Respect the earth. Printed on environmentally friendly paper using soy inksCHT annual report is available at http://www.cht.com.tw/en/ir/stockit-annualreport.htmlTaiwan Stock Exchange Market Observation Post System http://mops.twse.com.twPrinted on April 25, 2017Annual Report 2016 25.7%0250,000200,000150,000100,00050,000231,795226,609229,9910100,00080,00060,00040,00020,00076,32571,37864,952060,00048,00036,00024,00012,00042,85237,56741,6260504030201037.742.618.516.637.3%74.3%62.7%Operating and Financial Summary Source: Company data, MOTC , and NCC statistics.Note: (a) Financial data above are prepared in accordance with IFRSs.(b) Access circuits and PWLAN subscribers not included.(c) Including 2G, 3G and 4G. (d) Figures shown as of Dec. 2016.201520162014201520162014201520162014201520162014Other OperatorsChunghwa TelecomOther OperatorsChunghwa TelecomRevenues(a) (in million NT$)Operating Cash Flow(a) (in million NT$) Normal cash dividends payment from retained earningsCash distributions from captital surplusNet Income(a) (in million NT$)Cash Distribution (in billion NT$)Broadband Subscriber Market ShareMobile Subscriber Market Share(c)(d)(d)(b) Dear Shareholders,
Letter to Shareholders
During 2016, Chunghwa Telecom continued its stable and sustainable performance across all business lines while
advancing its future growth opportunities. The 4G mobile service market in Taiwan has entered into a mature
growth stage, which naturally resulted in slower user acquisition growth and successive promotional plans with
subdued pricing power in the industry. In Taiwan, we were the first operator to launch 3CA (Carrier Aggregation)
service, raising the data transmission speeds to 300Mbps to enhance mobile service quality and retain customers.
Our fixed broadband business experienced a slight decline in revenue due to the increasing competition from
Taiwanese cable operators. However, by promoting integrated digital convergence services to cater to customers’
needs, we have been able to successfully defend our market share. Additionally, we are delighted to see the
continued solid growth in our broadening ICT businesses with the growth of IoT and cloud applications across
different industries.
The launch of our cutting-edge cloud data center in Banqiao, New Taipei City marked a milestone for the
development of the digital economy in Taiwan. This world-class, highest-rated cloud data center will be the
cornerstone that drives the development of IoT, big data and cloud businesses and enable Taiwan to become the
information aggregating center for the Asia-Pacific region.
Financial Results
The consolidated total revenue of Chunghwa Telecom for the full year of 2016 was NT$230.0 billion,
representing a decrease of 0.8% as compared with the prior year. In particular, revenue of mobile value-added
services experienced healthy growth in 2016 driven by mobile internet user expansion and continuous 4G mobile
development, which effectively contributed to our mobile value-added service revenue. Further, our enterprise
ICT business continued to deliver strong performance and bring a new revenue stream to our overall business as
well. However, mobile voice business revenue declined as VoIP substitution and market competition continued
and mobile phone sales declined as a result of customers’ diminished motivation to replace their devices.
Consolidated cost for the full year 2016 remained stable at NT$181.4 billion as compared with the prior year.
The cost for ICT projects increased, which was offset by the decreased network interconnection costs and cost
of goods sold. Our CAPEX spending decreased significantly to NT$23.5 billion as compared with the budgeted
amount, which was mainly driven by our optimized review process and effective negotiations with vendors
during the procurement. As a result of the successful execution of our business strategies and our effective cost
control efforts, net income attributable to stockholders of the parent company was NT$40.1 billion, or NT$5.16
per share.
Our overall net reinvestment income was NT$1.2 billion in 2016. We are pleased at the successful listing of
Chunghwa Precision Test Tech. Co., Ltd., a subsidiary of Chunghwa Telecom focusing on test services for
semiconductor interface boards, on the Taipei Exchange in March 2016. Going forward, we will continue to
encourage our strong invested companies to explore strategic capital market options, which we believe will
ultimately enhance each company’s competitive advantages and the overall performance of Chunghwa Telecom.
Continued Leadership in Mobile Broadband Market
With the integration of the 2600 MHz frequency band which we acquired at the end of 2015 and the original 900
MHz and 1800 MHz bands, Chunghwa Telecom now owns the largest 130 MHz mobile broadband spectrum in
the industry. In order to boost the data transfer speed in high traffic areas and further develop our high frequency
capabilities, we put the 2600 MHz band to use in March 2016, which was proven to be a highly effective
strategic move in enhancing our communications quality and customer experience.
25.7%0250,000200,000150,000100,00050,000231,795226,609229,9910100,00080,00060,00040,00020,00076,32571,37864,952060,00048,00036,00024,00012,00042,85237,56741,6260504030201037.742.618.516.637.3%74.3%62.7%Operating and Financial Summary Source: Company data, MOTC , and NCC statistics.Note: (a) Financial data above are prepared in accordance with IFRSs.(b) Access circuits and PWLAN subscribers not included.(c) Including 2G, 3G and 4G. (d) Figures shown as of Dec. 2016.201520162014201520162014201520162014201520162014Other OperatorsChunghwa TelecomOther OperatorsChunghwa TelecomRevenues(a) (in million NT$)Operating Cash Flow(a) (in million NT$) Normal cash dividends payment from retained earningsCash distributions from captital surplusNet Income(a) (in million NT$)Cash Distribution (in billion NT$)Broadband Subscriber Market ShareMobile Subscriber Market Share(c)(d)(d)(b) As a step forward in moving to a tiered-pricing structure in the Taiwan market, we launched the Big 4G unlimited
plan with higher threshold in April 2016. However, due to the fierce competition and continued decrease in
pricing for unlimited data plans from peer companies, we experienced mobile customer loss. In response, we
launched competitive plans and optimized channel marketing activities to strengthen our customer retention and
enhance customer loyalty. As a result, we are pleased to have maintained our market leading position with 37.3%
market share of mobile subscribers as of the end of 2016.
Revenues of our mobile value-added service, excluding mobile internet and SMS, increasing 11.1% year
over year, primarily attributable to the consistent strong promotion of “Brilliant Hami Packages” that contain
KKBOX, Hami Pass, Hami TV, Hami Games and Hami Bookstore at affordable prices. Furthermore, the strong
growth momentum of mobile payment significantly drove up revenue of micropayment service, which increased
by 55.6% as compared with 2015.
Digital Convergence Services Catered to Customer Demand
In 2016, we further addressed the importance of product competitiveness in our broadband marketing activities.
We launched bundled digital convergence packages, which integrated our services of broadband, Wi-Fi, MOD/
OTT, as well as mobile and local fixed communications, to meet our customers’ demand on video, audio content
and home security. Additionally, we emphasize the wider-spectrum upstream bandwidth as our differentiated
advantage over our peers. On the other hand, in order to further streamline our marketing activities and optimize
network construction, we continued to leverage our capabilities in big data analysis and production-and-sales
analysis to capture insights in our customers’ behaviors, their evolving demands as well as market dynamics.
Therefore, we managed to only experience a slight decrease in the number of subscribers though we faced fierce
pricing competition from cable operators.
For our MOD service, we continued to promote the Subscription Video on Demand (SVOD) services in 2016.
We offered seven content categories, such as movies, drama and cartoon, to meet our customers’ demand for
a variety of content and attract more subscribers. By the end of 2016, we have successfully accumulated more
than 700,000 SVOD subscribers, representing a 52.9% year-over-year increase. The number of overall MOD
customers also increased to 1.33 million. Driven by the continuous improvement in our services and content
quality, our household TV usage rate achieved a new record high at 70% in 2016. In addition, in August 2016,
we cooperated with ELTA TV, the general agent of Rio Olympic Games in Taiwan, and obtained its exclusive
new media broadcasting rights. We leveraged our multi-screen display technology to broadcast the games on 14
HD channels and our CHT OTT Video app, and received 6.79 million and 20.28 million views on the Olympic
programs, respectively. These solid results brought in additional advertising revenues and reinforced our MOD
performance.
Rapidly Developed ICT and Innovative Businesses
ICT is the emerging businesses that Chunghwa Telecom has actively developed over the past several years. Our
key progresses are reflected in information security, Internet of Things (IoT), cloud computing, etc.
The importance of information security has attracted tremendous attention in the digital era. To address this
matter, Chunghwa Telecom built a highly experienced and dedicated team to serve our customers across different
industries such as finance, manufacturing, and information and communications, providing them with protection,
monitoring, investigation and post processing services. We have acquired over 300 enterprise customers, which
contributed significantly to our strong top-line growth in this area.
Smart and innovative applications, including smart transportation, smart green energy, intelligent security, smart
home and beyond, remain the core of our IoT development, which aims to build connected, smart cities. We
participated in the “4G-based Smart City Subsidization and Promotion Project” initiated by the Taiwan Ministry
of Economic Affairs, in which we cooperated with 15 city and county governments to apply 4G services to
transportation, cultural and innovative activities, as well as tourism and entertainment. We aim to leverage our
IoT technology to establish convenient and connected cities and LOHAS life style for the public.
Furthermore, Chunghwa Telecom continued to boost investments to further drive ICT growth in Taiwan. Our
cloud data center in Banqiao is a good example of this effort. Chunghwa Telecom allocated NT$13 billion
and a significant amount of other resources toward constructing the data center in accordance with stringent
international standards. The cloud data center in Banqiao is Taiwan’s first TIA-942 Rated 4 cloud data center. It
became the first choice for ICT and internet businesses in Asia-Pacific with its ability to rapidly connect Taiwan’s
network to international submarine cables. Given the world-class capability of this data center and Taiwan’s
geographic advantage, we aim to expand our partnerships with cross-border ICT and internet operators, which
we believe will enable Taiwan to become the information aggregating center for Asia-Pacific, and ultimately
revitalize Taiwan’s digital economy development.
R&D and Achievements
In 2016, Chunghwa Telecom’s research and development efforts covered key topics including convergence
services, the IoT, information security, big data, cloud computing, and intelligent broadband networks. We made
impressive progress in the following fields:
1)
Convergence Services: value-add communications services, intelligent interactive technologies,
location-based application technology, content convergence services, E-commerce, mobile lifestyle
apps, video convergence services;
2)
IoT: intelligent IoT service platform, driving behavioral analysis solutions, intelligent manufacturing
solutions, health cloud services;
3)
4)
5)
Information Security: identification solutions, enterprise APT defense solutions;
Big Data: big data operations, storage and analysis solutions;
Cloud Computing: virtual data center service solutions, integrated surveillance solutions of
information and communications equipment;
6)
Intelligent Broadband: LTE-WLAN aggregation solutions, site selection and resource allocation
solutions for telecom cloud stations, multiband carrier aggregation technology, VoIP four-in-one loading
process, intelligent data traffic forecast; and
7)
Core Technologies: 204 patents filed and 219 granted.
High Standards of Corporate Social Responsibility
Chunghwa Telecom is fully committed to corporate social responsibility. In order to realize our brand value of
“leading the way for our customers” and in the spirit of “the responsibility lies where values are created,” we
consistently strive to improve our business operations and CSR programs in order to build a sustainable and
prosperous community.
Our CSR footprint could be seen throughout Taiwan in 2016. When Typhoon Meranti and Typhoon Megi hit
in September, which caused tremendous damage across all of Taiwan, we immediately sent more than 4,000
employees into the area for emergency repair. They moved equipment into the disaster area and restlessly worked
to restore connections to ensure the people affected and the rescue staff can stay connected to the outside world. In addition, we
developed an app, “help open a new horizon”, for the visually impaired. The technology is able to convert images into voice,
which helps those who are visually impaired to hear the information and see the world in a different way. Over the past ten years,
the Chunghwa Telecom Foundation has built 76 “digital neighbors” for accessibility to telecommunication services. With our
deep industry expertise, we will grow with our community through culture, education, industry development, and beyond.
Looking forward, we will continue safeguarding people’s fundamental needs to communicate with one another by leveraging our
advantage on the comprehensive broadband network and expanding the availability of telecommunication services, even in the
remote areas of Taiwan. We will spare no effort in bridging the digital divide that exist between urban and rural communities and
leveling the digital playing field, in order to create more digital opportunities for people across Taiwan.
Awards
As a leading telecom operator, Chunghwa Telecom has always acted in accordance with the highest corporate governance
standards. We remain focused on meeting our customers’ demand and generating additional value for all of our stakeholders. We
are honored to have received many domestic and international recognitions that endorsed our values and efforts.
In 2016, the World Branding Forum released its winners for the 2016 to 2017 World Branding Awards, and Chunghwa Telecom
was bestowed with the Taiwan National Brand Award for the second time and was the only telecom winner from Taiwan.
The award was a testament of our exemplary performance in financial strength, marketing, public relations and community
engagement. Frost & Sullivan, a reputable international research organization, elected Chunghwa Telecom as the Taiwan LTE
Provider of the Year at its 2016 Best Practice Awards. Chunghwa Telecom was also the only telecom service provider in Greater
China that was included in the DJSI World and DJSI Emerging Markets Indexes for the fourth consecutive year. Further, we
received the highest award among “Trusted Brands” in the telecom category from Reader's Digest for the 12th year in a row,
which demonstrates customers’ trust in our innovative and compassionate services. In addition, Chunghwa Telecom received the
Yu Cheng Chairman and Chief Executive OfficerChi-Mau Sheih President Platinum Corporate Award for the fourth consecutive year from a reputable magazine, The Asset, which reflects our achievements
in earnings, management, governance, social and environmental responsibility, as well as investor relations.
The list goes on with many other awards that recognize our efforts in business development, customer service and social
responsibility. We are encouraged by these endorsements of our achievements and will continue to perform and deliver for all of
our stakeholders.
Future Outlook
In 2017, we will continue our broadband network construction and strengthen our foundation for mobile broadband, fixed-
line broadband, valued-added and ICT services. Additionally, we will further cross-sell our high-quality and diversified digital
convergence services to our customers, while launching promotional plans and closely monitoring our marketing efficiency to
further enhance our customer contribution and overall profitability. Given the importance of digital content in convergence service
offerings, we will reinforce our partnerships with content providers and channel operators, and proactively communicate with
regulators to relax related restrictions to help establish a fair competitive environment for cross-platform services.
Moreover, we will pursue the government’s new southbound development policy and explore opportunities to strengthen our
cooperation with companies in ASEAN countries in order to promote our products and services of information security, smart
homes, ICT and digital surveillance.
Finally, to capitalize on the tremendous opportunities in the digital era, Chunghwa Telecom will continue to invest in R&D,
and further develop our team and recruit the best talent. By integrating the abundant network and marketing resources, closely
cooperating with strategic partners, and continuously offering innovative products that cater to our customers’ demand, we are
confident that we can continue to lead the market, develop innovative product and solutions, and become the engine of the digital
economy. Rest assured, we remain committed to delivering additional value to our shareholders, customers, employees and society
at large.
Yu Cheng Chairman and Chief Executive OfficerChi-Mau Sheih President UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 20-F
_____________________
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT OF 1934
or
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
or
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
Date of event requiring this shell company report
For the transition period from ______________ to ____________
Commission file number 001-31731
________________________________
FORM 20-F
Chunghwa Telecom Co., Ltd.
_____________________
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT OF 1934
_____________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Exact name of Registrant as specified in its charter)
Chunghwa Telecom Co., Ltd.
(Translation of Registrant’s name into English)
Taiwan, Republic of China
(Jurisdiction of incorporation or organization)
21-3 Hsinyi Road, Section 1, Taipei, Taiwan, Republic of China
(Address of principal executive offices)
Fufu Shen
21-3 Hsinyi Road, Section 1, Taipei,
Taiwan, Republic of China
Tel: +886 2 2344-5488
Email: chtir@cht.com.tw
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
or
FORM 20-F
_____________________
For the fiscal year ended December 31, 2014
or
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT OF 1934
Securities registered or to be registered pursuant to Section 12(b) of the Act:
________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Title of each class
Name of each exchange on which registered
or
or
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Common Shares, par value NT$10 per share
American Depositary Shares, as evidenced by American
Depositary Receipts, each representing 10 Common
Shares
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
Date of event requiring this shell company report
or
For the transition period from ______________ to ____________
Commission file number 001-31731
________________________________
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
New York Stock Exchange*
New York Stock Exchange
Chunghwa Telecom Co., Ltd.
Date of event requiring this shell company report
For the transition period from ______________ to ____________
Commission file number 001-31731
(Exact name of Registrant as specified in its charter)
________________________________
Chunghwa Telecom Co., Ltd.
(Translation of Registrant’s name into English)
Chunghwa Telecom Co., Ltd.
Taiwan, Republic of China
(Jurisdiction of incorporation or organization)
(Exact name of Registrant as specified in its charter)
21-3 Hsinyi Road, Section 1, Taipei, Taiwan, Republic of China
Chunghwa Telecom Co., Ltd.
(Translation of Registrant’s name into English)
(Address of principal executive offices)
Taiwan, Republic of China
Fufu Shen
(Jurisdiction of incorporation or organization)
21-3 Hsinyi Road, Section 1, Taipei,
21-3 Hsinyi Road, Section 1, Taipei, Taiwan, Republic of China
Taiwan, Republic of China
(Address of principal executive offices)
Fufu Shen
Tel: +886 2 2344-5488
21-3 Hsinyi Road, Section 1, Taipei,
Email: chtir@cht.com.tw
Taiwan, Republic of China
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Tel: +886 2 2344-5488
Email: chtir@cht.com.tw
________________________________
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
________________________________
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Title of each class
Common Shares, par value NT$10 per share
Common Shares, par value NT$10 per share
American Depositary Shares, as evidenced by American
American Depositary Shares, as evidenced by American
Depositary Receipts, each representing 10 Common
Depositary Receipts, each representing 10 Common
Shares
Shares
Name of each exchange on which registered
Name of each exchange on which registered
New York Stock Exchange*
New York Stock Exchange
New York Stock Exchange*
New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
None
_____________________
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report.
7,757,446,545 Common Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
Securities registered or to be registered pursuant to Section 12(g) of the Act:
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
_____________________
None
None
Yes No
Yes No
Yes No
Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes No
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
Large accelerated filer
Accelerated filer
Non-accelerated filer
covered by the annual report.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
filing:
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
7,757,446,545 Common Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
U.S. GAAP
International Financial Reporting Standards as issued by the
Yes No
Other
International Accounting Standards Board
None
None
_____________________
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report.
registrant has elected to follow.
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes No
Item 17 Item 18
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No
Exchange Act).
7,757,446,545 Common Shares
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes No
Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
_______________________
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes No
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
* Not for trading, but only in connection with the listing on the New York Stock Exchange of the American Depositary Shares
Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Yes No
Non-accelerated filer
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
filing:
Large accelerated filer
Accelerated filer
Non-accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
filing:
International Accounting Standards Board
U.S. GAAP
International Financial Reporting Standards as issued by the
Other
U.S. GAAP
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
International Financial Reporting Standards as issued by the
Other
registrant has elected to follow.
International Accounting Standards Board
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
registrant has elected to follow.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Item 17 Item 18
Item 17 Item 18
Exchange Act).
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes No
Yes No
_______________________
_______________________
Yes No
Yes No
* Not for trading, but only in connection with the listing on the New York Stock Exchange of the American Depositary Shares
* Not for trading, but only in connection with the listing on the New York Stock Exchange of the American Depositary Shares
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
_____________________
None
None
None
None
None
_____________________
_____________________
_____________________
_____________________
_____________________
None
None
None
UNITED STATES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
UNITED STATES
UNITED STATES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
WASHINGTON, D.C. 20549
WASHINGTON, D.C. 20549
WASHINGTON, D.C. 20549
WASHINGTON, D.C. 20549
WASHINGTON, D.C. 20549
UNITED STATES
_____________________
_____________________
_____________________
_____________________
_____________________
_____________________
UNITED STATES
FORM 20-F
SECURITIES AND EXCHANGE COMMISSION
FORM 20-F
FORM 20-F
UNITED STATES
FORM 20-F
FORM 20-F
_____________________
FORM 20-F
WASHINGTON, D.C. 20549
_____________________
_____________________
_____________________
_____________________
_____________________
SECURITIES AND EXCHANGE COMMISSION
(Mark One)
_____________________
WASHINGTON, D.C. 20549
UNITED STATES
(Mark One)
(Mark One)
(Mark One)
(Mark One)
(Mark One)
SECURITIES AND EXCHANGE COMMISSION
_____________________
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT OF 1934
_____________________
ACT OF 1934
ACT OF 1934
ACT OF 1934
ACT OF 1934
ACT OF 1934
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
WASHINGTON, D.C. 20549
FORM 20-F
FORM 20-F
_____________________
_____________________
or
or
or
or
or
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
(Mark One)
For the fiscal year ended December 31, 2014
For the fiscal year ended December 31, 2014
For the fiscal year ended December 31, 2014
For the fiscal year ended December 31, 2014
For the fiscal year ended December 31, 2014
_____________________
ACT OF 1934
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
(Mark One)
EXCHANGE ACT OF 1934
ACT OF 1934
or
or
or
or
or
or
EXCHANGE ACT OF 1934
EXCHANGE ACT OF 1934
EXCHANGE ACT OF 1934
EXCHANGE ACT OF 1934
EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
or
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
or
For the fiscal year ended December 31, 2014
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
For the fiscal year ended December 31, 2014
or
or
or
or
or
ACT OF 1934
ACT OF 1934
ACT OF 1934
ACT OF 1934
ACT OF 1934
ACT OF 1934
ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
For the fiscal year ended December 31, 2014
Date of event requiring this shell company report
Date of event requiring this shell company report
Date of event requiring this shell company report
For the transition period from ______________ to ____________
Date of event requiring this shell company report
Date of event requiring this shell company report
Date of event requiring this shell company report
For the transition period from ______________ to ____________
For the transition period from ______________ to ____________
For the transition period from ______________ to ____________
For the transition period from ______________ to ____________
For the transition period from ______________ to ____________
Commission file number 001-31731
EXCHANGE ACT OF 1934
or
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
Commission file number 001-31731
Commission file number 001-31731
Commission file number 001-31731
________________________________
Commission file number 001-31731
Commission file number 001-31731
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
________________________________
________________________________
________________________________
________________________________
________________________________
ACT OF 1934
or
or
or
or
or
or
or
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
EXCHANGE ACT OF 1934
Chunghwa Telecom Co., Ltd.
Chunghwa Telecom Co., Ltd.
Chunghwa Telecom Co., Ltd.
Chunghwa Telecom Co., Ltd.
Chunghwa Telecom Co., Ltd.
(Exact name of Registrant as specified in its charter)
Chunghwa Telecom Co., Ltd.
ACT OF 1934
or
Date of event requiring this shell company report
For the transition period from ______________ to ____________
(Exact name of Registrant as specified in its charter)
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
(Exact name of Registrant as specified in its charter)
(Exact name of Registrant as specified in its charter)
(Exact name of Registrant as specified in its charter)
(Exact name of Registrant as specified in its charter)
Chunghwa Telecom Co., Ltd.
ACT OF 1934
Chunghwa Telecom Co., Ltd.
Commission file number 001-31731
Chunghwa Telecom Co., Ltd.
Date of event requiring this shell company report
(Translation of Registrant’s name into English)
Chunghwa Telecom Co., Ltd.
Chunghwa Telecom Co., Ltd.
Chunghwa Telecom Co., Ltd.
(Translation of Registrant’s name into English)
(Translation of Registrant’s name into English)
(Translation of Registrant’s name into English)
(Translation of Registrant’s name into English)
(Translation of Registrant’s name into English)
________________________________
Taiwan, Republic of China
For the transition period from ______________ to ____________
Taiwan, Republic of China
Taiwan, Republic of China
(Jurisdiction of incorporation or organization)
Taiwan, Republic of China
Taiwan, Republic of China
Taiwan, Republic of China
Commission file number 001-31731
________________________________
(Jurisdiction of incorporation or organization)
(Jurisdiction of incorporation or organization)
21-3 Hsinyi Road, Section 1, Taipei, Taiwan, Republic of China
(Jurisdiction of incorporation or organization)
(Jurisdiction of incorporation or organization)
(Jurisdiction of incorporation or organization)
Chunghwa Telecom Co., Ltd.
21-3 Hsinyi Road, Section 1, Taipei, Taiwan, Republic of China
21-3 Hsinyi Road, Section 1, Taipei, Taiwan, Republic of China
21-3 Hsinyi Road, Section 1, Taipei, Taiwan, Republic of China
21-3 Hsinyi Road, Section 1, Taipei, Taiwan, Republic of China
21-3 Hsinyi Road, Section 1, Taipei, Taiwan, Republic of China
(Address of principal executive offices)
Date of event requiring this shell company report
(Exact name of Registrant as specified in its charter)
(Address of principal executive offices)
(Address of principal executive offices)
For the transition period from ______________ to ____________
Chunghwa Telecom Co., Ltd.
(Address of principal executive offices)
(Address of principal executive offices)
(Address of principal executive offices)
Commission file number 001-31731
21-3 Hsinyi Road, Section 1, Taipei,
Fufu Shen
Fufu Shen
Fufu Shen
Fufu Shen
________________________________
Fufu Shen
Fufu Shen
Chunghwa Telecom Co., Ltd.
21-3 Hsinyi Road, Section 1, Taipei,
21-3 Hsinyi Road, Section 1, Taipei,
(Exact name of Registrant as specified in its charter)
21-3 Hsinyi Road, Section 1, Taipei,
21-3 Hsinyi Road, Section 1, Taipei,
21-3 Hsinyi Road, Section 1, Taipei,
Taiwan, Republic of China
(Translation of Registrant’s name into English)
Taiwan, Republic of China
Taiwan, Republic of China
Taiwan, Republic of China
Tel: +886 2 2344-5488
Taiwan, Republic of China
Chunghwa Telecom Co., Ltd.
Tel: +886 2 2344-5488
Taiwan, Republic of China
Taiwan, Republic of China
Chunghwa Telecom Co., Ltd.
(Translation of Registrant’s name into English)
Email: chtir@cht.com.tw
Tel: +886 2 2344-5488
Tel: +886 2 2344-5488
Tel: +886 2 2344-5488
Tel: +886 2 2344-5488
(Jurisdiction of incorporation or organization)
filing:
filing:
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
________________________________
(Exact name of Registrant as specified in its charter)
(Jurisdiction of incorporation or organization)
21-3 Hsinyi Road, Section 1, Taipei, Taiwan, Republic of China
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Taiwan, Republic of China
Email: chtir@cht.com.tw
Email: chtir@cht.com.tw
Email: chtir@cht.com.tw
Email: chtir@cht.com.tw
Email: chtir@cht.com.tw
(Address of principal executive offices)
________________________________
21-3 Hsinyi Road, Section 1, Taipei, Taiwan, Republic of China
________________________________
Securities registered or to be registered pursuant to Section 12(b) of the Act:
(Translation of Registrant’s name into English)
(Address of principal executive offices)
________________________________
________________________________
________________________________
Chunghwa Telecom Co., Ltd.
Fufu Shen
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Taiwan, Republic of China
Fufu Shen
21-3 Hsinyi Road, Section 1, Taipei,
(Jurisdiction of incorporation or organization)
21-3 Hsinyi Road, Section 1, Taipei,
Name of each exchange on which registered
Taiwan, Republic of China
Title of each class
Tel: +886 2 2344-5488
Title of each class
Title of each class
Title of each class
Title of each class
21-3 Hsinyi Road, Section 1, Taipei, Taiwan, Republic of China
Name of each exchange on which registered
Name of each exchange on which registered
Name of each exchange on which registered
Name of each exchange on which registered
Name of each exchange on which registered
Taiwan, Republic of China
Title of each class
Common Shares, par value NT$10 per share
Email: chtir@cht.com.tw
(Address of principal executive offices)
Tel: +886 2 2344-5488
New York Stock Exchange*
Common Shares, par value NT$10 per share
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
American Depositary Shares, as evidenced by American
Common Shares, par value NT$10 per share
Common Shares, par value NT$10 per share
Common Shares, par value NT$10 per share
Common Shares, par value NT$10 per share
New York Stock Exchange*
New York Stock Exchange*
New York Stock Exchange*
New York Stock Exchange*
New York Stock Exchange
New York Stock Exchange*
Fufu Shen
Email: chtir@cht.com.tw
American Depositary Shares, as evidenced by American
American Depositary Shares, as evidenced by American
American Depositary Shares, as evidenced by American
American Depositary Shares, as evidenced by American
Depositary Receipts, each representing 10 Common
American Depositary Shares, as evidenced by American
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
________________________________
New York Stock Exchange
21-3 Hsinyi Road, Section 1, Taipei,
Depositary Receipts, each representing 10 Common
Depositary Receipts, each representing 10 Common
Depositary Receipts, each representing 10 Common
Depositary Receipts, each representing 10 Common
Depositary Receipts, each representing 10 Common
Securities registered or to be registered pursuant to Section 12(b) of the Act:
________________________________
Shares
Tel: +886 2 2344-5488
Taiwan, Republic of China
Shares
Shares
Shares
Shares
Shares
Title of each class
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Email: chtir@cht.com.tw
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Name of each exchange on which registered
Common Shares, par value NT$10 per share
Title of each class
________________________________
New York Stock Exchange*
Name of each exchange on which registered
American Depositary Shares, as evidenced by American
Common Shares, par value NT$10 per share
Securities registered or to be registered pursuant to Section 12(b) of the Act:
New York Stock Exchange*
New York Stock Exchange
Depositary Receipts, each representing 10 Common
American Depositary Shares, as evidenced by American
New York Stock Exchange
Shares
Depositary Receipts, each representing 10 Common
Title of each class
Name of each exchange on which registered
None
_____________________
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report.
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report.
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report.
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report.
None
covered by the annual report.
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
7,757,446,545 Common Shares
Securities registered or to be registered pursuant to Section 12(g) of the Act:
7,757,446,545 Common Shares
7,757,446,545 Common Shares
7,757,446,545 Common Shares
7,757,446,545 Common Shares
7,757,446,545 Common Shares
Yes No
Yes No
Yes No
Yes No
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
None
_____________________
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
covered by the annual report.
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Section 13 or 15(d) of the Securities Exchange Act of 1934.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No
7,757,446,545 Common Shares
Yes No
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
covered by the annual report.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
Yes No
7,757,446,545 Common Shares
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
7,757,446,545 Common Shares
None
_____________________
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Section 13 or 15(d) of the Securities Exchange Act of 1934.
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
reports), and (2) has been subject to such filing requirements for the past 90 days.
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
Yes No
reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
Yes No
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes No
Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an
Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
emerging growth company. See the definitions of ‘‘large accelerated filer,’’‘‘accelerated filer ,’’and ‘‘emerging growth
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
company’’in Rule 12b-2 of the Exchange Act.
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
reports), and (2) has been subject to such filing requirements for the past 90 days.
Accelerated filer
Large accelerated filer
Non-accelerated filer
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
Accelerated filer
Large accelerated filer
Non-accelerated filer
Emerging growth company
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
filing:
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
filing:
Large accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
filing:
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
filing:
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
filing:
U.S. GAAP
U.S. GAAP
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
International Financial Reporting Standards as issued by the
International Accounting Standards Board
International Financial Reporting Standards as issued by the
International Accounting Standards Board
International Financial Reporting Standards as issued by the
International Accounting Standards Board
Other
International Financial Reporting Standards as issued by the
International Financial Reporting Standards as issued by the
International Financial Reporting Standards as issued by the
Non-accelerated filer
International Accounting Standards Board
International Accounting Standards Board
International Accounting Standards Board
Yes No
Non-accelerated filer
Non-accelerated filer
Yes No
Yes No
Other
Large accelerated filer
Accelerated filer
Large accelerated filer
Large accelerated filer
Large accelerated filer
Accelerated filer
Non-accelerated filer
Non-accelerated filer
Accelerated filer
Accelerated filer
Accelerated filer
Other
Other
Yes No
Yes No
Yes No
Yes No
U.S. GAAP
U.S. GAAP
U.S. GAAP
U.S. GAAP
Other
Other
U.S. GAAP
Non-accelerated filer
Large accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
registrant has elected to follow.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
registrant has elected to follow.
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
registrant has elected to follow.
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
registrant has elected to follow.
Large accelerated filer
U.S. GAAP
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Accelerated filer
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
registrant has elected to follow.
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
registrant has elected to follow.
registrant has elected to follow.
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
filing:
Accelerated filer
International Financial Reporting Standards as issued by the
accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
International Accounting Standards Board
Other
International Financial Reporting Standards as issued by the
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
International Accounting Standards Board
filing:
Yes No
Exchange Act).
Exchange Act).
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards
Yes No
Board to its Accounting Standards Codification after April 5, 2012.
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
International Financial Reporting Standards as issued by the
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)
Item 17 Item 18
registrant has elected to follow.
International Accounting Standards Board
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Item 17 Item 18
Yes No
of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
Yes No
_______________________
registrant has elected to follow.
_______________________
Item 17 Item 18
* Not for trading, but only in connection with the listing on the New York Stock Exchange of the American Depositary Shares
Yes No
* Not for trading, but only in connection with the listing on the New York Stock Exchange of the American Depositary Shares
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
_______________________
Exchange Act).
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
* Not for trading, but only in connection with the listing on the New York Stock Exchange of the American Depositary Shares
* Not for trading, but only in connection with the listing on the New York Stock Exchange of the American Depositary Shares
* Not for trading, but only in connection with the listing on the New York Stock Exchange of the American Depositary Shares
* Not for trading, but only in connection with the listing on the New York Stock Exchange of the American Depositary Shares
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Item 17 Item 18
Item 17 Item 18
Non-accelerated filer
Item 17 Item 18
Item 17 Item 18
Other
Yes No
Other
_______________________
_______________________
_______________________
Item 17 Item 18
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Item 17 Item 18
U.S. GAAP
Yes No
Yes No
Yes No
Yes No
Common Shares, par value NT$10 per share
Shares
American Depositary Shares, as evidenced by American
Depositary Receipts, each representing 10 Common
Shares
New York Stock Exchange*
New York Stock Exchange
* Not for trading, but only in connection with the listing on the New York Stock Exchange of the American Depositary Shares
Yes No
_______________________
* Not for trading, but only in connection with the listing on the New York Stock Exchange of the American Depositary Shares
_______________________
Yes No
* Not for trading, but only in connection with the listing on the New York Stock Exchange of the American Depositary Shares
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
_______________________
CHUNGHWA TELECOM CO., LTD.
FORM 20-F ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2016
Table of Contents
SUPPLEMENTAL INFORMATION
....................................................................................................1
FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT MAY NOT BE REALIZED.............1
Page
PART I...............................................................................................................................................................2
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS ..................3
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE.....................................................3
ITEM 3.
KEY INFORMATION .........................................................................................................3
ITEM 4.
INFORMATION ON THE COMPANY.............................................................................17
ITEM 4A.
UNRESOLVED STAFF COMMENTS .............................................................................60
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS.....................................60
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES......................................85
ITEM 7.
MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS.....................93
ITEM 8.
FINANCIAL INFORMATION..........................................................................................94
ITEM 9.
THE OFFER AND LISTING.............................................................................................95
ITEM 10.
ADDITIONAL INFORMATION.......................................................................................97
ITEM 11.
MARKET RISK...............................................................................................................113
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES...................................................................................................................114
PART II.........................................................................................................................................................118
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ...........................119
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS
OF SECURITY HOLDERS AND USE OF PROCEEDS................................................119
ITEM 15. CONTROLS AND PROCEDURES.................................................................................119
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT................................................................121
ITEM 16B. CODE OF ETHICS...........................................................................................................121
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES ...................................................121
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES.................................................................................................................122
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER
AND AFFILIATED PURCHASERS ................................................................................122
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT....................................122
ITEM 16G. CORPORATE GOVERNANCE .......................................................................................122
ITEM 16H. MINE SAFETY DISCLOSURE .......................................................................................124
PART III........................................................................................................................................................126
ITEM 17.
FINANCIAL STATEMENTS.........................................................................................127
ITEM 18.
FINANCIAL STATEMENTS.........................................................................................127
ITEM 19.
EXHIBITS......................................................................................................................128
SUPPLEMENTAL INFORMATION
SUPPLEMENTAL INFORMATION
All references to “we,” “us,” “our” and “our company” in this annual report are to Chunghwa Telecom Co.,
Ltd. and our consolidated subsidiaries, unless the context otherwise requires. All references to “shares” and
“common shares” are to our common shares, par value NT$10 per share, and to “ADSs” are to our American
depositary shares, each of which represents ten of our common shares. The ADSs are issued under the deposit
agreement, as amended, supplemented or modified from time to time, originally dated as of July 17, 2003, among
Chunghwa Telecom Co., Ltd. and the Bank of New York, and amended and restated on November 14, 2007, among
Chunghwa Telecom Co., Ltd. and JP Morgan Chase Bank, as depository, and the holders and beneficial owners of
American Depositary Receipts issued thereunder. All references to “Taiwan” are to the island of Taiwan and other
areas under the effective control of the Republic of China. All references to “the government” or “the ROC
government” are to the government of the Republic of China. All references to “the Ministry of Transportation and
Communications” or “the MOTC” are to the Ministry of Transportation and Communications of the Republic of
China. All references to “the National Communications Commission” or “the NCC” are to the National
Communications Commission of the Republic of China. All references to the “Securities and Futures Bureau” are to
the Securities and Futures Bureau of the Republic of China or its predecessors, as applicable. “ROC GAAP” means
the generally accepted accounting principles of the Republic of China, “U.S. GAAP” means the generally accepted
accounting principles of the United States, “IFRSs” means International Financial Reporting Standards as issued by
the International Accounting Standards Board, and “Taiwan IFRSs” means the International Financial Reporting
Standards as issued by the International Accounting Standards Board and endorsed by the Financial Supervisory
Commission, or the FSC, which are required to be adopted by applicable companies in the ROC pursuant to the
“Framework for Adoption of International Financial Reporting Standards by Companies in the ROC” promulgated
by the FSC on May 14, 2009. Any discrepancies in any table between totals and sums of the amounts listed are due
to rounding. Unless otherwise indicated, or the context otherwise requires, references in this annual report to
financial and operational data for a particular year refer to the fiscal year of our company ending December 31 of
that year.
When we refer to our “privatization” or our being “privatized” in this annual report, we mean our status as
a non-state-owned entity after the government reduced its ownership of our outstanding common shares, including
our common shares owned by entities majority-owned by the government, to less than 50%. We were privatized in
on
August 2005.
12, 2005.
We publish our consolidated financial statements in New Taiwan dollars, the lawful currency of the
Republic of China. In this annual report, “NT$” and “NT dollars” mean New Taiwan dollars, “$”, “US$” and “U.S.
dollars” mean United States dollars.
FORWARD-LOOKING STATMENTS IN THIS ANNUAL REPORT MAY NOT BE REALIZED
FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT MAY NOT BE REALIZED
This annual report contains forward-looking statements, including statements regarding:
our business and operating strategies;
our network expansion plans;
our business, operations and prospects;
our financial condition and results of operations;
our dividend policy;
the telecommunications industry regulatory environment in Taiwan; and
future developments in the telecommunications industry in Taiwan.
These forward-looking statements are generally indicated by the use of forward-looking terminology such
These forward-looking statements are generally indicated by the use of forward-looking terminology such
These forward-looking statements are generally indicated by the use of forward-looking terminology such
as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “aim,” “seek,” “project,” “may,” “will” or other similar
words that express an indication of actions or results of actions that may or are expected to occur in the future. These
statements reflect our current views with respect to future events and are subject to risks, uncertainties and
assumptions, many of which are beyond our control. The forward looking statements are contained principally in the
sections entitled “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company” and “Item 5.
Operating and Financial Review and Prospects.” These statements are made under the “safe harbor” provisions of
the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward looking statements largely
on our current expectations and projections about future events and financial trends that we believe may affect our
financial condition, results of operations, business strategy and financial needs. You should not place undue reliance
on these statements, which apply only as of the date of this annual report. These forward-looking statements are
based on our own information and on information from other sources we believe to be reliable. Actual results may
differ materially from those expressed or implied by these forward-looking statements. Factors that could cause
differences include, but are not limited to, those discussed under “Item 3. Key Information—D. Risk Factors.” In
light of these risks, uncertainties and assumptions, the forward-looking events discussed in this annual report might
not occur and our actual results could differ materially from those anticipated in these forward-looking statements.
The forward looking statements made in this annual report relate only to events or information as of the date on
which the statements are made in this annual report. Except as required by law, we undertake no obligation to update
or revise publicly any forward looking statements, whether as a result of new information, future events or otherwise,
after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read
this annual report completely and with the understanding that our actual future results may be materially different
from what we expect.
as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “aim,” “seek,” “project,” “may,” “will” or other similar
words that express an indication of actions or results of actions that may or are expected to occur in the future. These
statements reflect our current views with respect to future events and are subject to risks, uncertainties and
assumptions, many of which are beyond our control. The forward looking statements are contained principally in the
sections entitled “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company” and “Item 5.
Operating and Financial Review and Prospects.” These statements are made under the “safe harbor” provisions of
the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward looking statements largely
on our current expectations and projections about future events and financial trends that we believe may affect our
as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “aim,” “seek,” “project,” “may,” “will” or other similar
financial condition, results of operations, business strategy and financial needs. You should not place undue reliance
words that express an indication of actions or results of actions that may or are expected to occur in the future. These
on these statements, which apply only as of the date of this annual report. These forward-looking statements are
statements reflect our current views with respect to future events and are subject to risks, uncertainties and
based on our own information and on information from other sources we believe to be reliable. Actual results may
assumptions, many of which are beyond our control. The forward looking statements are contained principally in the
differ materially from those expressed or implied by these forward-looking statements. Factors that could cause
sections entitled “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company” and “Item 5.
differences include, but are not limited to, those discussed under “Item 3. Key Information—D. Risk Factors.” In
Operating and Financial Review and Prospects.” These statements are made under the “safe harbor” provisions of
the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward looking statements largely
light of these risks, uncertainties and assumptions, the forward-looking events discussed in this annual report might
not occur and our actual results could differ materially from those anticipated in these forward-looking statements.
on our current expectations and projections about future events and financial trends that we believe may affect our
financial condition, results of operations, business strategy and financial needs. You should not place undue reliance
The forward looking statements made in this annual report relate only to events or information as of the date on
on these statements, which apply only as of the date of this annual report. These forward-looking statements are
which the statements are made in this annual report. Except as required by law, we undertake no obligation to update
based on our own information and on information from other sources we believe to be reliable. Actual results may
or revise publicly any forward looking statements, whether as a result of new information, future events or otherwise,
differ materially from those expressed or implied by these forward-looking statements. Factors that could cause
after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read
differences include, but are not limited to, those discussed under “Item 3. Key Information—D. Risk Factors.” In
this annual report completely and with the understanding that our actual future results may be materially different
from what we expect.
light of these risks, uncertainties and assumptions, the forward-looking events discussed in this annual report might
not occur and our actual results could differ materially from those anticipated in these forward-looking statements.
The forward looking statements made in this annual report relate only to events or information as of the date on
which the statements are made in this annual report. Except as required by law, we undertake no obligation to update
or revise publicly any forward looking statements, whether as a result of new information, future events or otherwise,
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read
this annual report completely and with the understanding that our actual future results may be materially different
from what we expect.
Not applicable.
ITEM 1.
PART I
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 1.
These forward-looking statements are generally indicated by the use of forward-looking terminology such
These forward-looking statements are generally indicated by the use of forward-looking terminology such
as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “aim,” “seek,” “project,” “may,” “will” or other similar
words that express an indication of actions or results of actions that may or are expected to occur in the future. These
statements reflect our current views with respect to future events and are subject to risks, uncertainties and
assumptions, many of which are beyond our control. The forward looking statements are contained principally in the
sections entitled “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company” and “Item 5.
Operating and Financial Review and Prospects.” These statements are made under the “safe harbor” provisions of
the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward looking statements largely
on our current expectations and projections about future events and financial trends that we believe may affect our
financial condition, results of operations, business strategy and financial needs. You should not place undue reliance
on these statements, which apply only as of the date of this annual report. These forward-looking statements are
based on our own information and on information from other sources we believe to be reliable. Actual results may
PART I
differ materially from those expressed or implied by these forward-looking statements. Factors that could cause
differences include, but are not limited to, those discussed under “Item 3. Key Information—D. Risk Factors.” In
light of these risks, uncertainties and assumptions, the forward-looking events discussed in this annual report might
not occur and our actual results could differ materially from those anticipated in these forward-looking statements.
The forward looking statements made in this annual report relate only to events or information as of the date on
which the statements are made in this annual report. Except as required by law, we undertake no obligation to update
or revise publicly any forward looking statements, whether as a result of new information, future events or otherwise,
after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read
this annual report completely and with the understanding that our actual future results may be materially different
from what we expect.
as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “aim,” “seek,” “project,” “may,” “will” or other similar
words that express an indication of actions or results of actions that may or are expected to occur in the future. These
statements reflect our current views with respect to future events and are subject to risks, uncertainties and
assumptions, many of which are beyond our control. The forward looking statements are contained principally in the
sections entitled “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company” and “Item 5.
Operating and Financial Review and Prospects.” These statements are made under the “safe harbor” provisions of
the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward looking statements largely
on our current expectations and projections about future events and financial trends that we believe may affect our
financial condition, results of operations, business strategy and financial needs. You should not place undue reliance
on these statements, which apply only as of the date of this annual report. These forward-looking statements are
based on our own information and on information from other sources we believe to be reliable. Actual results may
differ materially from those expressed or implied by these forward-looking statements. Factors that could cause
differences include, but are not limited to, those discussed under “Item 3. Key Information—D. Risk Factors.” In
light of these risks, uncertainties and assumptions, the forward-looking events discussed in this annual report might
not occur and our actual results could differ materially from those anticipated in these forward-looking statements.
The forward looking statements made in this annual report relate only to events or information as of the date on
which the statements are made in this annual report. Except as required by law, we undertake no obligation to update
or revise publicly any forward looking statements, whether as a result of new information, future events or otherwise,
after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read
this annual report completely and with the understanding that our actual future results may be materially different
from what we expect.
ITEM 3. KEY INFORMATION
Not applicable.
PART I
PART I
Not applicable.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 1.
We were privatized as a result of a secondary ADS offering and concurrent domestic auction of our
common shares on August 12, 2005. The privatization has enabled us to develop our business and respond to
changing market conditions more rapidly and efficiently.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
Not applicable.
Not applicable.
Not applicable.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
We were privatized as a result of a secondary ADS offering and concurrent domestic auction of our
common shares on August 12, 2005. The privatization has enabled us to develop our business and respond to
changing market conditions more rapidly and efficiently.
Selected Financial Data
The FSC in the Republic of China, or ROC, supervises the financial and business matters of publicly-held
ITEM 3. KEY INFORMATION
ITEM 1.
PART I
A.
We were privatized as a result of a secondary ADS offering and concurrent domestic auction of our
common shares on August 12, 2005. The privatization has enabled us to develop our business and respond to
changing market conditions more rapidly and efficiently.
ITEM 1.
Not applicable.
Not applicable.
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
The FSC in the Republic of China, or ROC, supervises the financial and business matters of publicly-held
We were privatized as a result of a secondary ADS offering and concurrent domestic auction of our
companies, and we are required to comply with relevant regulations promulgated by the FSC. Prior to January 1,
common shares on August 12, 2005. The privatization has enabled us to develop our business and respond to
Selected Financial Data
2013, we prepared our consolidated financial statements, in accordance with ROC GAAP for purposes of our filings
changing market conditions more rapidly and efficiently.
with the Taiwan Stock Exchange, or TWSE, with reconciliation of net income and balance sheet differences of our
consolidated financial statements to U.S. GAAP for certain filings with the U.S. Securities and Exchange
Commission, or the SEC. Starting from January 1, 2013, we have prepared our financial statements under Taiwan
IFRSs pursuant to the requirements of the “Framework for Adoption of International Financial Reporting Standards
by Companies in the ROC” promulgated by the FSC on May 14, 2009. While we have adopted Taiwan IFRSs for
The FSC in the Republic of China, or ROC, supervises the financial and business matters of publicly-held
ITEM 3. KEY INFORMATION
reporting in the ROC our annual consolidated financial statements and interim quarterly unaudited consolidated
companies, and we are required to comply with relevant regulations promulgated by the FSC. Prior to January 1,
financial statements since January 1, 2013, we have adopted International Financial Reporting Standards as issued
2013, we prepared our consolidated financial statements, in accordance with ROC GAAP for purposes of our filings
by the International Accounting Standards Board, or IFRSs, which differs in certain material respects from Taiwan
with the Taiwan Stock Exchange, or TWSE, with reconciliation of net income and balance sheet differences of our
IFRSs, for certain filings with the SEC, including our annual reports on Form 20-F for the year ended December 31,
consolidated financial statements to U.S. GAAP for certain filings with the U.S. Securities and Exchange
We were privatized as a result of a secondary ADS offering and concurrent domestic auction of our
2013 and thereafter and our interim quarterly unaudited consolidated financial statements provided on Form 6-K
Commission, or the SEC. Starting from January 1, 2013, we have prepared our financial statements under Taiwan
common shares on August 12, 2005. The privatization has enabled us to develop our business and respond to
IFRSs pursuant to the requirements of the “Framework for Adoption of International Financial Reporting Standards
changing market conditions more rapidly and efficiently.
by Companies in the ROC” promulgated by the FSC on May 14, 2009. While we have adopted Taiwan IFRSs for
reporting in the ROC our annual consolidated financial statements and interim quarterly unaudited consolidated
financial statements since January 1, 2013, we have adopted International Financial Reporting Standards as issued
by the International Accounting Standards Board, or IFRSs, which differs in certain material respects from Taiwan
IFRSs, for certain filings with the SEC, including our annual reports on Form 20-F for the year ended December 31,
2013 and thereafter and our interim quarterly unaudited consolidated financial statements provided on Form 6-K
companies, and we are required to comply with relevant regulations promulgated by the FSC. Prior to January 1,
2013, we prepared our consolidated financial statements, in accordance with ROC GAAP for purposes of our filings
with the Taiwan Stock Exchange, or TWSE, with reconciliation of net income and balance sheet differences of our
Not applicable.
consolidated financial statements to U.S. GAAP for certain filings with the U.S. Securities and Exchange
Commission, or the SEC. Starting from January 1, 2013, we have prepared our financial statements under Taiwan
IFRSs pursuant to the requirements of the “Framework for Adoption of International Financial Reporting Standards
by Companies in the ROC” promulgated by the FSC on May 14, 2009. While we have adopted Taiwan IFRSs for
reporting in the ROC our annual consolidated financial statements and interim quarterly unaudited consolidated
financial statements since January 1, 2013, we have adopted International Financial Reporting Standards as issued
by the International Accounting Standards Board, or IFRSs, which differs in certain material respects from Taiwan
IFRSs, for certain filings with the SEC, including our annual reports on Form 20-F for the year ended December 31,
Selected Financial Data
2013 and thereafter and our interim quarterly unaudited consolidated financial statements provided on Form 6-K
ITEM 3. KEY INFORMATION
Selected Financial Data
Selected Financial Data
A.
A.
A.
A.
The FSC in the Republic of China, or ROC, supervises the financial and business matters of publicly-held
The FSC in the Republic of China, or ROC, supervises the financial and business matters of publicly-held
companies, and we are required to comply with relevant regulations promulgated by the FSC. Prior to January 1,
2013, we prepared our consolidated financial statements, in accordance with ROC GAAP for purposes of our filings
with the Taiwan Stock Exchange, or TWSE, with reconciliation of net income and balance sheet differences of our
consolidated financial statements to U.S. GAAP for certain filings with the U.S. Securities and Exchange
Commission, or the SEC. Starting from January 1, 2013, we have prepared our financial statements under Taiwan
IFRSs pursuant to the requirements of the “Framework for Adoption of International Financial Reporting Standards
companies, and we are required to comply with relevant regulations promulgated by the FSC. Prior to January 1,
2013, we prepared our consolidated financial statements, in accordance with ROC GAAP for purposes of our filings
with the Taiwan Stock Exchange, or TWSE, with reconciliation of net income and balance sheet differences of our
consolidated financial statements to U.S. GAAP for certain filings with the U.S. Securities and Exchange
by Companies in the ROC” promulgated by the FSC on May 14, 2009. While we have adopted Taiwan IFRSs for
Commission, or the SEC. Starting from January 1, 2013, we have prepared our financial statements under Taiwan
reporting in the ROC our annual consolidated financial statements and interim quarterly unaudited consolidated
IFRSs pursuant to the requirements of the “Framework for Adoption of International Financial Reporting Standards
financial statements since January 1, 2013, we have adopted International Financial Reporting Standards as issued
by Companies in the ROC” promulgated by the FSC on May 14, 2009. While we have adopted Taiwan IFRSs for
by the International Accounting Standards Board, or IFRSs, which differs in certain material respects from Taiwan
reporting in the ROC our annual consolidated financial statements and interim quarterly unaudited consolidated
IFRSs, for certain filings with the SEC, including our annual reports on Form 20-F for the year ended December 31,
financial statements since January 1, 2013, we have adopted International Financial Reporting Standards as issued
2013 and thereafter and our interim quarterly unaudited consolidated financial statements provided on Form 6-K
by the International Accounting Standards Board, or IFRSs, which differs in certain material respects from Taiwan
IFRSs, for certain filings with the SEC, including our annual reports on Form 20-F for the year ended December 31,
2013 and thereafter and our interim quarterly unaudited consolidated financial statements provided on Form 6-K
01.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
ITEM 4. INFORMATION ON THE COMPANY
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS5
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 7. MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
ITEM 8. FINANCIAL INFORMATION
ITEM 9. THE OFFER AND LISTING
ITEM 10. ADDITIONAL INFORMATION
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
2
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
PART I
PART I
PART I
PART I
PART I
PART I
PART I
Not applicable.
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 1.
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
Not applicable.
Not applicable.
Not applicable.
ITEM 1.
Not applicable.
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
Not applicable.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
A. Selected Financial Data
ITEM 3. KEY INFORMATION
ITEM 3. KEY INFORMATION
ITEM 3. KEY INFORMATION
ITEM 3. KEY INFORMATION
ITEM 3. KEY INFORMATION
ITEM 3. KEY INFORMATION
A. Selected Financial Data
A. Selected Financial Data
A. Selected Financial Data
A. Selected Financial Data
A. Selected Financial Data
The selected consolidated statements of comprehensive income data and consolidated cash flows data for the
A. Selected Financial Data
years ended December 31, 2014, 2015 and 2016, and the selected consolidated balance sheets data as of December
31, 2015 and 2016 set forth below are derived from our audited consolidated financial statements included elsewhere
The selected consolidated statements of comprehensive income data and consolidated cash flows data for the
in this annual report and should be read in conjunction with, and are qualified in their entirety by reference to, our
years ended December 31, 2014, 2015 and 2016, and the selected consolidated balance sheets data as of December
consolidated financial statements and the related notes. The selected consolidated statements of comprehensive
31, 2015 and 2016 set forth below are derived from our audited consolidated financial statements included elsewhere
income data and consolidated cash flows data for the years ended December 31, 2012 and 2013, and the selected
in this annual report and should be read in conjunction with, and are qualified in their entirety by reference to, our
consolidated balance sheet data as of December 31, 2012, 2013 and 2014 set forth below are derived from our audited
consolidated financial statements and the related notes. The selected consolidated statements of comprehensive
consolidated financial statements, which are not included this annual report. The consolidated financial statements
income data and consolidated cash flows data for the years ended December 31, 2012 and 2013, and the selected
have been prepared and presented in accordance with IFRSs.
consolidated balance sheet data as of December 31, 2012, 2013 and 2014 set forth below are derived from our audited
consolidated financial statements, which are not included this annual report. The consolidated financial statements
have been prepared and presented in accordance with IFRSs.
The selected consolidated statements of comprehensive income data and consolidated cash flows data for the
years ended December 31, 2014, 2015 and 2016, and the selected consolidated balance sheets data as of December
31, 2015 and 2016 set forth below are derived from our audited consolidated financial statements included elsewhere
in this annual report and should be read in conjunction with, and are qualified in their entirety by reference to, our
consolidated financial statements and the related notes. The selected consolidated statements of comprehensive
income data and consolidated cash flows data for the years ended December 31, 2012 and 2013, and the selected
consolidated balance sheet data as of December 31, 2012, 2013 and 2014 set forth below are derived from our audited
consolidated financial statements, which are not included this annual report. The consolidated financial statements
have been prepared and presented in accordance with IFRSs.
The selected consolidated statements of comprehensive income data and consolidated cash flows data for the
years ended December 31, 2014, 2015 and 2016, and the selected consolidated balance sheets data as of December
31, 2015 and 2016 set forth below are derived from our audited consolidated financial statements included elsewhere
in this annual report and should be read in conjunction with, and are qualified in their entirety by reference to, our
consolidated financial statements and the related notes. The selected consolidated statements of comprehensive
income data and consolidated cash flows data for the years ended December 31, 2012 and 2013, and the selected
consolidated balance sheet data as of December 31, 2012, 2013 and 2014 set forth below are derived from our audited
consolidated financial statements, which are not included this annual report. The consolidated financial statements
have been prepared and presented in accordance with IFRSs.
The selected consolidated statements of comprehensive income data and consolidated cash flows data for the
years ended December 31, 2014, 2015 and 2016, and the selected consolidated balance sheets data as of December
31, 2015 and 2016 set forth below are derived from our audited consolidated financial statements included elsewhere
in this annual report and should be read in conjunction with, and are qualified in their entirety by reference to, our
consolidated financial statements and the related notes. The selected consolidated statements of comprehensive
income data and consolidated cash flows data for the years ended December 31, 2012 and 2013, and the selected
consolidated balance sheet data as of December 31, 2012, 2013 and 2014 set forth below are derived from our audited
consolidated financial statements, which are not included this annual report. The consolidated financial statements
have been prepared and presented in accordance with IFRSs.
The selected consolidated statements of comprehensive income data and consolidated cash flows data for the
years ended December 31, 2014, 2015 and 2016, and the selected consolidated balance sheets data as of December
31, 2015 and 2016 set forth below are derived from our audited consolidated financial statements included elsewhere
in this annual report and should be read in conjunction with, and are qualified in their entirety by reference to, our
consolidated financial statements and the related notes. The selected consolidated statements of comprehensive
income data and consolidated cash flows data for the years ended December 31, 2012 and 2013, and the selected
consolidated balance sheet data as of December 31, 2012, 2013 and 2014 set forth below are derived from our audited
consolidated financial statements, which are not included this annual report. The consolidated financial statements
have been prepared and presented in accordance with IFRSs.
The selected consolidated statements of comprehensive income data and consolidated cash flows data for the
years ended December 31, 2014, 2015 and 2016, and the selected consolidated balance sheets data as of December
31, 2015 and 2016 set forth below are derived from our audited consolidated financial statements included elsewhere
in this annual report and should be read in conjunction with, and are qualified in their entirety by reference to, our
consolidated financial statements and the related notes. The selected consolidated statements of comprehensive
income data and consolidated cash flows data for the years ended December 31, 2012 and 2013, and the selected
consolidated balance sheet data as of December 31, 2012, 2013 and 2014 set forth below are derived from our audited
consolidated financial statements, which are not included this annual report. The consolidated financial statements
have been prepared and presented in accordance with IFRSs.
Year Ended December 31
ITEM 7. MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
Consolidated Statements of
2012
NT$
2012
NT$
2013
NT$
2012
2013
NT$
NT$
2014
NT$
2013
2012
2014
NT$
NT$
NT$
2015
NT$
2014
2013
2015
2012
NT$
NT$
NT$
NT$
Year Ended December 31
(in billions, except for
per share and per ADS data)
Year Ended December 31
Year Ended December 31
2016
Year Ended December 31
2016
Year Ended December 31
2016
Year Ended December 31
2015
2014
2012
2013
NT$
NT$
NT$
NT$
NT$
2012
2015
2013
2014
NT$
NT$
US$
NT$
NT$
NT$
2013
2014
2015
US$
NT$
NT$
NT$
NT$
2016
NT$
US$
01.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
ITEM 4. INFORMATION ON THE COMPANY
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS5
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 8. FINANCIAL INFORMATION
ITEM 9. THE OFFER AND LISTING
ITEM 10. ADDITIONAL INFORMATION
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
(in billions, except for
per share and per ADS data)
(in billions, except for
per share and per ADS data)
(in billions, except for
per share and per ADS data)
Comprehensive Income Data:
Consolidated Statements of
Comprehensive Income Data:
Comprehensive Income Data:
Comprehensive Income Data:
Comprehensive Income Data:
Comprehensive Income Data:
Comprehensive Income Data:
(in billions, except for
per share and per ADS data)
Revenues ...................................................................
Consolidated Statements of
Operating costs ........................................................
Gross profit ...............................................................
Operating expenses ...................................................
Revenues ...................................................................
Other income and expenses ......................................
Operating costs ........................................................
Income from operations ............................................
Gross profit ...............................................................
Operating expenses ...................................................
Non-operating income and expenses(1) .....................
Income before income tax .........................................
Other income and expenses ......................................
Income from operations ............................................
Income tax expense ...................................................
Non-operating income and expenses(1) .....................
Consolidated net income ...........................................
Income before income tax .........................................
Attributable to:
Income tax expense ...................................................
Stockholders of the parent .....................................
Noncontrolling interests.........................................
Consolidated net income ...........................................
Attributable to:
Earnings per share:
Revenues ...................................................................
Operating costs ........................................................
Gross profit ...............................................................
Operating expenses ...................................................
Other income and expenses ......................................
Income from operations ............................................
Non-operating income and expenses(1) .....................
Income before income tax .........................................
Income tax expense ...................................................
Consolidated net income ...........................................
Attributable to:
221.4
(141.5)
Consolidated Statements of
79.9
Revenues ...................................................................
(29.9)
(1.6)
Operating costs ........................................................
48.4
Gross profit ...............................................................
Operating expenses ...................................................
1.6
Other income and expenses ......................................
50.0
Income from operations ............................................
(7.4)
Non-operating income and expenses(1) .....................
42.6
Income before income tax .........................................
Income tax expense ...................................................
41.5
1.1
Consolidated net income ...........................................
Attributable to:
42.6
Stockholders of the parent .....................................
Noncontrolling interests.........................................
5.35
5.33
(in billions, except for
231.8
226.6
228.0
221.4
228.0
226.6
231.8
per share and per ADS data)
(148.4)
(147.3)
(141.5)
(148.1)
(148.1)
(148.4)
(147.3)
Consolidated Statements of
Consolidated Statements of
Consolidated Statements of
80.7
78.2
79.9
83.7
83.7
78.2
80.7
(33.2)
(34.0)
(33.1)
(29.9)
226.6
228.0
221.4
231.8
226.6
228.0
221.4
Revenues ...................................................................
Revenues ...................................................................
Revenues ...................................................................
221.4
221.4
228.0
(33.2)
(34.0)
(33.1)
(0.1)
0.6
0.1
(1.6)
(148.4)
(147.3)
(141.5)
(148.1)
(148.4)
(147.3)
(141.5)
(147.3)
(141.5)
(141.5)
(0.1)
0.6
0.1
Operating costs ........................................................
Operating costs ........................................................
Operating costs ........................................................
47.7
44.8
50.4
44.8
47.7
48.4
50.4
78.2
80.7
79.9
83.7
78.2
80.7
79.9
Gross profit ...............................................................
Gross profit ...............................................................
Gross profit ...............................................................
79.9
79.9
80.7
1.8
1.4
1.6
1.6
(34.0)
(33.1)
(29.9)
(33.2)
(34.0)
(33.1)
(29.9)
Operating expenses ...................................................
Operating expenses ...................................................
Operating expenses ...................................................
(29.9)
(29.9)
(33.1)
1.6
1.8
1.4
0.6
0.1
(1.6)
(0.1)
0.6
0.1
(1.6)
(1.6)
(1.6)
0.1
52.0
46.6
49.1
50.0
Other income and expenses ......................................
Other income and expenses ......................................
Other income and expenses ......................................
52.0
46.6
49.1
(9.1)
(9.0)
(6.5)
(7.4)
44.8
47.7
48.4
50.4
44.8
47.7
48.4
Income from operations ............................................
Income from operations ............................................
Income from operations ............................................
48.4
48.4
47.7
(9.1)
(9.0)
(6.5)
1.8
1.4
1.6
1.6
1.8
1.4
1.6
1.6
1.6
1.4
Non-operating income and expenses(1) .....................
Non-operating income and expenses(1) .....................
Non-operating income and expenses(1) .....................
42.9
37.6
42.6
42.6
42.9
37.6
42.6
46.6
49.1
50.0
52.0
46.6
49.1
50.0
Income before income tax .........................................
Income before income tax .........................................
Income before income tax .........................................
50.0
50.0
49.1
(9.0)
(6.5)
(7.4)
(9.1)
(9.0)
(6.5)
(7.4)
(7.4)
(7.4)
(6.5)
Income tax expense ...................................................
Income tax expense ...................................................
Income tax expense ...................................................
42.1
37.0
41.5
41.5
42.1
37.0
41.5
37.6
42.6
42.6
42.9
37.6
42.6
42.6
42.6
42.6
42.6
0.8
0.6
1.1
1.1
0.8
0.6
1.1
Consolidated net income ...........................................
Consolidated net income ...........................................
Consolidated net income ...........................................
42.9
37.6
42.6
42.6
Attributable to:
Attributable to:
Attributable to:
42.9
37.6
42.6
37.0
41.5
41.5
Stockholders of the parent .....................................
42.1
37.0
41.5
41.5
Stockholders of the parent .....................................
41.5
41.5
41.5
0.6
1.1
1.1
0.8
0.6
1.1
1.1
1.1
1.1
1.1
Noncontrolling interests.........................................
Noncontrolling interests.........................................
