China Telecom Corporation Limited
HKEx Stock Code: 728
NYSE Stock Code: CHA
ANNUAL REPORT 2015
WE ENGAGE
WE EVOLVE
WE EXCEL
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ABOUT
CHINA TELECOM
China Telecom Corporation Limited (“China Telecom” or
the “Company”, together with its subsidiaries, collectively
the “Group”) is one of the world’s largest and leading
integrated information service operators, providing wireline
& mobile telecommunications services, Internet access
services, information services and other value-added
telecommunications services primarily in the PRC. As at
the end of 2015, the Company had wireline access lines
in services of about 134 million, wireline broadband
subscribers of about 113 million and mobile subscribers
of about 198 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.
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Contents
2015 Milestones
Corporate Information
Financial Highlights
Statement of the Board
Directors, Supervisors and Senior Management
Management’s Discussion and Analysis
28 Business Review
38 Financial Review
Report of the Directors
Report of the Supervisory Committee
Recognition and Awards
Corporate Governance Report
Human Resources Development Report
106
Corporate Social Responsibility Report
116
Notice of Annual General Meeting
121
Independent Auditor’s Report
122
Consolidated Statement of Financial Position
124
Consolidated Statement of Comprehensive Income
125
Consolidated Statement of Changes in Equity
126
Consolidated Statement of Cash Flows
128
Notes to the Consolidated Financial Statements
194
Financial Summary
196
Shareholder Information
Corporate Culture
Forward-Looking Statements
Certain statements contained in this report 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.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
2015 MILESTONES
M
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Dec
• China Telecom and China Unicom
jointly published the “White paper of
six-mode handset” to promote the
six-mode handsets as the national
standard providing more convenience to
customers
Oct
Jul
• Applying the carrier aggregation
technology, China Telecom took the
pioneer to launch the “e-Surfing
4G+”(LTE-A) service of 300Mbps
download speed in the industry
Apr
• Xizang was affected by the devastating
earthquake of 8.1 magnitude in Nepal.
China Telecom quickly restored the
communications in the disaster area.
• China Telecom disposed the telecommunications
towers and related assets to China Tower Corporation
Limited. Through sharing of tower resources, China
Telecom developed the 4G network in a faster and
more efficient way, so as to promote the development
of 4G businesses
May
• China Telecom took the initiative to
release the “Internet+” action white
paper in the industry and jointly painted
the “Internet+” blueprint with co-
operative partners
Feb
• China Telecom was successfully granted
the permit to operate the LTE/4G digital
cellular mobile service (LTE FDD) to
accelerate the scale development of
4G services
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
CORPORATE INFORMATION C
I
3
Board of Directors
Executive Directors
Yang Jie (exercising the powers of the
Supervisory Committee
Sui Yixun (Chairman)
Tang Qi (Employee Representative)
Zhang Jianbin (Employee Representative)
Chairman and Chief Executive Officer)
Hu Jing
Zhang Jiping
Yang Xiaowei
Sun Kangmin
Ke Ruiwen
Ye Zhong
Company Secretary
Chu Ka Yee
Non-Executive Director
Zhu Wei
International Auditor
Deloitte Touche Tohmatsu
Legal Advisers
Jingtian & Gongcheng
Freshfields Bruckhaus Deringer
Sullivan & Cromwell LLP
Stock Code
HKEx: 728
NYSE: CHA
Company Website
www.chinatelecom-h.com
Independent Non-Executive
Directors
Tse Hau Yin, Aloysius
Cha May Lung, Laura
Xu Erming
Wang Hsuehming
Audit Committee
Tse Hau Yin, Aloysius (Chairman)
Xu Erming
Wang Hsuehming
Remuneration Committee
Xu Erming (Chairman)
Tse Hau Yin, Aloysius
Wang Hsuehming
Nomination Committee
Cha May Lung, Laura (Chairlady)
Tse Hau Yin, Aloysius
Xu Erming
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
FINANCIAL HIGHLIGHTS
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Operating revenues (RMB millions)
321,584
324,394
331,202
2013
2014
2015
EBITDA1 (RMB millions)
EBITDA margin2
Net profit3 (RMB millions)
Capital expenditure (RMB millions)
Total debt/Equity4
Earnings per share (RMB)
Dividend per share (HK$)
96,551
34.6%
17,545
79,992
39.7%
0.2168
0.095
94,853
33.0%
17,680
94,106
32.1%
20,054
76,889
109,094
36.8%
0.2185
0.095
38.4%
0.2478
0.095
1
EBITDA was calculated based on operating revenues minus operating expenses plus depreciation and
amortisation.
2
EBITDA margin was calculated based on EBITDA divided by service revenues.
3 Net profit represented profit attributable to equity holders of the Company.
4
Equity represented equity attributable to equity holders of the Company.
For further information,
please browse our website at
www.chinatelecom-h.com
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
FINANCIAL HIGHLIGHTS
FH
5
Operating Revenues
(RMB millions)
EBITDA1
(RMB millions)
321,584
324,394
331,202
96,551
94,853
94,106
2013
2014
2015
2013
2014
2015
Net Profit3
(RMB millions)
17,545
17,680
20,054
Dividend Per Share
(HK$)
0.095
0.095
0.095
2013
2014
2015
2013
2014
2015
A NEW BEGINNING
4G+
FIBRE
BROADBAND
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
CHINA TELECOM CORPORATION LIMITED ANNUAL REPORT 2015
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STATEMENT OF THE BOARD
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STATEMENT OF THE BOARD
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China Telecom reacted to a number of unprecedented
China Telecom reacted to a number of unprecedented
challenges calmly in 2015. We captured the new
challenges calmly in 2015. We captured the new
opportunities and new growth potentials brought
opportunities and new growth potentials brought
by the change in business environment and the tide
by the change in business environment and the tide
of Internet. We persistently marched towards our
of Internet. We persistently marched towards our
pre-set goal with a mindset to innovate and courage
pre-set goal with a mindset to innovate and courage
to reform and breakthrough. We added value to
to reform and breakthrough. We added value to
ourselves and the Company, and at the same time,
ourselves and the Company, and at the same time,
we brought brand-new experience to our customers.
we brought brand-new experience to our customers.
In 2016, we will continue to grasp the chance and
In 2016, we will continue to grasp the chance and
strive to move forward for a bright future!
strive to move forward for a bright future!
Yang Jie
Executive Director,
President and
Chief Operating Officer
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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Dear Shareholders,
In 2015, the Company proactively grasped
opportunities and achieved excellent
execution of its established strategy
through innovation. While taking the
initiative to respond to various regulatory
challenges, the Company has maintained
a stable and healthy development and
further strengthened its market position.
Taking full advantage of favourable
policies such as the issuance of LTE FDD
licence and leveraging the sharing of
telecommunications towers, we tilted
more investment towards key business
areas to speed up our core network
upgrade. As a result, our 4G and fibre
broadband featuring broad coverage,
excellent quality and superb customer
experience have taken shape quickly. In the
meantime, we accelerated the integrated
and scale development of 4G and fibre
broadband services, thereby migrating
our core fundamental services to high-
value areas and shifting our growth
drivers. We also further deepened our data
traffic operation to boost differentiated
development of emerging services to
become a major growth driver. Moreover,
the Company continuously promoted
its comprehensive in-depth reform,
persisted in innovation as a driving force,
reinforced open cooperation and Internet-
oriented transformation, and accelerated
its full preparation for achieving new
breakthrough. As a result, the capability
of future value creation and vitality of the
Company have been enhanced consistently.
The completion of the disposal of our
telecommunications towers and related
assets will further foster the Company’s
value enhancement in the future.
Operating Results
In 2015, the Company’s operating
fundamentals remained robust. Despite the
impact of various regulatory policies such
as VAT reform, “Speed Upgrade and Tariff
Reduction”1 and “handset data traffic
carried forward”2, the operating revenues
of the Company still increased by 2.1%
over last year, amounting to RMB331.2
billion. Service revenues3 increased by 2.0%
over last year, amounted to RMB293.3
billion, with revenue growth surpassing
industry and further enhancement in
market share. Emerging businesses
accounted for approximately 34% of
service revenues, representing an increase
of 5 percentage points over the same
period last year with further acceleration
in the optimisation of business structure.
EBITDA4 was RMB94.1 billion, while EBITDA
margin5 was 32.1%. Profit attributable to
the equity holders of the Company6 was
RMB20.1 billion, representing an increase
of 13.4% over last year. Basic earnings per
share were RMB0.25. Capital expenditure
was RMB109.1 billion, representing an
increase of RMB32.2 billion over last year
while free cash flow7 was -RMB21.5 billion.
1
2
3
4
5
6
7
In May 2015, the government issued the “Guidance for accelerating the construction of high-speed broadband network and
promotion of network speed upgrade and tariff reduction”.
From October 2015, the Company further implemented the policy of “Speed Upgrade and Tariff Reduction”, enabling handset users
to carry forward unused handset data traffic for use to the next one month.
Service revenues were calculated based on operating revenues minus sales of mobile terminals, sales of wireline equipment and
other non-service revenues.
EBITDA was calculated based on operating revenues minus operating expenses plus depreciation and amortisation.
EBITDA margin was calculated based on EBITDA divided by service revenues.
Profit attributable to the equity holders of the Company for 2015 included a one-off gain of approximately RMB3.9 billion from
the disposal of towers assets.
Free cash flow was calculated from EBITDA minus capital expenditure and income tax.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
STATEMENT OF THE BOARD
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Since the commencement of the pilot
programme of the VAT reform in the
telecommunications industry in June 2014,
the Company has been striving to optimise
its development and sales models,
implement enhanced management over
cost and procurement, and optimise
revenue structure. The relevant monthly
average adverse impact in 2015 has been
reduced. With the full implementation of
the VAT reform across the nation in 2016,
it will be beneficial for the enhancement of
the Company’s profitability in the future.
Taking into consideration the return to
shareholders, the Company’s profitability,
cash flow level and capital requirements
for its future development, the Board of
Directors has decided to recommend at the
forthcoming shareholders’ meeting that a
dividend equivalent to HK$0.095 per share
be declared for the year 2015, maintaining
at the same level of dividends as last year.
Going forward, the Company will strive to
enhance its profits while paving the way
for an increase in future dividends.
Rapid enhancement in corporate
competitive strengths
Accelerated upgrade of core network
capabilities. In 2015, the Company
fully leveraged the opportunities from
the issuance of FDD licence and tower
resources sharing to achieve a leap-
forward breakthrough in the 4G network
construction. We rapidly accomplished
the scale 4G coverage for all developed
villages and towns nationwide (all
villages and towns in eastern region)
or above with 4G coverage network
quality comparable to our competitors,
laying a solid foundation for rapid
scale development of 4G business. By
fully leveraging the edges of global
mainstream FDD technology standard,
we took the initiative in the industry
to launch the “e-Surfing 4G+” (LTE-A)
services of 300Mbps download speed
with industry-leading network experience
in the key cities. We fully leveraged the
favourable “Internet+” policy and the
prosperous market demand and focused
on customers’ experience. With full
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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STATEMENT OF THE BOARD
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and offered more innovative, attractive as
well as integrated packages to enhance
users’ experience and value. The net
increase of 4G terminal subscribers for the
year was 51.38 million, reaching a total of
58.46 million with market share doubled as
compared to last year. The total number of
mobile subscribers was nearly 200 million
and the overall mobile ARPU was stable
with slight increase. The net increase of
FTTH subscribers for the year was 28.38
million, reaching a total of 70.99 million.
The total number of wireline broadband
subscribers reached 113 million while
the penetration rate of FTTH subscribers
reached 63%, representing an increase of
23 percentage points over the end of last
year. The net increase of IPTV (e-Surfing
HD) subscribers for the year was more than
9 million, reaching a total of approximately
40 million.
Leading
Service Revenue
& Net Profi t
Growth
utilisation of our existing capability in fibre
network as well as increased efforts in our
investments in fibre network enhancement
and speed upgrade, we cleared all hurdles
throughout the entire process from access
port to content port, providing users
with industry-leading excellent high-
speed 100Mbps network experience.
At the end of 2015, the Fibre-to-the-
Home (FTTH) coverage in city households
reached 75%, representing an increase of
15 percentage points over the end of last
year. The average bandwidth of wireline
broadband subscribers was approximately
29Mbps, an increase of nearly two times
compared to the end of last year, laying a
solid foundation for scale development of
“Smart Family” products.
Significant strengthening in
fundamental business capabilities. In
2015, the Company accelerated the shift
in growth drivers and coordinated the
collaborative development of 4G and fibre
broadband businesses. The development
of 4G business entered into a fast track
lane and new competitive edges of fibre
broadband were established. With rapid
optimisation of subscriber structure, the
business scale and market share continued
to reinforce. We endeavoured to promote
the six-mode handsets as the national
standard and tackled the bottlenecks in
CDMA terminals. We also proactively
developed the cooperation with terminal
suppliers of superior brands and promoted
the prosperous development in terminal
value chain, resulting in enhancement
of the Company’s competitive strengths
and market influence in the terminal
industry. We focused on high-definition
(HD) content and smart applications,
expedited the optimisation of “Smart
Family” products and operating system
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
STATEMENT OF THE BOARD
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Emerging businesses becoming the
key growth driver. In 2015, revenues
from emerging businesses increased by
approximately 20% over last year with
continued increase in revenue contribution.
We further promoted the precision
data traffic management, continued to
strengthen cooperation and enriched
data traffic product to achieve concurrent
enhancement in data traffic scale and
value. Despite the impact from “handset
data traffic carried forward” policy, the
mobile handset Internet access revenues
for the year amounted to RMB47.8 billion,
representing an increase of 40% over
last year with revenue growth surpassing
the industry. The aggregate handset
Internet data traffic doubled as compared
to last year, of which the contribution
from 4G data traffic has significantly
increased to 51% while the monthly
average data traffic per 4G user reached
751MB, representing an increase of 25%
over last year. The scale development
of key Internet applications continued
to expand. In 2015, the active users of
“BestPay” has exceeded 40 million with
gross merchandise value over RMB770
billion, being doubled over last year. At
the same time, we actively explored the
Internet finance sector. We reinforced
the differentiated capabilities of YiChat
products embedding new applications
including mobile payment, red packet and
lifestyle services. The number of registered
YiChat users exceeded 200 million by the
end of 2015. With further consolidation of
our existing WiFi resources, we expanded
the cooperations of hotspot resources
and business partners for “aWiFi”. The
monthly active “aWiFi” users reached 10
million by the end of 2015. We accelerated
the development of new types of ICT
service. By firmly seizing the national
strategic opportunity of “Internet+”, we
fully leveraged the integrated edges of
networks, cloud computing and security
capability to actively cooperate and
promote collaborative development,
making use of new technologies such
as Big Data and Internet of Things to
create differentiated and innovative
services. In 2015, the revenues from ICT
service amounted to RMB28.8 billion,
representing an increase of 21% over last
year and the revenue growth of IDC and
cloud products was approximately 30%.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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Accelerating reserves for future
growth momentum
Sustained comprehensive in-depth
reform. With thorough promotion of
sub-division of performance evaluation
units, intensified resources allocation
tilted frontline and authority delegation,
the Company encouraged the staff
entrepreneurial development towards
frontline. The number of sub-divided
frontline operating units has exceeded
50,000 with full release of staff motivation
and vitality. The establishment of the
“top-down” service support system was
expedited, adhering to frontline-oriented
and market-oriented services. We fully
leveraged the IT capability to create a
high-efficient and responsive service
support system, resulting in enhancement
of frontline operating efficiency
and effectiveness. With continuous
improvement in market-driven talent
management mechanism and business
operation models, the Company fostered
its efficiently-centralised operations
for emerging businesses with Internet-
oriented resources allocation and financial
management mechanism to facilitate
the rapid development of emerging
businesses. The corporate vitality and
intrinsic momentum have been persistently
strengthened.
In-depth promotion of Internet-
oriented transformation. We
comprehensively created a highly-efficient,
low-cost and professional O2O operating
system in an efficiently-centralised manner
and promoted the Internet-oriented
transformation in channels and services.
By leveraging the edges of physical
channels, the Company extensively
deployed community stores to commence
experience marketing for Smart Family,
efficiently expanded open channels and
$
$
Net Profit
13.4%
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
STATEMENT OF THE BOARD
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focused on accelerating the effectiveness
enhancement of key physical channels. At
the same time, the Company consolidated
existing online channels and created an
efficiently-centralised platform with the
integration of sales and services, through
which the Company’s online services and
customer attraction capabilities continued
to be strengthened. Nearly 80% of
the 4G data traffic packages were sold
online. More than 60% of service items
and volume were conducted online,
which effectively led to staff reduction
and efficiency enhancement of physical
customer service centres. We deepened
the precision management and value
management, promoted the upgrade
from network maintenance to network
operation, accelerated the retirement
of aged network facilities, effectively
revitalised assets such as plant rooms,
accelerated the commercialisation of
maintenance services, continuously
enhanced network operating capability
and value. Through strengthening of risk
prevention, we expedited the promotion
of efficiently-centralised operation of IT
services, strengthened the management
over capital expenditure and cost,
optimised the sales models and resources
allocation, and further reinforced
centralised procurement to lower the
procurement cost. The operating efficiency
and user experience have been persistently
improved.
Accelerated cultivation of new growth
engines. The IPTV (e-Surfing HD) business
has entered into rapid growth period
and has become a strategic fundamental
business. With the 100Mbps fibre
broadband as its foundation, we fully
leveraged the opportunities arising from
pioneer cooperation in three network
convergence to strengthen efficiently-
centralised operations and speed up scale
development to seize the key portal in the
“Smart Family” market. The “BestPay”
business has become a key differentiated
means to drive core fundamental
businesses. As a strategic innovative
business, the “BestPay” business will
deeply integrate with 4G services to
achieve scale development. With continual
expansion of cooperative partners,
we will accelerate the development in
Internet finance business. Firmly seizing
the strategic opportunities of the national
plan of “Internet+” and fully leveraging
our edges, the Company will further
focus on key areas and accelerate the
deployment in public market and industry
market, creating new growth potential.
Our capability in cloud computing and
Big Data has been rapidly enhanced,
with a continuously optimising product
and service portfolio. The Company will
take advantage of its integrated edge
in cloud and network to provide high
quality cloud products, engage in open
cooperation and promote applications
for Big Data products to continuously
enhance its competitive strength and value
contribution. The operation of Internet
of Things has become gradually mature
with continuously expanding scope of
applications. The Company will proactively
seize the opportunity from the boom
in Internet of Things with efficiently-
centralised operation to accelerate the
expansion of connectivity scale, gradually
enrich applications and services for
Internet of Things to create new impetus
for value creation.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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Corporate Governance and
Social Responsibility
We are committed to maintaining a high
level of corporate governance, attaching
great importance to risk management and
control. We strive to enhance corporate
transparency and value to ensure our
healthy and orderly growth. Our persistent
efforts in corporate governance have been
widely recognised by the capital markets.
We were accredited with a number
of awards and recognitions in 2015,
including being voted the “Most Honoured
Company in Asia” by Institutional Investor
for five consecutive years, “Overall
Best Managed Company in Asia” by
FinanceAsia for five consecutive years and
the “No. 1 Best Managed Company in
Asia” by Euromoney for six years in a row.
We persisted in operating with integrity
and proactively fulfilled our corporate
social responsibility while maintaining a
fair and orderly environment for market
competition and facilitating healthy
development of the entire value chain. We
continued to improve our energy-saving
technologies, further strengthened energy
conservation and emissions reduction
in order to promote green operations.
We actively responded to the initiatives
of “the Belt and Road” by cooperating
with our partners in enhancing the
standard of information infrastructure
for the regions and countries along the
path. We received high recognition and
appreciation from society by accomplishing
telecommunications assurance tasks for
the nation’s significant events and disaster
reliefs.
Outlook
Currently, the national macro-economic
growth is slowing down and the
fundamental telecommunications market
is becoming saturated amid intensified
market competition. The regulatory
environment is still embedded with a
lot of uncertainties, bringing certain
challenges to the future development
of the Company. Meanwhile, with the
nation’s advocacy of the development
concepts of “innovation, harmonisation,
green, openness and sharing”, together
with the proactive launch of national
strategies of “Cyberpower”, “Big Data”
and “Internet+”, there is massive room
for the rapid development of information
economy. During the “Thirteenth Five-
Year Plan” period, the national supply-side
structural reform shall lead to upgrade
in consumption. The release of benefits
from “innovation-driven” policies was
accelerated, injecting new vitality to
industry development. The transformation
pace of mainland telecommunications
industry accelerates and the new
technologies such as cloud computing,
Big Data and Internet of Things gradually
mature. The “Industrial Internet” will
embark a turning point in accelerating
growth, providing vast potentials for the
Company’s prospect.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
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2016 is a crucial year for the Company
in building up a more favourable market
position for the future. We will firmly seize
new opportunities and take the initiative
to develop through reform and innovation,
while striving to adapt to the changing
regulatory environment and tackle
various challenges. We will persistently
strengthen the core competence in
network and operation and tightly
grasp the opportunities from the scale
development and value enhancement
of 4G and fibre broadband businesses
to further strengthen the Company’s
fundamentals. Meanwhile, we will be
unwaveringly dedicated to speedily achieve
a breakthrough in the five emerging
areas including “Smart Family”, “mobile
payment”, “Internet+”, “cloud computing
& Big Data” and “Internet of Things” to
ignite the new growth engine. We will
further promote the comprehensive in-
depth reform, incentivise the corporate
and employee vitality and deepen the
Internet-oriented transformation to
upgrade the products and services. With
increased efforts in open cooperation,
we will fully mobilise and share the social
resources to build the “Smart Ecosystem”,
and promote to reconstitute our business,
network, operation and management to
offer integrated smart services. We will
endeavour to facilitate the accomplishment
of “Cyberpower” and take the lead in
the digital ecosystem, thereby continually
creating value for our shareholders.
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. I would also like to express
my sincere thanks to all our employees
for their hard work and contributions.
Furthermore, I would like to extend my
sincere gratitude towards Mr. Wang
Xiaochu for his excellent contributions
during his tenure of offices as the
Chairman and Chief Executive Officer of
the Company.
Yang Jie
Executive Director, President and
Chief Operating Officer
Beijing, China
23 March 2016
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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DIRECTORS, SUPERVISORS
AND SENIOR MANAGEMENT
Mr. Yang Jie
Age 53, is an Executive Director, President and Chief
Operating Officer of the Company. Since 30 December
2015, Mr. Yang has exercised the powers of the Chairman
and Chief Executive Officer of the Company. Mr. Yang
is a professor-level senior engineer. He graduated from
the Beijing University of Posts and Telecommunications
with a major in radio engineering in 1984 and obtained
a doctorate degree in business administration (DBA) from
the ESC Rennes School of Business in 2008. Mr. Yang
served as Deputy Director General of Shanxi Posts and
Telecommunications Administration, General Manager of
Shanxi Telecommunications Corporation, Vice President
of China Telecom Beijing Research Institute 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 extensive experience in management and the
telecommunications industry.
Mr. Zhang Jiping
Age 60, is an Executive Director and Executive Vice President
of the Company. Mr. Zhang is a professor-level senior
engineer. He graduated from the Beijing University of Posts
and Telecommunications with a bachelor degree in radio
telecommunications engineering in 1982, studied in a
postgraduate programme in applied computer engineering
at Northeastern Industrial University from 1986 to 1988, and
received a doctorate degree in business administration from
the Hong Kong Polytechnic University in 2004. Mr. Zhang
served as Deputy Director General of Directorate General of
Telecommunications (“DGT”) of the MPT, a Deputy Director
General and Director of the Telecommunication Technology
Centre of the Posts and Telecommunications Administration
of Liaoning Province. He is also a Vice President of China
Telecommunications Corporation and the Chairman of
Supervisory Committee of China Tower Corporation Limited.
Mr. Zhang has extensive experience in management and the
telecommunications industry.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
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Mr. Yang Xiaowei
Age 52, is an Executive Director and Executive Vice
President of the Company. Mr. Yang is a senior engineer.
He received a bachelor degree from the Computer
Application Department of Chongqing University in 1998
and a master degree in engineering from the Management
Engineering Department of Chongqing University in 2001.
Mr. Yang was the Assistant to Director General and Deputy
Director General of Chongqing Telecommunications
Bureau, a Deputy Director General of the Chongqing
Telecommunications Administration Bureau and a
Director General of Chongqing Municipal Communication
Administration Bureau. Mr. Yang served as General Manager
of the Chongqing branch and the Guangdong branch of
the Unicom Group, Vice President of the Unicom Group,
Director of the Unicom Group, and Executive Director and
Vice President of China Unicom Limited. Mr. Yang also
served as Director and Vice President of China Unicom
Corporation Limited 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 the
telecommunications industry.
Mr. Sun Kangmin
Age 58, is an Executive Director and Executive Vice President
of the Company. Mr. Sun is a senior engineer. He holds a
bachelor degree. Mr. Sun served as Head of the Information
Industry Department of Sichuan Province, Director General
of Communication Administration Bureau of Sichuan
Province, Chairman and General Manager of Sichuan
Telecom Company Limited. He is also a Vice President
of China Telecommunications Corporation, Chairman of
the board of directors and an Executive Director of China
Communications Services Corporation Limited and a Director
of China Tower Corporation Limited. Mr. Sun has extensive
experience in management and the telecommunications
industry.
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Mr. Ke Ruiwen
Age 52, is an Executive Director and Executive Vice President
of the Company. Mr. Ke obtained a doctorate degree in
business administration (DBA) from the ESC Rennes School
of Business. Mr. Ke served as Deputy Director General of
Jiangxi Posts and Telecommunications Administration,
Deputy General Manager of Jiangxi Telecom, Managing
Director of the Marketing Department of the Company
and China Telecommunications Corporation, General
Manager of Jiangxi Telecom and Managing Director of
the Human Resources Department of the Company and
China Telecommunications Corporation. He is also a Vice
President of China Telecommunications Corporation.
Mr. Ke has extensive experience in management and the
telecommunications industry.
Mr. Zhu Wei
Age 47, is a Non-Executive Director of the Company. Mr.
Zhu received his post-graduate diploma in political economy
from Jinan University. Mr. Zhu is currently the Chairman of
Guangdong Rising Assets Management Co., Ltd (one of the
domestic shareholders of the Company). Mr. Zhu previously
served as the Deputy Manager of the Issuing Department,
director of the General Office, and Deputy Manager of the
Research and Development Department of Guangzhou
Securities Company of the People’s Bank of China,
Guangzhou Branch, Deputy General Manager of Guangzhou
Securities Financial Consultancy Company, General Manager
of Shenzhen Yuntong Xinda Communications Limited,
assistant to the General Manager of Guangdong Technology
Ventures Investment Company, General Manager of
the Asset Management Department and Director of
Guangdong Technology Venture Capital Group Company
Limited, General Manager of Guangdong Kerui Investment
Management Company, the Chairman of Guangdong
Hongtu Technology (Holdings) Company Limited, Deputy
Chairman and General Manager of Guangdong Southern
Media Holdings Limited, and Deputy Director of Banking
Supervision Department IV of the China Banking Regulatory
Commission. Mr. Zhu has extensive experience in finance,
securities and corporate management.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
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Mr. Tse Hau Yin, Aloysius
Age 68, is an Independent Non-Executive Director of
the Company. Mr. Tse is currently an Independent Non-
Executive Director of CNOOC Limited, Daohe Global Group
Limited (formerly known as Linmark Group Limited), Sinofert
Holdings Limited, SJM Holdings Limited and China Huarong
Asset Management Co., Ltd., all of which are listed on the
Main Board of The Stock Exchange of Hong Kong Limited
(“HKSE Main Board”). Mr. Tse is also an Independent
Non-Executive Director of OCBC Wing Hang Bank Limited
(formerly known as “Wing Hang Bank Limited”, which
was listed on the HKSE Main Board until October 2014).
He was an Independent Non-Executive Director of China
Construction Bank Corporation, which is listed on the HKSE
Main Board, from 2004 to 2010. Mr. Tse was appointed as
an Independent Non-Executive Director of CCB International
(Holdings) Limited, a wholly owned subsidiary of China
Construction Bank Corporation in March 2013. He is also
a member of the International Advisory Council of the
People’s Municipal Government of Wuhan. Mr. Tse is a
fellow of the Institute of Chartered Accountants in England
and Wales, and the Hong Kong Institute of Certified Public
Accountants (“HKICPA”). Mr. Tse is a past President and a
former member of the Audit Committee of the HKICPA. He
joined KPMG in 1976, became a partner in 1984 and retired
in March 2003. Mr. Tse was a Non-Executive Chairman of
KPMG’s operations in China and a member of the KPMG
China advisory board from 1997 to 2000. Mr. Tse is a
graduate of the University of Hong Kong.
Madam Cha May Lung, Laura
Age 66, is an Independent Non-Executive Director of the
Company. Mrs. Cha is currently a Hong Kong Delegate
to the 12th National People’s Congress, PRC, a Member
of the Executive Council of the Government of the Hong
Kong Special Administrative Region and Chairman of
the Financial Services Development Council of Hong
Kong. She is the Non-Executive Deputy Chairman of The
Hongkong and Shanghai Banking Corporation, the Asia
Pacific subsidiary of HSBC Holdings plc, of which she is
also an Independent Non-Executive Director. She is a Non-
Executive Director of Unilever, PLC and Unilever, N.V, Vice
Chairman of the International Advisory Council of the
China Securities Regulatory Commission (“CSRC”), and a
Member of the International Advisory Council of the China
Banking Regulatory Commission. Mrs. Cha served as Vice
Chairman of CSRC from January 2001 to September 2004
and Assistant Director, Senior Director, Executive Director of
Corporate Finance and Deputy Chairman of the Securities
and Futures Commission of Hong Kong from 1991 to
2001. She received a Juris Doctor degree from Santa Clara
University of USA in 1982.
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Professor Xu Erming
Age 66, is an Independent Non-Executive Director of the
Company. Professor Xu is a professor and Ph.D. supervisor
of the Graduate School at the Renmin University of China
and Vice Chairman of the Chinese Enterprise Management
Research Association. He is entitled to the State Council’s
special government allowances. He is the Independent
Supervisor of Harbin Electric Company Limited (formerly
known as Harbin Power Equipment Company Limited). Over
the years, Professor Xu has conducted research in areas
related to strategic management, 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.
Madam Wang Hsuehming
Age 66, is an Independent Non-Executive Director of the
Company. Madam Wang graduated from the University
of Massachusetts and attended Columbia University.
She is currently a Senior Advisor and former Chairman
of BlackRock China. She was also formerly the Chairman
of China at Goldman Sachs Asset Management, having
joined Goldman Sachs in 1994, became a partner in 2000
and an Advisory Director from 2010 to 2011. Ms. Wang
served as a Director of The Paulson Institute. With nearly
30 years of experience in financial services, she participated
in pioneering efforts in China’s economic reform and
restructuring, including serving as an advisor to the CAAC
and its subsequent regional airlines on privatisation and
capital equipment financing.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
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Mr. Gao Tongqing
Age 52, is an Executive Vice President of the Company. Mr.
Gao graduated from the Changchun Institute of Posts and
Telecommunications with a major in telecommunications
engineering and received a doctorate degree in business
administration from the Hong Kong Polytechnic University.
Mr. Gao served as Deputy Director General of Xinjiang
Uygur Autonomous Region Posts and Telecommunications
Administration, Deputy General Manager and General Manager
of Xinjiang Uygur Autonomous Region Telecom Company and
General Manager of China Telecom Jiangsu branch. He is also
a Vice President of China Telecommunications Corporation.
Mr. Gao has extensive experience in management and the
telecommunications industry.
Mr. Chen Zhongyue
Age 44, is an Executive Vice President of the Company. Mr.
Chen received a bachelor degree in English studies from
Shanghai International Studies University and a master degree
in international trade economy from Zhejiang University. Mr.
Chen served as Deputy General Manager of China Telecom
Zhejiang branch, Managing Director of the Public Customers
Department of the Company and China Telecommunications
Corporation and General Manager of China Telecom
Shanxi branch. He is also a Vice President of China
Telecommunications Corporation. Mr. Chen has extensive
experience in management and the telecommunications
industry.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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Mr. Sui Yixun
Age 52, is the Chairman of the Supervisory Committee of the Company. Mr. Sui is
currently the Managing Director of audit department of the Company and a Supervisor
of Tianyi Telecom Terminals Company Limited. Mr. Sui received a bachelor degree from
Beijing Institute of Posts and Telecommunications and a master degree in business
administration from Tsinghua University. Mr. Sui served as Deputy General Manager of
China Telecom Shandong branch, Deputy General Manager of the Northern Telecom of
China Telecommunications Corporation and General Manager of China Telecom Inner
Mongolia Autonomous Region branch. Mr. Sui is a senior economist and has extensive
experience in operational and financial management in the telecommunications industry.
