Total equity attributable to equity holders of the Company
Non-controlling interests
Total equity
Total liabilities and equity
Approved and authorised for issue by the Board of Directors on 20 March 2013.
6,523
10,212
68,844
105,736
492
1,654
193,461
(128,251)
351,611
83,070
3
1,791
717
85,581
9,187
11,766
44,359
59,375
482
2,093
127,262
(67,681)
291,889
31,150
–
2,712
1,117
34,979
20,675
10,352
40,041
52,892
327
2,645
126,932
(71,682)
293,643
42,549
–
3,558
1,375
47,482
279,042
162,241
174,414
80,932
184,137
265,069
961
266,030
545,072
80,932
175,190
256,122
788
256,910
419,151
80,932
164,733
245,665
496
246,161
420,575
Wang Xiaochu
Chairman and Chief
Executive Officer
Yang Jie
Executive Director,
President and Chief
Operating Officer
Wu Andi
Executive Director,
Executive Vice President
and Chief Financial Officer
The notes on pages 118 to 174 form part of these financial statements.
111
China Telecom Corporation LimitedAnnual Report 2012at 31 December 2012 (Amounts in millions)Consolidated Statement of Financial Position
ASSETS
Non-current assets
Property, plant and equipment, net
Construction in progress
Lease prepayments
Goodwill
Intangible assets
Investments in subsidiaries
Interests in associates
Investments
Deferred tax assets
Other assets
Total non-current assets
Current assets
Inventories
Income tax recoverable
Accounts receivable, net
Prepayments and other current assets
Time deposits with original maturity over three months
Cash and cash equivalents
Total current assets
Total assets
31 December
2012
RMB
31 December
2011
RMB
1 January
2011
RMB
Note
4
5
6
7
8
9
10
11
19
12
13
14
15
371,738
32,080
25,742
29,877
8,962
6,078
564
612
2,716
4,078
482,447
3,183
1,494
17,789
5,135
580
20,862
49,043
266,848
18,174
26,262
29,877
7,534
6,178
619
644
2,945
3,546
362,627
2,364
2,375
17,114
4,172
375
19,905
46,305
271,077
14,243
27,072
29,877
9,852
5,272
777
849
4,923
4,367
368,309
2,000
1,878
15,923
4,720
373
19,939
44,833
531,490
408,932
413,142
The notes on pages 118 to 174 form part of these financial statements.
112
China Telecom Corporation LimitedAnnual Report 2012Statement of Financial Positionat 31 December 2012 (Amounts in millions)
LIABILITIES AND EQUITY
Current liabilities
Short-term debt
Current portion of long-term debt
Accounts payable
Accrued expenses and other payables
Income tax payable
Current portion of deferred revenues
Total current liabilities
Net current liabilities
Total assets less current liabilities
Non-current liabilities
Long-term debt and payable
Finance lease obligations
Deferred revenues
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital
Reserves
Total equity
Total liabilities and equity
31 December
2012
RMB
31 December
2011
RMB
1 January
2011
RMB
Note
16
16
17
18
19
16
19
11
20
21
6,476
10,212
64,043
102,657
291
1,651
185,330
(136,287)
346,160
82,690
3
1,791
627
85,111
9,187
11,766
40,523
57,363
353
2,091
121,283
(74,978)
287,649
31,150
–
2,712
1,002
34,864
20,675
10,352
37,620
51,225
198
2,645
122,715
(77,882)
290,427
42,549
–
3,558
1,276
47,383
270,441
156,147
170,098
80,932
180,117
261,049
531,490
80,932
171,853
252,785
408,932
80,932
162,112
243,044
413,142
Approved and authorised for issue by the Board of Directors on 20 March 2013.
Wang Xiaochu
Chairman and Chief
Executive Officer
Yang Jie
Executive Director,
President and Chief
Operating Officer
Wu Andi
Executive Director,
Executive Vice President
and Chief Financial Officer
The notes on pages 118 to 174 form part of these financial statements.
113
China Telecom Corporation LimitedAnnual Report 2012at 31 December 2012 (Amounts in millions)Statement of Financial Position
Note
22
23
24
25
26
27
28
33
33
2012
RMB
283,073
(49,655)
(66,003)
(63,076)
(42,812)
(40,341)
2011
RMB
(restated)
245,068
(51,233)
(52,925)
(48,746)
(39,167)
(28,870)
(261,887)
(220,941)
21,186
(1,564)
93
78
19,793
(4,753)
15,040
(228)
57
(3)
(174)
24,127
(2,254)
40
99
22,012
(5,416)
16,596
(205)
51
(103)
(257)
14,866
16,339
14,925
115
15,040
14,751
115
14,866
0.18
80,932
16,500
96
16,596
16,243
96
16,339
0.20
80,932
Operating revenues
Operating expenses
Depreciation and amortisation
Network operations and support
Selling, general and administrative
Personnel expenses
Other operating expenses
Total operating expenses
Operating profit
Net finance costs
Investment income
Share of profits of associates
Profit before taxation
Income tax
Profit for the year
Other comprehensive income for the year:
Change in fair value of available-for-sale equity securities
Deferred tax on change in fair value of available-for-sale equity securities
Exchange difference on translation of financial statements of subsidiaries
outside mainland China
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Profit attributable to:
Equity holders of the Company
Non-controlling interests
Profit for the year
Total comprehensive income attributable to:
Equity holders of the Company
Non-controlling interests
Total comprehensive income for the year
Basic earnings per share
Number of shares (in millions)
The notes on pages 118 to 174 form part of these financial statements.
114
China Telecom Corporation LimitedAnnual Report 2012Consolidated Statement of Comprehensive Incomefor the year ended 31 December 2012 (Amounts in millions, except per share data)
Attributable to equity holders of the Company
Share
capital
RMB
Capital
reserve
RMB
Share
premium
RMB
Statutory
reserves
RMB
Other
reserves
RMB
Exchange
reserve
RMB
Retained
earnings
RMB
Note
Non-
controlling
interests
RMB
Total
RMB
Balance as at 1 January 2011,
as previously reported
Adjusted for the Sixth Acquisition
Balance as at 1 January 2011, as restated
Profit for the year, as restated
Other comprehensive income
Total comprehensive income, as restated
Distributions to non-controlling interests
Acquisition of non-controlling interests
Acquisition of the Fifth Acquired Group
Acquisition of a subsidiary
Disposal of a subsidiary
Distribution to China Telecom Group
Dividends
Appropriations
Balance as at 31 December 2011,
as restated
Profit for the year
Other comprehensive income
Total comprehensive income
Contribution from non-controlling interests
Distribution to non-controlling interests
Acquisition of the Sixth Acquired Business
Dividends
Appropriations
Others
1
1
32
21
1
32
21
80,932
–
80,932
–
–
16,767
–
16,767
–
–
10,746
–
10,746
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
62,634
–
62,634
–
–
–
–
–
–
–
–
–
–
1,682
438
–
438
–
(154)
(154)
–
(1)
–
–
–
–
–
–
(715)
–
(715)
–
(103)
74,826
37
74,863
16,500
–
245,628
37
245,665
16,500
(257)
(103)
16,500
16,243
–
–
–
–
–
–
–
–
–
–
(19)
–
–
(3)
(5,763)
(1,682)
–
(1)
(19)
–
–
(3)
(5,763)
–
80,932
16,767
10,746
64,316
283
(818)
83,896
256,122
–
–
–
–
–
–
–
–
–
–
–
–
249
–
(48)
–
–
(380)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,413
–
–
(171)
(171)
–
(3)
(3)
14,925
–
14,925
(174)
14,925
14,751
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,625)
(1,413)
–
249
–
(48)
(5,625)
–
(380)
496
–
496
96
–
96
(57)
(1)
–
264
(10)
–
–
–
788
115
–
115
131
(73)
–
–
–
–
Total
equity
RMB
246,124
37
246,161
16,596
(257)
16,339
(57)
(2)
(19)
264
(10)
(3)
(5,763)
–
256,910
15,040
(174)
14,866
380
(73)
(48)
(5,625)
–
(380)
Balance as at 31 December 2012
80,932
16,588
10,746
65,729
112
(821)
91,783
265,069
961
266,030
The notes on pages 118 to 174 form part of these financial statements.
115
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012 (Amounts in millions)Consolidated Statement of Changes In Equity
Net cash from operating activities
Cash flows used in investing activities
Capital expenditure
Purchase of investments
Lease prepayments
Proceeds from disposal of property, plant and equipment
Proceeds from disposal of lease prepayments
Proceeds from disposal of investments
Net cash outflow from disposal of a subsidiary
Proceeds from return of investments
Purchase of time deposits with maturity over three months
Maturity of time deposits with maturity over three months
Payment for acquisition of a subsidiary
Net cash used in investing activities
Cash flows used in financing activities
Proceeds from bank and other loans
Repayment of bank and other loans
Payment of dividends
Payment for acquisition of non-controlling interests
Payment for the acquisition price of the Fifth Acquisition
Payment for the acquisition price of the Sixth Acquisition
Distribution to China Telecom Group
Net cash contributions/(distributions) to non-controlling interests
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of changes in foreign exchange rate
Cash and cash equivalents at 31 December
Note
(a)
1
1
2012
RMB
70,667
(50,028)
–
(133)
2,696
255
–
(116)
–
(2,730)
1,804
–
(48,252)
9,702
(24,133)
(5,625)
–
(29)
(48)
–
331
(19,802)
2,613
27,372
(3)
29,982
2011
RMB
(restated)
73,009
(48,495)
(6)
(60)
3,234
487
1,040
–
10
(1,804)
1,968
(11)
(43,637)
23,876
(45,329)
(6,174)
(1)
(27)
–
(3)
(65)
(27,723)
1,649
25,824
(101)
27,372
The notes on pages 118 to 174 form part of these financial statements.
116
China Telecom Corporation LimitedAnnual Report 2012Consolidated Statement of Cash Flowsfor the year ended 31 December 2012 (Amounts in millions)
(a) Reconciliation of profit before taxation to net cash from operating activities
Profit before taxation
Adjustments for:
Depreciation and amortisation
Impairment losses for doubtful debts
Write down of inventories
Investment income
Share of profits of associates
Interest income
Interest expense
Unrealised foreign exchange loss/(gain)
Gain on retirement and disposal of property, plant and equipment
Operating profit before changes in working capital
Increase in accounts receivable
Increase in inventories
Increase in prepayments and other current assets
Decrease in other assets
Increase in accounts payable
Increase in accrued expenses and other payables
Decrease in deferred revenues
Cash generated from operations
Interest received
Interest paid
Investment income received
Income tax paid
Net cash from operating activities
2012
RMB
19,793
49,655
1,612
235
(93)
(78)
(591)
2,154
1
(2,429)
70,259
(2,125)
(1,185)
(1,025)
484
4,987
6,233
(1,360)
76,268
587
(2,200)
23
(4,011)
70,667
2011
RMB
(restated)
22,012
51,233
1,367
96
(40)
(99)
(405)
2,710
(51)
(2,436)
74,387
(2,546)
(1,763)
(3,019)
796
6,323
6,939
(1,398)
79,719
396
(3,084)
42
(4,064)
73,009
The notes on pages 118 to 174 form part of these financial statements.
117
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012 (Amounts in millions)Consolidated Statement of Cash Flows
1. Principal Activities, Organisation 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, managed data and leased line, 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 leased line, International Internet
access and transit, and Internet data centre service in certain countries of the Asia Pacific, 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.
The Ministry of Industry and Information Technology of the PRC (the “MIIT”), pursuant to the authority delegated to it by
the PRC State Council, is responsible for formulating the telecommunications industry policies and regulations, including
the regulation and setting of tariff levels for basic telecommunications services, such as wireline and mobile local and long
distance telephony services, managed data services, leased line, roaming and interconnection arrangements.
Organisation
As part of the reorganisation (the “Restructuring”) of China Telecommunications Corporation, the Company was
incorporated in the PRC on 10 September 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 31 December 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 million (hereinafter, referred to as the “First Acquisition”).
On 30 June 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 million (hereinafter, referred to as the “Second
Acquisition”).
118
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012 1. Principal Activities, Organisation and Basis of Presentation (continued)
Organisation (continued)
On 30 June 2007, the Company acquired the entire equity interests in China Telecom System Integration Co., Ltd. (“CTSI”),
China Telecom Global Limited (formerly known as “China Telecom (Hong Kong) International Limited”) (“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 million (hereinafter, referred to as the “Third
Acquisition”).
On 30 June 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 million (hereinafter, referred to as the “Fourth Acquisition”).