5.42
4.77
5.35
4.77
37.6
42.6
42.6
42.9
37.6
42.6
42.6
42.6
42.6
42.6
5.41
4.76
5.34
4.76
Earnings per share:
Earnings per share:
1.61
52.19
54.19
47.66
53.49
Basic ...................................................................... 5.35
5.22
5.42
4.77
5.35
0.16
5.22
5.42
4.77
5.35
Basic ...................................................................... 5.35
Basic ...................................................................... 5.35
5.35
Basic ...................................................................... 5.35
4.77
5.35
Basic ...................................................................... 5.35
5.42
4.77
5.35
53.40
1.61
52.11
54.06
47.58
5.21
5.41
4.76
5.34
Diluted ................................................................... 5.33
0.16
5.21
5.41
4.76
5.34
Diluted ................................................................... 5.33
Diluted ................................................................... 5.33
5.34
Diluted ................................................................... 5.33
4.76
5.34
Diluted ................................................................... 5.33
5.41
4.76
5.34
Earnings per ADS equivalent:
Earnings per ADS equivalent:
Earnings per ADS equivalent:
54.19
47.66
53.49
Basic ...................................................................... 53.49
Basic ...................................................................... 53.49
52.19
54.19
47.66
53.49
Basic ...................................................................... 53.49
1.61
52.19
54.19
47.66
53.49
Basic ...................................................................... 53.49
53.49
53.49
47.66
Basic ...................................................................... 53.49
52.11
54.06
47.58
53.40
Diluted ................................................................... 53.34
1.61
52.11
54.06
47.58
53.40
Diluted ................................................................... 53.34
53.40
Diluted ................................................................... 53.34
53.40
47.58
47.58
Diluted ................................................................... 53.34
54.06
53.40
Diluted ................................................................... 53.34
(in billions, except for
7.1
7.1
per share and per ADS data)
(4.6)
(4.6)
2.5
2.5
(1.0)
230.0
7.1
231.8
221.4
228.0
226.6
(1.0)
(0.0)
(147.6)
(4.6)
(148.1)
(141.5)
(147.3)
(148.4)
(0.0)
1.5
1.5
82.4
2.5
79.9
80.7
78.2
83.7
0.0
(33.8)
(1.0)
(33.2)
(29.9)
(33.1)
(34.0)
0.0
(0.5)
(0.0)
(1.6)
0.1
0.6
(0.1)
1.5
1.5
(0.2)
48.1
1.5
48.4
47.7
44.8
50.4
(0.2)
1.3
0.0
1.6
1.4
1.8
1.6
1.3
1.3
49.4
1.5
50.0
49.1
46.6
52.0
(7.8)
(0.2)
(7.4)
(6.5)
(9.0)
(9.1)
1.3
41.6
1.3
42.6
42.6
37.6
42.9
0.0
1.3
40.5
1.3
41.5
41.5
37.0
42.1
1.1
0.0
1.1
1.1
0.6
0.8
0.16
41.6
1.3
42.6
42.6
37.6
42.9
0.16
Basic ...................................................................... 53.49
Basic ...................................................................... 5.35
Diluted ................................................................... 53.34
Diluted ................................................................... 5.33
Earnings per ADS equivalent:
Earnings per ADS equivalent:
Basic ...................................................................... 53.49
Diluted ................................................................... 53.34
230.0
230.0
(147.6)
(147.6)
82.4
82.4
(33.8)
231.8
230.0
221.4
228.0
226.6
(33.8)
(0.5)
(148.1)
(147.6)
(148.4)
(141.5)
(147.3)
(0.5)
48.1
48.1
83.7
82.4
79.9
80.7
78.2
1.3
(33.2)
(33.8)
(29.9)
(33.1)
(34.0)
1.3
(0.1)
(0.5)
(1.6)
0.1
0.6
49.4
49.4
(7.8)
50.4
48.1
48.4
47.7
44.8
(7.8)
1.6
1.3
1.6
1.4
1.8
41.6
41.6
52.0
49.4
50.0
49.1
46.6
(9.1)
(7.8)
(7.4)
(6.5)
(9.0)
40.5
42.9
41.6
42.6
42.6
37.6
1.1
41.6
42.1
40.5
41.5
41.5
37.0
0.8
1.1
1.1
1.1
0.6
5.22
42.9
41.6
42.6
42.6
37.6
5.21
Stockholders of the parent .....................................
Noncontrolling interests.........................................
Basic ...................................................................... 5.35
Diluted ................................................................... 5.33
Stockholders of the parent .....................................
Noncontrolling interests.........................................
Stockholders of the parent .....................................
Noncontrolling interests.........................................
Earnings per ADS equivalent:
Earnings per share:
Earnings per ADS equivalent:
Earnings per share:
Earnings per share:
Earnings per share:
40.5
1.1
41.6
52.19
52.11
53.49
53.34
47.66
47.58
54.19
54.06
53.49
53.40
1.3
0.0
1.3
5.22
5.21
5.35
5.34
5.42
5.41
0.16
0.16
1.61
1.61
2015
2014
2016
2015
2016
2016
US$
NT$
NT$
NT$
NT$
NT$
US$
NT$
US$
US$
231.8
226.6
230.0
7.1
(148.1)
(148.4)
(147.6)
(4.6)
83.7
78.2
82.4
2.5
(33.2)
(34.0)
(33.8)
(1.0)
230.0
231.8
7.1
(147.6)
(148.1)
(4.6)
82.4
83.7
2.5
(33.8)
(33.2)
(1.0)
230.0
7.1
(147.6)
(4.6)
82.4
2.5
(33.8)
(1.0)
(0.0)
(0.1)
(0.5)
0.6
50.4
44.8
48.1
1.5
0.0
1.6
1.8
1.3
52.0
46.6
49.4
1.5
(0.2)
(9.1)
(9.0)
(7.8)
42.9
37.6
41.6
1.3
42.1
37.0
40.5
1.3
0.0
0.8
0.6
1.1
42.9
37.6
41.6
1.3
0.16
5.42
4.77
5.22
0.16
5.41
4.76
5.21
54.19
47.66
52.19
1.61
54.06
47.58
52.11
1.61
(0.5)
(0.1)
(0.0)
48.1
50.4
1.5
1.3
1.6
0.0
49.4
52.0
1.5
(7.8)
(9.1)
(0.2)
41.6
42.9
1.3
40.5
42.1
1.3
1.1
0.8
0.0
41.6
42.9
1.3
5.22
5.42
0.16
5.21
5.41
0.16
52.19
54.19
1.61
52.11
54.06
1.61
(0.0)
(0.5)
48.1
1.5
0.0
1.3
49.4
1.5
(0.2)
(7.8)
41.6
1.3
40.5
1.3
0.0
1.1
41.6
1.3
0.16
5.22
0.16
5.21
52.19
1.61
52.11
1.61
7.1
(4.6)
2.5
(1.0)
(0.0)
1.5
0.0
1.5
(0.2)
1.3
1.3
0.0
1.3
0.16
0.16
1.61
1.61
230.0
7.1
228.0
226.6
231.8
(147.6)
(4.6)
(147.3)
(148.4)
(148.1)
82.4
2.5
80.7
78.2
83.7
(1.0)
(33.1)
(34.0)
(33.2)
(33.8)
(0.0)
0.1
0.6
(0.1)
(0.5)
48.1
1.5
47.7
44.8
50.4
1.3
0.0
1.4
1.8
1.6
49.4
1.5
49.1
46.6
52.0
(0.2)
(6.5)
(9.0)
(9.1)
(7.8)
1.3
41.6
42.6
37.6
42.9
40.5
1.3
41.5
37.0
42.1
0.0
1.1
0.6
0.8
1.1
1.3
41.6
42.6
37.6
42.9
5.22
0.16
5.35
4.77
5.42
0.16
5.34
4.76
5.41
5.21
52.19
1.61
53.49
47.66
54.19
1.61
53.40
47.58
54.06
52.11
3
2012
NT$
2013
NT$
As of December 31
2015
2014
NT$
NT$
(in billions)
2016
NT$
US$
Consolidated Balance Sheets Data:
Working capital ......................................................... 40.2
Long-term investments .............................................. 19.7
Property, plant and equipment ................................... 297.3
Investment properties ................................................. 7.8
Intangible assets ......................................................... 5.8
Net defined benefit assets .......................................... 0.0
Total assets ................................................................ 440.0
Short-term loans......................................................... 0.1
Current portion of long-term loans ............................ —
Long-term loans(2) ...................................................... 2.1
Customers’ deposits ................................................... 4.9
Net defined benefit liabilities ..................................... 4.6
Deferred revenue ....................................................... 3.8
Total liabilities ........................................................... 76.6
Net assets ................................................................... 363.4
Capital stock .............................................................. 77.6
Equity attributable to stockholders of the
parent ..................................................................... 359.1
Noncontrolling interests ............................................. 4.3
(0.3)
15.3
302.7
8.0
44.4
0.0
441.0
0.3
0.3
1.4
4.8
5.5
3.7
77.8
363.2
77.6
358.3
4.9
6.9
13.1
302.7
7.6
42.8
0.0
446.5
0.6
—
1.9
4.8
6.5
3.4
80.8
365.7
77.6
360.8
4.9
13.3
10.5
296.4
7.9
50.4
0.0
452.8
0.1
0.0
1.7
4.7
7.1
3.6
83.4
369.4
77.6
364.3
5.1
17.5
7.2
291.2
8.1
47.4
0.9
446.9
0.1
—
1.6
4.6
1.5
3.5
79.9
367.0
77.6
360.7
6.3
0.5
0.2
9.0
0.3
1.5
0.0
13.8
0.0
—
0.0
0.1
0.0
0.1
2.5
11.3
2.4
11.1
0.2
Year Ended December 31
2012
NT$
2013
NT$
2014
NT$
2015
NT$
2016
NT$
US$
(in billions, except for percentages
and per share)
Consolidated Cash Flows Data:
Net cash provided by operating activities .................. 65.6
Net cash used in investing activities .......................... (18.6)
Net cash used in financing activities .......................... (42.5)
4.5
Net increase (decrease) in cash and cash
equivalents .............................................................
Other Financial Data:
Gross margin(3) .......................................................... 36%
Operating margin(4) .................................................... 22%
Net margin(5) .............................................................. 19%
Capital expenditures .................................................. 33.3
Depreciation and amortization ................................... 32.2
Cash dividends declared per share ............................. 4.63(6)
Stock dividends declared per share ............................ —
75.3
(49.1)
(42.5)
(16.3)
35%
21%
18%
36.4
32.2
2.39(7)
—
71.4
(27.3)
(35.1)
9.0
35%
20%
16%
32.6
34.1
4.86
—
76.3
(30.4)
(39.2)
6.7
36%
22%
18%
25.1
33.4
5.49
—
65.0
(21.7)
(42.5)
0.8
36%
21%
18%
23.5
32.5
4.94(8)
—
2.0
2
(0.7)
(1.3)
0.0
36%
21%
18%
0.7
1.0
0.15(8)
—
(1)
Includes interest income of NT$742 million, NT$563 million, NT$288 million, NT$306 million and NT$189 million (US$5.8
million) for the years ended December 31, 2012, 2013, 2014, 2015 and 2016, respectively, and interest expense of NT$22 million,
NT$36 million, NT$46 million, NT$33 million and NT$20 million (US$0.6 million) for the years ended December 31, 2012, 2013,
2014, 2015 and 2016, respectively.
(2) Excludes current portion of long-term loans.
(3) Represents gross profit divided by revenues.
(4) Represents income from operations divided by revenues.
(5) Represents net income attributed to stockholders of the parent divided by revenues.
(6)
(7)
In addition to the cash dividends from unappropriated earnings disclosed in table above, we also made cash distributions of NT$0.72
per share, which amounted to an aggregate of NT$5.6 billion, from additional paid-in capital.
In addition to the cash dividends from unappropriated earnings disclosed in the table above, we also made cash distributions of
NT$2.14 per share, which amounted to an aggregate of NT$16.6 billion, from additional paid-in capital. See “Item 5. Operating and
Financial Review and Prospects—Overview—Effect of adopting Taiwan IFRSs on our dividends and employee bonuses.”
(8) Dividends for 2016, which are calculated based on Taiwan IFRSs, were approved by the board of directors in March 2017 and are
expected to be declared at our annual general stockholders’ meeting scheduled on June 23, 2017.
4
Currency Translations and Exchange Rates
For the convenience of readers, NT dollar amounts used in this annual report for, and as of, the year ended
December 31, 2016 have been translated into U.S. dollar amounts using US$1.00=NT$32.40, set forth in the
statistical release of the Federal Reserve Board on December 30, 2016. The U.S. dollar translation appears in
parentheses next to the relevant NT dollar amount. We make no representation that any New Taiwan dollar amounts
or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or NT
dollars, as the case may be, at any particular rate or at all. On April 14, 2017, the exchange rate was NT$30.31 to
US$1.00.
The following table sets forth, for each of the periods indicated, the low, average, high and period-end
exchange rates of the NT dollar, expressed in NT dollar per U.S. dollar. These rates are provided solely for your
convenience and are not necessarily the exchange rates that we used in this annual report or will use in the preparation
of our periodic reports or any other information to be provided to you.
Year Ended December 31
Average(1)
High
2012 .............................................................................................................
2013 .............................................................................................................
2014 .............................................................................................................
2015 .............................................................................................................
2016 .............................................................................................................
October ....................................................................................................
November ................................................................................................
December .................................................................................................
2017 (through April 14) ...............................................................................
January .....................................................................................................
February ...................................................................................................
March .......................................................................................................
April (through April 14)...........................................................................
29.56
29.73
30.38
31.80
32.13
31.59
31.75
32.00
30.63
31.65
30.85
30.65
30.47
30.27
30.20
31.80
33.17
33.74
31.79
32.01
32.42
32.37
32.37
31.17
31.03
30.63
Low
28.96
29.93
29.85
30.37
31.05
31.36
31.41
31.72
30.14
31.19
30.61
30.14
30.31
At Period
End
29.05
29.83
31.60
32.79
32.40
31.54
31.92
32.40
30.31
31.19
30.64
30.38
30.31
Source: Federal Reserve Statistical Release, Board of Governors of the Federal Reserve System.
(1) Annual averages are calculated using the average of exchange rates on the last day of each month during the period. Monthly
averages are calculated using the average of the daily rates during the relevant period.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
harmed.
Our business and operations are subject to various risks, many of which are beyond our control. If any of the
risks described below actually occurs, our business, financial condition or results of operations could be seriously
Risks Relating to Our Company and the Taiwan Telecommunications Industry
Extensive regulation of our industry may limit our flexibility to respond to market conditions and competition,
and our business may suffer.
As a telecommunications service provider in Taiwan, we are subject to extensive regulation. See “Item 4.
Information on the Company—B. Business Overview—Regulation” for a discussion of the regulatory environment
2012
NT$
2013
NT$
2016
NT$
US$
As of December 31
2014
NT$
2015
NT$
(in billions)
Consolidated Balance Sheets Data:
Working capital ......................................................... 40.2
Long-term investments .............................................. 19.7
Property, plant and equipment ................................... 297.3
Investment properties ................................................. 7.8
Intangible assets ......................................................... 5.8
Net defined benefit assets .......................................... 0.0
Total assets ................................................................ 440.0
Short-term loans......................................................... 0.1
Current portion of long-term loans ............................ —
Long-term loans(2) ...................................................... 2.1
Customers’ deposits ................................................... 4.9
Net defined benefit liabilities ..................................... 4.6
Deferred revenue ....................................................... 3.8
Total liabilities ........................................................... 76.6
Net assets ................................................................... 363.4
Capital stock .............................................................. 77.6
Equity attributable to stockholders of the
parent ..................................................................... 359.1
Noncontrolling interests ............................................. 4.3
(0.3)
15.3
302.7
8.0
44.4
0.0
441.0
0.3
0.3
1.4
4.8
5.5
3.7
77.8
363.2
77.6
358.3
4.9
Consolidated Cash Flows Data:
Net cash provided by operating activities .................. 65.6
Net cash used in investing activities .......................... (18.6)
Net cash used in financing activities .......................... (42.5)
Net increase (decrease) in cash and cash
4.5
equivalents .............................................................
Other Financial Data:
Gross margin(3) .......................................................... 36%
Operating margin(4) .................................................... 22%
Net margin(5) .............................................................. 19%
Capital expenditures .................................................. 33.3
Depreciation and amortization ................................... 32.2
Cash dividends declared per share ............................. 4.63(6)
Stock dividends declared per share ............................ —
75.3
(49.1)
(42.5)
(16.3)
35%
21%
18%
36.4
32.2
2.39(7)
—
6.9
13.1
302.7
7.6
42.8
0.0
446.5
0.6
—
1.9
4.8
6.5
3.4
80.8
365.7
77.6
360.8
4.9
71.4
(27.3)
(35.1)
9.0
35%
20%
16%
32.6
34.1
4.86
—
13.3
10.5
296.4
7.9
50.4
0.0
452.8
0.1
0.0
1.7
4.7
7.1
3.6
83.4
369.4
77.6
364.3
5.1
76.3
(30.4)
(39.2)
6.7
36%
22%
18%
25.1
33.4
5.49
—
17.5
7.2
291.2
8.1
47.4
0.9
446.9
0.1
—
1.6
4.6
1.5
3.5
79.9
367.0
77.6
360.7
6.3
0.5
0.2
9.0
0.3
1.5
0.0
13.8
0.0
—
0.0
0.1
0.0
0.1
2.5
11.3
2.4
11.1
0.2
65.0
(21.7)
(42.5)
0.8
36%
21%
18%
23.5
32.5
4.94(8)
—
2
(0.7)
(1.3)
0.0
36%
21%
18%
0.7
1.0
0.15(8)
—
Year Ended December 31
2012
NT$
2013
NT$
2014
NT$
2015
NT$
2016
NT$
US$
(in billions, except for percentages
and per share)
(1)
Includes interest income of NT$742 million, NT$563 million, NT$288 million, NT$306 million and NT$189 million (US$5.8
million) for the years ended December 31, 2012, 2013, 2014, 2015 and 2016, respectively, and interest expense of NT$22 million,
NT$36 million, NT$46 million, NT$33 million and NT$20 million (US$0.6 million) for the years ended December 31, 2012, 2013,
2014, 2015 and 2016, respectively.
(2) Excludes current portion of long-term loans.
(3) Represents gross profit divided by revenues.
(4) Represents income from operations divided by revenues.
(5) Represents net income attributed to stockholders of the parent divided by revenues.
(6)
In addition to the cash dividends from unappropriated earnings disclosed in table above, we also made cash distributions of NT$0.72
per share, which amounted to an aggregate of NT$5.6 billion, from additional paid-in capital.
(7)
In addition to the cash dividends from unappropriated earnings disclosed in the table above, we also made cash distributions of
NT$2.14 per share, which amounted to an aggregate of NT$16.6 billion, from additional paid-in capital. See “Item 5. Operating and
Financial Review and Prospects—Overview—Effect of adopting Taiwan IFRSs on our dividends and employee bonuses.”
(8) Dividends for 2016, which are calculated based on Taiwan IFRSs, were approved by the board of directors in March 2017 and are
expected to be declared at our annual general stockholders’ meeting scheduled on June 23, 2017.
Currency Translations and Exchange Rates
For the convenience of readers, NT dollar amounts used in this annual report for, and as of, the year ended
December 31, 2016 have been translated into U.S. dollar amounts using US$1.00=NT$32.40, set forth in the
statistical release of the Federal Reserve Board on December 30, 2016. The U.S. dollar translation appears in
parentheses next to the relevant NT dollar amount. We make no representation that any New Taiwan dollar amounts
or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or NT
dollars, as the case may be, at any particular rate or at all. On April 14, 2017, the exchange rate was NT$30.31 to
US$1.00.
The following table sets forth, for each of the periods indicated, the low, average, high and period-end
exchange rates of the NT dollar, expressed in NT dollar per U.S. dollar. These rates are provided solely for your
convenience and are not necessarily the exchange rates that we used in this annual report or will use in the preparation
of our periodic reports or any other information to be provided to you.
Year Ended December 31
2012 .............................................................................................................
2013 .............................................................................................................
2014 .............................................................................................................
2015 .............................................................................................................
2016 .............................................................................................................
October ....................................................................................................
November ................................................................................................
December .................................................................................................
2017 (through April 14) ...............................................................................
January .....................................................................................................
February ...................................................................................................
March .......................................................................................................
April (through April 14)...........................................................................
Average(1)
29.56
29.73
30.38
31.80
32.13
31.59
31.75
32.00
30.63
31.65
30.85
30.65
30.47
High
30.27
30.20
31.80
33.17
33.74
31.79
32.01
32.42
32.37
32.37
31.17
31.03
30.63
Low
28.96
29.93
29.85
30.37
31.05
31.36
31.41
31.72
30.14
31.19
30.61
30.14
30.31
At Period
End
29.05
29.83
31.60
32.79
32.40
31.54
31.92
32.40
30.31
31.19
30.64
30.38
30.31
Source: Federal Reserve Statistical Release, Board of Governors of the Federal Reserve System.
(1) Annual averages are calculated using the average of exchange rates on the last day of each month during the period. Monthly
averages are calculated using the average of the daily rates during the relevant period.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Our business and operations are subject to various risks, many of which are beyond our control. If any of the
risks described below actually occurs, our business, financial condition or results of operations could be seriously
harmed.
Risks Relating to Our Company and the Taiwan Telecommunications Industry
Extensive regulation of our industry may limit our flexibility to respond to market conditions and competition,
and our business may suffer.
As a telecommunications service provider in Taiwan, we are subject to extensive regulation. See “Item 4.
Information on the Company—B. Business Overview—Regulation” for a discussion of the regulatory environment
5
applicable to us. Any changes in the regulatory environment applicable to us may adversely affect our business,
financial condition and results of operations.
For example, the NCC has been focused on promulgating rules related to digital convergence. On August 3,
2016 the NCC published a new policy guideline, declaring to amend the framework governing digital convergence
and to develop draft laws. On January 4, 2017 the NCC announced the preliminary draft of “Telecommunications
Management Act” and the draft “Digital Communications Act” and solicited comments from the public. After
completing the public opinions collection, the NCC revised the draft and obtained approval from the Commission’s
meeting on April 5, 2017. The draft will be submitted to the Executive Yuan for review and consideration recently.
The draft covers the following key areas: (i) to reduce the entry barrier to the telecommunications markets by
changing the original concession/approval system to the approval/registration system; (ii) to make sure that the
general market players shall have only ordinary obligations to the minimum necessary extent, provided that certain
players possessing a dominant market position as published by the competent authority will be subject to more
stringent control measures; (iii) to revoke the right granted to telecommunications business to use private lands and
buildings under the existing Telecommunications Act; and (iv) to introduce the internet governance principle whereby
self-discipline and self-control are to be the main governance mechanism for the internet. The new draft laws will
reduce the entry barrier to the telecommunications market, which is expected to increase the competition in the
market. Also, it is likely that the Company will be regarded by the competent authority as possessing a dominant
market position in specific telecommunication service markets and will therefore be subject to special obligations
involving a higher level of control by the authority. In addition, in view of the revocation of the right granted to
telecommunications business to use private lands and buildings under the existing Telecommunications Act, the
difficulty in the developing infrastructure of telecommunications networks will be greatly increased.
The amendments to the Radio and Television Act, the Cable Radio and Television Act and the Satellite
Broadcasting Act were promulgated by the President on January 6, 2016. As these amendments focus primarily on
lessening restrictions on cable broadcasting companies’ business operating location and accelerating digital
construction in the cable broadcasting industry, we believe that our broadband internet and multimedia on demand, or
MOD, businesses may be faced with more vigorous competition. As the newly amended Radio and Television Act (a)
prohibits system operators from forcing content providers to offer differential treatment to other platforms in an
inappropriate way, and (b) provides a legal basis for licensed shopping channels to be listed on the MOD platform,
the amendment is helpful for our MOD to obtain more comprehensive program content. Since lawmakers have not
yet removed restrictions on governmental and political parties’ investments in the broadcasting industries, our MOD
business remains subject to such restrictions.
We have been designated by the government as a dominant provider of fixed communications and 2G and
3G mobile services within the meaning of applicable telecommunications regulations, and as a result, we are subject
to special additional requirements imposed by the NCC. For example, the regulation governing the setting and
changing of tariffs allows non-dominant telecommunications service providers greater freedom to set and change
tariffs within the range set by the government. If we are unable to respond effectively to tariff changes by our
competitors, our competitiveness, market position and profitability will be materially and adversely affected.
In particular, future decreases in tariff rates could immediately and substantially decrease our revenues. As a
dominant Type I service provider under the Republic of China Telecommunications Act, or Telecommunications Act,
we are constrained in our ability to raise prices. For example, the NCC adopted the first three-year tariff reduction
plan from April 2007 to March 2010, a second three-year tariff reduction plan from April 2010 to March 2013, and a
third four-year tariff reduction plan from April 2013 to March 2017, resulting in a number of price reductions in the
tariff structures relating to our domestic fixed communications and mobile communications services. On March 8,
2017, the NCC announced a new plan for tariff reductions effective from April 1, 2017 to March 31, 2020. The
reduction plan applies to the wholesale tariffs for IP peering and domestic leased line services, and to the monthly
fees for fixed-line broadband access services (excluding fiber-to-the-home, or FTTH, fiber-to-the-building, or FTTB,
asymmetric digital subscriber line, or ADSL, and the services which downlink and uplink speeds both over 100
Mbps). See “Item 4. Information on the Company—B. Business Overview—Regulation” and “Item 5. Operating and
Financial Review and Prospects—Overview—Tariff adjustments.” We cannot assure you that we will not be required
to further reduce our tariffs again in the future. Any mandatory tariff reductions could have a material adverse effect
on our revenues.
6
In addition, the relevant authority might require us to reduce tariffs over some services through other
regulatory measures or administrative planning. For example, after the article 14 of the Regulations Governing
Network Interconnection among Telecommunications Enterprises was amended,
the NCC announced an
administrative planning to decrease tariff in the mobile interconnection fees over a period of four years starting on
January 5, 2013. On November 4, 2015, the NCC reviewed and determined to decrease our fixed telecommunications
network interconnection fees and it was made retroactive since January 1, 2015. The regulatory framework within
which we operate may limit our flexibility to respond to market conditions, competition or changes.
If we fail to comply with the regulations of the ROC Fair Trade Act, we may be investigated and fined.
As a provider of telecommunication products and services, our business operations are subject to the
regulations of the ROC Fair Trade Act, or the FTA, which is administered and enforced by the ROC Fair Trade
Commission, or the FTC. The FTA requires, among other things, that the marketing and promotional materials of a
business to be true and not misleading. The FTA also prohibits a business from participating or engaging in a cartel or
other anti-competitive conduct. The FTC has the authority under the FTA to investigate and, where appropriate,
impose fines and penalties on a business that violates any regulations promulgated by the FTA. The consequences of
any such violations could have a material adverse effect on our business and results of operations. See “Item 4.
Information on the Company—B. Business Overview—Regulation” for a discussion of the FTA applicable to us. In
March 2015, the FTC found us liable for providing false and misleading data in advertisement comparing our services
against our competitors on our 100 million bits per second, or Mbps, fiber broadband plus TV programs service in the
PingTung area. The FTC consequently ordered us to pay a fine of NT$0.8 million, which we paid in March 2015. We
have been investigated and penalized by the FTC in the past and may continue to be investigated or penalized by the
FTC in the future if we fail to comply with the relevant regulations. As the FTA provides the FTC broad discretion to
interpret anti-competition actions and enforce the relevant clauses under the FTA, we are unable to predict whether
the FTC would initiate investigation on any of our daily business activities or find us liable for violating the FTA in
the future. The investigations of and penalties imposed by the FTC could interrupt our provision of products or
services and have a negative impact on our reputation, business operations and results of operations.
If we do not or are unable to obtain and maintain the licenses to operate our business, our busi-ness prospects
and future results of operations would be adversely affected.
We operate our businesses with approvals and licenses granted by the government. If these approvals or
licenses are revoked or suspended or are not renewed, or if we are unable to obtain any additional licenses that we
may need to operate or expand our business in the manner we desire, then our financial condition and results of
operations, as well as our prospects, will suffer. For example, our 3G mobile services license is valid until December
31, 2018, and may need to attend the auction for such license which will be held in the second half of 2017. On April
30, 2014, we obtained the mobile broadband services license adhering to the principle of technological neutrality for
our 4G mobile broadband services, which is valid until the end of 2030. On March 23, 2016, we obtained the mobile
broadband services license for 2500MHz and 2600MHz frequency bands, which is valid until the end of 2033. If we
are unable to successfully acquire and maintain the rights to use the licenses or frequency spectrums that we need for
our future business operations, our business prospects and future results of operations may be materially and
adversely affected. Furthermore, our 2G service license will expire in June 2017 and the NCC will not issue a new 2G
license to us in accordance with their policy to cease such 2G service in Taiwan. As a result, we may cease to provide
such 2G service by the end of August 2017 according to the discussion with the NCC. If some of the 2G service
customers are unwilling to migrate by the time, we may face complaint or even be liable for losses claimed from such
customers.
Increasing market competition may adversely affect our growth and profitability by causing us to lose
customers, charge lower tariffs or spend more on marketing.
As of the date of this annual report, there are five mobile network operators in Taiwan providing 4G mobile
broadband services. Each mobile network operator, including us, has been offering aggressive promotional programs
to attract consumers, such as unlimited data plans, when many mobile network operators around the world have
eliminated unlimited data plans. We cannot assure you that we will be able to raise our revenues from 4G mobile
broadband services in light of the intense market competition, which could have a material adverse effect on our
business prospects and our future results of operations.
applicable to us. Any changes in the regulatory environment applicable to us may adversely affect our business,
financial condition and results of operations.
For example, the NCC has been focused on promulgating rules related to digital convergence. On August 3,
2016 the NCC published a new policy guideline, declaring to amend the framework governing digital convergence
and to develop draft laws. On January 4, 2017 the NCC announced the preliminary draft of “Telecommunications
Management Act” and the draft “Digital Communications Act” and solicited comments from the public. After
completing the public opinions collection, the NCC revised the draft and obtained approval from the Commission’s
meeting on April 5, 2017. The draft will be submitted to the Executive Yuan for review and consideration recently.
The draft covers the following key areas: (i) to reduce the entry barrier to the telecommunications markets by
changing the original concession/approval system to the approval/registration system; (ii) to make sure that the
general market players shall have only ordinary obligations to the minimum necessary extent, provided that certain
players possessing a dominant market position as published by the competent authority will be subject to more
stringent control measures; (iii) to revoke the right granted to telecommunications business to use private lands and
buildings under the existing Telecommunications Act; and (iv) to introduce the internet governance principle whereby
self-discipline and self-control are to be the main governance mechanism for the internet. The new draft laws will
reduce the entry barrier to the telecommunications market, which is expected to increase the competition in the
market. Also, it is likely that the Company will be regarded by the competent authority as possessing a dominant
market position in specific telecommunication service markets and will therefore be subject to special obligations
involving a higher level of control by the authority. In addition, in view of the revocation of the right granted to
telecommunications business to use private lands and buildings under the existing Telecommunications Act, the
difficulty in the developing infrastructure of telecommunications networks will be greatly increased.
The amendments to the Radio and Television Act, the Cable Radio and Television Act and the Satellite
Broadcasting Act were promulgated by the President on January 6, 2016. As these amendments focus primarily on
lessening restrictions on cable broadcasting companies’ business operating location and accelerating digital
construction in the cable broadcasting industry, we believe that our broadband internet and multimedia on demand, or
MOD, businesses may be faced with more vigorous competition. As the newly amended Radio and Television Act (a)
prohibits system operators from forcing content providers to offer differential treatment to other platforms in an
inappropriate way, and (b) provides a legal basis for licensed shopping channels to be listed on the MOD platform,
the amendment is helpful for our MOD to obtain more comprehensive program content. Since lawmakers have not
yet removed restrictions on governmental and political parties’ investments in the broadcasting industries, our MOD
business remains subject to such restrictions.
We have been designated by the government as a dominant provider of fixed communications and 2G and
3G mobile services within the meaning of applicable telecommunications regulations, and as a result, we are subject
to special additional requirements imposed by the NCC. For example, the regulation governing the setting and
changing of tariffs allows non-dominant telecommunications service providers greater freedom to set and change
tariffs within the range set by the government. If we are unable to respond effectively to tariff changes by our
competitors, our competitiveness, market position and profitability will be materially and adversely affected.
In particular, future decreases in tariff rates could immediately and substantially decrease our revenues. As a
dominant Type I service provider under the Republic of China Telecommunications Act, or Telecommunications Act,
we are constrained in our ability to raise prices. For example, the NCC adopted the first three-year tariff reduction
plan from April 2007 to March 2010, a second three-year tariff reduction plan from April 2010 to March 2013, and a
third four-year tariff reduction plan from April 2013 to March 2017, resulting in a number of price reductions in the
tariff structures relating to our domestic fixed communications and mobile communications services. On March 8,
2017, the NCC announced a new plan for tariff reductions effective from April 1, 2017 to March 31, 2020. The
reduction plan applies to the wholesale tariffs for IP peering and domestic leased line services, and to the monthly
fees for fixed-line broadband access services (excluding fiber-to-the-home, or FTTH, fiber-to-the-building, or FTTB,
asymmetric digital subscriber line, or ADSL, and the services which downlink and uplink speeds both over 100
Mbps). See “Item 4. Information on the Company—B. Business Overview—Regulation” and “Item 5. Operating and
Financial Review and Prospects—Overview—Tariff adjustments.” We cannot assure you that we will not be required
to further reduce our tariffs again in the future. Any mandatory tariff reductions could have a material adverse effect
on our revenues.
In addition, the relevant authority might require us to reduce tariffs over some services through other
In addition, the relevant authority might require us to reduce tariffs over some services through other
regulatory measures or administrative planning. For example, after the article 14 of the Regulations Governing
regulatory measures or administrative planning. For example, after the article 14 of the Regulations Governing
Network Interconnection among Telecommunications Enterprises was amended, the NCC announced an
Network Interconnection among Telecommunications Enterprises was amended, the NCC announced an
administrative planning to decrease tariff in the mobile interconnection fees over a period of four years starting on
administrative planning to decrease tariff in the mobile interconnection fees over a period of four years starting on
January 5, 2013. On November 4, 2015, the NCC reviewed and determined to decrease our fixed telecommunications
January 5, 2013. On November 4, 2015, the NCC reviewed and determined to decrease our fixed telecommunications
network interconnection fees and it was made retroactive since January 1, 2015. The regulatory framework within
network interconnection fees and it was made retroactive since January 1, 2015. The regulatory framework within
which we operate may limit our flexibility to respond to market conditions, competition or changes.
which we operate may limit our flexibility to respond to market conditions, competition or changes.
If we fail to comply with the regulations of the ROC Fair Trade Act, we may be investigated and fined.
If we fail to comply with the regulations of the ROC Fair Trade Act, we may be investigated and fined.
As a provider of telecommunication products and services, our business operations are subject to the
As a provider of telecommunication products and services, our business operations are subject to the
regulations of the ROC Fair Trade Act, or the FTA, which is administered and enforced by the ROC Fair Trade
regulations of the ROC Fair Trade Act, or the FTA, which is administered and enforced by the ROC Fair Trade
Commission, or the FTC. The FTA requires, among other things, that the marketing and promotional materials of a
Commission, or the FTC. The FTA requires, among other things, that the marketing and promotional materials of a
business to be true and not misleading. The FTA also prohibits a business from participating or engaging in a cartel or
business to be true and not misleading. The FTA also prohibits a business from participating or engaging in a cartel or
other anti-competitive conduct. The FTC has the authority under the FTA to investigate and, where appropriate,
other anti-competitive conduct. The FTC has the authority under the FTA to investigate and, where appropriate,
impose fines and penalties on a business that violates any regulations promulgated by the FTA. The consequences of
impose fines and penalties on a business that violates any regulations promulgated by the FTA. The consequences of
any such violations could have a material adverse effect on our business and results of operations. See “Item 4.
any such violations could have a material adverse effect on our business and results of operations. See “Item 4.
Information on the Company—B. Business Overview—Regulation” for a discussion of the FTA applicable to us. In
Information on the Company—B. Business Overview—Regulation” for a discussion of the FTA applicable to us. In
March 2015, the FTC found us liable for providing false and misleading data in advertisement comparing our services
March 2015, the FTC found us liable for providing false and misleading data in advertisement comparing our services
against our competitors on our 100 million bits per second, or Mbps, fiber broadband plus TV programs service in the
against our competitors on our 100 million bits per second, or Mbps, fiber broadband plus TV programs service in the
PingTung area. The FTC consequently ordered us to pay a fine of NT$0.8 million, which we paid in March 2015. We
PingTung area. The FTC consequently ordered us to pay a fine of NT$0.8 million, which we paid in March 2015. We
have been investigated and penalized by the FTC in the past and may continue to be investigated or penalized by the
have been investigated and penalized by the FTC in the past and may continue to be investigated or penalized by the
FTC in the future if we fail to comply with the relevant regulations. As the FTA provides the FTC broad discretion to
FTC in the future if we fail to comply with the relevant regulations. As the FTA provides the FTC broad discretion to
interpret anti-competition actions and enforce the relevant clauses under the FTA, we are unable to predict whether
interpret anti-competition actions and enforce the relevant clauses under the FTA, we are unable to predict whether
the FTC would initiate investigation on any of our daily business activities or find us liable for violating the FTA in
the FTC would initiate investigation on any of our daily business activities or find us liable for violating the FTA in
the future. The investigations of and penalties imposed by the FTC could interrupt our provision of products or
the future. The investigations of and penalties imposed by the FTC could interrupt our provision of products or
services and have a negative impact on our reputation, business operations and results of operations.
services and have a negative impact on our reputation, business operations and results of operations.
If we do not or are unable to obtain and maintain the licenses to operate our business, our busi-ness prospects
If we do not or are unable to obtain and maintain the licenses to operate our business, our busi-ness prospects
and future results of operations would be adversely affected.
and future results of operations would be adversely affected.
We operate our businesses with approvals and licenses granted by the government. If these approvals or
We operate our businesses with approvals and licenses granted by the government. If these approvals or
licenses are revoked or suspended or are not renewed, or if we are unable to obtain any additional licenses that we
licenses are revoked or suspended or are not renewed, or if we are unable to obtain any additional licenses that we
may need to operate or expand our business in the manner we desire, then our financial condition and results of
may need to operate or expand our business in the manner we desire, then our financial condition and results of
operations, as well as our prospects, will suffer. For example, our 3G mobile services license is valid until December
operations, as well as our prospects, will suffer. For example, our 3G mobile services license is valid until December
31, 2018, and may need to attend the auction for such license which will be held in the second half of 2017. On April
31, 2018, and may need to attend the auction for such license which will be held in the second half of 2017. On April
30, 2014, we obtained the mobile broadband services license adhering to the principle of technological neutrality for
30, 2014, we obtained the mobile broadband services license adhering to the principle of technological neutrality for
our 4G mobile broadband services, which is valid until the end of 2030. On March 23, 2016, we obtained the mobile
our 4G mobile broadband services, which is valid until the end of 2030. On March 23, 2016, we obtained the mobile
broadband services license for 2500MHz and 2600MHz frequency bands, which is valid until the end of 2033. If we
broadband services license for 2500MHz and 2600MHz frequency bands, which is valid until the end of 2033. If we
are unable to successfully acquire and maintain the rights to use the licenses or frequency spectrums that we need for
are unable to successfully acquire and maintain the rights to use the licenses or frequency spectrums that we need for
our future business operations, our business prospects and future results of operations may be materially and
our future business operations, our business prospects and future results of operations may be materially and
adversely affected. Furthermore, our 2G service license will expire in June 2017 and the NCC will not issue a new 2G
adversely affected. Furthermore, our 2G service license will expire in June 2017 and the NCC will not issue a new 2G
license to us in accordance with their policy to cease such 2G service in Taiwan. As a result, we may cease to provide
license to us in accordance with their policy to cease such 2G service in Taiwan. As a result, we may cease to provide
such 2G service by the end of August 2017 according to the discussion with the NCC. If some of the 2G service
such 2G service by the end of August 2017 according to the discussion with the NCC. If some of the 2G service
customers are unwilling to migrate by the time, we may face complaint or even be liable for losses claimed from such
customers are unwilling to migrate by the time, we may face complaint or even be liable for losses claimed from such
customers.
customers.
Increasing market competition may adversely affect our growth and profitability by causing us to lose
Increasing market competition may adversely affect our growth and profitability by causing us to lose
customers, charge lower tariffs or spend more on marketing.
customers, charge lower tariffs or spend more on marketing.
As of the date of this annual report, there are five mobile network operators in Taiwan providing 4G mobile
As of the date of this annual report, there are five mobile network operators in Taiwan providing 4G mobile
broadband services. Each mobile network operator, including us, has been offering aggressive promotional programs
broadband services. Each mobile network operator, including us, has been offering aggressive promotional programs
to attract consumers, such as unlimited data plans, when many mobile network operators around the world have
to attract consumers, such as unlimited data plans, when many mobile network operators around the world have
eliminated unlimited data plans. We cannot assure you that we will be able to raise our revenues from 4G mobile
eliminated unlimited data plans. We cannot assure you that we will be able to raise our revenues from 4G mobile
broadband services in light of the intense market competition, which could have a material adverse effect on our
broadband services in light of the intense market competition, which could have a material adverse effect on our
business prospects and our future results of operations.
business prospects and our future results of operations.
7
We also face increasing fixed broadband competition from cable operators. Cable operators have been using
We also face increasing fixed broadband competition from cable operators. Cable operators have been using
low-priced internet access packages to attract new customers in specific areas and buildings in Taiwan. The
low-priced internet access packages to attract new customers in specific areas and buildings in Taiwan. The
government has mandated the 100% digitization of cable television networks by December 31, 2017, which would
government has mandated the 100% digitization of cable television networks by December 31, 2017, which would
increase the availability of high-speed internet services from cable operators. Furthermore, after the NCC relaxed the
increase the availability of high-speed internet services from cable operators. Furthermore, after the NCC relaxed the
zoning restrictions on service areas for cable operators on July 27, 2012, new cable operators started to attract
zoning restrictions on service areas for cable operators on July 27, 2012, new cable operators started to attract
subscribers with limited channels and lower fee charges. As a result, we could face increased competition for our
subscribers with limited channels and lower fee charges. As a result, we could face increased competition for our
broadband access services and MOD IPTV services. If we are unable to compete successfully with the cable operators
broadband access services and MOD IPTV services. If we are unable to compete successfully with the cable operators
for broadband access services and MOD businesses, our results of operations could be impacted.
for broadband access services and MOD businesses, our results of operations could be impacted.
In addition, our over the top, or OTT, business may not able to compete with video streaming providers such
In addition, our over the top, or OTT, business may not able to compete with video streaming providers such
as Netflix, Inc. and iQiyi, which invest extensively in contents and productions of original films and TV series. Our
as Netflix, Inc. and iQiyi, which invest extensively in contents and productions of original films and TV series. Our
OTT customers might be attracted by its massive and exclusive titles, and our OTT business growth might slow down
OTT customers might be attracted by its massive and exclusive titles, and our OTT business growth might slow down
and be limited.
and be limited.
As the mobile data access speeds have increased with newer technologies, such as 4G Long Term Evolution,
As the mobile data access speeds have increased with newer technologies, such as 4G Long Term Evolution,
or LTE, some customers have replaced fixed broadband services with high speed mobile broadband services. Rates of
or LTE, some customers have replaced fixed broadband services with high speed mobile broadband services. Rates of
customer growth have declined in our fixed broadband and mobile businesses and may decline further, which may
customer growth have declined in our fixed broadband and mobile businesses and may decline further, which may
bring about further decreases in tariff rates and necessitate increases in our selling and promotional expenses. Any of
bring about further decreases in tariff rates and necessitate increases in our selling and promotional expenses. Any of
these developments could adversely affect our business, financial condition and results of operations.
these developments could adversely affect our business, financial condition and results of operations.
Our ability to deliver services may be disrupted due to a systems failure, shutdown in our net-works,
Our ability to deliver services may be disrupted due to a systems failure, shutdown in our net-works,
earthquakes or other natural disasters.
earthquakes or other natural disasters.
Taiwan is susceptible to earthquakes and typhoons. However, we do not carry insurance to cover damage
Taiwan is susceptible to earthquakes and typhoons. However, we do not carry insurance to cover damage
caused by earthquakes, typhoons or other natural disasters or any resulting business interruption. Our services are
caused by earthquakes, typhoons or other natural disasters or any resulting business interruption. Our services are
currently carried through our fixed and mobile communications networks, as well as through our transmission
currently carried through our fixed and mobile communications networks, as well as through our transmission
networks consisting of optical fiber cable, microwave, submarine cable and satellite transmission links, which could
networks consisting of optical fiber cable, microwave, submarine cable and satellite transmission links, which could
be vulnerable to damage or interruptions in operations due to natural disasters. For example, in 2016, we recorded
be vulnerable to damage or interruptions in operations due to natural disasters. For example, in 2016, we recorded
losses on property, plant and equipment arising from natural disasters such as earthquakes and typhoons in the
losses on property, plant and equipment arising from natural disasters such as earthquakes and typhoons in the
amount of approximately NT$11.2 million (US$0.3 million). The occurrence of natural disasters could impact our
amount of approximately NT$11.2 million (US$0.3 million). The occurrence of natural disasters could impact our
ability to deliver services and have a negative effect on our results of operations.
ability to deliver services and have a negative effect on our results of operations.
Furthermore, we might also be liable for losses claimed from our customers that were incurred from our
Furthermore, we might also be liable for losses claimed from our customers that were incurred from our
failure to deliver our services. These potential liabilities could also have a material adverse effect on our results of
failure to deliver our services. These potential liabilities could also have a material adverse effect on our results of
operations.
operations.
We are subject to litigation or other legal proceedings that could expose us to substantial liabilities.
We are subject to litigation or other legal proceedings that could expose us to substantial liabilities.
We are from time to time involved in various litigation, arbitration or administrative proceedings in the
We are from time to time involved in various litigation, arbitration or administrative proceedings in the
ordinary course of our business. Any such claims, whether with or without merit, asserted or threatened, could be
ordinary course of our business. Any such claims, whether with or without merit, asserted or threatened, could be
time-consuming and expensive to defend and could divert our management’s attention and resources. See “Item 4.
time-consuming and expensive to defend and could divert our management’s attention and resources. See “Item 4.
Information on the Company—B. Business Overview—Legal Proceedings.” We cannot predict the outcome of these
Information on the Company—B. Business Overview—Legal Proceedings.” We cannot predict the outcome of these
proceedings, and we cannot assure you that if a judgment is rendered against us in any or all of these proceedings, our
proceedings, and we cannot assure you that if a judgment is rendered against us in any or all of these proceedings, our
financial condition and results of operations would not be materially and adversely affected.
financial condition and results of operations would not be materially and adversely affected.
We depend on select personnel and could be affected by the loss of their services.
We depend on select personnel and could be affected by the loss of their services.
We depend on the continued service of our executive officers and skilled technical and other personnel. Our
We depend on the continued service of our executive officers and skilled technical and other personnel. Our
business could suffer if we lose the services of any of these personnel and cannot adequately replace them. In
business could suffer if we lose the services of any of these personnel and cannot adequately replace them. In
particular, we are not insured against the loss of any of our personnel. We may not be able to retain our present
particular, we are not insured against the loss of any of our personnel. We may not be able to retain our present
personnel or attract additional qualified personnel as and when needed. Moreover, we may be required to increase
personnel or attract additional qualified personnel as and when needed. Moreover, we may be required to increase
substantially the number of these employees in connection with any expansion, and there is intense competition for
substantially the number of these employees in connection with any expansion, and there is intense competition for
experienced personnel in the Taiwan telecommunications industry. The major three telecom operators in Taiwan,
experienced personnel in the Taiwan telecommunications industry. The major three telecom operators in Taiwan,
including us, are expanding the information and communication technology, or ICT, business and may increase the
including us, are expanding the information and communication technology, or ICT, business and may increase the
number of their employees as part of this expansion. In addition to telecom operators, some computer design
number of their employees as part of this expansion. In addition to telecom operators, some computer design
8
companies and manufacturers are also expanding their business into this area and have been recruiting information
technology related employees as well. We cannot assure you that we will be able to successfully attract and retain
new information technology related employees. In addition, we may need to increase employee compensation levels
in order to attract and retain personnel. We cannot assure you that the loss of the services of any of these personnel
would not disrupt our business and operations and materially and adversely affect the quality of our services and harm
our reputation.
We may not realize the benefits we expect from our investments, and this may materially and adversely affect
our business, financial condition, results of operations and prospects.
We have made significant capital investments in our network infrastructure and information technology
systems to provide the services we offer. In order to continue to develop our business and offer new and more
sophisticated services, we intend to continue to invest in different areas as well as new technologies. The launch of
new and commercially viable products and services is important to the success of our business. We expect to continue
making substantial capital expenditures to further develop our range of services and products.
Commercial acceptance by consumers of the new and more sophisticated services we offer may not occur at
the rate or level expected, and we may not be able to successfully adapt these services to effectively and economically
meet our customers’ demand, thus impairing the expected return from our investments.
We cannot assure you that services enabled by the new technologies we are implementing, such as Internet
of Things, or IoT, software-defined network, or SDN, network functions virtualization, or NFV, LTE WLAN
aggregation, or LWA, license assisted access, or LAA, voice over LTE, or VoLTE, will be accepted by the public to
the extent required to generate an acceptable rate of return. In addition, we could face the risk of unforeseen
complications in the deployment of these new services and technologies, and we cannot assure you that we will not
exceed our estimate of the necessary capital expenditure to offer such services. New services and technologies may
not be developed and/or deployed according to expected schedules or may not achieve commercial acceptance or be
cost effective.
The failure of any of our services to achieve commercial acceptance could result in additional capital
expenditures or a reduction in profitability to the extent that we are required under applicable accounting standards to
recognize a charge for impairment of assets. Any such charge could materially and adversely affect our financial
condition and results of operations. We recognized impairment losses for investment properties, equipment and
intangible assets in the past. In 2016, we concluded that the recoverable amount representing the fair value less costs
to sell investment properties was higher than the carrying amount. Therefore, we recognized a reversal of impairment
loss of NT$0.1 billion (US$4.6 million) and the amount was recognized only to the extent of impairment losses that
had been recognized in prior years. In 2016, we also determined that parts of our telecommunications equipment were
impaired and recognized an impairment loss of NT$0.6 billion (US$18.4 million).
We cannot assure you that we will be able to continue to maintain control of and consolidate the results of
operations of our minority-owned subsidiaries. For example, we consolidate the results of operations of our
subsidiary, Senao International Co., Ltd., or Senao, because we have remained control over Senao’s relevant
activities. Please refer to Note 3 and Note 15 to our consolidated financial statements included elsewhere in this
annual report for details of the relationship between Senao and its parent company. We cannot assure you that we will
be able to continue maintaining control over Senao’s relevant activities. If we lose control of our minority-owned
subsidiary, we will no longer be able to consolidate the results of operations of such subsidiary, which could
adversely affect our consolidated results of operations and ability to meet the operating results guidance that we have
projected.
We may also from time to time make equity investments in companies, but we cannot assure you of their
profitability. We cannot assure you that losses related to our equity investments will not have a material adverse effect
on our financial condition or results of operations. In 2016, we evaluated and concluded that certain investments were
impaired, and as a result we recognized an impairment loss of NT$0.6 billion (US$17.8 million) for available-for-sale
financial assets due to the decline in fair value owing to adverse changes in the industry conditions and the operating
performance that was below our expectations. We may be required to record additional impairment charges in future
periods, which may have a material adverse effect on our financial condition and future results of operations.
We also face increasing fixed broadband competition from cable operators. Cable operators have been using
low-priced internet access packages to attract new customers in specific areas and buildings in Taiwan. The
government has mandated the 100% digitization of cable television networks by December 31, 2017, which would
increase the availability of high-speed internet services from cable operators. Furthermore, after the NCC relaxed the
zoning restrictions on service areas for cable operators on July 27, 2012, new cable operators started to attract
subscribers with limited channels and lower fee charges. As a result, we could face increased competition for our
broadband access services and MOD IPTV services. If we are unable to compete successfully with the cable operators
for broadband access services and MOD businesses, our results of operations could be impacted.
In addition, our over the top, or OTT, business may not able to compete with video streaming providers such
as Netflix, Inc. and iQiyi, which invest extensively in contents and productions of original films and TV series. Our
OTT customers might be attracted by its massive and exclusive titles, and our OTT business growth might slow down
and be limited.
As the mobile data access speeds have increased with newer technologies, such as 4G Long Term Evolution,
or LTE, some customers have replaced fixed broadband services with high speed mobile broadband services. Rates of
customer growth have declined in our fixed broadband and mobile businesses and may decline further, which may
bring about further decreases in tariff rates and necessitate increases in our selling and promotional expenses. Any of
these developments could adversely affect our business, financial condition and results of operations.
Our ability to deliver services may be disrupted due to a systems failure, shutdown in our net-works,
earthquakes or other natural disasters.
Taiwan is susceptible to earthquakes and typhoons. However, we do not carry insurance to cover damage
caused by earthquakes, typhoons or other natural disasters or any resulting business interruption. Our services are
currently carried through our fixed and mobile communications networks, as well as through our transmission
networks consisting of optical fiber cable, microwave, submarine cable and satellite transmission links, which could
be vulnerable to damage or interruptions in operations due to natural disasters. For example, in 2016, we recorded
losses on property, plant and equipment arising from natural disasters such as earthquakes and typhoons in the
amount of approximately NT$11.2 million (US$0.3 million). The occurrence of natural disasters could impact our
ability to deliver services and have a negative effect on our results of operations.
Furthermore, we might also be liable for losses claimed from our customers that were incurred from our
failure to deliver our services. These potential liabilities could also have a material adverse effect on our results of
operations.
We are subject to litigation or other legal proceedings that could expose us to substantial liabilities.
We are from time to time involved in various litigation, arbitration or administrative proceedings in the
ordinary course of our business. Any such claims, whether with or without merit, asserted or threatened, could be
time-consuming and expensive to defend and could divert our management’s attention and resources. See “Item 4.
Information on the Company—B. Business Overview—Legal Proceedings.” We cannot predict the outcome of these
proceedings, and we cannot assure you that if a judgment is rendered against us in any or all of these proceedings, our
financial condition and results of operations would not be materially and adversely affected.
We depend on select personnel and could be affected by the loss of their services.
We depend on the continued service of our executive officers and skilled technical and other personnel. Our
business could suffer if we lose the services of any of these personnel and cannot adequately replace them. In
particular, we are not insured against the loss of any of our personnel. We may not be able to retain our present
personnel or attract additional qualified personnel as and when needed. Moreover, we may be required to increase
substantially the number of these employees in connection with any expansion, and there is intense competition for
experienced personnel in the Taiwan telecommunications industry. The major three telecom operators in Taiwan,
including us, are expanding the information and communication technology, or ICT, business and may increase the
number of their employees as part of this expansion. In addition to telecom operators, some computer design
companies and manufacturers are also expanding their business into this area and have been recruiting information
technology related employees as well. We cannot assure you that we will be able to successfully attract and retain
new information technology related employees. In addition, we may need to increase employee compensation levels
in order to attract and retain personnel. We cannot assure you that the loss of the services of any of these personnel
would not disrupt our business and operations and materially and adversely affect the quality of our services and harm
our reputation.
We may not realize the benefits we expect from our investments, and this may materially and adversely affect
our business, financial condition, results of operations and prospects.
We have made significant capital investments in our network infrastructure and information technology
systems to provide the services we offer. In order to continue to develop our business and offer new and more
sophisticated services, we intend to continue to invest in different areas as well as new technologies. The launch of
new and commercially viable products and services is important to the success of our business. We expect to continue
making substantial capital expenditures to further develop our range of services and products.
Commercial acceptance by consumers of the new and more sophisticated services we offer may not occur at
the rate or level expected, and we may not be able to successfully adapt these services to effectively and economically
meet our customers’ demand, thus impairing the expected return from our investments.
We cannot assure you that services enabled by the new technologies we are implementing, such as Internet
of Things, or IoT, software-defined network, or SDN, network functions virtualization, or NFV, LTE WLAN
aggregation, or LWA, license assisted access, or LAA, voice over LTE, or VoLTE, will be accepted by the public to
the extent required to generate an acceptable rate of return. In addition, we could face the risk of unforeseen
complications in the deployment of these new services and technologies, and we cannot assure you that we will not
exceed our estimate of the necessary capital expenditure to offer such services. New services and technologies may
not be developed and/or deployed according to expected schedules or may not achieve commercial acceptance or be
cost effective.
The failure of any of our services to achieve commercial acceptance could result in additional capital
expenditures or a reduction in profitability to the extent that we are required under applicable accounting standards to
recognize a charge for impairment of assets. Any such charge could materially and adversely affect our financial
condition and results of operations. We recognized impairment losses for investment properties, equipment and
intangible assets in the past. In 2016, we concluded that the recoverable amount representing the fair value less costs
to sell investment properties was higher than the carrying amount. Therefore, we recognized a reversal of impairment
loss of NT$0.1 billion (US$4.6 million) and the amount was recognized only to the extent of impairment losses that
had been recognized in prior years. In 2016, we also determined that parts of our telecommunications equipment were
impaired and recognized an impairment loss of NT$0.6 billion (US$18.4 million).
We cannot assure you that we will be able to continue to maintain control of and consolidate the results of
operations of our minority-owned subsidiaries. For example, we consolidate the results of operations of our
subsidiary, Senao International Co., Ltd., or Senao, because we have remained control over Senao’s relevant
activities. Please refer to Note 3 and Note 15 to our consolidated financial statements included elsewhere in this
annual report for details of the relationship between Senao and its parent company. We cannot assure you that we will
be able to continue maintaining control over Senao’s relevant activities. If we lose control of our minority-owned
subsidiary, we will no longer be able to consolidate the results of operations of such subsidiary, which could
adversely affect our consolidated results of operations and ability to meet the operating results guidance that we have
projected.
We may also from time to time make equity investments in companies, but we cannot assure you of their
profitability. We cannot assure you that losses related to our equity investments will not have a material adverse effect
on our financial condition or results of operations. In 2016, we evaluated and concluded that certain investments were
impaired, and as a result we recognized an impairment loss of NT$0.6 billion (US$17.8 million) for available-for-sale
financial assets due to the decline in fair value owing to adverse changes in the industry conditions and the operating
performance that was below our expectations. We may be required to record additional impairment charges in future
periods, which may have a material adverse effect on our financial condition and future results of operations.
9
Changes in technology may render our current technologies obsolete or require us to obtain licenses for
Changes in technology may render our current technologies obsolete or require us to obtain licenses for
introducing new services or make substantial capital investments, financing for which may not be available to
introducing new services or make substantial capital investments, financing for which may not be available to
us on favorable commercial terms or at all.
us on favorable commercial terms or at all.
The telecommunications industry in Taiwan has been characterized by rapid increases in the diversity and
The telecommunications industry in Taiwan has been characterized by rapid increases in the diversity and
sophistication of the technologies and services offered. As a result, we expect that we will need to constantly upgrade
sophistication of the technologies and services offered. As a result, we expect that we will need to constantly upgrade
our telecommunications technologies and services in order to respond to competitive industry conditions and
our telecommunications technologies and services in order to respond to competitive industry conditions and
customer requirements. Developments of new technologies have rendered some less advanced technologies unpopular
customer requirements. Developments of new technologies have rendered some less advanced technologies unpopular
or obsolete. If we fail to develop, or obtain timely access to, new technologies and equipment, or if we fail to obtain
or obsolete. If we fail to develop, or obtain timely access to, new technologies and equipment, or if we fail to obtain
the necessary licenses to provide services using these new technologies, we may lose our customers and market share
the necessary licenses to provide services using these new technologies, we may lose our customers and market share
and become less profitable.
and become less profitable.
In addition, the cost of implementing new technologies, upgrading our networks or expanding capacity could
In addition, the cost of implementing new technologies, upgrading our networks or expanding capacity could
be significant. In particular, we have made and will continue to make substantial capital expenditures in the near
be significant. In particular, we have made and will continue to make substantial capital expenditures in the near
future in order to effectively respond to technological changes, such as the continued expansion of our fiber optic
future in order to effectively respond to technological changes, such as the continued expansion of our fiber optic
networks and 4G mobile broadband networks. To meet the increasingly robust high-bandwidth requirements of digital
networks and 4G mobile broadband networks. To meet the increasingly robust high-bandwidth requirements of digital
convergence services, we continue to expand construction of fiber optic networks, including passive optical networks,
convergence services, we continue to expand construction of fiber optic networks, including passive optical networks,
or PONs, and optical distribution networks, or ODNs. With respect to 4G mobile broadband networks, in December
or PONs, and optical distribution networks, or ODNs. With respect to 4G mobile broadband networks, in December
2014, we expanded the network coverage by refarming the 900MHz frequency band from 2G to 4G mobile
2014, we expanded the network coverage by refarming the 900MHz frequency band from 2G to 4G mobile
broadband and began implementing the carrier aggregation, or CA, technology of LTE-Advanced, or LTE-A, in the
broadband and began implementing the carrier aggregation, or CA, technology of LTE-Advanced, or LTE-A, in the
900MHz and 1800MHz frequency bands to provide higher data transmission rates. Also, we continue to deploy 4G
900MHz and 1800MHz frequency bands to provide higher data transmission rates. Also, we continue to deploy 4G
mobile broadband base stations with 900MHz, 1800MHz, and 2600MHz frequency bands of mobile broadband
mobile broadband base stations with 900MHz, 1800MHz, and 2600MHz frequency bands of mobile broadband
services and to enhance our 4G mobile broadband coverage and capacity. To the extent these expenditures exceed our
services and to enhance our 4G mobile broadband coverage and capacity. To the extent these expenditures exceed our
cash resources, we will be required to seek additional debt or equity financing. Our ability to obtain additional
cash resources, we will be required to seek additional debt or equity financing. Our ability to obtain additional
financing on favorable commercial terms will depend on a number of factors. These factors include our financial
financing on favorable commercial terms will depend on a number of factors. These factors include our financial
condition, results of operations, cash flows and the prevailing market conditions in the domestic and international
condition, results of operations, cash flows and the prevailing market conditions in the domestic and international
telecommunications industry, the cost of financing and conditions in the financial markets, and the issuance of
telecommunications industry, the cost of financing and conditions in the financial markets, and the issuance of
relevant government and other regulatory approvals. Any inability to obtain the funding for our capital expenditures
relevant government and other regulatory approvals. Any inability to obtain the funding for our capital expenditures
on commercially acceptable terms could jeopardize our expansion plans and materially and adversely affect our
on commercially acceptable terms could jeopardize our expansion plans and materially and adversely affect our
business prospects and future results of operations.
business prospects and future results of operations.
If new technologies adopted by us do not perform as expected, or if we are unable to effectively deliver new
If new technologies adopted by us do not perform as expected, or if we are unable to effectively deliver new
services based on these technologies in a commercially viable manner, our revenue growth and profitability
services based on these technologies in a commercially viable manner, our revenue growth and profitability
will decline.
will decline.
We are constantly evaluating new growth opportunities in the broader telecommunications industry. Some of
We are constantly evaluating new growth opportunities in the broader telecommunications industry. Some of
these opportunities involve new services for which there are no proven markets, and may not develop as expected.
these opportunities involve new services for which there are no proven markets, and may not develop as expected.
Our ability to deploy and deliver these services will depend, in many instances, on new but unproven technologies.
Our ability to deploy and deliver these services will depend, in many instances, on new but unproven technologies.
These new technologies may not perform as expected or generate an acceptable rate of return. In addition, we may not
These new technologies may not perform as expected or generate an acceptable rate of return. In addition, we may not
be able to successfully develop new technologies to effectively and economically deliver these services, or be able to
be able to successfully develop new technologies to effectively and economically deliver these services, or be able to
compete successfully in the delivery of telecommunications services based on new technologies. Furthermore, the
compete successfully in the delivery of telecommunications services based on new technologies. Furthermore, the
success of our IoT services is substantially dependent on the availability of applications and devices that are being
success of our IoT services is substantially dependent on the availability of applications and devices that are being
developed by third-party developers, and on whether we will be able to achieve a sustainable business model for
developed by third-party developers, and on whether we will be able to achieve a sustainable business model for
consumer segments of the market. These applications or devices may not be sufficiently developed to support the
consumer segments of the market. These applications or devices may not be sufficiently developed to support the
deployment of our mobile data services. If we are unable to deliver commercially viable services based on the new
deployment of our mobile data services. If we are unable to deliver commercially viable services based on the new
technologies that we adopt, our financial condition and results of operations may be materially and adversely affected.
technologies that we adopt, our financial condition and results of operations may be materially and adversely affected.
As an internet service provider, we may not be able to protect our customers and their infor-mation from cyber
As an internet service provider, we may not be able to protect our customers and their infor-mation from cyber
attacks, nor protect our services from disruptions due to cyber security breaches.
attacks, nor protect our services from disruptions due to cyber security breaches.
As an internet service provider, our system is susceptible to cyber security risks, including hijack attacks,
As an internet service provider, our system is susceptible to cyber security risks, including hijack attacks,
phishing attacks, hacker’s intrusions to steal customer’s information and distributed denial-of-service (DDoS) attacks.
phishing attacks, hacker’s intrusions to steal customer’s information and distributed denial-of-service (DDoS) attacks.
Our online services such as e-bills and multiple payment options through the internet are also vulnerable to cyber
Our online services such as e-bills and multiple payment options through the internet are also vulnerable to cyber
attacks. These attacks may disrupt our services and cause leakage of our customers’ personal information, which may
attacks. These attacks may disrupt our services and cause leakage of our customers’ personal information, which may
result in significant damage and material adverse effect to our customers and our operations. We cannot assure you
result in significant damage and material adverse effect to our customers and our operations. We cannot assure you
that our data protection measures are sufficient to prevent any data leakage or disruption of our service due to cyber
that our data protection measures are sufficient to prevent any data leakage or disruption of our service due to cyber
attacks. We may suffer negative consequences, such as remedial costs, increased cyber security protection costs, lost
revenues, litigation and reputational damage due to cyber attacks.
Our largest stockholder may take actions that conflict with our public stockholders’ best interests.
As of December 31, 2016, our largest shareholder, the government of the ROC, through the MOTC, owned
approximately 35.29% of our outstanding common shares. Accordingly, the government, through its control over our
board, as all non-independent board members were appointed by the MOTC, may continue to have the ability to
control our business, including matters relating to:
•
•
•
•
•
•
any sale of all or substantially all of our assets;
the approval of our annual operation and projects budget;
the composition of our senior management;
the timing and distribution of dividends;
the election of a majority of our directors; and
our business activities and direction.
We cannot assure you that our largest shareholder will not take actions that impair our ability to conduct our
business competitively or conflict with the best interests of our public stockholders.
Actual or perceived health risks related to mobile handsets and base stations could lead to decreased mobile
service usage and difficulties in increasing network coverage and could expose us to potential liability.
According to some published reports, the electromagnetic signals from mobile handsets and cellular base
stations may pose health risks or interfere with the operation of electronic equipment. Although the findings of those
reports are disputed, actual or perceived risks of using mobile communications devices or of cellular base stations
could have a material adverse effect on mobile service providers, including us. For example, our customer base could
be reduced, our customers may reduce their usage of our mobile services, we could encounter difficulties in obtaining
sites for additional cellular base stations required to expand our network coverage or we may be requested to reduce
the number of existing cellular base stations. As a result, our mobile services business may generate less revenue and
our financial condition and results of operations may be materially and adversely affected. In addition, we could be
exposed to potential liability for any health problems caused by mobile handsets and base stations.
Investor confidence in us may be adversely impacted if we or our independent registered public accountants
are unable to attest to or express an unqualified opinion on the effectiveness of our internal control over
financial reporting.
We are subject to the reporting requirements of the SEC. The SEC, as directed by Section 404 of the U.S.
Sarbanes-Oxley Act of 2002, adopted rules requiring U.S. public companies to include a report of management on our
internal control over financial reporting in their annual reports that contain an assessment by management of the
effectiveness of our internal control over financial reporting. The effectiveness of our internal control over financial
reporting has been audited by Deloitte & Touche, an independent registered public accounting firm, which has also
audited our consolidated financial statements for the year ended December 31, 2016. Deloitte & Touche has issued an
attestation report on the effectiveness of our internal control over financial reporting in accordance with the standards
of the Public Company Accounting Oversight Board (United States). See “Item 15. Controls and Procedures—
Attestation Report of the Registered Public Accounting Firm.”
While the management report included in this annual report concluded that our internal control over financial
reporting was effective, we cannot assure you that our management will be able to conclude that our internal control
over financial reporting is effective in future years. If in future years we fail to maintain effective internal control over
10
Changes in technology may render our current technologies obsolete or require us to obtain licenses for
introducing new services or make substantial capital investments, financing for which may not be available to
attacks. We may suffer negative consequences, such as remedial costs, increased cyber security protection costs, lost
revenues, litigation and reputational damage due to cyber attacks.
us on favorable commercial terms or at all.