Mr. Tang Qi
Age 57, is an Employee Representative Supervisor of the Company. Mr. Tang is currently
the Senior President of the Shandong branch of the Company. Mr. Tang received a
doctorate degree in business administration (DBA) from the Hong Kong Polytechnic
University. Mr. Tang served as the Director of the marketing department of the Posts and
Telecommunications Administration of Shandong province, Manager of the marketing
department of China Telecommunications Corporation, General Manager of China
Telecom Shandong branch, General Manager of China Telecom Chongqing branch and
Vice Chairman of the Labour Union of China Telecommunications Corporation and the
Company. Mr. Tang is a senior engineer and has extensive experience in operation and
management in the telecommunications industry.
Mr. Zhang Jianbin
Age 50, is an Employee Representative Supervisor of the Company. Mr. Zhang is currently
the Deputy Managing Director of the Corporate Strategy Department (Legal Department)
and the Deputy General Counsel of China Telecommunications Corporation. Mr. Zhang
graduated from the Law School of Peking University in 1989 and received a LLM degree.
He also had an EMBA degree from the Guanghua School of Management at Peking
University in 2006. He previously worked at the Department of Policy and Regulation of
the Ministry of Posts and Telecommunications (“MPT”) and the Directorate General of
Telecommunications (“DGT”) of the MPT. He served as Deputy Director of the General
Office and Deputy Director of the Legal Affairs Division of the DGT of the MPT, Director
of the Corporate Strategy Department (Legal Department) of the Company. Mr. Zhang
is a senior economist with extensive experience in telecommunications legislation and
regulation, corporate governance, corporate legal affairs and risk management.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
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Mr. Hu Jing
Age 40, is a Supervisor of the Company. Mr. Hu is currently the Director in the audit
department of the Company. Mr. Hu received a bachelor degree in accounting from
the Xi’an University of Finance and Economics in 1997 and a master degree in business
administration from the Northwest University in 2003. Mr. Hu served at various financial
and auditing positions at Shaanxi Telecom Company and China Telecommunications
Corporation. He is a member of the Chinese Institute of Certified Public Accountants and
senior accountant with extensive experience in finance and auditing.
Mr. Ye Zhong
Age 56, is a Supervisor of the Company. Mr. Ye is a senior accountant. He holds
a bachelor degree. Mr. Ye is the Deputy General Manager of Zhejiang Financial
Development Company (one of the domestic shareholders of the Company), Chairman
and General Manager of Zhejiang Provincial Innovation and Development Investment
Co. Ltd., Chairman and General Manager of Zhejiang Provincial Information Economy
Investment Co. Ltd., Chairman of Zhejiang Venture Capital Fund of Funds Management
Co. Ltd., Chairman of Zhejiang Financial Market Investment Co. Ltd. and Chairman
and General Manager of Zhejiang Agricultural Investment and Development Fund Co.,
Ltd.. Mr. Ye served as Deputy Director of the Social Security Division of the Department
of Finance of Zhejiang Province, Deputy Director of the Discipline Inspection Division
and Director of Supervisory Office of the Department of Finance of Zhejiang Province
delegated by the Discipline Inspection Commission and Department of Supervision of
Zhejiang Province. Mr. Ye has extensive experience in government’s work and state-
owned enterprise management.
NEW
OPPORTUNITIES
NEW
OPPORTUNITIES
“INTERNET+”
& BIG DATA
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS REVIEW
The following table sets out the key operating data for 2013, 2014 and 2015:
Rates of
Change
Unit
2013
2014
2015
over 2014
Mobile subscribers
Million
185.58
185.62
197.90
6.6%
Of which: 3G/4G subscribers
Million
103.11
118.63
143.13
20.7%
Wireline broadband subscribers
Million
100.10
106.95
113.06
5.7%
Access lines in service
Million
155.80
143.56
134.32
(6.4%)
Mobile voice usage
Million minutes
603,616
655,939
667,535
1.8%
Mobile SMS usage
Million messages
64,235
64,583
56,817
(12.0%)
3G/4G Handset data traffic
kTB
175.1
266.6
554.7
108.1%
Wireline local voice usage
Million pulses
148,690
130,439
110,935
(15.0%)
Cybersecurity
Experience Exhibition
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS REVIEW
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On site research
and guidance by
the management
In 2015, the Company proactively
implemented initiatives to respond to
challenges brought by the changes
in regulatory policies and business
environment. While firmly promoting the
transformation of fundamental business,
the Company also vigorously developed its
emerging business, maintaining the overall
Emerging Business
Revenue
20.5%
as a percentage
of Service Revenues
5.3pp
business with stable growth momentum
and rapid growth in subscriber base.
The Company achieved industry-leading
growth in terms of service revenues
and continuously optimised its revenue
structure. Corporate competitiveness has
been significantly strengthened.
Key operating performance
(1) Solid growth in operating
revenues and continuous
optimisation of business
structure
In 2015, the Company’s operating
revenues increased by 2.1% to
RMB331,202 million. Service
revenues increased by 2.0% to
RMB293,266 million. The Company’s
service revenue structure was further
optimised, with mobile service
revenues accounting for 42.5%
and revenues of emerging business
accounting for 34.4%, up 5.3
percentage points.
中國電信 4G
4G
Handset Traffic
accounted for
51%
of Total 3G/4G
Handset Traffic
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3G/4G Handset
Data Traffic
108%
(2) Rapid growth in mobile
services with remarkable
contribution from data traffic
operations
In 2015, following the FDD 4G
licensing, the Company focused
on developing its 4G services,
accelerated network construction and
deployed 4G+ in key areas. Persisted
in the terminal-led approach, the
Company strongly promoted 4G+ and
signature terminals. Strengthened in
content application-driven approach,
the Company created differentiated
core applications. Mobile subscribers
rapidly expanded with a steady
growth in revenues. The scale of
mobile subscribers reached 197.90
million, with a net addition of 12.28
million. Mobile service revenues
increased by 3.5% over last year
amounting to RMB124,503 million.
The Company has acted proactively
to reduce the impact from “Speed
Upgrade & Tariff Reduction”. It
leveraged Big Data to perform multi-
dimensional analysis on consumer
behavior characteristics to optimise
its product design and promote
efficiently-centralised data traffic
packages based on 4G service plans.
Data backward monetisation also
achieved remarkable results with
revenues grew over 5 times. In 2015,
3G/4G handset data traffic reached
555 kTB, an increase of 108.1%
year-on-year, while 3G/4G monthly
average mobile data traffic per
subscriber reached 386MB. Handset
data traffic revenue accounted for
38.4% of mobile service revenues, an
increase of 10.0 percentage points
over last year.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS REVIEW
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IDC
Revenue
27.5%
(3) Wireline services development
remained solid, with market-
leading position maintained in
broadband
In 2015, the Company proactively
promoted the transformation of
fundamental business. Deepening
the integration between wireline and
mobile services, the Company created
competitive edge in new integrated
development. With strengthened
operations of existing customers,
the Company stabilised the
foundation of revenues from wireline
services. Wireline revenues reached
RMB168,763 million, representing an
increase of 1.0%.
On broadband services development
front, the Company accelerated
fibre upgrade for its broadband
networks and promoted the end-to-
end bandwidth upgrade. With focus
on promoting high-speed broadband
products, the Company has lifted
competition barrier to enhance its
competitiveness and leading position
in the broadband market. In 2015,
revenues of wireline broadband
increased by 1.1% to RMB74,285
million. Wireline broadband
subscribers reached 113.06 million, a
net addition of 6.11 million.
For the development of wireline
value-added services (VAS) and
integrated information services, the
Company continued its promotion
in three rapidly growing businesses
including IPTV (e-Surfing HD), IT
Services & Applications and IDC,
driving steady development of its
overall business. In 2015, revenues
of wireline VAS and integrated
information services increased by
10.5% year-on-year to RMB42,035
million. With the foundation of
continued enrichment of its video
services, the Company actively
developed Smart Family applications
such as home surveillance. It also
expanded the scale of informatisation
products for sectors, especially
in administration, education,
healthcare and etc., and advanced
in the transformation from ICT
to IIT (Information Internet-ware
Technology). The Company focused
on efficiently-centralised development
of cloud computing products such
as cloud hosting and private cloud
with strengthening research &
development and sales & marketing
while accelerated the construction of
the unified operating system for IDC.
In 2015, the Company continued
to promote integrated development
among retail customers. While for
government and enterprise market,
the Company provided customised
solutions to realise value transfer of
the wireline voice services, effectively
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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mitigated its operational risk while
further declining revenue share of
wireline voice services. Revenues
from wireline voice services was
RMB29,610 million, accounting
for 10.1% of the service revenues,
representing a reduction of 1.6
percentage points over last year.
Business operating strategies
In 2015, the Company persisted in
focusing on differentiation as its work
principle and further transformed its
development model. With the creation
of new competitive edges, the Company
accelerated the scale development of
subscriber base and enhanced operating
capabilities. Six operational measures were
deeply implemented:
First, with innovative development
models, 4G subscriber scale
achieved rapid breakthrough
Second, accelerated development
of fibre broadband subscribers
to reinforce market leadership in
wireline broadband services
In 2015, the Company launched 4G
handset services across the entire network,
continued development effort in both
existing customer upgrade as well as new
customer acquisition to increase its 4G
subscriber penetration rate. In the existing
customer market, the Company focused
on promoting upgrade of its current 3G
subscribers to 4G. In the new customer
market, the Company focused on
differentiated applications, attracting new
customers through “4G + Application”.
The Company also reinforced its effort
in new customer acquisition in open
market to grab its market share. As at
the end of 2015, 4G subscribers reached
58.46 million, accounting for 29.5% of
mobile subscribers. 4G DOU reached 751
MB, almost twice of 3G/4G subscribers,
driving rapid growth in both the scale and
revenue of data traffic.
In 2015, led by the 100Mbps broadband
service development, the Company
focused promotion on 50/100Mbps
broadband products. The Company
accelerated integration of marketing
and maintenance in broadband services
by optimising installation process,
achieving instant installation upon the
completion of sales. Through enriching
the content of video-type applications,
the Company expanded its smart family
products including Smart Gateway and
Smart Family. By promoting the sales
of newly integrated “Fibre Broadband
+ e-Surfing HD + 4G” product, the
Company successfully drove the mutual
sales and development among different
products. In 2015, fibre-to-the-home
(FTTH) subscribers reached 70.99 million,
accounting for 62.8% of broadband
subscribers. Subscribers of 20Mbps and
above accounted for 44.6%, an increase
of 27.4 percentage points over last year.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
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Mobile Subscribers
(Millions)
185.62 Mobile
Mobile
197.90
6.6%
3G/4G
143.13
118.63
3G/4G
20.7%
2014
2015
Third, persisted in the invigoration
of industry value chain to enrich
4G handsets
Wireline Broadband
Subscribers (Millions)
106.95
Broadband
Broadband
113.06
5.7%
FTTH
70.99
42.61
FTTH
66.6%
2014
2015
The company implemented “the Excellent
100” programme, to encourage handset
manufacturers to produce popular 4G
handsets that are compatible with China
Telecom’s network, in turn enriched 4G
handset portfolio. In 2015, there were
201 new models of 4G terminals. Sales
of 4G terminals was close to 62 million,
accounting for 70% of total terminal
sales. The Company made every effort to
promote “Six-Mode Handsets” to become
the national standard and strengthened
the penetration of its mobile phone
cards in the open market to grab a share
of the handset replacement market
of existing customers. Via deepening
cooperation with mainstream handset
manufacturers including Huawei, OPPO,
Vivo, Xiaomi and MEIZU, the Company
implemented resources exchange and
increased handset sales volume. Targeting
at different segmented market, the
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Company promoted signature handsets
such as security handsets, video handsets
and Taobao handsets to cater the
differentiated demand of customers.
Unifying launch of star handsets such as
iPhone, sales volume of high-end terminals
recorded a remarkable increase.
Fourth, reinforced efforts to
develop ICT and drove subscriber
scale development
In 2015, seizing the opportunity brought
about by “Internet+”, the Company
took the lead in the industry to release
the “‘Internet+’ action white paper”,
integrating its advantages of cloud,
network and safety to refine products,
operations, and support system. Upgraded
specialised applications in specific sectors
including education, transportation and
agriculture, the Company created products
such as “e-Surfing School” for tens of
millions users and “Nongjibao” for millions
users. Targeting at industries including
administration, manufacturing, finance
and healthcare, the Company explored
development potentials for cloud-network
integration and developed over a thousand
of service projects such as government
administrative cloud, industrial cloud,
financial cloud and video streaming cloud.
Fifth, promoted Internet-oriented
transformation of channels
to improve sales & marketing
efficiency
The Company fully commenced
O2O operations. With optimised and
coordinated mechanism of physical,
government and enterprise and electronic
channels, the Company improved the sales
and service efficiency by strengthening
traffic flow in online channels and user
experience in offline channels. In physical
channels, the Company carried out
“Collaboration with Strong Partners” and
“e-Surfing Recommended” promotions,
resulted in significant increase in market
share of terminal sales and mobile phone
card sales in open channels. In government
and enterprise channels, the Company
implemented the “Sales Elite” programme,
which established mini stores for industrial
clients, WeChat stores for commercial
clients and campus clients and resulted in
rapid expansion of our subscriber scale.
Co-building
& Sharing of
Resources
for Customer
Service Quality
Enhancement
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
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In electronic channels, the Company
reinforced its position as the main channel
for data traffic sales, with the sales volume
of 4G data traffic packages accounting for
76%.
Sixth, collaborative operations
between online and offline
channels to improve customer
service capabilities
FTTH
subscribers as a %
of broadband
subscribers
23.0pp
In 2015, the Company focused on
improving capabilities in 4G and fibre
broadband services. Focusing on 4G
services, the Company implemented “Five
Optimised Services” in areas including
network experience, products, channel
sales, terminal services and customer
care. The Company carried out 4G
services experience activities nationwide,
with continued optimisation in services
including 4G data traffic alert, billing
and credit control. In respect of wireline
broadband services, the Company
implemented service guarantee for
“Speed Upgrade & Tariff Reduction”.
Customers were invited to experience
for speed testing and service quality
supervision. The Company clearly stated
the rules and requirements for indication
of upload and download speed. The
Company also promoted broadband self-
serviced troubleshooting and “Pay after
Installation” broadband services. In 2015,
the Company ranked No. 1 in the industry
in terms of customer satisfaction in both
wireline and mobile Internet access services
as assessed by the Ministry of Industry and
Information Technology. In respect of the
Internet-oriented service transformation,
the Company achieved the “Double 60”
goal, for which the online rates exceeded
60% in terms of both service project
numbers and service volume. Nationwide
customer service via new media (including
Weibo, WeChat, YiChat and IM) exceeded
200 million users, which led the industry
in terms of scale, with monthly service
volume over 150 million times.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS REVIEW
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Network and operation
support
In 2015, the Company seized opportunities
and optimised our resources allocation to
enhance investment in 4G network, fibre
network and emerging business such as
cloud computing. Through strengthening
capabilities to effectively support business
development and operations, core
competence and customer value have been
enhanced.
First, leveraging the issuance of FDD
4G license, the Company commenced
“Accelerating Network Construction and
Enhancing Network Quality” project for
4G. Fully leveraged centralised procurement
and tower sharing, the Company effectively
added 330 thousands of 4G BTS with
reduced capital expenditure (an extra of 50
thousands BTS compared to the original
plan), reaching a total of 510 thousands
of 4G BTS. The Company deployed 10
thousands of 4G+ (LTE-A) BTS in 45 key
cities, well established the 4G+ brand
identity and enhanced customer perception.
Currently, the Company has a 4G network
coverage of all cities and developed
towns and villages nationwide, with a full
coverage of areas in all towns and villages
in the eastern region. The network quality
is comparable to the major competitors in
covered areas.
Second, seized opportunity from
“Broadband China” strategy and driven
by market demand, the Company has
accelerated fibre upgrade in urban areas and
completed fibre upgrade in 170 thousands
copper-network communities. Together,
total fibre upgraded communities amounted
to over 790 thousands, representing 85%
of all copper-network communities. FTTH
home passes increased by 90 million,
reaching 220 million, or a coverage of 75%.
PT/EXPO COMM CHINA
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS REVIEW
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IPTV
e-Surfing HD
subscribers
net addition
9,000,000+
At the same time, with focus on improving
and enhancing customer experience and
perception, the Company has connected
all segments of “device, pipe and cloud”,
remarkably increasing the end-to-end speed
of the broadband.
Third, the Company proactively and
steadily promoted network transformation.
Integrating the Company’s services,
network features and data traffic direction,
the Company commenced network
deployment plan with IDC as the core
and the construction of DCI (Data Centre
Interconnect), with 15 key IDCs being
interconnected in the first batch. Deploying
efficiently-centralised cloud resource pools,
we have enhanced resources allocation and
provision capabilities, to facilitate the rapid
development of cloud computing services.
Learning from industry experience, the
Company explored the introduction of SDN
(Software Defined Network) technology and
commenced network trial, in an effort to
promote Internet-oriented transformation of
networks.
Development measures and
highlights for 2016
In 2016, the fundamental
telecommunications market is increasingly
saturated, leading to an intensifying
competition among existing subscribers,
while 4G and fibre broadband will
accelerate the development in full scale. The
Company will seize opportunities brought
by the technology advancement and market
changes to continuously deepen corporate
transformation. The Company will focus on
strengthening two fundamental businesses,
achieving breakthrough in five emerging
areas and improving six key capabilities. The
Company will transform its development
approaches, enhance operating capabilities
and expand business scales for better
corporate value. The Company will reinforce
two fundamental services to maintain solid
foundation, while rapidly promoting the
4G and fibre broadband subscriber scale
expansion to increase subscriber penetration
rate. Feed in differentiated applications,
the Company will focus on promoting
“4G + mobile payment” and “broadband
+ TV” services to drive scale development
of subscriber base and increase customer
loyalty. The Company will also continue to
expand the new integrated development
model of “fibre broadband + e-Surfing HD
+ 4G” to continuously increase customer
value. The Company will foster new growth
drivers by achieving breakthroughs in five
emerging areas. First, the Company will
strive to be a forerunner in “Smart Family”
market by the provision of e-Surfing HD
services, laying foundations for feeding
in VAS and informatisation applications.
Second, the Company will optimise
BestPay to get ready for the deployment
in Internet finance. Third, the Company
will strengthen “Internet+” services and
to rapidly expand into the industrial
Internet market for influence. Fourth, the
Company will develop cloud computing
and Big Data with full efforts, exploring
new revenue growth drivers. Fifth, the
Company will proactively expand into the
Internet-of-Things services, shifting from
human-to-human communications to
machine-to-human communications, and
gradually towards machine-to-machine
communications to explore new growth
potential. The Company will also continue
to optimise network resources, increase
operating efficiency, improve all-rounded
service capabilities, and enhance customer
satisfaction for customer value realisation
and sustainable corporate value growth.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL REVIEW
Summary
Operating Revenues
In 2015, while proactively tackling various
challenges brought by the policies such
as the value-added tax (“VAT”) reform,
“speed upgrade & tariff reduction” and
“handset data traffic carried forward”, the
Group continued to optimise its business
structure and achieved a stable growth in
its operating revenues. Operating revenues
in 2015 were RMB331,202 million, an
increase of 2.1% from 2014. Of this, the
total mobile revenues were RMB156,529
million, an increase of 3.2% from
2014; the total wireline revenues were
RMB174,673 million, an increase of 1.1%
from 2014.
In 2015, the Group persisted in
its established strategic direction,
continually developed and innovated,
and pragmatically implemented its
comprehensive in-depth reform and
Internet-oriented transformation,
achieving a stable growth in its overall
operating results. The Group’s operating
revenues in 2015 were RMB331,202
million, an increase of 2.1% from 2014;
service revenues1 were RMB293,266
million, an increase of 2.0% from 2014;
operating expenses were RMB304,760
million, an increase of 3.0% from 2014;
profit attributable to equity holders of
the Company was RMB20,054 million,
an increase of 13.4% from 2014; basic
earnings per share were RMB0.25; EBITDA2
was RMB94,106 million, a decrease of
0.8% from 2014 and the EBITDA margin3
was 32.1%.
1
2
3
Service revenues were calculated based on operating revenues minus sales of mobile terminals (2015:
RMB32,026 million; 2014: RMB31,343 million), sales of wireline equipment (2015: RMB4,430 million;
2014: RMB3,956 million) and other non-service revenues (2015: RMB1,480 million; 2014: RMB1,716
million).
EBITDA was calculated based on operating revenues minus operating expenses plus depreciation and
amortisation. 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 analysing 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, debt raising
ability 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.
EBITDA margin was calculated based on EBITDA divided by service revenues.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL REVIEW
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The following table sets forth a breakdown of the operating revenues of the Group for
2014 and 2015, together with their respective rates of change:
For the year ended 31 December
(RMB millions, except percentage data)
2015
2014
Wireline voice
Mobile voice
Internet
Value-added services
Integrated information application services
Telecommunications network resource services
and lease of network equipment
Others
Total operating revenues
29,610
48,983
126,546
39,044
27,299
33,587
54,673
112,431
38,419
26,939
17,635
42,085
17,332
41,013
331,202
324,394
Rates of
change
(11.8%)
(10.4%)
12.6%
1.6%
1.3%
1.7%
2.6%
2.1%
Wireline Voice
Mobile Voice
In 2015, revenue from wireline voice
services was RMB29,610 million, a
decrease of 11.8% from RMB33,587
million in 2014, accounting for 8.9% of
the Group’s operating revenues. Declining
revenue contribution from wireline voice
services effectively mitigated operating
risks.
In 2015, being affected by the substitution
effect of mobile Internet services, such as
OTT, revenue from mobile voice services
was RMB48,983 million, a decrease of
10.4% from RMB54,673 million in 2014,
accounting for 14.8% of the Group’s
operating revenues.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL REVIEW
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Internet
Valued-Added Services
In 2015, revenue from Internet access
services was RMB126,546 million, an
increase of 12.6% from RMB112,431
million in 2014, accounting for 38.2%
of the Group’s operating revenues. The
Group proactively leveraged the advantage
of its broadband network, promoted
access bandwidth upgrades for subscribers,
launched reasonably flexible pricing plans,
persisted in rational competition and
profitable development. At the end of
2015, the number of wireline broadband
subscribers of the Group reached 113
million, with a net increase of 6.11 million.
The wireline broadband revenue of the
Group was RMB74,285 million, an increase
of 1.1% from 2014. The Group achieved
rapid growth in the volume of and revenue
from mobile data traffic, effectively
driven by further promoting the precision
management of data traffic operations
and, at the same time, increasing sales at
lower unit prices. Revenue from mobile
Internet access services was RMB50,694
million, an increase of 34.1% from 2014.
Of this, revenue from handset data traffic
was RMB47,770 million, an increase of
40.1% from 2014.
In 2015, revenue from value-added
services was RMB39,044 million, an
increase of 1.6% from RMB38,419 million
in 2014, accounting for 11.8% of the
Group’s operating revenues. Of this, the
revenue from wireline value-added services
was RMB21,529 million, an increase of
16.8% from 2014, mainly benefitted
from that the Group firmly seized the
strategic opportunities of the national
“Internet+” action plan to achieve rapid
growth in the IDC and IPTV (e-Surfing
HD) services. Revenue from mobile value-
added services was RMB17,515 million, a
decrease of 12.4% from 2014, mainly due
to the decrease in revenue from traditional
value-added services, such as short and
multimedia messaging services.
中國電信 4G
40.1%
Handset Data
Traffi c Revenue
$$
$
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL REVIEW
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Integrated Information Application
Services
network equipment was RMB421 million,
a decrease of 9.1% from 2014.
In 2015, revenue from integrated
information application services was
RMB27,299 million, an increase of
1.3% from RMB26,939 million in 2014,
accounting for 8.3% of the Group’s
operating revenues. Of this, revenue
from wireline integrated information
application services was RMB20,505
million, an increase of 4.5% from 2014.
The increase in revenue was mainly due
to the stable development of IT Services
and Applications. Revenue from mobile
integrated information application services
was RMB6,794 million, a decrease of 7.2%
from 2014. The decline was mainly due to
the decrease in the volume of traditional
information inquiry services.
Telecommunications Network
Resource Services and Lease of
Network Equipment
In 2015, revenue from telecommunications
network resource services and lease of
network equipment was RMB17,635
million, an increase of 1.7% from
RMB17,332 million in 2014, accounting
for 5.3% of the Group’s operating
revenues. Revenue from lease of mobile
Others
In 2015, revenue from other services
was RMB42,085 million, an increase of
2.6% from RMB41,013 million in 2014,
accounting for 12.7% of the Group’s
operating revenues. Revenue from other
mobile services was RMB32,122 million,
an increase of 2.4% from 2014, the major
item of which was the sales of mobile
terminals.
Operating Expenses
The Group reinforced the efforts in
management and control of cost,
optimised resources allocation,
continuously promoted the transformation
of sales and marketing models, and
enhanced and promoted its market
competitiveness. In 2015, operating
expenses of the Group were RMB304,760
million, an increase of 3.0% compared
with RMB295,886 million in 2014.
Operating expenses accounted for 92.0%
of the Group’s operating revenues, an
increase of 0.8 percentage point from
2014.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL REVIEW
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The following table sets forth a breakdown of the operating expenses of the Group in
2014 and 2015 and their respective rates of change:
(RMB millions, except percentage data)
Depreciation and amortisation
Network operations and support expenses
Selling, general and administrative expenses
Personnel expenses
Other operating expenses
For the year ended 31 December
2015
67,664
81,240
54,472
52,541
48,843
2014
66,345
68,651
62,719
50,653
47,518
Rates of
change
2.0%
18.3%
(13.1%)
3.7%
2.8%
Total operating expenses
304,760
295,886
3.0%
Depreciation and Amortisation
In 2015, depreciation and amortisation
was RMB67,664 million, an increase of
2.0% from RMB66,345 million in 2014,
accounting for 20.4% of the Group’s
operating revenues. As the Group
increased investment in 4G and fibre
broadband network, depreciation and
amortisation increased correspondingly
with the expansion of the assets scale.
Network Operations and Support
Expenses
In 2015, network operations and support
expenses were RMB81,240 million, an
increase of 18.3% from RMB68,651
million in 2014, accounting for 24.5%
of the Group’s operating revenues. The
growth was due to the newly added tower
usage fee in 2015. In addition, with the
expansion of network assets, the Group
reasonably increased network operations
expenses to enhance network quality
and, at the same time, continuously
strengthened cost management and
control, improving the utilisation efficiency
of resources. As such, the increase in
network operations and support expenses
was evidently slower than that in 2014.
Selling, General and Administrative
Expenses
In 2015, selling, general and administrative
expenses amounted to RMB54,472 million,
a decrease of 13.1% from RMB62,719
million in 2014, accounting for 16.4% of
the Group’s operating revenues. Of this,
selling expenses were RMB45,943 million,
a decrease of 15.7% compared with
2014. The decline was mainly attributable
to the fact that the Group continuously
promoted the transformation of sales
and marketing models, reduced selling
expenses, and improved the utilisation
efficiency of marketing resources.
Commission and service expenses for third
parties amounted to RMB26,651 million, a
decrease of 6.0% from 2014. Advertising
and promotion expenses amounted to
RMB19,291 million, a decrease of 26.2%
from 2014, of which the terminal subsidies
amounted to RMB11,620 million, a
decrease of 24.3% from 2014.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL REVIEW
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Selling Expenses
Net Finance Costs
15.7%
Personnel Expenses
In 2015, personnel expenses were
RMB52,541 million, an increase of
3.7% from RMB50,653 million in 2014,
accounting for 15.9% of the Group’s
operating revenues. For details of the
number of employees, remuneration
policies and training schemes, please refer
to the Human Resources Development
Report in this annual report.
Other Operating Expenses
In 2015, other operating expenses were
RMB48,843 million, an increase of
2.8% from RMB47,518 million in 2014,
accounting for 14.8% of our operating
revenues. The cost of mobile terminal
equipment sold amounted to RMB30,867
million, an increase of 3.0% from 2014.
In 2015, the Group’s net finance costs
were RMB4,273 million, a decrease
of 19.2% from RMB5,291 million in
2014. The decrease was mainly due
to the fact that the interest rate of the
deferred consideration of Mobile Network
Acquisition decreased from 6.25% per
annum in 2014 to 5.11% per annum
in 2015 (adjusted in accordance with a
5 basis points premium to the yield of
the 5-year super AAA rated Medium
Term Notes once a year pursuant to the
agreement). Net exchange losses were
RMB75 million in 2015. The fluctuation of
foreign exchange gain or loss was mainly
caused by the depreciation of the RMB
exchange rate against the US Dollars.
Profitability Level
Income Tax
The Group’s statutory income tax rate is
25%. In 2015, the Group’s income tax
expenses were RMB6,551 million with the
effective income tax rate of 24.5%. The
difference between the 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 branches with operations in
the western region of China and some of
our subsidiaries.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL REVIEW
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Profit Attributable to Equity
Holders of the Company
In 2015, profit attributable to equity
holders of the Company was RMB20,054
million, an increase of 13.4% from
RMB17,680 million in 2014.
Disposal of Certain
Telecommunications Towers and
Related Assets
Pursuant to the transfer agreement
(“Transfer Agreement”) entered
into by the Group and China Tower
Corporation Limited (“China Tower”)
on 14 October 2015, the Group sold
certain telecommunications towers and
related assets (“Tower Assets”) (“Tower
Assets Disposal”) and injected cash to
China Tower in return for new shares
(“Consideration Shares”) issued by China
Tower.
By 31 December 2015, China Tower has
issued 33.097 billion Consideration Shares
to the Group at an issue price of RMB1.00
per share pursuant to the Transfer
Agreement in return for RMB30.131 billion
of the Tower Assets and RMB2.966 billion
cash from the Group.
Upon the issuance of the Consideration
Shares by China Tower, the Group, China
Unicom, China Mobile and China Reform
Holding Company Limited hold 27.9%,
28.1%, 38.0% and 6.0% of the share
capital of China Tower, respectively.
The Company realised a gain (subject to
deduction of relevant expenses and taxes)
from the Tower Assets Disposal, which
was calculated based on the surplus of the
final consideration amount for the Tower
Assets Disposal over the book value of
the assets as at the completion date and
the final gain recognised was RMB7,231
million. As the Group held 27.9% of the
share capital of China Tower following the
completion of the Tower Assets Disposal,
72.1% of the aforesaid gain had been
recognised at the completion date of the
Tower Assets Disposal in the consolidated
statement of comprehensive income and
the remaining 27.9% of the aforesaid gain
is deferred over the remaining useful life
of the Tower Assets.
Capital Expenditure and Cash
Flows
Capital Expenditure
In 2015, the Group increased its
capital expenditure on 4G and fibre
broadband network and fully upgraded
the capability of the network to lay
down a strong foundation of the scale
development of core services and
further market competitiveness. In 2015,
capital expenditure of the Group was
RMB109,094 million, an increase of
41.9% from RMB76,889 million in 2014.
Tower Assets
Disposal Gain
RMB
7,231 mil
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL REVIEW
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Cash Flows
In 2015, net increase in cash and cash equivalents for the Group was RMB11,309 million,
while the net increase in cash and cash equivalents was RMB4,370 million in 2014.
The following table sets forth the cash flow position of the Group in 2014 and 2015:
(RMB millions)
Net cash flow from operating activities
Net cash used in investing activities
Net cash from/(used in) financing activities
Net increase in cash and cash equivalents
In 2015, the net cash inflow from
operating activities was RMB108,750
million, an increase of 12.8% from 2014,
which was mainly due to the increase
in operating revenues and enhanced
collection of accounts receivable.
In 2015, the net cash outflow used in
investing activities was RMB102,250
million, an increase of 25.1% from 2014,
which was mainly due to the increase of
capital expenditure for the year.
In 2015, the net cash inflow from
financing activities was RMB4,809 million.
In 2014, the net cash outflow used in
financing activities was RMB10,327
million. The reason for the fluctuation
was mainly due to the issuance of short-
term commercial papers and the newly
originated government loans with below-
market interest rate during the year.
For the year ended
31 December
2015
2014
108,750
(102,250)
4,809
11,309
96,405
(81,708)
(10,327)
4,370
Net cash fl ow
from operating
activities
$
$
$
$
$
$
$
$
$
$
12.8%
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL REVIEW
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Working Capital
The Group consistently upheld prudent
financial principles and strict fund
management policies. At the end of 2015,
the Group’s working capital (total current
assets minus total current liabilities) deficit
was RMB177,821 million, an increase
in deficit of RMB31,039 million from
RMB146,782 million in 2014. As at 31
December 2015, the Group’s unutilised
credit facilities were RMB128,839 million
(2014: RMB130,488 million). Given the
stable net cash inflow from operating
activities and the sound credit record, the
Group has sufficient working capital to
satisfy the operation requirement. At the
end of 2015, the Group’s cash and cash
equivalents amounted to RMB31,869
million, amongst which cash and cash
Indebtedness
equivalents denominated in Renminbi
accounted for 92.6% (2014: 93.1%).
Assets and Liabilities
In 2015, the Group continued to maintain
a solid financial position. At the end
of 2015, the total assets of the Group
increased to RMB629,561 million from
RMB561,274 million at the end of 2014,
which was mainly due to the increase
of capital expenditure and the valuation
surplus of Tower Assets injected to China
Tower. Total indebtedness increased to
RMB116,669 million from RMB106,552
million at the end of 2014. The ratio of the
Group’s total indebtedness to total assets
decreased to 18.5% at the end of 2015
from 19.0% at the end of 2014.