On 1 August 2011 and 1 December 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 million (hereinafter referred to as
the “Fifth Acquisition”).
Pursuant to an acquisition agreement entered into on 28 April 2011 by the Company and Besttone Holding Co., Ltd.
(formerly known as “China Satcom Guomai Communications Co.,Ltd”) (“Besttone Holding”), which is controlled by China
Telecommunications Corporation, upon receiving the relevant government approval in March 2012, the Company disposed
of 100% equity interest in Besttone E-Commerce Co., Ltd., a subsidiary of the Company that was primarily engaged in the
provision of e-commerce and booking services, to Besttone Holding. Besttone Holding paid the consideration by issuing
21,814,894 of its shares to the Company, representing around 4.1% of its enlarged share capital. The disposal of Besttone
E-Commerce Co., Ltd. was completed on 30 April 2012.
The Company acquired the digital trunking business (the “Sixth Acquired Business”) from Besttone Holding at a purchase
price of RMB48 million (hereinafter, referred to as the “Sixth Acquisition”) during the year. The Sixth Acquisition was
completed on 30 April 2012.
As at 31 December 2012, the purchase price of the above acquisitions, except for the Fifth Acquisition with an outstanding
balance of RMB5 million, was fully settled.
Hereinafter, the First Acquired Group, the Second Acquired Group, the Third Acquired Group, the Fourth Acquired Company,
the Fifth Acquired Group and the Sixth Acquired Business are collectively referred to as the “Acquired Groups”.
119
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements 1. Principal Activities, Organisation and Basis of Presentation (continued)
Basis of presentation
Since the Group is 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 these entities are accounted for as an equity transaction in
the consolidated statements of changes in equity.
The consolidated results of operations for the year ended 31 December 2011 and the consolidated financial position as at
31 December 2011 as previously reported by the Group and the combined amounts presented in the consolidated financial
statements of the Group to reflect the acquisition of the Sixth Acquired Business are set out below:
Consolidated statement of comprehensive income for the year
ended 31 December 2011:
Operating revenues
Profit for the year
Consolidated statement of financial position as at
31 December 2011:
Total assets
Total liabilities
Total equity
The Group
(as previously
reported)
RMB
millions
The Sixth
Acquired
Business
RMB
millions
The Group
(as restated)
RMB
millions
245,041
16,598
419,115
162,237
256,878
27
(2)
36
4
32
245,068
16,596
419,151
162,241
256,910
For the periods presented, all significant transactions and balances between the Group and the Sixth Acquired Business have
been eliminated on combination.
On 15 June 2012, China Telecom (Hong Kong) International Limited, a subsidiary of the Company primarily engaged in the
provision of international value-added network services, changed its name to China Telecom Global Limited.
Merger with subsidiaries
Pursuant to the resolution passed by the Company’s shareholders at an Extraordinary General Meeting held on 25 February
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 1 July 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.
120
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012 2. Acquisition of Certain CDMA Network Assets and Associated Liabilities
In October 2008, the Group acquired the CDMA mobile telecommunications business from China Unicom Limited (currently
known as China Unicom (Hong Kong) Limited) and China Unicom Corporation Limited (currently known as China United
Network Communications Corporation Limited) (collectively “China Unicom”). At the same time, China Telecommunications
Corporation purchased the CDMA network assets from China United Telecommunications Corporation (currently known
as China United Network Telecommunications Group Co., Ltd.) and Unicom New Horizon Mobile Telecommunications Co.,
Limited (currently known as Unicom New Horizon Telecommunications Company Limited). The Group leased the CDMA
network assets from China Telecommunications Corporation under an operating lease. The network branches of China
Telecommunications Corporation derived substantially all of their revenues, from the CDMA network through the leasing of
such CDMA network to the Group.
Pursuant to the Acquisition Agreement entered into between the Company and China Telecommunications Corporation
on 22 August 2012 and the resolution passed by the Company’s Extraordinary General Meeting held on 16 October 2012,
the Company completed 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 31 December 2012 (hereinafter referred to as the “Mobile Network Acquisition”).
The initial consideration of the Mobile Network Acquisition was RMB84,595.41 million, and was subject to price adjustment,
which reflected changes in the value of the CDMA network assets and associated liabilities during the period between the
date following the base date for the asset appraisal (being 31 March 2012) up to (and including) the completion date of
the acquisition (being 31 December 2012), to arrive at the final consideration. The final consideration was agreed to be
RMB87,210.35 million, which consisted of RMB25,500.00 million paid within five business days following the completion
date of the Mobile Network Acquisition, and a deferred consideration of RMB61,710.35 million, which will be payable on
or before the fifth anniversary of the completion date of the Mobile Network Acquisition. The interest rate of the deferred
consideration will be adjusted 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
rate for the first year is 4.83%. The tax expenses related to the Mobile Network Acquisition, which mainly include deed tax for
the transfer of properties and land use rights, amounted to RMB29.43 million. The related tax expenses have been included
in the book value of assets acquired.
The Mobile Network Acquisition was recognised 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 as follows:
Property, plant and equipment, net
Construction in progress
Lease prepayments
Intangible assets
Other assets
Inventories
Accounts receivable, net
Prepayments and other current assets
Total assets acquired
Accounts payable
Accrued expenses and other payables
Total liabilities assumed
Note
4
5
7
RMB
millions
102,873
9,177
151
3,578
1,080
135
2,079
642
119,715
(17,965)
(14,540)
(32,505)
121
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements 3. Significant Accounting Policies
(a) Basis of preparation
The accompanying financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). IFRS includes International
Accounting Standards (“IAS”) and interpretations. These financial statements also comply with the disclosure
requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing
the Listing of Securities on the Stock Exchange of Hong Kong Limited.
These financial statements are prepared on the historical cost basis as modified by the revaluation of certain available-
for-sale equity securities (Note 3(m)). The accounting policies described below have been consistently applied by the
Group.
The preparation of 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 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
recognised 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.
Judgements made by management in the application of IFRS that have significant effect on the financial statements
and major sources of estimation uncertainty are discussed in Note 40.
(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. Control exists when the Company has the power, directly or
indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
122
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012 3. Significant Accounting Policies (continued)
(b) Basis of consolidation (continued)
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 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 recognised. 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 recognised in profit or loss. Any interest retained in that
former subsidiary at the date when control is lost is recognised 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 jointly controlled entity.
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 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). Thereafter, the investment is adjusted for
the Group’s equity share of the post-acquisition changes in the associate’s net assets. 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 recognised in profit or loss. Any interest retained in that former investee at the date
when significant influence is lost is recognised 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 unrealised gains arising from intercompany transactions
are eliminated on consolidation. Unrealised gains arising from transactions with associates are eliminated to the
extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but
only to the extent that there is no evidence of impairment.
123
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements 3. Significant Accounting Policies (continued)
(c) Translation of 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 CT Global, CT Americas, China
Telecom (Macau) Company Limited (“CT Macau”), China Telecom (Singapore) Pte. Limited (“CT Singapore”), China
Telecom (Australia) Pty Ltd (“CT Australia”), China Telecom Korea Co.,Ltd (“CT Korea”), China Telecom (Malaysia) SDN
BHD (“CT Malaysia”) and China Telecom Information Technology (Vietnam) Co. Ltd (“CT Vietnam”) is Hong Kong
dollars (HK$), US dollars (US$), Macau Pataca (MOP), Singapore dollars (S$), Australia dollars (AUD), Korea dollars
(KRW), Malaysia dollars (RM) and Vietnamese dong (VND), respectively. 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 capitalised as construction in progress (Note 3(i)), are recognised as income or expense
in profit or loss. For the periods presented, no exchange differences were capitalised.
When preparing the Group’s consolidated financial statements, the results of operations of CT Global, CT Americas,
CT Macau, CT Singapore, CT Australia, CT Korea, CT Malaysia and CT Vietnam are translated into RMB at average rate
prevailing during the year. Assets and liabilities of CT Global, CT Americas, CT Macau, CT Singapore, CT Australia, CT
Korea, CT Malaysia and CT Vietnam are translated into RMB at the foreign exchange rates ruling at the end of the
reporting period. The resulting exchange differences are recognised 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) Trade and other receivables
Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost using the
effective interest method, less allowance for doubtful debts (Note 3(o)) unless the effect of discounting would be
immaterial, in which case they are stated at cost.
(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 that are held for resale are stated at the lower of cost or net realisable value. Net realisable 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.
124
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012 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(o)). 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 capitalised 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 amortised over their estimated useful lives on a straight-line basis.
As at 31 December 2012, the carrying amount of assets held under finance leases was RMB3 million (2011: RMB76
million).
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 asset and are recognised 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:
Buildings and improvements
Telecommunications network plant and equipment
Furniture, fixture, motor vehicles and other equipment
Depreciable lives
primarily range from
8 to 30 years
6 to 10 years
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.
125
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements 3. Significant Accounting Policies (continued)
(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(o)). The cost of an item comprises direct costs of construction, capitalisation 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. Capitalisation 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.
(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 6) 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(o)). 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 comprise computer software and customer relationships acquired in the CDMA business
(as defined in Note 6) acquisition (Note 7).
Computer software that is not an integral part of any tangible assets, is recorded at cost less subsequent accumulated
amortisation and impairment losses (Note 3(o)). Amortisation of computer software is calculated on a straight-line
basis over the estimated useful lives, which mainly range from three to five years.
The customer relationships acquired in the CDMA business acquisition are recorded at the acquisition-date fair value
and amortised on a straight-line basis over the expected customer relationship of five years.
(l)
Investments in subsidiaries
In the Company’s stand-alone statement of financial position, investments in subsidiaries are stated at cost less
impairment losses (Note 3(o)).
(m) Investments
Investments in available-for-sale equity securities are carried at fair value with any change in fair value being
recognised in other comprehensive income and accumulated separately in equity. When these investments are
derecognised or impaired, the cumulative gain or loss previously recognised in other comprehensive income is
recognised in the profit or loss. Investments in 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(o)).
126
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012 3. Significant Accounting Policies (continued)
(n) 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 recognised 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.
(o) Impairment
(i)
Impairment of investments in equity securities and trade and other receivables
Investments in equity securities and trade and other receivables 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;
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 reorganisation;
significant changes in the technological, market, economic or legal environment that have an adverse
effect on the debtor; and
–
a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
If such evidence exists, the impairment loss 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 recognised as an expense in profit or loss. Impairment losses
for trade 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 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 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.
127
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements 3. Significant Accounting Policies (continued)
(o) Impairment (continued)
(ii)
Impairment of long-lived assets (continued)
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and the net
selling price. 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. 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 recognised if the carrying amount of an asset or its cash-generating unit exceeds its
estimated recoverable amount. Impairment loss is recognised as an expense in profit or loss. Impairment loss
recognised 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 recognised for an asset in prior years may no longer exist. An impairment loss is reversed if there has been
a favourable 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 recognised as an income in profit or loss. The reversal is reduced by the amount that would have been
recognised as depreciation and amortisation had the write-down not occurred. For the years presented, no
reversal of impairment loss was recognised in profit or loss. An impairment loss in respect of goodwill is not
reversed.
(p) Revenue recognition
The revenue recognition methods of the Group are as follows:
(i)
(ii)
Revenue derived from local, domestic long distance and international, Hong Kong, Macau and Taiwan long
distance usage are recognised as the services are provided.
Fees received for wireline installation charges for periods prior to 1 January 2012 are deferred and recognised
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 amortised over the same expected customer
relationship period. In 2012, 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 recognised in the month during which the services are provided to customers.
(iv) Revenue from sale of prepaid calling cards are recognised as the cards are used by customers.
128
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012 3. Significant Accounting Policies (continued)
(p) Revenue recognition (continued)
(v)
Revenue derived from value-added services are 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:
i)
The Group is 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 establishes selling prices with customers;
v)
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 risk and responsibilities exist in the arrangements with third parties, the Group
is acting as a 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 risk 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 managed data services are recognised when the services are
provided to customers.
(vii)
Interconnection fees from domestic and foreign telecommunications operators are recognised when the
services are rendered as measured by the minutes of traffic processed.
(viii) Lease income from operating leases is recognised over the term of the lease.
(ix) Revenue derived from integrated information application services are recognised when the services are provided
to customers.
(x)
Sale of equipment is recognised 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 recognised when the service is provided to customers.
129
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
3. Significant Accounting Policies (continued)
(p) 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 31 December 2012, 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. The Group believes that the
residual method of accounting for promotional packages provides the most relevant and reliable presentation method
of the delivery and sales of the terminal equipment and telecommunication services since it reflects the economic
substance of the arrangement.