The telecommunications industry in Taiwan has been characterized by rapid increases in the diversity and
sophistication of the technologies and services offered. As a result, we expect that we will need to constantly upgrade
our telecommunications technologies and services in order to respond to competitive industry conditions and
customer requirements. Developments of new technologies have rendered some less advanced technologies unpopular
or obsolete. If we fail to develop, or obtain timely access to, new technologies and equipment, or if we fail to obtain
the necessary licenses to provide services using these new technologies, we may lose our customers and market share
and become less profitable.
In addition, the cost of implementing new technologies, upgrading our networks or expanding capacity could
be significant. In particular, we have made and will continue to make substantial capital expenditures in the near
future in order to effectively respond to technological changes, such as the continued expansion of our fiber optic
networks and 4G mobile broadband networks. To meet the increasingly robust high-bandwidth requirements of digital
convergence services, we continue to expand construction of fiber optic networks, including passive optical networks,
or PONs, and optical distribution networks, or ODNs. With respect to 4G mobile broadband networks, in December
2014, we expanded the network coverage by refarming the 900MHz frequency band from 2G to 4G mobile
broadband and began implementing the carrier aggregation, or CA, technology of LTE-Advanced, or LTE-A, in the
900MHz and 1800MHz frequency bands to provide higher data transmission rates. Also, we continue to deploy 4G
mobile broadband base stations with 900MHz, 1800MHz, and 2600MHz frequency bands of mobile broadband
services and to enhance our 4G mobile broadband coverage and capacity. To the extent these expenditures exceed our
cash resources, we will be required to seek additional debt or equity financing. Our ability to obtain additional
financing on favorable commercial terms will depend on a number of factors. These factors include our financial
condition, results of operations, cash flows and the prevailing market conditions in the domestic and international
telecommunications industry, the cost of financing and conditions in the financial markets, and the issuance of
relevant government and other regulatory approvals. Any inability to obtain the funding for our capital expenditures
on commercially acceptable terms could jeopardize our expansion plans and materially and adversely affect our
business prospects and future results of operations.
If new technologies adopted by us do not perform as expected, or if we are unable to effectively deliver new
services based on these technologies in a commercially viable manner, our revenue growth and profitability
will decline.
We are constantly evaluating new growth opportunities in the broader telecommunications industry. Some of
these opportunities involve new services for which there are no proven markets, and may not develop as expected.
Our ability to deploy and deliver these services will depend, in many instances, on new but unproven technologies.
These new technologies may not perform as expected or generate an acceptable rate of return. In addition, we may not
be able to successfully develop new technologies to effectively and economically deliver these services, or be able to
compete successfully in the delivery of telecommunications services based on new technologies. Furthermore, the
success of our IoT services is substantially dependent on the availability of applications and devices that are being
developed by third-party developers, and on whether we will be able to achieve a sustainable business model for
consumer segments of the market. These applications or devices may not be sufficiently developed to support the
deployment of our mobile data services. If we are unable to deliver commercially viable services based on the new
technologies that we adopt, our financial condition and results of operations may be materially and adversely affected.
As an internet service provider, we may not be able to protect our customers and their infor-mation from cyber
attacks, nor protect our services from disruptions due to cyber security breaches.
As an internet service provider, our system is susceptible to cyber security risks, including hijack attacks,
phishing attacks, hacker’s intrusions to steal customer’s information and distributed denial-of-service (DDoS) attacks.
Our online services such as e-bills and multiple payment options through the internet are also vulnerable to cyber
attacks. These attacks may disrupt our services and cause leakage of our customers’ personal information, which may
result in significant damage and material adverse effect to our customers and our operations. We cannot assure you
that our data protection measures are sufficient to prevent any data leakage or disruption of our service due to cyber
Our largest stockholder may take actions that conflict with our public stockholders’ best interests.
As of December 31, 2016, our largest shareholder, the government of the ROC, through the MOTC, owned
approximately 35.29% of our outstanding common shares. Accordingly, the government, through its control over our
board, as all non-independent board members were appointed by the MOTC, may continue to have the ability to
control our business, including matters relating to:
•
•
•
•
•
•
any sale of all or substantially all of our assets;
the approval of our annual operation and projects budget;
the composition of our senior management;
the timing and distribution of dividends;
the election of a majority of our directors; and
our business activities and direction.
We cannot assure you that our largest shareholder will not take actions that impair our ability to conduct our
business competitively or conflict with the best interests of our public stockholders.
Actual or perceived health risks related to mobile handsets and base stations could lead to decreased mobile
service usage and difficulties in increasing network coverage and could expose us to potential liability.
According to some published reports, the electromagnetic signals from mobile handsets and cellular base
stations may pose health risks or interfere with the operation of electronic equipment. Although the findings of those
reports are disputed, actual or perceived risks of using mobile communications devices or of cellular base stations
could have a material adverse effect on mobile service providers, including us. For example, our customer base could
be reduced, our customers may reduce their usage of our mobile services, we could encounter difficulties in obtaining
sites for additional cellular base stations required to expand our network coverage or we may be requested to reduce
the number of existing cellular base stations. As a result, our mobile services business may generate less revenue and
our financial condition and results of operations may be materially and adversely affected. In addition, we could be
exposed to potential liability for any health problems caused by mobile handsets and base stations.
Investor confidence in us may be adversely impacted if we or our independent registered public accountants
are unable to attest to or express an unqualified opinion on the effectiveness of our internal control over
financial reporting.
We are subject to the reporting requirements of the SEC. The SEC, as directed by Section 404 of the U.S.
Sarbanes-Oxley Act of 2002, adopted rules requiring U.S. public companies to include a report of management on our
internal control over financial reporting in their annual reports that contain an assessment by management of the
effectiveness of our internal control over financial reporting. The effectiveness of our internal control over financial
reporting has been audited by Deloitte & Touche, an independent registered public accounting firm, which has also
audited our consolidated financial statements for the year ended December 31, 2016. Deloitte & Touche has issued an
attestation report on the effectiveness of our internal control over financial reporting in accordance with the standards
of the Public Company Accounting Oversight Board (United States). See “Item 15. Controls and Procedures—
Attestation Report of the Registered Public Accounting Firm.”
While the management report included in this annual report concluded that our internal control over financial
reporting was effective, we cannot assure you that our management will be able to conclude that our internal control
over financial reporting is effective in future years. If in future years we fail to maintain effective internal control over
11
financial reporting in accordance with the Sarbanes-Oxley Act, we could suffer a loss of investor confidence in the
reliability of our consolidated financial statements, which in turn could negatively impact the trading price of our
ADSs, and could result in lawsuits being filed against us by our stockholders or otherwise harm our reputation.
If we fail to maintain a good relationship with our labor unions, work stoppages or labor unrest could occur
and the quality of our services as well as our reputation could suffer.
In accordance with the articles of association of Chunghwa Telecom Workers’ Union, except for the chief
manager of each department, most of our employees are members of our principal labor union, the Chunghwa
Telecom Workers’ Union. Since our incorporation in 1996, we have experienced disputes with our labor unions on
such issues as employee benefits and retirement benefits in connection with our privatization as well as the right to
protest. Despite having taken measures to improve relations, increase cooperation and ensure mutual benefit with our
labor unions, such as increasing channels of communications by holding periodic labor resource review meetings and
guaranteeing our labor unions a seat on our board of directors, we cannot assure you that we will be able to maintain a
good relationship with our labor unions. Any deterioration in our relationship with our labor unions could result in
work stoppages, strikes or threats to take such an action, which could disrupt our business and operations, materially
and adversely affect the quality of our services and harm our reputation.
monitor their actions and manage their relationships with both ROC and PRC governments. In the past, companies in
the ROC, including us, have received minor sanctions such as travel restrictions or minor monetary fines by the ROC
and/or PRC governments. We cannot assure you that we will be able to successfully manage our relationships with
the ROC and PRC governments for our cross-strait business operations, which could have an adverse effect on our
ability to expand our business and conduct cross-strait business operations.
Any future outbreak of contagious diseases may materially and adversely affect our business and operations, as
well as our financial condition and results of operations.
Any future outbreak of contagious diseases, such as avian influenza, Zika virus, dengue fever or Ebola virus,
may disrupt our ability to adequately staff our business and may generally disrupt our operations. If any of our
employees is suspected of having contracted any contagious disease, we may under certain circumstances be required
to quarantine such employees and the affected areas of our premises. As a result, we may have to temporarily suspend
part or all of our operations. Furthermore, any future outbreak may restrict the level of economic activity in affected
regions, including Taiwan, which may adversely affect our business and prospects. As a result, we cannot assure you
that any future outbreak of contagious diseases would not have a material adverse effect on our financial condition
and results of operations.
Any economic downturn or decline in the growth of the population in Taiwan may materially and adversely
affect our financial condition, results of operations and prospects.
Stockholders may have more difficulty protecting their interests under the laws of the ROC than they would
under the laws of the United States.
We conduct most of our operations and generate most of our revenues in Taiwan. As a result, any decline in
the Taiwan economy or a decline in the growth of the population in Taiwan may materially and adversely affect our
financial condition, results of operations and prospects. In particular, Taiwan’s economy is highly dependent on the
technology industry, and any downturn in the global technology industry may have a material adverse effect on
Taiwan’s economy, which in turn, could adversely affect the demand for our products and services. There have also
been concerns over the armed conflicts and civil unrest in the Middle East, Africa and Ukraine, which has resulted in
higher volatility on oil prices and stock markets, and the economic slowdown in Mainland China, which could have a
material adverse effect on economies around the world. There have also been concerns over the expected withdrawal
of the United Kingdom from the European Union as well as the outcome of the upcoming elections in the European
countries, such as France and Germany, which could also cause turbulence in the international markets and Taiwan’s
market as well.
As our business is dependent on economic growth, any uncertainty or further deterioration in economic
conditions could have a material adverse effect on our financial condition and results of operations. We cannot assure
you that economic conditions in Taiwan will continue to improve in the future or that our business and operations will
not be materially and adversely affected by deterioration in the Taiwan economy.
We face substantial political risks associated with doing business in Taiwan, particularly due to domestic
political events and the tense relationship between the ROC and the People’s Republic of China, which could
adversely affect our financial condition and results of operations.
Our principal executive offices and substantially all of our assets are located in Taiwan, and substantially all
of our revenues are derived from our operations in Taiwan. Accordingly, our business, financial condition and results
of operations and the market price of our common shares and the ADSs may be affected by changes in ROC
governmental policies, taxation, inflation or interest rates and by social instability and diplomatic and social
developments in or affecting Taiwan which are outside of our control. Taiwan has a unique international political
status. Since 1949, Taiwan and the Chinese mainland have been separately governed. The People’s Republic of
China, or PRC, claims that it is the sole government in China and that Taiwan is part of China.
In addition, the PRC government has refused to renounce the use of military force to gain control over
Taiwan. Past developments in relations between the ROC and the PRC have on occasion depressed the market prices
of the securities of companies in the ROC. Relations between the ROC and the PRC and other factors affecting
military, political or economic conditions in Taiwan could materially and adversely affect our financial condition and
results of operations, as well as the market price and the liquidity of our securities. In addition, the complexities of the
relationship between the ROC and PRC require companies involved in cross-strait business operations to carefully
12
Our corporate affairs are governed by our Articles of Incorporation, the Telecommunications Act, and by the
laws governing corporations incorporated in the ROC. See “—Extensive regulation of our industry may limit our
flexibility to respond to market conditions and competition, and our business may suffer.” The rights of stockholders
and the responsibilities of management and the members of the board of directors of Taiwan companies are different
from those applicable to a corporation incorporated in the United States. For example, controlling or major
stockholders of Taiwan companies do not owe fiduciary duties to minority stockholders. As a result, holders of our
common shares and ADSs may have more difficulties in protecting their interests in connection with actions taken by
our management or members of our board of directors than they would as public stockholders of a United States
corporation.
Our actual financial results may differ materially from our published guidance.
Prior to 2013, we voluntarily published our operating results guidance on an annual basis in accordance with
the ROC GAAP. Starting in 2013, we continued to voluntarily publish our operating results guidance on an annual
basis in accordance with the Taiwan IFRSs. We may from time to time update our operating results guidance after
evaluating the effects of any changes to the estimates and assumptions that we used to calculate our projections of our
operating results. Our projections are based on a number of estimates and assumptions that are inherently subject to
significant uncertainties and contingencies, including the risk factors described in this annual report. In particular, our
projections are forward-looking statements that are necessarily speculative in nature, and it can be expected that one
or more of the estimates on which the projections were based will not materialize or will vary significantly from
actual results, and such variances will likely increase over time.
Our results of operations and financial condition under Taiwan IFRSs may differ materially from our reported
results of operations and financial condition under IFRSs.
While we have adopted Taiwan IFRSs for ROC reporting purposes, we adopt IFRSs for certain filings with
the SEC, including our annual reports on Form 20-F. Taiwan IFRSs differs from IFRSs in certain significant respects,
including to the extent that any new or amended standards or interpretations applicable under IFRSs may not be
timely endorsed by the FSC. Furthermore, the dividends for 2016 that are expected to be declared at our 2017 annual
general stockholders’ meeting are calculated based on Taiwan IFRSs. It is difficult for us to determine the differences
between Taiwan IFRSs and IFRSs on our financial statements as any new or amended standards or interpretations
applicable under IFRSs may not be timely endorsed by the FSC.
financial reporting in accordance with the Sarbanes-Oxley Act, we could suffer a loss of investor confidence in the
reliability of our consolidated financial statements, which in turn could negatively impact the trading price of our
ADSs, and could result in lawsuits being filed against us by our stockholders or otherwise harm our reputation.
If we fail to maintain a good relationship with our labor unions, work stoppages or labor unrest could occur
and the quality of our services as well as our reputation could suffer.
In accordance with the articles of association of Chunghwa Telecom Workers’ Union, except for the chief
manager of each department, most of our employees are members of our principal labor union, the Chunghwa
Telecom Workers’ Union. Since our incorporation in 1996, we have experienced disputes with our labor unions on
such issues as employee benefits and retirement benefits in connection with our privatization as well as the right to
protest. Despite having taken measures to improve relations, increase cooperation and ensure mutual benefit with our
labor unions, such as increasing channels of communications by holding periodic labor resource review meetings and
guaranteeing our labor unions a seat on our board of directors, we cannot assure you that we will be able to maintain a
good relationship with our labor unions. Any deterioration in our relationship with our labor unions could result in
work stoppages, strikes or threats to take such an action, which could disrupt our business and operations, materially
and adversely affect the quality of our services and harm our reputation.
monitor their actions and manage their relationships with both ROC and PRC governments. In the past, companies in
the ROC, including us, have received minor sanctions such as travel restrictions or minor monetary fines by the ROC
and/or PRC governments. We cannot assure you that we will be able to successfully manage our relationships with
the ROC and PRC governments for our cross-strait business operations, which could have an adverse effect on our
ability to expand our business and conduct cross-strait business operations.
Any future outbreak of contagious diseases may materially and adversely affect our business and operations, as
well as our financial condition and results of operations.
Any future outbreak of contagious diseases, such as avian influenza, Zika virus, dengue fever or Ebola virus,
may disrupt our ability to adequately staff our business and may generally disrupt our operations. If any of our
employees is suspected of having contracted any contagious disease, we may under certain circumstances be required
to quarantine such employees and the affected areas of our premises. As a result, we may have to temporarily suspend
part or all of our operations. Furthermore, any future outbreak may restrict the level of economic activity in affected
regions, including Taiwan, which may adversely affect our business and prospects. As a result, we cannot assure you
that any future outbreak of contagious diseases would not have a material adverse effect on our financial condition
and results of operations.
Any economic downturn or decline in the growth of the population in Taiwan may materially and adversely
affect our financial condition, results of operations and prospects.
Stockholders may have more difficulty protecting their interests under the laws of the ROC than they would
under the laws of the United States.
We conduct most of our operations and generate most of our revenues in Taiwan. As a result, any decline in
the Taiwan economy or a decline in the growth of the population in Taiwan may materially and adversely affect our
financial condition, results of operations and prospects. In particular, Taiwan’s economy is highly dependent on the
technology industry, and any downturn in the global technology industry may have a material adverse effect on
Taiwan’s economy, which in turn, could adversely affect the demand for our products and services. There have also
been concerns over the armed conflicts and civil unrest in the Middle East, Africa and Ukraine, which has resulted in
higher volatility on oil prices and stock markets, and the economic slowdown in Mainland China, which could have a
material adverse effect on economies around the world. There have also been concerns over the expected withdrawal
of the United Kingdom from the European Union as well as the outcome of the upcoming elections in the European
countries, such as France and Germany, which could also cause turbulence in the international markets and Taiwan’s
market as well.
As our business is dependent on economic growth, any uncertainty or further deterioration in economic
conditions could have a material adverse effect on our financial condition and results of operations. We cannot assure
you that economic conditions in Taiwan will continue to improve in the future or that our business and operations will
not be materially and adversely affected by deterioration in the Taiwan economy.
We face substantial political risks associated with doing business in Taiwan, particularly due to domestic
political events and the tense relationship between the ROC and the People’s Republic of China, which could
adversely affect our financial condition and results of operations.
Our principal executive offices and substantially all of our assets are located in Taiwan, and substantially all
of our revenues are derived from our operations in Taiwan. Accordingly, our business, financial condition and results
of operations and the market price of our common shares and the ADSs may be affected by changes in ROC
governmental policies, taxation, inflation or interest rates and by social instability and diplomatic and social
developments in or affecting Taiwan which are outside of our control. Taiwan has a unique international political
status. Since 1949, Taiwan and the Chinese mainland have been separately governed. The People’s Republic of
China, or PRC, claims that it is the sole government in China and that Taiwan is part of China.
In addition, the PRC government has refused to renounce the use of military force to gain control over
Taiwan. Past developments in relations between the ROC and the PRC have on occasion depressed the market prices
of the securities of companies in the ROC. Relations between the ROC and the PRC and other factors affecting
military, political or economic conditions in Taiwan could materially and adversely affect our financial condition and
results of operations, as well as the market price and the liquidity of our securities. In addition, the complexities of the
relationship between the ROC and PRC require companies involved in cross-strait business operations to carefully
Our corporate affairs are governed by our Articles of Incorporation, the Telecommunications Act, and by the
laws governing corporations incorporated in the ROC. See “—Extensive regulation of our industry may limit our
flexibility to respond to market conditions and competition, and our business may suffer.” The rights of stockholders
and the responsibilities of management and the members of the board of directors of Taiwan companies are different
from those applicable to a corporation incorporated in the United States. For example, controlling or major
stockholders of Taiwan companies do not owe fiduciary duties to minority stockholders. As a result, holders of our
common shares and ADSs may have more difficulties in protecting their interests in connection with actions taken by
our management or members of our board of directors than they would as public stockholders of a United States
corporation.
Our actual financial results may differ materially from our published guidance.
Prior to 2013, we voluntarily published our operating results guidance on an annual basis in accordance with
the ROC GAAP. Starting in 2013, we continued to voluntarily publish our operating results guidance on an annual
basis in accordance with the Taiwan IFRSs. We may from time to time update our operating results guidance after
evaluating the effects of any changes to the estimates and assumptions that we used to calculate our projections of our
operating results. Our projections are based on a number of estimates and assumptions that are inherently subject to
significant uncertainties and contingencies, including the risk factors described in this annual report. In particular, our
projections are forward-looking statements that are necessarily speculative in nature, and it can be expected that one
or more of the estimates on which the projections were based will not materialize or will vary significantly from
actual results, and such variances will likely increase over time.
Our results of operations and financial condition under Taiwan IFRSs may differ materially from our reported
results of operations and financial condition under IFRSs.
While we have adopted Taiwan IFRSs for ROC reporting purposes, we adopt IFRSs for certain filings with
the SEC, including our annual reports on Form 20-F. Taiwan IFRSs differs from IFRSs in certain significant respects,
including to the extent that any new or amended standards or interpretations applicable under IFRSs may not be
timely endorsed by the FSC. Furthermore, the dividends for 2016 that are expected to be declared at our 2017 annual
general stockholders’ meeting are calculated based on Taiwan IFRSs. It is difficult for us to determine the differences
between Taiwan IFRSs and IFRSs on our financial statements as any new or amended standards or interpretations
applicable under IFRSs may not be timely endorsed by the FSC.
13
Risks Relating to Ownership of Our ADSs and Common Shares
The value of your investment may be reduced by future sales of our ADSs or common shares by us, by the
government of the ROC or by other stockholders.
The government may continue to sell our common shares. Sales of substantial amounts of ADSs or common
shares by the government or any other stockholder in the public market, or the perception that future sales may occur,
could depress the prevailing market price of our ADSs and common shares.
The market value of your investment may fluctuate due to the volatility of, and government intervention in, the
Taiwan securities market.
Our common shares are traded on the TWSE, which has a smaller market capitalization and is more volatile
than the securities markets in the United States and many European countries. The market value of our ADSs may
fluctuate in response to the fluctuation of the trading price of our common shares on the TWSE. The TWSE has
experienced substantial fluctuations in the prices and trading volumes of listed securities, and there are currently
limits on the range of daily price movements. During 2016, the TWSE Index reached a low of 7,664.01 on January
21, 2016, and peaked at 9,392.68 on December 9, 2016. On April 18, 2017, the TWSE Index closed at 9,746.56. The
TWSE has experienced certain problems, including market manipulation, insider trading and payment defaults. The
recurrence of these or similar problems could have a material adverse effect on the market price and liquidity of the
securities of Taiwan companies, including our ADSs and common shares, in both the domestic and the international
markets.
In response to declines and volatility in the securities markets in Taiwan, the government of the ROC formed
the National Financial Stabilization Fund to support these markets through open market purchases of shares in
Taiwan companies from time to time. The details of the transactions of the National Financial Stabilization Fund have
not been made public. In addition, the government’s Labor Insurance Fund and other funds associated with the
government have in the past purchased, and may from time to time purchase, shares of Taiwan companies listed on
the TWSE or other markets. As a result of these activities, the market price of common shares of Taiwan companies
may have been and may currently be higher than the prices that would otherwise prevail in the open market. Market
intervention by government entities, or the perception that such activity is taking place, may take place or has ceased,
may cause sudden movements in the market prices of the securities of Taiwan companies, which may affect the
market price and liquidity of our common shares and ADSs.
We may be sanctioned or lose our licenses for violations of limits on foreign ownership of our common shares,
and these limits may materially and adversely affect our ability to obtain financing.
The laws of the ROC limit foreign ownership of our common shares. Prior to March 1, 2006, the MOTC, as
the competent authority under the Telecommunications Act, had the power to prescribe the limits on foreign
ownership of our common shares. After the formation of the NCC on March 1, 2006, the NCC replaced the MOTC as
the competent authority under the Telecommunications Act pursuant to the National Communications Commission
Organization Act, or the Organization Act. The NCC and the MOTC reached an agreement on foreign ownership of
Chunghwa Telecom. An announcement issued by the MOTC on December 28, 2007 stipulated that direct holdings by
foreign investors in Chunghwa Telecom cannot exceed 49% of our outstanding share capital and the total direct and
indirect holdings by foreign investors cannot exceed 55% of our outstanding share capital. As of April 18, 2017,
foreign direct holdings of our outstanding share capital is at 17.17%. If we fail to comply with the applicable foreign
ownership limitations, our licenses to operate some of our businesses could be revoked. Moreover, we cannot predict
the manner in which the NCC will exercise its authority over us, or whether NCC will lower the foreign ownership
cap at any time.
If we are deemed to be in violation of our foreign ownership limitations, any consequences arising from such
violation may materially and adversely affect us. Moreover, since we are unable to control ownership of our common
shares or ADSs representing our common shares, and because we have no ability to stop transfers among
stockholders, or force particular stockholders to sell their shares, we may be subject to monetary fine or lose our
licenses through no fault of our own. In that event, our business could be disrupted, our reputation could be damaged
and the market price of our ADSs and common shares could decline. These limitations may also materially and
14
adversely affect our ability to obtain adequate financing to fund our future capital requirements or to obtain strategic
partners, and alternate forms of financing may not be available on terms favorable to us or at all.
Restrictions on the ability to deposit our common shares into our ADS program may adversely affect the
liquidity and price of the ADSs.
The ability to deposit shares into our ADS program is restricted by ROC law, under which no person or
entity, including you and us, may deposit our common shares into our ADS program unless the Securities and Futures
Bureau has not objected within a prescribed period following the filing with it of an application to do so, except for
the deposit of the common shares into our ADS program and for the issuance of additional ADSs in connection with:
•
•
•
distribution of share dividends or free distribution of our common shares;
exercise of preemptive rights of ADS holders applicable to the common shares evidenced by our ADSs
in the event of capital increases for cash; or
purchases of our common shares in the domestic market in Taiwan by the investor directly or through
the depositary and delivery of such shares or delivery of our common shares held by such investors to
the custodian for deposit into our ADS program, subject to the following conditions: (a) the depositary
may accept deposit of those shares and issue the corresponding number of ADSs with regard to such
deposits only if the total number of ADSs outstanding after the deposit does not exceed the number of
ADSs previously approved by the Securities and Futures Bureau, plus any ADSs issued pursuant to the
events described above; and (b) this deposit may only be made to the extent previously issued ADSs
have been cancelled.
As a result of the limited ability to deposit common shares into our ADS program, the prevailing market
price of our ADSs on the New York Stock Exchange, or NYSE, may differ from the prevailing market price of the
equivalent number of our common shares on the TWSE.
You will be more restricted in your ability to exercise voting rights than the holders of our common shares,
which may diminish your influence over our corporate affairs and may reduce the value of your ADSs.
Holders of American depositary receipts evidencing our ADSs may exercise voting rights with respect to the
common shares represented by these ADSs only in accordance with the provisions of our deposit agreement. The
deposit agreement provides that, upon receipt of notice of any meeting of holders of our common shares, the
depositary bank will, as soon as practicable thereafter if requested by us in writing, mail to ADS holders the notice of
the meeting sent by us, voting instruction forms and a statement as to the manner in which instructions may be given
by the holders.
Generally, ADS holders will not be able to exercise voting rights attached to the underlying securities on an
individual basis. Under the deposit agreement, the voting rights attached to the underlying securities must be
exercised as to all matters subject to a vote of stockholders collectively in the same manner, except in the case of an
election of directors. The election of our directors is by means of cumulative voting. In the event the depositary does
not receive voting instructions from ADS holders in accordance with the deposit agreement, our chairman or his or
her designee will be entitled to vote the common shares represented by the ADSs in the manner he or she deems
appropriate at his or her discretion, which may not be in your interest.
Your right to participate in any future rights offerings may be limited, which may cause dilution to your
holdings.
We may from time to time distribute rights to our stockholders, including rights to acquire our securities.
Under the deposit agreement, the depositary will not offer you those rights unless the distribution to ADS holders of
both the rights and any related securities are either registered under the U.S. Securities Act of 1933, as amended, or
the Securities Act, or exempt from registration under the Securities Act. We are under no obligation to file a
registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement
Risks Relating to Ownership of Our ADSs and Common Shares
The value of your investment may be reduced by future sales of our ADSs or common shares by us, by the
government of the ROC or by other stockholders.
The government may continue to sell our common shares. Sales of substantial amounts of ADSs or common
shares by the government or any other stockholder in the public market, or the perception that future sales may occur,
could depress the prevailing market price of our ADSs and common shares.
The market value of your investment may fluctuate due to the volatility of, and government intervention in, the
Taiwan securities market.
Our common shares are traded on the TWSE, which has a smaller market capitalization and is more volatile
than the securities markets in the United States and many European countries. The market value of our ADSs may
fluctuate in response to the fluctuation of the trading price of our common shares on the TWSE. The TWSE has
experienced substantial fluctuations in the prices and trading volumes of listed securities, and there are currently
limits on the range of daily price movements. During 2016, the TWSE Index reached a low of 7,664.01 on January
21, 2016, and peaked at 9,392.68 on December 9, 2016. On April 18, 2017, the TWSE Index closed at 9,746.56. The
TWSE has experienced certain problems, including market manipulation, insider trading and payment defaults. The
recurrence of these or similar problems could have a material adverse effect on the market price and liquidity of the
securities of Taiwan companies, including our ADSs and common shares, in both the domestic and the international
markets.
In response to declines and volatility in the securities markets in Taiwan, the government of the ROC formed
the National Financial Stabilization Fund to support these markets through open market purchases of shares in
Taiwan companies from time to time. The details of the transactions of the National Financial Stabilization Fund have
not been made public. In addition, the government’s Labor Insurance Fund and other funds associated with the
government have in the past purchased, and may from time to time purchase, shares of Taiwan companies listed on
the TWSE or other markets. As a result of these activities, the market price of common shares of Taiwan companies
may have been and may currently be higher than the prices that would otherwise prevail in the open market. Market
intervention by government entities, or the perception that such activity is taking place, may take place or has ceased,
may cause sudden movements in the market prices of the securities of Taiwan companies, which may affect the
market price and liquidity of our common shares and ADSs.
We may be sanctioned or lose our licenses for violations of limits on foreign ownership of our common shares,
and these limits may materially and adversely affect our ability to obtain financing.
The laws of the ROC limit foreign ownership of our common shares. Prior to March 1, 2006, the MOTC, as
the competent authority under the Telecommunications Act, had the power to prescribe the limits on foreign
ownership of our common shares. After the formation of the NCC on March 1, 2006, the NCC replaced the MOTC as
the competent authority under the Telecommunications Act pursuant to the National Communications Commission
Organization Act, or the Organization Act. The NCC and the MOTC reached an agreement on foreign ownership of
Chunghwa Telecom. An announcement issued by the MOTC on December 28, 2007 stipulated that direct holdings by
foreign investors in Chunghwa Telecom cannot exceed 49% of our outstanding share capital and the total direct and
indirect holdings by foreign investors cannot exceed 55% of our outstanding share capital. As of April 18, 2017,
foreign direct holdings of our outstanding share capital is at 17.17%. If we fail to comply with the applicable foreign
ownership limitations, our licenses to operate some of our businesses could be revoked. Moreover, we cannot predict
the manner in which the NCC will exercise its authority over us, or whether NCC will lower the foreign ownership
cap at any time.
If we are deemed to be in violation of our foreign ownership limitations, any consequences arising from such
violation may materially and adversely affect us. Moreover, since we are unable to control ownership of our common
shares or ADSs representing our common shares, and because we have no ability to stop transfers among
stockholders, or force particular stockholders to sell their shares, we may be subject to monetary fine or lose our
licenses through no fault of our own. In that event, our business could be disrupted, our reputation could be damaged
and the market price of our ADSs and common shares could decline. These limitations may also materially and
adversely affect our ability to obtain adequate financing to fund our future capital requirements or to obtain strategic
partners, and alternate forms of financing may not be available on terms favorable to us or at all.
Restrictions on the ability to deposit our common shares into our ADS program may adversely affect the
liquidity and price of the ADSs.
The ability to deposit shares into our ADS program is restricted by ROC law, under which no person or
entity, including you and us, may deposit our common shares into our ADS program unless the Securities and Futures
Bureau has not objected within a prescribed period following the filing with it of an application to do so, except for
the deposit of the common shares into our ADS program and for the issuance of additional ADSs in connection with:
•
•
•
distribution of share dividends or free distribution of our common shares;
exercise of preemptive rights of ADS holders applicable to the common shares evidenced by our ADSs
in the event of capital increases for cash; or
purchases of our common shares in the domestic market in Taiwan by the investor directly or through
the depositary and delivery of such shares or delivery of our common shares held by such investors to
the custodian for deposit into our ADS program, subject to the following conditions: (a) the depositary
may accept deposit of those shares and issue the corresponding number of ADSs with regard to such
deposits only if the total number of ADSs outstanding after the deposit does not exceed the number of
ADSs previously approved by the Securities and Futures Bureau, plus any ADSs issued pursuant to the
events described above; and (b) this deposit may only be made to the extent previously issued ADSs
have been cancelled.
As a result of the limited ability to deposit common shares into our ADS program, the prevailing market
price of our ADSs on the New York Stock Exchange, or NYSE, may differ from the prevailing market price of the
equivalent number of our common shares on the TWSE.
You will be more restricted in your ability to exercise voting rights than the holders of our common shares,
which may diminish your influence over our corporate affairs and may reduce the value of your ADSs.
Holders of American depositary receipts evidencing our ADSs may exercise voting rights with respect to the
common shares represented by these ADSs only in accordance with the provisions of our deposit agreement. The
deposit agreement provides that, upon receipt of notice of any meeting of holders of our common shares, the
depositary bank will, as soon as practicable thereafter if requested by us in writing, mail to ADS holders the notice of
the meeting sent by us, voting instruction forms and a statement as to the manner in which instructions may be given
by the holders.
Generally, ADS holders will not be able to exercise voting rights attached to the underlying securities on an
individual basis. Under the deposit agreement, the voting rights attached to the underlying securities must be
exercised as to all matters subject to a vote of stockholders collectively in the same manner, except in the case of an
election of directors. The election of our directors is by means of cumulative voting. In the event the depositary does
not receive voting instructions from ADS holders in accordance with the deposit agreement, our chairman or his or
her designee will be entitled to vote the common shares represented by the ADSs in the manner he or she deems
appropriate at his or her discretion, which may not be in your interest.
Your right to participate in any future rights offerings may be limited, which may cause dilution to your
holdings.
We may from time to time distribute rights to our stockholders, including rights to acquire our securities.
Under the deposit agreement, the depositary will not offer you those rights unless the distribution to ADS holders of
both the rights and any related securities are either registered under the U.S. Securities Act of 1933, as amended, or
the Securities Act, or exempt from registration under the Securities Act. We are under no obligation to file a
registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement
15
to be declared effective. Moreover, we may not be able to establish an exemption from registration under the
Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in
your holdings.
If the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or
reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights.
Changes in exchange controls that restrict your ability to convert proceeds received from your ownership of
ADSs may have an adverse effect on the value of your investment.
Your ability to convert proceeds received from your ownership of ADSs depends on existing and future
exchange control regulations of the ROC. Under the current laws of the ROC, an ADS holder or the depositary,
without obtaining further approvals from the Central Bank of the ROC (Taiwan) or any other governmental authority
or agency of the ROC, may convert NT dollars into other currencies, including U.S. dollars, in respect of:
•
•
the proceeds of the sale of common shares represented by ADSs or received as share dividends with
respect to the common shares and deposited into the depositary receipt facility; and
any cash dividends or distributions received from the common shares represented by ADSs.
In addition, the depositary may also convert into NT dollars incoming payments for purchases of common
shares for deposit in the depositary receipt facility against the creation of additional ADSs. If you withdraw the
common shares underlying your ADSs and become a holder of our common shares, you may convert into NT dollars
subscription payments for rights offerings. The depositary may be required to obtain foreign exchange approval from
the Central Bank of the ROC (Taiwan) on a payment-by-payment basis for conversion from NT dollars into foreign
currencies of the proceeds from the sale of subscription rights of new common shares. Although it is expected that the
Central Bank of the ROC (Taiwan) will grant approval as a routine matter, required approvals may not be obtained in
a timely manner, or at all.
Under the ROC Foreign Exchange Control Law, the Executive Yuan of the ROC may, without prior notice
but subject to subsequent legislative approval rendered within ten days from such imposition, impose foreign
exchange controls or other restrictions in the event of, among other things, a material change in domestic or
international economic conditions which might threaten the stability of the domestic economy in Taiwan.
You are required to register with the TWSE and appoint several local agents in Taiwan if you withdraw
common shares from our ADS facility and become our stockholder, which may make your ownership
burdensome.
If you are a non-ROC person and wish to withdraw common shares represented by your ADSs from our
ADS facility and hold those common shares, you are required under the current laws and regulations of the ROC to
appoint an agent, also referred to as a tax guarantor, in the ROC for filing tax returns and making tax payments. A tax
guarantor must meet certain qualifications set by the Ministry of Finance of the ROC and, upon appointment,
becomes a guarantor of your ROC tax obligations. If you wish to repatriate profits derived from the sale of withdrawn
common shares or cash dividends or interest on funds derived from the withdrawn common shares, you will be
required to submit evidence of your appointment of a tax guarantor and the approval of the appointment by the ROC
tax authorities. You may not be able to appoint and obtain approval for a tax guarantor in a timely manner.
In addition, under the current laws of the ROC, you will be required to be registered as a foreign investor
with the TWSE for making investments in the ROC securities market prior to your withdrawal and holding of
common shares represented by the ADSs. You will be required to appoint a local agent in Taiwan to, among other
things, open a securities trading account with a local securities brokerage firm and a bank account to remit funds,
exercise stockholders’ rights and perform other functions as holders of ADSs may designate. You must also appoint a
local bank to act as custodian for handling confirmation and settlement of trades, safekeeping of securities and cash
proceeds and reporting and declaration of information. Without the relevant registration and appointment of the local
agent and custodian and the opening of a securities trading account and bank account, you will not be able to hold,
subsequently sell or otherwise transfer our common shares withdrawn from the ADS facilities on the TWSE.
ITEM 4.
INFORMATION ON THE COMPANY
A. History and Development of the Company
Our legal and commercial name is Chunghwa Telecom Co., Ltd. We were officially established on July 1,
1996 as part of the privatization efforts by the government of the ROC and operate under the Statute of Chunghwa
Telecom Co., Ltd. Prior to our formation, we were operating as a business unit of the Directorate General of
Telecommunications, which was formerly the NCC. The common shares of the Company have been listed on the
TWSE under the number “2412” since October 2000 and its ADSs have been listed on the NYSE under the symbol
“CHT” since July 2003. We were privatized as a result of a secondary ADS offering and concurrent domestic auction
of our common shares on August 12, 2005, as the ownership by the government of the ROC was reduced to less than
50%. The privatization has enabled us to develop our business and respond to changing market conditions more
rapidly and efficiently. Today, we are the largest full telecommunication service provider in Taiwan. Our principal
executive offices are located at 21-3 Hsinyi Road, Section 1, Taipei, Taiwan, ROC, and our telephone number is
(886) 2-2344-5488. Our website address is http://www.cht.com.tw. The information on our website does not form a
part of this annual report. Our agent for service of process in any suit or proceeding arising out of or relating to our
shares, ADSs, American depository receipt, or ADR, and deposit agreement in the United States is CT Corporation
System, 111 Eighth Avenue, New York, NY 10011.
We are the largest telecommunications service provider in Taiwan and one of the largest in Asia in terms of
revenue. As an integrated telecommunications service provider, our principal services include:
•
•
•
•
domestic fixed communications services, including local and domestic long distance telephone services,
broadband access services, local and domestic long distance leased line services, Wi-Fi services, MOD
services, domestic data services and other domestic services;
• mobile communications services, including mobile voice and data services, sales of mobile handsets,
tablets, data cards and other mobile services;
internet services, including data communication services, such as HiNet, application value-added
services, or VAS, and services provided to the government;
international fixed communications services, including international long distance telephone services,
international leased line services, international data services, satellite services and other international
services; and
other services, including non-telecom services.
In addition to these traditional telecommunication services, we also focus on selected ICT services and
advanced development.
and customers:
For each of our key services, we enjoy leading positions across a number of areas in terms of both revenues
• we are Taiwan’s largest fixed communications services provider as well as Taiwan’s largest mobile
communications service provider;
• we are Taiwan’s largest broadband access provider; and
• we are Taiwan’s largest internet service provider.
16
to be declared effective. Moreover, we may not be able to establish an exemption from registration under the
Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in
agent and custodian and the opening of a securities trading account and bank account, you will not be able to hold,
subsequently sell or otherwise transfer our common shares withdrawn from the ADS facilities on the TWSE.
your holdings.
If the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or
reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights.
Changes in exchange controls that restrict your ability to convert proceeds received from your ownership of
ADSs may have an adverse effect on the value of your investment.
Your ability to convert proceeds received from your ownership of ADSs depends on existing and future
exchange control regulations of the ROC. Under the current laws of the ROC, an ADS holder or the depositary,
without obtaining further approvals from the Central Bank of the ROC (Taiwan) or any other governmental authority
or agency of the ROC, may convert NT dollars into other currencies, including U.S. dollars, in respect of:
•
•
the proceeds of the sale of common shares represented by ADSs or received as share dividends with
respect to the common shares and deposited into the depositary receipt facility; and
any cash dividends or distributions received from the common shares represented by ADSs.
In addition, the depositary may also convert into NT dollars incoming payments for purchases of common
shares for deposit in the depositary receipt facility against the creation of additional ADSs. If you withdraw the
common shares underlying your ADSs and become a holder of our common shares, you may convert into NT dollars
subscription payments for rights offerings. The depositary may be required to obtain foreign exchange approval from
the Central Bank of the ROC (Taiwan) on a payment-by-payment basis for conversion from NT dollars into foreign
currencies of the proceeds from the sale of subscription rights of new common shares. Although it is expected that the
Central Bank of the ROC (Taiwan) will grant approval as a routine matter, required approvals may not be obtained in
a timely manner, or at all.
Under the ROC Foreign Exchange Control Law, the Executive Yuan of the ROC may, without prior notice
but subject to subsequent legislative approval rendered within ten days from such imposition, impose foreign
exchange controls or other restrictions in the event of, among other things, a material change in domestic or
international economic conditions which might threaten the stability of the domestic economy in Taiwan.
You are required to register with the TWSE and appoint several local agents in Taiwan if you withdraw
common shares from our ADS facility and become our stockholder, which may make your ownership
burdensome.
If you are a non-ROC person and wish to withdraw common shares represented by your ADSs from our
ADS facility and hold those common shares, you are required under the current laws and regulations of the ROC to
appoint an agent, also referred to as a tax guarantor, in the ROC for filing tax returns and making tax payments. A tax
guarantor must meet certain qualifications set by the Ministry of Finance of the ROC and, upon appointment,
becomes a guarantor of your ROC tax obligations. If you wish to repatriate profits derived from the sale of withdrawn
common shares or cash dividends or interest on funds derived from the withdrawn common shares, you will be
required to submit evidence of your appointment of a tax guarantor and the approval of the appointment by the ROC
tax authorities. You may not be able to appoint and obtain approval for a tax guarantor in a timely manner.
In addition, under the current laws of the ROC, you will be required to be registered as a foreign investor
with the TWSE for making investments in the ROC securities market prior to your withdrawal and holding of
common shares represented by the ADSs. You will be required to appoint a local agent in Taiwan to, among other
things, open a securities trading account with a local securities brokerage firm and a bank account to remit funds,
exercise stockholders’ rights and perform other functions as holders of ADSs may designate. You must also appoint a
local bank to act as custodian for handling confirmation and settlement of trades, safekeeping of securities and cash
proceeds and reporting and declaration of information. Without the relevant registration and appointment of the local
ITEM 4.
INFORMATION ON THE COMPANY
A. History and Development of the Company
Our legal and commercial name is Chunghwa Telecom Co., Ltd. We were officially established on July 1,
1996 as part of the privatization efforts by the government of the ROC and operate under the Statute of Chunghwa
Telecom Co., Ltd. Prior to our formation, we were operating as a business unit of the Directorate General of
Telecommunications, which was formerly the NCC. The common shares of the Company have been listed on the
TWSE under the number “2412” since October 2000 and its ADSs have been listed on the NYSE under the symbol
“CHT” since July 2003. We were privatized as a result of a secondary ADS offering and concurrent domestic auction
of our common shares on August 12, 2005, as the ownership by the government of the ROC was reduced to less than
50%. The privatization has enabled us to develop our business and respond to changing market conditions more
rapidly and efficiently. Today, we are the largest full telecommunication service provider in Taiwan. Our principal
executive offices are located at 21-3 Hsinyi Road, Section 1, Taipei, Taiwan, ROC, and our telephone number is
(886) 2-2344-5488. Our website address is http://www.cht.com.tw. The information on our website does not form a
part of this annual report. Our agent for service of process in any suit or proceeding arising out of or relating to our
shares, ADSs, American depository receipt, or ADR, and deposit agreement in the United States is CT Corporation
System, 111 Eighth Avenue, New York, NY 10011.
We are the largest telecommunications service provider in Taiwan and one of the largest in Asia in terms of
revenue. As an integrated telecommunications service provider, our principal services include:
•
domestic fixed communications services, including local and domestic long distance telephone services,
broadband access services, local and domestic long distance leased line services, Wi-Fi services, MOD
services, domestic data services and other domestic services;
• mobile communications services, including mobile voice and data services, sales of mobile handsets,
tablets, data cards and other mobile services;
•
•
•
internet services, including data communication services, such as HiNet, application value-added
services, or VAS, and services provided to the government;
international fixed communications services, including international long distance telephone services,
international leased line services, international data services, satellite services and other international
services; and
other services, including non-telecom services.
In addition to these traditional telecommunication services, we also focus on selected ICT services and
advanced development.
For each of our key services, we enjoy leading positions across a number of areas in terms of both revenues
and customers:
• we are Taiwan’s largest fixed communications services provider as well as Taiwan’s largest mobile
communications service provider;
• we are Taiwan’s largest broadband access provider; and
• we are Taiwan’s largest internet service provider.
17
In 2016, our revenues were NT$230.0 billion (US$7.1 billion), our consolidated net income was NT$41.6
billion (US$1.3 billion) and our basic earnings per share was NT$5.22 (US$0.16).
In 2016, we made capital expenditures totaling NT$23.5 billion (US$0.7 billion). See “Item 5. Operating and
Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Expenditures” for a detailed
discussion of our capital expenditures.
Competitive Strengths
We believe that we are well positioned to take advantage of the increasing opportunities in the
telecommunications market in Taiwan as new technologies evolve. In particular, we have maintained our leading
market share in mobile communications and internet services.
We believe that our primary competitive strengths are:
•
•
•
our premium brand and broad customer base in Taiwan;
our position as an integrated, full-service telecommunications provider in Taiwan; and
our capital resources and technology, which we believe we can build on to expand our leading position
in the mobile communications and internet services markets, including through our continued
construction of our existing 4G mobile broadband networks, our expansion of fiber to the x, or FTTx,
broadband access services, IP-based MOD services, fixed-line/mobile VAS and cloud computing related
services.
We have premium brand and broad customer base in Taiwan.
We are the largest telecommunications service provider in Taiwan with a broad customer base across all of
our service offerings. We believe our broad customer base in each of our service offerings grants us a competitive
advantage to maintain our existing customers and increases the chance of success for the launch and popularization of
new products. As the telecommunications industry continues its trend of converging fixed communications, mobile
communications and internet services, we believe that our comprehensive service offerings place us in a positive
position to offer converged products and services to our customers. In addition, by leveraging our capability to
analyze Big Data, we are able to adopt marketing initiatives to target different customer groups’ interests and
preferences and increase the effectiveness of our cross-marketing efforts of our products and services to our existing
and potential customers.
We are an integrated full-service telecommunications provider in Taiwan.
We are the largest telecommunications service provider in Taiwan with a leading position in fixed com-
munications services, mobile communications services and internet services.
Broad range of communications products and services. We believe that our ability to provide an attractive
and comprehensive range of telecommunications services positions us to provide bundled and VAS to our business
and residential customers. In addition, we are able to offer innovative integrated services and tariff packages to meet
the specific needs of our customers.
Broad network coverage. The breadth of our network and our ownership of the “last-mile” infrastructure in
Taiwan, which comprises the connection between the local telephone service provider’s switching centers to the end-
users’ buildings or homes, provides us with access to existing and potential customers and creates a platform for
expanding our services. In order to provide higher bandwidth services for our customers, we have been constructing
our FTTx network since 2003. We have successfully migrated many of our customers from ADSL service to FTTx
service, which offers even higher speeds by using fiber optic technology. Since 2016, the number of our FTTx
subscribers has exceeded three quarters of our total fixed broadband access subscribers. As of December 31, 2016,
network coverage of FTTx with speeds of 100 Mbps and higher was approximately 88.7%. In addition, our mobile
18
communications network provides nationwide coverage. Our large mobile spectrum allocation together with our
extensive network coverage positions us well for the continued expansion of our mobile services in Taiwan. We are
also continuing to build our Wi-Fi network to offload mobile network capacity in residential areas and public areas
where subscriber density and usage is high, such as urban areas, airports and convenience stores.
Brand awareness, distribution channels and customer service. Our principal brands “Chunghwa Telecom,”
“emome” and “HiNet” have a reputation for quality and reliability. We serve our large customer base through our
extensive customer service network in Taiwan. See “—B. Business Overview—Marketing, Sales and Distribution—
Sales and Distribution.” We are continuing to transform our retail stores while increasing the number of our service
centers throughout Taiwan. We also offer comprehensive and high-quality point of sale and after sale services in our
service centers, stores and over the internet. Our extensive sales and distribution channels help us attract additional
customers and develop new business opportunities. In 2016, we obtained several domestic and international awards
which recognized our service quality, corporate governance and our fulfillment of corporate social responsibility. In
the Reader’s Digest Trusted Brands Awards, we have stood out and won the Platinum Award of Telecom Company in
Taiwan for 12 consecutive years since 2005. We also were awarded the 2016 Best Practices Award for Asia Pacific
LTE Service Provider by Frost & Sullivan. In addition, we have been awarded The Asset Corporate Platinum Award
by The Asset Magazine for four consecutive years since 2013. We were also ranked among the top five percent of
TWSE-listed companies and the Taipei Exchange traded companies for corporate governance based on an evaluation
conducted by TWSE for two consecutive years since 2015. Furthermore, we were also awarded the Excellence in
Corporate Social Responsibility Award in Taiwan by Common Wealth Magazine for 10 consecutive years since
2007.
Operational expertise. Our management and employees have extensive operating experience and technical
knowledge, which we believe cannot be easily replicated by competitors. We also believe we will continue to attract
and retain high quality employees.
We have the capital resources and technology to enhance our leading position.
Strong capital structure. We believe we have great financial resources in Taiwan. Our low debt-to-equity
capital structure, together with our strong operating cash flows, provides us with the flexibility and resources to invest
in capital intensive and growing businesses. In particular, we continue to invest in fiber-optic networks, 4G mobile
broadband networks and service platforms. We will continue to make investments in or to acquire other companies
which provide complementary telecommunications and ICT-related services to further expand our business and offer
new products and services.
Advanced network technology. In recent years, we have upgraded some of our FTTx access networks to
FTTH access networks, aiming at promoting our broadband services from megabit connectivity to gigabit
connectivity and strengthening our leading position in bandwidth services in our industry. In 2016, we also continued
to deploy our 4G mobile broadband networks. Our investment in network infrastructure places us in a position to
capture a significant share of the internet and high-speed data transmission market.
Research and development expertise. In 2016, our research and development expenses accounted for 1.6% of
our revenues. We believe our focus on research and development will allow us to efficiently develop and deploy new
technologies and services ahead of our competitors.
Business Strategies
development.
Our key strategic objectives are to maintain our position as a leading integrated telecommunications services
provider in Taiwan and to enhance our profit margins of ICT services by leverage our strengths of research and
Consistent with our strategic objectives, we have developed the following business strategies:
In 2016, our revenues were NT$230.0 billion (US$7.1 billion), our consolidated net income was NT$41.6
billion (US$1.3 billion) and our basic earnings per share was NT$5.22 (US$0.16).
In 2016, we made capital expenditures totaling NT$23.5 billion (US$0.7 billion). See “Item 5. Operating and
Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Expenditures” for a detailed
discussion of our capital expenditures.
Competitive Strengths
We believe that we are well positioned to take advantage of the increasing opportunities in the
telecommunications market in Taiwan as new technologies evolve. In particular, we have maintained our leading
market share in mobile communications and internet services.
We believe that our primary competitive strengths are:
our premium brand and broad customer base in Taiwan;
•
•
•
our position as an integrated, full-service telecommunications provider in Taiwan; and
our capital resources and technology, which we believe we can build on to expand our leading position
in the mobile communications and internet services markets, including through our continued
construction of our existing 4G mobile broadband networks, our expansion of fiber to the x, or FTTx,
broadband access services, IP-based MOD services, fixed-line/mobile VAS and cloud computing related
services.
We have premium brand and broad customer base in Taiwan.
We are the largest telecommunications service provider in Taiwan with a broad customer base across all of
our service offerings. We believe our broad customer base in each of our service offerings grants us a competitive
advantage to maintain our existing customers and increases the chance of success for the launch and popularization of
new products. As the telecommunications industry continues its trend of converging fixed communications, mobile
communications and internet services, we believe that our comprehensive service offerings place us in a positive
position to offer converged products and services to our customers. In addition, by leveraging our capability to
analyze Big Data, we are able to adopt marketing initiatives to target different customer groups’ interests and
preferences and increase the effectiveness of our cross-marketing efforts of our products and services to our existing
and potential customers.
We are an integrated full-service telecommunications provider in Taiwan.
We are the largest telecommunications service provider in Taiwan with a leading position in fixed com-
munications services, mobile communications services and internet services.
Broad range of communications products and services. We believe that our ability to provide an attractive
and comprehensive range of telecommunications services positions us to provide bundled and VAS to our business
and residential customers. In addition, we are able to offer innovative integrated services and tariff packages to meet
the specific needs of our customers.
Broad network coverage. The breadth of our network and our ownership of the “last-mile” infrastructure in
Taiwan, which comprises the connection between the local telephone service provider’s switching centers to the end-
users’ buildings or homes, provides us with access to existing and potential customers and creates a platform for
expanding our services. In order to provide higher bandwidth services for our customers, we have been constructing
our FTTx network since 2003. We have successfully migrated many of our customers from ADSL service to FTTx
service, which offers even higher speeds by using fiber optic technology. Since 2016, the number of our FTTx
subscribers has exceeded three quarters of our total fixed broadband access subscribers. As of December 31, 2016,
network coverage of FTTx with speeds of 100 Mbps and higher was approximately 88.7%. In addition, our mobile
communications network provides nationwide coverage. Our large mobile spectrum allocation together with our
extensive network coverage positions us well for the continued expansion of our mobile services in Taiwan. We are
also continuing to build our Wi-Fi network to offload mobile network capacity in residential areas and public areas
where subscriber density and usage is high, such as urban areas, airports and convenience stores.
Brand awareness, distribution channels and customer service. Our principal brands “Chunghwa Telecom,”
“emome” and “HiNet” have a reputation for quality and reliability. We serve our large customer base through our
extensive customer service network in Taiwan. See “—B. Business Overview—Marketing, Sales and Distribution—
Sales and Distribution.” We are continuing to transform our retail stores while increasing the number of our service
centers throughout Taiwan. We also offer comprehensive and high-quality point of sale and after sale services in our
service centers, stores and over the internet. Our extensive sales and distribution channels help us attract additional
customers and develop new business opportunities. In 2016, we obtained several domestic and international awards
which recognized our service quality, corporate governance and our fulfillment of corporate social responsibility. In
the Reader’s Digest Trusted Brands Awards, we have stood out and won the Platinum Award of Telecom Company in
Taiwan for 12 consecutive years since 2005. We also were awarded the 2016 Best Practices Award for Asia Pacific
LTE Service Provider by Frost & Sullivan. In addition, we have been awarded The Asset Corporate Platinum Award
by The Asset Magazine for four consecutive years since 2013. We were also ranked among the top five percent of
TWSE-listed companies and the Taipei Exchange traded companies for corporate governance based on an evaluation
conducted by TWSE for two consecutive years since 2015. Furthermore, we were also awarded the Excellence in
Corporate Social Responsibility Award in Taiwan by Common Wealth Magazine for 10 consecutive years since
2007.
Operational expertise. Our management and employees have extensive operating experience and technical
knowledge, which we believe cannot be easily replicated by competitors. We also believe we will continue to attract
and retain high quality employees.
We have the capital resources and technology to enhance our leading position.
Strong capital structure. We believe we have great financial resources in Taiwan. Our low debt-to-equity
capital structure, together with our strong operating cash flows, provides us with the flexibility and resources to invest
in capital intensive and growing businesses. In particular, we continue to invest in fiber-optic networks, 4G mobile
broadband networks and service platforms. We will continue to make investments in or to acquire other companies
which provide complementary telecommunications and ICT-related services to further expand our business and offer
new products and services.
Advanced network technology. In recent years, we have upgraded some of our FTTx access networks to
FTTH access networks, aiming at promoting our broadband services from megabit connectivity to gigabit
connectivity and strengthening our leading position in bandwidth services in our industry. In 2016, we also continued
to deploy our 4G mobile broadband networks. Our investment in network infrastructure places us in a position to
capture a significant share of the internet and high-speed data transmission market.
Research and development expertise. In 2016, our research and development expenses accounted for 1.6% of
our revenues. We believe our focus on research and development will allow us to efficiently develop and deploy new
technologies and services ahead of our competitors.
Business Strategies
Our key strategic objectives are to maintain our position as a leading integrated telecommunications services
provider in Taiwan and to enhance our profit margins of ICT services by leverage our strengths of research and
development.
Consistent with our strategic objectives, we have developed the following business strategies:
19
Focus on our core strengths while expanding our scope of services to capture new growth opportunities
In addition, we continue to develop our mobile payment service, Hami Wallet, with our customer loyalty
We endeavor to maintain our strong market position in telecommunication business and seek to expand the
scope of our business beyond network services by offering service platforms and VAS to capture new opportunities
and generate revenue growth, such as IoT platforms. We also continue to advance our MOD/OTT service platform
which offers digital contents, live broadcasting, interactive video, and high quality subscription video on demand, or
SVoD, services. In addition, we cooperate with content and software providers to develop new services.
Broadband services: We strive to maintain our broadband market share. We typically realize higher average
revenue per user, or ARPU, for our FTTx internet services, and we expect to continue to offer various incentives for
our FTTx customers to upgrade to even higher speed FTTx services and for our ADSL customers to upgrade to FTTx
services. We are continuing the build-out of our FTTx infrastructure, and we believe these efforts will help us
maintain our competitive advantage for broadband services. A high quality broadband network is also essential for
our high-definition MOD services.
Mobile Communications: We obtained the 4G mobile broadband license in April 2014 and launched our 4G
mobile broadband services in May 2014. In March 2016, we obtained the mobile broadband license for 2500MHz and
2600MHz frequency bands which enables us to enhance our 4G mobile broadband network. Our strategy for mobile
services includes the following initiatives:
• Enhancing 4G mobile broadband network construction to accommodate the increasing mobile data
usage from consumers as a result of the growth of connected devices, such as smartphones and tablets;
• Encouraging the migration of 2G service subscribers to 3G and 4G mobile services by offering
promotions on various mobile handsets combined with attractive VAS and product packages;
•
Introducing low- to mid-tier smartphones to expand our mobile internet subscriber base; and
• Maintaining ample Wi-Fi hotspots to offer more wireless internet access service and to offload data
traffic from our mobile networks; we had established 60,000 Wi-Fi hotspots by the end of 2016.
Internet services: Our strategy for internet services is to continue to build on the success of our HiNet
internet services and enhance our internet VAS, such as internet music and internet protocol video services, including
CHT OTT service, an OTT platform where customers can view videos and multimedia content.
Emerging services: We have been providing ICT services since 2009. We continue to leverage our core
telecommunication infrastructure and services to expand ICT services, including intelligent environment network
service, or iEN, intelligent transportation service, or ITS and IoT. Our experience with ICT services positions us well
to develop and offer cloud computing services. Underpinning the rollout of our cloud computing services is our
capability and experience in offering data center services to corporate customers, which includes our initiative to
build the largest cloud computing data center in Taiwan in anticipation of the growing demand for this service. The
Panchiao Internet Data Center, or IDC, one of the highest-rated, TIA-942 Rated 4, data centers in the world,
commenced operations since July 2016 and offer high reliability, high speed and high security cloud services to
multi-national and domestic corporate customers. We will further expand our IDC business opportunities in areas of
financials, securities, digital contents and e-commerce. With the strength and reliability of our technologies and
services, we believe that we have the competitive advantages to continue expanding our ICT services in the future.
We consistently expand the scope and variety of our integrated services to create more value for our
customers. We have been developing an OTT platform and building relationships with content providers and service
providers to offer attractive content and services on the platform. Our strategy on MOD/VOD/OTT services is to
enrich content, including by providing movies, drama, and TV series for SVOD, to enhance the user interface, to
leverage our existing base of fixed broadband and 4G mobile broadband subscribers to boost our MOD and OTT
subscribers, and to acquire content with all rights across different devices to become the leading IPTV/OTT service
provider in Taiwan.
20
program.
performance.
Emphasize quality of service and customer satisfaction
Quality of service is critical in attracting and retaining customers and enhancing our long-term profitability.
In order to continually enhance and improve the quality of our services, we have, in addition to the quality assurance
function of our regular operating units, established a number of dedicated task forces to monitor our network
performance. Our senior management sets our quality evaluation criteria and regularly reviews the quality of our
In order to ensure that our quality of service will translate into strong customer loyalty, we continue to focus
on and invest in the provision of a full range of services that emphasize customer care from the point of sale onward.
Our corporate customer services cover small, medium-sized and large enterprises. As of December 31, 2016, our
Enterprise Business Group employed 504 professionals and offered packaged and customized services, customer-
oriented solutions and integrated ICT services. We have completed the integration of our call centers, all of which can
now be reached by calling a single number “123.” We offer 24-hour customer service, including the handling of
service and billing inquiries. To improve the quality of our customer services, we implemented a customer
relationship management system, which encompasses a customer complaint system, a business information database
for the use of our call centers, and a Big Data system to enhance our sales and market analysis efforts. For example,
we leverage our capability to analyze Big Data in identifying locations for constructing base stations and target
groups for marketing our services.
In addition, we own hundreds of physical service stores, and we will continue to renovate our traditional
service stores to enhance user experience. Please refer to “—Competitive Strengths—We are an integrated full-
service telecommunications provider in Taiwan” for a discussion of our distribution channels.
Improve operational and cost efficiency
We have historically been focused, and will continue to focus, on cost control. We continue to improve our
operational and cost efficiency by migrating to more advanced networks and sophisticated operational support
systems.
Our long-term goal is to optimize our capital expenditures by focusing on investing in innovative products
and services with attractive return profiles. To catch up with the fast evolution of digital devices and network
applications, we continue the construction of our fiber-based fixed-line and mobile network to increase the network
bandwidth and enhance operational efficiencies. We continue to accelerate LTE network construction to enhance
population coverage and construct high capacity Wi-Fi/Fiber-Wireless networks to offload mobile network traffic.
We will continue to leverage our core telecommunication infrastructure and services to expand the ICT business,
including cloud services, enterprise total solutions and government projects.
Expand our business through alliances, acquisitions and investments
We continuously expand our business in high-growth areas, such as ICT services, through alliances,
acquisitions and investments. We believe that our experience, operational scale and large customer base make us an
attractive ally for other service providers.
Alliances. We have formed and will continue to pursue alliances with content providers, multimedia service
platform providers, customer premises equipment providers, internet portal operators, and ICT solutions partners to
diversify our business operations and enhance our service offerings. In May 2016, we formed an alliance with Acer
Inc. to help enterprises build intelligent mobile network in offices. In December 2016, we strengthened our
relationship with China Mobile Ltd. on the Hand-in-Hand Program, or hi-H Program, in areas including mobile
business, data business, innovation and internet business; members of hi-H Program include operators from some
major countries such as German, France and Korea. In January 2017, we cooperated with Nokia to perform Pre-5G
NarrowBand-IoT test, which help accelerate the application of IoT in Taiwan. In February 2017, we signed a
Focus on our core strengths while expanding our scope of services to capture new growth opportunities
In addition, we continue to develop our mobile payment service, Hami Wallet, with our customer loyalty
We endeavor to maintain our strong market position in telecommunication business and seek to expand the
scope of our business beyond network services by offering service platforms and VAS to capture new opportunities
and generate revenue growth, such as IoT platforms. We also continue to advance our MOD/OTT service platform
which offers digital contents, live broadcasting, interactive video, and high quality subscription video on demand, or
SVoD, services. In addition, we cooperate with content and software providers to develop new services.
Broadband services: We strive to maintain our broadband market share. We typically realize higher average
revenue per user, or ARPU, for our FTTx internet services, and we expect to continue to offer various incentives for
our FTTx customers to upgrade to even higher speed FTTx services and for our ADSL customers to upgrade to FTTx
services. We are continuing the build-out of our FTTx infrastructure, and we believe these efforts will help us
maintain our competitive advantage for broadband services. A high quality broadband network is also essential for
our high-definition MOD services.
Mobile Communications: We obtained the 4G mobile broadband license in April 2014 and launched our 4G
mobile broadband services in May 2014. In March 2016, we obtained the mobile broadband license for 2500MHz and
2600MHz frequency bands which enables us to enhance our 4G mobile broadband network. Our strategy for mobile
services includes the following initiatives:
• Enhancing 4G mobile broadband network construction to accommodate the increasing mobile data
usage from consumers as a result of the growth of connected devices, such as smartphones and tablets;
• Encouraging the migration of 2G service subscribers to 3G and 4G mobile services by offering
promotions on various mobile handsets combined with attractive VAS and product packages;
•
Introducing low- to mid-tier smartphones to expand our mobile internet subscriber base; and
• Maintaining ample Wi-Fi hotspots to offer more wireless internet access service and to offload data
traffic from our mobile networks; we had established 60,000 Wi-Fi hotspots by the end of 2016.
Internet services: Our strategy for internet services is to continue to build on the success of our HiNet
internet services and enhance our internet VAS, such as internet music and internet protocol video services, including
CHT OTT service, an OTT platform where customers can view videos and multimedia content.
Emerging services: We have been providing ICT services since 2009. We continue to leverage our core
telecommunication infrastructure and services to expand ICT services, including intelligent environment network
service, or iEN, intelligent transportation service, or ITS and IoT. Our experience with ICT services positions us well
to develop and offer cloud computing services. Underpinning the rollout of our cloud computing services is our
capability and experience in offering data center services to corporate customers, which includes our initiative to
build the largest cloud computing data center in Taiwan in anticipation of the growing demand for this service. The
Panchiao Internet Data Center, or IDC, one of the highest-rated, TIA-942 Rated 4, data centers in the world,
commenced operations since July 2016 and offer high reliability, high speed and high security cloud services to
multi-national and domestic corporate customers. We will further expand our IDC business opportunities in areas of
financials, securities, digital contents and e-commerce. With the strength and reliability of our technologies and
services, we believe that we have the competitive advantages to continue expanding our ICT services in the future.
We consistently expand the scope and variety of our integrated services to create more value for our
customers. We have been developing an OTT platform and building relationships with content providers and service
providers to offer attractive content and services on the platform. Our strategy on MOD/VOD/OTT services is to
enrich content, including by providing movies, drama, and TV series for SVOD, to enhance the user interface, to
leverage our existing base of fixed broadband and 4G mobile broadband subscribers to boost our MOD and OTT
subscribers, and to acquire content with all rights across different devices to become the leading IPTV/OTT service
provider in Taiwan.
program.
Emphasize quality of service and customer satisfaction
Quality of service is critical in attracting and retaining customers and enhancing our long-term profitability.
In order to continually enhance and improve the quality of our services, we have, in addition to the quality assurance
function of our regular operating units, established a number of dedicated task forces to monitor our network
performance. Our senior management sets our quality evaluation criteria and regularly reviews the quality of our
performance.
In order to ensure that our quality of service will translate into strong customer loyalty, we continue to focus
on and invest in the provision of a full range of services that emphasize customer care from the point of sale onward.
Our corporate customer services cover small, medium-sized and large enterprises. As of December 31, 2016, our
Enterprise Business Group employed 504 professionals and offered packaged and customized services, customer-
oriented solutions and integrated ICT services. We have completed the integration of our call centers, all of which can
now be reached by calling a single number “123.” We offer 24-hour customer service, including the handling of
service and billing inquiries. To improve the quality of our customer services, we implemented a customer
relationship management system, which encompasses a customer complaint system, a business information database
for the use of our call centers, and a Big Data system to enhance our sales and market analysis efforts. For example,
we leverage our capability to analyze Big Data in identifying locations for constructing base stations and target
groups for marketing our services.