The indebtedness analysis of the Group as of the end of 2014 and 2015 is as follows:
(RMB millions)
Short-term debt
Long-term debt maturing within one year
Long-term debt and payable
Finance lease obligations (including current portion)
Total debt
For the year ended
31 December
2015
2014
51,636
84
64,830
119
43,976
82
62,494
–
116,669
106,552
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL REVIEW
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By the end of 2015, the total indebtedness
of the Group was RMB116,669 million, an
increase of RMB10,117 million from the
end of 2014, which was mainly due to the
issuance of short-term commercial papers
and newly originated national policy-
related loans with below-market interest
rate. Of the total indebtedness of the
Group, loans denominated in Renminbi,
US Dollars and Euro accounted for 99.4%
(2014: 99.2%), 0.4% (2014: 0.5%), and
0.2% (2014: 0.3%), respectively. 46.3%
(2014: 41.3%) of the indebtedness are
loans with fixed interest rates, while the
remainders are loans with floating interest
rates.
As at 31 December 2015, the Group did
not pledge any assets as collateral for debt
(2014: 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
(RMB millions)
Short-term debt
Long-term debt and payable
Operating lease commitments
Capital commitments
Total
51,967
71,295
14,448
10,148
Total contractual obligations
147,858
1 January
2016 –
31 December
2016
1 January
2017 –
31 December
2017
1 January
2018 –
31 December
2018
1 January
2019 –
31 December
2019
1 January
2020 –
31 December
2020
51,967
2,597
3,452
10,148
68,164
–
64,345
2,564
–
66,909
–
251
2,006
–
2,257
–
250
1,532
–
1,782
–
267
1,171
–
1,438
There-after
–
3,585
3,723
–
7,308
Note: Amounts of short-term debt, and long-term debt and payable include recognised and unrecognised interest
payable, and are not discounted.
NEW
POSITIONING
Deepen Reform
Development &
Differentiation
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
REPORT OF THE DIRECTORS
R
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The Board of Directors (the “Board”) of China
Telecom Corporation Limited (the “Company”)
hereby presents its report together with the
audited consolidated financial statements of
the Company and its subsidiaries (collectively,
the “Group”) prepared in accordance with the
International Financial Reporting Standards for the
year ended 31 December 2015.
Principal Business
The principal business of the Company and
the Group is the provision of fundamental
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 2015 and the financial position
of the Group as at that date are set out in the
audited consolidated financial statements on
pages 122 to 193 of this annual report.
Dividend
The Board of Directors of the Company proposes
a final dividend in the amount equivalent
to HK$0.095 per share (pre-tax), totalling
approximately RMB6,461 million for the year
ended 31 December 2015. The dividend proposal
will be submitted for consideration at the annual
general meeting to be held on 25 May 2016.
Dividends will be denominated and declared
in Renminbi. Dividends for holders of domestic
shares and the investors of the Shanghai Stock
Exchange (including enterprises and individuals)
investing in the H shares of the Company listed
on Hong Kong Stock Exchange (the “Southbound
Trading Link”) (the “Southbound Investors”)
will be paid in Renminbi, whereas dividends for
H share shareholders other than Southbound
Investors 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 final
dividends are expected to be paid on or about 15
July 2016 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 2015 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 6 June
2016.
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 who are Hong
Kong or Macau residents and those whose country
of domicile is a country which has entered into a
tax treaty with 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 shareholders whose country of
domicile is a country which has entered into a tax
treaty with 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 shareholders whose country
of domicile is a country which has entered into
a tax treaty with 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
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tax treaty. If the individual H share shareholders
whose country of domicile is a country which
has entered into a tax treaty with PRC stipulating
a dividend tax rate of 20%, or a country which
has not entered into any tax treaties with 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 H share register of members of the Company
on 6 June 2016 (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 Tuesday, 31 May 2016.
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.
For Southbound Investors (including enterprises
and individuals), the Shanghai branch of China
Securities Depository and Clearing Corporation
Limited, as the nominee of the investors of
the Southbound Trading Link, will receive all
dividends distributed by the Company and will
distribute the dividends to the relevant investors
under the Southbound Trading Link through its
depositary and clearing system. According to
the relevant provisions under the “Notice on Tax
Policies for Shanghai-Hong Kong Stock Connect
Pilot Programme (Cai Shui [2014] No. 81)”, the
Company shall withhold and pay individual income
tax at the rate of 20% with respect to dividends
received by the Mainland individual investors for
investing in the H shares of the Company listed
on the Hong Kong Stock Exchange through
the Southbound Trading Link. In respect of
the dividends received by Mainland securities
investment funds investing in the H shares of the
Company listed on Hong Kong Stock Exchange
through the Southbound Trading Link, the tax
levied shall be ascertained by reference to the rules
applicable to individual investors. The Company
is not required to withhold and pay income tax
on dividends derived by the Mainland enterprise
investors under the Southbound Trading Link, and
such enterprises shall report the income and make
tax payment by themselves. The record date for
entitlement to the shareholders’ rights and the
relevant arrangements of dividend distribution for
the Southbound Investors are the same as those
for the Company’s H share shareholders.
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 relating to
the tax withholding and payment mechanism or
arrangements.
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Directors, Senior Management and Company Secretary 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
Yang Jie
Zhang Jiping
Yang Xiaowei
Sun Kangmin
Ke Ruiwen
Zhu Wei
Tse Hau Yin, Aloysius
Cha May Lung, Laura
Xu Erming
Wang Hsuehming
Gao Tongqing
Chen Zhongyue
Age
Position in the Company
Date of Appointment
53
Exercising the powers of the Chairman and
20 October 2004
Chief Executive Officer; Executive Director,
President and Chief Operating Officer
60
52
58
52
47
68
66
66
66
52
44
Executive Director and 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
Non-Executive Director
29 May 2014
Independent Non-Executive Director
9 September 2005
Independent Non-Executive Director
9 September 2008
Independent Non-Executive Director
9 September 2005
Independent Non-Executive Director
Executive Vice President
Executive Vice President
29 May 2014
21 June 2013
12 December 2014
As mentioned in the announcements in relation
to the change in senior management published
by the Company in the following dates during
the year: On 10 February 2015, Madam Wu
Andi retired from her positions as the Executive
Director, Executive Vice President and Chief
Financial Officer of the Company due to her age.
On 24 August 2015, Mr. Wang Xiaochu resigned
from his positions as the Executive Director,
Chairman and Chief Executive Officer of the
Company due to change in work arrangement.
On 1 September 2015, Mr. Chang Xiaobing
was appointed as Chief Executive Officer of the
Company. On 23 October 2015, the appointment
of Mr. Chang Xiaobing as a Director of the
Company was approved at the extraordinary
general meeting and on the same date, Mr.
Chang Xiaobing was appointed by the Board as
the Chairman of the Company. On 30 December
2015, Mr. Chang Xiaobing resigned from his
positions as the Executive Director, Chairman and
Chief Executive Officer of the Company; and Mr.
Yang Jie, the Executive Director, President and
Chief Operating Officer of the Company, was
approved by the Board to exercise the powers of
the Chairman and Chief Executive Officer since 30
December 2015.
On 17 February 2015, Mr. Yung Shun Loy, Jacky
was appointed as the Deputy Chief Financial
Officer of the Company. On 1 November 2015,
Mr. Yung Shun Loy, Jacky resigned from his
positions as the Company Secretary, Authorised
Representative and the Deputy Chief Financial
Officer of the Company. On 6 November 2015, Ms.
Chu Ka Yee was appointed as Company Secretary
and Authorised Representative of the Company.
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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
Sui Yixun
Tang Qi
Zhang Jianbin
Hu Jing
Ye Zhong
Age
Position in the Company
Date of Appointment
52
57
50
40
56
Chairman of the Supervisory Committee
27 May 2015
Supervisor (Employee Representative)
19 August 2013
Supervisor (Employee Representative)
16 October 2012
Supervisor
Supervisor
16 October 2012
27 May 2015
On 18 February 2015, due to adjustment of work
division, Mr. Shao Chunbao resigned from his
positions as a Supervisor and the Chairman of
the Supervisory Committee of the Company. On
12 March 2015, Mr. Du Zuguo resigned from his
position as a Supervisor of the Company due to
change in work arrangement. On 27 May 2015,
Mr. Sui Yixun and Mr. Ye Zhong were approved
to be appointed as Supervisors of the Company at
the annual general meeting of the Company for
year 2014.
Share Capital
The share capital of the Company as at 31 December 2015 was RMB80,932,368,321, divided into
80,932,368,321 shares of RMB1.00 each. As at 31 December 2015, the share capital of the Company
comprised:
Share category
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
as at
31 December 2015
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
in issue as at
31 December 2015
82.85
70.89
6.94
2.64
1.20
1.18
17.15
100.00
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Material Interests and Short Positions in Shares and Underlying Shares
of the Company
As at 31 December 2015, 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
Guangdong Rising Assets
Management Co., Ltd.
JPMorgan Chase & Co.
57,377,053,317
(Long Position)
5,614,082,653
(Long Position)
1,546,282,942
(Long Position)
71,716,919
(Short Position)
980,696,969
(Shares available
for lending)
1,193,143,254
(Long Position)
337,800
(Short Position)
884,575,547
(Long Position)
31,812,492
(Short Position)
834,090,669
(Long Position)
805,835,485
(Shares available
for lending)
694,050,154
(Long Position)
BlackRock, Inc.
UBS Group AG
The Bank of New York
Mellon Corporation
Templeton Investment
Counsel, LLC
Domestic shares
85.57%
70.89% Beneficial owner
Domestic shares
8.37%
6.94% Beneficial owner
H shares
11.14%
1.91% 276,074,073 shares
as beneficial owner;
289,508,100 shares as
investment manager;
3,800 shares as trustee
(other than bare trustee)
and 980,696,969 shares
as custodian corporation/
approved lending agent
0.09% Beneficial owner
1.21% Custodian corporation/
approved lending agent
1.47% Interest of controlled
corporation
0.00% Interest of controlled
corporation
1.09% 240,794,858 shares as person
having a security interest
and 643,780,689 shares
as Interest of controlled
corporation
0.04% Interest of controlled
corporation
1.03% Interest of controlled
corporation
1.00% Interest of controlled
corporation
H shares
H shares
H shares
H shares
H shares
H shares
H shares
H shares
0.52%
7.07%
8.60%
0.00%
6.37%
0.23%
6.01%
5.81%
H shares
5.00%
0.86% Investment manager
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Save as disclosed above, as at 31 December 2015,
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.
Directors’ and Supervisors’
Interests and Short Positions in
Shares, Underlying Shares and
Debentures
As at 31 December 2015, none of the Directors
and Supervisors of the Company had any interests
or short positions in the shares, underlying shares
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 2015, 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 Transactions,
Arrangements or Contracts
At the Board meeting held on 23 September
2015 in relation to the renewal of continuing
connected transactions between the Company
and China Telecommunications Corporation and
revision of the Annual Cap for the year 2015
for the transactions contemplated under the
Engineering Framework Agreement, Mr. Yang
Jie, Executive Director of the Company who also
serves as Director of China Telecommunications
Corporation, had voluntarily abstained from voting
on the relevant resolutions. Please refer to page
65 of this annual report for details of the above
renewal.
At the board meeting held on 14 October 2015
in relation to the disposal of telecommunications
towers and related assets to China Tower
Corporation Limited (“China Tower”), Mr. Zhang
Jiping and Mr. Sun Kangmin, Executive Directors
of the Company who also served as Chairman of
the Supervisory Committee and Director of China
Tower respectively, had voluntarily abstained from
voting on the relevant resolutions. Please refer to
page 65 of this annual report for details of the
above transaction.
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Save as disclosed above and the service
agreements with the Company, during the year
ended 31 December 2015, the Directors and
Supervisors of the Company did not have any
material interest, whether directly or indirectly,
in any transactions, arrangement or contract
which was significant to the Company’s business
and which was entered into by the Company,
its parent company or any of its subsidiaries or
fellow subsidiaries. None of the Directors or
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 30 of the audited consolidated
financial statements for details of the emoluments
of all Directors and Supervisors of the Company in
2015.
Purchase, Sale and Redemption of
Shares
Summary of Financial Information
Please refer to pages 194 to 195 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
2015.
Bank Loans and Other Borrowings
Please refer to note 17 of the audited consolidated
financial statements for details of bank loans and
other borrowings of the Group.
Capitalised Interest
Please refer to note 28 of the audited consolidated
financial statements for details of the Group’s
capitalised interest for the year ended 31
December 2015.
Fixed Assets
Please refer to note 5 of the audited consolidated
financial statements for movements in the
fixed assets of the Group for the year ended 31
December 2015.
Neither the Company nor any of its subsidiaries
has purchased, sold or redeemed any securities of
the Company during the reporting period.
Reserves
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.
Pursuant to Article 147 of the Company’s articles
of association (the “Articles of Association”),
where the financial statements prepared in
accordance with the China Accounting Standards
for Business Enterprises and regulations, materially
differ from those prepared in accordance with
either the 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 2015, calculated
on the above basis and before deducting the
proposed final dividends for 2015, amounted to
RMB105,079 million.
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Retirement Benefits
Please refer to note 40 of the audited consolidated
financial statements for details of the retirement
benefits provided by the Group.
Stock Appreciation Rights
Please refer to note 41 of the audited consolidated
financial statements for details of the stock
appreciation rights plan 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 2015, revenue
generated from the five largest customers of the
Group accounted for an amount of less than 30%
of the total operating revenues of the Group.
For the year ended 31 December 2015, purchases
from the five largest suppliers of the Group
accounted for an amount of less than 30% of the
total annual purchases of the Group.
Please refer to note 22 of the audited consolidated
financial statements for details of the movements
in the reserves of the Company and the Group for
the year ended 31 December 2015.
Equity-linked Agreements
For the year ended 31 December 2015, the
Company has not entered into any equity-linked
agreement.
Donations
For the year ended 31 December 2015, the Group
made charitable and other donations with a total
amount of RMB18 million.
Subsidiaries and Associated
Companies
Please refer to note 9 and note 10 of the audited
consolidated financial statements for details of the
Company’s subsidiaries and the Group’s interests
in associated companies as at 31 December 2015.
Permitted Indemnity
For the year ending 31 December 2015 and as at
the date of approval of this report, the Company
has arranged appropriate insurance cover in
respect of legal actions against the directors of the
Group.
Changes in Equity
Please refer to the consolidated statement of
changes in equity as contained in the audited
consolidated financial statements of this year (page
125 of this annual report).
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Continuing Connected Transactions
The following table sets out the amounts of the Group’s continuing connected transactions with China
Telecommunications Corporation and its Subsidiaries (except for the Group) (the “China Telecom Group”)1
for the year ended 31 December 2015:
Transactions
Net transaction amount of centralised services
Net expenses for interconnection settlement
Mutual leasing of properties
Provision of IT services by China Telecom Group
Provision of IT services by the Group
Provision of community services by China Telecom Group
Provision of supplies procurement services by
China Telecom Group
Provision of supplies procurement services by the Group
Provision of engineering services by China Telecom Group
Provision of ancillary telecommunications services by
China Telecom Group
Provision of Internet applications channel services by the Group
Annual monetary
cap for continuing
connected
transactions
(RMB millions)
Transaction
Amounts
(RMB millions)
486
409
720
1,365
181
2,860
5,288
2,855
19,888
12,718
368
1,000
1,000
1,300
1,500
700
4,000
5,500
5,500
20,000
16,000
1,500
Note 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.
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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 Telecom Group 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 Telecom Group 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 Telecom
Group for the provision of management and
operation services will be apportioned between
the Group and China Telecom Group on a pro
rata basis according to the revenues generated by
each party. Where the Group uses the premises
provided by China Telecom Group, the Group will
pay premises usage fees to China Telecom Group
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 Telecom Group, 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
Telecom Group 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 3 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.
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Interconnection Settlement Agreement
Property Leasing Framework 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 (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 Group. 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 3 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 the interconnection
settlement, the parties shall apply such amended
or new rules and regulations as acknowledged by
both parties.
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 Telecom Group 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 3 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 3 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.
Following the completion of the acquisition of
the CDMA network assets by the end of 2012,
and the rapid development of the Company’s
business, especially for the mobile services and
message services, the demand for lease properties
from the Company and China Telecom Group
was increasing continuously, and therefore on
16 December 2013, the Annual Cap for the
year ended 31 December 2015 was revised and
increased up to RMB1,300 million. All terms and
conditions of the Property Leasing Framework
Agreement remained unchanged and valid until
31 December 2015.
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IT Services Framework Agreement
Community 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
Agreement”), the Group and China Telecom
Group can provide the other party with
information technology services, including office
automation and software testing. Each of the
Group and China Telecom Group 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 Telecom
Group are no less favourable than those offered
by an independent third-party provider, the Group
or China Telecom Group 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 3 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.
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 two parties (collectively, the “Community
Services Framework Agreement”), China Telecom
Group provides 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).
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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 3 years expiring on 31 December 2015. No later
than 30 days prior to the expiry of the Community
Services Framework Agreement, the Company
is entitled to serve a written notice to China
Telecommunications Corporation to renew the
Community Services Framework Agreement, and
the parties shall consult and decide on matters
relating to such renewal.
Supplies Procurement Services
Framework Agreement
Pursuant to the supplies procurement services
framework agreement signed between the
Company and China Telecommunications
Corporation on 30 August 2006 and the related
supplemental agreements subsequently entered
into between the two parties (collectively, the
“Supplies Procurement Services Framework
Agreement”), China Telecom Group 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 other than on an agency
basis under the Supplies Procurement Services
Framework Agreement is the same as those
set out in the Community Services Framework
Agreement.
The Company and China Telecommunications
Corporation agreed on 22 August 2012 to renew
the Supplies Procurement Services Framework
Agreement in accordance with its provisions for a
further term of 3 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 Telecom Group
through bids provides 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.
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The Group does not accord any priority to China
Telecom Group to provide such services, and the
tender may be awarded to an independent third
party. However, if the terms of an offer from
China Telecom Group are at least as favourable as
those offered by other tenderers, the Group may
award the tender to China Telecom Group.
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 3 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.
Attributable to (i) the increase in capital
expenditure of the Group which led to an expected
accompanying growth in engineering projects; (ii)
the optimisation of the investment structure of
the Company which led to a rapid development
of the 4G and wireline broadband network and
substantially increased the investment on the 4G
and wireline broadband network engineering
projects; and (iii) inflation and the increase in
labour costs, which had driven an increase in
the overall costs of the construction, design and
engineering project supervision services provided
under the Engineering Framework Agreement,
being approved at the second extraordinary
general meeting of the Company on 27 November
2015, the Annual Cap for the transactions
contemplated under the Engineering Framework
Agreement for the year ended 31 December 2015
was increased to RMB20,000 million. All terms
and conditions of the Engineering Framework
Agreement remained unchanged and valid until
31 December 2015.
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 Telecom
Group provides 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 3 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.
Internet Applications Channel Services
Framework Agreement
Pursuant to the Internet Applications Channel
Services Framework Agreement signed between
the Company and China Telecommunications
Corporation on 16 December 2013, the
Company agreed to provide Internet applications
channel services to China Telecom Group. The
channel services mainly include the provision of
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telecommunications channel and applications
support platform, provision of billing and
deduction services, coordination of sales
promotion and development of customers
services, etc. The pricing terms for such services
are the same as those set out in the Community
Services Framework Agreement.
The Internet Applications Channel Services
Framework Agreement became effective
from 1 January 2014 and will expire on 31
December 2015. No later than 30 days prior to
the expiry of the Internet Applications Channel
Services Framework Agreement, the Company
is entitled to serve a written notice to China
Telecommunications Corporation to renew the
Internet Applications Channel Services Framework
Agreement, and the parties shall consult and
decide on matters relating to such renewal.
The Company confirms that it has complied with
the disclosure requirements in accordance with
Chapter 14A of the Listing Rules in respect of the
connected transactions the Company conducted
in the year 2015.
The Company’s external auditor was engaged
to report on the Group’s continuing connected
transactions for the year ended 31 December
2015 in accordance with the 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 Transactions under
the Hong Kong Listing Rules” issued by the Hong
Kong Institute of Certified Public Accountants.
The auditors of the Group have reviewed the
continuing connected transactions of the Group
for the year ended 31 December 2015 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.
The Independent Non-executive Directors of the
Company have confirmed that all continuing
connected transactions for the year ended 31
December 2015 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 better;
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
3. had been entered into in accordance with the
relevant terms that are fair and reasonable
and in the interests of the shareholders of
the Company as a whole.
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The Independent Non-executive Directors have
further confirmed that:
Disposal of telecommunications towers
and related assets to China Tower
The values of continuing connected transactions
for the year ended 31 December 2015 entered
into between the Group and its connected
persons which are subject to annual caps have not
exceeded their respective annual caps.
Renewal of Continuing Connected
Transactions
On 23 September 2015, the Company and the
China Telecommunications Corporation entered
into supplemental agreements and renewed
the Engineering Framework Agreement, the
Ancillary Telecommunications Services Framework
Agreement, the Interconnection Settlement
Agreement, the Community Services Framework
Agreement, the Centralised Services Agreement,
the Property Leasing Framework Agreement, the
IT Services Framework Agreement, the Supplies
Procurement Services Framework Agreement
and the Internet Applications Channel Services
Framework Agreement on the same terms (except
the pricing terms) for a further term of 3 years
expiring on 31 December 2018. The pricing terms
of the agreements were elaborated or amended
with a view to complying with the guidance letter
on pricing policies for continuing connected
transactions and their disclosure published by
the Hong Kong Stock Exchange in March 2014
(HKEx-GL73-14) and aligning with the transactions
contemplated under the agreements. The renewal
of the Engineering Framework Agreement and the
Ancillary Telecommunications Services Framework
Agreement were approved at the second
extraordinary general meeting of the Company on
27 November 2015.
On 14 October 2015, the Company entered into
the Transfer Agreement (“Transfer Agreement”)
with (i) China Mobile Communication Company
Limited and related subsidiaries (together,
“China Mobile”); (ii) China United Network
Communications Corporation Limited (“CUCL”)
and Unicom New Horizon Telecommunications
Company Limited (together with CUCL, “China
Unicom”); (iii) China Reform Holding Company
Limited (“CRHC”); and (iv) China Tower
Corporation Limited (“China Tower”). Under the
Transfer Agreement, the Company sold certain
telecommunications towers and related assets (the
“Tower Assets”) and injected cash to China Tower
in return for new shares issued by China Tower.
On 31 October 2015 (the “Completion Date”),
all conditions precedent under the Transfer
Agreement had been fulfilled and completion of
the Transaction contemplated under the Transfer
Agreement had occurred on the same day. The
final consideration amount for the Transaction
was determined as RMB30.131 billion based on
calculation in accordance with the terms of the
Transfer Agreement. China Tower issued 33.097
billion shares to the Company at an issue price of
RMB1.00 per share under the Transfer Agreement
in return for the Tower Assets and RMB2.966
billion cash from the Company. Upon the issuance
of the shares by China Tower, the Company,
China Unicom, China Mobile and CRHC hold
27.9%, 28.1%, 38.0% and 6.0% of the share
capital of China Tower, respectively. Please refer
to the announcements published by the Company
on 14 October 2015, 2 November 2015 and 29
January 2016 for details.
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Business Review
Relating to the details of the material development
of the Group in 2015, a fair review of the business
of the Group, a discussion and analysis of the
Group’s performance during the year and the
material factors underlying its results and financial
position are provided in the Statement of the
Board on pages 8 to 17, Business Review on pages
28 to 37 and Financial Review on pages 38 to 47
of this annual report. Description of the principal
risks and uncertainties facing the Group can be
found throughout this annual report, particularly
in the Corporate Governance Report on pages
72 to 95 of this annual report. Particulars of
important events affecting the Group that have
occurred after 31 December 2015, if any, can
also be found in the Notes to the Consolidated
Financial Statements. The outlook of the Group’s
business is discussed throughout this annual
report including in the Statement of the Board.
Description of the Group’s key relationships with
its employees, customers, suppliers and others that
have a significant impact on the Company and
on which the Company’s success depends can be
found throughout this annual report, particularly
in the Human Resources Development Report
on pages 98 to 105 and the Corporate Social
Responsibility Report on pages 106 to 113 of this
annual report. In addition, more details regarding
the Group’s performance by reference to financial
key performance indicators and environmental
policies, as well as compliance with relevant laws
and regulations which have a significant impact on
the Group, are provided in the Statement of the
Board, Business Review, Financial Review, Human
Resources Development Report and Corporate
Social Responsibility Report of this annual report.
Each of the above-mentioned sections forms an
integral part of this report of the directors.
Compliance with the Corporate
Governance Code
Please refer to the “Corporate Governance
Report” set out on pages 72 to 95 of this 2015
annual report of the Company for details of our
compliance with the Corporate Governance Code.
Material Legal Proceedings
As at 31 December 2015, 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
Deloitte Touche Tohmatsu and Deloitte Touche
Tohmatsu Certified Public Accountants LLP were
appointed as the international and domestic
auditors of the Company, respectively for the
year ended 31 December 2015. Deloitte Touche
Tohmatsu has audited the accompanying
consolidated financial statements, which have
been prepared in accordance with the International
Financial Reporting Standards. The Company has
appointed Deloitte Touche Tohmatsu and Deloitte
Touche Tohmatsu Certified Public Accountants LLP
since 29 May 2013. The relevant re-appointment
of 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
2016 will be proposed to the annual general
meeting of the Company to be held on 25 May
2016.
By Order of the Board
Yang Jie
Executive Director, President and Chief Operating Officer
Beijing, China
23 March 2016
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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 carried out their supervisory function
to safeguard the interests of shareholders, the
Company and the employees.
I. The work status of the
Supervisory Committee of the
Company
During the reporting period, the Supervisory
Committee held two meetings. At the second
meeting of the Fifth Session of the Supervisory
Committee held on 12 March 2015, the
Supervisory Committee reviewed and approved six
agenda items, including the financial statements
for the year 2014, the audited report issued by
the external auditors, the profit distribution and
dividend proposal, the Supervisory Committee’s
report for the year 2014, the working plan of
the Supervisory Committee for the year 2015,
the change of composition of the Supervisory
Committee of the Company and passed the
relevant resolutions. Regarding changes in
assets, internal control formulation, change of as
well as control and management of connected
transactions, and replacement of business tax
with value-added tax, the Supervisory Committee
has communicated with the Finance Department,
Internal Audit Department and external auditors
and raised certain recommendations. On 27 May
2015, the supervisors duly signed to approve the
appointment of Mr. Sui Yixun as the Chairman of
the Fifth Session of the Supervisory Committee.
At the third meeting of the Fifth Session of
the Supervisory Committee held on 13 August
2015, the Supervisory Committee reviewed
and approved the interim financial statements
and the review report of the external auditors.
Regarding fluctuation of major figures in the
reports, the review of interim financial statements
and the effect of replacing business tax with
value-added tax, the Supervisory Committee has
communicated with the Finance Department,
Internal Audit Department and external auditors
and raised certain recommendations. 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 Board meetings and
Audit Committee meetings.
II. The overall assessment of
the operation management and
performance during the reporting
period
The Supervisory Committee believes, during the
reporting period, 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’ meetings and
the Board meetings, and strictly complied with
the relevant regulations for listed companies.
The Supervisory Committee has not observed
any behaviours that breached the laws, rules,
and Articles of Association of the Company, or
damaged the interests of shareholders.
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During the reporting period, in the face of a
number of prominent changes in the external
environment from regulatory policies, the
Company firmly upheld the main theme of “in-
depth reform, open cooperation, innovation-
driven”. The Company actively promoted the
Internet-oriented transformation, accelerated the
upgrade of the infrastructure network, fostered
the scale development of high value fundamental
services such as 4G services and fibre broadband
and differentiated development of emerging
businesses in order to achieve a stable growth
in its overall operation. In 2015, the operating
revenues of the Company reached RMB331.2
billion, an increase of 2.1% from last year. The
service revenues reached RMB293.3 billion, an
increase of 2.0% over last year, with revenue
growth surpassing the industry. The proportion
of service revenues attributable to emerging
businesses reached around 34%, an increase of
5 percentage points from the same period last
year, continuing the optimisation of our business
structure. EBITDA was RMB94.1 billion with
EBITDA margin of 32.1%. Profit attributable to the
equity holders of the Company reached RMB20.1
billion, representing an increase of 13.4% from
last year. Free cash flows amounted to –RMB21.5
billion. In summary, the Company accurately
grasped the trends in mobile Internet development
and the integrated development of the industry.
The operational efficiency was rapidly improved.
The core competitiveness was significantly
strengthened and the corporate development is
full of vitality. Meanwhile, while conscientiously
fulfilling its responsibility to shareholders, the
Company voluntarily committed itself to the
sustainable economic, social and environmental
development and persisted in as well as excelled
in fulfilling its social responsibilities, such as its
inherent corporate responsibilities, responsibilities
towards customers, responsibilities towards
employees, environmental responsibilities and
social welfare responsibilities.
III. The independent opinion on
the relevant matters during the
reporting period
1. The opinion raised by the Supervisory
Committee on the compliance of the
operation of the Company with laws and
regulations
Pursuant to the relevant laws and regulations of
the PRC, the Supervisory Committee monitored
the convening procedures and resolutions of
the meetings of the Board, the implementation
by the Board of the resolutions approved by the
shareholders’ meetings, the performance of duties
by the Company’s senior management, and the
Company’s management policies. The Supervisory
Committee is of the view that the Directors and
the senior management, in performing their
duties, strictly complied with the relevant rules and
regulations, safeguarded the legitimate rights and
interests of the Company and the shareholders
as a whole especially those of the minority
shareholders, actively promoted the regulated
operations of the Company, enhanced the level of
governance of the Company and followed lawful
procedures in their decision-making, implemented
resolutions of the shareholders’ meetings.
The Supervisory Committee was not aware of
any behaviours of the Directors or the senior
management which violated the laws, regulations,
the Articles of Association of the Company or
were detrimental to the interests of the Company.
2. The opinion raised by the
Supervisory Committee on the financial
implementations of the Company
Through the supervision and inspection of
the Company’s financial policies and financial
condition, the Supervisory Committee is of the
view that the Company is able to strictly comply
with the regulatory requirements such as section
404 of the US Sarbanes – Oxley Act and to
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continue to enhance its internal controls over
financial reporting, while effectively controlling
and managing the Company in accordance
with rules and regulations. Upon the review of
the financial statements for the year 2015 with
unqualified audit opinion and other relevant
information, which were prepared in accordance
with the China Accounting Standards for Business
Enterprises and the 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 condition,
operating results and cash flows.
In 2016, 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 and
monitor the Company to fulfill its commitment
to its shareholders. The Supervisory Committee
will focus on the Company’s implementation
of important measures in the process of
promoting comprehensive in-depth reform
and the acceleration of the Internet-oriented
transformation, and will further broaden
the planning of the work of the Supervisory
Committee and strengthen its efforts in
monitoring so as to protect the interests of all
investors.
By Order of the Supervisory Committee
Sui Yixun
Chairman of the Supervisory Committee
Beijing, China
23 March 2016
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71
For further information, please browse our website at www.chinatelecom-h.com/en/company/awards.phpARARCHINA TELECOM CORPORATION LIMITED ANNUAL REPORT 2015CHINA TELECOM CORPORATION LIMITED ANNUAL REPORT 2015RECOGNITION AND AWARDSRECOGNITION AND AWARDS CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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Shareholders’ Meeting
Board of
Directors
Supervisory
Committee
Audit
Committee
Remuneration
Committee
Nomination
Committee
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 2015, the
Shareholders’ Meeting, the Board and the
Supervisory Committee maintained efficient
operations in accordance with the operating
specifications, and the Company continued to
optimise the organisation structure and has
achieved a breakthrough in its mechanism
innovation, which well supported the Company’s
strategic transformation. 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 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 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, corporate internal control
requirements and other regulatory requirements.
For the financial year ended 31 December 2015,
save that the roles of Chairman and Chief
Executive Officer of the Company were performed
by the same individual, the Company has been
in compliance with all the code provisions
under the Corporate Governance Code as set
out in Appendix 14 to the Listing Rules. In the
Company’s opinion, through supervision by
the Board and the Independent Non-Executive
Directors, with effective control of the Company’s
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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.
In 2015, the Company’s continuous efforts in
corporate governance gained wide recognition
from the capital markets and the Company
was accredited with a number of awards. The
Company was voted the “No.1 Best Managed
Company in Asia” by Euromoney for 6
consecutive years, while at the same time being
ranked as the “No.1 Best Managed Company
in Telecommunications Sector in Asia”. The
Company was accredited by the investors as the
“Overall Best Managed Company in Asia”, the
“No. 1 Best Managed Company in China” and
the “No. 1 Best Investor Relations in China” for
5 consecutive years in the Asia’s Best Companies
Poll 2015 organised by FinanceAsia. The Company
was voted by investors as the “Most Honored
Company in Asia” and “Asia’s Best Investor
Relations Company in Telecommunications
Sector” in 2015 All – Asia-Executive-Team
ranking organised by Institutional Investor for five
consecutive years. The Company was accredited
the “Platinum Award for All-Round Excellence” in
No.1
Best Managed
Company in Asia
the poll of Corporate Awards 2015 by The Asset.