(q) 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 RMB34,901
million for the year ended 31 December 2012 (2011: RMB27,498 million), 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 RMB21,754 million for the year ended 31 December 2012
(2011: RMB15,641 million).
(r) 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 recognised 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 capitalised 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.
(s) Research and development expense
Research and development expenditure is expensed as incurred. For the year ended 31 December 2012, research and
development expense was RMB608 million (2011: RMB558 million).
(t) 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 recognised in profit or loss as
incurred. Further information is set out in Note 38.
130
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012 3. Significant Accounting Policies (continued)
(t) Employee benefits (continued)
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 39.
(u) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to
initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount
initially recognised and the redemption value recognised in profit or loss over the period of the borrowings, together
with any interest, using the effective interest method.
(v) Trade and other payables
Trade and other payables are initially recognised at fair value and thereafter stated at amortised 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 recognised 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) Income tax
Income tax for the year comprises current tax and movement in deferred tax assets and liabilities. Income tax is
recognised in profit or loss except to the extent that it relates to items recognised in other comprehensive income, in
which case the relevant amounts of tax are recognised in other comprehensive income. 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 realised 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
recognised in other comprehensive income, in such case the effect of a change in tax rate is also recognised in other
comprehensive income.
A deferred tax asset is recognised only to the extent that it is probable that future taxable income will be available
against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that
the related tax benefit will be realised.
131
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements 3. Significant Accounting Policies (continued)
(y) Dividends
Dividends are recognised as a liability in the period in which they are declared.
(z) 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)
(ii)
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);
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.
(aa) 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 location of the Group’s assets 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.
132
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012 4. Property, Plant and Equipment, Net
The Group
Telecomm-
unications
network
plant and
equipment
RMB millions
Furniture,
fixture,
motor
vehicles
and other
equipment
RMB millions
Buildings and
improvements
RMB millions
Total
RMB millions
84,478
–
84,478
49
213
1,768
(200)
1
86,309
582
3,697
2,348
(414)
(1)
627,662
–
627,662
370
1,058
39,221
(14,234)
124
654,201
867
98,476
41,997
(4,617)
172
23,140
205
23,345
20
1,045
1,241
(811)
(125)
24,715
774
700
1,328
(448)
(171)
735,280
205
735,485
439
2,316
42,230
(15,245)
–
765,225
2,223
102,873
45,673
(5,479)
–
Cost/Deemed cost:
Balance at 1 January 2011, as previously reported
Adjusted for the Sixth Acquisition (Note 1)
Balance at 1 January 2011, as restated
Additions through acquisition of a subsidiary
Additions
Transferred from construction in progress
Disposals
Reclassification
Balance at 31 December 2011, as restated
Additions
Mobile Network Acquisition (Note 2)
Transferred from construction in progress
Disposals
Reclassification
Balance at 31 December 2012
92,521
791,096
26,898
910,515
Accumulated depreciation and impairment:
Balance at 1 January 2011, as previously reported
Adjusted for the Sixth Acquisition (Note 1)
Balance at 1 January 2011, as restated
Additions through acquisition of a subsidiary
Depreciation charge for the year
Written back on disposal
Reclassification
Balance at 31 December 2011, as restated
Depreciation charge for the year
Written back on disposal
Reclassification
Balance at 31 December 2012
Net book value at 31 December 2012
Net book value at 31 December 2011, as restated
Net book value at 1 January 2011, as restated
(29,174)
–
(29,174)
(40)
(3,634)
154
(2)
(32,696)
(3,810)
258
–
(418,339)
–
(418,339)
(251)
(41,111)
13,019
(1)
(446,683)
(39,315)
4,162
(66)
(15,289)
(169)
(15,458)
(14)
(2,158)
685
3
(16,942)
(2,160)
414
66
(462,802)
(169)
(462,971)
(305)
(46,903)
13,858
–
(496,321)
(45,285)
4,834
–
(36,248)
(481,902)
(18,622)
(536,772)
56,273
309,194
53,613
55,304
207,518
209,323
8,276
7,773
7,887
373,743
268,904
272,514
133
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
4. Property, Plant and Equipment, Net (continued)
The Company
Telecomm-
unications
network
plant and
equipment
RMB millions
Furniture,
fixture,
motor
vehicles
and other
equipment
RMB millions
Buildings and
improvements
RMB millions
Total
RMB millions
84,122
128
1,683
(184)
1
85,750
567
3,697
2,285
(392)
(1)
625,949
859
39,064
(14,188)
124
651,808
795
98,476
41,808
(4,629)
225
22,438
740
1,171
(780)
(125)
23,444
918
700
1,303
(367)
(224)
732,509
1,727
41,918
(15,152)
–
761,002
2,280
102,873
45,396
(5,388)
–
Cost/Deemed cost:
Balance at 1 January 2011
Additions
Transferred from construction in progress
Disposals
Reclassification
Balance at 31 December 2011
Additions
Mobile Network Acquisition (Note 2)
Transferred from construction in progress
Disposals
Reclassification
Balance at 31 December 2012
91,906
788,483
25,774
906,163
Accumulated depreciation and impairment:
Balance at 1 January 2011
Depreciation charge for the year
Written back on disposal
Reclassification
Balance at 31 December 2011
Depreciation charge for the year
Written back on disposal
Reclassification
Balance at 31 December 2012
Net book value at 31 December 2012
Net book value at 31 December 2011
(29,085)
(3,574)
138
(2)
(417,428)
(40,973)
13,005
(1)
(14,919)
(2,000)
682
3
(461,432)
(46,547)
13,825
–
(32,523)
(445,397)
(16,234)
(494,154)
(3,729)
237
–
(39,097)
4,182
(119)
(2,212)
348
119
(45,038)
4,767
–
(36,015)
(480,431)
(17,979)
(534,425)
55,891
53,227
308,052
206,411
7,795
7,210
371,738
266,848
134
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012
5. Construction in Progress
Balance at 1 January 2011
Additions
Transferred to property, plant and equipment
Transferred to intangible assets
Balance at 31 December 2011
Additions
Mobile Network Acquisition (Note 2)
Transferred to property, plant and equipment
Transferred to intangible assets
Balance at 31 December 2012
6. Goodwill
The Group
RMB millions
The Company
RMB millions
14,445
47,442
(42,230)
(1,209)
18,448
51,847
9,177
(45,673)
(1,315)
32,484
14,243
47,020
(41,918)
(1,171)
18,174
51,395
9,177
(45,396)
(1,270)
32,080
The Group
The Company
2012
RMB millions
2011
RMB millions
2012
RMB millions
2011
RMB millions
Cost:
Goodwill arising from acquisition of CDMA
business
29,918
29,918
29,877
29,877
On 1 October 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. The purchase price of the business combination was RMB43,800 million, which was fully settled as at 31 December
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 million 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 recognised 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.
135
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
6. Goodwill (continued)
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 10.2% (2011: 11.5%). 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 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.
7.
Intangible Assets
The Group
Cost:
Balance at 1 January 2011
Additions
Transferred from construction in progress
Disposals
Balance at 31 December 2011
Additions
Mobile Network Acquisition (Note 2)
Transferred from construction in progress
Disposals
Balance at 31 December 2012
Accumulated amortisation and impairment:
Balance at 1 January 2011
Amortisation charge for the year
Provision for impairment
Written back on disposal
Balance at 31 December 2011
Amortisation charge for the year
Written back on disposal
Balance at 31 December 2012
Net book value at 31 December 2012
Net book value at 31 December 2011
136
Computer
software
RMB millions
Customer
relationships
RMB millions
Total
RMB millions
8,625
199
1,209
(140)
9,893
269
3,578
1,315
(67)
11,238
–
–
–
11,238
–
–
–
–
19,863
199
1,209
(140)
21,131
269
3,578
1,315
(67)
14,988
11,238
26,226
(4,837)
(1,372)
(8)
107
(6,110)
(1,403)
55
(7,458)
7,530
3,783
(5,058)
(2,248)
–
–
(7,306)
(2,248)
–
(9,554)
1,684
3,932
(9,895)
(3,620)
(8)
107
(13,416)
(3,651)
55
(17,012)
9,214
7,715
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012
7.
Intangible Assets (continued)
The Company
Cost:
Balance at 1 January 2011
Additions
Transferred from construction in progress
Disposals
Balance at 31 December 2011
Additions
Mobile Network Acquisition (Note 2)
Transferred from construction in progress
Disposals
Computer
software
RMB millions
Customer
relationships
RMB millions
Total
RMB millions
8,348
101
1,171
(59)
9,561
179
3,578
1,270
(56)
11,238
–
–
–
11,238
–
–
–
–
19,586
101
1,171
(59)
20,799
179
3,578
1,270
(56)
Balance at 31 December 2012
14,532
11,238
25,770
Accumulated amortisation and impairment:
Balance at 1 January 2011
Amortisation charge for the year
Provision for impairment
Written back on disposal
Balance at 31 December 2011
Amortisation charge for the year
Written back on disposal
Balance at 31 December 2012
Net book value at 31 December 2012
Net book value at 31 December 2011
8.
Investments in Subsidiaries
Unquoted investments, at cost
(4,676)
(1,329)
(8)
54
(5,959)
(1,345)
50
(7,254)
7,278
3,602
(5,058)
(2,248)
–
–
(7,306)
(2,248)
–
(9,554)
1,684
3,932
(9,734)
(3,577)
(8)
54
(13,265)
(3,593)
50
(16,808)
8,962
7,534
The Company
2012
RMB millions
2011
RMB millions
6,078
6,178
137
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
8.
Investments in Subsidiaries (continued)
Details of the Company’s subsidiaries which principally affected the results, assets and liabilities of the Group at 31
December 2012 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 activity
China Telecom System
Limited Company
13 September 2001
PRC
Integration Co., Limited
392
Provision of system integration
and consulting services
China Telecom Global Limited
Limited Company
25 February 2000
Hong Kong Special
Administrative
Region of the PRC
HK$58 million
Provision of international
value-added network services
China Telecom (Americas)
Limited Company
22 November 2001
The United States of
US$43 million
Provision of telecommunications
Corporation
America
services
China Telecom Best Tone
Limited Company
15 August 2007
PRC
350
Provision of Best Tone information
Information Service Co., Limited
services
China Telecom (Macau) Company
Limited Company
15 October 2004
Macau Special
MOP60 million
Provision of telecommunications
Limited
Administrative
Region of the PRC
services
Tianyi Telecom Terminals
Limited Company
1 July 2005
PRC
500
Sales of telecommunications
Company Limited
China Telecom (Singapore) Pte.
Limited Company
5 October 2006
Singapore
Limited
E-surfing Pay Co., Ltd
Limited Company
3 March 2011
E-surfing Media Co., Ltd
Limited Company
11 March 2011
Shenzhen Shekou
Limited Company
5 May 1984
Telecommunications Company
Limited
PRC
PRC
PRC
terminals
S$1
Provision of international value-
added network services
300
Provision of e-commerce services
313
Provision of video media services
91
Provision of telecommunications
services
China Telecom (Australia) Pty Ltd
Limited Company
10 January 2011
Australia
AUD1 million
Provision of international value-
added network services
138
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012 8.
Investments in 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)
China Telecom Korea Co., Ltd
Limited Company
16 May 2012
South Korea
KRW500 million
China Telecom (Malaysia)
Limited Company
26 June 2012
Malaysia
RM500,000
SDN BHD
China Telecom Information
Limited Company
9 July 2012
Vietnam
VND6,300 million
Technology (Vietnam) Co. Ltd
Principal activity
Provision of international value-
added network services
Provision of international value-
added network services
Provision of international value-
added network services
Except for Shenzhen Shekou Telecommunications Company Limited which is 51% owned by the Company, and E-surfing
Media Co., Ltd which is 80% owned by the Company, all of the above subsidiaries are directly or indirectly wholly-owned by
the Company.
9.
Interests in Associates
Unlisted equity investments, at cost
Share of post-acquisition changes
in net assets
The Group
The Company
2012
RMB millions
2011
RMB millions
2012
RMB millions
2011
RMB millions
232
784
1,016
233
752
985
564
–
564
619
–
619
The Group’s and the Company’s interests in associates are accounted for under the equity method and the cost method,
respectively, and are individually and in aggregate not material to the Group’s financial condition or results of operations for
all periods presented. Details of the Group’s principal associate are as follows:
Name of company
Shanghai Information Investment Incorporation
Attributable
equity interest
Principal activities
24%
Provision of information technology
consultancy services
The above associate is established in the PRC and is not traded on any stock exchange.