In addition, we own hundreds of physical service stores, and we will continue to renovate our traditional
service stores to enhance user experience. Please refer to “—Competitive Strengths—We are an integrated full-
service telecommunications provider in Taiwan” for a discussion of our distribution channels.
Improve operational and cost efficiency
We have historically been focused, and will continue to focus, on cost control. We continue to improve our
operational and cost efficiency by migrating to more advanced networks and sophisticated operational support
systems.
Our long-term goal is to optimize our capital expenditures by focusing on investing in innovative products
and services with attractive return profiles. To catch up with the fast evolution of digital devices and network
applications, we continue the construction of our fiber-based fixed-line and mobile network to increase the network
bandwidth and enhance operational efficiencies. We continue to accelerate LTE network construction to enhance
population coverage and construct high capacity Wi-Fi/Fiber-Wireless networks to offload mobile network traffic.
We will continue to leverage our core telecommunication infrastructure and services to expand the ICT business,
including cloud services, enterprise total solutions and government projects.
Expand our business through alliances, acquisitions and investments
We continuously expand our business in high-growth areas, such as ICT services, through alliances,
acquisitions and investments. We believe that our experience, operational scale and large customer base make us an
attractive ally for other service providers.
Alliances. We have formed and will continue to pursue alliances with content providers, multimedia service
platform providers, customer premises equipment providers, internet portal operators, and ICT solutions partners to
diversify our business operations and enhance our service offerings. In May 2016, we formed an alliance with Acer
Inc. to help enterprises build intelligent mobile network in offices. In December 2016, we strengthened our
relationship with China Mobile Ltd. on the Hand-in-Hand Program, or hi-H Program, in areas including mobile
business, data business, innovation and internet business; members of hi-H Program include operators from some
major countries such as German, France and Korea. In January 2017, we cooperated with Nokia to perform Pre-5G
NarrowBand-IoT test, which help accelerate the application of IoT in Taiwan. In February 2017, we signed a
21
memorandum with NTT Group and ITOCHU Corporation to develop SDN and NFV and further increase flexibility
on framework of our network. In February 2017, we also cooperated with HTC Corporation, Sercomm Corporation
and MediaTek Inc. to launch LWA service. In addition, in Mobile World Congress 2017, we entered into a
memorandum of understanding with Nokia in respect of the cooperation in developing 5G technology, cloud
computing, IoT and automation of telecommunications network. At the same congress, we also entered into a
memorandum with Ericsson in respect of cooperation in developing 5G application, including traffic and public
utilities. In March 2017, we cooperated with Cisco Systems, Inc. to provide enterprises total solutions in different
areas, such as network, information security and data center virtualization.
Acquisition and Investments. We have focused our acquisition strategy on making acquisitions of companies
that we believe to be complementary to our long-term strategic goals. We have focused our investment strategy on the
development of new businesses and the enhancement of our operation efficiency. Recently we have entered into the
following notable transactions:
In February 2014, we, together with Benefit One Asia Pte. Ltd., established Chunghwa Benefit One Co.,
Ltd., or Chunghwa Benefit One, and we owned a 50% equity interest in Chunghwa Benefit One. Chunghwa Benefit
One mainly engages in providing an e-commerce platform for enterprises to provide employee benefits and for
individuals. In December 2016, both Benefit One Asia Pte. Ltd. and we agreed to dissolve Chunghwa Benefit One,
because the financial performance of the company is below our expectation.
Senao acquired 70% of the equity interests in Youth Co., Ltd and its subsidiaries, or Youth, in September
2015, and established 100% of the equity interests in Aval Technologies Co., Ltd. in October 2015. Both Youth and
Aval Technologies Co., Ltd. are primarily engaged in the businesses of providing information technology services
and selling communication products. In December 2015, Senao participated in the share subscription of Youth at a
percentage different from its original ownership percentage. Therefore, Senao’s ownership interest in Youth increased
from 70% to 89.48%.
One of our consolidated subsidiaries, Chunghwa Precision Test Tech Co., Ltd., or CHPT, a semiconductor
testing company, was listed on the General Stock Market of the Taipei Exchange (formerly known as Gre Tai
Securities Market) since March 24, 2016. Benefitting from its advanced technology and one-stop shopping service,
CHPT’s business continued to grow in the past few years.
Chunghwa Leading Photonics Tech Co., Ltd., or CLPT, was founded in July 2016, and we hold 75% of its
equity interests. CLPT’s management team came from our Telecommunication Laboratories. The company has the
fabrication and packaging technology for development and application on indium-gallium-arsenide photodetector.
Please also see Notes 3, 15, and 16 to our consolidated financial statements included elsewhere in this annual
report for our current strategic investments.
Going forward, we will focus on digital economy and innovative businesses and may consider making other
equity investments and acquisitions that we believe are complementary to our business and strategic goals. For
example, we have joined Asian Silicon Valley Development Plan. By cooperating with other companies and
leveraging our advantages, we strive to gain market share in the IoT business. Furthermore, pursuant to the
government’s southbound development policy, we will continue to explore opportunities to strengthen our
cooperation with companies in ASEAN countries and expand our geographic footprint, either in traditional
telecommunication business, IoT or ICT businesses.
Maintain focus on maximizing stockholder value
The following table sets forth information with respect to our local telephone customers and penetration rates
We are committed to maximizing stockholder value and intend to maintain a sustainable dividend policy.
Following our privatization, we have more flexibility to implement capital management initiatives, including possible
repurchases of our outstanding common shares and increases in our leverage through debt financing.
Under the ROC Company Act, companies are allowed to distribute special cash dividend from capital
surplus, which we had implemented at our annual general stockholders’ meetings in 2013 and 2014. See “Item 5.
Taiwan population(1) ....................................................................................................
23,434
23,492
23,540
Fixed line customers:
As of December 31
2014
2015
2016
(in thousands, except percentages
and per household data)
22
Operating and Financial Review and Prospects—Overview—Effect of adopting Taiwan IFRSs on our dividends and
employee bonuses.” In addition, the accumulated legal reserve that we had set aside in previous years has amounted
to the aggregate par value of our outstanding share capital. Therefore, according to relevant regulations, we are not
required to appropriate profits to our legal reserve starting from 2015. With the approval of our board of directors in
March 2017, our payout ratio was 95.7% in 2016 after adjusting for unappropriated earnings and setting aside the
special reserve. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information.”
B. Business Overview
Our Principal Lines of Business
Our core business segments are our domestic fixed communications business, mobile communications
business, internet business and international fixed communications business.
Domestic Fixed Communications Business
The provision of domestic fixed communications services is one of our principal business activities. Our
domestic fixed communications business includes local telephone services and domestic long distance telephone
services, broadband access services, local and domestic long distance leased line services, Wi-Fi services, MOD
services, and other domestic services including ICT services. We also provide interconnection with our fixed-line
network to other mobile and fixed-line operators. Our revenues from domestic fixed communications services were
NT$72.1 billion, NT$72.5 billion and NT$72.8 billion (US$2.3 billion), respectively, in 2014, 2015 and 2016,
representing 31.8%, 31.3% and 31.6% of our total revenue in such periods.
Local Telephone
The following table sets forth our revenues from local telephone services for the periods indicated.
Local telephone revenues:
Usage .....................................................................................................
Subscription ...........................................................................................
Interconnection ......................................................................................
Pay telephone .........................................................................................
Other ......................................................................................................
Total ...................................................................................................
2014
NT$
16.0
16.3
0.9
0.3
2.1
35.6
Year Ended December 31
2015
NT$
2016
NT$
US$
(in billions)
(in millions)
14.5
16.1
0.8
0.3
1.9
33.6
12.9
15.9
0.8
0.2
1.8
31.6
399.2
490.0
23.7
6.9
57.0
976.8
We provide local telephone services to approximately 10.94 million customers in Taiwan. Our fixed-line
network reaches virtually all homes and businesses in Taiwan. Revenues from local telephone services comprised
15.7%, 14.5% and 13.8% of our total revenues in 2014, 2015 and 2016, respectively. Approximately 73.7% of our
local telephone customers as of December 31, 2016 were residential customers. We are currently the leader of the
local telephone service market, with an average subscriber market share of approximately 94.3%, 94.0% and 93.5% in
2014, 2015 and 2016, respectively.
as of the dates indicated.
memorandum with NTT Group and ITOCHU Corporation to develop SDN and NFV and further increase flexibility
on framework of our network. In February 2017, we also cooperated with HTC Corporation, Sercomm Corporation
and MediaTek Inc. to launch LWA service. In addition, in Mobile World Congress 2017, we entered into a
memorandum of understanding with Nokia in respect of the cooperation in developing 5G technology, cloud
computing, IoT and automation of telecommunications network. At the same congress, we also entered into a
memorandum with Ericsson in respect of cooperation in developing 5G application, including traffic and public
utilities. In March 2017, we cooperated with Cisco Systems, Inc. to provide enterprises total solutions in different
areas, such as network, information security and data center virtualization.
Acquisition and Investments. We have focused our acquisition strategy on making acquisitions of companies
that we believe to be complementary to our long-term strategic goals. We have focused our investment strategy on the
development of new businesses and the enhancement of our operation efficiency. Recently we have entered into the
following notable transactions:
In February 2014, we, together with Benefit One Asia Pte. Ltd., established Chunghwa Benefit One Co.,
Ltd., or Chunghwa Benefit One, and we owned a 50% equity interest in Chunghwa Benefit One. Chunghwa Benefit
One mainly engages in providing an e-commerce platform for enterprises to provide employee benefits and for
individuals. In December 2016, both Benefit One Asia Pte. Ltd. and we agreed to dissolve Chunghwa Benefit One,
because the financial performance of the company is below our expectation.
Senao acquired 70% of the equity interests in Youth Co., Ltd and its subsidiaries, or Youth, in September
2015, and established 100% of the equity interests in Aval Technologies Co., Ltd. in October 2015. Both Youth and
Aval Technologies Co., Ltd. are primarily engaged in the businesses of providing information technology services
and selling communication products. In December 2015, Senao participated in the share subscription of Youth at a
percentage different from its original ownership percentage. Therefore, Senao’s ownership interest in Youth increased
from 70% to 89.48%.
One of our consolidated subsidiaries, Chunghwa Precision Test Tech Co., Ltd., or CHPT, a semiconductor
testing company, was listed on the General Stock Market of the Taipei Exchange (formerly known as Gre Tai
Securities Market) since March 24, 2016. Benefitting from its advanced technology and one-stop shopping service,
CHPT’s business continued to grow in the past few years.
Chunghwa Leading Photonics Tech Co., Ltd., or CLPT, was founded in July 2016, and we hold 75% of its
equity interests. CLPT’s management team came from our Telecommunication Laboratories. The company has the
fabrication and packaging technology for development and application on indium-gallium-arsenide photodetector.
Please also see Notes 3, 15, and 16 to our consolidated financial statements included elsewhere in this annual
report for our current strategic investments.
Going forward, we will focus on digital economy and innovative businesses and may consider making other
equity investments and acquisitions that we believe are complementary to our business and strategic goals. For
example, we have joined Asian Silicon Valley Development Plan. By cooperating with other companies and
leveraging our advantages, we strive to gain market share in the IoT business. Furthermore, pursuant to the
government’s southbound development policy, we will continue to explore opportunities to strengthen our
cooperation with companies in ASEAN countries and expand our geographic footprint, either in traditional
telecommunication business, IoT or ICT businesses.
Maintain focus on maximizing stockholder value
We are committed to maximizing stockholder value and intend to maintain a sustainable dividend policy.
Following our privatization, we have more flexibility to implement capital management initiatives, including possible
repurchases of our outstanding common shares and increases in our leverage through debt financing.
Under the ROC Company Act, companies are allowed to distribute special cash dividend from capital
surplus, which we had implemented at our annual general stockholders’ meetings in 2013 and 2014. See “Item 5.
Operating and Financial Review and Prospects—Overview—Effect of adopting Taiwan IFRSs on our dividends and
employee bonuses.” In addition, the accumulated legal reserve that we had set aside in previous years has amounted
to the aggregate par value of our outstanding share capital. Therefore, according to relevant regulations, we are not
required to appropriate profits to our legal reserve starting from 2015. With the approval of our board of directors in
March 2017, our payout ratio was 95.7% in 2016 after adjusting for unappropriated earnings and setting aside the
special reserve. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information.”
B. Business Overview
Our Principal Lines of Business
Our core business segments are our domestic fixed communications business, mobile communications
business, internet business and international fixed communications business.
Domestic Fixed Communications Business
The provision of domestic fixed communications services is one of our principal business activities. Our
domestic fixed communications business includes local telephone services and domestic long distance telephone
services, broadband access services, local and domestic long distance leased line services, Wi-Fi services, MOD
services, and other domestic services including ICT services. We also provide interconnection with our fixed-line
network to other mobile and fixed-line operators. Our revenues from domestic fixed communications services were
NT$72.1 billion, NT$72.5 billion and NT$72.8 billion (US$2.3 billion), respectively, in 2014, 2015 and 2016,
representing 31.8%, 31.3% and 31.6% of our total revenue in such periods.
Local Telephone
The following table sets forth our revenues from local telephone services for the periods indicated.
Local telephone revenues:
Usage .....................................................................................................
Subscription ...........................................................................................
Interconnection ......................................................................................
Pay telephone .........................................................................................
Other ......................................................................................................
Total ...................................................................................................
Year Ended December 31
2014
NT$
16.0
16.3
0.9
0.3
2.1
35.6
2015
NT$
(in billions)
14.5
16.1
0.8
0.3
1.9
33.6
NT$
12.9
15.9
0.8
0.2
1.8
31.6
2016
US$
(in millions)
399.2
490.0
23.7
6.9
57.0
976.8
We provide local telephone services to approximately 10.94 million customers in Taiwan. Our fixed-line
network reaches virtually all homes and businesses in Taiwan. Revenues from local telephone services comprised
15.7%, 14.5% and 13.8% of our total revenues in 2014, 2015 and 2016, respectively. Approximately 73.7% of our
local telephone customers as of December 31, 2016 were residential customers. We are currently the leader of the
local telephone service market, with an average subscriber market share of approximately 94.3%, 94.0% and 93.5% in
2014, 2015 and 2016, respectively.
The following table sets forth information with respect to our local telephone customers and penetration rates
as of the dates indicated.
Taiwan population(1) ....................................................................................................
Fixed line customers:
As of December 31
2016
2015
2014
(in thousands, except percentages
and per household data)
23,492
23,540
23,434
23
Residential ...............................................................................................................
Residential ...............................................................................................................
Business ...................................................................................................................
Business ...................................................................................................................
Residential ...............................................................................................................
Residential ...............................................................................................................
Total .....................................................................................................................
Total .....................................................................................................................
Business ...................................................................................................................
Business ...................................................................................................................
Penetration rate (as a percentage of the population) ....................................................
Penetration rate (as a percentage of the population) ....................................................
Total .....................................................................................................................
Total .....................................................................................................................
Lines in service per household .....................................................................................
Lines in service per household .....................................................................................
Penetration rate (as a percentage of the population) ....................................................
Penetration rate (as a percentage of the population) ....................................................
Lines in service per household .....................................................................................
Lines in service per household .....................................................................................
(1) Data from the Department of Population, Ministry of the Interior, ROC.
(1) Data from the Department of Population, Ministry of the Interior, ROC.
(1) Data from the Department of Population, Ministry of the Interior, ROC.
(1) Data from the Department of Population, Ministry of the Interior, ROC.
As of December 31
As of December 31
As of December 31
As of December 31
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
(in thousands, except percentages
(in thousands, except percentages
and per household data)
and per household data)
(in thousands, except percentages
(in thousands, except percentages
8,067
8,239
8,395
8,067
8,239
8,395
and per household data)
and per household data)
2,872
2,928
2,970
2,872
2,928
2,970
8,067
8,239
8,395
8,067
8,239
8,395
10,939
11,167
11,365
11,167
11,365
2,872
2,928
2,970
2,872
2,928
2,970
46.5%
47.5%
47.5%
47.5%
46.5%
47.5%
10,939
11,167
11,365
11,167
11,365
0.97
0.94
0.97
1.00
0.94
1.00
46.5%
47.5%
47.5%
46.5%
47.5%
47.5%
0.94
0.97
1.00
0.94
0.97
1.00
10,939
10,939
With the continued development of mobile technologies, demand for local customer lines has been declining.
With the continued development of mobile technologies, demand for local customer lines has been declining.
The number of fixed-line customers decreased by 1.8% in 2014 compared to 2013, 1.7% in 2015 compared to 2014
The number of fixed-line customers decreased by 1.8% in 2014 compared to 2013, 1.7% in 2015 compared to 2014
and 2.0% in 2016 compared to 2015. We attribute the decrease in fixed-line customers to a general industry-wide
and 2.0% in 2016 compared to 2015. We attribute the decrease in fixed-line customers to a general industry-wide
trend of migrating from fixed-line services to mobile and internet telephony services.
trend of migrating from fixed-line services to mobile and internet telephony services.
With the continued development of mobile technologies, demand for local customer lines has been declining.
With the continued development of mobile technologies, demand for local customer lines has been declining.
The number of fixed-line customers decreased by 1.8% in 2014 compared to 2013, 1.7% in 2015 compared to 2014
The number of fixed-line customers decreased by 1.8% in 2014 compared to 2013, 1.7% in 2015 compared to 2014
and 2.0% in 2016 compared to 2015. We attribute the decrease in fixed-line customers to a general industry-wide
and 2.0% in 2016 compared to 2015. We attribute the decrease in fixed-line customers to a general industry-wide
trend of migrating from fixed-line services to mobile and internet telephony services.
trend of migrating from fixed-line services to mobile and internet telephony services.
The following table sets forth information with respect to local telephone usage for the periods indicated.
The following table sets forth information with respect to local telephone usage for the periods indicated.
The following table sets forth information with respect to local telephone usage for the periods indicated.
The following table sets forth information with respect to local telephone usage for the periods indicated.
Year Ended December 31
Year Ended December 31
Year Ended December 31
Year Ended December 31
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
(in millions, except percentages)
(in millions, except percentages)
10,511
9,481
10,511
11,567
9,481
11,567
(in millions, except percentages)
(in millions, except percentages)
(10.6)%
(9.8)%
(10.6)%
(9.1)%
9,481
10,511
11,567
9,481
10,511
11,567
(10.6)%
(9.8)%
(9.1)%
(10.6)%
Includes minutes from local calls made on pay telephones and minutes from fixed line-to-mobile calls.
Includes minutes from local calls made on pay telephones and minutes from fixed line-to-mobile calls.
Includes minutes from local calls made on pay telephones and minutes from fixed line-to-mobile calls.
Includes minutes from local calls made on pay telephones and minutes from fixed line-to-mobile calls.
revenues.
revenues.
revenues.
revenues.
Minutes from local calls(1)(2) ........................................................................................
Minutes from local calls(1)(2) ........................................................................................
Growth rate (compared to the same period in the prior year) ......................................
Growth rate (compared to the same period in the prior year) ......................................
(1)
(2) Calls to our HiNet internet service, which are recorded as part of our internet services, are not included in our local call minutes or
(1)
(2) Calls to our HiNet internet service, which are recorded as part of our internet services, are not included in our local call minutes or
Minutes from local calls(1)(2) ........................................................................................
Minutes from local calls(1)(2) ........................................................................................
Growth rate (compared to the same period in the prior year) ......................................
Growth rate (compared to the same period in the prior year) ......................................
(1)
(2) Calls to our HiNet internet service, which are recorded as part of our internet services, are not included in our local call minutes or
(1)
(2) Calls to our HiNet internet service, which are recorded as part of our internet services, are not included in our local call minutes or
(9.1)%
(9.1)%
(9.8)%
(9.8)%
Minutes from local calls decreased in 2014, 2015 and 2016 due to the impact of mobile substitution and
Minutes from local calls decreased in 2014, 2015 and 2016 due to the impact of mobile substitution and
Minutes from local calls decreased in 2014, 2015 and 2016 due to the impact of mobile substitution and
Minutes from local calls decreased in 2014, 2015 and 2016 due to the impact of mobile substitution and
increased use of voice over internet protocol, or VoIP, applications.
increased use of voice over internet protocol, or VoIP, applications.
increased use of voice over internet protocol, or VoIP, applications.
increased use of voice over internet protocol, or VoIP, applications.
We charge our local telephone service customers a monthly fee and a usage fee. We also charge separate
We charge our local telephone service customers a monthly fee and a usage fee. We also charge separate
fees for some VAS. The monthly fees for our primary tariff plans are NT$70 for residential customers and NT$295
fees for some VAS. The monthly fees for our primary tariff plans are NT$70 for residential customers and NT$295
for business customers. Our primary peak time usage fee is NT$1.6 for three minutes, and our off-peak usage fee is
for business customers. Our primary peak time usage fee is NT$1.6 for three minutes, and our off-peak usage fee is
NT$1.0 for ten minutes. Our usage fees are the same for residential and business customers.
NT$1.0 for ten minutes. Our usage fees are the same for residential and business customers.
We charge our local telephone service customers a monthly fee and a usage fee. We also charge separate
We charge our local telephone service customers a monthly fee and a usage fee. We also charge separate
fees for some VAS. The monthly fees for our primary tariff plans are NT$70 for residential customers and NT$295
fees for some VAS. The monthly fees for our primary tariff plans are NT$70 for residential customers and NT$295
for business customers. Our primary peak time usage fee is NT$1.6 for three minutes, and our off-peak usage fee is
for business customers. Our primary peak time usage fee is NT$1.6 for three minutes, and our off-peak usage fee is
NT$1.0 for ten minutes. Our usage fees are the same for residential and business customers.
NT$1.0 for ten minutes. Our usage fees are the same for residential and business customers.
The following table sets forth information with respect to the average local telephone usage charge per
The following table sets forth information with respect to the average local telephone usage charge per
The following table sets forth information with respect to the average local telephone usage charge per
The following table sets forth information with respect to the average local telephone usage charge per
minute for the periods indicated.
minute for the periods indicated.
minute for the periods indicated.
minute for the periods indicated.
Average local telephone usage fee (per minute) ..........................................................
Growth rate (compared to the same period in the prior year) ......................................
Average local telephone usage fee (per minute) ..........................................................
Growth rate (compared to the same period in the prior year) ......................................
Average local telephone usage fee (per minute) ..........................................................
Growth rate (compared to the same period in the prior year) ......................................
Average local telephone usage fee (per minute) ..........................................................
Growth rate (compared to the same period in the prior year) ......................................
2016
2016
2016
2016
NT$
NT$
1.37
1.37
NT$
NT$
(1.4)%
(1.4)%
1.37
1.37
(1.4)%
(1.4)%
Average per minute usage charges remained relatively stable from 2014 to 2016. Average per minute usage
Average per minute usage charges remained relatively stable from 2014 to 2016. Average per minute usage
Average per minute usage charges remained relatively stable from 2014 to 2016. Average per minute usage
Average per minute usage charges remained relatively stable from 2014 to 2016. Average per minute usage
charges decreased 1.4% to NT$1.37 in 2016, mainly due to the increase in number of users of mobile phones and
charges decreased 1.4% to NT$1.37 in 2016, mainly due to the increase in number of users of mobile phones and
charges decreased 1.4% to NT$1.37 in 2016, mainly due to the increase in number of users of mobile phones and
charges decreased 1.4% to NT$1.37 in 2016, mainly due to the increase in number of users of mobile phones and
VoIP telephony services, which also led to a decrease in total revenue derived from local telephone usage. Part of our
VoIP telephony services, which also led to a decrease in total revenue derived from local telephone usage. Part of our
VoIP telephony services, which also led to a decrease in total revenue derived from local telephone usage. Part of our
VoIP telephony services, which also led to a decrease in total revenue derived from local telephone usage. Part of our
competitive strategy is to offer customers innovative products and services intended to both secure customer loyalty
competitive strategy is to offer customers innovative products and services intended to both secure customer loyalty
competitive strategy is to offer customers innovative products and services intended to both secure customer loyalty
competitive strategy is to offer customers innovative products and services intended to both secure customer loyalty
and increase revenues. In particular, our VAS offerings are designed to increase our call revenues by increasing the
and increase revenues. In particular, our VAS offerings are designed to increase our call revenues by increasing the
and increase revenues. In particular, our VAS offerings are designed to increase our call revenues by increasing the
and increase revenues. In particular, our VAS offerings are designed to increase our call revenues by increasing the
number of calls our customers make and by receiving fees for usage of the VAS. These services include call waiting,
number of calls our customers make and by receiving fees for usage of the VAS. These services include call waiting,
number of calls our customers make and by receiving fees for usage of the VAS. These services include call waiting,
number of calls our customers make and by receiving fees for usage of the VAS. These services include call waiting,
caller identification, call forwarding, three-party calls, ring back tone and voicemail.
caller identification, call forwarding, three-party calls, ring back tone and voicemail.
caller identification, call forwarding, three-party calls, ring back tone and voicemail.
caller identification, call forwarding, three-party calls, ring back tone and voicemail.
2014
2014
2014
2014
NT$
NT$
1.39
1.39
NT$
NT$
—
—
1.39
1.39
—
—
Year Ended December 31
Year Ended December 31
Year Ended December 31
Year Ended December 31
2015
2015
2015
2015
NT$
NT$
1.39
1.39
NT$
NT$
—
—
1.39
1.39
—
—
24
Domestic Long Distance Telephone
We provide domestic long distance telephone services in Taiwan. Total revenues from domestic long
distance telephone services were NT$3.3 billion, NT$3.1 billion and NT$2.9 billion (US$0.1 billion) in 2014, 2015
and 2016, respectively, representing 1.5%, 1.3% and 1.3% of our total revenues in such periods. This decrease was
mainly due to the continuous decline in call minutes resulting from the migration to mobile services and increased use
of VoIP applications. Our average market share by minutes in the domestic long distance market was approximately
80.5%, 82.2% and 83.0% in 2014, 2015 and 2016, respectively.
We provide so-called “intelligent” network services over our domestic long distance network, including toll-
free calling and virtual private networks, or VPN, services and others. We also focus on offering our customers an
increasing number of VAS with flexible tariff packages.
Broadband (FTTx and ADSL) Access
We provide broadband internet access through connections based on our FTTx and ADSL technologies.
FTTx generally offers a faster access medium for our internet customers compared to ADSL by using fiber optic
technology. We are continuing the build-out of our FTTx infrastructure.
Our revenues from our broadband access services in 2014, 2015 and 2016 were NT$19.1 billion, NT$19.3
billion and NT$19.0 billion (US$0.6 billion), respectively. We provide broadband access services to other internet
service providers that do not have their own network infrastructure, and as a result, our broadband customers also
include some customers that use only our broadband data access lines and choose another provider for internet service
provider, or ISP, services.
From 2014 to 2016, we continued accelerating our high speed FTTx household coverage. We currently offer
various promotional packages to encourage more migration of our FTTx subscribers to higher speed FTTx service
and migration of our ADSL subscribers to our FTTx service. In 2016, FTTx revenue reached 89.6% of our total
broadband revenue. As of December 31, 2016, 92.5% of our FTTx service customers subscribe HiNet ISP service.
Our subscriber market share of Taiwan’s broadband market was approximately 76.7%, 75.8% and 74.3% in
2014, 2015 and 2016, respectively.
The following table sets forth our broadband service customers as of each of the dates indicated.
FTTx service customers (in thousands) ...........................................................
ADSL service customers (in thousands) ..........................................................
Year Ended December 31
2014
3,120
1,419
2015
3,358
1,138
2016
3,484
992
Our FTTx service offers downlink speeds of 16, 35, 60, 100, 300, 500 Mbps and 1 gigabits per second, or
Gbps, matched with uplink speeds of 3, 6, 20, 40, 100, 250 and 600 Mbps, respectively. Our ADSL service offers
downlink speeds that range from 2 Mbps to 8 Mbps and uplink speeds that range from 64 kilobits per second, or
Kbps, to 640 Kbps.
We have experienced competition in broadband from cable operators and other fixed-line operators. In
addition, as faster wireless technologies, such as 4G LTE, have been deployed, some customers have replaced fixed
broadband services with high-speed mobile broadband services. Our strategy is to continue the deployment of higher
speed FTTx network so as to maintain our competitiveness.
Charges for our FTTx and ADSL services include one-time installation charges and monthly subscription
fees. These charges for our FTTx and ADSL services vary based on connection speed. Charges for our HiNet dial-up
service include a monthly fee entitling the customer to a fixed number of minutes of service, with an additional charge
per minute when the fixed number of minutes is exceeded.
As of December 31
2014
2015
2016
(in thousands, except percentages
and per household data)
8,395
2,970
11,365
47.5%
1.00
8,239
2,928
11,167
47.5%
0.97
8,067
2,872
10,939
46.5%
0.94
Residential ...............................................................................................................
Business ...................................................................................................................
Total .....................................................................................................................
Penetration rate (as a percentage of the population) ....................................................
Lines in service per household .....................................................................................
(1) Data from the Department of Population, Ministry of the Interior, ROC.
With the continued development of mobile technologies, demand for local customer lines has been declining.
The number of fixed-line customers decreased by 1.8% in 2014 compared to 2013, 1.7% in 2015 compared to 2014
and 2.0% in 2016 compared to 2015. We attribute the decrease in fixed-line customers to a general industry-wide
trend of migrating from fixed-line services to mobile and internet telephony services.
The following table sets forth information with respect to local telephone usage for the periods indicated.
Year Ended December 31
2014
2015
2016
(in millions, except percentages)
11,567
(10.6)%
10,511
(9.1)%
9,481
(9.8)%
Minutes from local calls(1)(2) ........................................................................................
Growth rate (compared to the same period in the prior year) ......................................
(1)
Includes minutes from local calls made on pay telephones and minutes from fixed line-to-mobile calls.
(2) Calls to our HiNet internet service, which are recorded as part of our internet services, are not included in our local call minutes or
revenues.
Minutes from local calls decreased in 2014, 2015 and 2016 due to the impact of mobile substitution and
increased use of voice over internet protocol, or VoIP, applications.
We charge our local telephone service customers a monthly fee and a usage fee. We also charge separate
fees for some VAS. The monthly fees for our primary tariff plans are NT$70 for residential customers and NT$295
for business customers. Our primary peak time usage fee is NT$1.6 for three minutes, and our off-peak usage fee is
NT$1.0 for ten minutes. Our usage fees are the same for residential and business customers.
The following table sets forth information with respect to the average local telephone usage charge per
minute for the periods indicated.
Year Ended December 31
2014
NT$
1.39
—
2015
NT$
1.39
—
2016
NT$
1.37
(1.4)%
Average local telephone usage fee (per minute) ..........................................................
Growth rate (compared to the same period in the prior year) ......................................
Average per minute usage charges remained relatively stable from 2014 to 2016. Average per minute usage
charges decreased 1.4% to NT$1.37 in 2016, mainly due to the increase in number of users of mobile phones and
VoIP telephony services, which also led to a decrease in total revenue derived from local telephone usage. Part of our
competitive strategy is to offer customers innovative products and services intended to both secure customer loyalty
and increase revenues. In particular, our VAS offerings are designed to increase our call revenues by increasing the
number of calls our customers make and by receiving fees for usage of the VAS. These services include call waiting,
caller identification, call forwarding, three-party calls, ring back tone and voicemail.
Domestic Long Distance Telephone
We provide domestic long distance telephone services in Taiwan. Total revenues from domestic long
distance telephone services were NT$3.3 billion, NT$3.1 billion and NT$2.9 billion (US$0.1 billion) in 2014, 2015
and 2016, respectively, representing 1.5%, 1.3% and 1.3% of our total revenues in such periods. This decrease was
mainly due to the continuous decline in call minutes resulting from the migration to mobile services and increased use
of VoIP applications. Our average market share by minutes in the domestic long distance market was approximately
80.5%, 82.2% and 83.0% in 2014, 2015 and 2016, respectively.
We provide so-called “intelligent” network services over our domestic long distance network, including toll-
free calling and virtual private networks, or VPN, services and others. We also focus on offering our customers an
increasing number of VAS with flexible tariff packages.
Broadband (FTTx and ADSL) Access
We provide broadband internet access through connections based on our FTTx and ADSL technologies.
FTTx generally offers a faster access medium for our internet customers compared to ADSL by using fiber optic
technology. We are continuing the build-out of our FTTx infrastructure.
Our revenues from our broadband access services in 2014, 2015 and 2016 were NT$19.1 billion, NT$19.3
billion and NT$19.0 billion (US$0.6 billion), respectively. We provide broadband access services to other internet
service providers that do not have their own network infrastructure, and as a result, our broadband customers also
include some customers that use only our broadband data access lines and choose another provider for internet service
provider, or ISP, services.
From 2014 to 2016, we continued accelerating our high speed FTTx household coverage. We currently offer
various promotional packages to encourage more migration of our FTTx subscribers to higher speed FTTx service
and migration of our ADSL subscribers to our FTTx service. In 2016, FTTx revenue reached 89.6% of our total
broadband revenue. As of December 31, 2016, 92.5% of our FTTx service customers subscribe HiNet ISP service.
Our subscriber market share of Taiwan’s broadband market was approximately 76.7%, 75.8% and 74.3% in
2014, 2015 and 2016, respectively.
The following table sets forth our broadband service customers as of each of the dates indicated.
FTTx service customers (in thousands) ...........................................................
ADSL service customers (in thousands) ..........................................................
Year Ended December 31
2015
3,358
1,138
2016
3,484
992
2014
3,120
1,419
Our FTTx service offers downlink speeds of 16, 35, 60, 100, 300, 500 Mbps and 1 gigabits per second, or
Gbps, matched with uplink speeds of 3, 6, 20, 40, 100, 250 and 600 Mbps, respectively. Our ADSL service offers
downlink speeds that range from 2 Mbps to 8 Mbps and uplink speeds that range from 64 kilobits per second, or
Kbps, to 640 Kbps.
We have experienced competition in broadband from cable operators and other fixed-line operators. In
addition, as faster wireless technologies, such as 4G LTE, have been deployed, some customers have replaced fixed
broadband services with high-speed mobile broadband services. Our strategy is to continue the deployment of higher
speed FTTx network so as to maintain our competitiveness.
Charges for our FTTx and ADSL services include one-time installation charges and monthly subscription
fees. These charges for our FTTx and ADSL services vary based on connection speed. Charges for our HiNet dial-up
service include a monthly fee entitling the customer to a fixed number of minutes of service, with an additional charge
per minute when the fixed number of minutes is exceeded.
25
As of December 31
As of December 31
2014
2014
2015
2015
2016
2016
(in thousands, except percentages
(in thousands, except percentages
and per household data)
and per household data)
Residential ...............................................................................................................
Residential ...............................................................................................................
Business ...................................................................................................................
Business ...................................................................................................................
8,395
8,395
2,970
2,970
8,239
8,239
2,928
2,928
8,067
8,067
2,872
2,872
Total .....................................................................................................................
Total .....................................................................................................................
11,365
11,365
11,167
11,167
10,939
10,939
Penetration rate (as a percentage of the population) ....................................................
Penetration rate (as a percentage of the population) ....................................................
Lines in service per household .....................................................................................
Lines in service per household .....................................................................................
47.5%
47.5%
1.00
1.00
47.5%
47.5%
0.97
0.97
46.5%
46.5%
0.94
0.94
(1) Data from the Department of Population, Ministry of the Interior, ROC.
(1) Data from the Department of Population, Ministry of the Interior, ROC.
With the continued development of mobile technologies, demand for local customer lines has been declining.
With the continued development of mobile technologies, demand for local customer lines has been declining.
The number of fixed-line customers decreased by 1.8% in 2014 compared to 2013, 1.7% in 2015 compared to 2014
The number of fixed-line customers decreased by 1.8% in 2014 compared to 2013, 1.7% in 2015 compared to 2014
and 2.0% in 2016 compared to 2015. We attribute the decrease in fixed-line customers to a general industry-wide
and 2.0% in 2016 compared to 2015. We attribute the decrease in fixed-line customers to a general industry-wide
trend of migrating from fixed-line services to mobile and internet telephony services.
trend of migrating from fixed-line services to mobile and internet telephony services.
The following table sets forth information with respect to local telephone usage for the periods indicated.
The following table sets forth information with respect to local telephone usage for the periods indicated.
Year Ended December 31
Year Ended December 31
2014
2014
2015
2015
2016
2016
(in millions, except percentages)
(in millions, except percentages)
Minutes from local calls(1)(2) ........................................................................................
Minutes from local calls(1)(2) ........................................................................................
11,567
11,567
10,511
10,511
9,481
9,481
Growth rate (compared to the same period in the prior year) ......................................
Growth rate (compared to the same period in the prior year) ......................................
(10.6)%
(10.6)%
(9.1)%
(9.1)%
(9.8)%
(9.8)%
(1)
(1)
Includes minutes from local calls made on pay telephones and minutes from fixed line-to-mobile calls.
Includes minutes from local calls made on pay telephones and minutes from fixed line-to-mobile calls.
(2) Calls to our HiNet internet service, which are recorded as part of our internet services, are not included in our local call minutes or
(2) Calls to our HiNet internet service, which are recorded as part of our internet services, are not included in our local call minutes or
revenues.
revenues.
Minutes from local calls decreased in 2014, 2015 and 2016 due to the impact of mobile substitution and
Minutes from local calls decreased in 2014, 2015 and 2016 due to the impact of mobile substitution and
increased use of voice over internet protocol, or VoIP, applications.
increased use of voice over internet protocol, or VoIP, applications.
We charge our local telephone service customers a monthly fee and a usage fee. We also charge separate
fees for some VAS. The monthly fees for our primary tariff plans are NT$70 for residential customers and NT$295
for business customers. Our primary peak time usage fee is NT$1.6 for three minutes, and our off-peak usage fee is
NT$1.0 for ten minutes. Our usage fees are the same for residential and business customers.
We charge our local telephone service customers a monthly fee and a usage fee. We also charge separate
fees for some VAS. The monthly fees for our primary tariff plans are NT$70 for residential customers and NT$295
for business customers. Our primary peak time usage fee is NT$1.6 for three minutes, and our off-peak usage fee is
NT$1.0 for ten minutes. Our usage fees are the same for residential and business customers.
The following table sets forth information with respect to the average local telephone usage charge per
The following table sets forth our ARPU for each of the periods indicated.
The following table sets forth information with respect to the average local telephone usage charge per
minute for the periods indicated.
minute for the periods indicated.
Average local telephone usage fee (per minute) ..........................................................
Growth rate (compared to the same period in the prior year) ......................................
2016
2016
2016
NT$
ARPU for broadband services per month(1) .....................................................
717
NT$
NT$
ARPU for FTTx services per month(2) .............................................................
1.37
1.37
Average local telephone usage fee (per minute) ..........................................................
811
(1.4)%
(1.4)%
Growth rate (compared to the same period in the prior year) ......................................
(1) ARPU for our broadband services per month is calculated as the sum of (a) broadband access revenues for the relevant period divided
Average per minute usage charges remained relatively stable from 2014 to 2016. Average per minute usage
Average per minute usage charges remained relatively stable from 2014 to 2016. Average per minute usage
by the average of the number of our broadband access customers on the first and last days of the period divided by the number of
months in the relevant period and (b) HiNet ISP service revenues divided by the average of the number of HiNet ISP service
charges decreased 1.4% to NT$1.37 in 2016, mainly due to the increase in number of users of mobile phones and
charges decreased 1.4% to NT$1.37 in 2016, mainly due to the increase in number of users of mobile phones and
subscribers on the first and last days of the period divided by the number of months in the relevant period.
VoIP telephony services, which also led to a decrease in total revenue derived from local telephone usage. Part of our
VoIP telephony services, which also led to a decrease in total revenue derived from local telephone usage. Part of our
(2) ARPU for FTTx services per month is calculated as the sum of (a) FTTx access revenues for the relevant period divided by the
competitive strategy is to offer customers innovative products and services intended to both secure customer loyalty
competitive strategy is to offer customers innovative products and services intended to both secure customer loyalty
average of the number of our FTTx access customers on the first and last days of the period divided by the number of months in the
and increase revenues. In particular, our VAS offerings are designed to increase our call revenues by increasing the
and increase revenues. In particular, our VAS offerings are designed to increase our call revenues by increasing the
relevant period and (b) HiNet FTTx ISP service revenues divided by the average of the number of HiNet FTTx ISP service
number of calls our customers make and by receiving fees for usage of the VAS. These services include call waiting,
number of calls our customers make and by receiving fees for usage of the VAS. These services include call waiting,
subscribers on the first and last days of the period divided by the number of months in the relevant period.
caller identification, call forwarding, three-party calls, ring back tone and voicemail.
caller identification, call forwarding, three-party calls, ring back tone and voicemail.
2014
2014
2014
NT$
704
NT$
NT$
1.39
1.39
838
—
—
Year Ended December 31
Year Ended December 31
Year Ended December 31
2015
2015
2015
NT$
714
NT$
NT$
1.39
1.39
828
—
—
Despite tariff reductions mandated by the NCC, our overall broadband ARPU increased in 2015 and 2016,
mainly due to our successful strategy in migration mentioned above. For more details of the NCC’s mandatory tariff
reduction, please see “Item 5. Operating and Financial Review and Prospects—Overview—Tariff adjustments.”
Mobile Services
Leased Line Services—Local and Domestic Long Distance
We are the leading provider of domestic leased line services in Taiwan. Leased line services involve offering
exclusive lines that allow point-to-point connection for voice and data traffic. Leased lines are used by business
customers to assemble their own private networks and by telecommunications service providers to establish networks
to offer telecommunications services.
We provide data transmission services to major corporate customers in Taiwan. We also provide leased lines
to other mobile and fixed-line service operators for interconnection with our fixed-line network and for connection
within their networks. As of December 31, 2014, 2015 and 2016, the total bandwidths of local and domestic long
distance lines leased to third parties were 1,359.1, 1,556.8 and 1,678.8 Gbps, respectively. The number increased
from 2014 to 2016 mainly due to the increase in demand for the bandwidth of backbone network for 4G mobile
broadband services.
We continue to experience a decline in rental fees for all of our leased line products. We attribute the general
decline in rental fees since 2000 to a general migration toward broadband services and increased competition from
other service providers constructing their own lines mentioned above. Our local and domestic long distance leased
line services revenues were NT$4.6 billion, NT$4.4 and NT$4.3 (US$0.1 billion) in 2014, 2015 and 2016,
respectively. Although the bandwidth leased to third parties increased, the revenue decreased year over year mainly
due to the decline in rental fees described above.
Wi-Fi Services
As of December 31, 2014, 2015 and 2016, we had a total of approximately 2.0 million, 2.4 million and 2.6
million residential and business customers that leased our access points, respectively. In addition, we had 60,000 hot
spots in public areas by the end of 2016, such as convenience stores, airports and international convention centers,
where our smartphone subscribers can access our Wi-Fi network and help to offload mobile data network traffic.
MOD Services
Using video streaming technology through a set top box that connects to our FTTx and ADSL data
connections, our MOD customers can access TV programs, video-on-demand and other services. We had over 193
broadcasting channels and over 20,000 hours of on-demand programs and served approximately 1.3 million
customers as of December 31, 2016. Also, as of December 31, 2016, we offered 160 high definition, or HD, channels
and other HD video-on-demand programming, such as sports, movies and knowledge materials. In addition to our
regular packaged offerings, we also offer SVoD services for film and drama. As of December 31, 2016, we had 1.3
26
million MOD customers, including 718 thousand SVOD subscribers. Our MOD revenues from 2014 to 2016 were
NT$2.6 billion, NT$2.5 billion and NT$2.4 billion (US$72.7 million) in 2014, 2015 and 2016, respectively. The
decrease in revenue from 2014 to 2016 was mainly due to the adjustment of our cooperation schemes with channel
providers starting from the third quarter of 2015. The new schemes bring down our operating expenses while also
impacting our revenues at the same time. We expect this structural shift to enhance our IPTV margins in the mid-to-
long term.
ICT and Other Services
Mobile Communications Business
Our ICT and other services in domestic fixed communications business include ICT services, corporate
solution and bill handling services. See “Emerging Services.”
Mobile communications services are one of our principal business activities. Our mobile communications
services include mobile services, sales of mobile handsets, tablets and data cards and ICT and other mobile services.
We are Taiwan’s largest provider of mobile services in terms of both revenues and customers. In 2014, we
generated revenues of NT$77.5 billion, or 34.2% of our total revenues, from mobile services. In 2015, we generated
revenues of NT$80.9 billion, or 34.9% of our total revenues, from mobile services. In 2016, we generated revenues of
NT$78.8 billion (US$2.4 billion), or 34.3% of our total revenues, from mobile services. Our mobile VAS revenue
grew by 13.8% from 2014 to 2015 and by 4.8% from 2015 to 2016 due to the launch of our 4G mobile broadband
services in May 2015 and fast development in the 4G mobile broadband segment in the industry.
Mobile services revenues:
Usage(1) ....................................................................................................
Interconnection ........................................................................................
Mobile VAS .............................................................................................
Other ........................................................................................................
Total mobile services ...............................................................................
(1)
Includes monthly fees.
2014
NT$
36.0
4.8
34.8
1.9
77.5
Year Ended December 31
2015
NT$
2016
NT$
US$
(in billions)
(in millions)
35.8
3.7
39.6
1.8
80.9
33.0
2.7
41.5
1.6
78.8
1,018.9
83.7
1,280.8
48.3
2,431.7
Owing to the saturation and subscriber identification module card, or SIM card, consolidation in the entire
mobile market in Taiwan, we are facing the decrease in total number of customers in the market. However, we are
still the largest mobile operator in Taiwan in terms of revenues and number of customers. We had 10.8 million mobile
customers, for a market share of approximately 37.3% of total mobile customers and approximately 37.0% of total
mobile services revenues in Taiwan, as of December 31, 2016.
In October 2013, we obtained a 4G mobile broadband services spectrum of 10 MHz paired spectrum in the
900 MHz frequency band and 25 MHz paired spectrum in the 1800 MHz frequency band. In November 2013, we paid
NT$39.1 billion to the government for the spectrum. The license is valid until December 31, 2030. We have launched
4G mobile broadband services in May 2014 and deployed our 4G mobile broadband networks for better coverage. By
the end of 2015, our 4G mobile broadband network population coverage had reached 99% for the whole country.
In December 2015, we obtained additional spectrum for 4G mobile broadband services of 30 MHz paired
spectrum in the 2500MHz and 2600MHz frequency bands, and we paid NT$10.0 billion to the government in the
same month. The license is valid until December 31, 2033. We put these 2500MHz and 2600MHz frequency bands
into use on March 24, 2016. We will continue enhancing our 4G mobile broadband network capacity.
The following table sets forth our ARPU for each of the periods indicated.
Year Ended December 31
2014
NT$
704
838
2015
NT$
714
828
2016
NT$
717
811
ARPU for broadband services per month(1) .....................................................
ARPU for FTTx services per month(2) .............................................................
(1) ARPU for our broadband services per month is calculated as the sum of (a) broadband access revenues for the relevant period divided
by the average of the number of our broadband access customers on the first and last days of the period divided by the number of
months in the relevant period and (b) HiNet ISP service revenues divided by the average of the number of HiNet ISP service
subscribers on the first and last days of the period divided by the number of months in the relevant period.
(2) ARPU for FTTx services per month is calculated as the sum of (a) FTTx access revenues for the relevant period divided by the
average of the number of our FTTx access customers on the first and last days of the period divided by the number of months in the
relevant period and (b) HiNet FTTx ISP service revenues divided by the average of the number of HiNet FTTx ISP service
subscribers on the first and last days of the period divided by the number of months in the relevant period.
Despite tariff reductions mandated by the NCC, our overall broadband ARPU increased in 2015 and 2016,
mainly due to our successful strategy in migration mentioned above. For more details of the NCC’s mandatory tariff
reduction, please see “Item 5. Operating and Financial Review and Prospects—Overview—Tariff adjustments.”
Leased Line Services—Local and Domestic Long Distance
We are the leading provider of domestic leased line services in Taiwan. Leased line services involve offering
exclusive lines that allow point-to-point connection for voice and data traffic. Leased lines are used by business
customers to assemble their own private networks and by telecommunications service providers to establish networks
to offer telecommunications services.
We provide data transmission services to major corporate customers in Taiwan. We also provide leased lines
to other mobile and fixed-line service operators for interconnection with our fixed-line network and for connection
within their networks. As of December 31, 2014, 2015 and 2016, the total bandwidths of local and domestic long
distance lines leased to third parties were 1,359.1, 1,556.8 and 1,678.8 Gbps, respectively. The number increased
from 2014 to 2016 mainly due to the increase in demand for the bandwidth of backbone network for 4G mobile
broadband services.
We continue to experience a decline in rental fees for all of our leased line products. We attribute the general
decline in rental fees since 2000 to a general migration toward broadband services and increased competition from
other service providers constructing their own lines mentioned above. Our local and domestic long distance leased
line services revenues were NT$4.6 billion, NT$4.4 and NT$4.3 (US$0.1 billion) in 2014, 2015 and 2016,
respectively. Although the bandwidth leased to third parties increased, the revenue decreased year over year mainly
due to the decline in rental fees described above.
Wi-Fi Services
MOD Services
As of December 31, 2014, 2015 and 2016, we had a total of approximately 2.0 million, 2.4 million and 2.6
million residential and business customers that leased our access points, respectively. In addition, we had 60,000 hot
spots in public areas by the end of 2016, such as convenience stores, airports and international convention centers,
where our smartphone subscribers can access our Wi-Fi network and help to offload mobile data network traffic.
Using video streaming technology through a set top box that connects to our FTTx and ADSL data
connections, our MOD customers can access TV programs, video-on-demand and other services. We had over 193
broadcasting channels and over 20,000 hours of on-demand programs and served approximately 1.3 million
customers as of December 31, 2016. Also, as of December 31, 2016, we offered 160 high definition, or HD, channels
and other HD video-on-demand programming, such as sports, movies and knowledge materials. In addition to our
regular packaged offerings, we also offer SVoD services for film and drama. As of December 31, 2016, we had 1.3
million MOD customers, including 718 thousand SVOD subscribers. Our MOD revenues from 2014 to 2016 were
NT$2.6 billion, NT$2.5 billion and NT$2.4 billion (US$72.7 million) in 2014, 2015 and 2016, respectively. The
decrease in revenue from 2014 to 2016 was mainly due to the adjustment of our cooperation schemes with channel
providers starting from the third quarter of 2015. The new schemes bring down our operating expenses while also
impacting our revenues at the same time. We expect this structural shift to enhance our IPTV margins in the mid-to-
long term.
million MOD customers, including 718 thousand SVOD subscribers. Our MOD revenues from 2014 to 2016 were
NT$2.6 billion, NT$2.5 billion and NT$2.4 billion (US$72.7 million) in 2014, 2015 and 2016, respectively. The
decrease in revenue from 2014 to 2016 was mainly due to the adjustment of our cooperation schemes with channel
providers starting from the third quarter of 2015. The new schemes bring down our operating expenses while also
impacting our revenues at the same time. We expect this structural shift to enhance our IPTV margins in the mid-to-
long term.
ICT and Other Services
ICT and Other Services
Our ICT and other services in domestic fixed communications business include ICT services, corporate
Our ICT and other services in domestic fixed communications business include ICT services, corporate
solution and bill handling services. See “Emerging Services.”
solution and bill handling services. See “Emerging Services.”
Mobile Communications Business
Mobile Communications Business
Mobile communications services are one of our principal business activities. Our mobile communications
services include mobile services, sales of mobile handsets, tablets and data cards and ICT and other mobile services.
services include mobile services, sales of mobile handsets, tablets and data cards and ICT and other mobile services.
Mobile communications services are one of our principal business activities. Our mobile communications
Mobile Services
Mobile Services
We are Taiwan’s largest provider of mobile services in terms of both revenues and customers. In 2014, we
generated revenues of NT$77.5 billion, or 34.2% of our total revenues, from mobile services. In 2015, we generated
revenues of NT$80.9 billion, or 34.9% of our total revenues, from mobile services. In 2016, we generated revenues of
NT$78.8 billion (US$2.4 billion), or 34.3% of our total revenues, from mobile services. Our mobile VAS revenue
grew by 13.8% from 2014 to 2015 and by 4.8% from 2015 to 2016 due to the launch of our 4G mobile broadband
services in May 2015 and fast development in the 4G mobile broadband segment in the industry.
We are Taiwan’s largest provider of mobile services in terms of both revenues and customers. In 2014, we
generated revenues of NT$77.5 billion, or 34.2% of our total revenues, from mobile services. In 2015, we generated
revenues of NT$80.9 billion, or 34.9% of our total revenues, from mobile services. In 2016, we generated revenues of
NT$78.8 billion (US$2.4 billion), or 34.3% of our total revenues, from mobile services. Our mobile VAS revenue
grew by 13.8% from 2014 to 2015 and by 4.8% from 2015 to 2016 due to the launch of our 4G mobile broadband
services in May 2015 and fast development in the 4G mobile broadband segment in the industry.
Mobile services revenues:
Mobile services revenues:
Usage(1) ....................................................................................................
Interconnection ........................................................................................
Mobile VAS .............................................................................................
Other ........................................................................................................
Total mobile services ...............................................................................
Usage(1) ....................................................................................................
Interconnection ........................................................................................
Mobile VAS .............................................................................................
Other ........................................................................................................
Total mobile services ...............................................................................
2014
NT$
2014
NT$
36.0
36.0
4.8
4.8
34.8
34.8
1.9
1.9
77.5
77.5
(1)
(1)
Includes monthly fees.
Includes monthly fees.
2016
NT$
NT$
Year Ended December 31
Year Ended December 31
2015
2016
2015
NT$
NT$
(in billions)
(in billions)
35.8
35.8
3.7
3.7
39.6
39.6
1.8
1.8
80.9
80.9
33.0
33.0
2.7
2.7
41.5
41.5
1.6
1.6
78.8
78.8
US$
US$
(in millions)
(in millions)
1,018.9
1,018.9
83.7
83.7
1,280.8
1,280.8
48.3
48.3
2,431.7
2,431.7
Owing to the saturation and subscriber identification module card, or SIM card, consolidation in the entire
mobile market in Taiwan, we are facing the decrease in total number of customers in the market. However, we are
still the largest mobile operator in Taiwan in terms of revenues and number of customers. We had 10.8 million mobile
customers, for a market share of approximately 37.3% of total mobile customers and approximately 37.0% of total
mobile services revenues in Taiwan, as of December 31, 2016.
Owing to the saturation and subscriber identification module card, or SIM card, consolidation in the entire
mobile market in Taiwan, we are facing the decrease in total number of customers in the market. However, we are
still the largest mobile operator in Taiwan in terms of revenues and number of customers. We had 10.8 million mobile
customers, for a market share of approximately 37.3% of total mobile customers and approximately 37.0% of total
mobile services revenues in Taiwan, as of December 31, 2016.
In October 2013, we obtained a 4G mobile broadband services spectrum of 10 MHz paired spectrum in the
In October 2013, we obtained a 4G mobile broadband services spectrum of 10 MHz paired spectrum in the
900 MHz frequency band and 25 MHz paired spectrum in the 1800 MHz frequency band. In November 2013, we paid
900 MHz frequency band and 25 MHz paired spectrum in the 1800 MHz frequency band. In November 2013, we paid
NT$39.1 billion to the government for the spectrum. The license is valid until December 31, 2030. We have launched
NT$39.1 billion to the government for the spectrum. The license is valid until December 31, 2030. We have launched
4G mobile broadband services in May 2014 and deployed our 4G mobile broadband networks for better coverage. By
4G mobile broadband services in May 2014 and deployed our 4G mobile broadband networks for better coverage. By
the end of 2015, our 4G mobile broadband network population coverage had reached 99% for the whole country.
the end of 2015, our 4G mobile broadband network population coverage had reached 99% for the whole country.
In December 2015, we obtained additional spectrum for 4G mobile broadband services of 30 MHz paired
spectrum in the 2500MHz and 2600MHz frequency bands, and we paid NT$10.0 billion to the government in the
same month. The license is valid until December 31, 2033. We put these 2500MHz and 2600MHz frequency bands
into use on March 24, 2016. We will continue enhancing our 4G mobile broadband network capacity.
In December 2015, we obtained additional spectrum for 4G mobile broadband services of 30 MHz paired
spectrum in the 2500MHz and 2600MHz frequency bands, and we paid NT$10.0 billion to the government in the
same month. The license is valid until December 31, 2033. We put these 2500MHz and 2600MHz frequency bands
into use on March 24, 2016. We will continue enhancing our 4G mobile broadband network capacity.
27
In February 2002, the MOTC granted 3G mobile services concessions to five companies, including us. In
March 2002, we paid NT$10.2 billion to the government for our concession. Our 3G mobile services license is valid
until December 31, 2018. In July 2005, we launched our 3G mobile services, using WCDMA technology. See the
detail in mobile spectrum allocation in “Network Infrastructure.” The NCC plans to re-auction this spectrum in the
second half of 2017. Meanwhile, our 2G service license will expire in June 2017, and we will cease our 2G service
upon the expiration of the license.
We offer the largest international roaming network among Taiwan mobile service providers. By the end of
2016, our 3G roaming contracts includes 385 networks in 149 countries, our 2G GSM roaming contracts include 469
networks in 197 countries, and our 2.5G GPRS roaming contracts include 411 networks in 158 countries. We have
also established 4G LTE roaming contracts with 106 networks in 57 countries.
When our customers are outside Taiwan, they pay roaming charges plus international long distance charges
and, where applicable, local charges in roaming destinations. We have already signed agreements with some
providers in foreign countries for strategic cooperation for our roaming business.
Our ARPU per month increased to NT$604 in 2015 from NT$593 in 2014, primarily due to successful 4G
mobile broadband migration which attracted additional mobile internet subscribers. Our ARPU per month decreased
to NT$598 in 2016 from NT$604 in 2015, primarily because we were focusing on gaining customers who are more
price-sensitive to our 4G mobile broadband services in 2016.
In addition to our basic mobile services, we also offer a broad range of value-added telecommunications and
information services. Revenues from mobile VAS represented 44.9%, 49.0% and 52.7% of our total mobile services
revenues in 2014, 2015 and 2016, respectively. The increase of mobile VAS revenue percentage was mainly
The following table sets forth information regarding our mobile service operations and our mobile customer
attributed to the increase in mobile data plan subscriber number.
base for the periods indicated.
Sales of Mobile Handsets, Tablets and Data Cards
Taiwan population (in thousands)(1) ............................................
Total mobile revenues in Taiwan (in billions)(2) .........................
Annualized churn rate(3) ..............................................................
Minutes of usage (in millions of minutes):
Incoming ..................................................................................
Outgoing ..................................................................................
Average minutes of usage per user per month(4)(5) ......................
As of or for the Year Ended December 31
2015
23,492
NT$217.1
2016
23,540
NT$211.9
2014
23,434
NT$207.6
13.61%
18.17%
22.80%
Distribution.”
12,043
12,243
186
11,428
11,626
172
9,953
10,245
153
(1) Data from the Department of Population, Ministry of the Interior, ROC.
(2) Data from the statistical monthly release by the NCC, in the ROC, which include mobile revenues from 2G, 3G, 4G mobile
broadband and personal handy-phone system, or PHS, services.
(3) Measures the rate of customer disconnections from mobile service, determined by dividing (a) our aggregate voluntary and
involuntary deactivations (excluding deactivations due to customers switching from one of our mobile services to another) during the
relevant period by (b) the average number of customers during the period (calculated by averaging the number of customers at the
beginning of the period and the end of the period), and multiplying the result by the fraction where (c) the numerator is 12 and (d) the
denominator is the number of months in that period. The calculation includes both prepaid and postpaid customers.
(4) The number of mobile customers is based on the number of SIM cards. The total number of mobile customers in Taiwan included 2G,
3G, 4G mobile broadband, PHS, prepaid card and VPN customers.
(5) Average minutes of use per user per month is calculated by dividing the total minutes of use during the period by the average of the
number of our mobile customers on the first and last days of the period and dividing the result by the number of months in the
relevant period.
The total mobile customers in Taiwan had reached approximately 28.9 million as of December 31, 2016.
Mobile penetration was approximately 122.9% on the same date. The overall mobile services market experienced a
slight decrease of 2.4% in revenues in 2016 mainly due to the decrease in total number of customers in the mobile
market. As of December 31, 2016, we had 6.7 million, 3.8 million and 0.3 million subscribers for 4G, 3G and 2G
services, respectively.
We began offering prepaid card services in October 2000, prepaid 3G card services in February 2008, and
prepaid 4G card services in April 2015. As of December 31, 2016, we had approximately 1.6 million prepaid
customers, representing approximately 15.0% of our total mobile customers. Prepaid customers do not pay monthly
fees but pay a higher usage charge on a per second basis. Once the prepayment has been fully utilized, a prepaid
customer can make additional prepayments to continue the service. Alternatively, the customer may convert to
become a post-paid customer while retaining the same telephone number.
We offer incentives, such as mobile handset subsidies, when new customers agree to sign a service contract
with us or when existing customers renew their contracts with us ranging from 12 months to 30 months.
Our tariffs for post-paid mobile customers primarily consist of usage fees and monthly fees. We also offer
discounts on usage fees for calls made between our mobile customers to encourage subscription to our mobile service.
28
We engage in the distribution and sales of mobile handsets, tablets and data cards for use on our mobile
network to customers through our directly-owned stores, our subsidiary Senao, and also through third-party retailers.
See “Marketing Strategy—Distribution Channels” and “Sales and Distribution” in “—Marketing, Sales and
ICT and Other Services
Internet Business
Data Communication
Our ICT and other services in our mobile communications business include ICT services, corporate solution
and bill handling services. See “Emerging Services.”
Our internet business includes data communication services, application VAS and services provided to the
government. Our revenues from internet business represented 11.5%, 11.1% and 12.2% of our revenues in 2014, 2015
and 2016, respectively. In 2016, our revenues from internet business as a percentage of our revenues increased mainly
due to the increase in revenues generated from services such as IDC, cloud computing, information security and IoT,
and some increases generated from the growth in HiNet and HiLink services.
Our data communication service includes HiNet, our brand name as an ISP, and HiLink, a VPN service for
enterprises. The following table sets forth HiNet’s subscribers as of each of the dates indicated.
Total internet subscribers in Taiwan ......................................................................
HiNet subscribers:
HiNet FTTx subscribers .....................................................................................
HiNet ADSL subscribers ...................................................................................
HiNet dial-up subscribers ..................................................................................
Other access technology subscribers ..................................................................
Total HiNet subscribers .................................................................................
As of December 31
(in thousands)
2015
6,151
3,083
688
426
2
4,199
2014
6,178
2,843
948
439
3
4,233
2016
6,099
3,221
539
413
2
4,175
Our ISP service subscribers decreased from 2014 to 2016 mainly due to substitution by mobile broadband
services and the competition from cable broadband operators. We are still the largest ISP in Taiwan, with a subscriber
market share of 68.7% among 412 ISPs in ROC as of December 31, 2016. As of December 31, 2016, approximately
84.0% of our broadband customers were also HiNet subscribers, using HiNet as their ISP. We expect the competitive
conditions currently prevailing in the internet service provider market to continue to intensify.
In February 2002, the MOTC granted 3G mobile services concessions to five companies, including us. In
March 2002, we paid NT$10.2 billion to the government for our concession. Our 3G mobile services license is valid
until December 31, 2018. In July 2005, we launched our 3G mobile services, using WCDMA technology. See the
detail in mobile spectrum allocation in “Network Infrastructure.” The NCC plans to re-auction this spectrum in the
second half of 2017. Meanwhile, our 2G service license will expire in June 2017, and we will cease our 2G service
upon the expiration of the license.
We offer the largest international roaming network among Taiwan mobile service providers. By the end of
2016, our 3G roaming contracts includes 385 networks in 149 countries, our 2G GSM roaming contracts include 469
networks in 197 countries, and our 2.5G GPRS roaming contracts include 411 networks in 158 countries. We have
also established 4G LTE roaming contracts with 106 networks in 57 countries.
The following table sets forth information regarding our mobile service operations and our mobile customer
base for the periods indicated.
Taiwan population (in thousands)(1) ............................................
Total mobile revenues in Taiwan (in billions)(2) .........................
Annualized churn rate(3) ..............................................................
Minutes of usage (in millions of minutes):
Incoming ..................................................................................
Outgoing ..................................................................................
Average minutes of usage per user per month(4)(5) ......................
As of or for the Year Ended December 31
2014
23,434
2015
23,492
2016
23,540
NT$207.6
NT$217.1
NT$211.9
13.61%
18.17%
22.80%
12,043
12,243
186
11,428
11,626
172
9,953
10,245
153
(1) Data from the Department of Population, Ministry of the Interior, ROC.
(2) Data from the statistical monthly release by the NCC, in the ROC, which include mobile revenues from 2G, 3G, 4G mobile
broadband and personal handy-phone system, or PHS, services.
(3) Measures the rate of customer disconnections from mobile service, determined by dividing (a) our aggregate voluntary and
involuntary deactivations (excluding deactivations due to customers switching from one of our mobile services to another) during the
relevant period by (b) the average number of customers during the period (calculated by averaging the number of customers at the
beginning of the period and the end of the period), and multiplying the result by the fraction where (c) the numerator is 12 and (d) the
denominator is the number of months in that period. The calculation includes both prepaid and postpaid customers.
(4) The number of mobile customers is based on the number of SIM cards. The total number of mobile customers in Taiwan included 2G,
3G, 4G mobile broadband, PHS, prepaid card and VPN customers.
(5) Average minutes of use per user per month is calculated by dividing the total minutes of use during the period by the average of the
number of our mobile customers on the first and last days of the period and dividing the result by the number of months in the
relevant period.
The total mobile customers in Taiwan had reached approximately 28.9 million as of December 31, 2016.
Mobile penetration was approximately 122.9% on the same date. The overall mobile services market experienced a
slight decrease of 2.4% in revenues in 2016 mainly due to the decrease in total number of customers in the mobile
market. As of December 31, 2016, we had 6.7 million, 3.8 million and 0.3 million subscribers for 4G, 3G and 2G
services, respectively.
We began offering prepaid card services in October 2000, prepaid 3G card services in February 2008, and
prepaid 4G card services in April 2015. As of December 31, 2016, we had approximately 1.6 million prepaid
customers, representing approximately 15.0% of our total mobile customers. Prepaid customers do not pay monthly
fees but pay a higher usage charge on a per second basis. Once the prepayment has been fully utilized, a prepaid
customer can make additional prepayments to continue the service. Alternatively, the customer may convert to
become a post-paid customer while retaining the same telephone number.
We offer incentives, such as mobile handset subsidies, when new customers agree to sign a service contract
with us or when existing customers renew their contracts with us ranging from 12 months to 30 months.
Our tariffs for post-paid mobile customers primarily consist of usage fees and monthly fees. We also offer
discounts on usage fees for calls made between our mobile customers to encourage subscription to our mobile service.
When our customers are outside Taiwan, they pay roaming charges plus international long distance charges
and, where applicable, local charges in roaming destinations. We have already signed agreements with some
providers in foreign countries for strategic cooperation for our roaming business.
Our ARPU per month increased to NT$604 in 2015 from NT$593 in 2014, primarily due to successful 4G
mobile broadband migration which attracted additional mobile internet subscribers. Our ARPU per month decreased
to NT$598 in 2016 from NT$604 in 2015, primarily because we were focusing on gaining customers who are more
price-sensitive to our 4G mobile broadband services in 2016.