In addition, the Company was awarded the “The
Best of Asia – Icon on Corporate Governance”
by Corporate Governance Asia for 3 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’ 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’ Meeting.
Shareholders’ Meeting
In 2015, the Company convened 3 Shareholders’
Meetings including an annual general meeting
(“AGM”) for the year 2014 and 2 extraordinary
general meetings (“EGM”). The AGM held on
27 May 2015 reviewed and approved numerous
resolutions such as the financial statements
for the year 2014, Report of the Independent
International Auditor, proposal for profit and
dividends distribution, authorisation to the Board
for the formulation of budget for the year 2015,
appointment and remuneration of auditors,
authorisation to the Board to issue debentures,
appointment of the Supervisors, and amendments
to the Articles of Association of the Company,
which mainly include the incorporation of LTE/4G
digital cellular mobile service (TD-LTE and LTE
FDD), the IPTV transmission service, value-added
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telecommunications services, the qualification for
Internet mapping services, and the network culture
operation into the Company’s scope of business.
An EGM was held on 23 October 2015 to approve
the election of Mr. Chang Xiaobing as a Director
of the Company. In addition, an EGM was held
on 27 November 2015 to approve the renewal of
continuing connected transactions and the revised
annual cap for year 2015 contemplated under the
Engineering Framework Agreement.
Since the Company’s listing in 2002, at each
of the Shareholders’ 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 votes on resolutions
tabled at the Shareholders’ Meetings of the
Company were 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’ Meetings and
the communication between Directors and
shareholders. The Directors provided detailed
and complete answers to the questions raised by
shareholders at the Shareholders’ 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 2015, the Board comprises
10 Directors with 5 Executive Directors, 1 Non-
Executive Director and 4 Independent Non-
Executive Directors. The compositions of the
Audit Committee, Remuneration Committee and
Nomination Committee under the Board consist
solely of Independent Non-Executive Directors,
which ensure that the Committees are able to
provide sufficient review and check and balance,
and make effective judgements to protect the
interests of shareholders and the Company as a
whole. The number of Independent Non-Executive
Directors exceeds one-third of the members of the
Board. Mr. Tse Hau Yin, Aloysius, the Chairman
of the Audit Committee, is an internationally
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renowned financial expert with expertise in
accounting and financial management. The term
of office for the 5th session of the Board lasts for
3 years, starting from May 2014 until the day of
the Company’s annual general meeting in 2017,
upon which the 6th session of the Board will be
elected.
In August 2013, the Company adopted the
Board diversity policy. The Company believes that
Board diversity will contribute significantly to the
enhancement of the level of performance of the
Company. In order to achieve a sustainable and
balanced development, the Company views the
increasing Board diversity as a key element for
supporting its strategic goals and maintaining
sustainable development. In determining the
composition of the Board, the Company takes into
account diversity of the Board from a number of
perspectives, including but not limited to gender,
age, education background or professional
experience, skills, knowledge, duration of service,
etc. All appointments made or to be made by
the Board are merit-based, and candidates are
selected based on objective criteria, giving full
consideration to the benefits in terms of Board
diversity. Final decisions are based on each
candidate’s attributes and the contributions to be
made to the Board. The Nomination Committee
oversees the implementation of policies, reviews
existing policies as and when appropriate, and
recommends proposals for revisions for the
Board’s approval. Biographical details of existing
Directors are set out in the “Directors, Supervisors
and Senior Management” section of this Annual
Report. The Company believes that the Board
currently comprises experts from diversified
professions such as telecommunications, finance,
banking, law and management, and is diversified
in terms of gender, age, duration of service, etc.,
which contributes to the enhanced management
standard and more regulated operation of
corporate governance of the Company, and
results in a more comprehensive and balanced
Board structure and decision-making process.
rigorously regulate the operating procedures
of the Board and its committees, 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 financial condition, the
operating results and cash flows of the Company
for such period. In preparing the financial
statements for the year ended 31 December 2015,
the Directors adopted appropriate accounting
policies and made prudent, fair and reasonable
judgements and estimates, and prepared the
financial statements on a going concern basis.
The Articles of Association of the Company
regulate that the Board is accountable to the
Shareholders’ Meetings, and its duties mainly
include the execution of resolutions, formulation
of major operational decisions, financial proposals
and policies, formulation of 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.
The Company strictly complies with the Corporate
Governance Code under the Listing Rules to
All members of the Board/Committees are
informed of the meeting schedule for the Board/
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The below sets out the analysis of the composition of the Board as
at 31 December 2015:
10 -
8 -
6 -
4 -
2 -
0 -
Independent
Non-Executive
Directors
Non-Executive
Directors
Executive
Directors
Designation
10 -
8 -
6 -
4 -
2 -
0 -
Gender
Female
10 -
8 -
6 -
4 -
Male
2 -
0 -
10 -
8 -
6 -
4 -
2 -
0 -
10 Years or Over
Over 5 and Below 10 Years
5 Years or Below
Duration of service (years)
61-70
51-60
41-50
Age Group
Committees for the year at the beginning of each
year. In addition, all Directors will receive 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 4 times a year. Additional
Board Meetings will be held as necessary. In 2015,
the Board played a pivotal role in the Company’s
operation, budgeting, decision-making,
supervision, internal control, organisational
restructuring and corporate governance. During
the year, the Company convened 4 Board
meetings, 5 Audit Committee meetings, 1
Nomination Committee meeting, 1 Independent
Board Committee meeting; and passed various
written resolutions for the Board, Audit
Committee and Nomination Committee. In 2015,
the Chairman held a meeting with Independent
Non-Executive Directors without the presence of
Executive Directors to ensure that the opinions
of the Independent Non-Executive Directors have
been fully reflected in the Board’s operations.
The Board reviewed significant matters including
the Company’s annual, interim and quarterly
financial statements, annual operational, financial
and investment budgets, risk management,
internal control implementation and assessment
report, annual proposal for profit distribution,
annual report, interim report and quarterly
reports, renewal of and the revised annual caps for
continuing connected transactions, the disposal
of telecommunications towers and related assets,
appointment and remuneration of auditors, and
change of Director, Senior Management and
Company Secretary of the Company. All Directors
performed their fiduciary duties and devoted
sufficient time and attention to 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
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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 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 visits to our provincial branches from
time to time to exchange ideas and to study so
as to achieve a better understanding of the latest
business developments and to 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.
During the year, the Directors as at 31 December 2015 have participated in training and continuous
professional development activities, and the summary is as follows:
Directors
Executive Directors
Yang Jie
Zhang Jiping
Yang Xiaowei
Sun Kangmin
Ke Ruiwen
Non-Executive Director
Zhu Wei
Independent Non-Executive Directors
Tse Hau Yin, Aloysius
Cha May Lung, Laura
Xu Erming
Wang Hsuehming
Types of training
A, B
A, B
A, B
A, B
A, B
A, B
A, B
A, B
A, B
A, B
A: attending relevant seminars and/or conferences and/or forums; delivering speeches at relevant seminars and/or conferences and/or
B:
forums
reading or writing relevant newspapers, journals and articles relating to general economy, general business, telecommunications,
corporate governance or Directors’ duties
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Compliance with the Model Code for
Securities Transactions by Directors and
Supervisors
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 and
Supervisors. Based on the written confirmation
from the Directors and Supervisors, the Company’s
Directors and Supervisors 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 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
At 31 December 2015, the Audit Committee
comprised 3 Independent Non-Executive Directors,
Mr. Tse Hau Yin, Aloysius as the Chairman and
Mr. Xu Erming and Madam Wang Hsuehming
as the members. The Charter of the Audit
Committee clearly defines the status, structure
and 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
risk management and internal control system
including the adequacy of resources, qualifications
and experience of staff fulfilling the accounting,
internal control 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 2015, 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 2015, the Audit Committee convened 5
meetings and passed 2 written resolutions, in
which it reviewed important matters related to the
Company’s annual, interim and quarterly financial
statements, assessment of the qualifications,
independence, performance, appointments
and remuneration of the external auditors,
effectiveness of risk management, internal control,
internal audit, renewal of and revised annual
cap for continuing connected transactions. The
Audit Committee reviewed the annual audited
reports, interim review reports and quarterly
agreed-upon procedures reports prepared by
the external auditors, communicated with the
management and the external auditors in regards
to the regular financial reports and proposed
them for the Board’s approval after review and
approval. The Audit Committee received quarterly
reports in relation to the internal audit and
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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 implementation procedures
of the recommendations proposed by the external
auditors, reviewed the U.S. annual report, and
communicated independently with the auditors
twice a year.
Remuneration Committee
At 31 December 2015, the Remuneration
Committee comprised 3 Independent Non-
Executive Directors, Mr. Xu Erming as the
Chairman, Mr. Tse Hau Yin, Aloysius and Madam
Wang Hsuehming as the members. The Charter
of the Remuneration Committee clearly defines
the status, structure and 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 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 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
Remuneration Committee meeting was held in
2015.
Nomination Committee
At 31 December 2015, the Nomination Committee
comprised 3 Independent Non-Executive Directors,
Madam Cha May Lung, Laura as the Chairlady
and Mr. Tse Hau Yin, Aloysius and Mr. Xu Erming
as the members. The Charter of the Nomination
Committee clearly defines the status, structure
and 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 for the appointment and succession
plans 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,
composition and diversity of the Board; identifying
candidates and advising the Board with the
appropriate qualifications for the position of
Directors; reviewing the Board Diversity Policy as
appropriate to ensure its effectiveness; 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. 1 meeting
was held by the Nomination Committee and 2
Nomination Committee written resolutions were
passed in 2015, and it performed a review of
the structure and operations of the Board and
discussed the issue in relation to the appointment
of Director and other related matters.
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Independent Board Committee
Pursuant to the requirement under the Listing
Rules, the Company’s Independent Board
Committee convened 1 meeting in 2015, with all
4 Independent Non-Executive Directors attended
where it reviewed the renewal of and revised
annual cap for continuing connected transactions
and gave the relevant confirmation as well as
submitted the recommendations on these matters
to the independent shareholders.
The number of Attendance/Meetings of the members of the Board and
Committees in year 2015
Board
Audit
Committee
Nomination
Committee
Independent
Board
Committee
Shareholders
Meeting
Executive Directors
Yang Jie
Zhang Jiping
Yang Xiaowei
Sun Kangmin
Ke Ruiwen
Wang Xiaochu*
Chang Xiaobing*
Wu Andi*
Non-Executive Director
Zhu Wei
Independent Non-Executive Directors
Tse Hau Yin, Aloysius
Cha May Lung, Laura
Xu Erming
Wang Hsuehming
3/4
3/4
2/4
3/4
3/4
2/2
0/0
0/0
2/4
4/4
4/4
3/4
4/4
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
5/5
N/A
4/5
5/5
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
1/1
1/1
1/1
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
3/3
0/3
2/3
1/3
1/3
1/1
0/1
0/0
0/3
2/3
3/3
2/3
3/3
Note:
Certain Directors (including Non-Executive Director and Independent Non-Executive Directors) could not attend some of the
Shareholders Meetings, Board meetings and other Committee meetings due to other business commitments or being overseas.
*
On 24 August 2015, Mr. Wang Xiaochu resigned from his positions as the Executive Director, Chairman and Chief Executive
Officer of the Company. On 23 October 2015, Mr. Chang Xiaobing was approved to be appointed as Executive Director of
the Company. Mr. Chang Xiaobing resigned from his positions as the Executive Director, Chairman and Chief Executive Officer
of the Company on 30 December 2015. On 10 February 2015, Madam Wu Andi retired from her positions as an Executive
Director, Executive Vice President and Chief Financial Officer of the Company.
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The Company will identify suitable Director
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 gender,
age, educational background or professional
experience, skills, knowledge and length of
service and 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. After the Nomination
Committee and the Board have reviewed and
resolved to appoint the appropriate candidate, the
relevant proposal will be put forward in writing to
the Shareholders’ Meeting for approval.
Directors shall be elected at the Shareholders’
Meeting for a term of 3 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
2 or more 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 2 months. The 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/her willingness to
be elected may be given, will be at least 7 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 7 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.
Supervisory Committee
At 31 December 2015, the Company’s Supervisory
Committee comprised 5 Supervisors, including
2 Employee Representative Supervisors. 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 twice a year. The Supervisory
Committee convened 2 meetings and passed 1
written resolution in 2015.
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The number of Attendance/Meetings of members of the Supervisory
Committee in year 2015
Supervisors
Sui Yixun* (Chairman of the Supervisory Committee)
Tang Qi (Employee Representative Supervisor)
Zhang Jianbin (Employee Representative Supervisor)
Hu Jing
Ye Zhong*
Shao Chunbao*
Du Zuguo*
Number of
Attendance/Meetings
1/1
2/2
2/2
2/2
1/1
0/0
1/1
Note: Certain Supervisors could not attend some of the Meetings of the Supervisory Committee due to other work commitments.
* On 18 February 2015, Mr. Shao Chunbao resigned from his position as a Supervisor and the Chairman of the Supervisory
Committee due to adjustment of work division. On 12 March 2015, Mr. Du Zuguo resigned from his position as a Supervisor
of the Supervisory Committee due to change in work arrangement. On 27 May 2015, Mr. Sui Yixun and Mr. Ye Zhong were
approved to be appointed as Supervisors of the Company respectively at the annual general meeting of the Company for year
2014.
External Auditors
The international and domestic auditors of the Company are Deloitte Touche Tohmatsu and Deloitte
Touche Tohmatsu Certified Public Accountants LLP, respectively. The non-audit services provided by
the external auditors did not contravene the requirements of the US Sarbanes-Oxley Act and therefore
enabling them to maintain the independence.
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 2015 is as follows:
Service item
Audit services
Non-audit services (mainly include internal control advisory
and other advisory services)
Total
Fee
(including value-added tax)
(RMB millions)
68.8
1.9
70.7
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The Directors of the Company are responsible
for the preparation of consolidated financial
statements that give a true and fair view in
accordance with the 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, Deloitte Touche Tohmatsu, regarding
their reporting responsibilities on the consolidated
financial statements of the Company is set out in
the Independent Auditors’ Report on page 121.
The service term of KPMG and KPMG Huazhen
(Special General Partnership), the international
and domestic auditors of the Company for
2012, expired at the annual general meeting for
2012 (on 29 May 2013). The appointment of
Deloitte Touche Tohmatsu and Deloitte Touche
Tohmatsu Certified Public Accountants LLP as
the international and domestic auditors for the
financial years 2013, 2014 and 2015 has been
approved at the annual general meeting of
the Company for years 2012, 2013 and 2014,
respectively. The Audit Committee and the Board
of the Company have resolved to re-appoint
Deloitte Touche Tohmatsu and Deloitte Touche
Tohmatsu Certified Public Accountants LLP as
the international and domestic auditors for the
financial year 2016, subject to the approval at the
2015 annual general meeting of the Company.
Risk Management and Internal
Control System
The Board attaches great importance to
the construction and perfection of the risk
management and internal control system.
The Board is responsible for evaluating and
determining the nature and extent of the risks
it is willing to take in achieving the Company’s
strategic objectives, and ensuring that the
Company establishes and maintains appropriate
and effective risk management and internal
control systems, and the Board acknowledges
that it is responsible for the risk management
and internal control systems and for reviewing
their effectiveness. Such systems are designed to
manage rather than eliminate the risk of failure to
achieve business objectives, and can only provide
reasonable and not absolute assurance against
material misstatement or loss. The Board oversees
management in the design, implementation
and monitoring of the risk management and
internal control systems. The Board 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 that the
Company can achieve long-term development
goals. 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
attaches great importance to the prevention of
fraud and has formulated its internal reporting
system, which encourages anonymous reporting
of situations where employees, especially Directors
and Senior Management personnel, breach the
rules.
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 5-step risk management
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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 a risk management template,
established and refined the centralised risk
directories and case studies database of the
Company, continued to strengthen the level of
risk management informatisation, and solidified a
standardised risk management procedure 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 over the past years, the
Company has established a comprehensive risk
management system and has gradually perfected
its comprehensive risk monitoring and prevention
mechanism.
In 2015, pursuant to the requirement of
provision C2 of the Corporate Governance
Code promulgated by The Stock Exchange of
Hong Kong Limited, the Company continued to
strengthen the level-oriented, categorised and
centralised risk management, with resources
concentrated on the prevention of significant
potential risks, and strive to reduce negative
effect from significant risk, the Company did not
confront with any major risk event throughout
the whole year. In 2015, the potential significant
risks and the major risk-prevention and countering
measures are as follows:
Economic and policy environment adaptation risk:
The downward pressure has increased under the
macroeconomic environment, and the effects of
multiple policy adjustments have accumulated. The
telecommunications industry has shown a trend
of low growth amid the interweaving of the three
periods, namely, the periods of shifting growth
rate, structural adjustment and policy adaptation.
Therefore, the Company continued to view
economic and policy environment adaptation risks
as a significant risk to be tackled. The Company
promoted comprehensive in-depth reform to
further stimulate vitality; persistently implemented
the Company’s strategies to speed up the Internet-
oriented transformation; and strengthening the
management of accounts receivables to increase
risk-countering capability.
Business development risks: The Company is in
an industry with intense competition; traditional
business gradually saturated and new entrants
further intensified the market competition.
Therefore, the Company continued to view
business development risks as a significant risk
to be tackled, adhering to the differentiated
development and the terminal-led approach to
deepen data traffic operation. We accelerated
the broadband speed upgrade and strengthened
the enrichment of application content, enriching
retention means, to realise the effective
development of scale.
Investment return risks: In order to facilitate a
quality-leading 4G network and implement the
national broadband strategy, the investment scale
of the Company increased substantially in 2015,
hence the Company further considered investment
return risks as a significant risk to be tackled. In
the full effort to speed up the construction of 4G
and optical fibre access network capacity while
ensuring the competitive advantage in network
competition, we strengthened the management
and control over network investment and
construction process, reinforced the efficiency-
driven approach and enhanced the investment
efficiency and effectiveness. We strengthened
the coordination with China Tower to promote
the introduction of private capital in the area of
broadband access network in order to reduce
construction costs by leveraging the assistance of
external parties.
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After rigorous risk identification, assessment
and analysis, the Company has conducted
preliminary assessments of potential major risks
to the Company in 2016, including economic
and policy environment adaptation risks and
business development risks etc., and has put
forward detailed response plans. Through strict
and appropriate risk management procedures, the
Company will ensure the impact from the above
risks to the Company is limited to and within an
expected range.
The Company highly values the compliance with
the laws and regulations of the People’s Republic
of China as well as the places of listing of the
Company and where the Company’s business
operations are located, strictly complies with all
laws and regulations and timely and proactively
incorporates the laws and regulations into the
Company’s rules and regulations to protect
Company’s legitimate business management,
maintains Company’s legitimate rights and
supports corporate to achieve long-term healthy
development target.
“Provisions on the Administration of
Communications Short Message Services” came
into effect from 30 June 2015. “Provisions on
the Administration of Communication Short
Message Services” requires short message service
providers to obtain the telecommunications
operation permit, where short message services
should be charged on users and the tariff should
be based on the relevant legal provisions and
telecommunications tariff standards, short
message service providers shall record the time
when short messages are sent and received,
the information on user’s subscription and
cancellation of subscription in their service systems
and cannot distribute, disseminate short messages
that contain contents prohibited by laws and
regulations. “Provisions on the Administration of
Communications Short Message Services”further
clarified the obligation of the Company to
provide short message services, clearly clarified
commercial short message management systems
and implementation of penalties. The Company
promptly interpreted and implemented the
relevant requirements under the “Provisions on the
Administration of Communications Short Message
Services” to ensure the Company’s businesses are
conducted in accordance with applicable laws.
In 2015, the Company actively implemented the
policy initiatives of cloud computing innovation
development, development of e-commerce,
promotion of network speed upgrade & tariff
reduction, “Internet+” action, three-network
convergence and the development of Big Data
and other areas as promulgated by the State
Council of the People’s Republic of China in 2015
to safeguard the Company’s healthy business
development.
Apart from actively implementing the above
laws and regulations which are closely related
to the Company’s operational management,
the Company also actively and closely monitors
the latest and forthcoming relevant laws
and regulations in order to strengthen the
management of relevant business operation
behaviour, safeguards the effective adherence to
relevant laws and regulations so as to ensure that
the Company’s operations are in full compliance
with the laws.
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Since 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 Deloitte Touche Tohmatsu
Certified Public Accountants LLP 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 10 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 2015, the Company comprehensively
considered the deepening reforms of various
initiatives, the adjustment in organisation
structure and department duties, the changes
in business development, the needs to enhance
value, and the impact of the replacement of
business tax with value-added tax in accordance
with the new requirements under the COSO
Internal Control Framework (2013). With a focus
on supporting the development of emerging
businesses, pursuing ways to promptly address
market needs, solving new problems and new
conditions arising in the course of business
innovation, operation innovation and cooperation
innovation as well as strengthening asset and
business value management, the Company made
revisions to the internal control manuals during
the year in order to enhance the construction of
internal control systems, made additional effort
in its implementation, and strengthen risk control
in key areas. The Company newly established an
internal control for key risks areas of business
in order to refine the critical control points,
optimise the internal control process and enhance
the operational efficiency of the Company.
The Company optimised the business process
of external investment, frontline marketing
outsourcing, procurement management, invoice
management, etc and comprehensively dealt
with the risk areas for new businesses. In view of
the characteristics of emerging businesses, the
Company established a sub-division of internal
control manuals for new emerging businesses
and guided the new emerging business units
to construct and optimise the internal control
implementation rules as well as perfected the
mechanism to prevent corruption and fraud.
The Company conducted assessments of the risk
management and internal control systems for
the year, and supervised the timely rectification
of problems that had been identified in order to
avoid operational risks.
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The Internal Audit Department plays a vital role in
supporting the Board, the management and the
risk management and internal control systems.
The functions of the Internal Audit Department
are independent of the Company’s business
operations and are complementary to the duties
of the external auditors, and play an important
role in the monitoring of the Company’s internal
governance. The Internal Audit Department is
responsible for organising the risk management
and internal controls assessment of the Company,
and provides an objective assurance to the
Audit Committee and the Board that the risk
management and internal control systems are
maintained and operated by the management in
compliance with agreed processes and standards.
The Internal Audit Department regularly reports
the internal audit findings to the Audit Committee
on a quarterly basis, and reports the internal audit
results to the Board through the Audit Committee.
Annual Evaluation of Risk Management
and Internal Control Systems
The Company has been continuously improving
its risk management and internal control systems.
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 assessment of risk
management and internal control systems.
The Company has adopted the COSO Internal
Control Framework (2013) 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 4 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 2015, 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.
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Self-assessment of internal control adopts a top-
down approach which reinforces assessment in
respect of control points corresponding to control
environment and 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 2015,
the Company further defined the responsibilities
of the operation departments in the internal
control assessment, continued to motivate the
operation departments to play a leading role in
the internal control self-assessment. At the same
time, the Company evaluated the effect of the
self-assessment with reference to the results of the
independent internal control assessment in order
to promote the effectiveness of self-assessment.
The above measures effectively promoted the
participation of various departments and units and
ensured the self-assessment work of the Company
with 100% coverage, while timely detected and
rectified internal control deficiencies so as to
effectively control and eliminate potential risks.
The Company also worked towards perfecting the
systems and deepening its governance measures,
while continuously improving the quality and
effectiveness of its internal control self-assessment.
Under the risk-guided independent assessment of
the Company’s internal control, we consolidated
audit resources, worked around key areas
and major business processes and conducted
assessments. At the same time, we focused on
new services and new units including mobile
Internet, and continued to build upon our
internal control construction and selected key
businesses and units for assessment to prevent
and manage the risks associated with the new
business areas. In 2015, the Company explored
a cross evaluation working model and focused
on the risk assessments of innovative business
and international business. Besides, among
various audit areas, the Company continuously
paid attention to the effectiveness of the internal
control over fundamental business. 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 risk
management and internal control assessment
team and other relevant departments to closely
coordinate with the external auditors’ internal
control audit over financial reporting. 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 and the internal control audit.
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The Company also established a collaborative
risk prevention mechanism to promote the
vertical supervision and improvement of the
rectification system in different technical areas by
various departments of the headquarters whilst
exploring the establishment of an internal control
mechanism with long-term effectiveness. 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 internal and
external assessments in a positive manner.
Through self-assessments and independent
assessments conducted 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 oversees the Company’s risk
management and internal control systems on an
ongoing basis and the Board, through the Audit
Committee, conducted an annual review of the
risk management and internal control systems
of the Company and its subsidiaries for the
financial year ended 31 December 2015, which
covered all material controls including financial,
operational and compliance controls, as well as
its risk management functions. After receiving
the reports from the Internal Audit Department
and the confirmation from the management to
the Board on the effectiveness of these systems,
the Board is of the view that the Company’s risk
management and internal control systems are
solid, well-established, effective and sufficient.
The annual review also confirms the adequacy of
resources relating to the Company’s accounting,
internal control and financial reporting functions,
the sufficiency of the qualifications and experience
of staff, 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
every year. Through various activities such as
analyst meetings, press conferences, global
investor telephone conferences and investors road
shows, senior management provides the capital
market and media with important information
and responds to key questions which are of
prime concerns to the investors. 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 the
public shareholders, to actively participate in
the Company’s annual general meetings and to
promote direct and two-way communications
between the Board and shareholders.
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With an aim of strengthening communications
with the capital market and enhancing
transparency of information disclosure, the
Company has provided quarterly disclosure
of revenue, operating expenses, EBITDA, net
profit figures and other key operational data,
and monthly announcements of the number of
access lines in service, mobile subscribers and
wireline broadband subscribers. The Company
attaches great importance to maintaining daily
communication with shareholders, investors and
analysts. In 2015, the Company 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.
In 2015, the Company attended the following
investors conferences held by major international
investment banks:
Date
January 2015
January 2015
March 2015
May 2015
May 2015
May 2015
May 2015
May 2015
May 2015
May 2015
May 2015
June 2015
June 2015
June 2015
June 2015
June 2015
June 2015
Name of Conference
Deutsche Bank Access China Conference 2015
UBS 15th Greater China Conference
Credit Suisse Asian Investment Conference 2015
Macquarie Greater China Conference 2015
CLSA China Forum 2015
HSBC China Conference 2015
Deutsche Bank Access Asia Conference 2015 (Singapore)
Nomura China TMT Corporate Day 2015
BNP Paribas 6th Asia Pacific TMT Conference 2015
Morgan Stanley China Summit 2015
Goldman Sachs TechNet Conference – Asia Pacific 2015
J.P. Morgan China Summit 2015
Bank of America Merrill Lynch Global Telecom & Media Conference 2015
Nomura Investment Forum Asia 2015 (Singapore)
UBS Pan-Asian Telco Conference 2015
HSBC 3rd Annual Asia Investor Forum 2015 (Europe)
Haitong International/Societe Generale London Conference 2015 & Non-
Deal Roadshow (Europe)
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Date
July 2015
September 2015
September 2015
October 2015
November 2015
November 2015
November 2015
November 2015
November 2015
November 2015
December 2015
Name of Conference
DBS Vickers Pulse of Asia Conference 2015 (Singapore)
Morgan Stanley China Tech Conference 2015
22nd CLSA Investors’ Forum 2015
Jefferies 5th Annual Greater China Summit
Bank of America Merrill Lynch China Summit 2015
Credit Suisse 6th Annual China Investment Conference 2015
Citi China Investor Conference 2015
Daiwa Investment Conference 2015
J.P. Morgan Global TMT Conference 2015
Morgan Stanley 14th Annual Asia Pacific Summit (Singapore)
Barclays Asia TMT Conference 2015
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, media and the capital
market, but also plays a significant role in
the Company’s valuation and our compliance
with regulatory requirements for information
disclosure. The Company’s website is equipped
with a number of useful functions including
interactive stock quote, interactive KPI, interactive
FAQs, auto email alerts to investors, downloading
to excel, RSS Feeds, self-selected items in investors
briefcase, html version annual report, financial
highlights, investor toolbar, website information
which other users are also interested in, etc. In
2015, the Company updated the contents on
ongoing basis and revamped the homepage of
its website to further enhance the functions of
the website and the level of transparency of the
Company’s information disclosure, so as to meet
the international best practices. In addition, the
Company revamped the homepage of its mobile
website, which allows investors, shareholders,
media and the general public to more easily and
promptly browse the updated information on the
Company’s website through mobile devices at any
time and in any place. The Company’s website was
accredited a number of awards in the professional
rankings of LACP, W3 and iNova, indicating that
the Company’s website is highly recognised by
the professionals. The Company also actively
seeks recommendations on how to improve the
Company’s annual report from shareholders
through survey, and prepared and distributed
the annual report in a more environmental-
friendly and cost-saving manner according to
the recommendations received. 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.
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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 data that are 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 blackout periods.
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Shareholders’ 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:
2 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 1 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 an extraordinary general
meeting or a class meeting thereof. If the Board
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) within 4 months from the date of receipt
of the requisitions by the Board.
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 shareholders’ 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 timely, effective and
interactive communication between the Company,
shareholders and investors. 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, which will answer the shareholders’
questions. Information on the Company’s website
is updated regularly.
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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 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.
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.
The Listing Rules require that at least one-third of
the Board of Directors of a listed company in Hong
Kong be Independent Non-Executive Directors.
The Board of the Company currently comprises
10 Directors, of which 4 are Independent
Directors, making the number of Independent
Directors exceeds 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 set out in the Listing Rules 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 implemented the code
provisions under the Corporate Governance Code
and Corporate Governance Report as set out in
Appendix 14 of the Listing Rules for the financial
year ended 31 December 2015.
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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 governance measures 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 and independence of operations,
as well as the establishment of the effective
accountability system, we can ensure the long-
term stable development of the Company and
seek sustainable returns for the shareholders and
investors.
For further information,
please browse our website at
www.chinatelecom-h.com
NEW
VITALITY
NEW
VITALITY
Dedicated
Quality & Professional
Team
to Strengthen our
Competitive Edge
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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HUMAN RESOURCES DEVELOPMENT REPORT
98
In 2015, our work on human resources
development has firmly adhered to the Company’s
strategy. We further liberalised our thoughts and
focused on innovative mechanisms to motivate
vitality and enhance efficiency. Our aim was
to control staff size, refine corporate structure,
improve corporate vitality, enhance capability and
motivate persistency as we further implemented
reform measures to pragmatically and effectively
foster sustainable corporate development with
robust organisation assurance and talents support.
I. Strengthen senior management and
executives team building. We strengthened and
expanded our executives team, further promoted
younger leaders and optimised the leadership
structure. We organised an integrated assessment
mechanism for the leaders and their management
teams from provincial branches, which provided
a better reference for leadership selection and
leadership training, further enhancing the scientific
standard of our leadership management. We
strengthened the construction of our reserve cadre
team and organised democratic recommendations
and dynamic adjustments for reserve cadres. We
organised a recommendation process for reserve
cadres for provincial branches, and adjusted and
supplied the deputy reserve cadre candidates for
provincial branches.
II. Strengthen the daily management and
supervision of senior management executives.
The Company enforced the regulation of part
time jobs of the executives of each unit; we have
adjusted the positions of those who are not suitable
for the present posts according to the relevant
regulations. We strictly controlled the approval
procedures for overseas travelling of management
staff at provincial levels and optimised the
approval procedures. We deepened the promotion
of the personal declaration procedures for all
management staff.
III. Strengthen the supervision and guidance
on staff selection and staff appointment. We
organised the respective units of the Company
to implement self-assessment and self-correction
measures in staff selection and staff appointment
process, and focused on the rectification of the
problems that had been identified. Through this
process, we ensured that the self-assessment
and self-correction measures achieved our target
results. Through supervision, we ensured that the
rectification initiatives were effectively implemented
and thoroughly developed.
IV. Promote the adjustment of human
resources structure and standardise labour
management. We strictly implemented the control
and management of staff size and formulated the
“two retired one appointed” policy. We kept a
stable workforce, providing room for optimisation
of labour structure to support the centralised –
efficient operations and the emerging businesses
development of the Company.
We further regulated labour dispatch, regularly
analysed labour dispatch conditions, and supervised
the timely rectification of problems that had been
identified in key units. We organised relevant
seminars to discuss and solve the problems. As
at the end of December 2015, the percentage
of labour dispatch was below the national
requirement of 10%.
V. Strengthen the human resources
information system, improve the standard of
management. We strengthened to institutionalise
and standardise the operation management
system. We further optimised data standardisation,
unified statistical and reporting formats, carried
out a contest on data protection, all of which
substantially improved the timeliness and accuracy
of data information and further enhanced the
standards of human resources management.