139
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
10. Investments
Available-for-sale equity securities
Other unlisted equity investments
The Group
The Company
2012
RMB millions
2011
RMB millions
2012
RMB millions
2011
RMB millions
585
31
616
617
31
648
585
27
612
617
27
644
Unlisted equity investments mainly represent the Group’s and the Company’s various interests in PRC private enterprises
which are mainly engaged in the provision of information technology services and Internet contents.
As described in Note 1 to the financial statements, the Company disposed of 100% equity interest in Besttone E-Commerce
Co., Ltd. to Besttone Holding, which paid the consideration by issuing 21,814,894 shares of itself to the Company,
representing around 4.1% of its enlarged share capital. The shares of Besttone Holding are accounted for as available-for-
sale equity securities.
11. Deferred Tax Assets and Liabilities
The components of deferred tax assets and deferred tax liabilities recognised in the consolidated statement of financial
position and statement of financial position and the movements are as follows:
The Group
Current
Provisions and impairment losses,
Assets
Liabilities
Net balance
31 December
31 December
1 January
31 December
31 December
1 January
31 December
31 December
1 January
2012
2011
2011
2012
2011
2011
2012
2011
2011
RMB millions
RMB millions
RMB millions RMB millions
RMB millions
RMB millions RMB millions
RMB millions
RMB millions
(restated)
(restated)
(restated)
(restated)
primarily for doubtful debts
1,028
1,011
1,049
–
–
–
1,028
1,011
1,049
Non-current
Property, plant and equipment
1,279
1,145
2,882
(266)
(425)
(534)
1,013
720
2,348
Deferred revenues and
installations costs
Available-for-sale equity securities
Deferred tax assets/(liabilities)
615
–
2,922
914
–
3,070
1,093
–
5,024
(378)
(73)
(717)
(562)
(130)
(660)
(181)
237
(73)
(1,117)
(1,375)
2,205
352
(130)
1,953
433
(181)
3,649
140
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012
11. Deferred Tax Assets and Liabilities (continued)
The Group (continued)
Acquired
from the Fifth
Acquired Group
RMB millions
Recognised
in statement of
comprehensive
income
RMB millions
Balance at
31 December
2011
RMB millions
(restated)
Balance at
1 January 2011
RMB millions
(restated)
1,049
2,348
433
(181)
3,649
–
5
–
–
5
(38)
1,011
(1,633)
(81)
51
(1,701)
720
352
(130)
1,953
Recognised
in statement of
comprehensive
income
RMB millions
Disposal of
a subsidiary
RMB millions
Balance at
31 December
2012
RMB millions
Balance at
1 January 2012
RMB millions
(restated)
1,011
720
352
(130)
1,953
19
293
(115)
57
254
(2)
1,028
–
–
–
(2)
1,013
237
(73)
2,205
Current
Provisions and impairment losses,
primarily for doubtful debts
Non-current
Property, plant and equipment
Deferred revenues and installation costs
Available-for-sale equity securities
Net deferred tax assets
Current
Provisions and impairment losses,
primarily for doubtful debts
Non-current
Property, plant and equipment
Deferred revenues and installation costs
Available-for-sale equity securities
Net deferred tax assets
141
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
11. Deferred Tax Assets and Liabilities (continued)
The Company
Assets
Liabilities
Net balance
31 December
31 December
1 January
31 December
31 December
1 January
31 December
31 December
1 January
2012
2011
2011
2012
2011
2011
2012
2011
2011
RMB millions
RMB millions
RMB millions RMB millions
RMB millions
RMB millions RMB millions
RMB millions
RMB millions
Current
Provisions and impairment losses,
primarily for doubtful debts
982
965
997
–
–
–
Non-current
Property, plant and equipment
1,101
1,066
2,833
(249)
(401)
(526)
Deferred revenues and
installations costs
Available-for-sale equity securities
Deferred tax assets/(liabilities)
615
18
2,716
914
–
2,945
1,093
–
4,923
(378)
–
(562)
(39)
(660)
(90)
982
852
237
18
965
665
352
(39)
997
2,307
433
(90)
(627)
(1,002)
(1,276)
2,089
1,943
3,647
Recognised
in statement of
comprehensive
income
RMB millions
Balance at
31 December
2011
RMB millions
Balance at
1 January 2011
RMB millions
Current
Provisions and impairment losses, primarily for doubtful debts
Non-current
Property, plant and equipment
Deferred revenues and installation costs
Available-for-sale equity securities
Net deferred tax assets
997
2,307
433
(90)
3,647
(32)
(1,642)
(81)
51
(1,704)
965
665
352
(39)
1,943
Balance at
1 January 2012
RMB millions
Addition
in the Sixth
Acquisition
RMB millions
Recognised
in statement of
comprehensive
income
RMB millions
Balance at
31 December
2012
RMB millions
965
665
352
(39)
1,943
2
–
–
–
2
15
187
(115)
57
144
982
852
237
18
2,089
Current
Provisions and impairment losses,
primarily for doubtful debts
Non-current
Property, plant and equipment
Deferred revenues and installation costs
Available-for-sale equity securities
Net deferred tax assets
142
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012
12. Inventories
Inventories represent:
Materials and supplies
Goods for resale
31 December
2012
RMB millions
985
4,943
5,928
The Group
31 December
2011
RMB millions
(restated)
970
3,873
4,843
1 January
2011
RMB millions
(restated)
874
2,300
3,174
31 December
2012
RMB millions
The Company
31 December
2011
RMB millions
1 January
2011
RMB millions
968
2,215
3,183
951
1,413
2,364
861
1,139
2,000
13. Accounts Receivable, Net
Accounts receivable, net, are analysed as follows:
Note
(i)
Accounts receivable
Third parties
China Telecom Group
Other telecommunications
operators in the PRC
Subsidiaries
Less: Allowance for doubtful debts
Note:
The Group
The Company
2012
RMB millions
2011
RMB millions
2012
RMB millions
2011
RMB millions
19,637
626
529
–
20,792
(2,024)
18,768
18,040
1,803
570
–
20,413
(1,942)
18,471
18,130
289
526
805
19,750
(1,961)
17,789
16,680
1,358
554
395
18,987
(1,873)
17,114
(i)
China Telecommunications Corporation together with its subsidiaries other than the Group are referred to as “China Telecom Group”.
The following table summarises the changes in allowance for doubtful debts:
At beginning of year
Impairment losses for doubtful debts
Accounts receivable written off
At end of year
The Group
The Company
2012
RMB millions
2011
RMB millions
2012
RMB millions
2011
RMB millions
1,942
1,624
(1,542)
2,024
2,024
1,383
(1,465)
1,942
1,873
1,605
(1,517)
1,961
1,955
1,365
(1,447)
1,873
143
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
13. Accounts Receivable, Net (continued)
Ageing analysis of accounts receivable from telephone and Internet subscribers is as follows:
Current, within 1 month
1 to 3 months
4 to 12 months
More than 12 months
Less: Allowance for doubtful debts
The Group
The Company
2012
RMB millions
2011
RMB millions
2012
RMB millions
2011
RMB millions
11,402
2,319
1,613
387
15,721
(1,932)
13,789
10,872
2,120
1,444
432
14,868
(1,797)
13,071
11,279
2,288
1,598
386
15,551
(1,917)
13,634
10,767
2,054
1,435
431
14,687
(1,787)
12,900
Ageing analysis of accounts receivable from other telecommunications operators and enterprise customers is as follows:
Current, within 1 month
1 to 3 months
4 to 12 months
More than 12 months
Less: Allowance for doubtful debts
The Group
The Company
2012
RMB millions
2011
RMB millions
2012
RMB millions
2011
RMB millions
1,945
1,573
980
573
5,071
(92)
4,979
2,763
899
1,287
596
5,545
(145)
5,400
1,817
1,186
780
416
4,199
(44)
4,155
2,271
852
745
432
4,300
(86)
4,214
Ageing analysis of accounts receivable that are not impaired is as follows:
Not past due
Less than 1 month past due
1 to 3 months past due
Amounts past due
The Group
The Company
2012
RMB millions
2011
RMB millions
2012
RMB millions
2011
RMB millions
16,840
1,261
667
1,928
18,768
16,687
1,081
703
1,784
18,471
15,893
1,245
651
1,896
17,789
15,395
1,053
666
1,719
17,114
Amounts due from the provision of telecommunications services to customers are generally due within 30 days from the
date of billing.
144
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012
14. Prepayments and Other Current Assets
Prepayments and other current assets represent:
31 December
2012
RMB millions
The Group
31 December
2011
RMB millions
(restated)
1 January
2011
RMB millions
(restated)
31 December
2012
RMB millions
The Company
31 December
2011
RMB millions
1 January
2011
RMB millions
779
–
407
1,086
2,118
1,907
6,297
1,091
–
195
765
1,580
1,035
4,666
1,044
–
232
716
1,385
1,697
5,074
764
480
407
568
1,802
1,114
5,135
1,088
491
195
396
1,186
816
4,172
996
470
232
443
1,128
1,451
4,720
Amounts due from China Telecom Group
Amounts due from subsidiaries
Amounts due from other telecommunications
operators in the PRC
Prepayments in connection with construction
work and equipment purchases
Prepaid expenses and deposits
Other receivables
15. Cash and Cash Equivalents
Cash at bank and in hand
Time deposits with original maturity
within three months
The Group
The Company
2012
RMB millions
2011
RMB millions
2012
RMB millions
2011
RMB millions
22,375
24,470
17,614
18,942
7,607
29,982
2,902
27,372
3,248
20,862
963
19,905
16. Short-Term and Long-Term Debt and Payable
Short-term debt comprises:
The Group
The Company
2012
RMB millions
2011
RMB millions
2012
RMB millions
2011
RMB millions
Loans from banks – unsecured
Other loans – unsecured
Loans from China Telecom Group – unsecured
Total short-term debt
5,521
182
820
6,523
8,123
244
820
9,187
5,474
182
820
6,476
8,123
244
820
9,187
145
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
16. Short-Term and Long-Term Debt and Payable (continued)
The weighted average interest rate of the Group’s and the Company’s total short-term debt as at 31 December 2012 was
5.5% (2011: 5.9%) and 5.5% (2011: 5.9%) respectively. As at 31 December 2012, the loans from banks and other loans bear
interest at rates ranging from 4.5% to 6.7% (2011: 3.9% to 7.2%) per annum and are repayable within one year; the loans
from China Telecom Group bear interest at fixed rates ranging from 4.5% to 4.7% (2011: 3.9% to 4.9%) per annum and are
repayable within one year.
Long-term debt and payable comprises:
Bank loans – unsecured
Renminbi denominated
US Dollars denominated
Japanese Yen
denominated
Interest rates and final maturity
Interest rates ranging from
3.60% to 7.04% per annum
with maturities through 2020
Interest rates ranging from
1.00% to 8.30% per annum
with maturities through 2060
Interest rates ranging from
1.49% to 1.58% per annum
with maturities in 2012
The Group
The Company
2012
RMB
millions
2011
RMB
millions
2012
RMB
millions
2011
RMB
millions
160
409
160
409
598
648
598
648
–
1,441
–
1,441
Euro denominated
Interest rates of 2.30% per annum
with maturities through 2032
456
485
456
485
Other currencies denominated
Other loans – unsecured
Renminbi denominated
Medium-term notes
– unsecured (Note (i))
Amount due to China
Telecommunications
Corporation – unsecured
Deferred consideration of the
Mobile Network Acquisition
– Renminbi denominated
(Note (ii))
Others
26
1,240
29
3,012
26
1,240
29
3,012
1
1
1
1
29,951
39,903
29,951
39,903
61,710
380
–
–
61,710
–
–
–
Total long-term debt and payable
93,282
42,916
92,902
42,916
Less: Current portion
Non-current portion
146
(10,212)
(11,766)
(10,212)
(11,766)
83,070
31,150
82,690
31,150
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012
16. Short-Term and Long-Term Debt and Payable (continued)
Note:
(i)
(ii)
On 23 October 2008, the Company issued five-year, 10 billion RMB denominated medium-term note with annual interest rate of 4.15% per
annum.
On 16 November 2009, the Company issued three-year, 10 billion RMB denominated medium-term note with annual interest rate of 3.65%
per annum. This medium-term note was repaid by the Company on 17 November 2012.
On 28 December 2009, the Company issued two batches of five-year, 10 billion RMB denominated medium-term notes with annual interest
rate of 4.61% per annum.
All of the above medium-term notes are unsecured.
Represents the remaining balance of the deferred consideration payable to China Telecommunications Corporation in respect of the Mobile
Network Acquisition (Note 2). The Company 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 Company 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
rate for the first year is 4.83%.