In addition to our basic mobile services, we also offer a broad range of value-added telecommunications and
information services. Revenues from mobile VAS represented 44.9%, 49.0% and 52.7% of our total mobile services
revenues in 2014, 2015 and 2016, respectively. The increase of mobile VAS revenue percentage was mainly
attributed to the increase in mobile data plan subscriber number.
Sales of Mobile Handsets, Tablets and Data Cards
We engage in the distribution and sales of mobile handsets, tablets and data cards for use on our mobile
network to customers through our directly-owned stores, our subsidiary Senao, and also through third-party retailers.
See “Marketing Strategy—Distribution Channels” and “Sales and Distribution” in “—Marketing, Sales and
Distribution.”
ICT and Other Services
Our ICT and other services in our mobile communications business include ICT services, corporate solution
and bill handling services. See “Emerging Services.”
Internet Business
Our internet business includes data communication services, application VAS and services provided to the
government. Our revenues from internet business represented 11.5%, 11.1% and 12.2% of our revenues in 2014, 2015
and 2016, respectively. In 2016, our revenues from internet business as a percentage of our revenues increased mainly
due to the increase in revenues generated from services such as IDC, cloud computing, information security and IoT,
and some increases generated from the growth in HiNet and HiLink services.
Data Communication
Our data communication service includes HiNet, our brand name as an ISP, and HiLink, a VPN service for
enterprises. The following table sets forth HiNet’s subscribers as of each of the dates indicated.
Total internet subscribers in Taiwan ......................................................................
HiNet subscribers:
HiNet FTTx subscribers .....................................................................................
HiNet ADSL subscribers ...................................................................................
HiNet dial-up subscribers ..................................................................................
Other access technology subscribers ..................................................................
Total HiNet subscribers .................................................................................
As of December 31
2015
(in thousands)
6,151
3,083
688
426
2
4,199
2014
6,178
2,843
948
439
3
4,233
2016
6,099
3,221
539
413
2
4,175
Our ISP service subscribers decreased from 2014 to 2016 mainly due to substitution by mobile broadband
services and the competition from cable broadband operators. We are still the largest ISP in Taiwan, with a subscriber
market share of 68.7% among 412 ISPs in ROC as of December 31, 2016. As of December 31, 2016, approximately
84.0% of our broadband customers were also HiNet subscribers, using HiNet as their ISP. We expect the competitive
conditions currently prevailing in the internet service provider market to continue to intensify.
29
Application VAS and Services Provided to the Government
Application VAS and Services Provided to the Government
Application VAS and services provided to the government includes services regarding to IDC, cloud
Application VAS and services provided to the government includes services regarding to IDC, cloud
computing, information security and IoT. See “Emerging Services.” IDCs are facilities providing the physical
computing, information security and IoT. See “Emerging Services.” IDCs are facilities providing the physical
environment necessary to keep computer network servers running at all times. These facilities are custom-designed
environment necessary to keep computer network servers running at all times. These facilities are custom-designed
with high-volume air conditioning temperature control systems, secure access, reliable electricity supply and
with high-volume air conditioning temperature control systems, secure access, reliable electricity supply and
connections to high-bandwidth internet networks. Data center houses protect and maintain network server computers
connections to high-bandwidth internet networks. Data center houses protect and maintain network server computers
that store and deliver internet and other network content, such as web pages, applications and data. We currently have
that store and deliver internet and other network content, such as web pages, applications and data. We currently have
the largest floor area of internet data centers in Taiwan compared to our competitors in Taiwan.
the largest floor area of internet data centers in Taiwan compared to our competitors in Taiwan.
International Fixed Communications Business
International Fixed Communications Business
Average international long distance usage charge per minute that we received for outgoing international calls
was NT$4.4, NT$5.0 and NT$5.5 in 2014, 2015 and 2016, respectively. Average charge per minute increased 15.8%,
13.6% and 10.0% in 2014, 2015 and 2016, respectively, mainly due to our focus on expanding the wholesale of
international long distance minutes in higher-unit-price areas, such as Central and South America, Africa, Asia and
We pay for the use of networks of carriers in foreign destinations for outgoing international calls and receive
payments from foreign carriers for the use of our network for incoming international calls. Traditionally, these
payments have been made pursuant to settlement arrangements under the general auspices of the International
Telecommunications Union. Settlement payments are generally denominated in U.S. dollars and are made on a net
Middle East.
basis.
Our international fixed communications business includes international long distance telephone services,
Our international fixed communications business includes international long distance telephone services,
Leased Line Services—International
international leased line services, satellite services and ICT and other international services.
international leased line services, satellite services and ICT and other international services.
International Long Distance Telephone
International Long Distance Telephone
We provide international long distance telephone services in Taiwan. Total revenues from international long
We provide international long distance telephone services in Taiwan. Total revenues from international long
distance telephone services comprised 4.6%, 4.2% and 3.8% of our revenues in 2014, 2015 and 2016, respectively. In
distance telephone services comprised 4.6%, 4.2% and 3.8% of our revenues in 2014, 2015 and 2016, respectively. In
addition, we provide wholesale international long distance services to international simple resale operators that do not
addition, we provide wholesale international long distance services to international simple resale operators that do not
possess their own telephone network or infrastructure. Our international long distance telephone revenues decreased
possess their own telephone network or infrastructure. Our international long distance telephone revenues decreased
by 7.5% to NT$9.6 billion in 2015, and further decreased by 8.5% to NT$8.8 billion (US$0.3 billion) in 2016,
by 7.5% to NT$9.6 billion in 2015, and further decreased by 8.5% to NT$8.8 billion (US$0.3 billion) in 2016,
primarily due to the intense competition from VoIP-based international long distance service providers and free VoIP
primarily due to the intense competition from VoIP-based international long distance service providers and free VoIP
applications. Our average market share of the international long distance market by minutes was approximately
applications. Our average market share of the international long distance market by minutes was approximately
56.0%, 57.8% and 55.8% in 2014, 2015 and 2016, respectively. Our international long distance services consist
56.0%, 57.8% and 55.8% in 2014, 2015 and 2016, respectively. Our international long distance services consist
primarily of international direct dial services and the wholesale of international long distance traffic.
primarily of international direct dial services and the wholesale of international long distance traffic.
International calls to our top five destinations represented 62.7% of our outgoing international long distance
International calls to our top five destinations represented 62.7% of our outgoing international long distance
call traffic in 2016, including Mainland China, Philippines, Indonesia, the United States and Hong Kong.
call traffic in 2016, including Mainland China, Philippines, Indonesia, the United States and Hong Kong.
International calls from our top five destinations represented 54.5% of our incoming international long distance call
International calls from our top five destinations represented 54.5% of our incoming international long distance call
traffic in 2016, including Mainland China, Canada, the United States, Japan and Indonesia.
traffic in 2016, including Mainland China, Canada, the United States, Japan and Indonesia.
The following table sets forth information with respect to usage of our international long distance services
The following table sets forth information with respect to usage of our international long distance services
Satellite Services
for the periods indicated.
for the periods indicated.
Incoming minutes ..............................................................................................
Incoming minutes ..............................................................................................
Outgoing minutes...............................................................................................
Outgoing minutes...............................................................................................
Total minutes ..................................................................................................
Total minutes ..................................................................................................
Incoming/outgoing ratio ....................................................................................
Incoming/outgoing ratio ....................................................................................
Year Ended December 31
Year Ended December 31
2015
2015
(in millions, except
(in millions, except
incoming/outgoing ratio)
incoming/outgoing ratio)
937
937
1,346
1,346
2,283
2,283
0.70
0.70
2016
2016
787
787
1,022
1,022
1,809
1,809
0.77
0.77
2014
2014
983
983
1,658
1,658
2,641
2,641
0.59
0.59
Total incoming call volume decreased by 4.7% from 2014 to 2015, and further decreased by 16.0% in 2016,
Total incoming call volume decreased by 4.7% from 2014 to 2015, and further decreased by 16.0% in 2016,
mainly due to the intensified market competition from VoIP-based international long distance service providers, free
mainly due to the intensified market competition from VoIP-based international long distance service providers, free
VoIP applications and other international long distance service providers. Similarly, due to this intensified
VoIP applications and other international long distance service providers. Similarly, due to this intensified
competition, total outgoing call volume decreased by 18.8% from 2014 to 2015 and further decreased by 24.1% in
competition, total outgoing call volume decreased by 18.8% from 2014 to 2015 and further decreased by 24.1% in
2016.
2016.
Outgoing calls made by customers in Taiwan and by customers from foreign destinations using Taiwan
Outgoing calls made by customers in Taiwan and by customers from foreign destinations using Taiwan
direct service are billed in accordance with our international long distance rate schedule for the destination called.
direct service are billed in accordance with our international long distance rate schedule for the destination called.
Rates vary depending on the time of day at which a call is placed. Customers are billed on a six-second unit basis for
Rates vary depending on the time of day at which a call is placed. Customers are billed on a six-second unit basis for
international direct dial services.
international direct dial services.
30
We are a leading provider of international leased line services in Taiwan. Leased line services involve
offering exclusive lines that allow point-to-point connection for voice and data traffic. Leased lines are used by
business customers to assemble their own private networks and by telecommunications service providers to establish
networks to offer telecommunications services.
We provide data transmission services to major corporate customers in Taiwan. Since August 2001, licenses
have been awarded to four undersea cable operators to engage in leased line services. Demand for high-speed data
transmission services has been growing rapidly, as a result of growing consumer demand and lower tariffs due to
increased competition. The total bandwidth of our lines leased increased by 39.2% from 2,009.6 Gbps in 2015 to
2,796.6 Gbps in 2016.
Rental fees for international long distance leased line are generally based on transmission speed and distance.
We continue to experience a decline in rental fees for international leased lines, partly as a result of competition from
other international leased line service providers. In response, we continue to implement marketing and service
campaigns to retain our high-value corporate customers. Our international leased line services revenues were NT$1.5
billion, NT$1.7 billion and NT$1.8 billion (US$55.6 million) in 2014, 2015 and 2016, respectively, mainly due to our
expansion to the overseas markets and growing consumer demand mentioned above.
We entered into a contract with ST-2 Satellite Ventures Pte., Ltd. on March 12, 2010 to lease capacity on the
ST-2 satellite. The lease term is 15 years starting from the official start of operations of the ST-2 satellite, and the
total contract value is approximately NT$6.0 billion. This contract requires a prepayment of NT$3.1 billion, and the
remaining amount will be paid annually. The ST-2 telecommunications satellite launched on May 21, 2011 and began
commercial operation in August 2011. Please refer to Note 40 of our consolidated financial statements included
elsewhere in this annual report for further details.
In addition, we have two satellite communication centers that enable us to provide TV broadcast, satellite
VAS and backup systems for use in major emergencies. We also provide satellite services to Southeast Asia.
Our ICT and other services in our international fixed communications business include corporate solution
ICT and Other Services
services. See “Emerging Services.”
Others
Our other business segment includes our non-telecom services, including electronic products sales made by
our subsidiary, CHPT, and property sales made by our subsidiary, Light Era Development Co., Ltd., or Light Era.
Application VAS and Services Provided to the Government
Application VAS and services provided to the government includes services regarding to IDC, cloud
computing, information security and IoT. See “Emerging Services.” IDCs are facilities providing the physical
environment necessary to keep computer network servers running at all times. These facilities are custom-designed
with high-volume air conditioning temperature control systems, secure access, reliable electricity supply and
connections to high-bandwidth internet networks. Data center houses protect and maintain network server computers
that store and deliver internet and other network content, such as web pages, applications and data. We currently have
the largest floor area of internet data centers in Taiwan compared to our competitors in Taiwan.
International Fixed Communications Business
Average international long distance usage charge per minute that we received for outgoing international calls
was NT$4.4, NT$5.0 and NT$5.5 in 2014, 2015 and 2016, respectively. Average charge per minute increased 15.8%,
13.6% and 10.0% in 2014, 2015 and 2016, respectively, mainly due to our focus on expanding the wholesale of
international long distance minutes in higher-unit-price areas, such as Central and South America, Africa, Asia and
Middle East.
We pay for the use of networks of carriers in foreign destinations for outgoing international calls and receive
payments from foreign carriers for the use of our network for incoming international calls. Traditionally, these
payments have been made pursuant to settlement arrangements under the general auspices of the International
Telecommunications Union. Settlement payments are generally denominated in U.S. dollars and are made on a net
basis.
Our international fixed communications business includes international long distance telephone services,
Leased Line Services—International
international leased line services, satellite services and ICT and other international services.
We are a leading provider of international leased line services in Taiwan. Leased line services involve
offering exclusive lines that allow point-to-point connection for voice and data traffic. Leased lines are used by
business customers to assemble their own private networks and by telecommunications service providers to establish
networks to offer telecommunications services.
We provide data transmission services to major corporate customers in Taiwan. Since August 2001, licenses
have been awarded to four undersea cable operators to engage in leased line services. Demand for high-speed data
transmission services has been growing rapidly, as a result of growing consumer demand and lower tariffs due to
increased competition. The total bandwidth of our lines leased increased by 39.2% from 2,009.6 Gbps in 2015 to
2,796.6 Gbps in 2016.
Rental fees for international long distance leased line are generally based on transmission speed and distance.
We continue to experience a decline in rental fees for international leased lines, partly as a result of competition from
other international leased line service providers. In response, we continue to implement marketing and service
campaigns to retain our high-value corporate customers. Our international leased line services revenues were NT$1.5
billion, NT$1.7 billion and NT$1.8 billion (US$55.6 million) in 2014, 2015 and 2016, respectively, mainly due to our
expansion to the overseas markets and growing consumer demand mentioned above.
The following table sets forth information with respect to usage of our international long distance services
Satellite Services
for the periods indicated.
We entered into a contract with ST-2 Satellite Ventures Pte., Ltd. on March 12, 2010 to lease capacity on the
ST-2 satellite. The lease term is 15 years starting from the official start of operations of the ST-2 satellite, and the
total contract value is approximately NT$6.0 billion. This contract requires a prepayment of NT$3.1 billion, and the
remaining amount will be paid annually. The ST-2 telecommunications satellite launched on May 21, 2011 and began
commercial operation in August 2011. Please refer to Note 40 of our consolidated financial statements included
elsewhere in this annual report for further details.
In addition, we have two satellite communication centers that enable us to provide TV broadcast, satellite
VAS and backup systems for use in major emergencies. We also provide satellite services to Southeast Asia.
ICT and Other Services
Our ICT and other services in our international fixed communications business include corporate solution
services. See “Emerging Services.”
Others
Our other business segment includes our non-telecom services, including electronic products sales made by
our subsidiary, CHPT, and property sales made by our subsidiary, Light Era Development Co., Ltd., or Light Era.
31
International Long Distance Telephone
We provide international long distance telephone services in Taiwan. Total revenues from international long
distance telephone services comprised 4.6%, 4.2% and 3.8% of our revenues in 2014, 2015 and 2016, respectively. In
addition, we provide wholesale international long distance services to international simple resale operators that do not
possess their own telephone network or infrastructure. Our international long distance telephone revenues decreased
by 7.5% to NT$9.6 billion in 2015, and further decreased by 8.5% to NT$8.8 billion (US$0.3 billion) in 2016,
primarily due to the intense competition from VoIP-based international long distance service providers and free VoIP
applications. Our average market share of the international long distance market by minutes was approximately
56.0%, 57.8% and 55.8% in 2014, 2015 and 2016, respectively. Our international long distance services consist
primarily of international direct dial services and the wholesale of international long distance traffic.
International calls to our top five destinations represented 62.7% of our outgoing international long distance
call traffic in 2016, including Mainland China, Philippines, Indonesia, the United States and Hong Kong.
International calls from our top five destinations represented 54.5% of our incoming international long distance call
traffic in 2016, including Mainland China, Canada, the United States, Japan and Indonesia.
Year Ended December 31
2014
2015
2016
(in millions, except
incoming/outgoing ratio)
Incoming minutes ..............................................................................................
Outgoing minutes...............................................................................................
Total minutes ..................................................................................................
Incoming/outgoing ratio ....................................................................................
983
1,658
2,641
0.59
937
1,346
2,283
0.70
787
1,022
1,809
0.77
Total incoming call volume decreased by 4.7% from 2014 to 2015, and further decreased by 16.0% in 2016,
mainly due to the intensified market competition from VoIP-based international long distance service providers, free
VoIP applications and other international long distance service providers. Similarly, due to this intensified
competition, total outgoing call volume decreased by 18.8% from 2014 to 2015 and further decreased by 24.1% in
2016.
Outgoing calls made by customers in Taiwan and by customers from foreign destinations using Taiwan
direct service are billed in accordance with our international long distance rate schedule for the destination called.
Rates vary depending on the time of day at which a call is placed. Customers are billed on a six-second unit basis for
international direct dial services.
Emerging Services
We continue leveraging our advantages in network infrastructure and IDC to offer customized ICT total
solutions to enterprise customers and to expand our ICT business. The revenues from our ICT business are classified
in “ICT and Other Services” of each business segment besides internet business. We are offering ICT total solutions
by integrating our capabilities of cloud, information security, IoT and customization expertise. We are developing in-
house Big Data capability for future commercialization as well as cooperating with partners to develop an IoT
ecosystem across various industries.
Our ICT services includes integrated services such as our iEN, ITS, and Internet of Vehicles. Our iEN
service helps companies and corporations implement energy-saving measures through computer-driven data analysis.
Our ITS service provides navigation, real-time traffic information and infotainment through mobile devices for cars
and drivers. By leveraging high speed 4G mobile broadband networks, we offer innovative Internet of Vehicles
services including GPS, audio and video streaming, car information, etc. available for tablets. In addition to
developing ICT businesses mentioned above, we also pursue ICT projects from both public and private sectors aiming
to expand our revenue streams.
A content delivery network, or CDN, is a system of distributed servers that deliver webpages and other web
content to a user based on the geographic locations of the user, the origin of the webpage and a content
delivery server. This service is effective in speeding the delivery of content of websites with high traffic. The closer
the CDN server is to the user geographically, the faster the content will be delivered to the user. We provide CDN
service to internet content providers to ensure stable quality when programs are broadcasted.
Interconnection
We provide interconnection of our fixed line network and mobile network with other operators.
The following table sets forth our interconnection fee revenues and costs for the periods indicated. These
revenues and costs are included, depending on the nature of the call made, in domestic fixed communications or
mobile communications revenues and expenses, respectively.
Interconnection fee revenues:
Fixed line ........................................................................................
Mobile.............................................................................................
Interconnection costs:
Fixed line ........................................................................................
Mobile.............................................................................................
Year Ended December 31
2014
NT$
1.1
4.8
3.3
4.9
2015
NT$
(in billions)
1.0
3.7
2.3
3.9
NT$
0.9
2.7
1.6
3.0
2016
US$
(in millions)
26.7
83.7
48.5
92.7
The interconnection rate between fixed-line customers and other fixed-line customers is NT$0.32 per minute
during peak times and NT$0.09 per minute during off-peak times. The interconnection rate for calls initiated by
mobile customers to fixed-line customers is NT$0.4851 per minute during peak times and NT$0.2531 per minute
during off-peak times.
The NCC has mandated mobile interconnection rate reduction over a period of four years starting on January
5, 2013. The rate should be reduced from NT$2.15 per minute to NT$1.15 per minute in four years with a CAGR of -
14.5%. Therefore, our mobile interconnection revenues and costs decreased from 2014 to 2016.
Before January 1, 2011, the rates of telecommunication fees for telephone calls between fixed-line customers
and mobile customers were set by the mobile network operators: mobile network operators collected such
telecommunication fees from customers and paid the fixed-line network operators interconnection fees based on
usage, regardless of which party of the interconnection initiated the call. Starting from January 1, 2011, the fixed-line
network operators that initiate the call have the right to set the rates of telecommunication fees and to collect such fees
from customers for fixed-line-to-mobile calls; fixed-line network operators have to pay interconnection fees to mobile
network operators in accordance with the interconnection rate set forth by the NCC. In addition, to balance the
competition between us, the market leader of fixed-line network operators, and other mobile network operators, we
are also required by the NCC to pay transition fees (in addition to the interconnection fees) to the other mobile
network operators for a period of six years starting from January 1, 2011. The transition fees will decrease gradually
over the six-year period, and we are not required to pay such transition fees from January 1, 2017.
Fixed interconnection costs decreased from 2014 to 2016 mainly due to (1) decreasing transition fees year
over year, (2) reduction of mobile interconnection rate for fixed-line-to-mobile calls, and (3) decreasing traffic
volume.
In accordance with governmental regulations, the contracts governing our interconnection arrangements
must specifically address a number of prescribed issues. For example, our interconnection charge should reflect our
costs with respect to the network elements used. In addition, cost increases are subject to approval by the regulatory
authorities. We expect that our interconnection contracts will generally be reviewed annually, although we may also
enter into long-term contracts. See “Regulation—Telecommunications Act—Interconnection Arrangements.”
Marketing, Sales and Distribution
Marketing Strategy
In order to retain and expand our large customer base and to encourage our customers to increase their use of
our services and products, we continue to focus our marketing strategy on the following areas.
• Services, Products and Bundled Offerings. We continually develop new VAS and products, and bundle
our services and products based on different market segments, with the aim of increasing our high-usage
customers and enhancing customer loyalty.
• Pricing and Promotions. We design flexible pricing packages that allow customers to select, and design
special promotional packages to encourage usage.
• Distribution Channels. We seek to broaden our distribution reach by strengthening our cross-industry
alliances and marketing relationships. Furthermore, to expand our sales channels more effectively, we
also implement an external sales agent system by collaborating with Senao, Synnex Technology
International Corporation and Tsann Kuen Trans-Nation Group, which collaborations enable us to get
closer to every customer.
• Business Customers. We devote a project manager or project engineer to serve corporate customers.
These account managers are responsible for developing customized solutions and tariff packages to meet
the specific needs of our customers. We continually update and expand our service offerings so that we
can remain a one-stop telecommunications services provider to our corporate customers and provide for
all of their telecommunications needs. We also use our data bank to identify and target potential clients
for promoting our e-commerce and mobile services. In addition, we help our corporate customers
improve their efficiency and competitiveness by creating information systems for them.
• Advertising. We are committed to further strengthening the Chunghwa Telecom brand and image as
well as strengthening and expanding market recognition of our specialized product brands, such as
HiNet and emome. We plan to leverage our leading market position and status to strengthen the overall
advantage of our product brands.
Sales and Distribution
As of December 31, 2016, we had 17 operations offices for operations, 463 service centers and 6 customer
service call centers for sales and customer service.
32
Emerging Services
We continue leveraging our advantages in network infrastructure and IDC to offer customized ICT total
solutions to enterprise customers and to expand our ICT business. The revenues from our ICT business are classified
in “ICT and Other Services” of each business segment besides internet business. We are offering ICT total solutions
by integrating our capabilities of cloud, information security, IoT and customization expertise. We are developing in-
house Big Data capability for future commercialization as well as cooperating with partners to develop an IoT
ecosystem across various industries.
Our ICT services includes integrated services such as our iEN, ITS, and Internet of Vehicles. Our iEN
service helps companies and corporations implement energy-saving measures through computer-driven data analysis.
Our ITS service provides navigation, real-time traffic information and infotainment through mobile devices for cars
and drivers. By leveraging high speed 4G mobile broadband networks, we offer innovative Internet of Vehicles
services including GPS, audio and video streaming, car information, etc. available for tablets. In addition to
developing ICT businesses mentioned above, we also pursue ICT projects from both public and private sectors aiming
to expand our revenue streams.
A content delivery network, or CDN, is a system of distributed servers that deliver webpages and other web
content to a user based on the geographic locations of the user, the origin of the webpage and a content
delivery server. This service is effective in speeding the delivery of content of websites with high traffic. The closer
the CDN server is to the user geographically, the faster the content will be delivered to the user. We provide CDN
service to internet content providers to ensure stable quality when programs are broadcasted.
Interconnection
We provide interconnection of our fixed line network and mobile network with other operators.
The following table sets forth our interconnection fee revenues and costs for the periods indicated. These
revenues and costs are included, depending on the nature of the call made, in domestic fixed communications or
mobile communications revenues and expenses, respectively.
Interconnection fee revenues:
Fixed line ........................................................................................
Mobile.............................................................................................
Interconnection costs:
Fixed line ........................................................................................
Mobile.............................................................................................
2014
NT$
1.1
4.8
3.3
4.9
Year Ended December 31
2015
NT$
(in billions)
2016
NT$
US$
(in millions)
1.0
3.7
2.3
3.9
0.9
2.7
1.6
3.0
26.7
83.7
48.5
92.7
The interconnection rate between fixed-line customers and other fixed-line customers is NT$0.32 per minute
during peak times and NT$0.09 per minute during off-peak times. The interconnection rate for calls initiated by
mobile customers to fixed-line customers is NT$0.4851 per minute during peak times and NT$0.2531 per minute
during off-peak times.
The NCC has mandated mobile interconnection rate reduction over a period of four years starting on January
5, 2013. The rate should be reduced from NT$2.15 per minute to NT$1.15 per minute in four years with a CAGR of -
14.5%. Therefore, our mobile interconnection revenues and costs decreased from 2014 to 2016.
Before January 1, 2011, the rates of telecommunication fees for telephone calls between fixed-line customers
and mobile customers were set by the mobile network operators: mobile network operators collected such
telecommunication fees from customers and paid the fixed-line network operators interconnection fees based on
usage, regardless of which party of the interconnection initiated the call. Starting from January 1, 2011, the fixed-line
network operators that initiate the call have the right to set the rates of telecommunication fees and to collect such fees
from customers for fixed-line-to-mobile calls; fixed-line network operators have to pay interconnection fees to mobile
network operators in accordance with the interconnection rate set forth by the NCC. In addition, to balance the
competition between us, the market leader of fixed-line network operators, and other mobile network operators, we
are also required by the NCC to pay transition fees (in addition to the interconnection fees) to the other mobile
network operators for a period of six years starting from January 1, 2011. The transition fees will decrease gradually
over the six-year period, and we are not required to pay such transition fees from January 1, 2017.
Fixed interconnection costs decreased from 2014 to 2016 mainly due to (1) decreasing transition fees year
over year, (2) reduction of mobile interconnection rate for fixed-line-to-mobile calls, and (3) decreasing traffic
volume.
In accordance with governmental regulations, the contracts governing our interconnection arrangements
must specifically address a number of prescribed issues. For example, our interconnection charge should reflect our
costs with respect to the network elements used. In addition, cost increases are subject to approval by the regulatory
authorities. We expect that our interconnection contracts will generally be reviewed annually, although we may also
enter into long-term contracts. See “Regulation—Telecommunications Act—Interconnection Arrangements.”
Marketing, Sales and Distribution
Marketing Strategy
In order to retain and expand our large customer base and to encourage our customers to increase their use of
our services and products, we continue to focus our marketing strategy on the following areas.
• Services, Products and Bundled Offerings. We continually develop new VAS and products, and bundle
our services and products based on different market segments, with the aim of increasing our high-usage
customers and enhancing customer loyalty.
• Pricing and Promotions. We design flexible pricing packages that allow customers to select, and design
special promotional packages to encourage usage.
• Distribution Channels. We seek to broaden our distribution reach by strengthening our cross-industry
alliances and marketing relationships. Furthermore, to expand our sales channels more effectively, we
also implement an external sales agent system by collaborating with Senao, Synnex Technology
International Corporation and Tsann Kuen Trans-Nation Group, which collaborations enable us to get
closer to every customer.
• Business Customers. We devote a project manager or project engineer to serve corporate customers.
These account managers are responsible for developing customized solutions and tariff packages to meet
the specific needs of our customers. We continually update and expand our service offerings so that we
can remain a one-stop telecommunications services provider to our corporate customers and provide for
all of their telecommunications needs. We also use our data bank to identify and target potential clients
for promoting our e-commerce and mobile services. In addition, we help our corporate customers
improve their efficiency and competitiveness by creating information systems for them.
• Advertising. We are committed to further strengthening the Chunghwa Telecom brand and image as
well as strengthening and expanding market recognition of our specialized product brands, such as
HiNet and emome. We plan to leverage our leading market position and status to strengthen the overall
advantage of our product brands.
Sales and Distribution
As of December 31, 2016, we had 17 operations offices for operations, 463 service centers and 6 customer
service call centers for sales and customer service.
33
We also had 279 Senao exclusive service stores as of December 31, 2016. In January 2007, we acquired
31.33% equity ownership of Senao, a major distributor of mobile handsets in Taiwan. Senao has been listed on the
TWSE under the number “2450” since May 2001. Our equity ownership in Senao decreased from 31.33% as of
January 15, 2007 to 29.31% as of March 31, 2017. Our investment in Senao enhanced our mobile handset distribution
and sales capabilities. Our customers can subscribe for our broadband service, MOD service and other services at
Senao retail stores. See “Item 7. Major Stockholders and Related Party Transactions—B. Related Party Transactions”
for a discussion of the agreement between the parent company and Senao about our business cooperation.
currently cooperating with Carrefour Telecom Co., Ltd. We may cooperate with other mobile virtual network
operators in the future.
As of the end of 2016, there were no WiMAX service providers in Taiwan. The NCC has already recalled
and released the 2500MHz and 2600MHz frequency band spectrum for 4G mobile broadband services through a
bidding process in December 2015. We compete in the wireless services market primarily on the basis of premium
brand, price, quality of service, network reliability and attractiveness of service packages.
Competition
Internet
We face competition in virtually all aspects of our business.
Domestic Fixed Communications
• Local and domestic long distance telephone services: Revenue from local and domestic long distance
telephone service of telecommunication services providers has continuously decreased in the past years
primarily due to mobile and VoIP substitution. Competition from mobile data service providers
increased significantly due to the popularity of smart mobile devices and mobile applications such as
LINE and WeChat. Although there are other providers of fixed communications, including TWM
Broadband, New Century Infocomm Tech. Co., Ltd. and Asia Pacific Telecom Co., Ltd., or APTG,
competition from these providers was not significant in the past few years.
• Leased line services: Major competitors in this field are four fixed line operators including TWM
Broadband, New Century Infocomm Tech. Co., Ltd., APTG and Taiwan Optical Platform Co., Ltd. The
leased line services providers primarily compete on the basis of price and the bandwidth speed of
services.
• Broadband access services: Major competitors in this field are five multiple-system operators, or MSOs,
including Kbro Co., Ltd., China Network Systems Co., Ltd., TWM Broadband, Taiwan Broadband
Communication Co., Ltd. and Taiwan Optical Platform Co., Ltd., and one fiber broadband service
provider, namely Taiwan Intelligent Fiber Optic Network. With the increasing speed of mobile data
service, we also face fierce competition from mobile data providers. The broadband access service
providers primarily compete on the basis of price and the bandwidth speed of services.
• MOD services: Major competitors in this field include five cable TV MSOs and 28 independent MSOs.
The different service providers compete on the basis of the multimedia content offered along with the
ability to offer converged services by offering comprehensive solutions including data communications,
voice communications and multimedia content.
Mobile Communications
There are five mobile operators in Taiwan, including Chunghwa Telecom, Taiwan Mobile, Far EasTone,
Taiwan Star Telecom Corporation Ltd., or T-Star, and APTG. All of these five operators have 4G mobile broadband
licenses. In addition to the big three, T-Star and APTG underwent mergers and acquisitions in order to compete in the
market for 4G mobile broadband services. T-Star merged with VIBO Telecom Inc., a former 3G operator, in October
2014, while APTG merged with Ambit Corporation, one of the 4G mobile broadband license winners, in December
2015, with APTG as the surviving company. Each 4G mobile broadband network operator has been providing
promotional programs to attract consumers, including unlimited data plans. In addition to the 2G, 3G and 4G mobile
network operators discussed above, First International Telecom used to operate a personal handy-phone network but
was declared bankrupt by the Taiwan Taipei District Court on December 26, 2014, and discontinued operations on
March 31, 2015.
In addition to the mobile network operators, the NCC has issued a total of 14 mobile virtual network
operator, or MVNO, licenses, which allow operators without a spectrum allocation to provide 3G mobile services by
leasing the capacity and facilities of a mobile service network from a licensed mobile service provider. We are
Our primary competitors in internet services are other internet services providers, including SeedNet and
TWM Broadband. We compete in the internet services market primarily on the basis of price, technology, speed of
transmission, amount of bandwidth available for use, network coverage and VAS.
International Fixed Communications
Our major competitors are TWM Broadband, New Century Infocomm Tech. Co., Ltd. and APTG, which
have provided fixed-line services since June 2001. These operators are primarily focused on international long
distance services and corporate customer services, which typically generate higher revenue than residential customers.
There have been four submarine cable services licenses granted since August 2001. These submarine cable
operators, including East Asia Network Inc., Reach Cable Networks Limited, Taiwan International Gateway
Corporation and FLAG Telecom Taiwan Services Limited, offer international leased line services to other fixed-line
operators, internet service providers and ISR operators.
Our international long distance services compete with international long distance resale services and VoIP
services such as those provided by Line and Skype.
Our major competitors in ICT services are system integration service providers, including HwaCom Systems
Inc., MiTAC Information Technology Corp., NEC Taiwan Ltd., Acer Incorporated, Tatung Company, SYSTEX
Emerging Services
Corporation and SYSCOM Group.
Customer Service and Billing
We believe that our reputation of offering high-qualified customer services has enhanced our customers’
loyalty and helped us attract new customers. We regularly survey our customers’ demands and preferences to develop
new products and services accordingly.
We provide convenient services to our customers as follows:
•
•
•
•
•
24-hour customer service and technical support through our service centers, call centers and website;
bill payment services at 24-hour convenience stores, bank service counters, automatic teller machines,
and our service centers throughout Taiwan, via direct debit, over the phone, online at our website
(www.cht.com.tw), and on mobile handset emome or Hami;
online information and bill payment services at our website (www.cht.com.tw) and customer service
hotline for telephone payment;
free of charge itemized billing statements; and
consolidated and automated billing for all services, including English billing documents available upon
request.
34
We also had 279 Senao exclusive service stores as of December 31, 2016. In January 2007, we acquired
31.33% equity ownership of Senao, a major distributor of mobile handsets in Taiwan. Senao has been listed on the
TWSE under the number “2450” since May 2001. Our equity ownership in Senao decreased from 31.33% as of
January 15, 2007 to 29.31% as of March 31, 2017. Our investment in Senao enhanced our mobile handset distribution
and sales capabilities. Our customers can subscribe for our broadband service, MOD service and other services at
Senao retail stores. See “Item 7. Major Stockholders and Related Party Transactions—B. Related Party Transactions”
for a discussion of the agreement between the parent company and Senao about our business cooperation.
currently cooperating with Carrefour Telecom Co., Ltd. We may cooperate with other mobile virtual network
operators in the future.
As of the end of 2016, there were no WiMAX service providers in Taiwan. The NCC has already recalled
and released the 2500MHz and 2600MHz frequency band spectrum for 4G mobile broadband services through a
bidding process in December 2015. We compete in the wireless services market primarily on the basis of premium
brand, price, quality of service, network reliability and attractiveness of service packages.
Competition
Internet
We face competition in virtually all aspects of our business.
Domestic Fixed Communications
Our primary competitors in internet services are other internet services providers, including SeedNet and
TWM Broadband. We compete in the internet services market primarily on the basis of price, technology, speed of
transmission, amount of bandwidth available for use, network coverage and VAS.
• Local and domestic long distance telephone services: Revenue from local and domestic long distance
International Fixed Communications
telephone service of telecommunication services providers has continuously decreased in the past years
primarily due to mobile and VoIP substitution. Competition from mobile data service providers
increased significantly due to the popularity of smart mobile devices and mobile applications such as
LINE and WeChat. Although there are other providers of fixed communications, including TWM
Broadband, New Century Infocomm Tech. Co., Ltd. and Asia Pacific Telecom Co., Ltd., or APTG,
competition from these providers was not significant in the past few years.
• Leased line services: Major competitors in this field are four fixed line operators including TWM
Broadband, New Century Infocomm Tech. Co., Ltd., APTG and Taiwan Optical Platform Co., Ltd. The
leased line services providers primarily compete on the basis of price and the bandwidth speed of
services.
• Broadband access services: Major competitors in this field are five multiple-system operators, or MSOs,
including Kbro Co., Ltd., China Network Systems Co., Ltd., TWM Broadband, Taiwan Broadband
Communication Co., Ltd. and Taiwan Optical Platform Co., Ltd., and one fiber broadband service
provider, namely Taiwan Intelligent Fiber Optic Network. With the increasing speed of mobile data
service, we also face fierce competition from mobile data providers. The broadband access service
providers primarily compete on the basis of price and the bandwidth speed of services.
• MOD services: Major competitors in this field include five cable TV MSOs and 28 independent MSOs.
The different service providers compete on the basis of the multimedia content offered along with the
ability to offer converged services by offering comprehensive solutions including data communications,
voice communications and multimedia content.
Mobile Communications
There are five mobile operators in Taiwan, including Chunghwa Telecom, Taiwan Mobile, Far EasTone,
Taiwan Star Telecom Corporation Ltd., or T-Star, and APTG. All of these five operators have 4G mobile broadband
licenses. In addition to the big three, T-Star and APTG underwent mergers and acquisitions in order to compete in the
market for 4G mobile broadband services. T-Star merged with VIBO Telecom Inc., a former 3G operator, in October
2014, while APTG merged with Ambit Corporation, one of the 4G mobile broadband license winners, in December
2015, with APTG as the surviving company. Each 4G mobile broadband network operator has been providing
promotional programs to attract consumers, including unlimited data plans. In addition to the 2G, 3G and 4G mobile
network operators discussed above, First International Telecom used to operate a personal handy-phone network but
was declared bankrupt by the Taiwan Taipei District Court on December 26, 2014, and discontinued operations on
March 31, 2015.
In addition to the mobile network operators, the NCC has issued a total of 14 mobile virtual network
operator, or MVNO, licenses, which allow operators without a spectrum allocation to provide 3G mobile services by
leasing the capacity and facilities of a mobile service network from a licensed mobile service provider. We are
Our major competitors are TWM Broadband, New Century Infocomm Tech. Co., Ltd. and APTG, which
have provided fixed-line services since June 2001. These operators are primarily focused on international long
distance services and corporate customer services, which typically generate higher revenue than residential customers.
There have been four submarine cable services licenses granted since August 2001. These submarine cable
operators, including East Asia Network Inc., Reach Cable Networks Limited, Taiwan International Gateway
Corporation and FLAG Telecom Taiwan Services Limited, offer international leased line services to other fixed-line
operators, internet service providers and ISR operators.
Our international long distance services compete with international long distance resale services and VoIP
services such as those provided by Line and Skype.
Emerging Services
Our major competitors in ICT services are system integration service providers, including HwaCom Systems
Inc., MiTAC Information Technology Corp., NEC Taiwan Ltd., Acer Incorporated, Tatung Company, SYSTEX
Corporation and SYSCOM Group.
Customer Service and Billing
We believe that our reputation of offering high-qualified customer services has enhanced our customers’
loyalty and helped us attract new customers. We regularly survey our customers’ demands and preferences to develop
new products and services accordingly.
We provide convenient services to our customers as follows:
•
•
•
•
•
24-hour customer service and technical support through our service centers, call centers and website;
bill payment services at 24-hour convenience stores, bank service counters, automatic teller machines,
and our service centers throughout Taiwan, via direct debit, over the phone, online at our website
(www.cht.com.tw), and on mobile handset emome or Hami;
online information and bill payment services at our website (www.cht.com.tw) and customer service
hotline for telephone payment;
free of charge itemized billing statements; and
consolidated and automated billing for all services, including English billing documents available upon
request.
35
Network Infrastructure
Our network infrastructure consists of transmission networks that convey voice and data traffic, switching
networks that route traffic between networks, and mobile, internet, leased line and data switching networks.
We purchase most of our network equipment from well-known international suppliers. As part of the
purchase contract, these suppliers deliver and install the equipment for us. We also purchase from local suppliers a
variety of components such as transmission lines, switches, telephone sets, MOD set-top boxes, and radio
transmitters.
Approximately 13,195 of our employees were engaged in network infrastructure development, maintenance,
operations and planning as of December 31, 2016.
Transmission Networks
As of December 31, 2016, our transmission networks consisted of approximately 2.43 million fiber
kilometers of fiber optic cable for trunking and approximately 9.01 million fiber kilometers of fiber optic cable for
local loop.
Between 2009 and 2013, we deployed next generation synchronous digital hierarchy, or NG SDH, and
optical cross connect, or OXC, equipment for providing TDM and data service. Due to the emergence of packet-
transport network, or PTN, technology, which is a cost-effective method for transmitting packet-based data services,
we began the deployment of PTN and stopped the deployment of NG SDH network in 2014. Between 2007 and 2014,
we deployed 40/80-wavelength Re-configurable Optical Add-Drop Multiplexer, or ROADM, for backbone
transmission network in order to provide new data services such as gigabit Ethernet, fiber channel, 2.5 gigabit and 10
gigabit packet over SDH and 10 gigabit Ethernet. Due to the high utilization of our existing ROADM network, we
began to introduce the optical transport network, or OTN, trial network to meet the demand of 100G wavelength
services in 2014. Between 2009 and 2013, we had already completed the deployment of 5,519 GbE OXC/NG SDH,
which was stopped in 2014 due to the introduction of PTN. Between 2007 and 2015, we had already completed the
deployment of 1,190 wavelength ROADM, which was also stopped in 2016 due to the deployment of OTN. In
addition, we had completed the deployment of 158 wavelength OTN and 7,460 GbE PTN by the end of 2016. We will
have a trial of one wavelength 200Gbps transmission technology in 2017. This trial will verify the scalability of the
OTN to meet the explosive bandwidth demand.
As part of our strategic focuses on the internet and data markets, our local loop connections mainly adopt
FTTx technology. This enables us to provide broadband services, such as MOD, high speed internet access and VPN.
As of December 31, 2016, we have constructed approximately 7.46 million FTTx ports. Our FTTx service can offer
high-speed broadband internet access rates up to 1 Gbps. For low bandwidth demand, we use ADSL technology to
provide the internet connection services for the customers.
Switching Networks
Domestic telecommunications network. Our domestic public switched telephone network currently
consists of 19 message areas connected by a long distance network. As of December 31, 2016, we had 38 long
distance exchanges, which are interconnection points between our telecommunications network and approximately
16.8 million telephone lines, which reached virtually all homes and businesses in Taiwan.
We currently have intelligent networks installed over our public switched telephone networks for our
domestic long distance and international networks, as well as a local intelligent network in the Taipei, Taichung and
Kaohsiung metropolitan areas. Our intelligent network is designed to facilitate the use of VAS by providing more
information about calls and allowing greater management of those calls.
As of December 31, 2016, our next generation network, or NGN core network capacity consisted of
1,160,000 local telephone subscribers, comprising 448,000 Session Initiation Protocol-based, or SIP-based, and
712,000 Access Gateway-based, or AG-based, subscribers.
36
Our NGN Managed IP backbone network consists of an inner core network and an outer core network. We
owned high-speed NGN Managed IP backbone network by the end of 2016 with 12 sets of 4Tbps/1.6Tbps switch
routers for the inner core network and more than 34 sets of 4Tbps/1.6Tbps switch routers for the outer core network.
The bandwidth of the network is approximately 1,625 Gbps as of the end of 2016. We believe this network will
enable us to meet the increasing demand for NGN services, such as VoIP, and all managed services, including MOD
and VPN.
International network. Our international transmission infrastructure consists of both submarine cable and
satellite transmission systems, which link our national network directly to 97 telecommunications service providers in
43 international destinations.
International calls are routed between Taiwan and international destinations through one of our two
international switching centers, one located in Taipei and the other in Kaohsiung. Each center had time-division
multiplexing, or TDM, international gateway switches and NGN international gateway switch. We had a trunk
capacity of 170,040 channels in total as of December 31, 2016.
As of December 31, 2016, we had invested in 20 submarine cables, 9 of which land in Taiwan. We had
increased the capacity of each of our current submarine cables, increasing our aggregate total capacity from 2,245
Gbps in 2015 to 4,025 Gbps in 2016.
Mobile Services Network
Our mobile services network consists of:
•
•
cell sites, which are physical locations equipped with a base station consisting of transmitters, receivers
and other equipment used to communicate through radio channels with customers’ mobile handsets
within the range of a cell;
• BSC (base station controllers) for GSM or RNC (radio network controller) for 3G, which connect to,
and control, the base station within each cell site;
cellular switching service centers for GSM or 3G, which control the base station controllers and the
processing and routing of telephone calls;
• GGSN (gateway GPRS support nodes), which connect our GPRS network to the internet;
• SGSN (serving GPRS support nodes), which connect the GPRS network to the base station controllers;
• MME (mobility management entity), which connects the base station to our 4G core network that is
responsible for control side;
for data side;
• S GW (Serving Gateway), which connects the base stations to our 4G core network that is responsible
• PDN GW (Packet Data Network Gateway), which connects our 4G core network to the internet; and
•
transmission lines, which link (i) with respect to the GSM/3G/4G network, the mobile switching service
centers, MME, S GW, base station controllers, base stations and the public switched telephone network,
and (ii) with respect to the GPRS/4G core network, the base station controllers, the support nodes, PDN
GW and the internet.
We provide 2G mobile services based on the GSM network standards. Prior to October 22, 2014, we had the
900 MHz and 1800 MHz frequency bands paired with spectrum of 15 MHz and 11.25 MHz, respectively, for our 2G
mobile services and the licenses will expire in June 2017. Due to the gradual migration of the 2G subscribers to 3G
and 4G, we returned the 2G license in the 900 MHz frequency band to the NCC on October 22, 2014 and transferred
Network Infrastructure
Our network infrastructure consists of transmission networks that convey voice and data traffic, switching
networks that route traffic between networks, and mobile, internet, leased line and data switching networks.
We purchase most of our network equipment from well-known international suppliers. As part of the
purchase contract, these suppliers deliver and install the equipment for us. We also purchase from local suppliers a
variety of components such as transmission lines, switches, telephone sets, MOD set-top boxes, and radio
transmitters.
Approximately 13,195 of our employees were engaged in network infrastructure development, maintenance,
operations and planning as of December 31, 2016.
Transmission Networks
As of December 31, 2016, our transmission networks consisted of approximately 2.43 million fiber
kilometers of fiber optic cable for trunking and approximately 9.01 million fiber kilometers of fiber optic cable for
local loop.
Between 2009 and 2013, we deployed next generation synchronous digital hierarchy, or NG SDH, and
optical cross connect, or OXC, equipment for providing TDM and data service. Due to the emergence of packet-
transport network, or PTN, technology, which is a cost-effective method for transmitting packet-based data services,
we began the deployment of PTN and stopped the deployment of NG SDH network in 2014. Between 2007 and 2014,
we deployed 40/80-wavelength Re-configurable Optical Add-Drop Multiplexer, or ROADM, for backbone
transmission network in order to provide new data services such as gigabit Ethernet, fiber channel, 2.5 gigabit and 10
gigabit packet over SDH and 10 gigabit Ethernet. Due to the high utilization of our existing ROADM network, we
began to introduce the optical transport network, or OTN, trial network to meet the demand of 100G wavelength
services in 2014. Between 2009 and 2013, we had already completed the deployment of 5,519 GbE OXC/NG SDH,
which was stopped in 2014 due to the introduction of PTN. Between 2007 and 2015, we had already completed the
deployment of 1,190 wavelength ROADM, which was also stopped in 2016 due to the deployment of OTN. In
addition, we had completed the deployment of 158 wavelength OTN and 7,460 GbE PTN by the end of 2016. We will
have a trial of one wavelength 200Gbps transmission technology in 2017. This trial will verify the scalability of the
OTN to meet the explosive bandwidth demand.
As part of our strategic focuses on the internet and data markets, our local loop connections mainly adopt
FTTx technology. This enables us to provide broadband services, such as MOD, high speed internet access and VPN.
As of December 31, 2016, we have constructed approximately 7.46 million FTTx ports. Our FTTx service can offer
high-speed broadband internet access rates up to 1 Gbps. For low bandwidth demand, we use ADSL technology to
provide the internet connection services for the customers.
Switching Networks
Domestic telecommunications network. Our domestic public switched telephone network currently
consists of 19 message areas connected by a long distance network. As of December 31, 2016, we had 38 long
distance exchanges, which are interconnection points between our telecommunications network and approximately
16.8 million telephone lines, which reached virtually all homes and businesses in Taiwan.
We currently have intelligent networks installed over our public switched telephone networks for our
domestic long distance and international networks, as well as a local intelligent network in the Taipei, Taichung and
Kaohsiung metropolitan areas. Our intelligent network is designed to facilitate the use of VAS by providing more
information about calls and allowing greater management of those calls.
As of December 31, 2016, our next generation network, or NGN core network capacity consisted of
1,160,000 local telephone subscribers, comprising 448,000 Session Initiation Protocol-based, or SIP-based, and
712,000 Access Gateway-based, or AG-based, subscribers.
Our NGN Managed IP backbone network consists of an inner core network and an outer core network. We
owned high-speed NGN Managed IP backbone network by the end of 2016 with 12 sets of 4Tbps/1.6Tbps switch
routers for the inner core network and more than 34 sets of 4Tbps/1.6Tbps switch routers for the outer core network.
The bandwidth of the network is approximately 1,625 Gbps as of the end of 2016. We believe this network will
enable us to meet the increasing demand for NGN services, such as VoIP, and all managed services, including MOD
and VPN.
International network. Our international transmission infrastructure consists of both submarine cable and
satellite transmission systems, which link our national network directly to 97 telecommunications service providers in
43 international destinations.
International calls are routed between Taiwan and international destinations through one of our two
international switching centers, one located in Taipei and the other in Kaohsiung. Each center had time-division
multiplexing, or TDM, international gateway switches and NGN international gateway switch. We had a trunk
capacity of 170,040 channels in total as of December 31, 2016.
As of December 31, 2016, we had invested in 20 submarine cables, 9 of which land in Taiwan. We had
increased the capacity of each of our current submarine cables, increasing our aggregate total capacity from 2,245
Gbps in 2015 to 4,025 Gbps in 2016.
Mobile Services Network
Our mobile services network consists of:
•
cell sites, which are physical locations equipped with a base station consisting of transmitters, receivers
and other equipment used to communicate through radio channels with customers’ mobile handsets
within the range of a cell;
• BSC (base station controllers) for GSM or RNC (radio network controller) for 3G, which connect to,
and control, the base station within each cell site;
•
cellular switching service centers for GSM or 3G, which control the base station controllers and the
processing and routing of telephone calls;
• GGSN (gateway GPRS support nodes), which connect our GPRS network to the internet;
• SGSN (serving GPRS support nodes), which connect the GPRS network to the base station controllers;
• MME (mobility management entity), which connects the base station to our 4G core network that is
responsible for control side;
• S GW (Serving Gateway), which connects the base stations to our 4G core network that is responsible
for data side;
• PDN GW (Packet Data Network Gateway), which connects our 4G core network to the internet; and
•
transmission lines, which link (i) with respect to the GSM/3G/4G network, the mobile switching service
centers, MME, S GW, base station controllers, base stations and the public switched telephone network,
and (ii) with respect to the GPRS/4G core network, the base station controllers, the support nodes, PDN
GW and the internet.
We provide 2G mobile services based on the GSM network standards. Prior to October 22, 2014, we had the
900 MHz and 1800 MHz frequency bands paired with spectrum of 15 MHz and 11.25 MHz, respectively, for our 2G
mobile services and the licenses will expire in June 2017. Due to the gradual migration of the 2G subscribers to 3G
and 4G, we returned the 2G license in the 900 MHz frequency band to the NCC on October 22, 2014 and transferred
37
the spectrum of 900 MHz frequency band to 4G mobile broadband license. Our usage right of the 900 MHz frequency
band is changed from 15 MHz paired spectrum to 10 MHz paired spectrum since October 22, 2014, and the 10 MHz
paired spectrum is shared by 2G GSM and 4G LTE networks adhering to the principle of technological neutrality of
our 4G mobile broadband license. Since the launch of our 3G and 4G mobile services, we have gradually migrated
GSM subscribers to 3G and 4G networks and have consolidated our GSM network. The number of our 2G
subscribers has decreased from 1.5 million as of December 31, 2014, to 0.3 million as of December 31, 2016.
We have 15 MHz paired spectrum in the 2.1 GHz frequency band for our 3G mobile services, which was
launched in July 2005 to provide voice communication services and 3G data services.
We have 10 MHz paired spectrum in the 900 MHz frequency band and 25 MHz paired spectrum in the 1800
MHz frequency band for our 4G mobile broadband services, which were launched in May 2014. In December 2015,
we obtained additional spectrum for 4G mobile broadband services of 30 MHz paired spectrum in the 2500 MHz and
2600 MHz frequency bands. In March 2016, we implement three frequency band CA technology into our
900/1800/2600 MHz frequency band base stations that is expected to increase users’ downlink speed over 300 Mbps.
We have also installed an intelligent network on our existing mobile services network infrastructure, which
enable us to provide additional functions, such as prepaid and VPN services as well as a wide range of VAS.
Internet Network
HiNet, our internet service provider, has the largest internet access network in Taiwan, with 34 points of
presence approximately 5,734,000 broadband remote access server ports and a backbone bandwidth of approximately
5,617 Gbps as of December 31, 2016. We aim to achieve HiNet’s points of presence and backbone bandwidth to
approximately 6,617 Gbps by the end of 2017.
HiNet’s broadband backbone network consists of an inner core network and an outer core network. We had
high-speed internet protocol backbone network by the end of 2016 with 18 sets of
30Tbps/12.8Tbps/10.24Tbps/4.48Tbps/4Tbps/1.6Tbps switch routers for the inner core network and more than 50
sets of 5.28Tbps/4Tbps/2.64Tbps/1.6Tbps/640Gbps switch routers for the outer core network. We also built CDN to
meet the needs of Internet/OTT services. Our CDN consists of 12 domestic and five overseas point-of-presences and
the total capacity is approximately 287 Gbps. We believe these networks will enable us to meet the increasing
demand for our internet services.
HiNet’s total international connection bandwidth is 1,037 Gbps as of December 31, 2016. As we expect that
internet traffic flows to and from the United States will continue to increase, we have been continuously expanding
our bandwidth to the United States. We also endeavor to increase our links to other countries, including Japan, Korea,
Hong Kong, Singapore, Mainland China, Malaysia and Thailand.
Leased Line and Data Switching Networks
We operate leased line networks on both a managed and unmanaged basis. In addition, we operate a number
of switched digital networks used principally for the provision of packet-switched, frame relay, asynchronous transfer
mode technology and a multi-protocol label switching internet protocol VPN. As of December 31, 2016, we had 335
frame relay ports, 884 asynchronous transfer mode ports and approximately 97,573 multi-protocol label switching
internet protocol VPN virtual ports.
Our data networks support a variety of transmission technologies, including frame relay, asynchronous
transfer mode and ethernet technology. We have also built up our HiLink VPN that combines internet protocol and
asynchronous transfer mode technologies. The advantage of HiLink VPN based on multi-protocol label switching
technology is that it can carry different classes of services, such as video, voice and data together to provide services
with various qualities of service, high performance transmission and fast forward solution in an enhanced security
network. HiLink VPN can be accessed by xDSL/FTTx/NG-SDH and can include built-in mechanisms that can deal
with overlapping internet protocol addresses. Therefore, the network potentially is less costly and requires less
management for business applications.
38
Cybersecurity and Personal Information Protection
To prevent increasing cyber risks and threats, we have implemented the measures described below.
• We have built an online service system that enables Certificate Authority’s Secure Socket Layer
functions that performs as a secure tunnel to transmit encrypted customer’s information. In addition, we
offered the Global Trust Secure Site Seal to prevent from phishing attacks on payment web sites.
• The high-availability systems in our data centers deploy firewall and Intrusion Prevention System, or
IPS, to defend against hackers’ attacks.
• All information systems and websites are scanned for vulnerabilities and a team of information security
experts is responsible for conducting penetration testing on our information system, websites and Apps,
to prevent leakage of customer information.
• We have enhanced the firewall policy and adopted minimum principle to limit the IPs and ports access
control, in order to reduce intrusion risk from hackers.
• We have enhanced our system access controls including, among other measures, by using two-factor
authentication and by limiting daily operational access to dedicated terminals in a separate network.
• We have enhanced the retention and monitoring for all system, database, and applications logs as an
additional information security measure and our managers review system logs and inquiry records on a
daily basis.
• We required our branch offices to comply with ISO27001 and obtain the ISO27001 certification.
• We established CHT Security Operation Center, or SOC, which is responsible for incidents and threats
monitoring, notification and emergency response.
To prevent harm on personality rights, the Personal Information Protection Act, or PIPA, governs all the
collection, processing and use of personal information, and it applies to all individuals, legal entities, and enterprises.
We have conducted inventory checks of personal information that we currently hold, established standard operating
procedures, or SOP, to comply with the requirements under PIPA, and have taken information security measures to
protect the data.
information:
To comply with the PIPA, we implemented a series of measures to avoid the leakage of customers’
• Personal information protection policies and regulations are defined in the operational rules of all of our
business and service contracts.
• According to our personal data safety and awareness plan, all of our employees are required to take
training programs and to pass the awareness test once a year.
• We required our branch offices to implement a drill in personal data leakage incident handling once a
• Our auditing department completes an annual audit plan and regularly audits information circulation in
each department on customer information management and protection.
• We enforced customer service center and call center to comply with BS10012 and obtain the BS10012
year.
certification.
the spectrum of 900 MHz frequency band to 4G mobile broadband license. Our usage right of the 900 MHz frequency
band is changed from 15 MHz paired spectrum to 10 MHz paired spectrum since October 22, 2014, and the 10 MHz
paired spectrum is shared by 2G GSM and 4G LTE networks adhering to the principle of technological neutrality of
our 4G mobile broadband license. Since the launch of our 3G and 4G mobile services, we have gradually migrated
GSM subscribers to 3G and 4G networks and have consolidated our GSM network. The number of our 2G
subscribers has decreased from 1.5 million as of December 31, 2014, to 0.3 million as of December 31, 2016.
We have 15 MHz paired spectrum in the 2.1 GHz frequency band for our 3G mobile services, which was
launched in July 2005 to provide voice communication services and 3G data services.
We have 10 MHz paired spectrum in the 900 MHz frequency band and 25 MHz paired spectrum in the 1800
MHz frequency band for our 4G mobile broadband services, which were launched in May 2014. In December 2015,
we obtained additional spectrum for 4G mobile broadband services of 30 MHz paired spectrum in the 2500 MHz and
2600 MHz frequency bands. In March 2016, we implement three frequency band CA technology into our
900/1800/2600 MHz frequency band base stations that is expected to increase users’ downlink speed over 300 Mbps.
We have also installed an intelligent network on our existing mobile services network infrastructure, which
enable us to provide additional functions, such as prepaid and VPN services as well as a wide range of VAS.
Internet Network
HiNet, our internet service provider, has the largest internet access network in Taiwan, with 34 points of
presence approximately 5,734,000 broadband remote access server ports and a backbone bandwidth of approximately
5,617 Gbps as of December 31, 2016. We aim to achieve HiNet’s points of presence and backbone bandwidth to
approximately 6,617 Gbps by the end of 2017.
HiNet’s broadband backbone network consists of an inner core network and an outer core network. We had
high-speed internet protocol backbone network by the end of 2016 with 18 sets of
30Tbps/12.8Tbps/10.24Tbps/4.48Tbps/4Tbps/1.6Tbps switch routers for the inner core network and more than 50
sets of 5.28Tbps/4Tbps/2.64Tbps/1.6Tbps/640Gbps switch routers for the outer core network. We also built CDN to
meet the needs of Internet/OTT services. Our CDN consists of 12 domestic and five overseas point-of-presences and
the total capacity is approximately 287 Gbps. We believe these networks will enable us to meet the increasing
demand for our internet services.
HiNet’s total international connection bandwidth is 1,037 Gbps as of December 31, 2016. As we expect that
internet traffic flows to and from the United States will continue to increase, we have been continuously expanding
our bandwidth to the United States. We also endeavor to increase our links to other countries, including Japan, Korea,
Hong Kong, Singapore, Mainland China, Malaysia and Thailand.
Leased Line and Data Switching Networks
We operate leased line networks on both a managed and unmanaged basis. In addition, we operate a number
of switched digital networks used principally for the provision of packet-switched, frame relay, asynchronous transfer
mode technology and a multi-protocol label switching internet protocol VPN. As of December 31, 2016, we had 335
frame relay ports, 884 asynchronous transfer mode ports and approximately 97,573 multi-protocol label switching
internet protocol VPN virtual ports.
Our data networks support a variety of transmission technologies, including frame relay, asynchronous
transfer mode and ethernet technology. We have also built up our HiLink VPN that combines internet protocol and
asynchronous transfer mode technologies. The advantage of HiLink VPN based on multi-protocol label switching
technology is that it can carry different classes of services, such as video, voice and data together to provide services
with various qualities of service, high performance transmission and fast forward solution in an enhanced security
network. HiLink VPN can be accessed by xDSL/FTTx/NG-SDH and can include built-in mechanisms that can deal
with overlapping internet protocol addresses. Therefore, the network potentially is less costly and requires less
management for business applications.
Cybersecurity and Personal Information Protection
To prevent increasing cyber risks and threats, we have implemented the measures described below.
• We have built an online service system that enables Certificate Authority’s Secure Socket Layer
functions that performs as a secure tunnel to transmit encrypted customer’s information. In addition, we
offered the Global Trust Secure Site Seal to prevent from phishing attacks on payment web sites.
• The high-availability systems in our data centers deploy firewall and Intrusion Prevention System, or
IPS, to defend against hackers’ attacks.
• All information systems and websites are scanned for vulnerabilities and a team of information security
experts is responsible for conducting penetration testing on our information system, websites and Apps,
to prevent leakage of customer information.
• We have enhanced the firewall policy and adopted minimum principle to limit the IPs and ports access
control, in order to reduce intrusion risk from hackers.
• We have enhanced our system access controls including, among other measures, by using two-factor
authentication and by limiting daily operational access to dedicated terminals in a separate network.
• We have enhanced the retention and monitoring for all system, database, and applications logs as an
additional information security measure and our managers review system logs and inquiry records on a
daily basis.
• We required our branch offices to comply with ISO27001 and obtain the ISO27001 certification.
• We established CHT Security Operation Center, or SOC, which is responsible for incidents and threats
monitoring, notification and emergency response.
To prevent harm on personality rights, the Personal Information Protection Act, or PIPA, governs all the
collection, processing and use of personal information, and it applies to all individuals, legal entities, and enterprises.
We have conducted inventory checks of personal information that we currently hold, established standard operating
procedures, or SOP, to comply with the requirements under PIPA, and have taken information security measures to
protect the data.
To comply with the PIPA, we implemented a series of measures to avoid the leakage of customers’
information:
• Personal information protection policies and regulations are defined in the operational rules of all of our
business and service contracts.
• According to our personal data safety and awareness plan, all of our employees are required to take
training programs and to pass the awareness test once a year.
• We required our branch offices to implement a drill in personal data leakage incident handling once a
year.
• Our auditing department completes an annual audit plan and regularly audits information circulation in
each department on customer information management and protection.
• We enforced customer service center and call center to comply with BS10012 and obtain the BS10012
certification.
39
• Documents containing customer’s personal information are labeled “highly confidential.”
Enforceability of Judgments in Taiwan
Property, plant and equipment
Our property, plant and equipment consist mainly of telecommunications equipment, land and buildings
located throughout Taiwan. Although we have a significant amount of land and buildings throughout Taiwan, most of
our properties are for operational use and only a small part of them are for investment purposes, which were classified
as “investment properties” in our consolidated financial statements included in this annual report. Notes 17 and 18 to
our consolidated financial statements, included elsewhere in this annual report, provide additional details as to our
“Property, plant and equipment” and “Investment properties,” respectively. See “Item 3. Key Information—D. Risk
Factors—Our ability to deliver services may be disrupted due to a systems failure, shutdown in our networks,
earthquakes or other natural disasters” for a discussion of environmental issues that may affect utilization of our
assets.
We are now focusing more on rental income and will continue seeking development opportunities from the
ROC central and local government urban planning programs to increase the value of our land, buildings and
equipment. We have received approximately NT$605.4 million (US$18.7 million) in rental income from properties in
2016.
Insurance
We do not carry comprehensive insurance for our properties or any insurance for business disruptions. We
do, however, maintain in-transit insurance for key materials, such as cables, equipment and equipment components.
We do not carry insurance for the ST-2 satellite since we only lease capacity for our operations instead of owning the
satellite.
Employees
Please refer to “Item 6. Directors, Senior Management and Employees—D. Employees” for a discussion of
our employees.
Our Pension Plans
Currently, we offer two types of employee retirement plans—our defined contributions plan and defined
benefits plan—which are administered in accordance with the Republic of China Labor Standards Act and the
Republic of China Labor Pension Act.
Legal Proceedings
From time to time, we are involved in various legal and arbitration proceedings of a nature considered to be
in the ordinary course of our business. It is our policy to provide for reserves related to these legal matters when it is
probable that a liability has been incurred and the amount is reasonably estimable. From time to time, we have also
been assessed fines by various government agencies such as the NCC and FTC, but none of these fines have had a
significant effect on our financial condition or results of operations.
Except as disclosed in our annual report, we believe that we have not been involved in any legal or
arbitration proceedings during 2014, 2015 or 2016 that would have a significant effect on our financial condition or
results of operations; however, we cannot give you any assurance with respect to the ultimate outcome of any asserted
claims against us or legal or arbitration proceedings involving us.
Capital Expenditures
See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital
Expenditures” for a discussion of our capital expenditures.
August 1, 2016.
40
We are a company limited by shares and incorporated under the ROC Company Act. All of our directors,
executive officers and some of the experts named in this annual report are residents of Taiwan and a substantial
portion of our assets and the assets of those persons are located in Taiwan. As a result, it may not be possible for
investors to effect service of process upon us or those persons outside of Taiwan, or to enforce against them
judgments obtained in courts outside of Taiwan. We have been advised by our ROC counsel that in their opinion any
final judgment obtained against us in any court other than the courts of the ROC in connection with any legal suit or
proceeding arising out of or relating to the ADSs will be enforced by the courts of the ROC without further review of
the merits only if the court of the ROC in which enforcement is sought is satisfied that:
the court rendering the judgment has jurisdiction over the subject matter according to the laws of the
•
•
•
•
ROC;
good morals of the ROC;
ROC; and
on a reciprocal basis.
the judgment and the court procedure resulting in the judgment are not contrary to the public order or
if the judgment was rendered by default by the court rendering the judgment, we, or the above
mentioned persons, were duly served within a reasonable period of time in accordance with the laws and
regulations of the jurisdiction of the court or process was served on us with judicial assistance of the
judgments at the courts of the ROC are recognized and enforceable in the court rendering the judgment
A party seeking to enforce a foreign judgment in the ROC would be required to obtain foreign exchange
approval from the Central Bank of the ROC (Taiwan) for the payment out of Taiwan of any amounts recovered in
connection with the judgment denominated in a currency other than NT dollars if a conversion from NT dollars to a
foreign currency is involved.
Regulation
Overview
any material impact on our company.