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HUMAN RESOURCES DEVELOPMENT REPORT
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Information of Employees
As at the end of 2015, the Group had 291,526 employees. The number 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
Corporate – Employee
Relationship
Communication between Management
and Employees
We endeavoured to understand the employees’
thoughts. Combining the key work during
different periods with information from network
surveys, frontline research and exchange of virtual
teams as well as summary of feedback from
Internet telecommunications staff and third-party
Number of
employees
43,998
151,448
94,055
2,025
291,526
Percentage
15.1%
51.9%
32.3%
0.7%
100.0%
research, we promptly summarised the employees’
thoughts. Based on the Internet platform, the
labour union carried out the investigation survey
“2015 speak out your wish”, with around
106,000 employees participated to better grasp
the staff’s needs in work and life. On this basis,
and combining with the results contributed
by third-party research as well as provincial
and frontline labour unions, we have a better
understanding of the employees’ aspirations and
the demands in their work life. A comprehensive
analysis on the understanding of employees’
thoughts was reported to the management.
The management shook hands
with the winners of ”National
May 1st Labour Medal”
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Coordination and Communication
between the Company and the Labour
Unions
All levels of the labour unions motivated
employees to be conscientious, innovative and
actively established platforms in the areas of
labour competition, skills competition, knowledge
competition, and innovation to the offices and
posts, creating an environment for innovation
in positions and duties. Labour unions, jointly
with the relevant departments, organised a 4G
network maintenance worker skills competition, a
competition on emergency communications skills,
the 2nd “iCreate” Dark Horse competition, the 9th
“Excellent Marketing Skills Cup”, “BestTone” App
experience competition, “Outsmart” core business
district operations skills competition, “e-Surfing
Joy Go” labour competition, China Telecom
“Quality Month” service knowledge competition,
outstanding female shop managers selection,
Out-of-Office assistant selection, “NOC Excellent
Case” selection and many other competitions and
selection activities. The labour unions established
on-the-job innovation and “Four-Smalls Caring
Double Hundred” case selection activity. Over 1
million employees participated in the activities,
promoting business development and the
enhancement of the employees’ skills.
Roles and Duties of Labour Unions
Adhere to servicing employees and facilitating
development. The labour unions built a platform
for innovation in employees’ positions and duties,
and created an environment for innovation. A
forum organised by the labour union for advanced
model employees vigorously promoted the
excellent qualities and attitude of the advanced
model employees. In 2015, 18 employees of
China Telecom were awarded the honorary title
of “National Model Worker”. 30 groups were
awarded the honorary title of “National May 1st
Elite Female Pacesetter Position“and honoured
“National Elite Female Civilization Position”. 19
employees were awarded the honorary title of
“National May 1st Elite Female Pacesetter” and
“National Elite Female Contribution Pacesetter”.
13 groups were awarded the honorary title of
“National Pioneer Workers”. 8 individuals were
awarded the “National Technical Master” award.
40 employees were named “Technical Master of
China’s State-owned Enterprises” while 102 were
named as “Technical Master” of the Company.
Through the “Double Hundred” platform in
which with over 200,000 employees participated,
frontline employees elected the 100 “Elite Female”
shop managers and excellent channel managers
of the Company. The labour unions vigorously
promoted the advanced model employees,
creating a studious, competitive and nurturing
environment. Through various media channels, all
levels of the labour unions vigorously promoted
the model employees, and promoted over 1,000
excellent employees and over 300 advanced
groups from all levels of the corporation.
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Caring for Employees
Promote the construction of the “Four-Smalls”
to help employees solve their practical
difficulties. Frontline units launched the “small
canteens, small bathrooms, small washrooms,
and small activity rooms” construction activities.
During the year, approximately 3,800 frontline
units of the Company completed the construction
of the “Four-Smalls” and invested a total of
approximately RMB100 million. At the same time,
we continued to consolidate and strengthen the
standardised management for the “Four-Smalls”
that have already been built by development of
policies, coordination and communication, and
establishment of long-term mechanisms.
Reflect and address the needs of employees
at the policy level, safeguard the interests of
employees. The Company strove to understand
the work life of frontline employees and their
difficulties and problems, and to resolve the root
causes of the problems through the democratic
management platform and policy formulation.
In 2015, after thorough investigation, analysis
and reflection, specific difficulties were resolved,
such as heating problems during winter, labour
protection from both low and high temperatures
at labour sites, protection of construction and
maintenance labour, and protection for the
frontline female employees. At the same time,
through the strengthening of the institutional
construction, we promoted frontline corporations
to formulate policies protecting vital interests of
employees to safeguard their legitimate rights and
interests.
The inaugural
”Ten Best Talents in
Telecommunications”
Meeting with retired employees
in Chinese New Year
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Offer assistance to employees who were in
difficulty. We tried our best to offer assistance to
staff affected by natural disasters. During periods
of earthquakes, typhoons, rainstorms and other
natural disasters, we tracked and understood our
staff’s situation in a timely manner. We assisted
provincial unions to ensure employees’ basic living;
during the post-disaster reconstruction period, we
managed and used natural disaster relief funds
of the Company in a good manner, examined
and formulated the disaster subsidy programme
for employees, organised sympathy visits to the
disaster-hit areas and other activities such as
disaster site worker exchanges to help employees
relieve stress. We strengthened the support
for our employees who were in difficulties. We
organised provincial labour unions to establish and
optimise the files of the staff in need, guided the
establishment of serious illness support relief funds
at provincial levels, and regulated the process of
the use of the funds. On average, we allocated
approximately RMB20 million relief fund to over
9,000 staff in need in the year, ensuring timely
relief for employees who were in difficulties.
Summarise and promote good practice for
caring for frontline employees. We summarised
and promoted the “5 visit and 5 congratulate”
scheme, employees to go the City Medical Service
in provincial centres, EAP activities to reduce
pressure for frontline employees, “Families
with children taking public examinations” care
activities, exchange activities for learning from
excellent frontline employees. We promoted
exchange frontline units to help employees learn
good practice in areas such as medical treatment,
school entry, family difficulties, disaster relief,
maintenance of stability, assisting employees with
the purchase of their train tickets over the Spring
Festival holiday and vegetables supply for alpine
hypoxia regions. The programmes were generally
welcomed and well received by the employees.
Promote activities for the care of female
employees. We vigorously selected outstanding
female employees advanced models to stimulate
positive energy. We recognised 100 outstanding
female managers and outstanding channel
managers of the Group and vigorously promoted
female employees’ quality enhancement activities
to enhance their competitiveness. We organised
the “Scholarly Beauty” reading project and over
200 excellent books were provided as gifts to
employees to encourage employees to read
more books and to read good books. Through
the “Double hundred” study groups guiding
female employees to share joy and happiness in
their life, there were 3,528 reading experiences
shared by the employees and approximately
53,000 employees participated. We constructed
“Mummy Cabins” in frontline units such as
the sales outlet and customer service hotline
“10000” to provide a lounge area for female
employees and to facilitate breast feeding. We
carried out psychological counseling services and
training seminars for female employees to help
them to release their pressure, to care for female
employees and their family life to organise female
employee interest activities for “Cultivating Good
Family Style – Female Workers in Action” activities
and for other female employee care activities such
as on 1st June Children’s Day and during the high
level examination period.
Activities for morale and team building,
consolidating strengths for development.
Overall the provincial labour unions organised
more than 140 recreational and sports activities
last year. Through the organisation of a variety
of recreational and sporting activities, cultural life
was activated, morale was enhanced, pressure
was released and team spirit was consolidated.
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
personnels.
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Actively developing mobile
learning experimental units
Building up the internal training
team
Actively using the technology of mobile Internet
learning, we strengthened the corporate in the
experimentation, summary and promotion of
hybrid training, mobile learning, knowledge
sharing, expert assistance, job support and other
aspects, achieving a dual upgrade in employee
capacity and work performance. In the promotion
of mobile learning, we gradually developed the
employees’ awareness of and familiarity with
mobile learning, actively creating a corporate
internal learning, sharing and innovative
atmosphere, embracing the mobile Internet
revolution in corporate culture. In 2015, we
actively integrated the platform of mobile learning
and formed a “study group” as the core unified
mobile learning portal. We comprehensively
promoted the construction and operation based
on the content of mobile learning, and relied
on the “study group” to promote the efficient-
centralisation, flatness and standardisation of the
operation and management of the company’s
face-to-face training.
We fully leveraged the positive impact of our
internal trainers at all levels in areas such as
promoting and implementing strategies, improving
professional abilities and shaping the corporate
culture. We further improved the management
mechanisms in the selection, use, cultivation,
evaluation and encouragement of our internal
trainers. We optimised the structure of the internal
training team to effectively expand the internal
training team from front-end, back-end to the
comprehensive support and emerging business
areas, gradually improve hierarchical classification.
We comprehensively covered all professional
aspects, ensuring the ability to effectively satisfy
the corporation’s development and the demands
of training the talent in the internal training team,
in order to guarantee the sustainable and healthy
development of the corporation. In 2015, we have
employed 803 company-level internal trainers.
Award ceremony for the
national best ”unit CEOs”
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Developing Leadership Skills
In 2015, we arranged 64 leaders from mid-
level management from provincial branches to
participate in 2 entrepreneur training camps
organised by the Company, focusing on the
entrepreneurship shaping to strengthen their
ideals, beliefs and sense of responsibility. We
launched the 2015 programme in allowing
managers from city branches to sign up to online
learning activities to help them understand the
Company’s strategy, to grasp macroeconomic
development trends, to enhance their leadership
capacity in “Internet+” through the use of online
universities and study group platforms, topical
information study, quality learning courses and
other online training methods. At the same time,
we used study groups, YiChat and other mobile
applications to conduct seminars to promote
business exchanges and experience sharing
between city branches.
Cultivating Professional Talents
We strengthened the open-source software and
the construction of high-skillset IP professional
personnel team. Through the voluntary application
and online software design testing, we selected
1,117 open-source software talents. Through the
introduction of open-source software talents,
the number of open-source software product
development talents has reached 1,241 in
emerging business units. We organised high-
skillset IP professional personnel selection and
training, the scale of employees involved reached
1,270 talents.
We further improved the management of Rank
B professional talents, completed 645 Rank B
professional talents renewal and selection process
in the areas of IP, IT, sales and marketing, wireless
and mobile. We implemented the annual training
scheme, organised a range of academic exchange
for professionals and promoted the system of
talent mentors. In 2015, we organised training
courses for Rank B professional personnel and
trained 796 staff in 19 sessions.
Staff capacity building
We focused on sub-dividing performance
evaluation units with performance contracts
and enhanced the ability of frontline staff. We
implemented 4 sessions of “unit CEOs” elite
training camps, 15 sessions of backbone staff
training camps and 8 sessions of internal training
classes for internal trainers. 1,287 staff members
were trained and 362 were authorised as internal
trainers for “unit CEOs” training courses.
Through the online university platform, we
organised to launch the “100 Best unit CEOs
podium” campaign. We had over 12,000 online
learners, and over 14,000 YiChat browser learners.
Nurturing and introducing outstanding
young talents
We organised a 2015 spring internship
programme, providing a total of 383 internship
positions. We also organised a top graduate
programme and selected 722 top graduates for
this programme.
Recruitment
The Company recruits university graduates
and mature talents. The Company unified the
recruitment process of university graduates. Upon
employment by the Company, graduates generally
have to attend 1 to 2 months of induction training
to help them understand the corporate culture
and business of the Company. The Company
organised the recruitment for mature talents in
the society in accordance with the needs of the
business development.
To provide opportunities for the employees’
career development, the Company developed
a comprehensive double promotion channel.
Promotion is based on the principles of fairness,
openness, and transparency. The Company fully
respects employees’ rights to choice, knowledge
and superintendency.
In the recruitment and promotion processes, the
Company treats all candidates and employees
equally, regardless of gender, age and race.
The Company strictly abides by the national
regulations relating to employees’ working hours
and implemented the State Council’s “Regulations
on Paid Annual Leave for Employees” in
developing provision relevant to employee
vacation.
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The Company strictly abides by the laws and
regulations such as the “Labour Contract Law of
the People’s Republic of China” and constantly
improved the management system relevant
to employees. Taking into account the actual
situation of the Company, we implemented a
relevant system and developed detailed provisions
for termination of employee labour contracts.
Remuneration and Performance
Management
Remuneration
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
persisted in determining the distribution of
employees’ remuneration based on their value
and contribution while also tilting towards the
core frontline employees. At the same time, to
correspond with and support the sub-division of
the performance evaluation units, the Company
introduced innovative labour cost management
to motivate and incentivise the vitality of its
employees. First, we support development by
revitalising the existing assets. We conducted
comprehensive indicators comparisons such as the
input-output efficiency ratios of labour costs and
the average income level of employees at each
provincial level, in order to facilitate differentiated
adjustment and assets reduction at provincial
level. Second, we carried out proportional
allocation in accordance with the revenue budgets
for respective provincial branches. We supported
and guided all provincial branches to focus on
improving market share, scale development of
revenue and enhancement of corporate efficiency
through the allocation of labour resources. Third,
we improved the overall allocation of labour
between professional units and direct units, For
emerging business units and the revenue/profit
generating units, we focused on regulating the
total costs, supplemented by monitoring averaging
income level. For cost-incurring units, we allocated
in accordance with average income level per
person as a starting point.
Through implementing the relevant provisions,
the Company standardised the management of
the remuneration of leaders. There are rules for
the management of the remuneration of leaders.
The Company further optimised the assessment
methods for leaders’ performance remuneration.
According to the requirement to downsize the
difference in scale and strengthen performance-
oriented evaluations, the Company improved
the performance assessment measurement of
provincial branches leaders, increased the intensity
of the application of the results of the assessment,
reflecting the incentives for performance.
Performance management
The Company has established a relatively
comprehensive performance evaluation system
for all its employees. Branches of all levels have
established employees’ performance evaluation
teams which are 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 of the Company. The Company
managed to improve its employee evaluation
and incentive mechanism and related supervision
system to secure the fairness and reliability of
the performance evaluation results. At the same
time, it has further optimised and improved
the performance evaluation system to appraise
the performance by categories of business
units, deputies, middle-level management and
employees of all levels, enhancing the specific
focus and relevance of the entire performance
evaluation process.
Guaranteeing Employees’ Rights
and Interests
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
adheres to offering equality of remuneration
and work for male and female employees and
implements special regulations to protect female
employees’ rights and interests. There were no
discriminatory policies or regulations, nor had
there been any circumstance whereby child labour
or forced labour was employed.
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By adhering to the core philosophy of “comprehensive innovation, pursuing truth and
pragmatism, respecting people and creating value together”, China Telecom persevered
in the fulfillment of its responsibilities for the interests of stakeholders including the
country, shareholders, customers, employees, suppliers, peers within the same industry
and the community, while continuously promoting corporate transformation and
development and persistently enhancing corporate comprehensive value.
Responsibilities
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Inherent Corporate Responsibilities:
As a national mainstream
telecommunications operator, there is an
inherent corporate responsibility towards
the fundamental network, universal
telecommunications services, emergency
communications, information healthiness,
technological innovation and value chain
development. China Telecom persists in
taking a leadership role in endeavouring to
persistently contribute to the development
of the country and the community.
Responsibilities towards Shareholders:
Shareholders are the investors of the
enterprise. China Telecom adheres to
operate steadily and pragmatically, while
striving to honour its commitment to
shareholders through achieving excellent
operating results and continuously
enhancing its corporate value.
Responsibilities towards Customers:
Customers are the foundation for
sustainable development of the enterprise.
China Telecom strives to protect the rights
of customers, pursue mutual growth
of corporate value and customer value,
deepen its understanding of customers’
needs, and continuously innovate and
provide suitable and high quality products
and services to customers, all of which
enable our customers to fully enjoy a new
lifestyle in the information age.
Responsibilities towards Employees:
Employees are the most valuable assets
of the enterprise. China Telecom
safeguards the interests of its employees
in accordance with laws, fosters staff
development, encourages employees to
participate in management, takes care
of its employees’ well-being, and aligns
the development of the Company and its
employees.
Environmental Responsibilities:
It is a mission of all mankind to
develop an environmentally friendly
environment. Through promoting
environmentally friendly elements in
management, procurement, network,
office administration, products and
activities, China Telecom strives to become
a provider of environmental friendly
integrated information service, as a means
to contribute to the development of an
environmentally friendly economy and
society.
Social Welfare Responsibilities:
Commitment to charitable social activities
helps to turn the society into a better
place. The Company takes the initiative
to reward the society by voluntarily
participating in community charity affairs.
China Telecom regards sustainable
development as the direction and
continuously enhances its level of
responsible management, while
coordinating and fulfilling the
responsibilities towards stakeholders,
committing to the path of responsible
development.
I. Operating with integrity
and in compliance with the
laws
China Telecom persists in maintaining
good corporate governance and operating
in compliance with the laws and integrity
through abidance by relevant laws and
regulations, industry regulations and
business ethics. We have established
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an all-rounded and seamless compliance
system featuring internal control design, audit
supervision, anti-corruption and comprehensive
risk management. We have created a long lasting,
effective and standard communication mechanism
in order to regulate the disclosure of corporate
information. We have taken the initiative to be
governed by the government regulation and
social supervision. In 2015, in accordance with
the laws and regulations and the requirements
of the regulatory departments, the Company
integrated the changes in the area of business
operations to strengthen the setting up of the
Company’s anti-corruption and supervision
systems, to further perfect the relevant rules and
systems, to continuously develop the supervision
and inspection of the implementation of these
rules and systems, and to make timely rectification
when problems are discovered.
II. Fulfilling our essential
responsibilities as a
telecommunications operator
As a key player of the construction of “Broadband
China”, the Company accelerated the construction
of the dual-100Mbps mobile Internet and wireline
broadband Internet in 2015 in order to provide
speedy, safe and reliable network assurance.
The Company strives to achieve the missions
in maintaining network information safety and
universal telecommunications services, and
assuring emergency communications.
Speed Upgrade and Tariff Reduction
The Company accelerated the construction of
4G network. The number of 4G base stations
reached 510,000 in total. The network covered
all developed villages and towns nationwide (all
villages and towns in the eastern region) or above.
At the same time, the Company constructed
4G+ (LTE-A) base stations in 45 key cities,
providing its “e-Surfing 4G+” service.
The Company comprehensively promotes optical
fibre upgrade for wireline broadband network,
and expands its construction in relation to the
coverage of optical fibre network, completing
optical fibre upgrade for copper wire residential
communities during the year as well as developing
a number of optical fibre cities. Sichuan was
the first province with full optical fibre network
coverage, and the access speed of wireline
broadband service was increased to 29Mbps.
The Company has drastically reduced the standard
tariff of wireline broadband and handset data
traffic and introduced the service of carrying
forward unused handset data traffic to the next
month. In 2015, the bandwidth unit price of
wireline broadband has reduced by 55% and the
handset data traffic tariff has decreased by 33%.
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Maintaining network information
security
Promoting the “Village-to-Village”
projects
The Company conscientiously adheres to the
legal and regulatory requirements of network
information security and continuously strengthen
every fundamental work of network information
security. The Company launched the “e-Surfing
security” series of products and a series of related
security products such as DDos security protection
product “Cloud Dam” embedding the functions
of “cloud, pipe and device”, office security
administration, safe mobile payment “e-Surfing
USB”. The Company strives to control unhealthy
network information and assist the relevant
departments to fight against communication and
information swindles.
The Company persistently promotes the
construction of communication networks in rural
areas and remote rural villages. In 2015, the
Company completed the installation of broadband
lines in over 5,400 administrative villages,
telephone lines in over 1,000 natural villages
and the construction of rural service network
points by applying customised techniques. The
Company strives to participate in and foster the
electronic development and informatisation in
rural areas, endeavouring to enhance the level of
informatisation of rural villages, agriculture and
farmers, and bridge the “digital divide” between
the urban and rural areas.
Completed the
installation broadband
lines in
5400+
administrative
villages
Ethnic minorities
enjoy the new
information lifestyle
Assuring emergency communications
China Telecom is dedicated to ensuring the
provision of smooth and safe communication.
In 2015, the Company quickly responded to the
rescue activities in a number of severe natural
disasters such as earthquake, flood, typhoon,
and restored communication services in the
affected areas within the shortest period of time.
Throughout the year, a total of over 70,000
headcounts of relief workers, over 10,000 rescue
vehicles, over 8,000 diesel generators and over
3,000 emergency communications equipment
were deployed for this purpose. The Company
successfully accomplished the communication
assurance tasks for important conference events
and important sport competition events.
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Fully devoted to restore
telecommunications
services in affected areas
III. Fulfilling our responsibilities
towards our customers
Enhancing services capability for
fundamental business
China Telecom actively implemented the laws
and regulations regarding the protection of the
interests of customers, persisting to provide
products and services in compliance with laws and
regulations. The Company also puts in place strict
compliance checks for advertising campaigns,
strictly protect customer information and
continuously standardising the tariff management.
In 2015, while aggressively promoting 4G and
optical fibre broadband products, the Company
deployed and implemented the “Internet+” action
plan and cooperated with customers and business
partners to innovatively promote the applications
of “Internet+” and assisted the transformation
and upgrade of customers in various sectors and
industries. The Company strives to enhance the
service capability and improve the quality of hot
spots through resolving key service issues in a
timely manner based on customers’ feedback.
According to the survey conducted by the Ministry
of Industry and Information Technology, China
Telecom continued to outperform amongst its
peers in the customer satisfaction ratings of
mobile Internet and wireline Internet in 2015.
For 4G business, the Company implemented “5
excellent services” focusing on the areas including
network experience, product services, channel
services, terminal services and customer care. The
Company launched the 4G campaign of “Service
Experience, Enhanced Capability” to proactively
identify problems and implement rectifications
through targeted service experience.
Focusing on the broadband services, the Company
launched end-to-end bandwidth upgrade,
organised users to conduct speed testing and
service supervision and promoted “install first and
pay later” broadband services in 12 pilot provinces
across the country. Through promoting broadband
self-troubleshooting functions, the Company
provided convenience to customers and reduced
broadband repair service time.
Implementation of the morals and
rectification requirements and remedy of
services hotspots issues
The Company promotes the innovation of
fundamental service credit management through
improving IT system capability and realises its
commitment to serve customers. The Company
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further standardised the customer reminder
service and created reminder service in new
media channels enabling customers to enjoy
customised reminder service. The Company
further standardised the detailed presentation of
bills in accordance with the “handset data traffic
carrying forward” policy. Rectification measures
such as “second confirmation” and “unknown
deductions” were launched. Up to December,
both the rate of bypassed complaints and the
rate of unknown deductions complaints of China
Telecom outperformed the control targets set
by the Ministry of Industry and Information
Technology.
IV. Fulfilling our responsibility
towards our employees
China Telecom safeguards the interests of our
employees in accordance with the laws, continues
to establish stable and harmonious labour relations,
cares and cherishes our employees, actively
leverages various types of talents and supports
labour unions in carrying out their functions.
Strengthening production safety
management
In 2015, the Company revised the “China Telecom
Production Safety Management Manual” and
revised the “China Telecom Female Employees
Labour Protection Manual”. The Company
strengthened production safety supervision and
inspection, and implemented rectification for all
types of safety hazards.
Promoting employees’ growth
In 2015, in combination with corporate
transformation and business development, we
enhanced the targeted training programmes for
employees. Focusing on cultivating frontline “unit
CEOs”, implementation of “unit CEOs” elite
training camps and core employee training camps,
we organised the launch of the “100 Best unit
CEOs on the podium” campaign, “unit CEOs”
online training activities to enhance the capability
of frontline “unit CEOs”.
Promoting the work of caring and
cherishing our employees
The Company perfected the closed-loop
management mechanism for employees’
complaints and carried out the “2015 speak out
your wish” survey activity. The Company strives
to understand the employees’ needs and timely
respond to the employees’ requests in order to help
the employees to solve their practical difficulties
and problems at its best endeavour. The Company
also timely relieved employees in difficulty or
affected by natural disasters. Routine care and visits
were offered for frontline employees in difficulty
and those with outstanding performance. The
construction of “Four-Smalls” – namely, small
canteens, small bathrooms, small washrooms and
small activity rooms for 1,900 frontline units – were
completed. Up to 2015, the practical difficulties
and problems of frontline employees in dining,
activities and rest in nearly 20,000 frontline units
were resolved.
V. Fulfilling our responsibility
towards the environment
China Telecom complies with the relevant laws and
regulations in environmental protection and the
Company encourages all levels of employees to be
conscious in resources saving, such as the saving
of one kilowatt of electricity, one drop of water,
one litre of oil, one piece of paper, and one pen.
Besides, the Company incorporated and applied the
requirements of energy saving, emission reduction
and environmental protection in various operating
activities such as procurement, construction,
operation, office administration through rules
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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CSR
112
and regulations, work deployment, appraisals and
evaluation. The Company persistently researched
and developed environmental friendly information-
based products to assist the customers to pursue
energy saving and emission reduction and to
achieve environment development goals.
Promoting energy saving and emission
reduction
electrolyte solution such as acid and alkali, the
discharge of which will create water pollution,
damage crops and cause soil erosion. China
Telecom on one hand advocates to minimise the
use of rechargeable batteries and on the other
hand persists in recycling obsolete rechargeable
batteries by setting up the comprehensive recycling
and handling systems to prevent environmental
pollution and reuse the useful components therein.
In 2015, the Company continued the construction
of a network platform that is more energy-efficient,
faster and with higher capacity, and promoted the
integration of our service platform with “cloud
resource pools”. The Company accelerated to
foster the upgrade and withdrawal of traditional
switch facilities and other obsolete and high
consumption equipments for IT, transmission,
air-conditioning and electricity. We continued
to promote the energy-saving technological
transformation of existing network fundamental
facilities and the application of new energy-saving
technology, further extending the coverage rate
of the energy-saving technological transformation
of fundamental ancillary facilities and actively
promoting the optimisation and reduction of
redundancy of the fundamental ancillary facilities.
The Company further promoted the sub-divided
energy-saving processing units and integrated the
energy consumption monitoring system to achieve
energy saving and emission reduction precision
management. Water resource management was
strengthened and the water recycling in operation
was promoted.
Promoting Reverse Logistics
The Company continued to promote the recycling,
refurbishment, replacement and resale of obsolete
products like copper cables, rechargeable batteries,
wireline terminals and network withdrawal
equipments. The obsolete rechargeable batteries
contain large amounts of heavy metal and
Promoting joint construction and sharing
of telecommunications infrastructure
During the year, the Company jointly constructed
and shared telecommunications infrastructure
with other telecommunications operators to
avoid duplicate construction, protect the natural
environment and landscape, reduce land use,
consumption of energy and raw materials. The
Company devoted efforts in promoting the joint
construction and sharing of base stations, and
completed the injection of tower assets into China
Tower Corporation Limited.
VI. Supply chain management
China Telecom actively communicates with the
suppliers, persists in open cooperation to achieve a
win-win situation, adheres to valued procurement,
sunshine procurement, ecological procurement,
and encourages suppliers to fulfill their social
responsibilities.
In 2015, in the area of valued procurement,
the Company pragmatically implemented the
management methods of procurement resources
quality inspection, strengthened quality control,
and persistently extended the scope of quality
inspection and suppliers’ evaluation. The scope
of follow-up assessment was extended. Through
reinforcing the inspection and applying follow-
up results in bidding assessment, the suppliers are
encouraged to continuously improve the quality
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
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113
Autonomous Region, the Company assisted in
providing poverty alleviation and assistance in
Tianlin County of Guangxi Zhuang Autonomous
Region, helped to establish fundamental
facilities, informatisation, education and training,
agriculture, hygiene and technology in the five
counties. During the year, the Company assisted
the Gansu provincial government to build the
first poverty big data management platform in
China, which conducted a dynamic management
of the poor villages, poor households and poor
population of Gansu Province, ensuring the full
implementation of household policies related to
poverty alleviation which was highly commended
by society.
In 2016, China Telecom will put forward five
development concepts including “promoting
innovation, harmonisation, green, openness and
sharing”. The Company will implement national
“Cyberpower” strategy, “Big Data” strategy and
“Internet+” action plan to vigorously promote
corporate reform and innovation, while striving
to provide more suitable and quality businesses
and services to customers and economic society.
We will assist the transformation and upgrade
of various sectors and industries to create new
values for stakeholders, and contribute to the
development of a well-off society.
level. For sunshine procurement, the Company
strictly complied with the relevant laws and
regulations in procurement, bidding and tendering
to further improve the Company’s bidding and
tendering management system. We revised
and published the “Procurement Bidding and
Tendering Management Manuals”, “Management
Measures in relation to Procurement Selection”
and “Bidding Agent On-site Service Measures”
and further expanded the scale of bidding, strictly
controlled the scope of directed procurement,
adhered to the principles of “bidding the project
that we ought to bid” and “bidding as many
projects as we can”. We conducted comprehensive
self-checks and selective key checks of the bidding
project as required by laws to enhance the
standardised level of procurement. For ecological
procurement, we actively promoted the use of
ecological procurement assessment indexes in the
procurement process and prioritised resources
saving and environmentally friendly products.
Throughout the year, the energy consumption for
targeted professional units was reduced by 7.1%.
VII. Contributing to community
well-being
China Telecom actively supported the development
of science and technology, education, culture,
sports and hygiene and paid attention to
the 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.
The Company continued to assist our parent
company in providing poverty alleviation and
assistance in Tibet and Xinjiang. In 2015, in
addition to a variety of assistance programmes in
Bianba County in the Tibet Autonomous Region,
Yanyuan County and Muli County in Sichuan
Province and Shufu County in Xinjiang Uygur
NEW
OUTLOOK
A PROMISING
FUTURE
NEW
OUTLOOK
A PROMISING
FUTURE
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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NOTICE OF ANNUAL GENERAL MEETING
116
NOTICE IS HEREBY GIVEN that the annual general meeting of China Telecom Corporation Limited (the
“Company”) for the year 2015 will be held at 11:00 a.m. on 25 May 2016 at Ballrooms B & C, Level 5, Island
Shangri-La, Pacific Place, Supreme Court Road, Central, Hong Kong for the purpose of considering and, if
thought fit, passing the following resolutions:
ORDINARY RESOLUTIONS
1. THAT the consolidated financial statements of the Company, the report of the Board of Directors, the
report of the Supervisory Committee and the report of the international auditor for the year ended 31
December 2015 be considered and approved, and the Board of Directors be authorised to prepare the
budget of the Company for the year 2016.
2. THAT the profit distribution proposal and the declaration and payment of a final dividend for the year
ended 31 December 2015 be considered and approved.
3. THAT the re-appointment of Deloitte Touche Tohmatsu and Deloitte Touche Tohmatsu Certified Public
Accountants LLP as the international auditor and domestic auditor of the Company respectively for the
year ending on 31 December 2016 be considered and approved, and the Board be authorised to fix the
remuneration of the auditors.
and to consider and approve other businesses (if any).
And as special business, to consider and, if thought fit, pass the following as special resolutions:
SPECIAL RESOLUTIONS
4. To consider and approve, by way of special resolutions, each of the following resolutions in relation to
the granting of a general mandate to the Board of the Company to issue debentures:
4.1 THAT the granting of a general mandate to the Board to issue debentures denominated in local or
foreign currencies, in one or more tranches in the PRC and overseas, including but not limited to,
super short-term commercial papers, short-term commercial papers, medium term notes, perpetual
bonds, company bonds, convertible bonds, private placement notes, asset securitisation products
and asset-backed notes (the “Debentures”), from the date of this meeting until the date on which
the annual general meeting of the Company for the year 2016 is held, with a maximum aggregate
outstanding repayment amount of up to RMB90 billion be and is hereby approved.
4.2 THAT the Board or any two or more directors of the Company (the “Directors”) duly authorised by
the Board, taking into account the specific needs of the Company and market conditions, be and
are hereby generally and unconditionally authorised to:
(a) determine the specific terms and conditions of, and other matters relating to, the issue of
debentures, including but not limited to, the determination of the type, amount, interest rate,
term, rating, security, any repurchase or redemption provisions, any placing arrangements
to shareholders, any options to adjust the nominal interest rates, the use of proceeds, the
application of the quota of unissued company bonds to the issuance of other Debentures, as
well as matters including securing approvals, engaging professional advisors, disseminating
relevant application documents to the regulatory authorities, obtaining approvals from the
regulatory authorities, executing all requisite legal documentation relating to the issue as
requested by the regulatory authorities and making relevant disclosure;
(b) do all such acts which are necessary and incidental to the issue of debentures (including, but
not limited to, the securing of approvals, the determination of underwriting arrangements,
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTICE OF ANNUAL GENERAL MEETING
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preparation and dissemination of relevant application documents to the regulatory authorities,
and the securing of approvals from the regulatory authorities);
(c)
take all such steps which are necessary for the purposes of executing the issue of debentures
(including, but not limited to, the execution of all requisite documentation and the disclosure
of relevant information in accordance with applicable laws) and to the extent that any of the
aforementioned acts and steps that have already been undertaken by the Board or the duly
authorised Directors in connection with the issue of debentures, be and are hereby approved,
confirmed and ratified; and
(d) with respect to the Company’s issue of the aforementioned debentures denominated in
local or foreign currencies with an aggregate amount of RMB90 billion, to do the centralised
registration of super short-term commercial papers, short-term commercial papers, medium
term notes and perpetual bonds in accordance with the registration rules published by National
Association of Financial Market Institutional Investors.