If the amount is not paid when due, the Company 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.
The aggregate maturities of the Group’s and the Company’s long-term debt and payable subsequent to 31 December 2012
are as follows:
Within 1 year
Between 1 to 2 years
Between 2 to 3 years
Between 3 to 4 years
Between 4 to 5 years
Thereafter
The Group
The Company
2012
RMB millions
2011
RMB millions
2012
RMB millions
2011
RMB millions
10,212
20,059
86
86
62,177
662
93,282
11,766
10,188
20,049
89
89
735
42,916
10,212
20,059
86
86
61,797
662
92,902
11,766
10,188
20,049
89
89
735
42,916
The Group’s short-term and long-term debt and payable do not contain any financial covenants. As at 31 December
2012, the Group and the Company have unutilised committed credit facilities amounting to RMB163,130 million (2011:
RMB118,970 million) and RMB163,127 million (2011: RMB118,970 million) respectively.
147
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
17. Accounts Payable
Accounts payable are analysed as follows:
31 December
2012
RMB millions
56,333
11,473
1,038
–
68,844
The Group
31 December
2011
RMB millions
(restated)
34,749
8,911
699
–
44,359
1 January
2011
RMB millions
(restated)
31 December
2012
RMB millions
30,840
8,571
630
–
40,041
49,065
10,968
1,038
2,972
64,043
The Company
31 December
2011
RMB millions
1 January
2011
RMB millions
30,182
8,199
697
1,445
40,523
27,697
8,021
629
1,273
37,620
Third parties
China Telecom Group
Other telecommunications operators
in the PRC
Subsidiaries
Amounts due to China Telecom Group are payable in accordance with contractual terms which are similar to those terms
offered by third parties.
Ageing analysis of accounts payable is as follows:
31 December
2012
RMB millions
18,427
17,783
15,831
16,803
68,844
The Group
31 December
2011
RMB millions
(restated)
13,075
11,610
8,054
11,620
44,359
1 January
2011
RMB millions
(restated)
31 December
2012
RMB millions
10,310
8,626
9,830
11,275
40,041
13,588
17,770
15,931
16,754
64,043
The Company
31 December
2011
RMB millions
1 January
2011
RMB millions
10,568
11,260
7,794
10,901
40,523
8,967
8,047
9,693
10,913
37,620
Due within 1 month or on demand
Due after 1 month but within 3 months
Due after 3 months but within 6 months
Due after 6 months
148
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012
18. Accrued Expenses and Other Payables
Accrued expenses and other payables represent:
Note
(i)
Amounts due to
China Telecom Group
Amounts due to subsidiaries
Amounts due to other
telecommunications
operators in the PRC
Accrued expenses
Customer deposits and receipts
in advance
Dividend payable
31 December
2012
RMB millions
The Group
31 December
2011
RMB millions
(restated)
1 January
2011
RMB millions
(restated)
31 December
2012
RMB millions
The Company
31 December
2011
RMB millions
1 January
2011
RMB millions
40,745
–
59
14,410
50,491
31
105,736
312
–
78
14,280
44,698
7
59,375
389
–
40,420
468
85
14,401
37,584
433
52,892
57
13,154
48,558
–
102,657
222
272
78
13,509
43,282
–
57,363
319
125
85
13,691
36,587
418
51,225
Note:
(i)
The amount as at 31 December 2012 includes the first installment of the final consideration of the Mobile Network Acquisition amounting to
RMB25,500 million and the liabilities assumed by the Group from the network branches of China Telecommunications Corporation payable
to China Telecom Group amounting to RMB14,269 million in connection with the Mobile Network Acquisition. These amounts were paid in
January 2013.
149
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
19. Deferred Revenues
Deferred revenues represent the unearned portion of installation fees for wireline services received from customers and the
unused portion of calling cards.
Balance at beginning of year
Additions for the year
– installation fees
– calling cards
Reductions for the year
– amortisation of connection fees
– amortisation of installation fees
– usage of calling cards
Balance at end of year
Representing:
– current portion
– non-current portion
The Group
The Company
2012
RMB millions
2011
RMB millions
2012
RMB millions
2011
RMB millions
4,805
–
773
773
–
(1,233)
(900)
3,445
1,654
1,791
3,445
6,203
373
1,275
1,648
(98)
(1,660)
(1,288)
4,805
2,093
2,712
4,805
4,803
–
769
769
–
(1,233)
(897)
3,442
1,651
1,791
3,442
6,203
373
1,267
1,640
(98)
(1,660)
(1,282)
4,803
2,091
2,712
4,803
Included in other assets are primarily capitalised direct costs associated with the installation of wireline services. As at 31
December 2012, the unamortised portion of these costs was RMB1,687 million (2011: RMB2,444 million).
20. Share Capital
Registered, issued and fully paid
67,054,958,321 ordinary domestic shares of RMB1.00 each
13,877,410,000 overseas listed H shares of RMB1.00 each
All ordinary domestic shares and H shares rank pari passu in all material respects.
The Group and the Company
2012
RMB millions
2011
RMB millions
67,055
13,877
80,932
67,055
13,877
80,932
150
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012
21. Reserves
The Group
Capital
reserve
Share
premium
Statutory
reserves
Other
reserves
Exchange
reserve
Retained
earnings
Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
(Note (ii))
(Note (iii))
(Note (i))
Balance as at 1 January 2011,
as previously reported
Adjusted for the Sixth Acquisition (Note 1)
Balance as at 1 January 2011, as restated
Dividends (Note 32)
Acquisition of non-controlling interests
Acquisition of the Fifth Acquired Group
Distribution to China Telecom Group
Appropriations (Note (iii))
Total comprehensive income for the year,
as restated
Balance as at 31 December 2011, as restated
Acquisition of the Sixth Acquired Business
(Note 1)
Contribution from non-controlling interests
Others
Dividends (Note 32)
Appropriations (Note (iii))
Total comprehensive income for the year
16,767
–
16,767
–
–
–
–
–
10,746
–
10,746
–
–
–
–
–
62,634
–
62,634
–
–
–
–
1,682
–
–
–
16,767
10,746
64,316
(48)
249
(380)
–
–
–
–
–
–
–
–
–
–
–
–
–
1,413
–
Balance as at 31 December 2012
16,588
10,746
65,729
The Company
438
–
438
–
(1)
–
–
–
(154)
283
–
–
–
–
–
(171)
112
(715)
–
(715)
–
–
–
–
–
(103)
(818)
–
–
–
–
–
(3)
74,826
37
74,863
(5,763)
–
(19)
(3)
(1,682)
16,500
83,896
–
–
–
(5,625)
(1,413)
14,925
164,696
37
164,733
(5,763)
(1)
(19)
(3)
–
16,243
175,190
(48)
249
(380)
(5,625)
–
14,751
(821)
91,783
184,137
Capital
reserve
RMB millions
(Note (i))
Share
premium
RMB millions
Statutory
reserves
RMB millions
(Note (iii))
Retained
earnings
RMB millions
Total
RMB millions
Balance as at 1 January 2011
Total comprehensive income for the year
Appropriations (Note (iii))
Dividends (Note 32)
Balance as at 31 December 2011
Total comprehensive income for the year
Acquisition of the Sixth Acquired Business (Note 1)
Appropriations (Note (iii))
Dividends (Note 32)
29,168
–
–
–
29,168
–
(20)
–
–
10,746
–
–
–
10,746
–
–
–
–
62,634
–
1,682
–
64,316
–
–
1,413
–
Balance as at 31 December 2012
29,148
10,746
65,729
59,564
15,504
(1,682)
(5,763)
67,623
13,909
–
(1,413)
(5,625)
74,494
162,112
15,504
–
(5,763)
171,853
13,909
(20)
–
(5,625)
180,117
151
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
21. Reserves (continued)
Note:
(i)
Capital reserve of the Group 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 Company 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 financial statements, and the historical carrying amount of the net assets of
these acquired entities.
The difference between the consideration paid by the Company and the historical carrying amount of the net assets of the Fifth Acquisition
was recorded as a deduction of retained earnings.
Capital reserve of the Company represents 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.
(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 recognised 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 31 December 2012, the Company transferred RMB1,413 million,
being 10% of the year’s net profit determined in accordance with IFRS, to this reserve. For the year ended 31 December 2011, the Company
transferred RMB1,572 million, being 10% of the year’s net profit determined in accordance with the IFRS.
According to the Company’s Articles of Association, the Company did not transfer any discretionary surplus reserve for the year ended
31 December 2012. The Company transferred RMB110 million for the year ended 31 December 2011, being 0.7% of the year’s net profit
determined in accordance with IFRS.
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 utilised 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 determined in accordance with the PRC Accounting Standards for Business Enterprises and the amount determined
in accordance with IFRS. As at 31 December 2012, the amount of retained earnings available for distribution was RMB74,494 million (2011:
RMB67,623 million), being the amount determined in accordance with IFRS. Final dividend of approximately RMB5,522 million in respect of
the financial year 2012 proposed after the end of the reporting period has not been recognised as a liability at the end of the reporting period
(Note 32).
152
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012
22. Operating Revenues
Operating revenues represent revenues from the provision of telecommunications services. The components of the Group’s
operating revenues are as follows:
Wireline voice
Mobile voice
Internet
Value-added services
Integrated information application services
Managed data and leased line
Others
Upfront connection fees
The Group
Note
2012
RMB millions
2011
RMB millions
(restated)
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
43,335
49,166
87,660
31,104
23,174
15,710
32,924
–
49,764
38,628
74,992
25,554
20,473
14,273
21,286
98
283,073
245,068
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, Colour Ring Tone, Internet data centre and Virtual Private Network services.
(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 managed data transmission 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, rental and repair and maintenance of equipment.
(viii) Represent the amortised amount of the upfront fees received for initial activation of wireline services.
153
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
23. Network Operations and Support Expenses
Included in the Group’s network operations and support expenses are as follows:
Operating and maintenance
Utility
Property rental and management fee
CDMA network capacity lease fee
Others
24. Personnel Expenses
Personnel expenses are attributable to the following functions:
Network operations and support
Selling, general and administrative
The Group
2012
RMB millions
2011
RMB millions
(restated)
24,766
7,822
5,240
25,546
2,629
66,003
20,814
7,040
4,693
19,011
1,367
52,925
The Group
2012
RMB millions
2011
RMB millions
28,385
14,427
42,812
25,924
13,243
39,167
154
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012
25. Other Operating Expenses
Other operating expenses consist of:
Interconnection charges
Cost of goods sold
Donations
Others
Note
(i)
(ii)
The Group
2012
RMB millions
2011
RMB millions
(restated)
14,103
26,162
12
64
40,341
13,042
15,730
13
85
28,870
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.
26. Total Operating Expenses
Total operating expenses for the year ended 31 December 2012 were RMB261,887 million (2011: RMB220,941 million)
which include auditor’s remuneration in relation to audit and non-audit services are RMB90 million and RMB6 million
respectively (2011: RMB68 million and RMB4 million).
27. Net Finance Costs
Net finance costs comprise:
Interest expense incurred
Less: Interest expense capitalised*
Net interest expense
Interest income
Foreign exchange losses
Foreign exchange gains
The Group
2012
RMB millions
2011
RMB millions
2,479
(325)
2,154
(591)
47
(46)
1,564
3,023
(313)
2,710
(405)
48
(99)
2,254
* Interest expense was capitalised in construction in progress at
the following rates per annum
1.3% – 6.2%
2.5% – 5.6%
155
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
28. Income Tax
Income tax in the profit or loss comprises:
Provision for PRC income tax
Provision for income tax in other tax jurisdictions
Deferred taxation
The Group
2012
RMB millions
2011
RMB millions
4,900
50
(197)
4,753
3,635
29
1,752
5,416
A reconciliation of the expected tax expenses with the actual tax expense is as follows:
Profit before taxation
Expected income tax expense at statutory tax rate of 25%
Differential tax rate on PRC subsidiaries’ and branches’ income
Differential tax rate on other subsidiaries’ income
Non-deductible expenses
Non-taxable income
Effect of change in tax rate
Others
Actual income tax expense
The Group
Note
2012
RMB millions
2011
RMB millions
(restated)
19,793
22,012
(i)
(i)
(ii)
(iii)
(iv)
(v)
(vi)
4,948
(269)
(23)
539
(156)
155
(441)
4,753
5,503
(255)
(3)
489
(291)
–
(27)
5,416
Note:
(i)
Except for certain subsidiaries and branches which are taxed at 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 35%.