Regulatory Authorities
We were subject to the Statute of Chunghwa Telecom Co., Ltd. prior to our privatization. Although we have
been privatized since August 2005, the Statute of Chunghwa Telecom Co., Ltd. was still effective until December 24,
2014. The President of the ROC promulgated the abolishment of Statute of Chunghwa Telecom Co., Ltd. effective
from December 24, 2014. The abolishment of the Statute of Chunghwa Telecom Co., Ltd. did not and will not have
Prior to March 1, 2006, we were under the supervision of the MOTC and the Directorate General of
Telecommunications. On March 1, 2006, the NCC was formed in accordance with the Organization Act, which was
intended to transfer regulatory authority over the Taiwan telecommunications industry from the MOTC and the
Directorate General of Telecommunications to the NCC.
Under the National Communications Commission Organization Act, or the Organization Act, the NCC was
comprised of seven commissioners, which are full-time positions. The premier of the Executive Yuan shall nominate
the commissioners and appoint one of them to serve as chairperson, and one as vice chairperson. The nomination
shall be approved and appointed by the Legislative Yuan. The tenure of the commissioners is four years, and the
commissioners may be re-appointed to serve a consecutive term. Accordingly, now there are seven commissioners,
including the chairperson Ting-I Chan and the vice chairperson Po-Tsung Wong, both of them began serving on
• Documents containing customer’s personal information are labeled “highly confidential.”
Enforceability of Judgments in Taiwan
Property, plant and equipment
Our property, plant and equipment consist mainly of telecommunications equipment, land and buildings
located throughout Taiwan. Although we have a significant amount of land and buildings throughout Taiwan, most of
our properties are for operational use and only a small part of them are for investment purposes, which were classified
as “investment properties” in our consolidated financial statements included in this annual report. Notes 17 and 18 to
our consolidated financial statements, included elsewhere in this annual report, provide additional details as to our
“Property, plant and equipment” and “Investment properties,” respectively. See “Item 3. Key Information—D. Risk
Factors—Our ability to deliver services may be disrupted due to a systems failure, shutdown in our networks,
earthquakes or other natural disasters” for a discussion of environmental issues that may affect utilization of our
We are now focusing more on rental income and will continue seeking development opportunities from the
ROC central and local government urban planning programs to increase the value of our land, buildings and
equipment. We have received approximately NT$605.4 million (US$18.7 million) in rental income from properties in
We do not carry comprehensive insurance for our properties or any insurance for business disruptions. We
do, however, maintain in-transit insurance for key materials, such as cables, equipment and equipment components.
We do not carry insurance for the ST-2 satellite since we only lease capacity for our operations instead of owning the
Please refer to “Item 6. Directors, Senior Management and Employees—D. Employees” for a discussion of
assets.
2016.
Insurance
satellite.
Employees
our employees.
Our Pension Plans
Currently, we offer two types of employee retirement plans—our defined contributions plan and defined
benefits plan—which are administered in accordance with the Republic of China Labor Standards Act and the
Republic of China Labor Pension Act.
Legal Proceedings
From time to time, we are involved in various legal and arbitration proceedings of a nature considered to be
in the ordinary course of our business. It is our policy to provide for reserves related to these legal matters when it is
probable that a liability has been incurred and the amount is reasonably estimable. From time to time, we have also
been assessed fines by various government agencies such as the NCC and FTC, but none of these fines have had a
significant effect on our financial condition or results of operations.
Except as disclosed in our annual report, we believe that we have not been involved in any legal or
arbitration proceedings during 2014, 2015 or 2016 that would have a significant effect on our financial condition or
results of operations; however, we cannot give you any assurance with respect to the ultimate outcome of any asserted
claims against us or legal or arbitration proceedings involving us.
Capital Expenditures
See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital
Expenditures” for a discussion of our capital expenditures.
We are a company limited by shares and incorporated under the ROC Company Act. All of our directors,
executive officers and some of the experts named in this annual report are residents of Taiwan and a substantial
portion of our assets and the assets of those persons are located in Taiwan. As a result, it may not be possible for
investors to effect service of process upon us or those persons outside of Taiwan, or to enforce against them
judgments obtained in courts outside of Taiwan. We have been advised by our ROC counsel that in their opinion any
final judgment obtained against us in any court other than the courts of the ROC in connection with any legal suit or
proceeding arising out of or relating to the ADSs will be enforced by the courts of the ROC without further review of
the merits only if the court of the ROC in which enforcement is sought is satisfied that:
•
•
•
•
the court rendering the judgment has jurisdiction over the subject matter according to the laws of the
ROC;
the judgment and the court procedure resulting in the judgment are not contrary to the public order or
good morals of the ROC;
if the judgment was rendered by default by the court rendering the judgment, we, or the above
mentioned persons, were duly served within a reasonable period of time in accordance with the laws and
regulations of the jurisdiction of the court or process was served on us with judicial assistance of the
ROC; and
judgments at the courts of the ROC are recognized and enforceable in the court rendering the judgment
on a reciprocal basis.
A party seeking to enforce a foreign judgment in the ROC would be required to obtain foreign exchange
approval from the Central Bank of the ROC (Taiwan) for the payment out of Taiwan of any amounts recovered in
connection with the judgment denominated in a currency other than NT dollars if a conversion from NT dollars to a
foreign currency is involved.
Regulation
Overview
We were subject to the Statute of Chunghwa Telecom Co., Ltd. prior to our privatization. Although we have
been privatized since August 2005, the Statute of Chunghwa Telecom Co., Ltd. was still effective until December 24,
2014. The President of the ROC promulgated the abolishment of Statute of Chunghwa Telecom Co., Ltd. effective
from December 24, 2014. The abolishment of the Statute of Chunghwa Telecom Co., Ltd. did not and will not have
any material impact on our company.
Regulatory Authorities
Prior to March 1, 2006, we were under the supervision of the MOTC and the Directorate General of
Telecommunications. On March 1, 2006, the NCC was formed in accordance with the Organization Act, which was
intended to transfer regulatory authority over the Taiwan telecommunications industry from the MOTC and the
Directorate General of Telecommunications to the NCC.
Under the National Communications Commission Organization Act, or the Organization Act, the NCC was
comprised of seven commissioners, which are full-time positions. The premier of the Executive Yuan shall nominate
the commissioners and appoint one of them to serve as chairperson, and one as vice chairperson. The nomination
shall be approved and appointed by the Legislative Yuan. The tenure of the commissioners is four years, and the
commissioners may be re-appointed to serve a consecutive term. Accordingly, now there are seven commissioners,
including the chairperson Ting-I Chan and the vice chairperson Po-Tsung Wong, both of them began serving on
August 1, 2016.
41
In accordance with the Organization Act, the NCC is responsible for:
•
•
•
•
•
formulating, implementing and interpreting telecommunications laws and regulations;
issuing telecommunications licenses and regulating the operation of telecommunications industry parti-
cipants;
assessing and testing telecommunication systems and equipment;
drafting and promulgating technical standards for telecommunications and broadcasting;
classifying and censoring the contents of telecommunications and broadcasting;
• managing telecommunications and media resources in Taiwan;
•
•
•
•
•
•
•
spectrum allocation;
provision of universal services;
equal access;
number portability;
local loop unbundling;
co-location; and
ownership limitations.
• maintaining competition order in the telecommunication and broadcasting industries;
cing system for assignment of radio frequencies.
Each of these aspects is described below. The Telecommunications Act also establishes a non-auction pri-
•
governing technical standards in connection with the safety of information communications;
Licensing of Telecommunications Services
• managing and facilitating the resolution of disputes pertaining to the Taiwan telecommunications and
Type I and Type II Service Providers
broadcasting industries;
• managing offshore matters relating to Taiwan’s telecommunications and broadcasting industries
gories:
including matters of international cooperation;
• managing funds allocated for the development of Taiwan’s telecommunications and broadcasting
industries;
• monitoring, investigating and determining matters in relating to Taiwan’s telecommunications and
broadcasting industries;
•
•
enforcing restrictions under telecommunications and broadcasting laws and punishing violators; and
supervising other matters in relation to communications and media.
Telecommunications Act
The Telecommunications Act and the regulations under the Telecommunications Act establish the frame-
work and govern the various aspects of the Taiwan telecommunications industry, including:
•
•
•
•
•
•
•
licensing of telecommunications services;
telecommunication numbers;
restrictions on dominant telecommunications service providers;
tariff control and price cap regulation;
accounting separation system;
interconnection arrangements;
bottleneck facilities;
42
Under the Telecommunications Act, telecommunications service providers are classified into two cate-
Type I. Type I service providers are providers that install network infrastructure, such as network
transmission, switching and auxiliary equipment for the provision of telecommunications services. Type I
services include fixed-line services such as local, domestic long distance and international long distance services,
as well as interconnection, leased line, ADSL and satellite services and wireless services such as mobile,
including mobile data and trunked radio services.
Type II. Type II service providers are defined as all telecommunications service providers other than
Type I service providers. Type II services are divided into special services and general services. Special services
include simple voice resale, E.164 internet telephony service, Non-E.164 internet telephony service, international
telecommunications services that provide to unspecific customers by leasing international circuit and other
services specified by the MOTC before March 1, 2006 or by the NCC from March 1, 2006. General services
include any Type II service other than special services.
Until 1996, we were the sole provider of Type I services in Taiwan. In 1996, the government opened the
market for mobile, paging and trunked radio, mobile data and digital low power cordless telephone services. In
1998, the government opened the market for fixed-line and mobile satellite services. In June 2001, the
government granted licenses to three operators for establishing fixed-line services, thereby opening the market
for fixed-line services. Since August 2000, the government has permitted four undersea cable operators to engage
in the undersea cable leased-circuit business.
Commencing in 2007, the NCC began accepting applications for licenses to provide fixed-line services
in March, June, September and December of each year. The NCC started to accept applications for fixed-line
services on a daily basis beginning in 2008. There is no limit on the number of fixed-line licenses that they may
decide to issue.
Granting of Licenses
Type I
Type I service providers are more closely regulated than Type II service providers. The government has
broad powers to limit the number of providers and their business scope and to ensure that they meet their
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
broadcasting industries;
including matters of international cooperation;
industries;
broadcasting industries;
• managing funds allocated for the development of Taiwan’s telecommunications and broadcasting
• monitoring, investigating and determining matters in relating to Taiwan’s telecommunications and
enforcing restrictions under telecommunications and broadcasting laws and punishing violators; and
supervising other matters in relation to communications and media.
Telecommunications Act
The Telecommunications Act and the regulations under the Telecommunications Act establish the frame-
work and govern the various aspects of the Taiwan telecommunications industry, including:
licensing of telecommunications services;
telecommunication numbers;
restrictions on dominant telecommunications service providers;
tariff control and price cap regulation;
accounting separation system;
interconnection arrangements;
bottleneck facilities;
In accordance with the Organization Act, the NCC is responsible for:
formulating, implementing and interpreting telecommunications laws and regulations;
issuing telecommunications licenses and regulating the operation of telecommunications industry parti-
cipants;
assessing and testing telecommunication systems and equipment;
drafting and promulgating technical standards for telecommunications and broadcasting;
classifying and censoring the contents of telecommunications and broadcasting;
• managing telecommunications and media resources in Taiwan;
•
•
•
•
•
•
•
spectrum allocation;
provision of universal services;
equal access;
number portability;
local loop unbundling;
co-location; and
ownership limitations.
• maintaining competition order in the telecommunication and broadcasting industries;
cing system for assignment of radio frequencies.
Each of these aspects is described below. The Telecommunications Act also establishes a non-auction pri-
governing technical standards in connection with the safety of information communications;
Licensing of Telecommunications Services
• managing and facilitating the resolution of disputes pertaining to the Taiwan telecommunications and
Type I and Type II Service Providers
• managing offshore matters relating to Taiwan’s telecommunications and broadcasting industries
gories:
Under the Telecommunications Act, telecommunications service providers are classified into two cate-
Type I. Type I service providers are providers that install network infrastructure, such as network
transmission, switching and auxiliary equipment for the provision of telecommunications services. Type I
services include fixed-line services such as local, domestic long distance and international long distance services,
as well as interconnection, leased line, ADSL and satellite services and wireless services such as mobile,
including mobile data and trunked radio services.
Type II. Type II service providers are defined as all telecommunications service providers other than
Type I service providers. Type II services are divided into special services and general services. Special services
include simple voice resale, E.164 internet telephony service, Non-E.164 internet telephony service, international
telecommunications services that provide to unspecific customers by leasing international circuit and other
services specified by the MOTC before March 1, 2006 or by the NCC from March 1, 2006. General services
include any Type II service other than special services.
Until 1996, we were the sole provider of Type I services in Taiwan. In 1996, the government opened the
market for mobile, paging and trunked radio, mobile data and digital low power cordless telephone services. In
1998, the government opened the market for fixed-line and mobile satellite services. In June 2001, the
government granted licenses to three operators for establishing fixed-line services, thereby opening the market
for fixed-line services. Since August 2000, the government has permitted four undersea cable operators to engage
in the undersea cable leased-circuit business.
Commencing in 2007, the NCC began accepting applications for licenses to provide fixed-line services
in March, June, September and December of each year. The NCC started to accept applications for fixed-line
services on a daily basis beginning in 2008. There is no limit on the number of fixed-line licenses that they may
decide to issue.
Granting of Licenses
Type I
Type I service providers are more closely regulated than Type II service providers. The government has
broad powers to limit the number of providers and their business scope and to ensure that they meet their
43
facilities roll-out obligations. Under the Telecommunications Act, Type I service providers are subject to pre-
licensing merit review of their business plans and tariff rates.
Before March 1, 2006, licenses for Type I services were granted by the MOTC through a three-step
procedure. Applicants obtained a concession from the MOTC. After obtaining a concession, the applicant
obtained a network construction permit and an assignment of spectrum, in the case of mobile telephone services
and satellite services, from the Directorate General of Telecommunications or the MOTC prior to applying for a
license. Upon completion of construction of its network and review by the Directorate General of
Telecommunications, the applicant was granted a Type I license. The MOTC had the authority to grant Type I
licenses for each of fixed-line services, wireless services and satellite services. Type I licenses have different
minimum paid-in capital requirements for applicants and varying durations depending on the particular type of
service.
Since March 1, 2006, the same procedure applies except that the licenses are granted by the NCC.
of the network construction permit.
The Telecommunications Act further authorizes the competent authority, now the NCC, to promulgate
separate regulations governing each Type I service, including the business scope of the Type I service provider,
as well as the procedures and conditions for granting special permits and the length of the period of the special
permits of each Type I service. Each holder of a Type I license will pay a fee ranging from 0.5% to 2% of their
annual revenues or their bid price ratio (Article 2 of the Type I Service Provider Special Tariff Standards)
multiplied by their annual revenues generated from the particular Type I service for which a license has been
granted.
Fixed Line Services. Under the Telecommunications Act, the Regulations for Administration on Fixed
Network Telecommunications Business govern the issuance of fixed-line service licenses and the business scope
of fixed-line providers. Fixed-line service licenses are subdivided into the following categories, and we conduct
our fixed line services with a license for integrated services.
•
•
•
•
•
integrated services, including local, domestic long distance and international long distance telep-
hone services;
local telephone services;
domestic long distance telephone services;
international long distance telephone services; and
local, domestic long distance and international long distance leased line services.
Licenses for local telephone and integrated services are valid for 25 years. Licenses for domestic long
distance and international long distance telephone services are valid for 20 years. Licenses for leased line services
are valid for 15 years. If the service provider wishes to continue operating, the service provider needs to apply for
a license renewal to the NCC between nine months and six months before the expiration of their license. The
minimum paid-in capital requirements for integrated services providers that applied for a license before June 30,
2004, between July 1, 2004 and January 31, 2008 and on or after February 1, 2008 are NT$21 billion, NT$8.4
billion and NT$6.4 billion, respectively. The minimum paid-in capital requirements for both domestic and
international long distance telephone service providers that applied for a license between July 1, 2004 and
January 31, 2008 and on or after February 1, 2008 are NT$1.05 billion and NT$800 million, respectively. The
minimum paid-in capital requirements for international undersea leased cable service providers that applied for a
license before June 30, 2004, between July 1, 2004 and January 31, 2008, between February 1, 2008 and June 30,
2013 and on or after July 1, 2013 are NT$420 million, NT$420 million, NT$320 million, and NT$300 million,
respectively. The minimum paid-in capital requirement for local telephone service providers that applied for a
license between July 1, 2004 and January 31, 2008 and on or after February 1, 2008 are NT$6.3 billion and
NT$4.8 billion, respectively, multiplied by the Local Network Operation Weights for the regions in which local
network managerial rights have been granted to the service provider. The Local Network Operation Weights are
44
calculated as the population of the region as a proportion of the entire population of Taiwan and are announced
by the competent authority every three years. If an applicant for a license is also a Type I service provider, it will
need to combine the minimum paid-in-capital requirements for all relevant services.
In March 2000, the government granted three new concessions to fixed-line services providers for
integrated services. Recipients of these concessions are required to apply for a network construction permit to
deploy broadband local access networks. Each recipient of these concessions is required to have capacity for
150,000 customers before it is able to apply for a fixed-line license to launch its proposed services. The three
fixed-line service providers have since obtained fixed-line licenses and are required to achieve capacity for one
million customers by the sixth year following the date of the grant of the network construction permit awarded.
Operators that applied for integrated service provider licenses before June 30, 2004, between July 1, 2004 and
January 31, 2008 and on or after February 1, 2008 must achieve a capacity for 1.0 million, 0.4 million and 0.3
million customers, ports or a combination of both, respectively, by the fourth year following the date of the grant
Wireless Services. Under the Telecommunications Act, the Regulations for Administration of Mobile
Communications Business promulgated by the MOTC before March 1, 2006 or by the NCC from March 1, 2006
continue to govern the issuance of wireless services licenses and the business scope of wireless service providers.
Wireless service licenses are subdivided into the following categories:
• mobile services;
•
paging services;
• mobile data services;
•
•
trunked radio services.
digital low-power cordless telephone services; and
Wireless service licenses are granted to both regional and national service providers through review and
bidding procedures.
The wireless service license for mobile or paging service, once granted, should be valid for a term of 15
years starting from the date when such license is granted, and licenses for mobile data, digital low-power cordless
telephone and trunked radio are valid for 10 years starting from the date when such license is granted. According
to the Regulations for Administration of Mobile Communications Businesses amended by the NCC on
September 19, 2011, the wireless service provider may file an application with the NCC for extension of the valid
term of its license for providing mobile or paging service one year prior to the expiry of the 15-year valid term.
Once the NCC approves the application, the valid term of the wireless service license for mobile or paging
service will be extended to June 30, 2017. The valid terms of our licenses granted by the ROC government
authorities for providing 2G mobile services on the 900MHz and 1800MHz spectrum expired in 2012 and 2013
respectively. We filed the application with the NCC for extending the valid terms of our 2G licenses on
November 29, 2011. Our application was approved by the NCC in November 2012 and the terms of our licenses
for providing 2G mobile services on the 900MHz and 1800MHz spectrum should be valid until June 2017. See
“Item 4. Information on the Company—B. Business Overview—Network Infrastructure—Mobile Services
Network” for the discussion of our early return of the 2G license in the 900 MHz frequency band to the NCC on
October 22, 2014.
The minimum paid-in capital requirements for different mobile communication businesses are as
follows: Digital Low-Power Wireless Telephone Business, NT$200 million; Trunking Wireless Telephone
Business, NT$20 million for regional operation and NT$60 million for island-wide operation; Mobile Data
Communication Business, NT$50 million for regional operation and NT$150 million for island-wide operation;
Radio Paging Business, NT$200 million for regional operation and NT$400 million for island-wide operation;
Mobile Telephone Business, NT$2 billion for regional operation and NT$6 billion for island-wide operation. If
facilities roll-out obligations. Under the Telecommunications Act, Type I service providers are subject to pre-
licensing merit review of their business plans and tariff rates.
Before March 1, 2006, licenses for Type I services were granted by the MOTC through a three-step
procedure. Applicants obtained a concession from the MOTC. After obtaining a concession, the applicant
obtained a network construction permit and an assignment of spectrum, in the case of mobile telephone services
and satellite services, from the Directorate General of Telecommunications or the MOTC prior to applying for a
license. Upon completion of construction of its network and review by the Directorate General of
Telecommunications, the applicant was granted a Type I license. The MOTC had the authority to grant Type I
licenses for each of fixed-line services, wireless services and satellite services. Type I licenses have different
minimum paid-in capital requirements for applicants and varying durations depending on the particular type of
Since March 1, 2006, the same procedure applies except that the licenses are granted by the NCC.
The Telecommunications Act further authorizes the competent authority, now the NCC, to promulgate
separate regulations governing each Type I service, including the business scope of the Type I service provider,
as well as the procedures and conditions for granting special permits and the length of the period of the special
permits of each Type I service. Each holder of a Type I license will pay a fee ranging from 0.5% to 2% of their
annual revenues or their bid price ratio (Article 2 of the Type I Service Provider Special Tariff Standards)
multiplied by their annual revenues generated from the particular Type I service for which a license has been
Fixed Line Services. Under the Telecommunications Act, the Regulations for Administration on Fixed
Network Telecommunications Business govern the issuance of fixed-line service licenses and the business scope
of fixed-line providers. Fixed-line service licenses are subdivided into the following categories, and we conduct
our fixed line services with a license for integrated services.
integrated services, including local, domestic long distance and international long distance telep-
hone services;
local telephone services;
domestic long distance telephone services;
international long distance telephone services; and
service.
granted.
•
•
•
•
•
local, domestic long distance and international long distance leased line services.
Licenses for local telephone and integrated services are valid for 25 years. Licenses for domestic long
distance and international long distance telephone services are valid for 20 years. Licenses for leased line services
are valid for 15 years. If the service provider wishes to continue operating, the service provider needs to apply for
a license renewal to the NCC between nine months and six months before the expiration of their license. The
minimum paid-in capital requirements for integrated services providers that applied for a license before June 30,
2004, between July 1, 2004 and January 31, 2008 and on or after February 1, 2008 are NT$21 billion, NT$8.4
billion and NT$6.4 billion, respectively. The minimum paid-in capital requirements for both domestic and
international long distance telephone service providers that applied for a license between July 1, 2004 and
January 31, 2008 and on or after February 1, 2008 are NT$1.05 billion and NT$800 million, respectively. The
minimum paid-in capital requirements for international undersea leased cable service providers that applied for a
license before June 30, 2004, between July 1, 2004 and January 31, 2008, between February 1, 2008 and June 30,
2013 and on or after July 1, 2013 are NT$420 million, NT$420 million, NT$320 million, and NT$300 million,
respectively. The minimum paid-in capital requirement for local telephone service providers that applied for a
license between July 1, 2004 and January 31, 2008 and on or after February 1, 2008 are NT$6.3 billion and
NT$4.8 billion, respectively, multiplied by the Local Network Operation Weights for the regions in which local
network managerial rights have been granted to the service provider. The Local Network Operation Weights are
calculated as the population of the region as a proportion of the entire population of Taiwan and are announced
by the competent authority every three years. If an applicant for a license is also a Type I service provider, it will
need to combine the minimum paid-in-capital requirements for all relevant services.
In March 2000, the government granted three new concessions to fixed-line services providers for
integrated services. Recipients of these concessions are required to apply for a network construction permit to
deploy broadband local access networks. Each recipient of these concessions is required to have capacity for
150,000 customers before it is able to apply for a fixed-line license to launch its proposed services. The three
fixed-line service providers have since obtained fixed-line licenses and are required to achieve capacity for one
million customers by the sixth year following the date of the grant of the network construction permit awarded.
Operators that applied for integrated service provider licenses before June 30, 2004, between July 1, 2004 and
January 31, 2008 and on or after February 1, 2008 must achieve a capacity for 1.0 million, 0.4 million and 0.3
million customers, ports or a combination of both, respectively, by the fourth year following the date of the grant
of the network construction permit.
Wireless Services. Under the Telecommunications Act, the Regulations for Administration of Mobile
Communications Business promulgated by the MOTC before March 1, 2006 or by the NCC from March 1, 2006
continue to govern the issuance of wireless services licenses and the business scope of wireless service providers.
Wireless service licenses are subdivided into the following categories:
• mobile services;
•
paging services;
• mobile data services;
•
•
digital low-power cordless telephone services; and
trunked radio services.
Wireless service licenses are granted to both regional and national service providers through review and
bidding procedures.
The wireless service license for mobile or paging service, once granted, should be valid for a term of 15
years starting from the date when such license is granted, and licenses for mobile data, digital low-power cordless
telephone and trunked radio are valid for 10 years starting from the date when such license is granted. According
to the Regulations for Administration of Mobile Communications Businesses amended by the NCC on
September 19, 2011, the wireless service provider may file an application with the NCC for extension of the valid
term of its license for providing mobile or paging service one year prior to the expiry of the 15-year valid term.
Once the NCC approves the application, the valid term of the wireless service license for mobile or paging
service will be extended to June 30, 2017. The valid terms of our licenses granted by the ROC government
authorities for providing 2G mobile services on the 900MHz and 1800MHz spectrum expired in 2012 and 2013
respectively. We filed the application with the NCC for extending the valid terms of our 2G licenses on
November 29, 2011. Our application was approved by the NCC in November 2012 and the terms of our licenses
for providing 2G mobile services on the 900MHz and 1800MHz spectrum should be valid until June 2017. See
“Item 4. Information on the Company—B. Business Overview—Network Infrastructure—Mobile Services
Network” for the discussion of our early return of the 2G license in the 900 MHz frequency band to the NCC on
October 22, 2014.
The minimum paid-in capital requirements for different mobile communication businesses are as
follows: Digital Low-Power Wireless Telephone Business, NT$200 million; Trunking Wireless Telephone
Business, NT$20 million for regional operation and NT$60 million for island-wide operation; Mobile Data
Communication Business, NT$50 million for regional operation and NT$150 million for island-wide operation;
Radio Paging Business, NT$200 million for regional operation and NT$400 million for island-wide operation;
Mobile Telephone Business, NT$2 billion for regional operation and NT$6 billion for island-wide operation. If
45
one single applicant acquires operational licenses of two or more businesses with minimum paid-in capital
requirements, the paid-in capital for the businesses should be calculated and collected by the applicant separately.
For an operator who obtains the permission of operation over two businesses through the legal
procedure, its minimum paid-in capital shall be separately calculated upon approval for establishment, if such
other businesses are subject to the minimum paid-in capital restriction.
Third Generation Mobile Services. The MOTC promulgated the Regulations for Administration of the
Third Generation Mobile Communications Business on October 15, 2001. The NCC amended the above
regulations on July 5, 2007, designating itself as the authority in charge of the third generation, or 3G, mobile
services regulations and further amended such regulations on December 30, 2008 for the establishment of base
stations. The regulations govern voice and non-voice telecommunications services provided using the spectrum
assigned by the MOTC, and now governed by the NCC, that utilizes the IMT-2000 technical standards as
announced by the International Telecommunications Union. Licenses for 3G mobile services were granted by the
MOTC and are now granted by the NCC. We have received our 3G mobile services license, which is valid from
May 26, 2005 to December 31, 2018.
Under the Regulations for Administration of the Third Generation Mobile Communications Business,
the operation area of this business is the whole nation; the minimal paid-in capital for operating this business
shall be NT$6 billion. If the applicant operates another business of a Type I telecommunications enterprise at the
same time and there is a restriction on the paid-in capital to the other business, after acquiring the establishment
approval, the required minimal paid-in capital shall be calculated by aggregating the minimal requirement of each
service.
Mobile Broadband Services. Pursuant to the Regulations for Administration of Mobile Broadband
Businesses, the 4G mobile broadband service providers must obtain the concession license issued by the NCC
before providing 4G mobile broadband services. The license granted for the application in 2013 is valid from the
license issue date until December 31, 2030 and the license granted for the application in 2015 is valid from the
license issue date until December 31, 2033. The operation area of 4G mobile broadband services covers
throughout the ROC.
The minimum paid-in capital for operating the mobile broadband services is NT$6 billion. If an
applicant also operates another business of Type I telecommunications enterprise, the minimal paid-in capital
required for operating the mobile broadband services and the other Type I telecommunications services shall be
determined by aggregating the paid-in capital of the entity required for operating the mobile broadband services
and that of the entity required for operating the other Type I telecommunications services.
The mobile broadband services license was released for the first time in 2013. We received the 4G
mobile broadband services license on April 30, 2014, and launched the services on May 29, 2014. Mobile
broadband services licenses were released for bidding for a second time in 2015, and we were declared the
winning bidder on December 7, 2015. After the revision of our 2500MHz and 2600MHz business plan was
approved by the NCC on January 27, 2016, we received a permit for establishment by the NCC on February 17,
2016, in accordance with such business plan, and now we are accelerating the deployment of 4G mobile
broadband base stations with these frequency bands. We received the license to operate these frequency bands on
March 23, 2016, and put these frequency bands into use on March 24, 2016.
Satellite Services. Under the Telecommunications Act, the Regulations for Administration on Satellite
Communication Services promulgated by the MOTC govern the issuance of satellite services licenses and the
business scope of satellite service providers. The NCC amended the above regulations on July 20, 2007,
designating itself as the authority in charge of the Satellite Regulations. Satellite services licenses are subdivided
into fixed satellite services licenses and mobile satellite services licenses.
The satellite services license should be valid for a term of 10 years starting from the date when such
license is granted. If the service provider wants to re-new its satellite services license before the expiry of the 10-
year term, such service provider needs to file a renew application with the NCC within the period from 9 months
to 6 months before the expiry date of the original satellite license. The valid term of the renewed satellite license
46
will be 10 years. Minimum paid-in capital requirements for fixed satellite service providers and mobile satellite
service providers are NT$100 million and NT$500 million, respectively. If an applicant applies to operate fixed
satellite services and mobile satellite services at the same time, its minimum paid-in capital should be calculated
separately. The same also applies to an applicant who operates another business of Type I telecommunications
enterprise at the same time.
We currently hold a fixed satellite services license, valid from December 10, 2008 to December 9, 2018.
Type II
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•
•
The Telecommunications Act was amended in 1996 to open the market for all Type II services. Under
the Regulations for Administration on Type II Telecommunications Business, Type II services are divided into
special services and general services. Special services include simple resale, network telephone service of E.164
and non-E.164 user numbers (VoIP), international leased circuit and other services specified by governing
authority. General services include any Type II service other than special services. The policy for granting a Type
II service license is as follows:
there is no limit on the number of licenses to be issued;
licenses were granted by the Directorate General of Telecommunications before March 1, 2006 and
are now granted by the NCC; and
no bidding procedure is required.
We hold a license to operate all Type II services. Type II service licenses issued before November 15,
2005 are valid for ten years and may be renewed by submitting an application within two months prior to the
expiration date. Type II service licenses issued or renewed on or after November 15, 2005 are valid for three
years and may be renewed during the period commencing two months prior to the expiration date. There is no
minimum paid-in capital requirement for Type II service providers. Our license to operate Type II services is
included in our license to operate integrated services, and is valid from July 29, 2000 to July 28, 2025.
Under the Type II Telecommunications Enterprise Permit Fee Schedule, operators of simple resale or
network telephone services of E.164 or non-E.164 user numbers must pay an annual license fee equal to 1% of
annual revenues generated from these services during the previous year. Type II service operators providing
services other than simple resale or network telephone services of E.164 or non-E.164 user numbers must pay
license fees ranging from NT$6,000 to NT$150,000 depending on their respective paid-in capital. For operators
who operate over two or more businesses, their license fee shall be separately calculated but jointly collected.
These regulations do not apply to integrated services providers who are permitted to provide Type II services
without additional Type II Licenses.
Telecommunications Numbers
According to the Telecommunications Act, numbering codes, subscriber numbers, identification
numbers and other telecommunication numbers will be distributed and managed by the NCC. These
telecommunication numbers may not be used or changed without approval by the NCC. In order to maintain
effective use of available telecommunication numbers, the Telecommunications Act empowers the NCC to
reallocate and retrieve assigned telecommunication numbers and to collect a usage fee for distributed
telecommunication numbers. According to the Regulations for Usage Fees of Specific Telecommunications
Numbers, telecommunications service providers have to pay 70% of revenues collected from the auctioning off
and selection of “golden numbers” and the standard usage rates for “special identification numbers” in use.
will be 10 years. Minimum paid-in capital requirements for fixed satellite service providers and mobile satellite
service providers are NT$100 million and NT$500 million, respectively. If an applicant applies to operate fixed
satellite services and mobile satellite services at the same time, its minimum paid-in capital should be calculated
separately. The same also applies to an applicant who operates another business of Type I telecommunications
enterprise at the same time.
We currently hold a fixed satellite services license, valid from December 10, 2008 to December 9, 2018.
Type II
The Telecommunications Act was amended in 1996 to open the market for all Type II services. Under
the Regulations for Administration on Type II Telecommunications Business, Type II services are divided into
special services and general services. Special services include simple resale, network telephone service of E.164
and non-E.164 user numbers (VoIP), international leased circuit and other services specified by governing
authority. General services include any Type II service other than special services. The policy for granting a Type
II service license is as follows:
•
•
•
there is no limit on the number of licenses to be issued;
licenses were granted by the Directorate General of Telecommunications before March 1, 2006 and
are now granted by the NCC; and
no bidding procedure is required.
We hold a license to operate all Type II services. Type II service licenses issued before November 15,
2005 are valid for ten years and may be renewed by submitting an application within two months prior to the
expiration date. Type II service licenses issued or renewed on or after November 15, 2005 are valid for three
years and may be renewed during the period commencing two months prior to the expiration date. There is no
minimum paid-in capital requirement for Type II service providers. Our license to operate Type II services is
included in our license to operate integrated services, and is valid from July 29, 2000 to July 28, 2025.
Under the Type II Telecommunications Enterprise Permit Fee Schedule, operators of simple resale or
network telephone services of E.164 or non-E.164 user numbers must pay an annual license fee equal to 1% of
annual revenues generated from these services during the previous year. Type II service operators providing
services other than simple resale or network telephone services of E.164 or non-E.164 user numbers must pay
license fees ranging from NT$6,000 to NT$150,000 depending on their respective paid-in capital. For operators
who operate over two or more businesses, their license fee shall be separately calculated but jointly collected.
These regulations do not apply to integrated services providers who are permitted to provide Type II services
without additional Type II Licenses.
Telecommunications Numbers
According to the Telecommunications Act, numbering codes, subscriber numbers, identification
numbers and other telecommunication numbers will be distributed and managed by the NCC. These
telecommunication numbers may not be used or changed without approval by the NCC. In order to maintain
effective use of available telecommunication numbers, the Telecommunications Act empowers the NCC to
reallocate and retrieve assigned telecommunication numbers and to collect a usage fee for distributed
telecommunication numbers. According to the Regulations for Usage Fees of Specific Telecommunications
Numbers, telecommunications service providers have to pay 70% of revenues collected from the auctioning off
and selection of “golden numbers” and the standard usage rates for “special identification numbers” in use.
47
Restrictions on Dominant Telecommunications Services Providers
Restrictions on Dominant Telecommunications Services Providers
Primary tariffs include:
Under the Telecommunications Act, the regulations governing dominant telecommunications services
Under the Telecommunications Act, the regulations governing dominant telecommunications services
providers apply only to Type I service providers. A Type I service provider is deemed to be dominant if it meets
providers apply only to Type I service providers. A Type I service provider is deemed to be dominant if it meets
any of the following criteria and was declared by the MOTC or now the NCC as dominant:
any of the following criteria and was declared by the MOTC or now the NCC as dominant:
•
•
•
•
•
•
controls key basic telecommunications infrastructure;
controls key basic telecommunications infrastructure;
has dominant power over market price; or
has dominant power over market price; or
has more than a 25% market share in terms of customers or revenues.
has more than a 25% market share in terms of customers or revenues.
communication charges;
for fixed line local telephone services: monthly fees, usage fees, monthly rental fees of leased lines,
pay telephone usage fees and internet connection service fees;
for fixed line domestic long distance telephone services: monthly rental fees of leased lines;
for fixed line international long distance telephone services: leased line monthly rental fees;
for wireless services, including 3G mobile services: monthly rental fees and the prepaid
We have been declared by the former competent authority MOTC as a dominant Type I service provider
We have been declared by the former competent authority MOTC as a dominant Type I service provider
for fixed-line and GSM mobile services. On July 7, 2012, we have been classified as a dominant Type I service
for fixed-line and GSM mobile services. On July 7, 2012, we have been classified as a dominant Type I service
provider for 3G mobile services by the NCC. Under the Telecommunications Act, a dominant Type I service
provider for 3G mobile services by the NCC. Under the Telecommunications Act, a dominant Type I service
provider must not engage in the following activities:
provider must not engage in the following activities:
the wholesale price enacted in accordance with this regulation; and
other fees or tariffs announced by the NCC.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
directly or indirectly hinder a request for interconnection with its proprietary technology by other
directly or indirectly hinder a request for interconnection with its proprietary technology by other
Type I service providers;
Type I service providers;
refuse to release to other Type I service providers the calculation methods of its interconnection
refuse to release to other Type I service providers the calculation methods of its interconnection
fees and other relevant materials;
fees and other relevant materials;
include:
In addition, a dominant Type I service provider is required to set wholesale prices for the provision of its
telecommunication services to other telecommunications enterprises. Factors affecting the determination and
adjustments of the wholesale price include the establishment, change, cancellation and connection fees. These
telecommunication services and their suitable targets, all of which are subject to annual reviews by the NCC,
improperly determine, maintain or change its tariffs or means of services;
improperly determine, maintain or change its tariffs or means of services;
interface circuits (local and long distance) between internet access service providers and customers
for Type I and Type II service providers;
reject, without due cause, a request for leasing network components by other Type I service
reject, without due cause, a request for leasing network components by other Type I service
providers;
providers;
interface circuits (local and long distance) between internet access service providers for Type I and
Type II service providers that are internet access service providers;
reject, without due cause, a request for leasing lines by other service providers or customers;
reject, without due cause, a request for leasing lines by other service providers or customers;
reject, without due cause, a request for negotiation or testing by other service providers or
reject, without due cause, a request for negotiation or testing by other service providers or
customers;
customers;
interconnection circuits between Type I service providers and between Type I and Type II service
providers of international simple resale, or ISR, and E.164 VoIP services;
• DSL-family (xDSL) circuits for fixed line service providers and internet service providers;
reject, without due cause, a request for negotiation for co-location by other service providers;
reject, without due cause, a request for negotiation for co-location by other service providers;
other local and long distance data circuits for Type I and Type II service providers; and
discriminate, without due cause, against other service providers or customers; or
discriminate, without due cause, against other service providers or customers; or
broadband internet interconnection for Type I and Type II service providers that are internet access
abuse its position as a dominant provider, or engage in other unfair competition activities as
abuse its position as a dominant provider, or engage in other unfair competition activities as
determined by the regulatory authorities.
determined by the regulatory authorities.
•
•
•
•
•
•
•
•
•
•
•
In addition, a dominant Type I service provider is subject to special regulations limiting its tariff
In addition, a dominant Type I service provider is subject to special regulations limiting its tariff
changes.
changes.
Tariff Control and Price Cap Regulation
Tariff Control and Price Cap Regulation
In order to promote competition in the telecommunications market, and as part of the government’s
In order to promote competition in the telecommunications market, and as part of the government’s
overall policy toward deregulation, the Telecommunications Act was amended in 1999 to abolish the former rate
overall policy toward deregulation, the Telecommunications Act was amended in 1999 to abolish the former rate
of return system on tariff setting in favor of price cap regulation of Type I services.
of return system on tariff setting in favor of price cap regulation of Type I services.
Under the Administrative Regulation Governing Tariffs of Type I Telecommunications Enterprises, a
Under the Administrative Regulation Governing Tariffs of Type I Telecommunications Enterprises, a
dominant Type I service provider must submit its proposed adjustment in primary tariffs and promotional
dominant Type I service provider must submit its proposed adjustment in primary tariffs and promotional
packages including primary tariffs to the NCC for approval at least 14 days prior to the date of the proposed tariff
packages including primary tariffs to the NCC for approval at least 14 days prior to the date of the proposed tariff
changes and announce such change on media, website and business locations on the day after the NCC grants the
changes and announce such change on media, website and business locations on the day after the NCC grants the
approval. The tariff change will come into effect seven days after the announcement.
approval. The tariff change will come into effect seven days after the announcement.
48
service providers.
The initial wholesale prices set by a dominant Type I service provider may be the retail price less fees
and expenses which need not be incurred, but shall not be higher than its promotional pricing. Changes in the
wholesale price charged by a dominant Type I service provider may not be greater than (i) the retail price less
fees and expenses which need not to be incurred but not greater than the promotional pricing; or (ii) the annual
growth rate of the consumer price index in Taiwan minus the constant set by the NCC, whichever is the lower.
The Administrative Regulations Governing Tariffs of Type I Telecommunications Enterprises further prohibits a
dominant Type I service provider from practicing unfair competition against other telecommunications
enterprises.
For example, if:
In addition, changes in tariffs charged by dominant Type 1 service providers (notwithstanding the type
of their respective services) may not, in any event, be greater than the annual growth rate of the consumer price
index in Taiwan adjusted by a set constant, which will be periodically determined and announced by the NCC.
•
the annual growth rate of the consumer price index in Taiwan minus the set constant is positive, the
increased percentage of tariffs must not exceed such positive figure;
Primary tariffs include:
•
•
•
•
•
•
for fixed line local telephone services: monthly fees, usage fees, monthly rental fees of leased lines,
pay telephone usage fees and internet connection service fees;
for fixed line domestic long distance telephone services: monthly rental fees of leased lines;
for fixed line international long distance telephone services: leased line monthly rental fees;
for wireless services, including 3G mobile services: monthly rental fees and the prepaid
communication charges;
the wholesale price enacted in accordance with this regulation; and
other fees or tariffs announced by the NCC.
In addition, a dominant Type I service provider is required to set wholesale prices for the provision of its
telecommunication services to other telecommunications enterprises. Factors affecting the determination and
adjustments of the wholesale price include the establishment, change, cancellation and connection fees. These
telecommunication services and their suitable targets, all of which are subject to annual reviews by the NCC,
include:
•
•
•
interface circuits (local and long distance) between internet access service providers and customers
for Type I and Type II service providers;
interface circuits (local and long distance) between internet access service providers for Type I and
Type II service providers that are internet access service providers;
interconnection circuits between Type I service providers and between Type I and Type II service
providers of international simple resale, or ISR, and E.164 VoIP services;
• DSL-family (xDSL) circuits for fixed line service providers and internet service providers;
•
•
other local and long distance data circuits for Type I and Type II service providers; and
broadband internet interconnection for Type I and Type II service providers that are internet access
service providers.
The initial wholesale prices set by a dominant Type I service provider may be the retail price less fees
and expenses which need not be incurred, but shall not be higher than its promotional pricing. Changes in the
wholesale price charged by a dominant Type I service provider may not be greater than (i) the retail price less
fees and expenses which need not to be incurred but not greater than the promotional pricing; or (ii) the annual
growth rate of the consumer price index in Taiwan minus the constant set by the NCC, whichever is the lower.
The Administrative Regulations Governing Tariffs of Type I Telecommunications Enterprises further prohibits a
dominant Type I service provider from practicing unfair competition against other telecommunications
enterprises.
In addition, changes in tariffs charged by dominant Type 1 service providers (notwithstanding the type
of their respective services) may not, in any event, be greater than the annual growth rate of the consumer price
index in Taiwan adjusted by a set constant, which will be periodically determined and announced by the NCC.
For example, if:
•
the annual growth rate of the consumer price index in Taiwan minus the set constant is positive, the
increased percentage of tariffs must not exceed such positive figure;
49
•
•
the annual growth rate of the consumer price index in Taiwan minus the set constant is negative, the
decreased percentage of tariffs must be at least the absolute value of such negative figure, and the
tariffs used in the given year must not be higher than the decreased tariff; and
the annual growth rate of the consumer price index in Taiwan minus the set constant equals to zero,
no increase in tariffs is allowed to be made by any Type I service providers.
On February 7, 2013, the NCC announced that effective from April 1, 2013 to March 31, 2017:
•
the set constant to be applied to the tariff adjustment for the fixed line integrated services is
5.1749% and covers the following:
•
•
dominant providers of local network services and long-distance network services in Type I
service
tariffs of the following:
•
the monthly fee for fixed-line broadband access services (excluding FTTH and FTTB)
• wholesale prices of the following:
•
•
•
•
•
the monthly fee for leased lines services (including local and domestic long distance
leased lines) between internet service providers and their customers
the monthly fee for leased lines services (including local and domestic long distance
leased lines) between an internet service provider and another internet service provider
the monthly fee for the interconnection (including local and domestic long distance
lines) between a Type 1 telecommunication service provider and another Type 1
telecommunication service provider; the monthly fee for the interconnection
(including
lines) between a Type 1
telecommunication service provider and a Type 2 telecommunication service provider
who provides simple resale and network telephone service of E.164 user numbers
local and domestic
long distance
the monthly fee for other local and domestic long distance leased lines
the interconnection fee for internet bandwidth interconnection
•
the set constant to be applied to the tariff adjustment for the fixed line integrated services is
dominant providers of local network services and long-distance network services in Type I
5.1749% and covers the following:
service
•
•
tariffs of the following:
• wholesale prices of the following:
•
•
•
•
•
the monthly fee for leased lines services (including local and domestic long distance
leased lines) between internet service providers and their customers
the monthly fee for leased lines services (including local and domestic long distance
leased lines) between an internet service provider and another internet service provider
the monthly fee for the interconnection (including local and domestic long distance
lines) between a Type 1 telecommunication service provider and another Type 1
telecommunication service provider; the monthly fee for the interconnection
(including
local and domestic
long distance
lines) between a Type 1
telecommunication service provider and a Type 2 telecommunication service provider
who provides simple resale and network telephone service of E.164 user numbers
the monthly fee for other local and domestic long distance leased lines
the interconnection fee for internet bandwidth interconnection
•
the set constant to be applied to the tariff adjustment for other Type 1 telecommunication services is
the annual growth rate of the consumer price index in Taiwan, no increase in tariffs is allowed.
In comparison, all non-dominant Type I service providers are only required to fully disclose and notify
the public of their proposed tariff adjustments and promotional packages, through the media, websites, and at all
business premises, in an appropriate manner, and to report to the NCC prior to the date of the proposed tariff
change, with respect to all tariffs.
Type II service providers are free to establish their own tariff schemes, but are required to notify the
NCC and the public upon adoption and upon any subsequent adjustments.
•
the set constant to be applied to the tariff adjustment for other Type 1 telecommunication services is
the annual growth rate of the consumer price index in Taiwan, no increase in tariffs is allowed.
Accounting Separation System
On March 8, 2017, the NCC announced that effective from April 1, 2017 to March 31, 2020:
•
the set constant to be applied to the tariff adjustment for the fixed line integrated services is 3.19%
and covers the following:
Interconnection Arrangements
The Telecommunications Act requires that a Type I service provider, including one who concurrently
offers Type II services, separately calculate the profits and losses for its different services and prohibits any
cross-subsidization among services that will impede fair competition.
•
•
dominant providers of local network services and long-distance network services in Type I
service
tariffs of the following:
•
the monthly fee for fixed-line broadband access services (excluding FTTH, FTTB, ADSL,
and the services which downlink and uplink speeds both over 100 Mbps)
The Telecommunications Act requires all Type I service providers to allow other Type I service
providers access to their networks. It further requires Type I service providers, within three months upon request
by the other Type I service provider, to reach an agreement on the relevant terms for the interconnection. Prices
charged for interconnection must be based on cost. If the parties fail to reach an agreement within three months,
the NCC may, either at the request of the parties or on its own accord, arbitrates and determines the
interconnection terms for the parties. The Telecommunications Act authorizes the Directorate General of
Telecommunications or, from March 1, 2006, the NCC to issue rules and regulations pertaining to
interconnection.
50
•
the set constant to be applied to the tariff adjustment for the fixed line integrated services is
5.1749% and covers the following:
•
•
dominant providers of local network services and long-distance network services in Type I
service
tariffs of the following:
• wholesale prices of the following:
•
•
•
•
•
the monthly fee for leased lines services (including local and domestic long distance
leased lines) between internet service providers and their customers
the monthly fee for leased lines services (including local and domestic long distance
leased lines) between an internet service provider and another internet service provider
the monthly fee for the interconnection (including local and domestic long distance
lines) between a Type 1 telecommunication service provider and another Type 1
telecommunication service provider; the monthly fee for the interconnection
(including
lines) between a Type 1
telecommunication service provider and a Type 2 telecommunication service provider
who provides simple resale and network telephone service of E.164 user numbers
local and domestic
long distance
the monthly fee for other local and domestic long distance leased lines
the interconnection fee for internet bandwidth interconnection
•
the set constant to be applied to the tariff adjustment for other Type 1 telecommunication services is
the annual growth rate of the consumer price index in Taiwan, no increase in tariffs is allowed.
In comparison, all non-dominant Type I service providers are only required to fully disclose and notify
the public of their proposed tariff adjustments and promotional packages, through the media, websites, and at all
business premises, in an appropriate manner, and to report to the NCC prior to the date of the proposed tariff
change, with respect to all tariffs.
Type II service providers are free to establish their own tariff schemes, but are required to notify the
NCC and the public upon adoption and upon any subsequent adjustments.
Accounting Separation System
The Telecommunications Act requires that a Type I service provider, including one who concurrently
offers Type II services, separately calculate the profits and losses for its different services and prohibits any
cross-subsidization among services that will impede fair competition.
Interconnection Arrangements
The Telecommunications Act requires all Type I service providers to allow other Type I service
providers access to their networks. It further requires Type I service providers, within three months upon request
by the other Type I service provider, to reach an agreement on the relevant terms for the interconnection. Prices
charged for interconnection must be based on cost. If the parties fail to reach an agreement within three months,
the NCC may, either at the request of the parties or on its own accord, arbitrates and determines the
interconnection terms for the parties. The Telecommunications Act authorizes the Directorate General of
Telecommunications or, from March 1, 2006, the NCC to issue rules and regulations pertaining to
interconnection.
51
The Regulations Governing Network Interconnection among Telecommunications Enterprises
establishes the basis for determining the interconnection charge of a dominant Type I service provider, which
shall be reviewed every four years. The interconnection charge of a dominant Type I service provider shall be
reviewed by the NCC in advance, and the NCC has the right to modify the rate.
A dominant fixed-line service provider shall unbundle its network elements. The unbundled network
elements shall contain the following:
•
•
•
•
•
•
•
•
•
local loops;
local switch transmission equipment;
local trunks;
toll switch transmission equipment;
long distance trunks;
international switch transmission equipment;
network interfaces;
directory equipment and services; and
signaling network equipment.
Unless otherwise provided by the laws, interconnection charge of the providers for mobile
communications businesses and the 3G mobile communications business should be calculated based on the
decrees issued by NCC. The foregoing shall apply, mutatis mutandis, to the calculation and reviewing method of
the interconnection charge of the dominant providers for fixed communication services.
Unbundled network components of the providers for mobile communications businesses and the 3G
mobile communications business include:
• mobile telecommunications trunks;
• mobile telecommunications base stations;
•
controlling equipment of mobile telecommunications base stations;
• mobile telecommunications switch transmission equipment; and
•
other items recognized by the NCC.
The Regulations Governing Network Interconnection among Telecommunications Enterprises specifies
the charges for network interconnection among Type I service providers as follow:
• Before January 1, 2011, except for international communications, tariffs for communications
between a mobile telecommunications network and a fixed-line network were collected from the
call-originating subscribers by the call-originating service provider pursuant to the tariff schedules
set by the mobile communication service provider, and revenues or any uncollectible accounts from
such tariffs went to the mobile service provider. However, from January 1, 2011, although the
tariffs shall still be paid by the call-originating subscribers, the tariff schedules are set by the call-
originating network service provider, and revenues or any uncollectible accounts from such tariff
shall go to the call-originating service provider. During the transition period from January 1, 2011
shall go to the call-originating service provider. During the transition period from January 1, 2011
to December 31, 2016, we, as a dominant Type I fixed-line service provider, shall pay extra
to December 31, 2016, we, as a dominant Type I fixed-line service provider, shall pay extra
transition fee in addition to access charges to the mobile communications service providers.
transition fee in addition to access charges to the mobile communications service providers.
• Tariffs for communications between mobile telecommunications networks shall be paid by the call-
• Tariffs for communications between mobile telecommunications networks shall be paid by the call-
originating subscribers pursuant to the tariff schedules set by the call-originating service providers,
originating subscribers pursuant to the tariff schedules set by the call-originating service providers,
and the revenues or any uncollectible accounts from such tariffs shall go to the call-originating
and the revenues or any uncollectible accounts from such tariffs shall go to the call-originating
• Tariffs for communications between fixed-line network will be determined by the following
• Tariffs for communications between fixed-line network will be determined by the following
service providers.
service providers.
principles:
principles:
•
•
•
•
•
•
tariffs for communications between the local telephone networks shall be paid by the call-
tariffs for communications between the local telephone networks shall be paid by the call-
originating subscribers pursuant to the tariff schedules set forth by the call-originating service
originating subscribers pursuant to the tariff schedules set forth by the call-originating service
providers, and revenues or any uncollectible accounts from such tariffs shall be allocated to the
providers, and revenues or any uncollectible accounts from such tariffs shall be allocated to the
call-originating service providers;
call-originating service providers;
tariff schedules for local telephone network subscribers using domestic long-distance telephone
tariff schedules for local telephone network subscribers using domestic long-distance telephone
services shall be set by the domestic long-distance telephone service provider and tariffs shall
services shall be set by the domestic long-distance telephone service provider and tariffs shall
be collected from local telephone network subscribers using domestic long-distance telephone
be collected from local telephone network subscribers using domestic long-distance telephone
services. Revenues or any uncollectible accounts from such tariffs shall be allocated to the
services. Revenues or any uncollectible accounts from such tariffs shall be allocated to the
domestic long-distance telephone service providers; and
domestic long-distance telephone service providers; and
tariff schedules for local telephone network subscribers using international long-distance
tariff schedules for local telephone network subscribers using international long-distance
telephone services shall be set by the international long-distance telephone service provider and
telephone services shall be set by the international long-distance telephone service provider and
collected from local telephone network subscribers using international long-distance telephone
collected from local telephone network subscribers using international long-distance telephone
services. Revenues or any uncollectible accounts from such tariffs shall be allocated to the
services. Revenues or any uncollectible accounts from such tariffs shall be allocated to the
international long-distance telephone service providers.
international long-distance telephone service providers.
• Tariffs schedules for communications between satellite mobile networks and between satellite mobile
• Tariffs schedules for communications between satellite mobile networks and between satellite mobile
networks and fixed-line communications networks or mobile communications networks shall both be set
networks and fixed-line communications networks or mobile communications networks shall both be set
by the call-originating service providers. Revenues or any uncollectible accounts from such the tariffs
by the call-originating service providers. Revenues or any uncollectible accounts from such the tariffs
shall go to the call-originating service providers.
shall go to the call-originating service providers.
• Tariffs schedules for communications between the E. 164 VoIP networks provided by the Type I service
• Tariffs schedules for communications between the E. 164 VoIP networks provided by the Type I service
providers and mobile telecommunications networks, or local telephone networks, or satellite mobile
providers and mobile telecommunications networks, or local telephone networks, or satellite mobile
networks shall be set by the call-originating service providers. Revenues or any uncollectible accounts
networks shall be set by the call-originating service providers. Revenues or any uncollectible accounts
from such tariffs shall go to the call-originating service providers.
from such tariffs shall go to the call-originating service providers.
Bottle neck Facilities
Bottle neck Facilities
Under the Telecommunications Act, when a Type I service provider cannot construct bottleneck facilities
Under the Telecommunications Act, when a Type I service provider cannot construct bottleneck facilities
within a reasonable period of time or substitute those facilities with other available technologies, it may
within a reasonable period of time or substitute those facilities with other available technologies, it may
request for co-location on a fee basis from the owner of the facilities located at the bottleneck of the relevant
request for co-location on a fee basis from the owner of the facilities located at the bottleneck of the relevant
telecommunications network. The owner of the facilities so requested may not reject these requests without
telecommunications network. The owner of the facilities so requested may not reject these requests without
due cause. The NCC has the authority to prescribe facilities as bottleneck facilities, and has prescribed bridges,
due cause. The NCC has the authority to prescribe facilities as bottleneck facilities, and has prescribed bridges,
tunnels, lead-in tubes and telecommunications chambers located within buildings and horizontal and vertical
tunnels, lead-in tubes and telecommunications chambers located within buildings and horizontal and vertical
telecommunications cables and lines as bottleneck facilities in relation to fixed-line telecommunications
telecommunications cables and lines as bottleneck facilities in relation to fixed-line telecommunications
networks. The NCC, in an announcement on December 21, 2006, has defined local loop facilities as the
networks. The NCC, in an announcement on December 21, 2006, has defined local loop facilities as the
“bottleneck” of the telecommunications network and amended the Administrative Rules for Network
“bottleneck” of the telecommunications network and amended the Administrative Rules for Network
Interconnection Between Telecommunication Service Providers in April 2007, providing that we, as a Type I
Interconnection Between Telecommunication Service Providers in April 2007, providing that we, as a Type I
service provider, can only charge other local telephone service providers at cost for local loop services. The
service provider, can only charge other local telephone service providers at cost for local loop services. The
rental tariff is derived from a cost basis and must be approved by the NCC each year.
rental tariff is derived from a cost basis and must be approved by the NCC each year.
52
The Regulations Governing Network Interconnection among Telecommunications Enterprises
establishes the basis for determining the interconnection charge of a dominant Type I service provider, which
shall be reviewed every four years. The interconnection charge of a dominant Type I service provider shall be
reviewed by the NCC in advance, and the NCC has the right to modify the rate.
A dominant fixed-line service provider shall unbundle its network elements. The unbundled network
elements shall contain the following:
•
•
•
•
•
•
•
•
•
local loops;
local trunks;
local switch transmission equipment;
toll switch transmission equipment;
long distance trunks;
international switch transmission equipment;
network interfaces;
directory equipment and services; and
signaling network equipment.
Unless otherwise provided by the laws, interconnection charge of the providers for mobile
communications businesses and the 3G mobile communications business should be calculated based on the
decrees issued by NCC. The foregoing shall apply, mutatis mutandis, to the calculation and reviewing method of
the interconnection charge of the dominant providers for fixed communication services.
Unbundled network components of the providers for mobile communications businesses and the 3G
mobile communications business include:
• mobile telecommunications trunks;
• mobile telecommunications base stations;
•
controlling equipment of mobile telecommunications base stations;
• mobile telecommunications switch transmission equipment; and
•
other items recognized by the NCC.
The Regulations Governing Network Interconnection among Telecommunications Enterprises specifies
the charges for network interconnection among Type I service providers as follow:
• Before January 1, 2011, except for international communications, tariffs for communications
between a mobile telecommunications network and a fixed-line network were collected from the
call-originating subscribers by the call-originating service provider pursuant to the tariff schedules
set by the mobile communication service provider, and revenues or any uncollectible accounts from
such tariffs went to the mobile service provider. However, from January 1, 2011, although the
tariffs shall still be paid by the call-originating subscribers, the tariff schedules are set by the call-
originating network service provider, and revenues or any uncollectible accounts from such tariff
shall go to the call-originating service provider. During the transition period from January 1, 2011
shall go to the call-originating service provider. During the transition period from January 1, 2011
shall go to the call-originating service provider. During the transition period from January 1, 2011
to December 31, 2016, we, as a dominant Type I fixed-line service provider, shall pay extra
to December 31, 2016, we, as a dominant Type I fixed-line service provider, shall pay extra
to December 31, 2016, we, as a dominant Type I fixed-line service provider, shall pay extra
transition fee in addition to access charges to the mobile communications service providers.
transition fee in addition to access charges to the mobile communications service providers.
transition fee in addition to access charges to the mobile communications service providers.
• Tariffs for communications between mobile telecommunications networks shall be paid by the call-
• Tariffs for communications between mobile telecommunications networks shall be paid by the call-
• Tariffs for communications between mobile telecommunications networks shall be paid by the call-
originating subscribers pursuant to the tariff schedules set by the call-originating service providers,
originating subscribers pursuant to the tariff schedules set by the call-originating service providers,
originating subscribers pursuant to the tariff schedules set by the call-originating service providers,
and the revenues or any uncollectible accounts from such tariffs shall go to the call-originating
and the revenues or any uncollectible accounts from such tariffs shall go to the call-originating
and the revenues or any uncollectible accounts from such tariffs shall go to the call-originating
service providers.
service providers.
service providers.
• Tariffs for communications between fixed-line network will be determined by the following
• Tariffs for communications between fixed-line network will be determined by the following
• Tariffs for communications between fixed-line network will be determined by the following
principles:
principles:
principles:
•
•
•
•
•
•
•
•
•
tariffs for communications between the local telephone networks shall be paid by the call-
tariffs for communications between the local telephone networks shall be paid by the call-
tariffs for communications between the local telephone networks shall be paid by the call-
originating subscribers pursuant to the tariff schedules set forth by the call-originating service
originating subscribers pursuant to the tariff schedules set forth by the call-originating service
originating subscribers pursuant to the tariff schedules set forth by the call-originating service
providers, and revenues or any uncollectible accounts from such tariffs shall be allocated to the
providers, and revenues or any uncollectible accounts from such tariffs shall be allocated to the
providers, and revenues or any uncollectible accounts from such tariffs shall be allocated to the
call-originating service providers;
call-originating service providers;
call-originating service providers;
tariff schedules for local telephone network subscribers using domestic long-distance telephone
tariff schedules for local telephone network subscribers using domestic long-distance telephone
tariff schedules for local telephone network subscribers using domestic long-distance telephone
services shall be set by the domestic long-distance telephone service provider and tariffs shall
services shall be set by the domestic long-distance telephone service provider and tariffs shall
services shall be set by the domestic long-distance telephone service provider and tariffs shall
be collected from local telephone network subscribers using domestic long-distance telephone
be collected from local telephone network subscribers using domestic long-distance telephone
be collected from local telephone network subscribers using domestic long-distance telephone
services. Revenues or any uncollectible accounts from such tariffs shall be allocated to the
services. Revenues or any uncollectible accounts from such tariffs shall be allocated to the
services. Revenues or any uncollectible accounts from such tariffs shall be allocated to the
domestic long-distance telephone service providers; and
domestic long-distance telephone service providers; and
domestic long-distance telephone service providers; and
tariff schedules for local telephone network subscribers using international long-distance
tariff schedules for local telephone network subscribers using international long-distance
tariff schedules for local telephone network subscribers using international long-distance
telephone services shall be set by the international long-distance telephone service provider and
telephone services shall be set by the international long-distance telephone service provider and
telephone services shall be set by the international long-distance telephone service provider and
collected from local telephone network subscribers using international long-distance telephone
collected from local telephone network subscribers using international long-distance telephone
collected from local telephone network subscribers using international long-distance telephone
services. Revenues or any uncollectible accounts from such tariffs shall be allocated to the
services. Revenues or any uncollectible accounts from such tariffs shall be allocated to the
services. Revenues or any uncollectible accounts from such tariffs shall be allocated to the
international long-distance telephone service providers.
international long-distance telephone service providers.
international long-distance telephone service providers.
• Tariffs schedules for communications between satellite mobile networks and between satellite mobile
• Tariffs schedules for communications between satellite mobile networks and between satellite mobile
• Tariffs schedules for communications between satellite mobile networks and between satellite mobile
networks and fixed-line communications networks or mobile communications networks shall both be set
networks and fixed-line communications networks or mobile communications networks shall both be set
networks and fixed-line communications networks or mobile communications networks shall both be set
by the call-originating service providers. Revenues or any uncollectible accounts from such the tariffs
by the call-originating service providers. Revenues or any uncollectible accounts from such the tariffs
by the call-originating service providers. Revenues or any uncollectible accounts from such the tariffs
shall go to the call-originating service providers.
shall go to the call-originating service providers.
shall go to the call-originating service providers.
• Tariffs schedules for communications between the E. 164 VoIP networks provided by the Type I service
• Tariffs schedules for communications between the E. 164 VoIP networks provided by the Type I service
• Tariffs schedules for communications between the E. 164 VoIP networks provided by the Type I service
providers and mobile telecommunications networks, or local telephone networks, or satellite mobile
providers and mobile telecommunications networks, or local telephone networks, or satellite mobile
providers and mobile telecommunications networks, or local telephone networks, or satellite mobile
networks shall be set by the call-originating service providers. Revenues or any uncollectible accounts
networks shall be set by the call-originating service providers. Revenues or any uncollectible accounts
networks shall be set by the call-originating service providers. Revenues or any uncollectible accounts
from such tariffs shall go to the call-originating service providers.
from such tariffs shall go to the call-originating service providers.
from such tariffs shall go to the call-originating service providers.
Bottle neck Facilities
Bottle neck Facilities
Bottle neck Facilities
Under the Telecommunications Act, when a Type I service provider cannot construct bottleneck facilities
Under the Telecommunications Act, when a Type I service provider cannot construct bottleneck facilities
Under the Telecommunications Act, when a Type I service provider cannot construct bottleneck facilities
within a reasonable period of time or substitute those facilities with other available technologies, it may
within a reasonable period of time or substitute those facilities with other available technologies, it may
within a reasonable period of time or substitute those facilities with other available technologies, it may
request for co-location on a fee basis from the owner of the facilities located at the bottleneck of the relevant
request for co-location on a fee basis from the owner of the facilities located at the bottleneck of the relevant
request for co-location on a fee basis from the owner of the facilities located at the bottleneck of the relevant
telecommunications network. The owner of the facilities so requested may not reject these requests without
telecommunications network. The owner of the facilities so requested may not reject these requests without
telecommunications network. The owner of the facilities so requested may not reject these requests without
due cause. The NCC has the authority to prescribe facilities as bottleneck facilities, and has prescribed bridges,
due cause. The NCC has the authority to prescribe facilities as bottleneck facilities, and has prescribed bridges,
due cause. The NCC has the authority to prescribe facilities as bottleneck facilities, and has prescribed bridges,
tunnels, lead-in tubes and telecommunications chambers located within buildings and horizontal and vertical
tunnels, lead-in tubes and telecommunications chambers located within buildings and horizontal and vertical
tunnels, lead-in tubes and telecommunications chambers located within buildings and horizontal and vertical
telecommunications cables and lines as bottleneck facilities in relation to fixed-line telecommunications
telecommunications cables and lines as bottleneck facilities in relation to fixed-line telecommunications
telecommunications cables and lines as bottleneck facilities in relation to fixed-line telecommunications
networks. The NCC, in an announcement on December 21, 2006, has defined local loop facilities as the
networks. The NCC, in an announcement on December 21, 2006, has defined local loop facilities as the
networks. The NCC, in an announcement on December 21, 2006, has defined local loop facilities as the
“bottleneck” of the telecommunications network and amended the Administrative Rules for Network
“bottleneck” of the telecommunications network and amended the Administrative Rules for Network
“bottleneck” of the telecommunications network and amended the Administrative Rules for Network
Interconnection Between Telecommunication Service Providers in April 2007, providing that we, as a Type I
Interconnection Between Telecommunication Service Providers in April 2007, providing that we, as a Type I
Interconnection Between Telecommunication Service Providers in April 2007, providing that we, as a Type I
service provider, can only charge other local telephone service providers at cost for local loop services. The
service provider, can only charge other local telephone service providers at cost for local loop services. The
service provider, can only charge other local telephone service providers at cost for local loop services. The
rental tariff is derived from a cost basis and must be approved by the NCC each year.
rental tariff is derived from a cost basis and must be approved by the NCC each year.
rental tariff is derived from a cost basis and must be approved by the NCC each year.