5. To consider and approve, by way of special resolutions, each of the following resolutions in relation to
the proposed issue of company bonds:
5.1 THAT with respect to the Company’s issue of the aforementioned debentures denominated in
local or foreign currencies with an aggregate amount of RMB90 billion, within which the issue of
company bonds in the PRC in one or more tranches not exceeding RMB30 billion be and is hereby
approved with:
(a) Size of issue: Up to RMB30 billion.
(b) Placing to shareholders: The company bonds will not be issued to existing shareholders on a
preferred basis by way of placing.
(c) Term: The company bonds will have a term not exceeding 10 years and may have one fixed
term, or a mix of different terms, which will be determined in accordance with the market
conditions and the Company’s capital requirements.
(d) Use of proceeds: The company bonds will be issued for purposes such as replenishing the
general working capital of the Company.
(e) Effective period: The resolution will be effective from the date on which this resolution is
passed until the date on which the annual general meeting of the Company for the year 2016 is
held.
5.2 THAT the Board or any two or more Directors of the Company duly authorised by the Board be and
are hereby generally and unconditionally authorised to:
(a) determine the type, specific terms and conditions of, and other matters relating to, the issue
(including but not limited to, the determination of the type, amount, interest rate, term,
rating, security, whether there will be repurchase or redemption provisions, whether there
will be an option to adjust the nominal interest rate, the application of the quota of unissued
company bonds to the issuance of other Debentures, specific arrangements relating to the
use of proceeds within the scope approved by the shareholders in this meeting and all matters
relating to the issue);
(b) do all such acts which are necessary and incidental to the issue (including, but not limited to,
the securing of approvals, engaging professional advisors, the determination of underwriting
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
NOTICE OF ANNUAL GENERAL MEETING
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arrangements, preparation and dissemination of relevant application documents to the
regulatory authorities, and the securing of approvals from the regulatory authorities);
(c)
take all such steps which are necessary for the purposes of executing the issue (including,
but not limited to, the execution of all requisite documentation and the disclosure of relevant
information in accordance with applicable laws), and to the extent that any of the above acts
and steps that have already been undertaken by the Board or the Directors in connection with
the issue, be and are hereby approved, confirmed and ratified;
(d)
if there are changes in the regulatory policies or market conditions, adjust the specific proposal
relating to the issue and related matters in accordance with the opinion of the regulatory
authorities; and
(e) after completion of the issue, determine and approve matters relating to the listing of the
relevant debentures.
6. THAT:
(a)
(b)
(c)
subject to paragraph (c) below, the exercise by the Board during the Relevant Period (as hereinafter
defined) of all the powers of the Company to allot, issue and deal with additional shares of the
Company and to make or grant offers, agreements and options which might require the exercise of
such powers be hereby generally and unconditionally approved;
the approval in paragraph (a) shall authorise the Board during the Relevant Period to make or grant
offers, agreements and options which might require the exercise of such powers after the end of
the Relevant Period;
the amount of additional domestic shares or overseas-listed foreign-invested shares (“H Shares”)
(as the case may be) allotted, issued and dealt with or agreed conditionally or unconditionally to
be allotted, issued and dealt with either separately or concurrently by the Board pursuant to the
approval in paragraph (a), otherwise than pursuant to (i) a Rights Issue (as hereinafter defined) or (ii)
any scrip dividend or similar arrangement providing for the allotment of shares in lieu of the whole
or part of a dividend on shares in accordance with the Articles of Association of the Company, shall
not exceed 20% of each of the Company’s existing domestic shares and H Shares (as the case may
be) in issue at the date of passing this special resolution; and
(d)
for the purpose of this special resolution numbered 6:
“Relevant Period” means the period from the passing of this special resolution numbered 6 until the
earliest of:
(i)
the conclusion of the next annual general meeting of the Company;
(ii)
the expiration of the 12 month-period following the passing of these special resolutions; and
(iii)
the date of revocation or variation of the authority given to the Board under these special
resolutions by a special resolution of the Company’s shareholders in a general meeting.
“Rights Issue” means an offer of shares open for a period fixed by the Board to holders of shares on
the register of members on a fixed record date in proportion to their holdings of such shares (subject
to such exclusion or other arrangements as the Board may deem necessary or expedient in relation
to fractional entitlements or having regard to any legal or practical restrictions or obligations under
the laws of, or the requirement of, any recognised regulatory body or any stock exchange in any
territory applicable to the Company) and an offer, allotment or issue of shares by way of rights shall
be construed accordingly.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTICE OF ANNUAL GENERAL MEETING
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119
7. THAT the Board be authorised to increase the registered capital of the Company to reflect the issue of
shares in the Company authorised under special resolution numbered 6, and to make such appropriate
and necessary amendments to the Articles of Association of the Company as they think fit to reflect
such increases in the registered capital of the Company and to take any other action and complete any
formality required to effect such increase in the registered capital of the Company.
By Order of the Board
China Telecom Corporation Limited
Chu Ka Yee
Company Secretary
Beijing, China
8 April 2016
Notes:
(1)
(2)
(3)
(4)
(5)
(6)
The H Share Register of Members of the Company will be closed, for the purpose of determining shareholders’ entitlement to
attend the annual general meeting, from 25 April 2016 to 25 May 2016 (both days inclusive), during which period no transfer of
shares will be registered. In order to attend the annual general meeting, all share transfers, accompanied by the relevant share
certificates, must be lodged for registration with Computershare Hong Kong Investor Services Limited at Shops 1712–16, 17th
Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not later than 4:30 p.m. on Friday, 22 April 2016. Holders
of H Shares who are registered with Computershare Hong Kong Investor Services Limited on 25 May 2016 are entitled to attend
the annual general meeting.
The Board of Directors of the Company has recommended a final dividend of HK$0.095 per share (pre-tax) for the year ended
31 December 2015 and, if such proposed dividend distribution set out in resolution numbered 2 is approved by the shareholders,
the final dividend will be distributed to those shareholders whose names appear on the Register of Members of the Company on
Monday, 6 June 2016. The Register of Members will be closed from Wednesday, 1 June 2016 to Monday, 6 June 2016 (both days
inclusive). In order to be entitled to the final dividend, holders of H Shares who have not registered the transfer documents are
required to deposit the transfer documents together with the relevant share certificates at Computershare Hong Kong Investor
Services Limited, at Shops 1712–16, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong at or before 4:30
p.m. on Tuesday, 31 May 2016.
Each shareholder entitled to attend and vote at the annual general meeting may appoint one or more proxies to attend and vote
on his behalf at the annual general meeting. A proxy need not be a shareholder. Each shareholder who wishes to appoint one or
more proxies should read through the 2015 annual report.
To be valid, the form of proxy together with the power of attorney or other authorisation document (if any) signed by the
authorised person or notarially certified power of attorney must be delivered to the General Affairs Office of the Company (for
holders of domestic shares) and to the Computershare Hong Kong Investor Services Limited (for holders of H Shares) not less than
24 hours before the designated time for the holding of the annual general meeting. The General Affairs Office of the Company is
located at 31 Jinrong Street, Xicheng District, Beijing 100033, PRC. (Telephone: (8610) 6642 8166). Computershare Hong Kong
Investor Services Limited is located at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. Completion
and return of a form of proxy will not preclude a shareholder from attending in person and voting at the annual general meeting
if he so wishes.
Shareholders intending to attend the annual general meeting shall return the attendance slip via hand delivery, mail or fax to the
General Affairs Office of the Company (for holders of domestic shares) and to the Computershare Hong Kong Investor Services
Limited (for holders of H Shares) on or before 4 May 2016.
Shareholders attending the annual general meeting in person or by proxy shall present their proof of identity. If the attending
shareholder is a corporation, its legal representative or person authorised by the board of directors or other decision making
authority shall present a copy of the relevant resolution of the board of directors or other decision making authority in order to
attend the annual general meeting.
(7)
All resolutions proposed at the annual general meeting will be voted by poll.
(8)
(9)
The annual general meeting is expected to last for half a day and shareholders (in person or by proxy) attending the annual
general meeting shall be responsible for their own transport and accommodation expenses.
Shareholders are advised to call the Company’s hotline at (852) 2877 9777 or browse the Company’s website
(www.chinatelecom-h.com) for the latest arrangements of the annual general meeting in the event that a Typhoon Signal
No. 8 (or above) or a Black Rainstorm Warning Signal is hoisted on the day of the annual general meeting.
FINANCIAL
STATEMENTS
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
INDEPENDENT AUDITOR’S REPORT
I
A
121
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 (collectively referred to as the “Group”) set out on pages 122 to 193,
which comprise the consolidated statement of financial position as at 31 December 2015, the consolidated
statement of comprehensive income, consolidated statement of changes in equity and 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 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
and to report our opinion solely to you, as a body, in accordance with our agreed terms of engagement,
and for no other purpose. We do not assume responsibility towards or accept liability to any other person
for the contents of this 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 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 financial position
of the Group as at 31 December 2015, and of its performance and cash flows for the year then ended
in accordance with International Financial Reporting Standards and have been properly prepared in
compliance with the disclosure requirements of the Hong Kong Companies Ordinance.
Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
23 March 2016
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
C
S F
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 December 2015 (Amounts in millions)
122
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
Short-term bank deposits
Cash and cash equivalents
Total current assets
Total assets
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 finance lease obligations
Current portion of deferred revenues
Total current liabilities
Net current liabilities
Total assets less current liabilities
31 December
2015
RMB
31 December
2014
RMB
Note
5
6
7
8
10
11
12
20
13
14
15
16
17
17
18
19
20
373,981
69,103
23,609
29,920
10,739
34,473
1,624
4,655
3,349
551,453
6,281
105
21,105
16,229
2,519
31,869
78,108
372,876
53,181
24,410
29,917
8,984
4,106
972
3,232
4,053
501,731
4,225
1,360
21,562
10,581
1,379
20,436
59,543
629,561
561,274
51,636
84
118,055
82,934
2,154
38
1,028
255,929
43,976
82
88,458
72,442
307
–
1,060
206,325
(177,821)
(146,782)
373,632
354,949
The notes on pages 128 to 193 form part of these consolidated financial statements.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 December 2015 (Amounts in millions)
C
S F
123
Non-current liabilities
Long-term debt and payable
Finance lease obligations
Deferred revenues
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital
Reserves
Total equity attributable to equity holders of the
Company
Non-controlling interests
Total equity
Total liabilities and equity
31 December
2015
RMB
31 December
2014
RMB
Note
17
20
12
21
22
64,830
81
1,454
2,061
455
68,881
62,494
–
798
1,125
424
64,841
324,810
271,166
80,932
222,852
303,784
967
304,751
629,561
80,932
208,251
289,183
925
290,108
561,274
Approved and authorised for issue by the Board of Directors on 23 March 2016.
Yang Jie
Executive Director, President and
Chief Operating Officer
Ke Ruiwen
Executive Director and
Executive Vice President
The notes on pages 128 to 193 form part of these consolidated financial statements.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CI
for the year ended 31 December 2015 (Amounts in millions, except per share data)
CS
124
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
Gain from Tower Assets Disposal
Net finance costs
Investment income
Share of (losses)/profits of associates
Profit before taxation
Income tax
Profit for the year
Other comprehensive income for the year
Items that may be reclassified subsequently to
profit or loss:
Change in fair value of available-for-sale equity securities
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 of associates
Other comprehensive income for the year, net of tax
Note
23
2015
RMB
2014
RMB
331,202
324,394
24
25
26
27
2
28
29
(67,664)
(81,240)
(54,472)
(52,541)
(48,843)
(66,345)
(68,651)
(62,719)
(50,653)
(47,518)
(304,760)
(295,886)
26,442
5,214
(4,273)
8
(698)
26,693
(6,551)
20,142
652
(163)
129
3
621
28,508
–
(5,291)
6
34
23,257
(5,498)
17,759
(54)
14
3
(3)
(40)
Total comprehensive income for the year
20,763
17,719
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)
20,054
88
20,142
20,675
88
20,763
0.25
80,932
17,680
79
17,759
17,640
79
17,719
0.22
80,932
34
34
The notes on pages 128 to 193 form part of these consolidated financial statements.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2015 (Amounts in millions)
CS
CE
125
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
Total
equity
RMB
Balance as at 1 January 2014
80,932
17,064
10,746
67,392
Profit for the year
Other comprehensive income
Total comprehensive income
Distribution to non-controlling
interests
Dividends
Appropriations
33
22
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,680
Balance as at 31 December 2014
80,932
17,064
10,746
69,072
Profit for the year
Other comprehensive income
Total comprehensive income
Acquisition of non-controlling
interests
Contribution from non-controlling
interests
Distribution to non-controlling
interests
Dividends
Appropriations
33
22
–
–
–
–
–
–
–
–
–
–
–
(1)
87
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,901
427
–
(43)
(43)
–
–
–
384
–
492
492
–
–
–
–
–
(944)
102,124
277,741
923
278,664
–
3
3
–
–
–
17,680
–
17,680
(40)
17,680
17,640
–
(6,198)
(1,680)
–
(6,198)
–
79
–
79
(77)
–
–
17,759
(40)
17,719
(77)
(6,198)
–
(941)
111,926
289,183
925
290,108
–
129
129
20,054
–
20,054
621
20,054
20,675
–
–
–
–
–
–
–
(1)
87
–
(6,160)
(1,901)
–
(6,160)
–
88
–
88
(6)
40
(80)
–
–
20,142
621
20,763
(7)
127
(80)
(6,160)
–
Balance as at 31 December 2015
80,932
17,150
10,746
70,973
876
(812)
123,919
303,784
967
304,751
The notes on pages 128 to 193 form part of these consolidated financial statements.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
CONSOLIDATED STATEMENT OF CASH FLOWS
CF
for the year ended 31 December 2015 (Amounts in millions)
CS
126
Note
(a)
(b)
(c)
Net cash from operating activities
Cash flows used in investing activities
Capital expenditure
Lease prepayments
Purchase of investments
Proceeds from disposal of property, plant and equipment
Proceeds from disposal of lease prepayments
Proceeds from disposal of Investments
Purchase of short-term bank deposits
Maturity of short-term bank deposits
Net cash used in investing activities
Cash flows from/(used in) financing activities
Principal element of finance lease payments
Proceeds from bank and other loans
Repayment of bank and other loans
Payment of dividends
Payment for the acquisition of non-controlling interests
Contribution from non-controlling interests
Payment of the acquisition price of the Seventh Acquisition
Net cash distributions to non-controlling interests
Net cash from/(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
2015
RMB
108,750
(101,898)
(124)
(10)
755
58
2
(3,764)
2,731
(102,250)
(14)
67,875
(56,862)
(6,160)
(7)
127
–
(150)
4,809
11,309
20,436
124
31,869
2014
RMB
96,405
(80,273)
(184)
(2,990)
710
121
–
(2,566)
3,474
(81,708)
(1)
53,022
(56,819)
(6,198)
–
–
(278)
(53)
(10,327)
4,370
16,070
(4)
20,436
The notes on pages 128 to 193 form part of these consolidated financial statements.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2015 (Amounts in millions)
CS
CF
127
(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
Impairment losses for long-lived assets
Write down of inventories
Investment income
Share of losses/(profits) of associates
Interest income
Interest expense
Foreign exchange loss/(gain)
Net loss on retirement and disposal of long-lived assets
Gain from Tower Assets Disposal
Operating profit before changes in working capital
Increase in accounts receivable
(Increase)/decrease in inventories
Increase in prepayments and other current assets
Increase 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
2015
RMB
26,693
67,664
2,231
51
147
(8)
698
(375)
4,573
75
1,573
(5,214)
98,108
(1,778)
(2,199)
(5,854)
(87)
22,156
7,119
(417)
117,048
375
(4,601)
27
(4,099)
108,750
2014
RMB
23,257
66,345
2,084
–
151
(6)
(34)
(304)
5,650
(55)
2,287
–
99,375
(3,594)
2,280
(2,359)
(2)
6,473
6,571
(573)
108,171
305
(5,693)
29
(6,407)
96,405
(b) Major non-cash transaction: The Company completed the disposal of certain telecommunications
towers and related assets and injecting cash to China Tower Corporation limited (“China Tower”) in
return for new shares issued by China Tower on 31 October 2015. The cash injection was not paid
by 31 December 2015, therefore the transaction has no impact on the consolidated statement of
cash flows for the year ended 31 December 2015.
(c) The Seventh Acquisition represents the acquisition of the 100% equity interest in China Telecom
(Europe) Limited, a wholly owned subsidiary of China Telecommunications Corporation, by China
Telecom Global Limited (“CT Global”, a subsidiary of the Company) from China Telecommunications
Corporation on 31 December 2013.
The notes on pages 128 to 193 form part of these consolidated financial statements.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
N
FS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
128
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, telecommunication network resource services
and lease of network equipment, value-added services, integrated information application services
and other related services. The Group provides wireline telecommunications services and related
services in Beijing Municipality, Shanghai Municipality, Guangdong Province, Jiangsu Province,
Zhejiang Province, Anhui Province, Fujian Province, Jiangxi Province, Guangxi Zhuang Autonomous
Region, Chongqing Municipality, Sichuan Province, Hubei Province, Hunan Province, Hainan
Province, Guizhou Province, Yunnan Province, Shaanxi Province, Gansu Province, Qinghai Province,
Ningxia Hui Autonomous Region and Xinjiang Uygur Autonomous Region of the People’s Republic
of China (the “PRC”). Following the acquisition of Code Division Multiple Access (“CDMA”) mobile
telecommunications business in October 2008, the Group also provides mobile telecommunications
and related services in the mainland China and Macau Special Administrative Region (“Macau”)
of the PRC. The Group also provides international telecommunications services, including lease of
network equipment, International Internet access and transit, and Internet data centre service in
certain countries of the Asia Pacific, Europe, Africa, South America and North America regions. The
operations of the Group in the mainland China are subject to the supervision and regulation by the
PRC government.
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”).
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
129
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”), 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”). The Company disposed the equity interest in E-surfing Media Co., Ltd. to China
Telecommunications Corporation in 2013.
On 30 April 2012, the Company acquired the digital trunking business (the “Sixth Acquired
Business”) from Besttone Holding Co., Ltd., a subsidiary of China Telecommunications Corporation,
at a purchase price of RMB48 million (hereinafter, referred to as the “Sixth Acquisition”).
On 31 December 2013, the subsidiary of the Company, CT Global acquired 100% equity interest
in China Telecom (Europe) Limited (“CT Europe” or the “Seventh Acquired Company”), a wholly
owned subsidiary of China Telecommunications Corporation, from China Telecommunications
Corporation for a total purchase price of RMB278 million (hereinafter, referred to as the “Seventh
Acquisition”), and was paid by 30 June 2014.
Hereinafter, the First Acquired Group, the Second Acquired Group, the Third Acquired Group, the
Fourth Acquired Company, the Fifth Acquired Group, the Sixth Acquired Business and the Seventh
Acquired Company are collectively referred to as the “Acquired Groups”.
Basis of presentation
Since the Group and the Acquired Groups are under common control of China Telecommunications
Corporation, the Group’s acquisitions of the Acquired Groups have been accounted for as a
combination of entities under common control in a manner similar to a pooling-of-interests.
Accordingly, the assets and liabilities of these entities have been accounted for at historical amounts
and the consolidated financial statements of the Group prior to the acquisitions are combined
with the financial statements of the Acquired Groups. The considerations for the acquisition of
the Acquired Groups are accounted for as an equity transaction in the consolidated statement of
changes in equity.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
N
FS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
130
1. Principal Activities, Organisation and Basis of Presentation (continued)
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.
2. Disposal of Certain Telecommunications Towers and Related Assets
On 11 July 2014, the Company, China United Network Communications Corporation Limited
(“CUCL”) and China Mobile Communication Company Limited entered into an agreement to establish
China Tower. Pursuant to the agreement, the Company, CUCL and China Mobile Communication
Company Limited each subscribed for 2.99 billion shares, 3.01 billion shares and 4.00 billion
shares of the China Tower, respectively in cash at a par value of RMB1.00 per share, representing
a shareholding percentage of 29.9%, 30.1% and 40.0%, respectively. The China Tower primarily
engages in the construction, maintenance and operation of telecommunications towers, and also
engages in the construction, maintenance and operation of ancillary facilities such as control rooms,
power supply systems and air conditioning systems of base stations, etc. and indoor distribution
systems as well as the provision of outsourcing maintenance services for base station equipment.
On 14 October 2015, the Company, China Mobile Communication Company Limited and related
subsidiaries (together, “China Mobile”), CUCL and Unicom New Horizon Telecommunications
Company Limited (together, “China Unicom”), China Reform Holding Company Limited (“CRHC”)
and China Tower entered into a transfer agreement (the “Transfer Agreement”). Pursuant to the
Transfer Agreement, the Company sold certain telecommunications towers and related assets
(“Tower Assets”) to China Tower (hereinafter referred to as “Tower Assets Disposal”) and injected
cash to China Tower in return for new shares (the “Consideration Shares”) issued by China Tower.
China Mobile and China Unicom also sold certain telecommunications towers and related assets to
China Tower in return for new shares issued by China Tower and for cash; and CRHC made cash
subscription for new shares issued by China Tower.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
131
2. Disposal of Certain Telecommunications Towers and Related Assets
(continued)
The Tower Assets Disposal was completed on 31 October 2015 (“Completion Date”). The final
consideration amount of the Tower Assets Disposal was determined as RMB30.131 billion. China
Tower issued 33.097 billion Consideration Shares to the Company at an issue price of RMB1.00 per
share under the Transfer Agreement in return for the Tower Assets and RMB2.966 billion cash (“Cash
Consideration”) from the Company. The Cash Consideration was paid in February 2016.
Upon the issuance of the Consideration Shares by China Tower, the Company, China Unicom, China
Mobile and CRHC hold 27.9%, 28.1%, 38.0% and 6.0% of the share capital of China Tower,
respectively.
The Tower Assets Disposal was recognised as an assets disposal. The Company realised a gain (subject
to deduction of relevant expenses and taxes) from the Tower Assets Disposal, which was calculated
based on the surplus of the final consideration amount for the Tower Assets Disposal over the
book value of the Tower Assets as at the Completion Date as set out below. As the Company held
27.9% of the share capital of China Tower, only 72.1% of the aforesaid gain was recognised at the
Completion Date and the remaining 27.9% of the aforesaid gain is deferred over the remaining useful
life of the Tower Assets.
Final consideration amount of the Tower Assets Disposal
Less: Book value of the Tower Assets:
Property, plant and equipment, net
Construction in progress
Net other assets and liabilities
Total book value of the Tower Assets
Less: Relevant expenses and taxes
Total gain from the Tower Assets Disposal
Less: Deferred gain
Gain recognised at the Completion Date of the Tower Assets Disposal
Note
RMB millions
5
6
30,131
18,365
2,959
1,403
22,727
173
7,231
2,017
5,214
3. Significant Accounting Policies
(a) Basis of preparation
The accompanying consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”). The consolidated 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.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
N
FS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
132
3. Significant Accounting Policies (continued)
(a) Basis of preparation (continued)
The provisions of the new Hong Kong Companies Ordinance (Cap 622) regarding the
preparation of accounts and audit report became effective for the Group for the financial year
ended 31 December 2015. The disclosure requirements set out in the Rules Governing Listing
of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”) regarding annual
accounts have been amended with reference to the new Hong Kong Companies Ordinance.
Accordingly, the presentation and disclosure of information in the consolidated financial
statements for the financial year ended 31 December 2015 have been changed to comply with
these new requirements. Comparative information in respect of the financial year ended 31
December 2014 are presented or disclosed in the consolidated financial statements based on
the new requirements. Information previously required to be disclosed under the predecessor
Hong Kong Companies Ordinance or Listing Rules but not under the new Hong Kong
Companies Ordinance or amended Listing Rules are not disclosed in the consolidated financial
statements.
The consolidated financial statements are prepared on the historical cost basis as modified by
the revaluation of certain available-for-sale equity securities at fair value (Note 3(l)).
The preparation of consolidated financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the application
of policies and the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. The estimates and associated
assumptions are based on historical experience and various other factors that management
believes are reasonable under the circumstances, the results of which form the basis of making
the judgments about carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are 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
consolidated financial statements and major sources of estimation uncertainty are discussed in
Note 42.
(b) Basis of consolidation
The consolidated financial statements comprise the Company and its subsidiaries and the
Group’s interests in associates.
A subsidiary is an entity controlled by the Company. When fulfilling the following conditions,
the Company has control over an entity: (a) has power over the investee, (b) has exposure, or
rights, to variable returns from its involvement with the investee, and (c) has the ability to use
its power over the investee to affect the amount of the investor’s returns.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
133
3. Significant Accounting Policies (continued)
(b) Basis of consolidation (continued)
When assessing whether the Company has power over that entity, only substantive rights (held
by the Company and other parties) are considered.
The financial results of subsidiaries are included in the consolidated financial statements from
the date that control commences until the date that control ceases, and the profit attributable
to non-controlling interests is separately presented on the face of the consolidated statement
of comprehensive income as an allocation of the profit or loss for the year between the
non-controlling interests and the equity holders of the Company. Non-controlling interests
represent the equity in subsidiaries not attributable directly or indirectly to the Company.
For each business combination, the Group measures the non-controlling interests at the
proportionate share, of the acquisition date, of fair value of the subsidiary’s net identifiable
assets. Non-controlling interests at the end of the reporting period are presented in the
consolidated statement of financial position within equity and consolidated statement of
changes in equity, separately from the equity of the Company’s equity holders. Changes in
the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as
equity transactions, whereby adjustments are made to the amounts of controlling and non-
controlling interests within consolidated equity to reflect the change in relative interests, but
no adjustments are made to goodwill and no gain or loss is 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 a joint venture.
An associate is an entity, not being a subsidiary, in which the Group exercises significant
influence, but not control, over its management. Significant influence is the power to
participate in the financial and operating policy decisions of the investee but is not control or
joint control over those policies.
An investment in an associate is accounted for in the consolidated financial statements under
the equity method and is initially recorded at cost, adjusted for any excess of the Group’s share
of the acquisition-date fair values of the investee’s net identifiable assets over the cost of the
investment (if any) after reassessment. Thereafter, the investment is adjusted for the Group’s
equity share of the post-acquisition changes in the associate’s net assets and any impairment
loss relating to the investment. When the Group ceases to have significant influence over an
associate, it is accounted for as a disposal of the entire interest in that investee, with a resulting
gain or loss being 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.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
N
FS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
134
3. Significant Accounting Policies (continued)
(c) Foreign currencies
The accompanying consolidated financial statements are presented in Renminbi (“RMB”).
The functional currency of the Company and its subsidiaries in mainland China is RMB. The
functional currency of the Group’s foreign operations is the currency of the primary economic
environment in which the foreign operations operate. Transactions denominated in currencies
other than the functional currency during the year are translated into the functional currency at
the applicable rates of exchange prevailing on the transaction dates. Foreign currency monetary
assets and liabilities are translated into the functional currency using the applicable exchange
rates at the end of the reporting period. The resulting exchange differences, other than those
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 the
Group’s foreign operations are translated into RMB at average rate prevailing during the year.
Assets and liabilities of the Group’s foreign operations are translated into RMB at the foreign
exchange rates ruling at the end of the reporting period. The resulting exchange differences
are 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) Accounts and other receivables
Accounts 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(n)) unless the effect of discounting would be immaterial, in which case they are stated at cost
less allowance for doubtful debts.
(f)
Inventories
Inventories consist of materials and supplies used in maintaining the telecommunications
network and goods for resale. Inventories are valued at cost using the specific identification
method or the weighted average cost method, less a provision for obsolescence.
Inventories are stated at the lower of cost or net 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.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
135
3. Significant Accounting Policies (continued)
(g) Property, plant and equipment
Property, plant and equipment are initially recorded at cost, less subsequent accumulated
depreciation and impairment losses (Note 3(n)). The cost of an asset comprises its purchase
price, any directly attributable costs of bringing the asset to working condition and location
for its intended use and the cost of borrowed funds used during the periods of construction.
Expenditure incurred after the asset has been put into operation, including cost of replacing
part of such an item, is 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 2015, no asset was held by the Group
under finance leases (2014: RMB18 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 respective 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.
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136
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(n)). 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 7) acquisition.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to
cash-generating units and is tested annually for impairment (Note 3(n)). On disposal of a cash
generating unit during the year, any attributable amount of the goodwill is included in the
calculation of the profit or loss on disposal.
(k)
Intangible assets
The Group’s intangible assets are computer software.
Computer software that is not an integral part of any tangible assets, is recorded at cost less
subsequent accumulated amortisation and impairment losses (Note 3(n)). Amortisation of
computer software is calculated on a straight-line basis over the estimated useful lives, which
mainly range from three to five years.
(l)
Investments
Investments in available-for-sale equity securities are carried at fair value with any change in
fair value being recognised in other comprehensive income and accumulated separately in
equity. For investments in available-for-sale equity securities, a significant or prolonged decline
in the fair value of that investment below its cost is considered to be objective evidence of
impairment. When these investments are derecognised or impaired, the cumulative gain
or loss previously recognised in other comprehensive income is recognised in profit or loss.
Investments in unlisted equity securities that do not have a quoted market price in an active
market and whose fair value cannot be reliably measured are stated at cost less impairment
losses (Note 3(n)).
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
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137
3. Significant Accounting Policies (continued)
(m) Operating lease charges
Where the Group has the use of assets held under operating leases, payments made under the
leases are charged to profit or loss in equal installments over the accounting periods covered
by the lease term, except where an alternative basis is more representative of the pattern of
benefits to be derived from the leased asset. Lease incentives received are 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.
(n)
Impairment
(i)
Impairment of accounts and other receivables and investments in equity
securities carried at cost
Accounts and other receivables and investments in equity securities carried at cost are
reviewed at the end of each reporting period to determine whether there is objective
evidence of impairment. Objective evidence of impairment includes observable data that
comes to the attention of the Group about one or more of the following loss events:
–
–
–
–
significant financial difficulty of the debtor or issuer;
a breach of contract, such as a default or delinquency in interest or principal
payments;
it becoming probable that the debtor will enter bankruptcy or other financial
reorganisation; and
significant changes in the technological, market, economic or legal environment
that have an adverse effect on the debtor/issuer.
The impairment loss for accounts and other receivables is measured as the difference
between the asset’s carrying amount and the estimated future cash flows, discounted
at the financial asset’s original effective interest rate where the effect of discounting is
material, and is recognised as an expense in profit or loss.
The impairment loss for investments in equity securities carried at cost is measured as
the difference between the asset’s carrying amount and the estimated future cash flows,
discounted at the current market rate of return for a similar financial asset where the
effect of discounting is material, and is recognised as an expense in profit or loss.
Impairment losses for accounts and other receivables are reversed through profit or loss if
in a subsequent period the amount of the impairment losses decreases. Impairment losses
for equity securities carried at cost are not reversed.
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for the year ended 31 December 2015
138
3. Significant Accounting Policies (continued)
(n)
Impairment (continued)
(ii)
Impairment of long-lived assets
The carrying amounts of the Group’s long-lived assets, including property, plant and
equipment, intangible assets with finite useful lives and construction in progress are
reviewed periodically to determine whether there is any indication of impairment.
These assets are tested for impairment whenever events or changes in circumstances
indicate that their recorded carrying amounts may not be recoverable. For goodwill, the
impairment testing is performed annually at each year end.
The recoverable amount of an asset or cash-generating unit is the greater of its fair value
less costs of disposal and value in use. When an asset does not generate cash flows
largely independent of those from other assets, the recoverable amount is determined
for the smallest group of assets that generates cash inflows independently (i.e. a cash-
generating unit). In determining the value in use, expected future cash flows generated
by the assets are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of time value of money and the risks specific to
the asset for which the estimates of future cash flows have not been adjusted. The
goodwill arising from a business combination, for the purpose of impairment testing, is
allocated to cash-generating units that are expected to benefit from the synergies of the
combination.
An impairment loss is 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. An impairment loss in respect of goodwill is not reversed. For the years
presented, no reversal of impairment loss was recognised in profit or loss.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
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139
3. Significant Accounting Policies (continued)
(o) 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.
From 2012 onwards, since the amounts of fees received and the associated direct costs
incurred are insignificant, the fees and associated direct costs are not deferred, and are
recognised 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.
(v)
Revenue derived from value-added services is recognised 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)
ii)
iii)
The Group is primarily responsible for providing the applications or services desired
by customers, and takes responsibility for fulfillment of ordered applications or
services, including the acceptability of the applications or services ordered or
purchased by customers;
The Group takes title of the inventory of the applications before they are ordered
by customers;
The Group has risks and rewards of ownership, such as risks of loss for collection
from customers after applications or services are provided to customers;
iv)
The Group has latitude in establishing selling prices with customers;
v)
The Group can modify the applications or perform part of the services;
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for the year ended 31 December 2015
140
3. Significant Accounting Policies (continued)
(o) Revenue recognition (continued)
vi)
The Group has discretion in selecting suppliers used to fulfill an order; and
vii)
The Group determines the nature, type, characteristics, or specifications of the
applications or services.