(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)
Certain branches with operations in the western region of the PRC obtained approvals from tax authorities to adopt the preferential income
tax rate of 15%. Accordingly, deferred tax assets that were recovered and deferred tax liabilities that were settled after 31 December 2011
were adjusted to reflect the change in tax rate. The overall effect of change in tax rate amounting to RMB155 million was charged to the
consolidated statement of comprehensive income.
(vi)
Amounts primarily represent tax deduction on prior years’ research and development expenses and losses on disposal of property, plant and
equipment approved by tax authorities during the year.
156
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012
29. Directors’ and Supervisors’ Remuneration
The following table sets out the remuneration paid or payable to the Company’s directors and supervisors:
2012
Executive directors
Wang Xiaochu
Yang Jie
Wu Andi
Zhang Jiping
Zhang Chenshuang1
Yang Xiaowei
Sun Kangmin
Ke Ruiwen2
Non-executive directors
Li Jinming3
Chen Liangxian4
Independent non-executive directors
Wu Jichuan
Qin Xiao
Tse Hau Yin
Cha May Lung
Xu Erming
Supervisors
Shao Chunbao6
Miao Jianhua5
Mao Shejun
Zhang Jianbin6
Xu Cailiao5
Han Fang5
Hu Jing6
Du Zuguo
Independent supervisor
Zhu Lihao
Directors’/
supervisors’ fees
RMB thousands
Salaries,
allowances and
benefits in kind
RMB Thousands
Discretionary
bonuses
RMB thousands
Retirement
scheme
contributions
RMB thousands
Share-based
payments
RMB thousands
Total
RMB thousands
–
–
–
–
–
–
–
–
–
–
200
203
405
203
200
–
–
–
–
–
–
–
–
100
1,311
337
337
293
293
122
293
293
171
–
–
–
–
–
–
–
49
245
173
45
83
225
10
–
–
2,969
377
386
344
344
337
340
340
171
–
–
–
–
–
–
–
49
289
450
62
303
316
22
–
–
4,130
62
59
59
59
24
59
59
36
–
–
–
–
–
–
–
10
48
59
19
42
42
8
–
–
645
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
776
782
696
696
483
692
692
378
–
–
200
203
405
203
200
108
582
682
126
428
583
40
–
100
9,055
1
2
3
4
5
6
7
Mr. Zhang Chenshuang retired as an executive director of the Company on 20 March 2012.
Mr. Ke Ruiwen was appointed as an executive director of the Company on 30 May 2012.
Mr. Li Jinming retired as a non-executive director of the Company on 22 August 2012.
Mr. Chen Liangxian was appointed as a non-executive director of the Company on 16 October 2012, and resigned as a non-executive director
of the Company on 30 March 2013.
Mr. Miao Jianhua retired as a supervisor of the Company on 22 August 2012. Mr. Xu Cailiao and Madam Han Fang resigned as supervisors of
the Company on 22 August 2012.
Mr. Shao Chunbao, Mr. Zhang Jianbin and Mr. Hu Jing were appointed as supervisors of the Company on 16 October 2012.
The remuneration of all directors and supervisors were calculated based on their respective actual terms of office within this year.
157
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
29. Directors’ and Supervisors’ Remuneration (continued)
2011
Executive directors
Wang Xiaochu
Yang Jie
Shang Bing1
Wu Andi
Zhang Jiping
Zhang Chenshuang2
Yang Xiaowei
Sun Kangmin
Non-executive director
Li Jinming
Independent non-executive directors
Wu Jichuan
Qin Xiao
Tse Hau Yin
Cha May Lung
Xu Erming
Supervisors
Miao Jianhua
Mao Shejun3
Du Zuguo3
Ma Yuzhu3
Xu Cailiao
Han Fang
Independent supervisor
Zhu Lihao
Directors’/
supervisors’ fees
RMB thousands
Salaries,
allowances and
benefits in kind
RMB thousands
Discretionary
bonuses
RMB thousands
Retirement
scheme
contributions
RMB thousands
Share-based
payments
RMB thousands
Total
RMB thousands
–
–
–
–
–
–
–
–
–
176
178
405
184
176
–
–
–
–
–
–
88
1,207
350
311
237
304
304
304
304
304
–
–
–
–
–
–
304
166
–
69
93
92
–
3,142
339
305
227
305
305
305
305
305
–
–
–
–
–
–
305
450
–
319
307
302
–
4,079
60
52
50
53
52
53
52
52
–
–
–
–
–
–
53
53
–
27
43
42
–
642
1,400
1,120
–
1,120
1,120
–
–
1,120
–
–
–
–
–
–
–
933
–
–
513
513
–
7,839
2,149
1,788
514
1,782
1,781
662
661
1,781
–
176
178
405
184
176
662
1,602
–
415
956
949
88
16,909
1
2
3
Mr. Shang Bing resigned as an executive director of the Company on 13 July 2011.
Mr. Zhang Chenshuang retired as an executive director of the Company on 20 March 2012.
Mr. Ma Yuzhu resigned as a supervisor of the Company on 20 May 2011. Mr. Mao Shejun and Mr. Du Zuguo were appointed as supervisors of
the Company on 20 May 2011.
4
The remuneration of all directors and supervisors were calculated based on their respective actual terms of office within this year.
158
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012
30. Individuals with Highest Emoluments and Senior Management Remuneration
(a) Five highest paid individuals
None of the five highest paid individuals of the Group for the year ended 31 December 2012 were directors of the
Company. Of the five highest paid individuals of the Group for the year ended 31 December 2011, three of them were
directors of the Company and whose remuneration was disclosed in Note 29.
The aggregate of the emoluments in respect of the five (2011: two) individuals (non-directors) are as follows:
Salaries, allowances and benefits in kind
Discretionary bonuses
Retirement scheme contributions
Share-based payment
2012
RMB
thousands
2011
RMB
thousands
5,713
2,588
118
–
8,419
2,035
931
226
1,201
4,393
The emoluments of the five (2011: two) individuals (non-directors) with the highest emoluments are within the
following bands:
RMB0 – RMB1,000,000
RMB1,000,001 – RMB1,500,000
RMB1,500,001 – RMB2,000,000
RMB2,000,001 – RMB2,500,000
2012
Number of
individuals
2011
Number of
individuals
0
2
2
1
0
0
0
2
None of these employees received any inducements or compensation for loss of office, or waived any emoluments
during the periods presented.
(b) Senior management remuneration
The emoluments of the Group’s senior management are within the following bands:
RMB0 – RMB1,000,000
RMB1,000,001 – RMB1,500,000
RMB1,500,001 – RMB2,000,000
RMB2,000,001 – RMB2,500,000
2012
Number of
individuals
2011
Number of
individuals
26
0
0
1
15
1
6
2
159
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
31. Profit Attributable to Equity Holders of the Company
For the year ended 31 December 2012, the consolidated profit attributable to equity holders of the Company includes a
profit of RMB14,134 million which has been dealt with in the stand-alone financial statements of the Company.
For the year ended 31 December 2011, the consolidated profit attributable to equity holders of the Company includes a
profit of RMB15,722 million which has been dealt with in the stand-alone financial statements of the Company.
32. Dividends
Pursuant to a resolution passed at the Directors’ meeting on 20 March 2013, a final dividend of equivalent to HK$0.085
per share totaling approximately RMB5,522 million for the year ended 31 December 2012 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 31 December 2012.
Pursuant to the shareholders’ approval at the Annual General Meeting held on 30 May 2012, a final dividend of RMB0.069506
(equivalent to HK$0.085) per share totaling RMB5,625 million in respect of the year ended 31 December 2011 was declared
of which RMB5,235 million was paid on 20 July 2012 and the remaining amounts were paid by December 2012.
Pursuant to the shareholders’ approval at the Annual General Meeting held on 20 May 2011, a final dividend of RMB0.071208
(equivalent to HK$0.085) per share totaling RMB5,763 million in respect of the year ended 31 December 2010 was declared
and paid on 30 June 2011.
33. Basic Earnings per Share
The calculation of basic earnings per share for the years ended 31 December 2012 and 2011 is based on the profit
attributable to equity holders of the Company of RMB14,925 million and RMB16,500 million 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.
160
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012 34. 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 at 31 December 2012 and 2011, the Group’s and the Company’s future minimum lease payments under non-cancellable
operating leases are as follows:
Within 1 year
Between 1 to 2 years
Between 2 to 3 years
Between 3 to 4 years
Thereafter
Total minimum lease payments
The Group
The Company
2012
RMB millions
2011
RMB millions
2012
RMB millions
2011
RMB millions
2,119
1,195
877
686
2,042
6,919
18,182
782
600
413
1,126
21,103
1,995
1,118
819
636
1,877
6,445
18,076
711
560
391
1,111
20,849
Total rental expense in respect of operating leases charged to profit or loss for the year ended 31 December 2012 was
RMB29,529 million (2011: RMB22,539 million).
Capital commitments
As at 31 December 2012 and 2011, the Group and the Company had capital commitments as follows:
Authorised and contracted for
– property
– telecommunications network plant and
equipment
Authorised but not contracted for
– property
– telecommunications network plant and
equipment
The Group
The Company
2012
RMB millions
2011
RMB millions
2012
RMB millions
2011
RMB millions
462
6,641
7,103
764
8,401
9,165
674
5,695
6,369
801
5,927
6,728
462
6,606
7,068
764
8,377
9,141
674
5,669
6,343
801
5,830
6,631
161
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
34. Commitments and Contingencies (continued)
Contingent liabilities
(a)
The Company and the Group were advised by their PRC lawyers that, except for liabilities arising out of or relating
to the businesses of the Fifth Acquired Group and the Sixth Acquired Business transferred to the Group, no other
contingent liabilities were assumed by the Company or the Group, and the Company or the Group are not jointly and
severally liable for other debts and obligations incurred by China Telecom Group prior to these acquisition.
(b) As at 31 December 2012 and 2011, 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.
As at 31 December 2012 and 2011, the Company did not have contingent liabilities in respect of guarantees given to
banks in respect of banking facilities granted to subsidiaries.
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 unfavourable 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.
35. Financial Instruments
Financial assets of the Group include cash and cash equivalents, time deposits, investments, accounts receivable, advances
and other receivables. Financial liabilities of the Group include short-term and long-term debts and payable, accounts
payable, accrued expenses and other payables. The Group does not hold nor issue financial instruments for trading purposes.
(a) Fair Value
The amendments to IFRS 7, Financial Instruments: Disclosures, require disclosures relating to fair value measurements
of financial instruments across three levels of a “fair value hierarchy”. The fair value of each financial instrument is
categorised 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 (highest level): 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 (lowest level): 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 and available-for-
sale equity investment securities) approximate their carrying amounts due to the short-term maturity of these
instruments.
162
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012 35. Financial Instruments (continued)
(a) Fair Value (continued)
The Group’s available-for-sale equity investment securities are categorised as level 1 financial instruments. The fair
value of the Group’s available-for-sale equity investment securities is RMB585 million as at 31 December 2012 (2011:
RMB617 million) was based on quoted market price on a PRC stock exchange. 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 accordingly, a reasonable estimate of their fair values could not be made without incurring
excessive costs.
The fair values of long-term indebtedness 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 interest
rates used in estimating the fair values of long-term debt and payable, having considered the foreign currency
denomination of the debt, ranged from 1.0% to 6.8% (2011: 1.0% to 7.51%). As at 31 December 2012 and 2011, the
carrying amounts and fair values of the Group’s long-term debt and payable were as follows:
2012
Carrying
amount
RMB millions
Fair value
RMB millions
2011
Carrying
amount
RMB millions
Fair value
RMB millions
Long-term debt and payable
93,282
92,931
42,916
41,698
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 programme focuses on the unpredictability of financial markets and seeks to minimise 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 authorises changes
if necessary based on operating and market conditions and other relevant risks. The following summarises the
qualitative and quantitative disclosures for each of the three main types of risks:
(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 Group’s credit policy and quantitative disclosures in respect of the Group’s
exposure on credit risk for accounts receivable are set out in Note 13.
(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.