53
Spectrum Allocation
The MOTC is responsible for allocating all radio related frequencies primarily according to the
standards set by the International Telecommunications Union. The NCC is responsible for the licensing of
operators to use these frequencies. The 900 MHz and 1,800 MHz frequency bands have been allocated for 2G
mobile services and the licenses will be expired in June 2017. A total of 40 MHz of FDD spectrum around the 850
MHz frequency band and a total of 110 MHz of FDD spectrum around the 2.1 GHz band have been allocated for
3G mobile services, and the licenses will be expired in December 2018.
On October 30, 2013, NCC completed the bidding process for the spectrum to provide 4G mobile
broadband services and a total of 270MHz of FDD spectrum over 700MHz, 900MHz, and 1800MHz frequency
bands have been assigned to six nominated bidders, including us, and the licenses will expire in December 2030.
The spectrum for 4G mobile broadband services was released adhering to the principle of technological neutrality.
Mobile broadband services can be offered by HetNet, including the 4G network and the 2G network under this
technology-neutral spectrum. On December 7, 2015, the NCC completed a second round of bidding on 4G mobile
broadband spectrum. A total of 190 MHz spectrum of the 2500 MHz and 2600 MHz frequency bands were
assigned to four nominated bidders, Far EasTone, T-Star, APTG and us, and the licenses will expire in December
2033.
Provision of Universal Services
Under the Telecommunications Act, a Type I service provider may be required by the NCC, previously
the MOTC, to provide universal telecommunications services in remote or unprofitable areas. These services
include voice communication services, such as public phones, and data communication services, such as internet
provision for libraries and public primary and secondary schools. All Type I service providers and certain Type II
service providers designated by the NCC, previously the MOTC, will be required to contribute a fixed portion of
their annual revenues to a universal services fund. Such a fund will be used to compensate for any losses, bad
debts and management fees incurred by the relevant Type I service provider in providing the universal services.
All providers of universal services cannot refuse any request for service, unless for legitimate reasons, and cannot
charge more than the predetermined tariffs.
Equal Access
As a result of the liberalization of Taiwan’s telecommunications industry, a Type I service provider,
including a 3G mobile services provider, a WiMax service operator and a mobile broadband services provider, is
required to provide its customers with equal access to the domestic and international long distance telephone
services provided by other service providers. A Type I service provider may provide equal access through pre-
selection or call-by-call selection. When a customer makes a call using call-by-call selection, such customer has
the option to select a service provider by dialing the network identification prefix assigned to the service provider
of his choice. This will result in the automatic selection of the preferred service provider for the provision of
relevant telecommunication services. The pre-selection function allows any customer to select in advance a long
distance or international service provider of his or her choice. When such customer makes a call using this
function, the communications network will automatically interconnect to the long distance or international
network previously selected by such customer.
Number Portability
According to the Telecommunications Act and the Regulations Governing Number Portability, Type I -
service providers shall provide number portability service which enables customers to retain their existing local
and toll free fixed-line telephone numbers or mobile phone numbers when they switch from the original Type I
service provider to other Type I service providers. Meanwhile, Type I service providers shall mutually grant each
other number portability services on a reciprocal basis, and shall conform in accordance with the principle of
impartiality and reasonableness, and shall not be discriminatory.
Under the regulation, we are required to provide number portability service for fixed-line customers in
Taipei City, Taipei County (now New Taipei City), Keelung City, Taichung City, Kaohsiung City and other areas
where there are two or above fixed-line service providers. We have also provided number portability service for
mobile communication customers since October 15, 2005. Pursuant to the regulation, we shall compile and submit
related information of number portability for the previous six months to NCC by January 10 and July 10 of each
year.
Local Loop Unbundling
In December 2006, the NCC defined the local loop as facilities “at the bottleneck of telecommunications
networks” in accordance with the Regulations for Administration on Fixed Network Telecommunications
Businesses. The NCC requires us to unbundle the local loops and allow other telecommunications operators to use
these connections. The local loop or last mile connections are the physical wire connections between the telephone
exchange’s central office to the customer’s premises usually owned by the incumbent telephone company. The
NCC further amended the Regulations Governing Network Interconnection among Telecommunications
Enterprises in April 2007 which provides that we can only charge other local telephone service providers at cost
for local loop services instead of on the basis of commercial negotiations.
Co-location
Ownership Limitations
We have been declared by the governmental authority as a dominant Type I service provider for
fixed-line, 2G and 3G services. According to the Telecommunication Act, the Regulations for Administration on
Fixed Network Telecommunications Business and the Regulations Governing Network Interconnection among
Telecommunications Enterprises, if any other service provider requests for co-location, we must negotiate with
them, unless otherwise provided by laws or regulations.
The laws of the ROC limit foreign ownership of our common shares. Prior to March 1, 2006, the
MOTC, as the competent authority under the March 1, 2006, the NCC replaced the MOTC as the competent
authority under the Telecommunications Act pursuant to the Organization Law. On July 18, 2006, the MOTC and
the NCC reached an agreement where the MOTC will have the authority to adjust foreign ownership limits only
after negotiations with the NCC. On June 14, 2007, we applied to both the NCC and the MOTC, asking for an
increase in direct and indirect foreign ownership cap of our common shares. After consultation with the NCC, the
MOTC raised our foreign ownership cap of direct and indirect shareholdings from 49% to 55%. Our foreign
ownership limitation of total direct shareholdings remained at 49%.
Fair Trade Act
The requirements and restrictions under the Telecommunication Act regarding price control, IP peering, equal
access and accounting separation regulates certain competitive activities among telecommunication industries and
aims to reduce the occurrence of anti-competition activities.
By comparison to the Telecommunications Act, the Fair Trade Act, or the FTA, plays a more comprehensive
role in regulating all matters relating to competition between enterprises. The Fair Trade Act seeks to deter and
prevent anti-competitive conduct by granting the Fair Trade Commission’s powers to investigate and to impose
penalties.
The Fair Trade Act is administered and enforced by the Fair Trade Commission, or the FTC, which has
independent administration rights granted to it under the Fair Trade Act and is empowered to impose disciplinary
actions for fair trade matters. The Fair Trade Commission may initiate an investigation either on its own account in
accordance with its discretion granted by the Fair Trade Act or upon receipt of a complaint.
54
Spectrum Allocation
The MOTC is responsible for allocating all radio related frequencies primarily according to the
standards set by the International Telecommunications Union. The NCC is responsible for the licensing of
operators to use these frequencies. The 900 MHz and 1,800 MHz frequency bands have been allocated for 2G
mobile services and the licenses will be expired in June 2017. A total of 40 MHz of FDD spectrum around the 850
MHz frequency band and a total of 110 MHz of FDD spectrum around the 2.1 GHz band have been allocated for
3G mobile services, and the licenses will be expired in December 2018.
On October 30, 2013, NCC completed the bidding process for the spectrum to provide 4G mobile
broadband services and a total of 270MHz of FDD spectrum over 700MHz, 900MHz, and 1800MHz frequency
bands have been assigned to six nominated bidders, including us, and the licenses will expire in December 2030.
The spectrum for 4G mobile broadband services was released adhering to the principle of technological neutrality.
Mobile broadband services can be offered by HetNet, including the 4G network and the 2G network under this
technology-neutral spectrum. On December 7, 2015, the NCC completed a second round of bidding on 4G mobile
broadband spectrum. A total of 190 MHz spectrum of the 2500 MHz and 2600 MHz frequency bands were
assigned to four nominated bidders, Far EasTone, T-Star, APTG and us, and the licenses will expire in December
2033.
Provision of Universal Services
Under the Telecommunications Act, a Type I service provider may be required by the NCC, previously
the MOTC, to provide universal telecommunications services in remote or unprofitable areas. These services
include voice communication services, such as public phones, and data communication services, such as internet
provision for libraries and public primary and secondary schools. All Type I service providers and certain Type II
service providers designated by the NCC, previously the MOTC, will be required to contribute a fixed portion of
their annual revenues to a universal services fund. Such a fund will be used to compensate for any losses, bad
debts and management fees incurred by the relevant Type I service provider in providing the universal services.
All providers of universal services cannot refuse any request for service, unless for legitimate reasons, and cannot
charge more than the predetermined tariffs.
Equal Access
As a result of the liberalization of Taiwan’s telecommunications industry, a Type I service provider,
including a 3G mobile services provider, a WiMax service operator and a mobile broadband services provider, is
required to provide its customers with equal access to the domestic and international long distance telephone
services provided by other service providers. A Type I service provider may provide equal access through pre-
selection or call-by-call selection. When a customer makes a call using call-by-call selection, such customer has
the option to select a service provider by dialing the network identification prefix assigned to the service provider
of his choice. This will result in the automatic selection of the preferred service provider for the provision of
relevant telecommunication services. The pre-selection function allows any customer to select in advance a long
distance or international service provider of his or her choice. When such customer makes a call using this
function, the communications network will automatically interconnect to the long distance or international
network previously selected by such customer.
Number Portability
According to the Telecommunications Act and the Regulations Governing Number Portability, Type I -
service providers shall provide number portability service which enables customers to retain their existing local
and toll free fixed-line telephone numbers or mobile phone numbers when they switch from the original Type I
service provider to other Type I service providers. Meanwhile, Type I service providers shall mutually grant each
other number portability services on a reciprocal basis, and shall conform in accordance with the principle of
impartiality and reasonableness, and shall not be discriminatory.
Under the regulation, we are required to provide number portability service for fixed-line customers in
Taipei City, Taipei County (now New Taipei City), Keelung City, Taichung City, Kaohsiung City and other areas
where there are two or above fixed-line service providers. We have also provided number portability service for
mobile communication customers since October 15, 2005. Pursuant to the regulation, we shall compile and submit
related information of number portability for the previous six months to NCC by January 10 and July 10 of each
year.
Local Loop Unbundling
In December 2006, the NCC defined the local loop as facilities “at the bottleneck of telecommunications
networks” in accordance with the Regulations for Administration on Fixed Network Telecommunications
Businesses. The NCC requires us to unbundle the local loops and allow other telecommunications operators to use
these connections. The local loop or last mile connections are the physical wire connections between the telephone
exchange’s central office to the customer’s premises usually owned by the incumbent telephone company. The
NCC further amended the Regulations Governing Network Interconnection among Telecommunications
Enterprises in April 2007 which provides that we can only charge other local telephone service providers at cost
for local loop services instead of on the basis of commercial negotiations.
Co-location
We have been declared by the governmental authority as a dominant Type I service provider for
fixed-line, 2G and 3G services. According to the Telecommunication Act, the Regulations for Administration on
Fixed Network Telecommunications Business and the Regulations Governing Network Interconnection among
Telecommunications Enterprises, if any other service provider requests for co-location, we must negotiate with
them, unless otherwise provided by laws or regulations.
Ownership Limitations
The laws of the ROC limit foreign ownership of our common shares. Prior to March 1, 2006, the
MOTC, as the competent authority under the March 1, 2006, the NCC replaced the MOTC as the competent
authority under the Telecommunications Act pursuant to the Organization Law. On July 18, 2006, the MOTC and
the NCC reached an agreement where the MOTC will have the authority to adjust foreign ownership limits only
after negotiations with the NCC. On June 14, 2007, we applied to both the NCC and the MOTC, asking for an
increase in direct and indirect foreign ownership cap of our common shares. After consultation with the NCC, the
MOTC raised our foreign ownership cap of direct and indirect shareholdings from 49% to 55%. Our foreign
ownership limitation of total direct shareholdings remained at 49%.
Fair Trade Act
The requirements and restrictions under the Telecommunication Act regarding price control, IP peering, equal
access and accounting separation regulates certain competitive activities among telecommunication industries and
aims to reduce the occurrence of anti-competition activities.
By comparison to the Telecommunications Act, the Fair Trade Act, or the FTA, plays a more comprehensive
role in regulating all matters relating to competition between enterprises. The Fair Trade Act seeks to deter and
prevent anti-competitive conduct by granting the Fair Trade Commission’s powers to investigate and to impose
penalties.
The Fair Trade Act is administered and enforced by the Fair Trade Commission, or the FTC, which has
independent administration rights granted to it under the Fair Trade Act and is empowered to impose disciplinary
actions for fair trade matters. The Fair Trade Commission may initiate an investigation either on its own account in
accordance with its discretion granted by the Fair Trade Act or upon receipt of a complaint.
55
Regulation on Telecommunications Enterprise with Monopoly Status
Regulation on Telecommunications Enterprise with Monopoly Status
• where any enterprise holds or acquires more than one-thirds of total voting shares or capital of
The term “monopoly” used in the FTA refers to the circumstance where an enterprise conducts its
The term “monopoly” used in the FTA refers to the circumstance where an enterprise conducts its
business operation in a relevant market without facing any competition or where an enterprise is able to dominate
business operation in a relevant market without facing any competition or where an enterprise is able to dominate
the relevant market and block competition in the market. If there are two or more enterprises within the same
the relevant market and block competition in the market. If there are two or more enterprises within the same
market that do not engage in any price competition with each other, the whole group of non-competing enterprises
market that do not engage in any price competition with each other, the whole group of non-competing enterprises
should be deemed as a single monopoly enterprise in the market.
should be deemed as a single monopoly enterprise in the market.
According to the FTA, an enterprise or a group of enterprises will not be considered as monopolistic
According to the FTA, an enterprise or a group of enterprises will not be considered as monopolistic
enterprise(s) if none of the following circumstances exists:
enterprise(s) if none of the following circumstances exists:
•
•
•
•
•
•
the market share of the enterprise in a relevant market reaches one-half of the market;
the market share of the enterprise in a relevant market reaches one-half of the market;
the combined market share of two enterprises in a relevant market reaches two-thirds of the market;
the combined market share of two enterprises in a relevant market reaches two-thirds of the market;
and
and
the combined market share of three enterprises in a relevant market reaches three-fourths of the
the combined market share of three enterprises in a relevant market reaches three-fourths of the
market.
market.
If the market share of any respective enterprise does not reach one-tenth of the relevant market or if the
If the market share of any respective enterprise does not reach one-tenth of the relevant market or if the
amount of the enterprise’s total sales in the preceding fiscal year is less than the amount which the authority
amount of the enterprise’s total sales in the preceding fiscal year is less than the amount which the authority
announces, such enterprise shall not be considered as a monopolistic enterprise in the relevant market.
announces, such enterprise shall not be considered as a monopolistic enterprise in the relevant market.
Notwithstanding the above, the FTC has the ultimate discretion to consider an enterprise as a monopolistic
Notwithstanding the above, the FTC has the ultimate discretion to consider an enterprise as a monopolistic
enterprise upon any other events evidencing such enterprise’s capability to affect the supply and demand in
enterprise upon any other events evidencing such enterprise’s capability to affect the supply and demand in
relevant market or eliminate competition.
relevant market or eliminate competition.
Under the FTA, any enterprise with monopoly status is prohibited from engaging in any of the following
Under the FTA, any enterprise with monopoly status is prohibited from engaging in any of the following
activities:
activities:
•
•
•
•
•
•
•
•
directly or indirectly, by using any unfair method to prevent any other enterprises from competing;
directly or indirectly, by using any unfair method to prevent any other enterprises from competing;
disadvantage of the reduction in competition.
improperly set, maintain or change the price for goods or the remuneration for services;
improperly set, maintain or change the price for goods or the remuneration for services;
Regulations on Concerted Action (Cartel) in Telecommunication Industry
forcing the enterprise’s trading counterpart to give preferential treatment without justification; or
forcing the enterprise’s trading counterpart to give preferential treatment without justification; or
abusing its market power.
abusing its market power.
According to the FTC’s Explanation on Regulations Governing Telecommunication Industry, a
According to the FTC’s Explanation on Regulations Governing Telecommunication Industry, a
telecommunications enterprise with monopoly status is likely to be involved with the following activities
telecommunications enterprise with monopoly status is likely to be involved with the following activities
regulated by the FTA: conducting predatory pricing, price squeezing, cross-subsidies, price discrimination,
regulated by the FTA: conducting predatory pricing, price squeezing, cross-subsidies, price discrimination,
blocking access to essential facilities, inappropriate preference or differential treatment and entering into long-
blocking access to essential facilities, inappropriate preference or differential treatment and entering into long-
term agreements to restrict the ability to change counterparties.
term agreements to restrict the ability to change counterparties.
If the FTC finds an enterprise liable for violation of regulations governing monopoly, the FTC could
If the FTC finds an enterprise liable for violation of regulations governing monopoly, the FTC could
impose a monetary fine of not more than NT$100,000,000 each time. If the FTC finds such violation is serious, it
impose a monetary fine of not more than NT$100,000,000 each time. If the FTC finds such violation is serious, it
may further impose a monetary fine exceeding the NT$100,000,000 but up to 10% of the total sales of the
may further impose a monetary fine exceeding the NT$100,000,000 but up to 10% of the total sales of the
enterprise in the preceding fiscal year. The responsible person of such enterprise may be sentenced to
enterprise in the preceding fiscal year. The responsible person of such enterprise may be sentenced to
imprisonment of not more than three years.
imprisonment of not more than three years.
Regulati ons on Combination Between Telecommunications Enterprises
Regulati ons on Combination Between Telecommunications Enterprises
The term “merger” used in the FTA refers to any of the following circumstances:
The term “merger” used in the FTA refers to any of the following circumstances:
• where an enterprise and another enterprise are merged into one;
• where an enterprise and another enterprise are merged into one;
56
another enterprise;
• where any enterprise is assigned by or leases from another enterprise the whole or the major part of
the business or properties of such other enterprise;
• where any enterprise operates jointly with another enterprise on a regular basis or is entrusted by
another enterprise to operate the latter’s business; or
• where any enterprise directly or indirectly controls the business operation or the appointment or
discharge of personnel of another enterprise.
If any merger between or among multiple enterprises falls within any of the following circumstances, a
prior approval granted by the FTC shall be required:
•
•
•
as a result of the merger, the enterprise will own at least one-third of the total market share;
there is any enterprise involved with the merger has one-fourth of the market share; or
the aggregate sales amount for the preceding fiscal year of the enterprises and the entities controlled
by or affiliated with such enterprise involved with the merger exceeds the threshold amount
publicly announced by the FTC from time to time.
Once the telecommunications enterprise files the merger application with the FTC, the FTC will
evaluate the pros and cons of the merger by weighing the potential economic efficiency against the disadvantage
of reduced competition. If the FTC finds the potential economic efficiency generated from the merger should be
able to offset the disadvantage of reduced competition caused, the FTC will grant the approval for the merger.
Furthermore, the FTC may, when granting an approval, impose certain conditions or undertakings on the
applicants to ensure that the overall economic benefit to be generated from the merger outweighs the
The term “concerted action (cartel)” as used in the FTA means the conduct of any enterprise, by means
of contract, agreement or any other form of mutual understanding, with any other competing enterprise, to jointly
determine the price of goods or services, quantity, technology, products, facilities, trading counterparts, or trading
territory with respect to such goods and services, and thereby to restrict each other’s business activities. The FTC
may assume a concerted action exists based on the market condition, the feature of goods or services, cost and
profit, and the economic feasibility for enterprises to conduct concerted action. Notwithstanding the above, the
term concerted action as used in the FTA is limited to any concerted action at the same production and/or
marketing stage that would affect the market function of production, trade in goods, or supply and demand of
services. Under the FTA, enterprises are prohibited from engaging in any concerted actions unless the FTC holds
the concerted action may be beneficial to overall economy and public interest.
According to the FTC’s Explanation on Regulations Governing Telecommunication Industry, a
telecommunications enterprise may be able to involve with the following concerted actions: entering into
common pricing agreement, restriction of output and market segregation, concerted refusal to deal, or entering
into agreement for exchange of information.
If the FTC finds an enterprise liable for violation of regulations governing concerted action (cartel), the
FTC could impose a monetary fine of not more than NT$100,000,000 each time. If the FTC finds such violation
is serious, it may further impose a monetary fine exceeding the NT$100,000,000 but up to 10% of the total sales
of the enterprise in the preceding fiscal year. The responsible person of such enterprise may be sentenced to
imprisonment of not more than three years.
The term “monopoly” used in the FTA refers to the circumstance where an enterprise conducts its
business operation in a relevant market without facing any competition or where an enterprise is able to dominate
the relevant market and block competition in the market. If there are two or more enterprises within the same
market that do not engage in any price competition with each other, the whole group of non-competing enterprises
should be deemed as a single monopoly enterprise in the market.
According to the FTA, an enterprise or a group of enterprises will not be considered as monopolistic
enterprise(s) if none of the following circumstances exists:
the market share of the enterprise in a relevant market reaches one-half of the market;
and
market.
•
•
•
•
•
•
•
the combined market share of three enterprises in a relevant market reaches three-fourths of the
If the market share of any respective enterprise does not reach one-tenth of the relevant market or if the
amount of the enterprise’s total sales in the preceding fiscal year is less than the amount which the authority
announces, such enterprise shall not be considered as a monopolistic enterprise in the relevant market.
Notwithstanding the above, the FTC has the ultimate discretion to consider an enterprise as a monopolistic
enterprise upon any other events evidencing such enterprise’s capability to affect the supply and demand in
relevant market or eliminate competition.
Under the FTA, any enterprise with monopoly status is prohibited from engaging in any of the following
activities:
directly or indirectly, by using any unfair method to prevent any other enterprises from competing;
forcing the enterprise’s trading counterpart to give preferential treatment without justification; or
abusing its market power.
According to the FTC’s Explanation on Regulations Governing Telecommunication Industry, a
telecommunications enterprise with monopoly status is likely to be involved with the following activities
regulated by the FTA: conducting predatory pricing, price squeezing, cross-subsidies, price discrimination,
blocking access to essential facilities, inappropriate preference or differential treatment and entering into long-
term agreements to restrict the ability to change counterparties.
If the FTC finds an enterprise liable for violation of regulations governing monopoly, the FTC could
impose a monetary fine of not more than NT$100,000,000 each time. If the FTC finds such violation is serious, it
may further impose a monetary fine exceeding the NT$100,000,000 but up to 10% of the total sales of the
enterprise in the preceding fiscal year. The responsible person of such enterprise may be sentenced to
imprisonment of not more than three years.
Regulati ons on Combination Between Telecommunications Enterprises
The term “merger” used in the FTA refers to any of the following circumstances:
• where an enterprise and another enterprise are merged into one;
Regulation on Telecommunications Enterprise with Monopoly Status
• where any enterprise holds or acquires more than one-thirds of total voting shares or capital of
the combined market share of two enterprises in a relevant market reaches two-thirds of the market;
prior approval granted by the FTC shall be required:
another enterprise;
• where any enterprise is assigned by or leases from another enterprise the whole or the major part of
the business or properties of such other enterprise;
• where any enterprise operates jointly with another enterprise on a regular basis or is entrusted by
another enterprise to operate the latter’s business; or
• where any enterprise directly or indirectly controls the business operation or the appointment or
discharge of personnel of another enterprise.
If any merger between or among multiple enterprises falls within any of the following circumstances, a
•
•
•
as a result of the merger, the enterprise will own at least one-third of the total market share;
there is any enterprise involved with the merger has one-fourth of the market share; or
the aggregate sales amount for the preceding fiscal year of the enterprises and the entities controlled
by or affiliated with such enterprise involved with the merger exceeds the threshold amount
publicly announced by the FTC from time to time.
Once the telecommunications enterprise files the merger application with the FTC, the FTC will
evaluate the pros and cons of the merger by weighing the potential economic efficiency against the disadvantage
of reduced competition. If the FTC finds the potential economic efficiency generated from the merger should be
able to offset the disadvantage of reduced competition caused, the FTC will grant the approval for the merger.
Furthermore, the FTC may, when granting an approval, impose certain conditions or undertakings on the
applicants to ensure that the overall economic benefit to be generated from the merger outweighs the
disadvantage of the reduction in competition.
improperly set, maintain or change the price for goods or the remuneration for services;
Regulations on Concerted Action (Cartel) in Telecommunication Industry
The term “concerted action (cartel)” as used in the FTA means the conduct of any enterprise, by means
of contract, agreement or any other form of mutual understanding, with any other competing enterprise, to jointly
determine the price of goods or services, quantity, technology, products, facilities, trading counterparts, or trading
territory with respect to such goods and services, and thereby to restrict each other’s business activities. The FTC
may assume a concerted action exists based on the market condition, the feature of goods or services, cost and
profit, and the economic feasibility for enterprises to conduct concerted action. Notwithstanding the above, the
term concerted action as used in the FTA is limited to any concerted action at the same production and/or
marketing stage that would affect the market function of production, trade in goods, or supply and demand of
services. Under the FTA, enterprises are prohibited from engaging in any concerted actions unless the FTC holds
the concerted action may be beneficial to overall economy and public interest.
According to the FTC’s Explanation on Regulations Governing Telecommunication Industry, a
telecommunications enterprise may be able to involve with the following concerted actions: entering into
common pricing agreement, restriction of output and market segregation, concerted refusal to deal, or entering
into agreement for exchange of information.
If the FTC finds an enterprise liable for violation of regulations governing concerted action (cartel), the
FTC could impose a monetary fine of not more than NT$100,000,000 each time. If the FTC finds such violation
is serious, it may further impose a monetary fine exceeding the NT$100,000,000 but up to 10% of the total sales
of the enterprise in the preceding fiscal year. The responsible person of such enterprise may be sentenced to
imprisonment of not more than three years.
57
Regulations on Unfair Competition in Telecommunication Industry
Administrative Fee Law and Public Road Law
The FTA prohibits any enterprise from conducting any of the following activities that may restrict
competition or impede fair competition:
•
•
•
•
•
forcing another enterprise to discontinue supply, purchase or other business transactions with a
particular enterprise for the purpose of injuring such particular enterprise;
treating another enterprise discriminatively without justification;
preventing competitors from participating or engaging in competition by inducing customers with
low price or other illegal inducements;
forcing another enterprise to refrain from competing in price, or to take part in a merger, or a
concerted action, or to perform vertical restrictions by coercion, inducement with interest, or other
improper methods; or
setting improper restrictions on its trading counterparts’ business activity as the condition to reach
business engagement.
According to the FTC’s Explanation on Regulations Governing Telecommunication Industry, the
telecommunications enterprise may be involved with the following activities that may restrict competition or
impede fair competition: conducting vertical trading restraint, boycott, discrimination, improper sales discount,
sales with gift or lottery or tie-in sales.
If any enterprise violates the regulations governing unfair competition, the FTC may order it to cease
therefrom, rectify its conduct or take necessary corrective action within the time prescribed in the order; in
addition, the FTC may assess upon such enterprise an administrative fine of not less than NT$100,000 nor more
than NT$50,000,000. Should such enterprise fail to cease therefrom, rectify the conduct or take any necessary
corrective action after the lapse of the prescribed period, the FTC may continue to order such enterprise to cease
therefrom, rectify the conduct or take any necessary corrective action within the time prescribed in the order, and
each time may successively assess thereupon an administrative fine of not less than NT$200,000 nor more than
NT$100,000,000 until its ceasing therefrom, rectifying its conduct or taking the necessary corrective action.
Regulations on the Representations or Symbol Used by Telecommunications Enterprise on
Goods or in Advertisement
The FTA prohibits any enterprise from making or using false or misleading representations or symbol as
to price, quantity, quality, content, production process, production date, valid period, method of use, purpose of
use, place of origin, manufacturer, place of manufacturing, processor, place of processing on goods, or any items
which attract customers or in advertisements, or in any other way making known to the public.
If an enterprise violates the applicable provisions under the FTA that prohibit false or misleading
representations, the FTC may order it to cease therefrom, rectify its conduct or take necessary corrective action
within the time prescribed in the order; in addition, the FTC may assess upon such enterprise an administrative
fine. Should such enterprise fail to cease therefrom, rectify the conduct or take any necessary corrective action
after the lapse of the prescribed period, the FTC may continue to order such enterprise to cease therefrom, rectify
the conduct or take any necessary corrective action within the time prescribed in the order, and each time may
successively assess thereupon an administrative fine until its ceasing therefrom, rectifying its conduct or taking the
necessary corrective action.
Other Regulations
In addition to the competitive activities expressly regulated by the FTA, the enterprise shall further be
prohibited from conducting any fraudulent activity or significantly unfair activity that may impact the trade order.
58
According to the Administrative Fee Law, central and local governments, government agencies and
schools are empowered to collect administrative fees from us and other telecommunications services providers for
the telecommunications facilities built on public roads and properties. Under the Administrative Fee Law, Urban
Road Act and Local Road Act, road authorities of municipal governments may collect usage fees from users of
local roads, including us, for establishing lines along with the local roads. The fee schedule is set up in the
Standard for Usage Fees of Local Roads.
Under the Public Road Law, administrative authorities of public roads may collect usage fees from the
users of public roads. According to the Rules Governing Collection of Usage Fees on Public Roads, the relevant
collection agencies, including agencies designated by the MOTC and municipal governments, depending on the
types of public roads, may collect usage fees from users, including us, for establishing lines along with the public
roads.
In addition, legislators proposed to amend Article 72 of the Public Road Law. The draft of amendment
includes stipulations that manhole and hand-hole covers shall be level with the pavement after establishment or
repair. The difference shall be no more than 0.6 centimeters high, within a radius of three meters. Moreover, the
anti-slip test value in wet conditions shall be no less than 60 BPN, British Pendulum Test value. Such new
stipulations might result in an increase in our operational costs. The amendment is currently reviewed by the
Legislative Yuan, and there is no clear indication as to when the amendment will be adopted, if at all.
Personal Data Protection
Under the Personal Information Protection Act, or PIPA, every individuals or governmental or non-
governmental agencies, including us, should be subject to certain requirements and restrictions for collecting,
processing or using personal data. The definition of “personal data” is extended to cover a broad scope, including
name, birthday, ID, special features, fingerprints, marriage status, family, education, occupation, medical records,
medical history, generic information, sex life, health examination report, criminal records, contact information,
financial status, social activities, and any other data which is sufficient to directly or indirectly identify a specific
person. If we fail to comply with the PIPA, we may be subject to serious punishment for civil claims, criminal
offenses and administrative liabilities: the ceiling of the aggregate compensation amount for damages payable in a
single case will be up to NT$200 million or the actual value of loss arising from our violation provided the amount
of actual value of such loss is higher than NT$200 million; the defendant may be subject to an imprisonment of up
to five years; and the penalty for administrative liabilities will be up to NT$500,000 for each violation, and may
be imposed consecutively if such violation continues.
Statute of Chunghwa Telecom Co., Ltd.
The Executive Yuan, on April 27, 2012, proposed a motion for the abolishment of the Statute of
Chunghwa Telecom Co., Ltd. for legislative approval. The Legislative Yuan formally approved the motion on
December 9, 2014 and the President of the ROC pronounced the abolishment of the law effective from December
24, 2014. The abolishment has no material impact on our company.
C. Organizational Structure
Set forth below is a diagram indicating our organization structure as of March 31, 2017.
Regulations on Unfair Competition in Telecommunication Industry
Administrative Fee Law and Public Road Law
The FTA prohibits any enterprise from conducting any of the following activities that may restrict
competition or impede fair competition:
•
•
•
•
•
forcing another enterprise to discontinue supply, purchase or other business transactions with a
particular enterprise for the purpose of injuring such particular enterprise;
treating another enterprise discriminatively without justification;
preventing competitors from participating or engaging in competition by inducing customers with
low price or other illegal inducements;
forcing another enterprise to refrain from competing in price, or to take part in a merger, or a
concerted action, or to perform vertical restrictions by coercion, inducement with interest, or other
improper methods; or
business engagement.
setting improper restrictions on its trading counterparts’ business activity as the condition to reach
According to the FTC’s Explanation on Regulations Governing Telecommunication Industry, the
telecommunications enterprise may be involved with the following activities that may restrict competition or
impede fair competition: conducting vertical trading restraint, boycott, discrimination, improper sales discount,
sales with gift or lottery or tie-in sales.
If any enterprise violates the regulations governing unfair competition, the FTC may order it to cease
therefrom, rectify its conduct or take necessary corrective action within the time prescribed in the order; in
addition, the FTC may assess upon such enterprise an administrative fine of not less than NT$100,000 nor more
than NT$50,000,000. Should such enterprise fail to cease therefrom, rectify the conduct or take any necessary
corrective action after the lapse of the prescribed period, the FTC may continue to order such enterprise to cease
therefrom, rectify the conduct or take any necessary corrective action within the time prescribed in the order, and
each time may successively assess thereupon an administrative fine of not less than NT$200,000 nor more than
NT$100,000,000 until its ceasing therefrom, rectifying its conduct or taking the necessary corrective action.
Regulations on the Representations or Symbol Used by Telecommunications Enterprise on
Goods or in Advertisement
The FTA prohibits any enterprise from making or using false or misleading representations or symbol as
to price, quantity, quality, content, production process, production date, valid period, method of use, purpose of
use, place of origin, manufacturer, place of manufacturing, processor, place of processing on goods, or any items
which attract customers or in advertisements, or in any other way making known to the public.
If an enterprise violates the applicable provisions under the FTA that prohibit false or misleading
representations, the FTC may order it to cease therefrom, rectify its conduct or take necessary corrective action
within the time prescribed in the order; in addition, the FTC may assess upon such enterprise an administrative
fine. Should such enterprise fail to cease therefrom, rectify the conduct or take any necessary corrective action
after the lapse of the prescribed period, the FTC may continue to order such enterprise to cease therefrom, rectify
the conduct or take any necessary corrective action within the time prescribed in the order, and each time may
successively assess thereupon an administrative fine until its ceasing therefrom, rectifying its conduct or taking the
necessary corrective action.
Other Regulations
In addition to the competitive activities expressly regulated by the FTA, the enterprise shall further be
prohibited from conducting any fraudulent activity or significantly unfair activity that may impact the trade order.
According to the Administrative Fee Law, central and local governments, government agencies and
schools are empowered to collect administrative fees from us and other telecommunications services providers for
the telecommunications facilities built on public roads and properties. Under the Administrative Fee Law, Urban
Road Act and Local Road Act, road authorities of municipal governments may collect usage fees from users of
local roads, including us, for establishing lines along with the local roads. The fee schedule is set up in the
Standard for Usage Fees of Local Roads.
Under the Public Road Law, administrative authorities of public roads may collect usage fees from the
users of public roads. According to the Rules Governing Collection of Usage Fees on Public Roads, the relevant
collection agencies, including agencies designated by the MOTC and municipal governments, depending on the
types of public roads, may collect usage fees from users, including us, for establishing lines along with the public
roads.
In addition, legislators proposed to amend Article 72 of the Public Road Law. The draft of amendment
includes stipulations that manhole and hand-hole covers shall be level with the pavement after establishment or
repair. The difference shall be no more than 0.6 centimeters high, within a radius of three meters. Moreover, the
anti-slip test value in wet conditions shall be no less than 60 BPN, British Pendulum Test value. Such new
stipulations might result in an increase in our operational costs. The amendment is currently reviewed by the
Legislative Yuan, and there is no clear indication as to when the amendment will be adopted, if at all.
Personal Data Protection
Under the Personal Information Protection Act, or PIPA, every individuals or governmental or non-
governmental agencies, including us, should be subject to certain requirements and restrictions for collecting,
processing or using personal data. The definition of “personal data” is extended to cover a broad scope, including
name, birthday, ID, special features, fingerprints, marriage status, family, education, occupation, medical records,
medical history, generic information, sex life, health examination report, criminal records, contact information,
financial status, social activities, and any other data which is sufficient to directly or indirectly identify a specific
person. If we fail to comply with the PIPA, we may be subject to serious punishment for civil claims, criminal
offenses and administrative liabilities: the ceiling of the aggregate compensation amount for damages payable in a
single case will be up to NT$200 million or the actual value of loss arising from our violation provided the amount
of actual value of such loss is higher than NT$200 million; the defendant may be subject to an imprisonment of up
to five years; and the penalty for administrative liabilities will be up to NT$500,000 for each violation, and may
be imposed consecutively if such violation continues.
Statute of Chunghwa Telecom Co., Ltd.
The Executive Yuan, on April 27, 2012, proposed a motion for the abolishment of the Statute of
Chunghwa Telecom Co., Ltd. for legislative approval. The Legislative Yuan formally approved the motion on
December 9, 2014 and the President of the ROC pronounced the abolishment of the law effective from December
24, 2014. The abolishment has no material impact on our company.
C. Organizational Structure
Set forth below is a diagram indicating our organization structure as of March 31, 2017.
59
capital expenditures as a result of technological improvements and changes in our business;
•
•
•
•
personnel expenses;
taxation; and
effect of adopting Taiwan IFRSs on our dividends and employee bonuses.
Each of these developments is discussed below.
Changes in our revenue composition and sources of revenue growth
Our domestic fixed communications business revenues are derived primarily from the provision of local,
domestic long distance, broadband access, leased line service, MOD, and other domestic services including ICT,
cloud services, corporate solution services, billing handling services and the leasing of real estate properties. In
addition, we also derive fixed-line revenues from providing interconnection services to other carriers. Our revenues
from mobile communications business are principally derived from the provision of mobile services, sales of mobile
handsets, tablets and data cards and other mobile services. Our revenues from internet business are generated
principally from HiNet internet service, data communication services, internet VAS, internet data center, and other
internet services including ICT and cloud services. Our revenues from international fixed communications business
are derived primarily from international long distance, international leased line, international data services, satellite
services, and other international services. Our other revenues are principally derived from non-telecom services.
The table below sets forth the revenues from our principal lines of business as a percentage of total revenues
for the periods indicated.
Year Ended December 31
2014
2015
Revenues:
Domestic fixed communications business .................................
31.8%
Mobile communications business ..............................................
Internet business ........................................................................
International fixed communications business ............................
Others ........................................................................................
Total ....................................................................................
48.8
11.5
6.8
1.1
100.0%
31.3%
49.6
11.1
6.7
1.3
100.0%
2016
31.6%
48.2
12.2
6.3
1.7
100.0%
Our domestic fixed communications business has been an important source of revenue over the last three
years. We derive domestic fixed communications from the provision of FTTx and ADSL access services that provides
customers with data access lines. The percentage of total revenues derived from domestic fixed communication
decreased in 2015 mainly due to the decline of domestic long distance and local call service revenue because of
mobile and VoIP substitution, and reductions in tariffs for FTTx and ADSL services. The percentage increased in
2016 mainly attributable to the increase in ICT revenues, which was partially offset by the decline in domestic long
distance and local call service revenue. We believe that domestic fixed communications business will continue to
generate a significant portion of our revenues.
Revenues from our mobile communications business made a major contribution to our revenues over the last
three years. We have experienced an increase in revenues in 2015 generated by our mobile VAS due to the raise in
mobile internet subscribers. In 2016, the percentage of total revenues derived from mobile communications business
decreased mainly due to the decline in voice revenue and revenue from our sales of mobile handsets, tablets and data
cards, which was partially offset by the increase in mobile VAS revenue. We believe that our mobile communications
business will continue to generate a significant portion of our revenues.
Our internet business was another important source of revenues over the last three years. We derived internet
business revenues from the provision of data communication services, application VAS and services provided to the
government. The percentage of revenues from internet services within total revenues decreased from 2014 to 2015,
mainly due to the decrease in revenue generated from information services of the land administration system that we
D. Property, Plant and Equipment
Please refer to “—B. Business Overview” for a discussion of our property, plant and equipment.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion of our financial condition and results of operations together with
the consolidated financial statements and the notes to such statements included in this annual report.
For the convenience of readers, NT dollar amounts used in this section for, and as of, the year ended
December 31, 2016 have been translated into U.S. dollar amounts using US$1.00=NT$32.40, set forth in the
statistical release of the Federal Reserve Board on December 30, 2016. The U.S. dollar translation appears in
parentheses next to the relevant NT dollar amount.
Overview
A number of recent and expected future developments have had, and in the future may have, a material
impact on our financial condition and results of operations. These developments include:
•
•
changes in our revenue composition and sources of revenue growth;
tariff adjustments;
60
•
•
•
•
capital expenditures as a result of technological improvements and changes in our business;
personnel expenses;
taxation; and
effect of adopting Taiwan IFRSs on our dividends and employee bonuses.
Each of these developments is discussed below.
Changes in our revenue composition and sources of revenue growth
Our domestic fixed communications business revenues are derived primarily from the provision of local,
domestic long distance, broadband access, leased line service, MOD, and other domestic services including ICT,
cloud services, corporate solution services, billing handling services and the leasing of real estate properties. In
addition, we also derive fixed-line revenues from providing interconnection services to other carriers. Our revenues
from mobile communications business are principally derived from the provision of mobile services, sales of mobile
handsets, tablets and data cards and other mobile services. Our revenues from internet business are generated
principally from HiNet internet service, data communication services, internet VAS, internet data center, and other
internet services including ICT and cloud services. Our revenues from international fixed communications business
are derived primarily from international long distance, international leased line, international data services, satellite
services, and other international services. Our other revenues are principally derived from non-telecom services.
The table below sets forth the revenues from our principal lines of business as a percentage of total revenues
for the periods indicated.
Revenues:
Domestic fixed communications business .................................
Mobile communications business ..............................................
Internet business ........................................................................
International fixed communications business ............................
Others ........................................................................................
Total ....................................................................................
2014
31.8%
48.8
11.5
6.8
1.1
100.0%
Year Ended December 31
2015
31.3%
49.6
11.1
6.7
1.3
100.0%
2016
31.6%
48.2
12.2
6.3
1.7
100.0%
Our domestic fixed communications business has been an important source of revenue over the last three
years. We derive domestic fixed communications from the provision of FTTx and ADSL access services that provides
customers with data access lines. The percentage of total revenues derived from domestic fixed communication
decreased in 2015 mainly due to the decline of domestic long distance and local call service revenue because of
mobile and VoIP substitution, and reductions in tariffs for FTTx and ADSL services. The percentage increased in
2016 mainly attributable to the increase in ICT revenues, which was partially offset by the decline in domestic long
distance and local call service revenue. We believe that domestic fixed communications business will continue to
generate a significant portion of our revenues.
Revenues from our mobile communications business made a major contribution to our revenues over the last
three years. We have experienced an increase in revenues in 2015 generated by our mobile VAS due to the raise in
mobile internet subscribers. In 2016, the percentage of total revenues derived from mobile communications business
decreased mainly due to the decline in voice revenue and revenue from our sales of mobile handsets, tablets and data
cards, which was partially offset by the increase in mobile VAS revenue. We believe that our mobile communications
business will continue to generate a significant portion of our revenues.
Our internet business was another important source of revenues over the last three years. We derived internet
business revenues from the provision of data communication services, application VAS and services provided to the
government. The percentage of revenues from internet services within total revenues decreased from 2014 to 2015,
mainly due to the decrease in revenue generated from information services of the land administration system that we
61
D. Property, Plant and Equipment
Please refer to “—B. Business Overview” for a discussion of our property, plant and equipment.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion of our financial condition and results of operations together with
the consolidated financial statements and the notes to such statements included in this annual report.
For the convenience of readers, NT dollar amounts used in this section for, and as of, the year ended
December 31, 2016 have been translated into U.S. dollar amounts using US$1.00=NT$32.40, set forth in the
statistical release of the Federal Reserve Board on December 30, 2016. The U.S. dollar translation appears in
parentheses next to the relevant NT dollar amount.
Overview
A number of recent and expected future developments have had, and in the future may have, a material
impact on our financial condition and results of operations. These developments include:
changes in our revenue composition and sources of revenue growth;
•
•
tariff adjustments;
established for the Land Administration Department of local governments, and the decrease was primarily affected by
the downturn in the property market. In 2016, the percentage of revenues from internet services within total revenues
increased mainly due to the increase in revenues generated from services such as IDC, cloud computing, information
security and IoT, and some increases in revenues driven by the growth in HiNet and HiLink services.
We derived our international fixed communications revenues mainly from international long distance
telephone services and international ICT services. Revenues from our international fixed communications business as
a percentage of our total revenues decreased from 2014 to 2016, because our international long distance telephone
services revenue continued to decline due to VoIP substitution.
Our other revenues increased from 2014 to 2016, and the increase was mainly due to operating growth
derived from one of our subsidiaries, CHPT, a semiconductor testing company.
Tariff adjustments
We adjust our tariffs and offer promotional packages from time to time primarily in response to market
conditions. We also from time to time are required to adjust our pricing in line with domestic regulations.
On February 7, 2013, the NCC announced a plan for tariff reductions in wholesale tariffs for IP peering and
domestic leased line services, and in monthly fees for fixed-line broadband access services (excluding FTTH and
FTTB) over a period of four years starting on April 1, 2013, which was subject to a reduction by ∆CPI—5.1749%,
where ∆CPI is the year-over-year change of the consumer price index of previous year released by the Directorate-
General of Budget, Accounting and Statistics of the Executive Yuan. While mobile tariffs were not regulated in this
round, according to the revised Administrative Rules for Network Interconnection, the mobile interconnection fees
were reduced from the current NT$2.15 per minute to NT$1.15 per minute, over the period of four years starting from
January 5, 2013. On March 8, 2017, the NCC announced a new plan for tariff reductions effective from April 1 2017
to March 31, 2020. The reduction plan applies to the wholesale tariffs for IP peering and domestic leased line
services, which was subject to a reduction by ∆CPI—5.1749%, and to the monthly fees for fixed-line broadband
access services (excluding FTTH, FTTB, ADSL, and the services which downlink and uplink speeds both over 100
Mbps), which was subject to a reduction by ∆CPI—3.19%. The ∆CPI for 2016 that was used for the tariff reduction
starting from April 1, 2017 was 1.40%. In response to the tariff reduction plan announced by the NCC and to further
support the government’s policy with respect to the development of digital economy, we voluntarily adopted a more
aggressive tariff reduction rate for our IP peering service. We do not expect such tariff reduction to have a material
adverse impact on our results of operations.
Besides mandatory tariff reduction mentioned above, we, from time to time, voluntarily implemented tariff
adjustments in our broadband and mobile businesses in the past few years to consolidate our market share.
Capital expenditures as a result of technological improvements and changes in our business
In recent years, we have focused on modernizing and upgrading our mobile services network and on
developing our FTTx network, which enables transmission of digital information at a high bandwidth over fiber
loops. Constructing fiber networks in new buildings and areas with demand for 500 Mbps and 1 Gbps is our priority.
Our long-term goal is to optimize our capital expenditures by focusing on investing in innovative products and
services with attractive return profiles. We evaluate our investment opportunities by benchmarking them against
internal return requirements.
Personnel expenses
Personnel expenses constitute a significant portion of our operating costs and expenses. In 2014, 2015 and
2016, personnel expenses represented 25.5%, 26.1% and 26.4% of our total operating costs and expenses,
respectively, and pension costs represented 1.9%, 1.9% and 1.9% of our total operating costs and expenses,
respectively. The table below sets forth information regarding our personnel expenses and as a percentage of our total
operating costs and expenses for the periods indicated.
Personnel expenses:
Salaries
Insurance
Pension
Other(1)
Total personnel expenses
Total operating costs and expenses
____________________________
(1)
Includes employees’ bonus or compensation.
Year Ended December 31
2014
2015
2016
(in billions of NT$, except percentages)
24.9
2.6
3.4
15.7
46.6
182.4
13.6%
1.4
1.9
8.6
25.5%
100.0%
25.5
2.6
3.4
15.8
47.3
181.3
14.1%
1.4
1.9
8.7
26.1%
100.0%
26.0
2.7
3.4
15.7
47.8
181.4
14.3%
1.5
1.9
8.7
26.4%
100.0%
At the time of our privatization, we settled all of our then existing defined benefit pension obligations in full.
After completing our privatization on August 12, 2005, all of our continuing employees were deemed to have
commenced employment as of August 12, 2005 for seniority purposes under our pension plans in effect after
privatization. Under applicable ROC regulations, upon our privatization, the MOTC assumed the obligation to make
annuity payments to all of our employees that retired before our privatization.
Taxation
for Innovating Industries.
The income tax rate for profit-seeking enterprises is 17% in the ROC. We benefit from tax incentives,
including tax credits of up to 15% of some of our research and development expenses in accordance with the Statute
In 1997, the Income Tax Act of the ROC was amended to integrate corporate income tax and stockholder
dividend tax to eliminate the double taxation effect for resident stockholders of Taiwan companies. Under the
amendment, after-tax earnings generated from January 1, 1998 and not distributed to stockholders as dividends in the
following year are assessed with a 10% unappropriated earnings tax. See “Item 10. Additional Information—E.
Taxation—ROC Taxation—Dividends.” Under IFRSs, the 10% tax on unappropriated earnings is accrued during the
year the earnings arise and adjusted to the extent that distributions are approved by the stockholders in the following
year. In 2014, due to the reversal of the 10% unappropriated earnings tax accrued in 2013, which was much lower
than that accrued in 2014, net unappropriated earnings tax accrued in 2014 was higher than that accrued in 2015, and
our effective tax rate decreased from 19.3% in 2014 to 17.5% in 2015 as a result. In 2016, due to the reversal of the
10% unappropriated earnings tax accrued in 2015, which was much higher than that accrued in 2016, net
unappropriated earnings tax accrued in 2016 was lower than that accrued in 2015. As a result, our effective tax rate
decreased from 17.5% in 2015 to 15.8% in 2016.
Effect of adopting Taiwan IFRSs on our dividends and employee bonuses
Beginning on January 1, 2013, we have adopted Taiwan IFRSs for reporting our annual and interim
consolidated financial statements in the ROC in accordance with the requirements of the FSC. At the same time, we
have adopted IFRSs, which has certain significant differences from Taiwan IFRSs, for reporting our annual and
interim consolidated financial statements with the SEC, including this annual report and future annual reports on
Form 20-F.
Our dividends have been calculated based on Taiwan IFRSs since 2013. According to local regulations, our
unappropriated earnings before earnings distributions for the year ended December 31, 2013 needs to first offset the
decrease of unappropriated earnings on the date of transition to Taiwan IFRSs (January 1, 2012), which led to a
decrease in earnings available for our dividends and employee bonuses compared to prior years. As a result of these
decreases in our dividends and employee bonuses, in March 2014, our board of directors approved an additional
distribution to our shareholders from additional paid-in capital in the amount of NT$16.6 billion and a one-time
additional bonus to our employees in the amount of NT$0.7 billion. The NT$16.6 billion additional distributions to
62
established for the Land Administration Department of local governments, and the decrease was primarily affected by
the downturn in the property market. In 2016, the percentage of revenues from internet services within total revenues
increased mainly due to the increase in revenues generated from services such as IDC, cloud computing, information
security and IoT, and some increases in revenues driven by the growth in HiNet and HiLink services.
We derived our international fixed communications revenues mainly from international long distance
telephone services and international ICT services. Revenues from our international fixed communications business as
a percentage of our total revenues decreased from 2014 to 2016, because our international long distance telephone
services revenue continued to decline due to VoIP substitution.
Our other revenues increased from 2014 to 2016, and the increase was mainly due to operating growth
derived from one of our subsidiaries, CHPT, a semiconductor testing company.
Tariff adjustments
We adjust our tariffs and offer promotional packages from time to time primarily in response to market
conditions. We also from time to time are required to adjust our pricing in line with domestic regulations.
On February 7, 2013, the NCC announced a plan for tariff reductions in wholesale tariffs for IP peering and
domestic leased line services, and in monthly fees for fixed-line broadband access services (excluding FTTH and
FTTB) over a period of four years starting on April 1, 2013, which was subject to a reduction by ∆CPI—5.1749%,
where ∆CPI is the year-over-year change of the consumer price index of previous year released by the Directorate-
General of Budget, Accounting and Statistics of the Executive Yuan. While mobile tariffs were not regulated in this
round, according to the revised Administrative Rules for Network Interconnection, the mobile interconnection fees
were reduced from the current NT$2.15 per minute to NT$1.15 per minute, over the period of four years starting from
January 5, 2013. On March 8, 2017, the NCC announced a new plan for tariff reductions effective from April 1 2017
to March 31, 2020. The reduction plan applies to the wholesale tariffs for IP peering and domestic leased line
services, which was subject to a reduction by ∆CPI—5.1749%, and to the monthly fees for fixed-line broadband
access services (excluding FTTH, FTTB, ADSL, and the services which downlink and uplink speeds both over 100
Mbps), which was subject to a reduction by ∆CPI—3.19%. The ∆CPI for 2016 that was used for the tariff reduction
starting from April 1, 2017 was 1.40%. In response to the tariff reduction plan announced by the NCC and to further
support the government’s policy with respect to the development of digital economy, we voluntarily adopted a more
aggressive tariff reduction rate for our IP peering service. We do not expect such tariff reduction to have a material
adverse impact on our results of operations.
Besides mandatory tariff reduction mentioned above, we, from time to time, voluntarily implemented tariff
adjustments in our broadband and mobile businesses in the past few years to consolidate our market share.
Capital expenditures as a result of technological improvements and changes in our business
In recent years, we have focused on modernizing and upgrading our mobile services network and on
developing our FTTx network, which enables transmission of digital information at a high bandwidth over fiber
loops. Constructing fiber networks in new buildings and areas with demand for 500 Mbps and 1 Gbps is our priority.
Our long-term goal is to optimize our capital expenditures by focusing on investing in innovative products and
services with attractive return profiles. We evaluate our investment opportunities by benchmarking them against
internal return requirements.
Personnel expenses
Personnel expenses constitute a significant portion of our operating costs and expenses. In 2014, 2015 and
2016, personnel expenses represented 25.5%, 26.1% and 26.4% of our total operating costs and expenses,
respectively, and pension costs represented 1.9%, 1.9% and 1.9% of our total operating costs and expenses,
respectively. The table below sets forth information regarding our personnel expenses and as a percentage of our total
operating costs and expenses for the periods indicated.
Personnel expenses:
Personnel expenses:
Salaries
Salaries
Insurance
Insurance
Pension
Pension
Other(1)
Other(1)
Total personnel expenses
Total personnel expenses
Total operating costs and expenses
Total operating costs and expenses
____________________________
____________________________
(1)
(1)
Includes employees’ bonus or compensation.
Includes employees’ bonus or compensation.
2014
2014
Year Ended December 31
2015
(in billions of NT$, except percentages)
Year Ended December 31
2015
(in billions of NT$, except percentages)
2016
2016
24.9
2.6
3.4
15.7
46.6
182.4
24.9
2.6
3.4
15.7
46.6
182.4
13.6%
13.6%
1.4
1.4
1.9
1.9
8.6
8.6
25.5%
25.5%
100.0%
100.0%
25.5
2.6
3.4
15.8
47.3
181.3
25.5
2.6
3.4
15.8
47.3
181.3
14.1%
14.1%
1.4
1.4
1.9
1.9
8.7
8.7
26.1%
26.1%
100.0%
100.0%
26.0
2.7
3.4
15.7
47.8
181.4
26.0
2.7
3.4
15.7
47.8
181.4
14.3%
14.3%
1.5
1.5
1.9
1.9
8.7
8.7
26.4%
26.4%
100.0%
100.0%
At the time of our privatization, we settled all of our then existing defined benefit pension obligations in full.
After completing our privatization on August 12, 2005, all of our continuing employees were deemed to have
commenced employment as of August 12, 2005 for seniority purposes under our pension plans in effect after
privatization. Under applicable ROC regulations, upon our privatization, the MOTC assumed the obligation to make
annuity payments to all of our employees that retired before our privatization.
At the time of our privatization, we settled all of our then existing defined benefit pension obligations in full.
After completing our privatization on August 12, 2005, all of our continuing employees were deemed to have
commenced employment as of August 12, 2005 for seniority purposes under our pension plans in effect after
privatization. Under applicable ROC regulations, upon our privatization, the MOTC assumed the obligation to make
annuity payments to all of our employees that retired before our privatization.
Taxation
Taxation
The income tax rate for profit-seeking enterprises is 17% in the ROC. We benefit from tax incentives,
including tax credits of up to 15% of some of our research and development expenses in accordance with the Statute
for Innovating Industries.
The income tax rate for profit-seeking enterprises is 17% in the ROC. We benefit from tax incentives,
including tax credits of up to 15% of some of our research and development expenses in accordance with the Statute
for Innovating Industries.
In 1997, the Income Tax Act of the ROC was amended to integrate corporate income tax and stockholder
dividend tax to eliminate the double taxation effect for resident stockholders of Taiwan companies. Under the
amendment, after-tax earnings generated from January 1, 1998 and not distributed to stockholders as dividends in the
following year are assessed with a 10% unappropriated earnings tax. See “Item 10. Additional Information—E.
Taxation—ROC Taxation—Dividends.” Under IFRSs, the 10% tax on unappropriated earnings is accrued during the
year the earnings arise and adjusted to the extent that distributions are approved by the stockholders in the following
year. In 2014, due to the reversal of the 10% unappropriated earnings tax accrued in 2013, which was much lower
than that accrued in 2014, net unappropriated earnings tax accrued in 2014 was higher than that accrued in 2015, and
our effective tax rate decreased from 19.3% in 2014 to 17.5% in 2015 as a result. In 2016, due to the reversal of the
10% unappropriated earnings tax accrued in 2015, which was much higher than that accrued in 2016, net
unappropriated earnings tax accrued in 2016 was lower than that accrued in 2015. As a result, our effective tax rate
decreased from 17.5% in 2015 to 15.8% in 2016.
In 1997, the Income Tax Act of the ROC was amended to integrate corporate income tax and stockholder
dividend tax to eliminate the double taxation effect for resident stockholders of Taiwan companies. Under the
amendment, after-tax earnings generated from January 1, 1998 and not distributed to stockholders as dividends in the
following year are assessed with a 10% unappropriated earnings tax. See “Item 10. Additional Information—E.
Taxation—ROC Taxation—Dividends.” Under IFRSs, the 10% tax on unappropriated earnings is accrued during the
year the earnings arise and adjusted to the extent that distributions are approved by the stockholders in the following
year. In 2014, due to the reversal of the 10% unappropriated earnings tax accrued in 2013, which was much lower
than that accrued in 2014, net unappropriated earnings tax accrued in 2014 was higher than that accrued in 2015, and
our effective tax rate decreased from 19.3% in 2014 to 17.5% in 2015 as a result. In 2016, due to the reversal of the
10% unappropriated earnings tax accrued in 2015, which was much higher than that accrued in 2016, net
unappropriated earnings tax accrued in 2016 was lower than that accrued in 2015. As a result, our effective tax rate
decreased from 17.5% in 2015 to 15.8% in 2016.
Effect of adopting Taiwan IFRSs on our dividends and employee bonuses
Effect of adopting Taiwan IFRSs on our dividends and employee bonuses
Beginning on January 1, 2013, we have adopted Taiwan IFRSs for reporting our annual and interim
consolidated financial statements in the ROC in accordance with the requirements of the FSC. At the same time, we
have adopted IFRSs, which has certain significant differences from Taiwan IFRSs, for reporting our annual and
interim consolidated financial statements with the SEC, including this annual report and future annual reports on
Form 20-F.
Beginning on January 1, 2013, we have adopted Taiwan IFRSs for reporting our annual and interim
consolidated financial statements in the ROC in accordance with the requirements of the FSC. At the same time, we
have adopted IFRSs, which has certain significant differences from Taiwan IFRSs, for reporting our annual and
interim consolidated financial statements with the SEC, including this annual report and future annual reports on
Form 20-F.
Our dividends have been calculated based on Taiwan IFRSs since 2013. According to local regulations, our
unappropriated earnings before earnings distributions for the year ended December 31, 2013 needs to first offset the
decrease of unappropriated earnings on the date of transition to Taiwan IFRSs (January 1, 2012), which led to a
decrease in earnings available for our dividends and employee bonuses compared to prior years. As a result of these
decreases in our dividends and employee bonuses, in March 2014, our board of directors approved an additional
distribution to our shareholders from additional paid-in capital in the amount of NT$16.6 billion and a one-time
additional bonus to our employees in the amount of NT$0.7 billion. The NT$16.6 billion additional distributions to
Our dividends have been calculated based on Taiwan IFRSs since 2013. According to local regulations, our
unappropriated earnings before earnings distributions for the year ended December 31, 2013 needs to first offset the
decrease of unappropriated earnings on the date of transition to Taiwan IFRSs (January 1, 2012), which led to a
decrease in earnings available for our dividends and employee bonuses compared to prior years. As a result of these
decreases in our dividends and employee bonuses, in March 2014, our board of directors approved an additional
distribution to our shareholders from additional paid-in capital in the amount of NT$16.6 billion and a one-time
additional bonus to our employees in the amount of NT$0.7 billion. The NT$16.6 billion additional distributions to
63
our shareholders were approved at our annual general stockholders’ meeting on June 24, 2014 and such amount was
subsequently paid in August 2014.
contract.
Revenue from a contract to provide services is recognized by reference to the stage of completion of the
Our consolidated financial statements prepared under Taiwan IFRSs have not been included in this annual
report and do not form a part of this annual report.
Critical Accounting Policies
Summarized below are our accounting policies that we believe are both important to the portrayal of our
financial results and involve the need for management to make estimates about the effect of matters that are uncertain
in nature. Actual results may differ from these estimates, judgments and assumptions. Certain accounting policies are
particularly critical because of their significance to our reported financial results and the possibility that future events
may differ significantly from the conditions and assumptions underlying the estimates used and judgments made by
our management in preparing our financial statements. The following discussion should be read in conjunction with
the consolidated financial statements and related notes, which are included in this annual report.
Revenue Recognition
Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which
Impairment of Trade notes and Accounts Receivable
time all the following conditions are satisfied:
• We have transferred to the buyer the significant risks and rewards of ownership of the goods;
• We retain neither continuing managerial involvement to the degree usually associated with ownership
nor effective control over the goods sold;
• The amount of revenue can be measured reliably;
•
It is probable that the economic benefits associated with the transaction will flow to us; and
• The costs incurred or to be incurred in respect of the transaction can be measured reliably.
Revenue is measured at the fair value of the consideration received or receivable and represents amounts for
goods sold in the normal course of business, net of sales discounts and volume rebates. For trade notes and accounts
receivables due within one year from the balance sheet date, as the nominal value of the consideration to be received
approximates its fair value and transactions are frequent, fair value of the consideration is not determined by
discounting all future receipts using an imputed rate of interest.
Usage revenues from fixed-line services (including local, domestic long distance and international long
distance telephone services), cellular services, internet and data services, and interconnection and call transfer fees
from other telecommunications companies and carriers are billed in arrears and are recognized based upon seconds or
minutes of traffic processed when the services are provided in accordance with contract terms.
Other revenues are recognized as follows: (a) one-time subscriber connection fees (on fixed-line services)
are deferred and recognized over the average expected customer service periods, (b) monthly fees (on fixed-line
services, mobile, internet and data services) are accrued every month, and (c) prepaid services (fixed-line, mobile,
internet and data services) are recognized as income based upon actual usage by customers.
Where we enter into transactions which involve both the provision of telecommunications service bundled
with products such as handsets, total consideration received from products and telecommunications service in these
arrangements are allocated and measured using units of accounting within the arrangement based on their relative fair
values limited to the amount that is not contingent upon the delivery of products or services. Relative fair values are
based on the selling prices of handsets on a standalone basis and the monthly fees provided in the subscription
contracts.
64
Our project agreements are mainly to provide one or more equipment or services to customers. In order to
fulfill the agreements, another party may be involved in some agreements. We consider the following factors to
determine whether we are a principal of the transaction: whether we are the primary obligation provider of the
agreements, our exposures to inventory risks and the discretion in establishing prices, etc. The determination of
whether we are a principal or an agent will affect the amount of revenue recognized by us. Only when we are acting
as a principal, gross inflows of economic benefits arising from transactions is recognized as revenue.
Dividend income from investments is recognized when the stockholder’s right to receive payment has been
established, under the premises when it is probable that the economic benefits related to the transactions will flow to
us and that the revenue can be reasonably measured.
Interest income from a financial asset is recognized when it is probable that the economic benefits related to
the transactions will flow to us and the amount of income can be measured reliably. Interest income is accrued on a
time basis, by reference to the principal outstanding and at the effective interest rate applicable.
When there is objective evidence showing indications of impairment, we consider the estimation of future
cash flows. The amount of impairment will be measured as the difference between the carrying amount and the
present value of estimated future cash flows discounted by the original effective interest rates of the financial assets.
However, as the impact from discounting short-term receivables is not material, the impairment of short-term
receivables is measured at the difference between the carrying amount and the estimated undiscounted future cash
flows. Where the actual future cash flows are lower than expected, a material impairment loss may arise.
We maintain an allowance for doubtful accounts for estimated losses that result from the inability of our
customers to make required payments. When determining the allowance, we consider the probability of recoverability
based on past customers default experience and their credit status, and economic and industrial factors. Credit risks
are assessed based on historical write-offs, net of recoveries, and an analysis of the aged accounts receivable balances
with allowances generally increasing as the receivable ages. Accounts receivable may be fully reserved when specific
collection issues are known to exist, such as pending bankruptcy or catastrophes. The analysis of receivables is
performed monthly, and the allowances for doubtful accounts are adjusted through expense accordingly.
Provision for inventory valuation and obsolescence
Inventories are stated at the lower of cost or net realizable value. Estimates of net realizable value are based
on the most reliable evidence available at the time the estimates are made at the end of reporting period. These
estimates take into consideration fluctuations of price or cost directly relating to events occurring after the end of the
period to the extent that such events confirm conditions existing at the end of the period. Inventory write-downs are
determined on an item by item basis, except for those similar items which could be categorized into the same groups.
We use the inventory holding period and turnover as the evaluation basis for inventory obsolescence losses.
Useful Lives of Long-Lived Assets
A significant portion of our total assets consists of long-lived assets, primarily property, plant and equipment
and definite-lived intangibles. We estimate the useful lives of property, plant and equipment and other long-lived
assets with finite lives in order to determine the period of time over which depreciation and amortization expenses
should be recorded. The useful lives are estimated at the time assets are acquired and are based on historical
experience with similar assets as well as the anticipated technological evolution or other environmental changes.
Further, we review the estimated useful lives of long-lived assets at the balance sheet date. If technological changes
were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these
assets may need to be shortened, resulting in the recognition of increased depreciation and amortization in the relevant
periods.
Our consolidated financial statements prepared under Taiwan IFRSs have not been included in this annual
report and do not form a part of this annual report.
Critical Accounting Policies
Summarized below are our accounting policies that we believe are both important to the portrayal of our
financial results and involve the need for management to make estimates about the effect of matters that are uncertain
in nature. Actual results may differ from these estimates, judgments and assumptions. Certain accounting policies are
particularly critical because of their significance to our reported financial results and the possibility that future events
may differ significantly from the conditions and assumptions underlying the estimates used and judgments made by
our management in preparing our financial statements. The following discussion should be read in conjunction with
the consolidated financial statements and related notes, which are included in this annual report.
Revenue Recognition
time all the following conditions are satisfied:
• We have transferred to the buyer the significant risks and rewards of ownership of the goods;
• We retain neither continuing managerial involvement to the degree usually associated with ownership
nor effective control over the goods sold;
• The amount of revenue can be measured reliably;
•
It is probable that the economic benefits associated with the transaction will flow to us; and
• The costs incurred or to be incurred in respect of the transaction can be measured reliably.
Revenue is measured at the fair value of the consideration received or receivable and represents amounts for
goods sold in the normal course of business, net of sales discounts and volume rebates. For trade notes and accounts
receivables due within one year from the balance sheet date, as the nominal value of the consideration to be received
approximates its fair value and transactions are frequent, fair value of the consideration is not determined by
discounting all future receipts using an imputed rate of interest.