If majority of the indicators of risks and responsibilities exist in the arrangements with
third parties, the Group is acting as a principal and 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 recognised on a gross basis. If majority of the indicators of
risks and responsibilities do not exist in the arrangements with third parties, the Group is
acting as an agent, and revenues for these services are recognised on a net basis.
(vi) Revenue from the provision of Internet and telecommunications network resource
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.
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 recognises 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 recognised based upon the actual usage of such services.
During each of the years in the two-year period ended 31 December 2015, a substantial
portion of the total contract consideration is allocated to the provision of telecommunications
services since the terminal equipment is typically provided free of charge or at a nominal
amount to promote the Group’s core business of the provision of telecommunications
services, and the fair value of the telecommunication services approximates the total contract
consideration.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
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141
3. Significant Accounting Policies (continued)
(p) Advertising and promotion expense
The costs for advertising and promoting the Group’s telecommunications services are expensed
as incurred. Advertising and promotion expense, which is included in selling, general and
administrative expenses, was RMB19,291 million for the year ended 31 December 2015
(2014: RMB26,122 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 RMB11,620 million for the year ended 31
December 2015 (2014: RMB15,340 million).
(q) Net finance costs
Net finance costs comprise interest income on bank deposits, interest costs on borrowings,
and foreign exchange gains and losses. Interest income from bank deposits is 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.
(r) Research and development expense
Research and development expenditure is expensed as incurred. For the year ended 31
December 2015, research and development expense was RMB792 million (2014: RMB607
million).
(s) Employee benefits
The Group’s contributions to defined contribution retirement plans administered by the PRC
government and defined contribution retirement plans administered by independent external
parties are recognised in profit or loss as incurred. Further information is set out in Note 40.
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 41.
(t) Government grants
The Group’s government grants are mainly related to the government loans with below-market
rate of interest.
Government grants shall only be recognised until there is reasonable assurance that:
(i)
the Group will comply with all the conditions attaching to them; and
(ii)
the grants will be received.
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for the year ended 31 December 2015
142
3. Significant Accounting Policies (continued)
(t) Government grants (continued)
Government grants that compensate expenses incurred are recognised in the consolidated
statement of comprehensive income in the same periods in which the expenses are incurred.
Government grants relating to assets are recognised in deferred revenue and are credited to
the consolidated statement of comprehensive income on a straight-line basis over the expected
lives of the related assets.
(u)
Interest-bearing borrowings
Interest-bearing borrowings are 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) Accounts and other payables
Accounts 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) Value-added tax
Output VAT rate for basic telecommunications services (including voice communication,
lease or sale of network resources) is 11% while the output VAT rate for value-added
telecommunications services (including Internet access services, short and multimedia
messaging services, transmission and application service of electronic data and information)
is 6%, and the output VAT for sales of telecommunications terminals and equipment is 17%.
Input VAT rate depends on the type of services received and the assets purchased as well as
the VAT rate applicable to a specific industry, and ranges from 3% to 17%.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
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143
3. Significant Accounting Policies (continued)
(x) Value-added tax (continued)
Output VAT is excluded from operating revenues while input VAT is excluded from operating
expenses or the original cost of equipment purchased and can be netted against the output
VAT, arriving at the net amount of VAT recoverable or payable. As the VAT obligations are
borne by branches and subsidiaries of the Company, input and output VAT are set off at
branches and subsidiaries levels, which are not offset at the consolidation level. Such net
amount of VAT recoverable or payable is recorded in the line items of prepayments and
other current assets and accrued expenses and other payables, respectively, on the face of
consolidated statement of financial position.
(y)
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, or directly in equity, in which case the relevant
amounts of tax are recognised in other comprehensive income or directly in equity respectively.
Current tax is the expected tax payable on the taxable income for the year, using tax rates
enacted or substantively enacted at the end of the reporting period, and any adjustment to tax
payable in respect of previous years. Deferred tax is provided using the balance sheet liability
method, providing for all temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and their tax bases. The amount of deferred tax is
calculated on the basis of the enacted or substantively enacted tax rates that are expected to
apply in the period when the asset is 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.
Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred
tax liabilities are recognised for taxable temporary differences associated with investments
in subsidiaries and associates, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future.
(z) Dividends
Dividends are recognised as a liability in the period in which they are declared.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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for the year ended 31 December 2015
144
3. Significant Accounting Policies (continued)
(aa) Related parties
(a) A person, or a close member of that person’s family, is related to the Group if that
person:
(i)
has control or joint control over the Group;
(ii)
has significant influence over the Group; or
(iii)
is a member of the key management personnel of the Group or the Group’s parent.
(b) An entity is related to the Group if any of the following conditions applies:
(i)
(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.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
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145
3. Significant Accounting Policies (continued)
(ab) Segmental reporting
An operating segment is a component of an entity that engages in business activities from
which revenues are earned and expenses are incurred, and is identified on the basis of the
internal financial reports that are regularly reviewed by the chief operating decision maker in
order to allocate resource and assess performance of the segment. For the periods presented,
management has determined that the Group has one operating segment as the Group is only
engaged in the integrated telecommunications business. The Group’s assets located outside
mainland China and operating revenues derived from activities outside mainland China are less
than 10% of the Group’s assets and operating revenues, respectively. No geographical area
information has been presented as such amount is immaterial. No single external customer
accounts for 10 percent or more of the Group’s operating revenues.
4. Application of Revised International Financial Reporting Standards
In the current year, the Group has applied, for the first time, the following amendments to IFRS issued
by the IASB that are mandatorily effective for the current year:
•
•
•
Amendments to International Accounting Standard (“IAS”) 19, “Defined Benefit Plans:
Employee Contributions”
Annual Improvements to IFRSs 2010–2012 Cycle
Annual Improvements to IFRSs 2011–2013 Cycle
The application of the above amendments to IFRSs has had no material effect on the Group’s
consolidated financial statements.
In addition, the Group has applied the amendments to IAS 27, “Equity Method in Separate Financial
Statements” that are not yet mandatorily effective but allow early adoption for the current year.
The amendments allow an entity to account for investments in subsidiaries, joint ventures and
associates in its separate financial statements:
•
•
•
at cost;
in accordance with IFRS 9 (or IAS 39 for entities that have not yet adopted IFRS 9); or
using the equity method as described in IAS 28, “Investments in Associates and Joint
Ventures”.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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for the year ended 31 December 2015
146
4. Application of Revised International Financial Reporting Standards
(continued)
The same accounting must be applied to each category of investments.
The amendments will be effective for annual periods beginning on or after 1 January 2016 with
earlier application permitted.
As a result of the early adoption of the amendments to IAS 27, the Company has changed the
accounting for investment in joint ventures and associates in its separate financial statements
from using cost method to equity method as described in IAS 28 “Investment in Associates and
Joint Ventures”, and has retrospectively adjusted the amounts reported for previous periods in the
respective separate financial statements.
The following table summarises the retrospective adjustments that have been made in accordance
with the early adoption of the amendments to IAS 27 to the Company’s separate financial
statements:
Increase on items of statement of financial position
Assets
Interests in associates
Equity
Retained earnings
The Company
31 December
2014
RMB millions
1 January
2014
RMB millions
411
411
405
405
Except for the early adoption of the amendments to IAS 27, the Group has not yet applied any other
new and revised standard that is not yet effective for the current year (Note 43).
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
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147
5. Property, Plant and Equipment, Net
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
95,411
835,860
726
2,661
(642)
(2)
98,154
509
3,161
(3,646)
(732)
13
97,459
1,254
57,880
(74,688)
67
820,373
883
79,569
(29,221)
(51,994)
(353)
819,257
28,346
703
1,497
(1,670)
(65)
28,811
733
1,738
(121)
(1,894)
340
29,607
959,617
2,683
62,038
(77,000)
–
947,338
2,125
84,468
(32,988)
(54,620)
–
946,323
(40,505)
(524,863)
(19,908)
(585,276)
(4,735)
592
2
(55,687)
71,351
(7)
(2,266)
1,559
5
(62,688)
73,502
–
Cost/Deemed cost:
Balance at 1 January 2014
Additions
Transferred from construction in progress
Disposals
Reclassification
Balance at 31 December 2014
Additions
Transferred from construction in progress
Tower Assets Disposal (Note 2)
Other disposals
Reclassification
Balance at 31 December 2015
Accumulated depreciation and impairment:
Balance at 1 January 2014
Depreciation charge for the year
Written back on disposals
Reclassification
Balance at 31 December 2014
(44,646)
(509,206)
(20,610)
(574,462)
Depreciation and impairment charge
for the year
Written back on Tower Assets Disposal
(Note 2)
Written back on other disposals
Reclassification
(4,662)
(56,862)
(2,332)
(63,856)
1,520
697
(11)
13,051
48,869
133
52
1,787
(122)
14,623
51,353
–
Balance at 31 December 2015
(47,102)
(504,015)
(21,225)
(572,342)
Net book value at 31 December 2015
Net book value at 31 December 2014
50,357
53,508
315,242
311,167
8,382
8,201
373,981
372,876
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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for the year ended 31 December 2015
148
6. Construction in Progress
Balance at 1 January 2014
Additions
Transferred to property, plant and equipment
Transferred to intangible assets
Balance at 31 December 2014
Additions
Tower Assets Disposal (Note 2)
Transferred to property, plant and equipment
Transferred to intangible assets
Balance at 31 December 2015
RMB millions
44,157
74,585
(62,038)
(3,523)
53,181
107,762
(2,959)
(84,468)
(4,413)
69,103
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
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149
7. Goodwill
Cost:
Goodwill arising from acquisition of CDMA business
2015
RMB millions
2014
RMB millions
29,920
29,917
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 Limited
and China Unicom Corporation Limited (collectively “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.
For the purpose of goodwill impairment testing, the goodwill arising from the acquisition of CDMA
business was allocated to the appropriate cash-generating unit of the Group, which is the Group’s
telecommunications business. The recoverable amount of the Group’s telecommunications business is
estimated based on the value in use model, which considers the Group’s financial budgets covering
a five-year period and a pre-tax discount rate of 9.7% (2014: 10.3%). Cash flows beyond the five-
year period are projected to perpetuity at annual growth rate of 1.5%. Management performed
impairment tests for the goodwill at the end of the reporting period and determined that goodwill
was not impaired. Management believes any reasonably possible change in the key assumptions
on which the recoverable amount is based would not cause its recoverable amount to be less than
carrying amount.
Key assumptions used for the value in use calculation model are the number of subscribers, average
revenue per subscriber and gross margin. Management determined the number of subscribers,
average revenue per subscriber and gross margin based on historical trends and financial information
and operational data.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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for the year ended 31 December 2015
150
8.
Intangible Assets
Cost:
Balance at 1 January 2014
Additions
Transferred from construction in progress
Disposals
Balance at 31 December 2014
Additions
Transferred from construction in progress
Disposals
Balance at 31 December 2015
Accumulated amortisation and impairment:
Balance at 1 January 2014
Amortisation charge for the year
Written back on disposals
Balance at 31 December 2014
Amortisation charge for the year
Written back on disposals
Balance at 31 December 2015
Net book value at 31 December 2015
Net book value at 31 December 2014
Computer
software
RMB millions
18,091
378
3,523
(239)
21,753
511
4,413
(376)
26,301
(10,046)
(2,923)
200
(12,769)
(3,093)
300
(15,562)
10,739
8,984
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
151
9.
Investments in Subsidiaries
Details of the Company’s subsidiaries which principally affected the results, assets and liabilities of
the Group at 31 December 2015 are as follows:
Name of company
Type of
legal entity
Date of
incorporation
Place of
incorporation
and operation
Registered/
Issued capital
(in RMB millions
unless otherwise
stated)
Principal 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
HK$168 million
Administrative Region
of the PRC
Provision of international
value-added network
services
China Telecom (Americas)
Limited Company
22 November 2001
The United States of
US$43 million
Provision of
Corporation
America
telecommunications
services
350
Provision of Best Tone
information services
Limited Company
15 August 2007
PRC
China Telecom Best Tone
Information Service
Co., Limited
China Telecom (Macau)
Company Limited
Limited Company
15 October 2004
Macau Special
MOP60 million
Provision of
Administrative Region
of the PRC
telecommunications
services
Tianyi Telecom Terminals
Limited Company
1 July 2005
PRC
500
Sales of telecommunications
Company Limited
China Telecom (Singapore)
Limited Company
5 October 2006
Singapore
Pte. Limited
terminals
S$1
Provision of international
value-added network
services
E-surfing Pay Co., Ltd
Limited Company
3 March 2011
PRC
300
Provision of e-commerce
services
Shenzhen Shekou
Limited Company
5 May 1984
PRC
91
Provision of
Telecommunications
Company Limited
China Telecom (Australia)
Limited Company
10 January 2011
Australia
AUD1 million
Pty Ltd
telecommunications
services
Provision of international
value-added network
services
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152
9.
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
Technology (Vietnam)
Co., Ltd
Limited Company
9 July 2012
Vietnam
VND6,300 million
Principal activity
Provision of international
value-added network
services
Provision of international
value-added network
services
Provision of international
value-added network
services
iMUSIC Culture & Technology
Limited Company
9 June 2013
PRC
Co., Ltd.
250
Provision of music production
and related information
services
China Telecom (Europe) Limited
Limited Company
2 March 2006
The United Kingdom
of Great Britain and
Northern Ireland
GBP16.15 million
Provision of international
value-added network
services
Zhejiang Yixin Technology
Limited Company
19 August 2013
PRC
11
Provision of instant messenger
Co., Ltd.
Chengdu E-store Technology
Limited Company
17 June 2014
PRC
Co., Ltd
service
45
Provision of software
technology
Except for Shenzhen Shekou Telecommunications Company Limited which is 51% owned by the
Company and Zhejiang Yixin Technology Co., Ltd. which is 65% owned by the Company, all of the
above subsidiaries are directly or indirectly wholly-owned by the Company. No subsidiaries of the
Group have material non-controlling interest.
10. Interests in Associates
Unlisted equity investments, at cost
Share of post-acquisition changes in net assets
2015
RMB millions
2014
RMB millions
36,325
(1,852)
34,473
3,219
887
4,106
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
153
10. Interests in Associates (continued)
The Group’s interests in associates are accounted for under the equity method. Details of the
Group’s principal associates are as follows:
Name of company
Attributable
equity interest
Principal activities
China Tower Corporation Limited
27.9% Construction, maintenance and
Shanghai Information Investment
Incorporation
operation of telecommunications
towers as well as ancillary facilities
24.0% Provision of information technology
consultancy services
The above associates are established in the PRC and are not traded on any stock exchange.
Summarised financial information of the Group’s principal associates and reconciled to the carrying
amounts of interests in associates in the Group’s consolidated financial statements are disclosed
below:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Operating revenues
Loss for the year
Other comprehensive income for the year
Total comprehensive income for the year
Dividend received from the associate
Reconciled to the Group’s interests in the associate
Net assets of the associate
Non-controlling interests of the associate
Group’s effective interest in the associate (Note 2)
Group’s share of net assets of the associate
Adjustment for the remaining balance of the deferred gain from
China Tower
Corporation Limited
2015
RMB millions
2014
RMB millions
38,586
231,793
47,717
96,535
10,325
(2,944)
–
(2,944)
–
126,127
–
27.9%
35,189
9,676
454
244
–
–
(114)
–
(114)
–
9,886
–
29.9%
2,956
the Tower Assets Disposal (Note 2)
(1,939)
–
Carrying amount of the associate in the consolidated financial
statements of the Group
33,250
2,956
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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for the year ended 31 December 2015
154
10. Interests in Associates (continued)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Operating revenues
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Dividend received from the associate
Reconciled to the Group’s interests in the associate
Net assets of the associate
Non-controlling interests of the associate
Group’s effective interest in the associate
Group’s share of net assets of the associate
Shanghai Information
Investment Incorporation
2015
RMB millions
2014
RMB millions
6,872
7,943
5,228
3,716
4,094
342
–
342
9
5,871
(1,850)
24.0%
965
6,309
7,773
4,887
3,680
3,740
236
–
236
10
5,515
(1,738)
24.0%
906
Carrying amount of the associate in the consolidated financial
statements of the Group
965
906
11. Investments
Available-for-sale equity securities
Other unlisted equity investments
2015
RMB millions
2014
RMB millions
1,597
27
1,624
945
27
972
Other unlisted equity investments mainly represent the Group’s various interests in PRC private
enterprises which are mainly engaged in the provision of information technology services and
Internet contents.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
155
12. Deferred Tax Assets and Liabilities
The components of deferred tax assets and deferred tax liabilities recognised in the consolidated
statement of financial position and the movements are as follows:
Assets
Liabilities
Net Balance
2015
RMB millions
2014
RMB millions
2015
RMB millions
2014
RMB millions
2015
RMB millions
2014
RMB millions
Provisions and impairment
losses, primarily for doubtful
debts
Property, plant and equipment
Deferred revenues and
installation costs
Available-for-sale equity
securities
1,291
3,174
190
–
1,156
1,788
288
–
Deferred tax assets/(liabilities)
4,655
3,232
–
(1,605)
(130)
(326)
(2,061)
–
(773)
(189)
(163)
(1,125)
1,291
1,569
60
(326)
2,594
1,156
1,015
99
(163)
2,107
Recognised in
consolidated
statement of
comprehensive
income
RMB millions
Balance at
1 January
2015
RMB millions
Balance at
31 December
2015
RMB millions
Provisions and impairment losses, primarily for
doubtful debts
Property, plant and equipment
Deferred revenues and installation costs
Available-for-sale equity securities
Net deferred tax assets
1,156
1,015
99
(163)
2,107
135
554
(39)
(163)
487
1,291
1,569
60
(326)
2,594
Recognised in
consolidated
statement of
comprehensive
income
RMB millions
Balance at
1 January
2014
RMB millions
Balance at
31 December
2014
RMB millions
Provisions and impairment losses, primarily for
doubtful debts
Property, plant and equipment
Deferred revenues and installation costs
Available-for-sale equity securities
Net deferred tax assets
1,071
1,247
155
(177)
2,296
85
(232)
(56)
14
(189)
1,156
1,015
99
(163)
2,107
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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for the year ended 31 December 2015
156
13. Inventories
Inventories represent:
Materials and supplies
Goods for resale
14. Accounts Receivable, Net
Accounts receivable, net, are analysed as follows:
2015
RMB millions
2014
RMB millions
1,236
5,045
6,281
789
3,436
4,225
Note
2015
RMB millions
2014
RMB millions
Accounts receivable
Third parties
China Telecom Group
Other telecommunications operators in the PRC
(i)
Less: Allowance for doubtful debts
Note:
22,766
492
782
24,040
(2,935)
21,105
22,853
329
858
24,040
(2,478)
21,562
(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
2015
RMB millions
2014
RMB millions
2,478
2,172
(1,715)
2,935
2,198
2,075
(1,795)
2,478
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
157
14. Accounts Receivable, Net (continued)
Ageing analysis of accounts receivable from telephone and Internet subscribers based on the billing
dates is as follows:
Current, within 1 month
1 to 3 months
4 to 12 months
More than 12 months
Less: Allowance for doubtful debts
2015
RMB millions
2014
RMB millions
10,001
2,181
1,821
731
14,734
(2,393)
12,341
11,273
2,600
1,865
660
16,398
(2,355)
14,043
Ageing analysis of accounts receivable from other telecommunications operators and enterprise
customers based on date of rendering of services is as follows:
Current, within 1 month
1 to 3 months
4 to 12 months
More than 12 months
Less: Allowance for doubtful debts
2015
RMB millions
2014
RMB millions
3,648
1,618
2,199
1,841
9,306
(542)
8,764
3,012
1,679
1,924
1,027
7,642
(123)
7,519
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
2015
RMB millions
2014
RMB millions
19,263
19,408
1,154
688
1,842
1,356
798
2,154
21,105
21,562
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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for the year ended 31 December 2015
158
15. Prepayments and Other Current Assets
Prepayments and other current assets represent:
Amounts due from China Telecom Group
Amounts due from China Tower
Amounts due from other telecommunications operators
in the PRC
Prepayments in connection with construction work and
equipment purchases
Prepaid expenses and deposits
Value-added tax recoverable
Other receivables
16. Cash and Cash Equivalents
Cash at bank and in hand
Time deposits with original maturity within three months
17. Short-Term and Long-Term Debt and Payable
Short-term debt comprises:
Loans from banks – unsecured
Super short-term commercial papers – unsecured
Other loans – unsecured
Loans from China Telecom Group – unsecured
Total short-term debt
2015
RMB millions
2014
RMB millions
732
1,789
375
2,119
3,622
3,797
3,795
818
–
414
1,895
3,398
1,072
2,984
16,229
10,581
2015
RMB millions
2014
RMB millions
30,916
953
31,869
18,660
1,776
20,436
2015
RMB millions
2014
RMB millions
5,361
33,995
182
12,098
51,636
5,399
18,997
182
19,398
43,976
The weighted average interest rate of the Group’s total short-term debt as at 31 December 2015
was 3.1% (2014: 5.1%) per annum. As at 31 December 2015, the Group’s loans from banks and
other loans bear interest at rates ranging from 3.9% to 5.6% (2014: 4.5% to 11.0%) per annum,
and are repayable within one year; as at 31 December 2015, super short-term commercial papers
bear interest at rates ranging from 2.1% to 3.0% (2014: 5.3% to 5.6%) per annum and were fully
repaid by March 2016; the loans from China Telecom Group bear interest at rates from 3.5% to 4.5%
(2014: 4.5%) per annum and are repayable within one year.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
159
17. Short-Term and Long-Term Debt and Payable (continued)
Long-term debt and payable comprises:
Bank loans – unsecured
Renminbi denominated (Note (i))
US Dollars denominated
Euro denominated
Other currencies denominated
Other loans – unsecured
Renminbi denominated
Amount due to China
Telecommunications
Corporation – unsecured
Deferred consideration of Mobile
Network Acquisition – Renminbi
denominated (Note (ii))
Total long-term debt and payable
Less: Current portion
Non-current portion
Interest rates and
final maturity
Interest rates ranging from
1.08% to 7.04% per
annum with maturities
through 2030
Interest rates ranging from
1.00% to 8.30% per
annum with maturities
through 2060
Interest rate of 2.30% per
annum with maturities
through 2032
2015
RMB millions
2014
RMB millions
2,463
10
470
491
261
349
9
3,203
1
15
865
1
61,710
61,710
64,914
62,576
(84)
64,830
(82)
62,494
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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for the year ended 31 December 2015
160
17. Short-Term and Long-Term Debt and Payable (continued)
Note:
(i)
The Group obtained long-term RMB denominated government loans with below-market interest rate ranging from 1.08%
to 1.20% per annum through banks, and recognised the loans at their fair value on initial recognition, and accreted the
discount to profit or loss using the effective interest rate method. The difference between the fair value and face value of
the loans was recognised as government grants in deferred revenue (Note 20).
(ii)
Represents the remaining balance of the deferred consideration payable to China Telecommunications Corporation
in respect of the acquisition of certain CDMA network assets and associated liabilities, which were held by China
Telecommunications Corporation through network branches located in 30 provinces, municipalities and autonomous
regions in the PRC (hereinafter referred to as the “Mobile Network Acquisition”). 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 rates for 2015 and 2016 are 5.11% and 4.00%,
respectively.
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 long-term debt and payable subsequent to 31 December
2015 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
2015
RMB millions
2014
RMB millions
84
61,832
206
206
224
2,362
64,914
82
82
61,792
71
71
478
62,576
The Group’s short-term and long-term debt and payable do not contain any financial covenants.
As at 31 December 2015, the Group had unutilised committed credit facilities amounting to
RMB128,839 million (2014: RMB130,488 million).
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
161
18. Accounts Payable
Accounts payable are analysed as follows:
Third parties
China Telecom Group
China Tower
Other telecommunications operators in the PRC
2015
RMB millions
2014
RMB millions
95,305
18,702
3,272
776
118,055
71,934
15,667
–
857
88,458
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 based on the due date is as follows:
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
19. Accrued Expenses and Other Payables
Accrued expenses and other payables represent:
2015
RMB millions
2014
RMB millions
21,486
18,624
19,430
58,515
118,055
17,783
11,678
14,825
44,172
88,458
Amounts due to China Telecom Group
Amounts due to China Tower
Amounts due to other telecommunications operators in
the PRC
Accrued expenses
Value-added tax payable
Customer deposits and receipts in advance
Dividend payable
Note
(i)
2015
RMB millions
2014
RMB millions
1,464
3,097
31
17,715
1,112
59,514
1
82,934
1,043
–
72
16,289
953
54,014
71
72,442
Note:
(i)
The amounts due to China Tower as at 31 December 2015 includes the cash injection amounting to RMB2,966 million
pursuant to the Transfer Agreement. The amount was paid in February 2016.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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for the year ended 31 December 2015
162
20. Deferred Revenues
Deferred revenues mainly represent the unearned portion of installation fees for wireline services
received from customers, the unused portion of calling cards, and the unamortised portion of
government grants (Note 17).
Balance at beginning of year
Additions for the year
– calling cards
– government grants
Reductions for the year
– amortisation of installation fees
– usage of calling cards
– amortisation of government grants
Balance at end of year
Representing:
– current portion
– non-current portion
2015
RMB millions
2014
RMB millions
1,858
600
1,041
1,641
(416)
(582)
(19)
2,482
1,028
1,454
2,482
2,431
547
–
547
(586)
(534)
–
1,858
1,060
798
1,858
Included in other assets are primarily capitalised direct costs associated with the installation of
wireline services. As at 31 December 2015, the unamortised portion of these costs was RMB560
million (2014: RMB818 million).
21. 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
2015
RMB millions
2014
RMB millions
67,055
13,877
80,932
67,055
13,877
80,932
All ordinary domestic shares and H shares rank pari passu in all material respects.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
163
22. Reserves
The Group
Capital
reserve
RMB
millions
(Note (i))
Share
premium
RMB
millions
Statutory
reserves
RMB
millions
(Note (iii))
Other
reserves
RMB
millions
(Note (ii))
Exchange
reserve
RMB
millions
Retained
earnings
RMB
millions
Total
RMB
millions
Balance as at 1 January 2014
Total comprehensive income
for the year
Dividends (Note 33)
Appropriations (Note (iii))
Balance as at 31 December 2014
Total comprehensive income
for the year
Acquisition of non-controlling
interests
Contribution from non-controlling
interests
Dividends (Note 33)
Appropriations (Note (iii))
17,064
10,746
67,392
–
–
–
–
–
–
–
–
1,680
17,064
10,746
69,072
–
(1)
87
–
–
–
–
–
–
–
–
–
–
–
1,901
427
(43)
–
–
384
492
–
–
–
–
(944)
102,124
196,809
3
–
–
17,680
(6,198)
(1,680)
17,640
(6,198)
–
(941)
111,926
208,251
129
20,054
20,675
–
–
–
–
–
(1)
–
(6,160)
(1,901)
87
(6,160)
–
Balance as at 31 December 2015
17,150
10,746
70,973
876
(812)
123,919
222,852
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22. Reserves (continued)
The Company
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 2014,
as previously reported
Change in accounting policy (Note 4)
Balance as at 1 January 2014, as restated
Total comprehensive income for the year,
as restated
Appropriations (Note (iii))
Dividends (Note 33)
Balance as at 31 December 2014,
as restated
Total comprehensive income for the year
Appropriations (Note (iii))
Dividends (Note 33)
Balance as at 31 December 2015
29,148
–
29,148
–
–
–
29,148
–
–
–
29,148
10,746
–
10,746
–
–
–
10,746
–
–
–
10,746
67,392
–
67,392
–
1,680
–
69,072
–
1,901
–
70,973
84,341
405
84,746
16,767
(1,680)
(6,198)
93,635
19,505
(1,901)
(6,160)
105,079
191,627
405
192,032
16,767
–
(6,198)
202,601
19,505
–
(6,160)
215,946
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
165
22. Reserves (continued)
Note:
(i)
Capital reserve of the Group mainly represents the sum of (a) the difference between the carrying amount of the
Company’s net assets and the par value of the Company’s shares issued upon its formation; and (b) the difference
between the consideration paid by the Group for the entities acquired, other than the Fifth Acquired Group, from China
Telecommunications Corporation as described in Note 1, which were accounted for as equity transactions as disclosed
in Note 1 to the consolidated financial statements, and the historical carrying amount of the net assets of these acquired
entities.
The difference between the consideration paid by the Group and the historical carrying amount of the net assets of the
Fifth Acquisition was recorded as a deduction of retained earnings.
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 2015, the net profit of the Company determined in accordance with the PRC Accounting
Standards for Business Enterprises and IFRS are the same. For the year ended 31 December 2015, the Company
transferred RMB1,901 million, being 10% of the year’s net profit, to this reserve. For the year ended 31 December 2014,
the Company transferred RMB1,680 million, being 10% of the year’s net profit determined in accordance with the IFRS.
The Company did not transfer any discretionary surplus reserve for the years ended 31 December 2015 and 2014.
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 of the Company’s retained earnings determined in accordance
with the PRC Accounting Standards for Business Enterprises and the amount determined in accordance with IFRS. As at 31
December 2015, the amount of retained earnings available for distribution was RMB105,079 million (2014: RMB93,635
million), being the amount determined in accordance with IFRS. Final dividend of approximately RMB6,461 million in
respect of the financial year 2015 proposed after the end of the reporting period has not been recognised as a liability in
the consolidated financial statements at the end of the reporting period (Note 33).
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166
23. 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
Telecommunications network resource services and
lease of network equipment
Others
Note:
Note
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
2015
RMB millions
2014
RMB millions
29,610
48,983
126,546
39,044
27,299
17,635
42,085
33,587
54,673
112,431
38,419
26,939
17,332
41,013
331,202
324,394
Before 1 June 2014, most of the Group’s operating revenues were subject to business tax levied at rates of 3%, relevant business
tax was set off against operating revenues. Pursuant to the Notice on Covering Telecommunications Industries under the VAT
Reform (Caishui [2014] No. 43) jointly issued by the Ministry of Finance and the State Administration of Taxation, from 1 June
2014, the pilot programme of replacing business tax with VAT is extended to cover the telecommunications industry. VAT is
excluded from operating revenues. With effect from 1 June 2014, the Group is no longer required to pay business tax of 3% on
telecommunications services.
(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 and etc.
(v)
Represent primarily the aggregate amount of fees charged to customers for Best Tone information services and IT services
and applications.
(vi)
Represent primarily the aggregate amount of fees charged to customers for the provision of telecommunications network
resource services and lease income from other domestic telecommunications operators and enterprise customers for the
usage of the Group’s telecommunications networks and equipment.
(vii)
Represent primarily revenue from sale, and repair and maintenance of equipment as well as the resale of mobile services
(MVNO).
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
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167
24. 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
Others
25. Personnel Expenses
Personnel expenses are attributable to the following functions:
Network operations and support
Selling, general and administrative
26. Other Operating Expenses
Other operating expenses consist of:
Interconnection charges
Cost of goods sold
Donations
Others
Note:
2015
RMB millions
2014
RMB millions
46,018
12,519
14,117
8,586
81,240
38,159
11,644
9,224
9,624
68,651
2015
RMB millions
2014
RMB millions
33,810
18,731
52,541
32,855
17,798
50,653
Note
(i)
(ii)
(iii)
2015
RMB millions
2014
RMB millions
12,329
34,963
18
1,533
48,843
12,483
33,836
23
1,176
47,518
(i)
Interconnection charges represent amounts incurred for the use of other domestic and foreign telecommunications
operators’ networks for delivery of voice and data traffic that originate from the Group’s telecommunications networks.
(ii)
Cost of goods sold primarily represents cost of telecommunications equipment sold.
(iii)
Others mainly include other surcharges related to VAT.
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168
27. Total Operating Expenses
Total operating expenses for the year ended 31 December 2015 were RMB304,760 million (2014:
RMB295,886 million) which include auditor’s remuneration in relation to audit and non-audit services
(excluding value-added tax) of RMB65 million and RMB2 million respectively (2014: RMB62 million
and RMB6 million).
28. 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
2015
RMB millions
2014
RMB millions
4,900
(327)
4,573
(375)
154
(79)
4,273
5,958
(308)
5,650
(304)
21
(76)
5,291
* Interest expense was capitalised in construction in progress
at the following rates per annum
3.5%–5.5%
4.5%–6.0%
29. 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
2015
RMB millions
2014
RMB millions
7,127
74
(650)
6,551
5,237
58
203
5,498
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
169
29. Income Tax (continued)
A reconciliation of the expected tax expense 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
Others
Note
2015
RMB millions
2014
RMB millions
26,693
23,257
(i)
(i)
(ii)
(iii)
(iv)
(v)
6,673
5,814
(400)
(25)
431
(75)
(53)
(248)
(31)
347
(243)
(141)
Actual income tax expense
6,551
5,498
Note:
(i)
Except for certain subsidiaries and branches which are mainly taxed at a preferential rate of 15%, the provision for
mainland China income tax is based on a statutory rate of 25% of the assessable income of the Company, its mainland
China subsidiaries and branches as determined in accordance with the relevant income tax rules and regulations of the
PRC.
(ii)
Income tax provisions of the Company’s subsidiaries in Hong Kong and Macau Special Administrative Regions of the PRC,
and in other countries are based on the subsidiaries’ assessable income and income tax rates applicable in the respective
tax jurisdictions which range from 12% to 38%.