163
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
35. Financial Instruments (continued)
(b) Risks (continued)
(ii)
Liquidity risk (continued)
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:
2012
Total
contractual
undiscounted
cash flow
RMB millions
Within
1 year or
on demand
RMB millions
More than
1 year but
less than
2 years
RMB millions
More than
2 years but
less than
5 years
RMB millions
Carrying
amount
RMB millions
More than
5 years
RMB millions
6,523
93,282
68,844
105,736
3
274,388
(6,652)
(110,705)
(68,844)
(6,652)
(14,571)
(68,844)
(105,736)
(3)
(105,736)
–
–
(23,997)
–
–
(2)
–
(71,441)
–
–
(1)
–
(696)
–
–
–
(291,940)
(195,803)
(23,999)
(71,442)
(696)
2011
Total
contractual
undiscounted
cash flow
RMB millions
(9,391)
(47,087)
(44,359)
Within
1 year or
on demand
RMB millions
(9,391)
(13,513)
(44,359)
More than
1 year but
less than
2 years
RMB millions
More than
2 years but
less than
5 years
RMB millions
–
(11,592)
–
–
(21,211)
–
(59,375)
(59,375)
–
–
(160,212)
(126,638)
(11,592)
(21,211)
Carrying
amount
RMB millions
9,187
42,916
44,359
59,375
155,837
More than
5 years
RMB millions
–
(771)
–
–
(771)
Short-term debt
Long-term debt and payable
Accounts payable
Accrued expenses and
other payables
Finance lease obligations
Short-term debt
Long-term debt and payable
Accounts payable (restated)
Accrued expenses and other
payables (restated)
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.
164
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012
35. Financial Instruments (continued)
(b) Risks (continued)
(iii)
Interest rate risk
The Group’s interest rate risk exposure arises primarily from its short-term debts and long-term debts 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:
2012
Effective
interest rate
%
RMB millions
2011
Effective
interest rate
%
RMB millions
5.4
4.4
5.5
4.8
5,877
31,572
37,449
646
61,710
62,356
99,805
37.5%
5.8
4.1
6.1
1.5
7,471
42,712
50,183
1,716
204
1,920
52,103
96.3%
Fixed rate debt:
Short-term debt
Long-term debt and payable
Variable rate debt:
Short-term debt
Long-term debt and payable
Total debt
Fixed rate debt as a percentage
of total debt
As at 31 December 2012, 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 RMB468 million (2011: RMB14 million).
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 2011.
(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, Japanese Yen 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 97.6% (2011: 94.4%) of the
Group’s cash and cash equivalents and 98.9% (2011: 94.7%) of the Group’s short-term and long-term debt and
payable as at 31 December 2012 are denominated in Renminbi. Details of bank loans denominated in other
currencies are set out in Note 16.
165
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
36. 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, long-term debt and payable and finance lease obligations. As at 31 December
2012, the Group’s total debt-to-total assets ratio was 18.3% (2011: 12.4%), which is within the range of management’s
expectation.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
37. 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 are as follows. The majority of these transactions also constitute
continuing connected transactions under the Rules Governing the Listing of Securities on The Stock Exchange of
Hong Kong Limited. Further details of these continuing connected transactions are disclosed under the paragraph
“Connected Transactions” in the report of directors.
Note
2012
RMB millions
2011
RMB millions
Purchases of telecommunications equipment and materials
Sales of telecommunications equipment and materials
Construction and engineering services
Provision of IT services
Receiving IT services
Receiving community services
Receiving ancillary services
Operating lease expenses
Net transaction amount of centralised services
Interconnection revenues
Interconnection charges
Interest on loans from China Telecom Group
CDMA network capacity lease fee
Reimbursement of capacity maintenance related costs of
CDMA network
Mobile Network Acquisition
(i)
(i)
(ii)
(iii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(viii)
(ix)
(x)
(xi)
(xii)
3,029
2,685
10,203
370
764
2,652
9,541
366
570
44
410
24
25,546
2,519
87,210
2,764
1,642
8,293
365
692
2,362
7,878
395
625
48
498
208
19,011
3,151
–
166
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012
37. Related Party Transactions (continued)
(a) Transactions with China Telecom Group (continued)
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 by and received from China Telecom Group.
(iv)
(v)
(vi)
Represent amounts paid and payable to China Telecom Group in respect of cultural, educational, health care and other community
services.
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.
Represent net amounts paid and payable to China Telecom Group for leases of business premises and the amounts paid and payable
to China Telecom Group for inter-provincial transmission optic fibres.
(vii)
Represent net amount shared between the Company and China Telecom Group for costs associated with centralised services. The
amount represents amounts received or receivable for the net amount of centralised 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 interest paid and payable to China Telecom Group with respect to the loans from China Telecom Group (Note 16).
(x)
(xi)
Represent amounts paid and payable to China Telecom Group for lease of CDMA mobile telecommunications network (“CDMA
network”) capacity.
Represent amounts shared between the Company and China Telecom Group for the capacity maintenance related costs in connection
with the CDMA network capacity used by the Company.
(xii)
Represent the final consideration of the Mobile Network Acquisition (Note 2).
167
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements 37. Related Party Transactions (continued)
(a) Transactions with China Telecom Group (continued)
Amounts due from/to China Telecom Group are summarised as follows:
Accounts receivable
Prepayments and other current assets
Total amounts due from China Telecom Group
Accounts payable
Accrued expenses and other payables
Short-term debt
Long-term debt and payable
2012
RMB millions
2011
RMB millions
626
779
1,405
11,473
40,745
820
61,710
1,803
1,091
2,894
8,911
312
820
–
Total amounts due to China Telecom Group
114,748
10,043
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 at 31 December 2012 and 2011, no material allowance for doubtful debts was recognised in respect of amounts
due from China Telecom Group.
On 25 August 2010, the Company and China Telecommunications Corporation entered into supplemental agreements
to renew the CDMA network capacity lease agreement (“the 2010 CDMA Network Lease”), which it first entered into
with China Telecommunications Corporation and which were approved by the Company’s independent shareholders
at an Extraordinary General Meeting held on 16 September 2008, for a further term of two years expiring on 31
December 2012. Pursuant to the 2010 CDMA Network Lease, the lease fee for the capacity on the constructed CDMA
network shall be 28% of the CDMA service revenue. For the year ending 31 December 2011 and 2012, the minimum
annual lease fee shall be 90% of the total amount of the lease fee paid by the Company to China Telecommunications
Corporation in the previous year.
The 2010 CDMA Network Lease expired on 31 December 2012 and was not renewed.
168
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012
37. Related Party Transactions (continued)
(b) 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 and supervisors of the Group.
Key management personnel compensation of the Group is summarised as follows:
Short-term employee benefits
Post-employment benefits
Equity-based compensation benefits
2012
RMB
thousands
2011
RMB
thousands
9,041
704
–
9,745
9,037
696
8,959
18,692
The above remuneration is included in personnel expenses.
(c) Contributions to post-employment benefit plans
The Group participates in various defined contribution post-employment benefit plans organised by municipal,
autonomous regional and provincial governments for its employees. Further details of the Group’s post-employment
benefit plans are disclosed in Note 38.
(d) 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 organisations (collectively referred to as “government-related entities”).
Apart from transactions with parent company and its affiliates (Note 37(a)), the Group has, collectively but not
individually, significant transactions 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 money
use of public utilities
169
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
37. Related Party Transactions (continued)
(d) Transactions with other government-related entities in the PRC (continued)
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 believe the above information provides appropriate disclosure of related party transactions.
38. Post-Employment Benefits Plans
As stipulated by the regulations of the PRC, the Group participates in various defined contribution retirement plans
organised 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 18% to 20% 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 year ended 31 December 2012 were RMB5,048 million (2011:
RMB4,529 million).
The amount payable for contributions to the above defined contribution retirement plans as at 31 December 2012 was
RMB615 million (2011: RMB639 million).
39. 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 recognises compensation expense of the stock appreciation rights over the
applicable vesting period.
In 2003, the Company approved the granting of 276.5 million stock appreciation right units to eligible employees. Under the
terms of this grant, all stock appreciation rights had a contractual life of six years from date of grant and an exercise price of
HK$1.48 per unit. A recipient of stock appreciation rights may not exercise the rights in the first 18 months after the date of
grant. As at each of the third, fourth, fifth and sixth anniversary of the date of grant, the total number of stock appreciation
rights exercisable may not in aggregate exceed 25%, 50%, 75% and 100%, respectively, of the total stock appreciation rights
granted to such person.
170
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012 39. Stock Appreciation Rights (continued)
In 2005, the Company approved the granting of 560.0 million stock appreciation right units to eligible employees. Under the
terms of this grant, all stock appreciation rights had a contractual life of six years from date of grant and an exercise price of
HK$2.78 per unit. A recipient of stock appreciation rights may not exercise the rights in the first 24 months after the date of
grant. As at each of the third, fourth, fifth and sixth anniversary of the date of grant, the total number of stock appreciation
rights exercisable may not in aggregate exceed 25%, 50%, 75% and 100%, respectively, of the total stock appreciation rights
granted to such person.
In 2006, the Company approved the granting of 837.3 million stock appreciation right units to eligible employees. Under the
terms of this grant, all stock appreciation rights had a contractual life of six years from date of grant and an exercise price of
HK$2.85 per unit. A recipient of stock appreciation rights may not exercise the rights in the first 24 months after the date of
grant. As at each of the third, fourth, fifth and sixth anniversary of the date of grant, the total number of stock appreciation
rights exercisable may not in aggregate exceed 25%, 50%, 75% and 100%, respectively, of the total stock appreciation rights
granted to such person.
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 at 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%, 66% and 100%, respectively, of the total stock appreciation rights granted to
such person.
During the year ended 31 December 2012, no stock appreciation right units were exercised. During the year ended
31 December 2011, 412 million stock appreciation right units were exercised. For the year ended 31 December 2012,
compensation expense of RMB163 million was recognised by the Group in respect of stock appreciation rights. For the
year ended 31 December 2011, compensation expense of RMB328 million was recognised by the Group in respect of stock
appreciation rights.
As at 31 December 2012, the carrying amount of the liability arising from stock appreciation rights was RMB163 million
(2011: RMB28 million). As at 31 December 2012, no stock appreciation right units were vested. As at 31 December 2011, all
stock appreciation right units vested were exercised.
40. Accounting Estimates and Judgements
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 judgements 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 judgements 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 judgements and estimates used in the
preparation of the consolidated financial statements.
171
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements 40. Accounting Estimates and Judgements (continued)
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.
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 recognised in accordance with accounting policy for impairment of long-
lived assets as described in Note 3(o). The carrying amounts of the Group’s long-lived assets, including property, plant and
equipment, intangible assets 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 the net selling price. 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 recognised if the carrying amount of an asset or its cash-generating unit exceeds
its estimated recoverable amount. It is difficult to precisely estimate selling price 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 judgement 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 31 December 2012, no provision for impairment losses were made against the carrying value of property,
plant and equipment (2011: Nil). 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 amortisation
Property, plant and equipment is depreciated 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 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 expense for future periods is adjusted if there are significant changes
from previous estimates.
Amortisation of customer relationships is recognised on a straight-line basis over the expected customer relationship period
of five years. Management reviews the expected customer relationship period annually in order to estimate the amount
of amortisation expense to be recorded during any reporting period. The expected customer relationship period is based
on the estimate period over which future economic benefits will be received by the Group and takes into account the level
of future competition, the risk of technological or functional obsolescence of its services, and the expected changes in the
regulatory and social environment. The amortisation expense for future periods is adjusted if there are significant changes
from previous estimates.
172
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012 41. Possible Impact of Amendments, New Standards and Interpretations Issued but
not yet Effective for the Annual Accounting Period ended 31 December 2012
Up to the date of issue of these financial statements, the IASB has issued the following amendments, new standards and
interpretations which are not yet effective for the annual accounting period ended 31 December 2012:
Amendments to IAS 1, “Presentation of Financial Statements – Presentation of Items of
Other Comprehensive Income”
IFRS 10, “Consolidated Financial Statements”
IFRS 11, “Joint Arrangements”
IFRS 12, “Disclosure of Interests in Other Entities”
IFRS 13, “Fair Value Measurement”
IAS 27, “Separate Financial Statements (2011)”
IAS 28, “Investments in Associates and Joint Ventures (2011)”
Revised IAS 19, “Employee Benefits”
IFRIC 20, “Stripping Costs in the Production Phase of a Surface Mine”
Amendments to IFRS 7, “Financial Instruments: Disclosures – Offsetting Financial Assets and
Financial Liabilities”
Amendments to IFRS 1, “First-time Adoption of International Financial Reporting Standards –
Government Loans”
Annual Improvements to IFRSs – 2009-2011 Cycle
Amendments to IFRS 10, “Consolidated Financial Statements”, IFRS 11, “Joint Arrangements” and
IFRS 12, “Disclosure of Interests in Other Entities – Transition Guidance”
Amendments to IFRS 10, IFRS 12 and IAS 27, “Investment Entities”
Amendments to IAS 32, “Financial Instruments: Presentation – Offsetting Financial Assets and
Financial Liabilities”
IFRS 9, “Financial Instruments (2009)”
IFRS 9, “Financial Instruments (2010)”
Amendments to IFRS 9, “Financial Instruments” and IFRS 7, “Financial Instruments: Disclosures –
Mandatory Effective Date and Transition Disclosures”
Effective for
accounting period
beginning on or
after
1 July 2012
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2014
1 January 2014
1 January 2015
1 January 2015
1 January 2015
173
China Telecom Corporation LimitedAnnual Report 2012for the year ended 31 December 2012Notes to the Financial Statements
41. Possible Impact of Amendments, New Standards and Interpretations Issued but
not yet Effective for the Annual Accounting Period ended 31 December 2012
(continued)
The Group is in the process of making an assessment of the impact that will result from adopting the amendments,
new standards and interpretations issued by the IASB which are not yet effective for the accounting period ended on 31
December 2012. So far the Group believes that the adoption of these amendments, new standards and interpretations may
result in new or amended disclosures, it is unlikely to have a significant impact on its financial position and the results of
operations.