(iii)
Amounts represent miscellaneous expenses in excess of statutory deductible limits for tax purposes.
(iv)
Amounts represent miscellaneous income which are not subject to income tax.
(v)
Amounts primarily represent tax deduction on prior year research and development expenses, losses on disposal of
property, plant and equipment approved by tax authorities and other tax benefits.
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170
30. Directors’ and Supervisors’ Remuneration
The following table sets out the remuneration of the Company’s Directors and Supervisors:
2015
Executive directors
Yang Jie
Zhang Jiping
Yang Xiaowei
Sun Kangmin
Ke Ruiwen
Wang Xiaochu1
Chang Xiaobing2
Wu Andi3
Non-executive director
Zhu Wei
Independent non-executive
directors
Tse Hau Yin
Cha May Lung
Xu Erming
Wang Hsuehming
Supervisors
Sui Yixun4
Tang Qi
Zhang Jianbin
Hu Jing
Ye Zhong4
Shao Chunbao5
Du Zuguo6
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
–
–
–
–
–
–
–
–
–
407
203
200
203
–
–
–
–
–
–
–
160
143
136
143
136
111
53
34
–
–
–
–
–
104
184
166
98
–
23
–
426
385
378
378
378
373
53
284
–
–
–
–
–
131
450
438
338
–
22
–
84
80
79
80
75
58
27
24
–
–
–
–
–
42
68
68
63
–
12
–
1,013
1,491
4,034
760
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
670
608
593
601
589
542
133
342
–
407
203
200
203
277
702
672
499
–
57
–
7,298
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
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171
30. Directors’ and Supervisors’ Remuneration (continued)
1
2
3
4
5
6
7
8
Mr. Wang Xiaochu resigned as an executive director of the Company on 24 August 2015.
Mr. Chang Xiaobing was appointed as an executive director of the Company on 23 October 2015 and resigned as an
executive director of the Company on 30 December 2015.
Madam Wu Andi retired as an executive director of the Company on 10 February 2015.
Mr. Sui Yixun and Mr. Ye Zhong was appointed as supervisors of the Company on 27 May 2015.
Mr. Shao Chunbao resigned as a supervisor of the Company on 18 February 2015.
Mr. Du Zuguo resigned as a supervisor of the Company on 12 March 2015.
The independent non-executive directors’ remuneration were for their services as directors of the Company.
The remuneration of all Directors and Supervisors were calculated based on their respective actual terms of office within
this year.
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for the year ended 31 December 2015
172
30. Directors’ and Supervisors’ Remuneration (continued)
2014
Executive directors
Wang Xiaochu
Yang Jie
Wu Andi
Zhang Jiping
Yang Xiaowei
Sun Kangmin
Ke Ruiwen
Non-executive directors
Zhu Wei1
Xie Liang1
Independent non-executive
directors
Tse Hau Yin
Cha May Lung
Xu Erming
Wang Hsuehming2
Qin Xiao2
Wu Jichuan2
Supervisors
Shao Chunbao
Tang Qi
Zhang Jianbin
Hu Jing
Du Zuguo
Independent supervisor
Zhu Lihao3
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
–
–
–
–
–
–
–
–
–
394
197
200
114
82
–
–
–
–
–
–
42
1,029
340
340
296
296
296
296
296
–
–
–
–
–
–
–
–
296
199
157
97
–
–
2,909
479
479
431
423
423
431
423
–
–
–
–
–
–
–
–
416
466
406
327
–
–
4,704
93
92
87
89
88
88
77
–
–
–
–
–
–
–
–
70
68
65
58
–
–
875
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
912
911
814
808
807
815
796
–
–
394
197
200
114
82
–
782
733
628
482
–
42
9,517
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
173
30. Directors’ and Supervisors’ Remuneration (continued)
1
2
3
4
5
Mr. Xie Liang retired as a Non-executive Director of the Company on 29 May 2014. Mr. Zhu Wei was appointed as a Non-
executive Director of the Company on 29 May 2014.
Mr. Qin Xiao and Mr. Wu Jichuan retired as Independent Non-executive Directors of the Company on 29 May 2014.
Madam Wang Hsuehming was appointed as an Independent Non-executive Director of the Company on 29 May 2014.
Madam Zhu Lihao retired as an independent supervisor of the Company on 29 May 2014.
The independent non-executive directors’ remuneration were for their services as directors of the Company.
The remuneration of all Directors and Supervisors were calculated based on their respective actual terms of office within
this year.
31. 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 2015
and 2014 were directors of the Company.
The aggregate of the emoluments in respect of the five (2014: five) individuals (non-directors)
are as follows:
Salaries, allowances and benefits in kind
Discretionary bonuses
Retirement scheme contributions
2015
RMB
thousands
2014
RMB
thousands
6,042
9,087
22
15,151
7,869
2,532
244
10,645
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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for the year ended 31 December 2015
174
31. Individuals With Highest Emoluments and Senior Management
Remuneration (continued)
(a) Five highest paid individuals (continued)
The emoluments of the five (2014: five) 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
above RMB2,500,000
2015
Number of
individuals
2014
Number of
individuals
–
–
2
2
1
–
–
2
3
–
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
2015
Number of
individuals
2014
Number of
individuals
22
–
–
1
23
–
–
1
32. Profit Attributable to Equity Holders of the Company
For the year ended 31 December 2015, the consolidated profit attributable to equity holders of
the Company includes a profit of RMB19,013 million which has been dealt with in the stand-alone
financial statements of the Company.
For the year ended 31 December 2014, the consolidated profit attributable to equity holders of
the Company includes a profit of RMB16,810 million which has been dealt with in the stand-alone
financial statements of the Company.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
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175
33. Dividends
Pursuant to a resolution passed at the Board of Directors’ meeting on 23 March 2016, a final
dividend of equivalent to HK$0.095 per share totaling approximately RMB6,461 million for the year
ended 31 December 2015 was proposed for shareholders’ approval at the annual general meeting.
The dividend has not been provided for in the consolidated financial statements for the year ended
31 December 2015.
Pursuant to the shareholders’ approval at the annual general meeting held on 27 May 2015, a final
dividend of RMB0.076120 (equivalent to HK$0.095) per share totaling RMB6,160 million in respect
of the year ended 31 December 2014 was declared and paid on 17 July 2015.
Pursuant to the shareholders’ approval at the annual general meeting held on 29 May 2014, a final
dividend of RMB0.076583 (equivalent to HK$0.095) per share totaling RMB6,198 million in respect
of the year ended 31 December 2013 was declared and paid on 18 July 2014.
34. Basic Earnings Per Share
The calculation of basic earnings per share for the years ended 31 December 2015 and 2014 is based
on the profit attributable to equity holders of the Company of RMB20,054 million and RMB17,680
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.
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176
35. Commitments and Contingencies
Operating lease commitments
The Group leases business premises and equipment through non-cancellable operating leases, and
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 2015 and 2014, the Group’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
Between 4 to 5 years
Thereafter
Total minimum lease payments
2015
RMB millions
2014
RMB millions
3,452
2,564
2,006
1,532
1,171
3,723
14,448
2,635
1,921
1,389
1,021
678
1,495
9,139
Total rental expense in respect of operating leases charged to profit or loss for the year ended 31
December 2015 was RMB10,331 million (2014: RMB7,779 million).
Capital commitments
As at 31 December 2015 and 2014, the Group had capital commitments as follows:
Contracted for but not provided
– property
– telecommunications network plant and equipment
2015
RMB millions
2014
RMB millions
403
9,745
10,148
422
6,743
7,165
Contingent liabilities
(a)
The Group was advised by their PRC lawyers that, no material contingent liabilities were assumed
by the Group.
(b) As at 31 December 2015 and 2014, 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.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
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177
35. Commitments and Contingencies (continued)
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.
36. Financial Instruments
Financial assets of the Group include cash and cash equivalents, bank deposits, investments, accounts
receivable, prepayments and other receivables. Financial liabilities of the Group include short-term
and long-term debt and payable, other non-current liabilities, accounts payable, accrued expenses
and other payables. The Group does not hold nor issue financial instruments for trading purposes.
(a) Fair Value Measurements
Based on IFRS 13, Fair Value Measurement, the fair value of each financial instrument is
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: fair values measured using quoted prices (unadjusted) in active markets for
identical financial instruments
Level 2: fair values measured using quoted prices in active markets for similar financial
instruments, or using valuation techniques in which all significant inputs are directly or
indirectly based on observable market data
Level 3: fair values measured using valuation techniques in which any significant input is
not based on observable market data
The fair values of the Group’s financial instruments (other than long-term debt and payable,
other non-current liabilities and available-for-sale equity investment securities) approximate
their carrying amounts due to the short-term maturity of these instruments.
The Group’s available-for-sale equity investment securities are categorised as level 1 financial
instruments. As at 31 December 2015, the fair value of the Group’s available-for-sale equity
investment securities are RMB1,597 million (2014: RMB945 million), respectively, based on
quoted market price on PRC stock exchanges. The Group’s long-term investments, other
than the available-for-sale equity investment securities, are unlisted equity interests for which
no quoted market prices exist in the PRC and because their fair values cannot be measured
reliably, so their fair values were not disclosed.
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178
36. Financial Instruments (continued)
(a) Fair Value Measurements (continued)
The fair values of long-term debt and payable and other non-current liabilities are estimated by
discounting future cash flows using current market interest rates offered to the Group for debt
with substantially the same characteristics and maturities. The fair value measurement of long-
term debt and payable and other non-current liabilities is categorised as level 2. The interest
rates used by the Group in estimating the fair values of long-term debt and payable and other
non-current liabilities, having considered the foreign currency denomination of the debt,
ranged from 1.0% to 4.9% (2014: 1.0% to 6.6%). As at 31 December 2015 and 2014, the
carrying amounts and fair values of the Group’s long-term debt and payable and other non-
current liabilities were as follows:
2015
Carrying
amount
RMB millions
Fair value
RMB millions
2014
Carrying
amount
RMB millions
Fair value
RMB millions
Long-term debt and
payable
Other non-current
liabilities
64,914
65,156
62,576
62,686
455
419
424
357
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 quantitative disclosures in respect of the Group’s exposure on credit
risk for accounts receivable are set out in Note 14.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
179
36. Financial Instruments (continued)
(b) Risks (continued)
(ii) Liquidity risk
Liquidity risk refers to the risk that funds will not be available to meet liabilities as they
fall due, and results from timing and amount mismatches of cash inflow and outflow.
The Group manages liquidity risk by maintaining sufficient cash balances and adequate
amount of committed banking facilities to meet its funding needs, including working
capital, principal and interest payments on debts, dividend payments, capital expenditures
and new investments for a set minimum period of between 3 to 6 months.
The following table sets out the remaining contractual maturities at the end of the
reporting period of the Group’s financial liabilities, which are based on contractual
undiscounted cash flows (including interest payments computed using contractual rates
or, if floating, based on prevailing rates at the end of the reporting period) and the
earliest date the Group would be required to repay:
2015
Total
contractual
undiscounted
cash flow
Within
1 year or
on demand
More than
1 year but
less than
2 years
More than
2 years but
less than
5 years
Carrying
amount
More than
5 years
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Short-term debt
Long-term debt and payable
Accounts payable
Accrued expenses and
other payables
Finance lease obligations
Other non-current liabilities
51,636
64,914
118,055
82,934
119
455
51,967
71,295
118,055
82,934
134
455
51,967
2,597
118,055
82,934
48
–
–
64,345
–
–
43
–
–
768
–
–
43
408
–
3,585
–
–
–
47
318,113
324,840
255,601
64,388
1,219
3,632
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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for the year ended 31 December 2015
180
36. Financial Instruments (continued)
(b) Risks (continued)
(ii) Liquidity risk (continued)
2014
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
Short-term debt
Long-term debt and payable
Accounts payable
Accrued expenses and
other payables
Other non-current liabilities
43,976
62,576
88,458
72,442
424
44,133
72,093
88,458
72,442
424
44,133
3,243
88,458
72,442
–
–
3,243
–
–
–
–
65,107
–
–
–
267,876
277,550
208,276
3,243
65,107
–
500
–
–
424
924
Management believes that the Group’s current cash on hand, expected cash flows from
operations and available credit facilities from banks (Note 17) will be sufficient to meet
the Group’s working capital requirements and repay its borrowings and obligations when
they become due.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
181
36. Financial Instruments (continued)
(b) Risks (continued)
(iii)
Interest rate risk
The Group’s interest rate risk exposure arises primarily from its short-term debt and long-
term debt and payable. Debts carrying interest at variable rates and at fixed rates expose
the Group to cash flow interest rate risk and fair value interest rate risk, respectively. The
Group manages its exposure to interest rate risk by closely monitoring the change in the
market interest rate.
The following table sets out the interest rate profile of the Group’s debt at the end of the
reporting period:
2015
Effective
interest rate
2014
Effective
interest rate
% RMB millions
% RMB millions
3.0
1.2
50,806
3,204
54,010
5.0
2.4
43,156
866
44,022
4.8
830
5.6
820
4.0
61,710
62,540
116,550
46.3%
5.1
61,710
62,530
106,552
41.3%
Fixed rate debt:
Short-term debt
Long-term debt
Variable rate debt:
Short-term debt
Deferred consideration
due to China
Telecommunications
Corporation (as defined
in Note 17)
Total debt
Fixed rate debt as a
percentage of total debt
As at 31 December 2015, it is estimated that an increase of 100 basis points in interest
rate, with all other variables held constant, would decrease the Group’s net profit for the
year and retained earnings by approximately RMB469 million (2014: RMB469 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 2014.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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FS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
182
36. Financial Instruments (continued)
(b) Risks (continued)
(iv) Foreign currency exchange rate risk
Foreign currency exchange rate risk arises on financial instruments that are denominated
in a currency other than the functional currency in which they are measured. The Group’s
foreign currency risk exposure relates to bank deposits and borrowings denominated
primarily in US dollars, Euros and Hong Kong dollars.
Management does not expect the appreciation or depreciation of the Renminbi against
foreign currencies will materially affect the Group’s financial position and result of
operations because 92.6% (2014: 93.1%) of the Group’s cash and cash equivalents and
99.4% (2014: 99.2%) of the Group’s short-term and long-term debt and payable as at
31 December 2015 are denominated in Renminbi. Details of bank loans denominated in
other currencies are set out in Note 17.
37. 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 2015, the Group’s total debt-to-total assets ratio
was 18.5% (2014: 19.0%), which is within the range of management’s expectation.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital
requirements.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
183
38. 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. These transactions
constitute continuing connected transactions under the Listing Rules and the Company has
complied with the relevant disclosure requirements under Chapter 14A of the Listing Rules.
Further details of these continuing connected transactions are disclosed under the paragraph
“Connected Transactions” in the Report of Directors.
Note
2015
RMB millions
2014
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
Property lease income
Property lease expenses
Net transaction amount of centralised services
Interconnection revenues
Interconnection charges
Internet applications channel services
Interest on amounts due to and loans from
China Telecom Group*
Lease of CDMA network facilities*
Lease of inter-provincial transmission optic fibres*
Lease of land use rights*
(i)
(i)
(ii)
(iii)
(iii)
(iv)
(v)
(vi)
(vi)
(vii)
(viii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
5,288
3,729
2,855
19,888
181
1,365
2,860
12,718
47
673
486
59
468
368
4,048
226
22
13
3,089
15,478
167
1,171
2,885
11,549
39
695
246
45
391
366
4,431
193
22
15
*
These transactions are conducted on normal commercial terms and are fully exempted from compliance with the
reporting, announcement, independent shareholders’ approval and/or annual review requirements either under
Rules 14A.76 or 14A.90 of the Listing Rules.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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FS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
184
38. 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 to and received from China Telecom Group.
(iv)
Represent amounts paid and payable to China Telecom Group in respect of cultural, educational, health care and
other community services.
(v)
Represent amounts paid and payable to China Telecom Group in respect of ancillary services such as repairs and
maintenance of telecommunications equipment and facilities and certain customer services.
(vi)
Represent amounts of property lease fee received and receivable from/paid and payable to China Telecom Group
for mutual leasing of properties.
(vii)
Represent net amount shared between the Company and China Telecom Group for costs associated with
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 amounts received and receivable from China Telecom Group in respect of Internet applications channel
services, including the provision of telecommunications channel and applications support platform and billing and
deduction services, etc.
(x)
Represent interest paid and payable to China Telecom Group with respect to the amounts due to China
Telecommunications Corporation and loans from China Telecom Group (Note 17).
(xi)
Represent amounts paid and payable to China Telecom Group primarily for lease of certain CDMA mobile
telecommunications network (“CDMA network”) facilities located in Xizang Autonomous Region.
(xii)
Represent amounts paid and payable to China Telecom Group for lease of certain inter-provincial transmission
optic fibres within its service regions.
(xiii)
Represent amounts paid and payable to China Telecom Group for leases of land use rights.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
185
38. 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
Total amounts due to China Telecom Group
2015
RMB millions
2014
RMB millions
492
732
1,224
18,702
1,464
12,098
61,710
93,974
329
818
1,147
15,667
1,043
19,398
61,710
97,818
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 17.
As at 31 December 2015 and 2014, no material allowance for doubtful debts was recognised
in respect of amounts due from China Telecom Group.
(b) Transactions with China Tower
The principal transactions with China Tower are as follows:
Tower Assets Disposal (Note 2)
Tower assets usage fee
Note:
Note
(i)
2015
RMB millions
2014
RMB millions
30,131
2,742
–
–
(i)
Represent amounts paid and payable to China Tower for the usage of telecommunications towers and related assets.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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FS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
186
38. Related Party Transactions (continued)
(b) Transactions with China Tower (continued)
Amounts due from/to China Tower are summarised as follows:
Prepayments and other current assets
Total amounts due from China Tower
Accounts payable
Accrued expenses and other payables
Total amounts due to China Tower
2015
RMB millions
2014
RMB millions
1,789
1,789
3,272
3,097
6,369
–
–
–
–
–
Amounts due from/to China Tower bear no interest, are unsecured and are repayable in
accordance with contractual terms which are similar to those terms offered by third parties.
As at 31 December 2015 and 2014, no material allowance for doubtful debts was recognised
in respect of amounts due from China Tower.
(c) Key management personnel compensation
Key management personnel are those persons having authority and responsibility for planning,
directing and controlling the activities of the Group, directly or indirectly, including directors
and supervisors of the Group.
Key management personnel compensation of the Group is summarised as follows:
Short-term employee benefits
Post-employment benefits
2015
RMB
thousands
9,859
916
10,775
2014
RMB
thousands
11,598
1,069
12,667
The above remuneration is included in personnel expenses.
(d) Contributions to post-employment benefit plans
The Group participates in various defined contribution post-employment benefit plans
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 40.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
187
38. Related Party Transactions (continued)
(e) Transactions with other government-related entities in the PRC
The Group is a government-related enterprise and operates in an economic regime currently
dominated by entities directly or indirectly controlled by the People’s Republic of China through
government authorities, agencies, affiliations and other organisations (collectively referred to as
“government-related entities”).
Apart from transactions with parent company and its fellow subsidiaries (Note 38(a)),
the Group has transactions that are collectively but not individually significant with other
government-related entities, which include but not limited to the following:
–
–
–
–
–
rendering and receiving services, including but not limited to telecommunications services
sales and purchases of goods, properties and other assets
lease of assets
depositing and borrowing
use of public utilities
These transactions are conducted in the ordinary course of the Group’s business on terms
comparable to the terms of transactions with other entities that are not government-related.
The Group prices its telecommunications services and products based on government-
regulated tariff rates, where applicable, or based on commercial negotiations. The Group has
also established procurement policies and approval processes for purchases of products and
services, which do not depend on whether the counterparties are government-related entities
or not.
The directors of the Company believe the above information provides appropriate disclosure of
related party transactions.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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FS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
188
39. Information About the Statement of Financial Position of the
Company
Information about the statement of financial position of the Company at the end of the reporting
period includes:
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
Short-term bank deposits
Cash and cash equivalents
Total current assets
Total assets
31 December
2015
RMB millions
Note
31 December
2014
RMB millions
(restated)
9
4
371,555
68,095
23,594
29,877
9,861
6,124
34,316
1,624
4,332
3,231
552,609
2,262
2
20,425
11,854
58
22,043
56,644
370,796
52,502
24,393
29,877
8,456
6,060
3,965
971
2,943
3,881
503,844
2,022
1,339
20,309
7,936
52
9,616
41,274
609,253
545,118
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
189
39. Information About the Statement of Financial Position of the
Company (continued)
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 finance lease obligations
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
Other non-current liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital
Reserves
Total equity
Total liabilities and equity
31 December
2015
RMB millions
Note
31 December
2014
RMB millions
(restated)
51,478
84
112,666
76,405
2,000
38
982
243,653
43,835
82
85,291
66,423
190
–
1,055
196,876
(187,009)
(155,602)
365,600
348,242
64,814
81
1,451
1,923
453
68,722
62,494
–
798
996
421
64,709
312,375
261,585
80,932
215,946
296,878
609,253
80,932
202,601
283,533
545,118
22
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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FS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
190
40. 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 14% to 21% of the salaries, bonuses and certain allowances of the employees. A member of
the plan is entitled to a pension equal to a fixed proportion of the salary prevailing at the member’s
retirement date. Other than the above, the Group also participates in supplementary defined
contribution retirement plans managed by independent external parties whereby the Group is
required to make contributions to the retirement plans at fixed rates of the employees’ salaries,
bonuses and certain allowances. The Group has no other material obligation for the payment of
pension benefits associated with these plans beyond the annual contributions described above.
The Group’s contributions for the above plans for the year ended 31 December 2015 were
RMB6,584 million (2014: RMB6,229 million).
The amount payable for contributions to the above defined contribution retirement plans as at 31
December 2015 was RMB791 million (2014: RMB669 million)
41. 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 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 33.3%, 66.7% and 100%, respectively, of the total stock
appreciation rights granted to such person.
During the year ended 31 December 2015 and 2014, no stock appreciation right units were
exercised. For the year ended 31 December 2015, compensation expense of RMB102 million was
reversed by the Group in respect of stock appreciation rights as a result of decline in share price of
the Company. For the year ended 31 December 2014, compensation expense of RMB130 million
was recognised by the Group in respect of stock appreciation rights.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
191
41. Stock Appreciation Rights (continued)
As at 31 December 2015, the carrying amount of the liability arising from stock appreciation
rights was RMB152 million (2014: RMB254 million). As at 31 December 2015, 908 million stock
appreciation right units vested but were not exercised, and 8.7 million stock appreciation right
units were forfeited. The carrying amount of the corresponding liability was RMB152 million. As at
31 December 2014, 609 million stock appreciation right units vested but were not exercised. The
carrying amount of the corresponding liability was RMB183 million.
42. 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.
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.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
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FS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
192
42. Accounting Estimates and Judgements (continued)
Impairment of long-lived assets
If circumstances indicate that the carrying amount of a long-lived asset may not be recoverable, the
asset may be considered “impaired”, and an impairment loss would be recognised in accordance
with accounting policy for impairment of long-lived assets as described in Note 3(n). The carrying
amounts of the Group’s long-lived assets, including property, plant and equipment, intangible assets
with finite useful lives and construction in progress are reviewed periodically to determine whether
there is any indication of impairment. These assets are tested for impairment whenever events or
changes in circumstances indicate that their recorded carrying amounts may not be recoverable.
For goodwill, the impairment testing is performed annually at the end of each reporting period.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and
fair value less costs of disposal. When an asset does not generate cash flows largely independent
of those from other assets, the recoverable amount is determined for the smallest group of assets
that generates cash inflows independently (i.e. a cash-generating unit). In determining the value in
use, expected future cash flows generated by the assets are discounted to their present value. An
impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds
its estimated recoverable amount. It is difficult to precisely estimate fair value of the Group’s long-
lived assets because quoted market prices for such assets may not be readily available. In determining
the value in use, expected future cash flows generated by the asset are discounted to their present
value, which requires significant 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 2015, provision for impairment losses of RMB51 million were made
against the carrying value of long-lived assets (2014 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 and intangible assets are depreciated and amortised on a straight-line
basis over the estimated useful lives of the assets, after taking into account their estimated residual
value. Management reviews the estimated useful lives and residual values of the assets annually in
order to determine the amount of depreciation and amortisation expense to be recorded during any
reporting period. The useful lives and residual values are based on the Group’s historical experience
with similar assets and take into account anticipated technological changes. The depreciation and
amortisation expense for future periods is adjusted if there are significant changes from previous
estimates.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2015
N
FS
193
43. Possible Impact of Amendments and New Standards Issued But Not
Yet Effective for the Annual Accounting Period Ended 31 December
2015
Up to the date of issue of the consolidated financial statements, the IASB has issued the following
amendments and new standards which are not yet effective and not early adopted for the annual
accounting period ended 31 December 2015:
Effective for
accounting period
beginning on or
after
Amendments to IFRS 11, “Accounting for Acquisitions of Interests in Joint
1 January 2016
Operations”
Amendments to IAS 1, “Disclosure Initiative”
Amendments to IAS 16 and IAS 38, “Clarification of Acceptable Methods of
1 January 2016
1 January 2016
Depreciation and Amortisation”
Amendments to IFRSs, “Annual Improvements to IFRSs 2012-2014 Cycle”
Amendments to IAS 16 and IAS 41, “Agriculture: Bearer Plants”
Amendments to IFRS 10, IFRS 12 and IAS 28, “Investment Entities:
Applying the Consolidation Exception”
IFRS 14, “Regulatory Deferral Accounts”
Amendments to IAS 7, “Disclosure Initiative”
Amendments to IAS 12, “Recognition of Deferred Tax Assets for
Unrealised Losses”
IFRS 9, “Financial Instruments”
IFRS 15, “Revenue from Contracts with Customers”
IFRS 16, “Leases”
Amendments to IFRS 10 and IAS 28, “Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture”
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2017
1 January 2017
1 January 2018
1 January 2018
1 January 2019
A date to be
determined
The Group is in the process of making an assessment of the impact that will result from adopting the
amendments and new standards issued by the IASB which are not yet effective for the accounting
period ended on 31 December 2015. Except for IFRS 15, “Revenue from Contracts with Customers”,
and IFRS 16, “Leases”, so far the Group believes that the adoption of these amendments and
new standards is unlikely to have a significant impact on its financial position and the results of
operations.
44. Parent and Ultimate Holding Company
The parent and ultimate holding company of the Group as at 31 December 2015 is China
Telecommunications Corporation, a state-owned enterprise established in the PRC.
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
FINANCIAL SUMMARY
(Amounts in millions, except per share data)
FS
194
Results of operation
Wireline voice
Mobile voice
Internet
Telecommunications network resource
services and lease of network equipment
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
Gain from Tower Assets Disposal
Net finance costs
Investment income
Share of (losses)/profits of associates
Profit before taxation
Income tax
Profit for the year
Other comprehensive income for the year
Items that may be reclassified subsequently to profit or loss:
Change in fair value of available-for-sale equity securities
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 of associates
Other comprehensive income for the year, net of tax
Year ended 31 December
2015
RMB
29,610
48,983
126,546
2014
RMB
33,587
54,673
112,431
17,635
17,332
108,428
–
331,202
67,664
81,240
54,472
52,541
48,843
304,760
26,442
5,214
(4,273)
8
(698)
26,693
(6,551)
20,142
652
(163)
129
3
621
106,371
–
324,394
66,345
68,651
62,719
50,653
47,518
295,886
28,508
–
(5,291)
6
34
23,257
(5,498)
17,759
(54)
14
3
(3)
(40)
2013
RMB
38,633
58,217
99,394
17,586
107,754
–
321,584
69,083
53,102
70,448
46,723
54,760
294,116
27,468
–
(5,153)
670
103
23,088
(5,422)
17,666
414
(104)
(79)
5
236
Total comprehensive income for the year
20,763
17,719
17,902
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
20,054
88
20,142
20,675
88
20,763
0.25
17,680
79
17,759
17,640
79
17,719
0.22
17,545
121
17,666
17,781
121
17,902
0.22
2012
RMB
43,369
49,166
87,662
15,737
87,242
–
283,176
49,666
65,979
63,099
42,857
40,367
261,968
21,208
–
(1,562)
93
78
19,817
(4,753)
15,064
(228)
57
(2)
–
(173)
14,891
14,949
115
15,064
14,776
115
14,891
0.18
2011
RMB
49,770
38,628
74,994
14,321
67,338
98
245,149
51,241
52,940
48,765
39,204
28,878
221,028
24,121
–
(2,254)
40
99
22,006
(5,416)
16,590
(205)
51
(105)
–
(259)
16,331
16,494
96
16,590
16,235
96
16,331
0.20
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
FINANCIAL SUMMARY
(Amounts in millions)
FS
195
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
As at 31 December of the year
2015
RMB
2014
RMB
2013
RMB
2012
RMB
2011
RMB
373,981
69,103
108,369
34,388
43,720
372,876
53,181
75,674
21,815
37,728
374,341
44,157
71,958
18,357
34,426
373,781
32,500
73,635
32,829
32,546
268,925
18,475
72,218
29,279
30,434
629,561
561,274
543,239
545,291
419,331
255,929
68,881
206,325
64,841
200,098
64,477
193,610
85,581
127,397
34,979
324,810
271,166
264,575
279,191
162,376
Total equity attributable to equity holders
of the Company
Non-controlling interests
Total equity
303,784
967
289,183
925
277,741
923
265,139
961
256,167
788
304,751
290,108
278,664
266,100
256,955
Total liabilities and equity
629,561
561,274
543,239
545,291
419,331
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
SHAREHOLDER INFORMATION
S
I
196
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
2015 share price
HK$ per H share
US$ per ADS
High
6.17
Low
3.36
Close
3.64
High
78.28
Low
43.58
Close
46.45
Number of issued shares: (as at 31 December 2015)
80,932,368,321
Market capitalization: (as at 31 December 2015)
HK$294.6 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 2015.
600
500
400
300
200
100
0
11/2002
China Telecom (+151%)
HSI (+122%)
MSCI (+57%)
11/2003
11/2004
11/2005
11/2006
11/2007
11/2008
11/2009
11/2010
11/2011
11/2012
11/2013
11/2014
12/2015
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
SHAREHOLDER INFORMATION
S
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Distribution of shares and shareholdings
The share capital of the Company as at 31 December 2015 was RMB80,932,368,321, divided into
80,932,368,321 shares of RMB1.00 each. As at 31 December 2015, 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 2015:
Name of shareholder
JPMorgan Chase & Co.
BlackRock, Inc.
UBS Group AG
Number of shares
1,546,282,942
1,193,143,254
884,575,547
The Bank of New York Mellon Corporation
834,090,669
Templeton Investment Counsel, LLC
694,050,154
Percentage of the
total number of
H shares in issue
(%)
11.14
8.60
6.37
6.01
5.00
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
SHAREHOLDER INFORMATION
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Dividend History
Financial Year
Ex-Dividend Date
Shareholder
Approval Date
Payment Date
2002 Final
2003 Final
2004 Final
2005 Final
2006 Final
2007 Final
2008 Final
2009 Final
2010 Final
2011 Final
2012 Final
2013 Final
2014 Final
2015 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
4 June 2014
1 June 2015
30 May 2016
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
29 May 2014
27 May 2015
25 May 2016
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
18 July 2014
17 July 2015
15 July 2016
Dividend
per Share
(HK$)
0.00837 *
0.065
0.065
0.075
0.085
0.085
0.085
0.085
0.085
0.085
0.085
0.095
0.095
0.095 **
*
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 25 May 2016.
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 2015
with the United States Securities and Exchange Commission by 30 April 2016.
2015 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 2014”. 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, WWF. 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 2015”, 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.
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
SHAREHOLDER INFORMATION
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Annual General Meeting
To be held at 11 a.m. on 25 May 2016 in Island Shangri-La Hong Kong
Registered office
Address: 31 Jinrong Street
Xicheng District
Beijing
PRC 100033
86 10 6642 8166
86 10 6601 0728
Tel:
Fax:
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 1712–1716, 17th Floor
Hopewell Centre
183 Queen’s Road East
Wanchai
Hong Kong
852 2862 8555
852 2865 0990
hkinfo@computershare.com.hk
Tel:
Fax:
Email:
CHINA TELECOM C OR P OR ATI ON LI M I TE D AN N UA L R EP O RT 2 0 15
SHAREHOLDER INFORMATION
S
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Any enquiries relating to ADSs, please contact the depositary:
ADS depositary
The Bank of New York Mellon
Address: Shareowner Services
P.O. Box 30170
College Station
TX 77842-3170
1-888-269-2377 (toll free in USA)
1-201-680-6825 (international)
shrrelations@cpushareownerservices.com
Tel:
Email:
CH I NA TELECO M CO RPO RAT IO N LI MI TED A N N UA L RE P O RT 2015
CORPORATE CULTURE
C C
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
China Telecom Corporation Limited
31 Jinrong Street, Xicheng District, Beijing, PRC, 100033
www.chinatelecom-h.com
Design and Production by: iOne Financial Press Limited
Website: www.ione.com.hk