42. Comparative Figures
As a result of the Sixth Acquisition, certain comparative figures have been adjusted or restated to account for the acquisition
as if it had occurred before the start of the earliest period presented. Further details of this acquisition are disclosed in Note 1.
43. Parent and Ultimate Holding Company
The parent and ultimate holding company of the Group as at 31 December 2012 is China Telecommunications Corporation,
a state-owned enterprise established in the PRC.
174
China Telecom Corporation LimitedAnnual Report 2012Notes to the Financial Statementsfor the year ended 31 December 2012 Results of operation
Wireline voice
Mobile voice
Internet
Managed data and leased line
Value-added services, integrated information
application services and others
Upfront connection fees
Operating revenues
Depreciation and amortisation
Network operations and support
Selling, general and administrative
Personnel expenses
Other operating expenses
Operating expenses
Operating profit
Net finance costs
Investment income
Share of profits of associates
Profit/(loss) before taxation
Income tax
Profit for the year
Other comprehensive income for the year
Change in fair value of available-for-sale equity securities
Deferred tax on change in fair value of
available-for-sale equity securities
Exchange difference on translation of financial
statements of subsidiaries outside mainland China
Share of other comprehensive income from associates
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Profit attributable to
Equity holders of the Company
Non-controlling interests
Profit for the year
Total comprehensive income attributable to
Equity holders of the Company
Non-controlling interests
Total comprehensive income for the year
Basic earnings per share
2012
RMB
43,335
49,166
87,660
15,710
87,202
–
283,073
49,655
66,003
63,076
42,812
40,341
261,887
21,186
(1,564)
93
78
19,793
(4,753)
15,040
(228)
57
(3)
–
(174)
14,866
14,925
115
15,040
14,751
115
14,866
0.18
Year ended 31 December
2011
RMB
(restated)
2010
RMB
(restated)
2009
RMB
(restated)
2008
RMB
(restated)
49,764
38,628
74,992
14,273
67,313
98
245,068
51,233
52,925
48,746
39,167
28,870
220,941
24,127
(2,254)
40
99
22,012
(5,416)
16,596
(205)
51
(103)
–
(257)
16,339
16,500
96
16,596
16,243
96
16,339
0.20
62,498
28,906
63,985
12,389
51,622
497
219,897
52,224
47,445
42,136
35,537
19,111
196,453
23,444
(3,600)
328
131
20,303
(4,846)
15,457
132
(48)
(48)
(25)
11
15,468
15,339
118
15,457
15,350
118
15,468
0.19
78,432
20,027
51,567
11,499
46,728
1,151
209,404
52,806
43,733
40,512
32,869
17,453
187,373
22,031
(4,375)
791
101
18,548
(4,382)
14,166
538
(120)
(2)
–
416
14,582
13,962
204
14,166
14,303
279
14,582
0.17
96,258
3,955
40,727
10,231
33,374
2,022
186,567
54,513
60,445
27,507
28,957
10,800
182,222
4,345
(5,076)
5
112
(614)
983
369
(92)
23
(83)
–
(152)
217
274
95
369
122
95
217
0.003
175
China Telecom Corporation LimitedAnnual Report 2012(Amounts in millions, except per share data)Financial Summary
Financial condition
Property, plant and equipment, net
Construction in progress
Other non-current assets
Cash and bank deposits
Other current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Total equity attributable to equity holders of
the Company
Non-controlling interests
Total equity
Total liabilities and equity
2012
RMB
373,743
32,484
73,635
32,712
32,498
545,072
193,461
85,581
279,042
265,069
961
266,030
545,072
Year ended 31 December
2011
RMB
(restated)
2010
RMB
(restated)
2009
RMB
(restated)
2008
RMB
(restated)
268,904
18,448
72,218
29,176
30,405
419,151
127,262
34,979
162,241
256,122
788
256,910
419,151
272,514
14,445
78,366
27,792
27,458
420,575
126,932
47,482
174,414
245,665
496
246,161
420,575
283,594
11,567
83,908
35,246
25,700
440,015
143,492
59,323
202,815
236,352
848
237,200
440,015
296,436
13,622
88,598
28,263
27,250
454,169
176,801
47,770
224,571
228,119
1,479
229,598
454,169
176
China Telecom Corporation LimitedAnnual Report 2012Financial Summary(Amounts in millions, except per share data)
Share Information
Share Listing
China Telecom Corporation Limited’s H shares were listed on The Stock Exchange of Hong Kong Limited on 15 November 2002
and New York Stock Exchange as American Depositary Shares (ADSs) on 14 November 2002. ADSs are issued by The Bank of New
York Mellon. Each ADS traded in the United States represents 100 ordinary H shares.
Stock Code
The Stock Exchange of Hong Kong Limited
New York Stock Exchange
728
CHA
Share Price Performance
2012 share price
Share price change in 2012
HK$ per H share
High
4.92
Low
3.23
Close
4.31
-2.5%
US$ per ADS
Low
41.63
High
63.98
Close
56.85
-0.5%
Number of issued shares: (as at 31 December 2012)
80,932,368,321
Market capitalization: (as at 31 December 2012)
HK$348.8 billion
Share price performance of China Telecom on The Stock Exchange of Hong Kong Limited versus Hang Seng Index (HSI) and MSCI
World Telecom Service Sector Index (MSCI) from IPO on 15 November 2002 to 31 December 2012.
600
500
400
300
200
100
0
2
v-0
o
N
3
v-0
o
N
4
v-0
o
N
5
v-0
o
N
6
v-0
o
N
7
v-0
o
N
8
v-0
o
N
9
v-0
o
N
China Telecom
HSI
1
v-1
o
N
2
v-1
o
N
0
v-1
o
N
MSCI
China Telecom (+197.2%)
HSI (+129.7%)
MSCI (+31.7%)
177
China Telecom Corporation LimitedAnnual Report 2012Shareholder Information Distribution of shares and shareholdings
The share capital of the Company as at 31 December 2012 was RMB80,932,368,321, divided into 80,932,368,321 shares of
RMB1.00 each. As at 31 December 2012, the share capital of the Company comprised:
Total number of Domestic shares:
Domestic shares held by:
China Telecommunications Corporation
Guangdong Rising Assets Management Co., Ltd.
Zhejiang Financial Development Company
Fujian Investment & Development Group Co., Ltd
Jiangsu Guoxin Investment Group Co., Ltd.
Total number of H shares (including ADSs):
Total
Number of shares
67,054,958,321
57,377,053,317
5,614,082,653
2,137,473,626
969,317,182
957,031,543
13,877,410,000
80,932,368,321
Percentage of the
total number of shares
82.85
70.89
6.94
2.64
1.20
1.18
17.15
100.00
Major shareholders of H shares
The following table shows the major shareholders that exercised or controlled the exercise of 5% or above of H shares as at 31
December 2012:
Name of shareholder
Commonwealth Bank of Australia
BlackRock, Inc.
JPMorgan Chase & Co.
Number of shares
1,528,811,281
1,515,862,222
1,387,102,999
Percentage of
the total number of
H shares in issue
11.02
10.92
9.99
178
China Telecom Corporation LimitedAnnual Report 2012Shareholder Information
Dividend History
Financial Year
Ex-Dividend Date
2002 Final
2003 Final
2004 Final
2005 Final
2006 Final
2007 Final
2008 Final
2009 Final
2010 Final
2011 Final
2012 Final
16 May 2003
1 April 2004
21 April 2005
20 April 2006
26 April 2007
28 April 2008
23 April 2009
22 April 2010
18 April 2011
5 June 2012
4 June 2013
Shareholder
Approval Date
20 June 2003
3 May 2004
25 May 2005
23 May 2006
29 May 2007
30 May 2008
26 May 2009
25 May 2010
20 May 2011
30 May 2012
29 May 2013
Payment Date
Dividend per Share
(HK$)
10 July 2003
20 May 2004
23 June 2005
15 June 2006
15 June 2007
16 June 2008
30 June 2009
30 June 2010
30 June 2011
20 July 2012
19 July 2013
0.00837 *
0.065
0.065
0.075
0.085
0.085
0.085
0.085
0.085
0.085
0.085 **
*
On the basis of HK$0.065 per share, pro-rated based on the number of days the Company’s shares have been listed during the year of 2002.
**
The dividend proposal is subject to shareholders’ approval at the annual general meeting to be held on 29 May 2013.
Annual Reports
Our annual reports in both English and Chinese are now available through the Internet at http://www.chinatelecom-h.com. The
Company will file an annual report in Form 20-F for the year 2012 with the United States Securities and Exchange Commission by
30 April 2013.
2012 Annual Report Survey
Annual Report is a key communication channel between shareholders and the Company. Last year, we received around 100
questionnaires of “Your Views on Annual Report 2011”. Each of these responses benefited us in enhancing and further improving
our annual reports. We are deeply indebted to the respondents for their constructive responses. In accordance with our
commitment, we have to donate HK$50 for each questionnaire received. In this regard, we have donated a sum of HK$10,000
to the charitable organisation, Hong Kong Society for the Protection of Children. In addition, we have already implemented
the suggestion of allowing shareholders to choose means of receipt and language of corporate communication to enhance
environmental protection and cost savings.
We value and are eager to keep hearing your comments on our annual report for our further improvement in the future. It is
highly appreciated if you could spare your precious time to complete the questionnaire of “Your Views on Annual Report 2012”, as
attached in this annual report, and return it by post or fax to us at +852 2877 0988. You can also fill in the electronic form at our
website, www.chinatelecom-h.com.
179
China Telecom Corporation LimitedAnnual Report 2012Shareholder Information Annual General Meeting
To be held at 11 a.m. on 29 May 2013 in Conrad Hong Kong Hotel
Registered office
Address:
Tel:
Fax:
31 Jinrong Street
Xicheng District
Beijing
PRC 100033
86 10 6642 8166
86 10 6601 0728
Any enquiries relating to the strategic development or operations of China Telecom Corporation Limited, please contact the
Investor Relations Department:
Investor Relations Department
Tel:
Fax:
Email:
852 2877 9777
852 2877 0988
ir@chinatelecom-h.com
Any enquiries relating to your shareholding, for example transfers of shares, change of name or address, loss of share certificates,
please contact the H share registrar:
H share registrar
Computershare Hong Kong Investor Services Limited
Address:
Shops 1702-1706, 17th Floor
Hopewell Centre
183 Queen’s Road East
Wanchai
Hong Kong
852 2862 8555
852 2865 0990
hkinfo@computershare.com.hk
Any enquiries relating to ADSs, please contact the depositary:
ADS depositary
The Bank of New York Mellon
Address:
Investor Services
P.O. Box 11258
Church Street Station
New York, NY 10286-1258
1-888-269-2377 (toll free in USA)
1-212-815-3700 (international)
shrrelations@bnymellon.com
Tel:
Fax:
Email:
Tel:
Email:
Forward-Looking Statements
Certain statements contained in this document may be viewed as “forward-looking statements” within the meaning of Section 27A of the U.S. Securities
Act of 1933 (as amended) and Section 21E of the U.S. Securities Exchange Act of 1934 (as amended). Such forward-looking statements are subject to
known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of China
Telecom Corporation Limited (the “Company”) to be materially different from any future performance, financial condition or results of operations implied
by such forward-looking statements. In addition, we do not intend to update these forward-looking statements. Further information regarding these
risks, uncertainties and other factors is included in the Company’s most recent Annual Report on Form 20-F filed with the U.S. Securities and Exchange
Commission (the “SEC”) and in the Company’s other filings with the SEC.
180
China Telecom Corporation LimitedAnnual Report 2012Shareholder Information
China Telecom Corporation Limited
31 Jinrong Street, Xicheng District, Beijing, PRC, 100033
www.chinatelecom-h.com
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