Usage revenues from fixed-line services (including local, domestic long distance and international long
distance telephone services), cellular services, internet and data services, and interconnection and call transfer fees
from other telecommunications companies and carriers are billed in arrears and are recognized based upon seconds or
minutes of traffic processed when the services are provided in accordance with contract terms.
Other revenues are recognized as follows: (a) one-time subscriber connection fees (on fixed-line services)
are deferred and recognized over the average expected customer service periods, (b) monthly fees (on fixed-line
services, mobile, internet and data services) are accrued every month, and (c) prepaid services (fixed-line, mobile,
internet and data services) are recognized as income based upon actual usage by customers.
Where we enter into transactions which involve both the provision of telecommunications service bundled
with products such as handsets, total consideration received from products and telecommunications service in these
arrangements are allocated and measured using units of accounting within the arrangement based on their relative fair
values limited to the amount that is not contingent upon the delivery of products or services. Relative fair values are
based on the selling prices of handsets on a standalone basis and the monthly fees provided in the subscription
contracts.
our shareholders were approved at our annual general stockholders’ meeting on June 24, 2014 and such amount was
Revenue from a contract to provide services is recognized by reference to the stage of completion of the
subsequently paid in August 2014.
contract.
Our project agreements are mainly to provide one or more equipment or services to customers. In order to
fulfill the agreements, another party may be involved in some agreements. We consider the following factors to
determine whether we are a principal of the transaction: whether we are the primary obligation provider of the
agreements, our exposures to inventory risks and the discretion in establishing prices, etc. The determination of
whether we are a principal or an agent will affect the amount of revenue recognized by us. Only when we are acting
as a principal, gross inflows of economic benefits arising from transactions is recognized as revenue.
Dividend income from investments is recognized when the stockholder’s right to receive payment has been
established, under the premises when it is probable that the economic benefits related to the transactions will flow to
us and that the revenue can be reasonably measured.
Interest income from a financial asset is recognized when it is probable that the economic benefits related to
the transactions will flow to us and the amount of income can be measured reliably. Interest income is accrued on a
time basis, by reference to the principal outstanding and at the effective interest rate applicable.
Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which
Impairment of Trade notes and Accounts Receivable
When there is objective evidence showing indications of impairment, we consider the estimation of future
cash flows. The amount of impairment will be measured as the difference between the carrying amount and the
present value of estimated future cash flows discounted by the original effective interest rates of the financial assets.
However, as the impact from discounting short-term receivables is not material, the impairment of short-term
receivables is measured at the difference between the carrying amount and the estimated undiscounted future cash
flows. Where the actual future cash flows are lower than expected, a material impairment loss may arise.
We maintain an allowance for doubtful accounts for estimated losses that result from the inability of our
customers to make required payments. When determining the allowance, we consider the probability of recoverability
based on past customers default experience and their credit status, and economic and industrial factors. Credit risks
are assessed based on historical write-offs, net of recoveries, and an analysis of the aged accounts receivable balances
with allowances generally increasing as the receivable ages. Accounts receivable may be fully reserved when specific
collection issues are known to exist, such as pending bankruptcy or catastrophes. The analysis of receivables is
performed monthly, and the allowances for doubtful accounts are adjusted through expense accordingly.
Provision for inventory valuation and obsolescence
Inventories are stated at the lower of cost or net realizable value. Estimates of net realizable value are based
on the most reliable evidence available at the time the estimates are made at the end of reporting period. These
estimates take into consideration fluctuations of price or cost directly relating to events occurring after the end of the
period to the extent that such events confirm conditions existing at the end of the period. Inventory write-downs are
determined on an item by item basis, except for those similar items which could be categorized into the same groups.
We use the inventory holding period and turnover as the evaluation basis for inventory obsolescence losses.
Useful Lives of Long-Lived Assets
A significant portion of our total assets consists of long-lived assets, primarily property, plant and equipment
and definite-lived intangibles. We estimate the useful lives of property, plant and equipment and other long-lived
assets with finite lives in order to determine the period of time over which depreciation and amortization expenses
should be recorded. The useful lives are estimated at the time assets are acquired and are based on historical
experience with similar assets as well as the anticipated technological evolution or other environmental changes.
Further, we review the estimated useful lives of long-lived assets at the balance sheet date. If technological changes
were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these
assets may need to be shortened, resulting in the recognition of increased depreciation and amortization in the relevant
periods.
65
Control over Subsidiaries
Some entities are our subsidiaries although we only own less than 50% ownership interest in these entities.
After considering our absolute size of holding in the entity and the relative size of and the dispersion of shares owned
by the other stockholders, and the contractual arrangements between us and other investors, potential voting interests
and the written agreement between stockholders, the management concluded that we have a sufficiently dominant
voting interest to direct the relevant activities of the entity and therefore we have control over these entities.
Investments in Unconsolidated Companies
An associate is an entity over which we have significant influence and that is neither a subsidiary nor an
interest in a joint venture. A joint venture is a joint arrangement whereby we and other parties that have joint control
of the arrangement and have rights to the net assets of the arrangement.
assets.
Investments accounted for using the equity method include investments in associates and interests in joint
ventures. Under the equity method, an investment in an associate or joint venture is initially recognized at cost and
adjusted thereafter to recognize our share of profit or loss and other comprehensive income of the associate and joint
venture as well as the distribution received.
When we reduce our ownership interest in an associate or a joint venture but we continue to use the equity
method, we reclassify to profit or loss the proportion of the gain or loss that had previously been recognized in other
comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to
profit or loss on the disposal of the related assets or liabilities.
Any excess of the cost of acquisition over our share of the fair value of the identifiable net assets and
liabilities of an associate and joint venture at the date of acquisition is recognized as goodwill, which is included
within the carrying amount of the investment and shall not be amortized. Any excess of our share of the net fair value
of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in
profit or loss.
We assess the impairment of investments accounted for using the equity method whenever triggering events
or changes in circumstances indicate that an investment may be impaired and carrying value may not be recoverable.
The entire carrying amount of the investment, including goodwill, is tested for impairment as a single asset by
comparing its recoverable amount with its carrying amount. We measure the impairment based on the projected future
cash flow of the investees, the underlying assumptions for which had been formulated by such investees’ internal
management team, taking into account sales growth and capacity utilization. Any impairment loss recognized forms
part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the
recoverable amount of the investment subsequently increases.
Our other equity investments are classified as available-for-sale, or AFS, financial assets including: listed
stocks, emerging market stocks, and unlisted stocks. Among these investments, those that have a quoted market price
in an active market are classified as AFS and measured at fair value at the end of each reporting period; the others that
do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured
at cost less any identified impairment losses at the end of each reporting period. If, in a subsequent period, the fair
value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference
between the carrying amount and the fair value is recognized in other comprehensive income. Any impairment losses
are recognized in profit or loss.
Changes in the carrying amount of AFS monetary financial assets relating to changes in foreign currency
exchange rates, interest income calculated using the effective interest method and dividends on AFS equity
investments are recognized in profit or loss. Other changes in the carrying amount of AFS financial assets are
recognized in other comprehensive income and will be reclassified to profit or loss when the investment is disposed
of or is determined to be impaired.
66
The process of assessing whether a particular investment’s net realizable value is less than its carrying cost
requires a significant amount of judgment. We periodically evaluate these investments based on quoted market prices,
if available, the financial condition of the investee company, economic conditions in the industry and our intent and
ability to hold the investment for a long period of time. If quoted market prices are not available, we estimate the fair
value using the recoverable amounts in consideration of the financial condition of the investee company. This
information may be based on information that we request from the investee companies and may not be subject to the
same disclosure and audit requirements as required of non-foreign private issuers, and as such, the reliability and
accuracy of the information may vary. If we deem the fair value of an investment to be less than the carrying value
based on the above factors, and the decline in value is deemed to be other than temporary, we record the difference as
impairment in the period of occurrence. In 2014, 2015 and 2016, we recognized impairment losses of NT$23 million,
NT$107 million and NT$577 million (US$17.8 million), respectively, for the investments classified as AFS financial
Impairment of long-lived assets and intangible assets
We assess the impairment of long-lived assets and intangible assets whenever triggering events or changes in
circumstances indicate that the asset may be impaired and carrying value may not be recoverable. Indications we
consider important which could trigger an impairment review include, but are not limited to, the following:
• External sources of information:
•
•
•
•
•
•
during the period, an asset’s market value has declined significantly more than what would be
expected as a result of the passage of time or normal use.
significant changes with an adverse effect on the entity have taken place during the period, or will
take place in the near future, in the technological, market, economic or legal environment in which
the entity operates or in the market to which an asset is dedicated.
• market interest rates or other market rates of return on investments have increased during the
period, and those increases are likely to affect the discount rate used in calculating an asset’s value
in use and decrease the asset’s recoverable amount materially.
the carrying amount of the net assets of the entity is more than its market capitalization.
•
Internal sources of information:
evidence is available of obsolescence or physical damage of an asset.
significant changes with an adverse effect on the entity have taken place during the period, or are
expected to take place in the near future, in the extent to which, or manner in which, an asset is used
or is expected to be used.
evidence is available from internal reporting that indicates that the economic performance of an
asset is, or will be, worse than expected.
When an indication of impairment is identified for long-lived assets and intangible assets other than
goodwill, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the
recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be
reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would
have been determined, as if no impairment loss had been recognized.
Goodwill represents the excess of the consideration paid for business acquisition over the fair value of
identifiable net assets acquired. Goodwill is tested for impairment at least annually, or if an event occurs or
circumstances change which indicates that the fair value of goodwill is below its carrying amount, an impairment loss
is recognized. A subsequent reversal of such impairment loss is not allowed.
Control over Subsidiaries
Some entities are our subsidiaries although we only own less than 50% ownership interest in these entities.
After considering our absolute size of holding in the entity and the relative size of and the dispersion of shares owned
by the other stockholders, and the contractual arrangements between us and other investors, potential voting interests
and the written agreement between stockholders, the management concluded that we have a sufficiently dominant
voting interest to direct the relevant activities of the entity and therefore we have control over these entities.
Investments in Unconsolidated Companies
An associate is an entity over which we have significant influence and that is neither a subsidiary nor an
interest in a joint venture. A joint venture is a joint arrangement whereby we and other parties that have joint control
of the arrangement and have rights to the net assets of the arrangement.
Investments accounted for using the equity method include investments in associates and interests in joint
ventures. Under the equity method, an investment in an associate or joint venture is initially recognized at cost and
adjusted thereafter to recognize our share of profit or loss and other comprehensive income of the associate and joint
venture as well as the distribution received.
When we reduce our ownership interest in an associate or a joint venture but we continue to use the equity
method, we reclassify to profit or loss the proportion of the gain or loss that had previously been recognized in other
comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to
profit or loss on the disposal of the related assets or liabilities.
Any excess of the cost of acquisition over our share of the fair value of the identifiable net assets and
liabilities of an associate and joint venture at the date of acquisition is recognized as goodwill, which is included
within the carrying amount of the investment and shall not be amortized. Any excess of our share of the net fair value
of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in
profit or loss.
We assess the impairment of investments accounted for using the equity method whenever triggering events
or changes in circumstances indicate that an investment may be impaired and carrying value may not be recoverable.
The entire carrying amount of the investment, including goodwill, is tested for impairment as a single asset by
comparing its recoverable amount with its carrying amount. We measure the impairment based on the projected future
cash flow of the investees, the underlying assumptions for which had been formulated by such investees’ internal
management team, taking into account sales growth and capacity utilization. Any impairment loss recognized forms
part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the
recoverable amount of the investment subsequently increases.
Our other equity investments are classified as available-for-sale, or AFS, financial assets including: listed
stocks, emerging market stocks, and unlisted stocks. Among these investments, those that have a quoted market price
in an active market are classified as AFS and measured at fair value at the end of each reporting period; the others that
do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured
at cost less any identified impairment losses at the end of each reporting period. If, in a subsequent period, the fair
value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference
between the carrying amount and the fair value is recognized in other comprehensive income. Any impairment losses
are recognized in profit or loss.
Changes in the carrying amount of AFS monetary financial assets relating to changes in foreign currency
exchange rates, interest income calculated using the effective interest method and dividends on AFS equity
investments are recognized in profit or loss. Other changes in the carrying amount of AFS financial assets are
recognized in other comprehensive income and will be reclassified to profit or loss when the investment is disposed
of or is determined to be impaired.
The process of assessing whether a particular investment’s net realizable value is less than its carrying cost
requires a significant amount of judgment. We periodically evaluate these investments based on quoted market prices,
if available, the financial condition of the investee company, economic conditions in the industry and our intent and
ability to hold the investment for a long period of time. If quoted market prices are not available, we estimate the fair
value using the recoverable amounts in consideration of the financial condition of the investee company. This
information may be based on information that we request from the investee companies and may not be subject to the
same disclosure and audit requirements as required of non-foreign private issuers, and as such, the reliability and
accuracy of the information may vary. If we deem the fair value of an investment to be less than the carrying value
based on the above factors, and the decline in value is deemed to be other than temporary, we record the difference as
impairment in the period of occurrence. In 2014, 2015 and 2016, we recognized impairment losses of NT$23 million,
NT$107 million and NT$577 million (US$17.8 million), respectively, for the investments classified as AFS financial
assets.
Impairment of long-lived assets and intangible assets
We assess the impairment of long-lived assets and intangible assets whenever triggering events or changes in
circumstances indicate that the asset may be impaired and carrying value may not be recoverable. Indications we
consider important which could trigger an impairment review include, but are not limited to, the following:
• External sources of information:
•
•
during the period, an asset’s market value has declined significantly more than what would be
expected as a result of the passage of time or normal use.
significant changes with an adverse effect on the entity have taken place during the period, or will
take place in the near future, in the technological, market, economic or legal environment in which
the entity operates or in the market to which an asset is dedicated.
• market interest rates or other market rates of return on investments have increased during the
period, and those increases are likely to affect the discount rate used in calculating an asset’s value
in use and decrease the asset’s recoverable amount materially.
•
the carrying amount of the net assets of the entity is more than its market capitalization.
•
Internal sources of information:
•
•
•
evidence is available of obsolescence or physical damage of an asset.
significant changes with an adverse effect on the entity have taken place during the period, or are
expected to take place in the near future, in the extent to which, or manner in which, an asset is used
or is expected to be used.
evidence is available from internal reporting that indicates that the economic performance of an
asset is, or will be, worse than expected.
When an indication of impairment is identified for long-lived assets and intangible assets other than
goodwill, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the
recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be
reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would
have been determined, as if no impairment loss had been recognized.
Goodwill represents the excess of the consideration paid for business acquisition over the fair value of
identifiable net assets acquired. Goodwill is tested for impairment at least annually, or if an event occurs or
circumstances change which indicates that the fair value of goodwill is below its carrying amount, an impairment loss
is recognized. A subsequent reversal of such impairment loss is not allowed.
67
In 2014, 2015 and 2016, we determined that some of our telecommunications equipment and miscellaneous
equipment were impaired and recognized an impairment loss of NT$64 thousand, NT$138 million and NT$596
million (US$18.4 million) respectively.
In 2015 and 2016, we determined that some of our investment properties’ recoverable amount which
represented the fair value less costs to sell of some land and buildings was higher than the carrying amount and
recognized reversals of impairment loss of NT$142 million and NT$148 million (US$4.6 million), respectively.
Pension Benefits
Payments to defined contribution retirement benefit plans are recognized as an expense when employees
rendered services entitling them to the contributions.
Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit
retirement benefit plans are determined using the projected unit credit method. Actuarial assumptions comprise the
discount rate, rate of employee turnover, and long-term average future salary increase. Changes in economic
circumstances and market conditions will affect these assumptions and may have a material impact on the amount of
the expense and the liability.
Service cost (including current service cost and gains or losses on settlements) and net interest on the net
defined benefit liability (asset) are recognized as employee benefits expense in the period they occur.
Remeasurement, comprising (a) actuarial gains and losses; and (b) the return on plan assets, excluding amounts
included in net interest on the net defined benefit liability (asset), is recognized in other comprehensive income in the
period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in
retained earnings and will not be reclassified to profit or loss.
Net defined benefit liability (asset) represents the actual deficit (surplus) in our defined benefit plans. Any
surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in
future contributions to the plans.
Curtailment or settlement gains or losses on the defined benefit plan are recognized when the curtailment or
settlement occurs.
Accounting for Income Taxes
Income tax expense represents the sum of the tax currently payable and deferred tax.
The current tax is based on taxable profit for the year. Taxable profit differs from profit as reported in the
consolidated statements of comprehensive income because of items of income or expense that are taxable or
deductible in other years and items that are never taxable or deductible. The liability for current tax is calculated using
tax rates that have been enacted or substantively enacted by the end of the reporting period. Income tax (10%) on
undistributed earnings is accrued during the period the earnings arise and adjusted to the extent that distributions are
approved by the stockholders in the following year. Adjustments of prior years’ tax liabilities are added to or
deducted from the current year’s tax provision.
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in
the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. If the
temporary difference arises from the initial recognition, other than in a business combination, of assets and liabilities
in a transaction that affects neither the taxable profit nor the accounting profit, the resulting deferred tax asset or
liability is not recognized. In addition, a deferred tax liability is not recognized on taxable temporary difference
arising from initial recognition of goodwill.
Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are
generally recognized for all deductible temporary differences, unused loss carry forward and unused tax credits from
Revenues:
68
purchase of machinery, equipment and technology, and research and development expenditures to the extent that it is
probable that taxable profits will be available against which those deductible temporary differences can be utilized.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in
subsidiaries and associates, and interests in joint ventures, except where we are able to control the reversal of the
temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with such investments and interests are
only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the
benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the balance sheet date, and reduced to the extent
that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be
recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and
recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be
recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in
which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period. The measurement of deferred tax assets and liabilities
reflects the tax consequences that would follow from the manner in which we expect, at the end of the reporting
period, to recover or settle the carrying amount of its assets and liabilities.
Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized
in other comprehensive income, in which case, the current and deferred tax are also recognized in other
comprehensive income.
Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect
is included in the accounting for the business combination.
Our Financial Reporting Obligations
Our ongoing financial reporting in our Form 20-F annual reports and interim financial reporting furnished to
the SEC on Form 6-K had been based on U.S. GAAP through fiscal year 2007. Beginning with our first quarter
interim financial report furnished on Form 6-K and our Form 20-F annual report for fiscal year 2008, we prepared our
financial statements under ROC GAAP, with reconciliations of net income and balance sheet differences of our
consolidated financial statements to U.S. GAAP. Beginning in 2013, we adopted Taiwan IFRSs for our reporting
obligations in the ROC, including our annual consolidated financial statements and our interim quarterly unaudited
consolidated financial statements beginning in the first quarter of 2013. While we have adopted Taiwan IFRSs for
ROC reporting obligations, we prepared financial statements under IFRSs for certain filings with the SEC, including
our annual reports on Form 20-F for the year ended December 31, 2013 and thereafter. Following our adoption of
IFRSs for the SEC filing purposes, we are no longer required to provide any reconciliation of our consolidated
financial statements with U.S. GAAP.
A. Operating Results
The following table sets forth our revenues, operating costs and expenses, income from operations and other
financial data for the periods indicated.
Domestic Fixed Communications ...................
Mobile communications ..................................
72.1
110.7
72.8
110.8
2.3
3.4
2014
NT$
Year Ended December 31
2016
NT$
US$
(in billions)
2015
NT$
72.5
114.9
million (US$18.4 million) respectively.
In 2015 and 2016, we determined that some of our investment properties’ recoverable amount which
represented the fair value less costs to sell of some land and buildings was higher than the carrying amount and
recognized reversals of impairment loss of NT$142 million and NT$148 million (US$4.6 million), respectively.
Pension Benefits
Payments to defined contribution retirement benefit plans are recognized as an expense when employees
rendered services entitling them to the contributions.
Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit
retirement benefit plans are determined using the projected unit credit method. Actuarial assumptions comprise the
discount rate, rate of employee turnover, and long-term average future salary increase. Changes in economic
circumstances and market conditions will affect these assumptions and may have a material impact on the amount of
the expense and the liability.
Service cost (including current service cost and gains or losses on settlements) and net interest on the net
defined benefit liability (asset) are recognized as employee benefits expense in the period they occur.
Remeasurement, comprising (a) actuarial gains and losses; and (b) the return on plan assets, excluding amounts
included in net interest on the net defined benefit liability (asset), is recognized in other comprehensive income in the
period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in
retained earnings and will not be reclassified to profit or loss.
future contributions to the plans.
settlement occurs.
Accounting for Income Taxes
Curtailment or settlement gains or losses on the defined benefit plan are recognized when the curtailment or
Income tax expense represents the sum of the tax currently payable and deferred tax.
The current tax is based on taxable profit for the year. Taxable profit differs from profit as reported in the
consolidated statements of comprehensive income because of items of income or expense that are taxable or
deductible in other years and items that are never taxable or deductible. The liability for current tax is calculated using
tax rates that have been enacted or substantively enacted by the end of the reporting period. Income tax (10%) on
undistributed earnings is accrued during the period the earnings arise and adjusted to the extent that distributions are
approved by the stockholders in the following year. Adjustments of prior years’ tax liabilities are added to or
deducted from the current year’s tax provision.
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in
the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. If the
temporary difference arises from the initial recognition, other than in a business combination, of assets and liabilities
in a transaction that affects neither the taxable profit nor the accounting profit, the resulting deferred tax asset or
liability is not recognized. In addition, a deferred tax liability is not recognized on taxable temporary difference
arising from initial recognition of goodwill.
Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are
generally recognized for all deductible temporary differences, unused loss carry forward and unused tax credits from
In 2014, 2015 and 2016, we determined that some of our telecommunications equipment and miscellaneous
equipment were impaired and recognized an impairment loss of NT$64 thousand, NT$138 million and NT$596
purchase of machinery, equipment and technology, and research and development expenditures to the extent that it is
probable that taxable profits will be available against which those deductible temporary differences can be utilized.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in
subsidiaries and associates, and interests in joint ventures, except where we are able to control the reversal of the
temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with such investments and interests are
only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the
benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the balance sheet date, and reduced to the extent
that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be
recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and
recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be
recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in
which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period. The measurement of deferred tax assets and liabilities
reflects the tax consequences that would follow from the manner in which we expect, at the end of the reporting
period, to recover or settle the carrying amount of its assets and liabilities.
Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized
in other comprehensive income, in which case, the current and deferred tax are also recognized in other
comprehensive income.
Net defined benefit liability (asset) represents the actual deficit (surplus) in our defined benefit plans. Any
surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in
Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect
is included in the accounting for the business combination.
Our Financial Reporting Obligations
Our ongoing financial reporting in our Form 20-F annual reports and interim financial reporting furnished to
the SEC on Form 6-K had been based on U.S. GAAP through fiscal year 2007. Beginning with our first quarter
interim financial report furnished on Form 6-K and our Form 20-F annual report for fiscal year 2008, we prepared our
financial statements under ROC GAAP, with reconciliations of net income and balance sheet differences of our
consolidated financial statements to U.S. GAAP. Beginning in 2013, we adopted Taiwan IFRSs for our reporting
obligations in the ROC, including our annual consolidated financial statements and our interim quarterly unaudited
consolidated financial statements beginning in the first quarter of 2013. While we have adopted Taiwan IFRSs for
ROC reporting obligations, we prepared financial statements under IFRSs for certain filings with the SEC, including
our annual reports on Form 20-F for the year ended December 31, 2013 and thereafter. Following our adoption of
IFRSs for the SEC filing purposes, we are no longer required to provide any reconciliation of our consolidated
financial statements with U.S. GAAP.
A. Operating Results
The following table sets forth our revenues, operating costs and expenses, income from operations and other
financial data for the periods indicated.
Year Ended December 31
2014
NT$
2015
NT$
2016
NT$
US$
(in billions)
Revenues:
Domestic Fixed Communications ...................
Mobile communications ..................................
72.1
110.7
72.5
114.9
72.8
110.8
2.3
3.4
69
Internet ............................................................
International fixed communications ................
Others ..............................................................
Total revenues ........................................
Operating costs .........................................................
Operating expenses:
Marketing ........................................................
General and administrative ..............................
Research and development ..............................
Total operating expenses........................
Other income and expenses ......................................
Income from operations ............................................
Non-operating income and expenses ...............
Income before income tax .........................................
Income tax expense .........................................
Consolidated net income ...........................................
Attributable to:
Stockholders of the parent ...............................
Noncontrolling interests ..................................
26.0
15.3
2.5
226.6
148.4
26.1
4.4
3.5
34.0
0.6
44.8
1.8
46.6
9.0
37.6
37.0
0.6
25.8
15.5
3.1
231.8
148.1
25.1
4.5
3.6
33.2
(0.1)
50.4
1.6
52.0
9.1
42.9
42.1
0.8
28.1
14.4
3.9
230.0
147.6
25.5
4.5
3.8
33.8
(0.5)
48.1
1.3
49.4
7.8
41.6
40.5
1.1
0.9
0.4
0.1
7.1
4.6
0.8
0.1
0.1
1.0
(0.0)
1.5
0.0
1.5
0.2
1.3
1.3
0.0
The following table sets forth our revenues, operating costs and expenses, income from operations and other
financial data as a percentage of our total revenues for the periods indicated.
2014
Year Ended December 31
2015
(as percentages of total revenues)
2016
Revenues:
Domestic fixed communications .................................................
Mobile communications ..............................................................
Internet ........................................................................................
International fixed communications ............................................
Others ..........................................................................................
Total revenues ....................................................................
Operating costs .....................................................................................
Operating expenses:
Marketing ....................................................................................
General and administrative ..........................................................
Research and development ..........................................................
Total operating expenses....................................................
Other income and expenses ..................................................................
Income from operations ........................................................................
Non-operating income and expenses ...........................................
Income before income tax .....................................................................
Income tax expense .....................................................................
Consolidated net income .......................................................................
Attributable to:
Stockholders of the parent ...........................................................
Noncontrolling interests ..............................................................
31.8%
48.8
11.5
6.8
1.1
100.0%
65.5%
11.5
2.0
1.5
15.0
0.3
19.8
0.8
20.6
4.0
16.6%
16.3%
0.3%
31.3%
49.6
11.1
6.7
1.3
100.0%
63.9%
10.8
1.9
1.6
14.3
(0.1)
21.7
0.7
22.4
3.9
18.5%
18.2%
0.3%
31.6%
48.2
12.2
6.3
1.7
100.0%
64.2%
11.1
2.0
1.6
14.7
(0.2)
20.9
0.6
21.5
3.4
18.1%
17.6%
0.5%
Each of our operating segments is managed separately because each represents a strategic business unit that
serves a different market. We measure our segment performances mainly based on revenues and income before
income tax.
70
The year ended December 31, 2016 compared with the year ended December 31, 2015
Our revenues decreased by 0.8% from NT$231.8 billion in 2015 to NT$230.0 billion (US$7.1 billion) in
2016. This decrease was primarily due to the decrease in revenues generated from mobile communications.
Revenues
Domestic fixed communications
Domestic fixed communications revenues accounted for 31.3% and 31.6% of our revenues in 2015 and
2016, respectively. Our domestic fixed-line revenues increased by 0.3% from NT$72.5 billion in 2015 to NT$72.8
billion (US$2.3 billion) in 2016 primarily due to growth in ICT revenues generated by enterprises and government,
which was partially offset by a decrease in local and domestic long distance telephone revenues.
Local telephone services. Our local telephone revenues decreased from NT$33.6 billion in 2015 to NT$31.6
billion (US$1.0 billion) in 2016 with a 9.8% decline in traffic volume from 10.5 billion minutes in 2015 to 9.5 billion
minutes in 2016. The decline in traffic volume was primarily due to the traffic migration from fixed-line services to
mobile and internet telephone services. We expect this trend to continue as broadband and mobile services become
more popular in Taiwan.
Domestic long distance telephone services. Our domestic long distance telephone revenues decreased by
7.6% from NT$3.1 billion in 2015 to NT$2.9 billion (US$0.1 billion) in 2016. This decrease was mainly due to the
traffic migration to mobile services and the increased use of VoIP applications.
Broadband access. The number of our FTTx customers increased from approximately 3.4 million in 2015 to
approximately 3.5 million in 2016. The number of our ADSL customers decreased from 1.1 million in 2015 to
approximately 1.0 million in 2016 due to the customers’ migration to our FTTx services. Revenues generated from
broadband access slightly decreased from NT$19.3 billion in 2015 to NT$19.0 billion (US$0.6 billion) in 2016,
mainly due to increased competition in the market and the mandatory tariff reduction.
Domestic leased line. Our tariffs for overall leased line services continued to decrease due to competition
from other fixed-line operators, as well as the continued migration of domestic leased line customers to high speed
broadband services. Revenues generated from domestic leased line services decreased from NT$4.4 billion in 2015 to
NT$4.3 billion (US$0.1 billion) in 2016.
MOD. Revenues generated from our MOD services decreased by 5.5% from NT$2.5 billion in 2015 to
NT$2.4 billion (US$72.7 million) in 2016. This decrease was due to the adjustment of our cooperation schemes with
channel providers started from third quarter in 2015. The new schemes bring down our operating expenses while also
impacting our revenues at the same time. We expect this structural change to enhance our IPTV margins in the mid-
to-long term.
Domestic ICT and other services. Other revenues increased by 30.5% from NT$9.6 billion in 2015 to
NT$12.6 billion (US$0.4 billion) in 2016. This increase was mainly due to the increased revenue from ICT projects.
Mobile communications
Revenues from our mobile communications business segment accounted for 49.6% and 48.2% of our
revenues in 2015 and 2016, respectively. Revenues from our mobile communications business segment decreased by
3.5% from NT$114.9 billion in 2015 to NT$110.8 billion (US$3.4 billion) in 2016. This decrease was due to the
decline in mobile voice telecommunication revenues and sales of mobile handsets, tablets and data cards and was
offset by growth in mobile VAS revenues. The decrease in mobile voice telecommunication traffic was mainly due to
migration to free VoIP applications.
Mobile services. Revenues from our mobile services accounted for 34.9% and 34.2% of our revenues in
2015 and 2016, respectively. Revenues from our mobile services decreased by 2.6% from NT$80.9 billion in 2015 to
Internet ............................................................
International fixed communications ................
Others ..............................................................
Total revenues ........................................
Operating costs .........................................................
Operating expenses:
Marketing ........................................................
General and administrative ..............................
Research and development ..............................
Total operating expenses........................
Other income and expenses ......................................
Income from operations ............................................
Non-operating income and expenses ...............
Income before income tax .........................................
Income tax expense .........................................
Consolidated net income ...........................................
Attributable to:
Stockholders of the parent ...............................
Noncontrolling interests ..................................
26.0
15.3
2.5
226.6
148.4
26.1
4.4
3.5
34.0
0.6
44.8
1.8
46.6
9.0
37.6
37.0
0.6
Revenues:
Domestic fixed communications .................................................
Mobile communications ..............................................................
Internet ........................................................................................
International fixed communications ............................................
Others ..........................................................................................
Total revenues ....................................................................
Operating costs .....................................................................................
Operating expenses:
Marketing ....................................................................................
General and administrative ..........................................................
Research and development ..........................................................
Total operating expenses....................................................
Other income and expenses ..................................................................
Income from operations ........................................................................
Non-operating income and expenses ...........................................
Income before income tax .....................................................................
Income tax expense .....................................................................
Consolidated net income .......................................................................
Attributable to:
25.8
15.5
3.1
231.8
148.1
25.1
4.5
3.6
33.2
(0.1)
50.4
1.6
52.0
9.1
42.9
42.1
0.8
31.8%
48.8
11.5
6.8
1.1
100.0%
65.5%
11.5
2.0
1.5
15.0
0.3
19.8
0.8
20.6
4.0
28.1
14.4
3.9
230.0
147.6
25.5
4.5
3.8
33.8
(0.5)
48.1
1.3
49.4
7.8
41.6
40.5
1.1
31.3%
49.6
11.1
6.7
1.3
100.0%
63.9%
10.8
1.9
1.6
14.3
(0.1)
21.7
0.7
22.4
3.9
0.9
0.4
0.1
7.1
4.6
0.8
0.1
0.1
1.0
1.5
0.0
1.5
0.2
1.3
1.3
0.0
(0.0)
31.6%
48.2
12.2
6.3
1.7
100.0%
64.2%
11.1
2.0
1.6
14.7
(0.2)
20.9
0.6
21.5
3.4
The following table sets forth our revenues, operating costs and expenses, income from operations and other
financial data as a percentage of our total revenues for the periods indicated.
Year Ended December 31
2014
2015
2016
(as percentages of total revenues)
16.6%
18.5%
18.1%
Stockholders of the parent ...........................................................
Noncontrolling interests ..............................................................
16.3%
0.3%
18.2%
0.3%
17.6%
0.5%
Each of our operating segments is managed separately because each represents a strategic business unit that
serves a different market. We measure our segment performances mainly based on revenues and income before
income tax.
The year ended December 31, 2016 compared with the year ended December 31, 2015
Revenues
Our revenues decreased by 0.8% from NT$231.8 billion in 2015 to NT$230.0 billion (US$7.1 billion) in
2016. This decrease was primarily due to the decrease in revenues generated from mobile communications.
Domestic fixed communications
Domestic fixed communications revenues accounted for 31.3% and 31.6% of our revenues in 2015 and
2016, respectively. Our domestic fixed-line revenues increased by 0.3% from NT$72.5 billion in 2015 to NT$72.8
billion (US$2.3 billion) in 2016 primarily due to growth in ICT revenues generated by enterprises and government,
which was partially offset by a decrease in local and domestic long distance telephone revenues.
Local telephone services. Our local telephone revenues decreased from NT$33.6 billion in 2015 to NT$31.6
billion (US$1.0 billion) in 2016 with a 9.8% decline in traffic volume from 10.5 billion minutes in 2015 to 9.5 billion
minutes in 2016. The decline in traffic volume was primarily due to the traffic migration from fixed-line services to
mobile and internet telephone services. We expect this trend to continue as broadband and mobile services become
more popular in Taiwan.
Domestic long distance telephone services. Our domestic long distance telephone revenues decreased by
7.6% from NT$3.1 billion in 2015 to NT$2.9 billion (US$0.1 billion) in 2016. This decrease was mainly due to the
traffic migration to mobile services and the increased use of VoIP applications.
Broadband access. The number of our FTTx customers increased from approximately 3.4 million in 2015 to
approximately 3.5 million in 2016. The number of our ADSL customers decreased from 1.1 million in 2015 to
approximately 1.0 million in 2016 due to the customers’ migration to our FTTx services. Revenues generated from
broadband access slightly decreased from NT$19.3 billion in 2015 to NT$19.0 billion (US$0.6 billion) in 2016,
mainly due to increased competition in the market and the mandatory tariff reduction.
Domestic leased line. Our tariffs for overall leased line services continued to decrease due to competition
from other fixed-line operators, as well as the continued migration of domestic leased line customers to high speed
broadband services. Revenues generated from domestic leased line services decreased from NT$4.4 billion in 2015 to
NT$4.3 billion (US$0.1 billion) in 2016.
MOD. Revenues generated from our MOD services decreased by 5.5% from NT$2.5 billion in 2015 to
NT$2.4 billion (US$72.7 million) in 2016. This decrease was due to the adjustment of our cooperation schemes with
channel providers started from third quarter in 2015. The new schemes bring down our operating expenses while also
impacting our revenues at the same time. We expect this structural change to enhance our IPTV margins in the mid-
to-long term.
Domestic ICT and other services. Other revenues increased by 30.5% from NT$9.6 billion in 2015 to
NT$12.6 billion (US$0.4 billion) in 2016. This increase was mainly due to the increased revenue from ICT projects.
Mobile communications
Revenues from our mobile communications business segment accounted for 49.6% and 48.2% of our
revenues in 2015 and 2016, respectively. Revenues from our mobile communications business segment decreased by
3.5% from NT$114.9 billion in 2015 to NT$110.8 billion (US$3.4 billion) in 2016. This decrease was due to the
decline in mobile voice telecommunication revenues and sales of mobile handsets, tablets and data cards and was
offset by growth in mobile VAS revenues. The decrease in mobile voice telecommunication traffic was mainly due to
migration to free VoIP applications.
Mobile services. Revenues from our mobile services accounted for 34.9% and 34.2% of our revenues in
2015 and 2016, respectively. Revenues from our mobile services decreased by 2.6% from NT$80.9 billion in 2015 to
71
NT$78.8 billion (US$2.4 billion) in 2016 due to a decrease in mobile voice telecommunication revenues from
NT$41.3 billion in 2015 to NT$37.3 billion (US$1.2 billion) in 2016, which was partially offset by the growth in
mobile VAS revenues.
Marketing
Sales of mobile handsets, tablets and data cards. Revenues from our sales of mobile handsets, tablets and
data cards accounted for 14.3% and 13.4% of our revenues in 2015 and 2016, respectively. Revenues from our sales
of mobile handsets, tablets and data cards decreased by 7.0% from NT$33.2 billion in 2015 to NT$30.8 billion
(US$1.0 billion) in 2016. This decrease was primarily due to lower sales of smartphones and tablets, as a result of the
overall decrease in sales of smart devices in the entire market in Taiwan.
Internet
Revenues from internet business accounted for 11.1% and 12.2% of our revenues in 2015 and 2016,
respectively. Revenues from our internet services increased by 9.0% from NT$25.8 billion in 2015 to NT$28.1 billion
(US$0.9 billion) in 2016 mainly due to the increase in revenues generated from services such as IDC, cloud
computing, information security and IoT.
International fixed communications
International fixed communications revenues accounted for 6.7% and 6.3% of our revenues in 2015 and
2016, respectively. Our international fixed communications revenues decreased by 6.6% from NT$15.5 billion in
2015 to NT$14.4 billion (US$0.4 billion) in 2016. This decrease was mainly due to the decrease in revenues
generated from international long distance telephone service.
International long distance telephone services. Our international long distance telephone revenues decreased
by 8.5% from NT$9.6 billion in 2015 to NT$8.8 billion (US$0.3 billion) in 2016 due to the migration to VoIP-based
international long distance service providers and free VoIP applications.
International ICT and other services. Our international ICT and other revenues increased by 12.2% from
NT$1.6 billion in 2015 to NT$1.7 billion (US$53.8 million) in 2016. The main reason for the revenue growth in 2016
is that we provide overseas ICT service for multinational enterprises and our customers benefit from our one stop
shopping service for total solutions to overseas business sites.
Others
Other revenues accounted for 1.3% and 1.7% of our revenues in 2015 and 2016, respectively. Our other
revenues increased by 23.1% from NT$3.1 billion in 2015 to NT$3.9 billion (US$0.1 billion) in 2016. The increase
was mainly due to operating growth derived from one of our subsidiaries, CHPT, a semiconductor testing company.
Operating Costs
Our operating costs include depreciation and amortization expenses, personnel expenses, cost of goods sold,
interconnection and service expenses, costs of materials and maintenance and spectrum usage and license fees.
Mobile communications
Our operating costs decreased by 0.4% from NT$148.1 billion in 2015 to NT$147.6 billion (US$4.6 billion)
in 2016. This decrease was primarily due to a decrease of NT$1.8 billion (US$0.1 billion) in interconnection and
service expenses, and a decrease of NT$1.5 billion (US$45.6 million) in cost of goods sold. The decrease was
partially offset by an increase of NT$2.8 billion (US$0.1 billion) in ICT costs.
Operating Expenses
Our operating expenses increased by 1.9% from NT$33.2 billion in 2015 to NT$33.8 billion (US$1.0 billion)
in 2016. This increase was primarily due to an increase in marketing expenses.
expenses.
Our marketing expenses, which include personnel expenses, expenses relating to advertising and marketing-
related activities and provision for bad debt, increased by 1.8% from NT$25.1 billion in 2015 to NT$25.5 (US$0.8
billion) billion in 2016. This increase was primarily due to increases of provision for bad debt and personnel expenses.
The increase was partially offset by a decrease of outsourcing expenses.
Our general and administrative expenses remained stable at NT$4.5 billion (US$0.1 billion) in 2015 and
General and administrative
2016.
Research and development
Our research and development expenses increased by 4.6% from NT$3.6 billion in 2015 to NT$3.8 billion
(US$0.1 billion) in 2016. This increase was primarily due to an increase in personnel expenses. In 2015 and 2016, we
did not capitalize any research and development expenses as intangible assets because there were no research and
development expenses related to development or the development phase of an internal project in 2015 and 2016.
Operating Costs and Expenses by Business Segment
Domestic Fixed
Mobile
Communications
Communications Internet
Communications Others Adjustment Total
International
Fixed
(in billions of NT$)
70.3
16.4
71.0
17.5
99.1
10.6
98.9
10.4
22.1
3.6
20.6
3.6
16.0
10.6
(36.7)
181.4
1.5
0.4
—
32.5
16.5
1.5
9.2
0.4
(34.9)
181.3
—
33.4
For the year ended
December 31, 2016
Operating costs and expenses .....
Depreciation and
amortization ..........................
For the year ended
December 31, 2015
Operating costs and expenses .....
Depreciation and
amortization ..........................
Domestic fixed communications
Our domestic fixed communications costs and expenses decreased by 0.9% from NT$71.0 billion in 2015 to
NT$70.3 billion (US$2.2 billion) in 2016, primarily due to a decrease of NT$1.5 billion (US$44.8 million) in
interconnection costs, a decrease of NT$1.1 billion (US$33.3 million) in depreciation and amortization expenses, and
a decrease of NT$0.5 billion (US$15.4 million) in personnel expenses. The decrease in our operating costs and
expenses was partially offset by an increase of NT$2.6 billion (US$0.1 billion) in ICT costs.
Our mobile communications operating costs and expenses increased by 0.2% from NT$98.9 billion in 2015
to NT$99.1 (US$3.1 billion) billion in 2016. This increase was primarily due to an increase of NT$1.6 billion
(US$49.4 million) in intersegment leased line expenses, an increase of NT$0.5 billion (US$14.2 million) in marketing
expenses, an increase of NT$0.2 billion (US$5.6 million) in depreciation and amortization expenses, an increase of
NT$0.2 billion in intersegment internet VAS expenses (US$5.2 million), an increase of NT$0.2 billion (US$5.2
million) in maintenance expenses, and an increase of NT$0.2 billion (US$4.6 million) in rental expenses. The
increase in our operating costs and expenses was partially offset by a decrease of NT$1.5 billion (US$46.6 million) in
cost of goods sold from our subsidiary, Senao, and a decrease of NT$1.1 billion (US$33.0 million) in interconnection
72
NT$78.8 billion (US$2.4 billion) in 2016 due to a decrease in mobile voice telecommunication revenues from
NT$41.3 billion in 2015 to NT$37.3 billion (US$1.2 billion) in 2016, which was partially offset by the growth in
Marketing
Sales of mobile handsets, tablets and data cards. Revenues from our sales of mobile handsets, tablets and
data cards accounted for 14.3% and 13.4% of our revenues in 2015 and 2016, respectively. Revenues from our sales
of mobile handsets, tablets and data cards decreased by 7.0% from NT$33.2 billion in 2015 to NT$30.8 billion
(US$1.0 billion) in 2016. This decrease was primarily due to lower sales of smartphones and tablets, as a result of the
overall decrease in sales of smart devices in the entire market in Taiwan.
mobile VAS revenues.
Internet
Revenues from internet business accounted for 11.1% and 12.2% of our revenues in 2015 and 2016,
respectively. Revenues from our internet services increased by 9.0% from NT$25.8 billion in 2015 to NT$28.1 billion
(US$0.9 billion) in 2016 mainly due to the increase in revenues generated from services such as IDC, cloud
computing, information security and IoT.
International fixed communications
International fixed communications revenues accounted for 6.7% and 6.3% of our revenues in 2015 and
2016, respectively. Our international fixed communications revenues decreased by 6.6% from NT$15.5 billion in
2015 to NT$14.4 billion (US$0.4 billion) in 2016. This decrease was mainly due to the decrease in revenues
generated from international long distance telephone service.
International long distance telephone services. Our international long distance telephone revenues decreased
by 8.5% from NT$9.6 billion in 2015 to NT$8.8 billion (US$0.3 billion) in 2016 due to the migration to VoIP-based
international long distance service providers and free VoIP applications.
International ICT and other services. Our international ICT and other revenues increased by 12.2% from
NT$1.6 billion in 2015 to NT$1.7 billion (US$53.8 million) in 2016. The main reason for the revenue growth in 2016
is that we provide overseas ICT service for multinational enterprises and our customers benefit from our one stop
shopping service for total solutions to overseas business sites.
Others
Operating Costs
Other revenues accounted for 1.3% and 1.7% of our revenues in 2015 and 2016, respectively. Our other
revenues increased by 23.1% from NT$3.1 billion in 2015 to NT$3.9 billion (US$0.1 billion) in 2016. The increase
was mainly due to operating growth derived from one of our subsidiaries, CHPT, a semiconductor testing company.
Our operating costs include depreciation and amortization expenses, personnel expenses, cost of goods sold,
interconnection and service expenses, costs of materials and maintenance and spectrum usage and license fees.
Our operating costs decreased by 0.4% from NT$148.1 billion in 2015 to NT$147.6 billion (US$4.6 billion)
in 2016. This decrease was primarily due to a decrease of NT$1.8 billion (US$0.1 billion) in interconnection and
service expenses, and a decrease of NT$1.5 billion (US$45.6 million) in cost of goods sold. The decrease was
partially offset by an increase of NT$2.8 billion (US$0.1 billion) in ICT costs.
Operating Expenses
Our operating expenses increased by 1.9% from NT$33.2 billion in 2015 to NT$33.8 billion (US$1.0 billion)
in 2016. This increase was primarily due to an increase in marketing expenses.
Our marketing expenses, which include personnel expenses, expenses relating to advertising and marketing-
related activities and provision for bad debt, increased by 1.8% from NT$25.1 billion in 2015 to NT$25.5 (US$0.8
billion) billion in 2016. This increase was primarily due to increases of provision for bad debt and personnel expenses.
The increase was partially offset by a decrease of outsourcing expenses.
General and administrative
Our general and administrative expenses remained stable at NT$4.5 billion (US$0.1 billion) in 2015 and
2016.
Research and development
Our research and development expenses increased by 4.6% from NT$3.6 billion in 2015 to NT$3.8 billion
(US$0.1 billion) in 2016. This increase was primarily due to an increase in personnel expenses. In 2015 and 2016, we
did not capitalize any research and development expenses as intangible assets because there were no research and
development expenses related to development or the development phase of an internal project in 2015 and 2016.
Operating Costs and Expenses by Business Segment
Domestic Fixed
Communications
Mobile
International
Fixed
Communications Internet
Communications Others Adjustment Total
(in billions of NT$)
For the year ended
December 31, 2016
Operating costs and expenses .....
Depreciation and
amortization ..........................
For the year ended
December 31, 2015
Operating costs and expenses .....
Depreciation and
amortization ..........................
Domestic fixed communications
70.3
16.4
71.0
17.5
99.1
10.6
98.9
10.4
22.1
22.1
3.6
3.6
20.6
20.6
3.6
3.6
16.0
10.6
(36.7)
181.4
181.4
1.5
0.4
—
32.5
32.5
16.5
1.5
9.2
0.4
(34.9)
181.3
181.3
—
33.4
33.4
Our domestic fixed communications costs and expenses decreased by 0.9% from NT$71.0 billion in 2015 to
NT$70.3 billion (US$2.2 billion) in 2016, primarily due to a decrease of NT$1.5 billion (US$44.8 million) in
interconnection costs, a decrease of NT$1.1 billion (US$33.3 million) in depreciation and amortization expenses, and
a decrease of NT$0.5 billion (US$15.4 million) in personnel expenses. The decrease in our operating costs and
expenses was partially offset by an increase of NT$2.6 billion (US$0.1 billion) in ICT costs.
Mobile communications
Our mobile communications operating costs and expenses increased by 0.2% from NT$98.9 billion in 2015
to NT$99.1 (US$3.1 billion) billion in 2016. This increase was primarily due to an increase of NT$1.6 billion
(US$49.4 million) in intersegment leased line expenses, an increase of NT$0.5 billion (US$14.2 million) in marketing
expenses, an increase of NT$0.2 billion (US$5.6 million) in depreciation and amortization expenses, an increase of
NT$0.2 billion in intersegment internet VAS expenses (US$5.2 million), an increase of NT$0.2 billion (US$5.2
million) in maintenance expenses, and an increase of NT$0.2 billion (US$4.6 million) in rental expenses. The
increase in our operating costs and expenses was partially offset by a decrease of NT$1.5 billion (US$46.6 million) in
cost of goods sold from our subsidiary, Senao, and a decrease of NT$1.1 billion (US$33.0 million) in interconnection
expenses.
73
Internet
Our internet operating costs and expenses increased by 7.5% from NT$20.6 billion in 2015 to NT$22.1
billion (US$0.7 billion) in 2016. This increase was primarily due to an increase of NT$0.6 billion (US$17.9 million)
in ICT costs, an increase of NT$0.4 billion (US$12.0 million) in maintenance and rental expenses, an increase of
NT$0.3 billion (US$8.6 million) in costs of award credits and an increase of NT$0.1 billion (US$3.1 million) in
leased line expenses.
International fixed communications
Our international fixed communications costs and expenses decreased by 2.8% from NT$16.5 billion in 2015
to NT$16.0 billion (US$0.5 billion) in 2016. The decrease was primarily due to a decrease of NT$0.3 billion (US$8.6
million) in intersegment interconnection costs, a decrease of NT$0.2 billion (US$6.8 million) in international
settlement expenses, and a decrease of NT$0.1 billion (US$2.2 million) in personnel expenses. The decrease in our
operating costs and expenses was partially offset by an increase of NT$0.2 billion (US$6.5 million) in ICT costs.
Others
The costs and expenses from our other business increased by 13.8% from NT$9.2 billion in 2015 to NT$10.6
billion (US$0.3 billion) in 2016. The increase was primarily due to an increase in operating costs and expenses from
our subsidiaries, Honghwa International Co., Ltd., or Honghwa, and CHPT due to the business growth of these two
entities. The increase was partially offset by a decrease in intersegment cloud service expenses.
Other Income and Expenses
We recorded net other expense of NT$0.1 billion in 2015 and NT$0.5 billion (US$15.3 million) in 2016,
respectively. The difference between 2015 and 2016 was primarily due to the impairment losses on some
telecommunications equipment of NT$0.6 billion (US$18.4 million) in 2016.
Income from Operations and Operating Margin
As a result of the foregoing, segment income before tax for our domestic fixed communications business
increased by 10.4% from NT$23.3 billion in 2015 to NT$25.7 billion (US$0.8 billion) in 2016; segment income
before tax for our mobile communications business decreased by 28.2% from NT$19.4 billion in 2015 to NT$13.9
(US$0.4 billion) billion in 2016; segment income before tax for our internet business increased by 8.2% from NT$9.9
billion in 2015 to NT$10.7 billion (US$0.3 billion) in 2016; segment income before tax for our international fixed
communications business remained stable at NT$1.1 billion (US$33.9 million) in 2015 and 2016; and segment loss
for our other business segments increased by 16.8% from NT$1.7 billion in 2015 to NT$2.0 billion (US$61.6 million)
in 2016.
Non-operating Income and Expenses
Our non-operating income decreased from NT$1.6 billion in 2015 to NT$1.3 billion (US$40.4 million) in
2016. This decrease was primarily due to an increase in impairment losses on available-for-sale financial assets.
Our income tax was NT$9.1 billion and NT$7.8 billion (US$0.2 billion) in 2015 and 2016, respectively. Our
effective tax rate was 17.5% in 2015 and 15.8% in 2016. The decrease in our effective tax rate from 2015 to 2016 was
primarily due to a decrease in the 10% tax on unappropriated earnings. See “Item 5. Operating and Financial Review
and Prospects—Overview—Taxation” for a discussion of the change in tax rate.
As a result of the foregoing, our net income attributable to stockholders of the parent was NT$42.1 billion
and NT$40.5 billion (US$1.3 billion) in 2015 and 2016, respectively. Our net margin decreased from 18.2% in 2015
The year ended December 31, 2015 compared with the year ended December 31, 2014
Income Tax
Net Income
to 17.6% in 2016.
Revenues
As a result of the foregoing, our income from operations decreased by 4.5% from NT$50.4 billion in 2015 to
NT$48.1 billion (US$1.5 billion) in 2016. Our operating margin decreased from 21.7% in 2015 to 20.9% in 2016.
Our revenues increased by 2.3% from NT$226.6 billion in 2014 to NT$231.8 billion in 2015. This increase
was primarily due to the increase in revenues generated from mobile communications.
The following table sets forth certain information regarding our revenues and income before income tax by
Domestic fixed communications
business segment for the periods indicated.
Domestic Fixed
Communications
Mobile
Communications
Internet
International
Fixed
Communications
(in billions of NT$)
Others
Adjustment
Total
For the year ended
December 31, 2016
Revenues from external
customers .......................
Intersegment service
revenues .........................
Segment income before
income tax .....................
For the year ended
December 31, 2015
Revenues from external
customers .......................
Intersegment service
revenues .........................
Segment income before
income tax .....................
72.8
22.7
95.5
25.7
72.5
21.4
93.9
23.3
110.8
2.5
113.3
13.9
114.9
3.5
118.4
19.4
28.1
4.7
32.8
10.7
25.8
4.7
30.5
9.9
14.4
2.7
17.1
3.9
4.1
8.0
—
(36.7)
(36.7)
230.0
—
230.0
1.1
(2.0)
—
49.4
15.5
2.1
17.6
1.1
3.1
3.2
6.3
—
(34.9)
(34.9)
(1.7)
—
231.8
—
231.8
52.0
Domestic fixed communications revenues accounted for 31.8% and 31.3% of our revenues in 2014 and
2015, respectively. Our domestic fixed-line revenues increased by 0.7% from NT$72.1 billion in 2014 to NT$72.5
billion in 2015 primarily due to growth in ICT revenues generated by enterprises and government, which was
partially offset by a decrease in local and domestic long distance telephone revenues.
Local telephone services. Our local telephone revenues decreased from NT$35.6 billion in 2014 to NT$33.6
billion in 2015 with a 9.1% decline in traffic volume from 11.6 billion minutes in 2014 to 10.5 billion minutes in
2015. The decline in traffic volume was primarily due to the traffic migration from fixed-line services to mobile and
internet telephone services. We expect this trend to continue as broadband and mobile services become more popular
in Taiwan.
Domestic long distance telephone services. Our domestic long distance telephone revenues decreased by
5.7% from NT$3.3 billion in 2014 to NT$3.1 billion in 2015. This decrease was mainly due to the traffic migration to
mobile services and the increased use of VoIP applications.
Broadband access. The number of our FTTx customers increased from approximately 3.1 million in 2014 to
approximately 3.4 million in 2015. The number of our ADSL customers decreased from 1.4 million in 2014 to 1.1
million in 2015 due to the customers’ migration to our FTTx services. Revenues generated from broadband access
74
Internet
Others
Our internet operating costs and expenses increased by 7.5% from NT$20.6 billion in 2015 to NT$22.1
billion (US$0.7 billion) in 2016. This increase was primarily due to an increase of NT$0.6 billion (US$17.9 million)
in ICT costs, an increase of NT$0.4 billion (US$12.0 million) in maintenance and rental expenses, an increase of
NT$0.3 billion (US$8.6 million) in costs of award credits and an increase of NT$0.1 billion (US$3.1 million) in
leased line expenses.
International fixed communications
Our international fixed communications costs and expenses decreased by 2.8% from NT$16.5 billion in 2015
to NT$16.0 billion (US$0.5 billion) in 2016. The decrease was primarily due to a decrease of NT$0.3 billion (US$8.6
million) in intersegment interconnection costs, a decrease of NT$0.2 billion (US$6.8 million) in international
settlement expenses, and a decrease of NT$0.1 billion (US$2.2 million) in personnel expenses. The decrease in our
operating costs and expenses was partially offset by an increase of NT$0.2 billion (US$6.5 million) in ICT costs.
The costs and expenses from our other business increased by 13.8% from NT$9.2 billion in 2015 to NT$10.6
billion (US$0.3 billion) in 2016. The increase was primarily due to an increase in operating costs and expenses from
our subsidiaries, Honghwa International Co., Ltd., or Honghwa, and CHPT due to the business growth of these two
entities. The increase was partially offset by a decrease in intersegment cloud service expenses.
As a result of the foregoing, segment income before tax for our domestic fixed communications business
increased by 10.4% from NT$23.3 billion in 2015 to NT$25.7 billion (US$0.8 billion) in 2016; segment income
before tax for our mobile communications business decreased by 28.2% from NT$19.4 billion in 2015 to NT$13.9
(US$0.4 billion) billion in 2016; segment income before tax for our internet business increased by 8.2% from NT$9.9
billion in 2015 to NT$10.7 billion (US$0.3 billion) in 2016; segment income before tax for our international fixed
communications business remained stable at NT$1.1 billion (US$33.9 million) in 2015 and 2016; and segment loss
for our other business segments increased by 16.8% from NT$1.7 billion in 2015 to NT$2.0 billion (US$61.6 million)
in 2016.
Non-operating Income and Expenses
Our non-operating income decreased from NT$1.6 billion in 2015 to NT$1.3 billion (US$40.4 million) in
2016. This decrease was primarily due to an increase in impairment losses on available-for-sale financial assets.
Income Tax
Our income tax was NT$9.1 billion and NT$7.8 billion (US$0.2 billion) in 2015 and 2016, respectively. Our
effective tax rate was 17.5% in 2015 and 15.8% in 2016. The decrease in our effective tax rate from 2015 to 2016 was
primarily due to a decrease in the 10% tax on unappropriated earnings. See “Item 5. Operating and Financial Review
and Prospects—Overview—Taxation” for a discussion of the change in tax rate.
Net Income
Other Income and Expenses
We recorded net other expense of NT$0.1 billion in 2015 and NT$0.5 billion (US$15.3 million) in 2016,
respectively. The difference between 2015 and 2016 was primarily due to the impairment losses on some
telecommunications equipment of NT$0.6 billion (US$18.4 million) in 2016.
As a result of the foregoing, our net income attributable to stockholders of the parent was NT$42.1 billion
and NT$40.5 billion (US$1.3 billion) in 2015 and 2016, respectively. Our net margin decreased from 18.2% in 2015
to 17.6% in 2016.
The year ended December 31, 2015 compared with the year ended December 31, 2014
Income from Operations and Operating Margin
Revenues
As a result of the foregoing, our income from operations decreased by 4.5% from NT$50.4 billion in 2015 to
NT$48.1 billion (US$1.5 billion) in 2016. Our operating margin decreased from 21.7% in 2015 to 20.9% in 2016.
Our revenues increased by 2.3% from NT$226.6 billion in 2014 to NT$231.8 billion in 2015. This increase
was primarily due to the increase in revenues generated from mobile communications.
The following table sets forth certain information regarding our revenues and income before income tax by
Domestic fixed communications
business segment for the periods indicated.
Domestic Fixed
Mobile
Communications
Communications
Internet
Communications
Others
Adjustment
Total
International
Fixed
(in billions of NT$)
For the year ended
December 31, 2016
Revenues from external
customers .......................
Intersegment service
revenues .........................
Segment income before
income tax .....................
For the year ended
December 31, 2015
Revenues from external
customers .......................
Intersegment service
revenues .........................
Segment income before
income tax .....................
72.8
22.7
95.5
25.7
72.5
21.4
93.9
23.3
110.8
2.5
113.3
13.9
114.9
3.5
118.4
19.4
28.1
4.7
32.8
10.7
25.8
4.7
30.5
9.9
—
(36.7)
(36.7)
230.0
—
230.0
1.1
(2.0)
—
49.4
3.9
4.1
8.0
3.1
3.2
6.3
14.4
2.7
17.1
15.5
2.1
17.6
1.1
—
(34.9)
(34.9)
231.8
—
231.8
52.0
(1.7)
—
Domestic fixed communications revenues accounted for 31.8% and 31.3% of our revenues in 2014 and
2015, respectively. Our domestic fixed-line revenues increased by 0.7% from NT$72.1 billion in 2014 to NT$72.5
billion in 2015 primarily due to growth in ICT revenues generated by enterprises and government, which was
partially offset by a decrease in local and domestic long distance telephone revenues.
Local telephone services. Our local telephone revenues decreased from NT$35.6 billion in 2014 to NT$33.6
billion in 2015 with a 9.1% decline in traffic volume from 11.6 billion minutes in 2014 to 10.5 billion minutes in
2015. The decline in traffic volume was primarily due to the traffic migration from fixed-line services to mobile and
internet telephone services. We expect this trend to continue as broadband and mobile services become more popular
in Taiwan.
Domestic long distance telephone services. Our domestic long distance telephone revenues decreased by
5.7% from NT$3.3 billion in 2014 to NT$3.1 billion in 2015. This decrease was mainly due to the traffic migration to
mobile services and the increased use of VoIP applications.
Broadband access. The number of our FTTx customers increased from approximately 3.1 million in 2014 to
approximately 3.4 million in 2015. The number of our ADSL customers decreased from 1.4 million in 2014 to 1.1
million in 2015 due to the customers’ migration to our FTTx services. Revenues generated from broadband access
75
slightly increased from NT$19.1 billion in 2014 to NT$19.3 billion in 2015, mainly due to our successful migration
strategy mentioned above.
our expansion to overseas markets such as Japan, Hong Kong, Singapore, Thailand and Cambodia and increased
demand for our international leased line, IP Transit and VPN services.
Domestic leased line. Our tariffs for overall leased line services have continued to decrease due to
competition from other fixed-line operators, as well as the continued migration of domestic leased line customers to
high speed broadband services. Revenues generated from domestic leased line services decreased from NT$4.6 billion
in 2014 to NT$4.4 billion in 2015.
MOD. Revenues generated from our MOD services decreased by 3.0% from NT$2.6 billion in 2014 to
NT$2.5 billion in 2015. This decrease was due to the adjustment in our cooperation schemes with channel providers.
The new schemes bring down our operating expenses while also impacting our revenues at the same time. We expect
this structural shift to enhance our IPTV margins in the mid-to-long term.
Others. Other revenues increased by 39.6% from NT$6.9 billion in 2014 to NT$9.6 billion in 2015. This
increase was mainly due to the increased number of ICT projects generated by enterprises and government.
Operating Costs
Mobile communications
Revenues from our mobile communications business segment accounted for 48.8% and 49.6% of our
revenues in 2014 and 2015, respectively. Revenues from our mobile communications business segment increased by
3.8% from NT$110.7 billion in 2014 to NT$114.9 billion in 2015. This increase was principally due to growth in
mobile VAS revenues and was partially offset by a decline in mobile voice telecommunication revenues. The
decrease in mobile voice telecommunication traffic was mainly due to migration to free VoIP applications.
Mobile services. Revenues from our mobile services accounted for 34.2% and 34.9% of our revenues in
2014 and 2015, respectively. Revenues from our mobile services increased by 4.4% from NT$77.5 billion in 2014 to
NT$80.9 billion in 2015 due to an increase in mobile VAS revenues from NT$34.8 billion in 2014 to NT$39.6 billion
in 2015, which was partially offset by a decline in mobile voice telecommunication revenues.
Sales of mobile handsets, tablets and data cards. Revenues from our sales of mobile handsets, tablets and
data cards accounted for 14.3% of our revenues both in 2014 and 2015. Revenues from our sales of mobile handsets,
tablets and data cards increased by 2.2% from NT$32.5 billion in 2014 to NT$33.2 billion in 2015. This increase was
principally due to an increase in sales of smart devices such as iPhone.
Internet
Revenues from internet business accounted for 11.5% and 11.1% of our revenues in 2014 and 2015,
respectively. Revenues from our internet services decreased slightly by 0.8% from NT$26.0 billion in 2014 to
NT$25.8 billion in 2015 due to a decrease in VAS revenue generated from information services of the land
administration system that we established for the Land Administration Department of local governments, and the
decrease was primarily affected by the downturn in the property market.
International fixed communications
International fixed communications revenues accounted for 6.8% and 6.7% of our revenues in 2014 and
2015, respectively. Our international fixed communications revenues increased by 1.0% from NT$15.3 billion in
2014 to NT$15.5 billion in 2015. This increase was mainly derived from one of our overseas subsidiaries, and from
international leased line and international data services.
International long distance telephone services. Our international long distance telephone revenues decreased
by 7.5% from NT$10.4 billion in 2014 to NT$9.6 billion in 2015 due to migration to VoIP-based international long
distance service providers and free VoIP applications.
International leased line and international data services. Our international leased line and international data
revenues increased by 13.1% from NT$3.2 billion in 2014 to NT$3.6 billion in 2015. The increase was mainly due to
76
International ICT and other services. Our international ICT and other revenues increased by 50.1% from
NT$1.0 billion in 2014 to NT$1.6 billion in 2015. The increase was mainly due to increased revenues generated from
the wholesale of international long distance minutes derived from one of our overseas subsidiaries, Chunghwa
Telecom Singapore Pte., Ltd.
Others
Other revenues accounted for 1.1% and 1.3% of our revenues in 2014 and 2015, respectively. Our other
revenues increased by 22.3% from NT$2.5 billion in 2014 to NT$3.1 billion in 2015. The increase was mainly due to
operating growth derived from one of our subsidiaries, CHPT, a semiconductor testing company.
Operating costs include depreciation and amortization expenses, personnel expenses, cost of goods sold,
interconnection and service expenses, costs of materials and maintenance and spectrum usage and license fees.
Our operating costs decreased by 0.2% from NT$148.4 billion in 2014 to NT$148.1 billion in 2015. This
decrease was primarily due to a decrease of NT$2.8 billion in interconnection and service expenses, and a decrease of
NT$1.4 billion in depreciation expenses. The decrease was partially offset by an increase of NT$2.3 billion in ICT
costs, an increase of NT$1.0 billion in cost of goods sold and an increase of NT$0.8 billion in amortization expenses.
Our operating expenses decreased by 2.5% from NT$34.0 billion in 2014 to NT$33.2 billion in 2015. This
decrease was primarily due to a decrease in marketing expenses.
Our marketing expenses, which include personnel expenses, expenses relating to advertising and marketing-
related activities and provision for bad debt, decreased by 4.1% from NT$26.1 billion in 2014 to NT$25.1 billion in
2015. This decrease was primarily due to a decrease of outsourcing expenses in 2015 and the voluntary retirement
program implemented in 2014, which resulted in a higher pension expense in 2014.
Our general and administrative expenses increased by 2.3% from NT$4.4 billion in 2014 to NT$4.5 billion
in 2015. This increase was primarily due to an increase in bonuses to employees.
Operating Expenses
Marketing
General and administrative
Research and development
Our research and development expenses increased by 3.2% from NT$3.5 billion in 2014 to NT$3.6 billion in
2015. This increase was primarily due to an increase in personnel expenses for research and development. In 2014
and 2015, we did not capitalize any research and development expenses as intangible assets because there were no
research and development expenses related to development or the development phase of an internal project in 2014
and 2015.
slightly increased from NT$19.1 billion in 2014 to NT$19.3 billion in 2015, mainly due to our successful migration
strategy mentioned above.
our expansion to overseas markets such as Japan, Hong Kong, Singapore, Thailand and Cambodia and increased
demand for our international leased line, IP Transit and VPN services.
Domestic leased line. Our tariffs for overall leased line services have continued to decrease due to
competition from other fixed-line operators, as well as the continued migration of domestic leased line customers to
high speed broadband services. Revenues generated from domestic leased line services decreased from NT$4.6 billion
in 2014 to NT$4.4 billion in 2015.
International ICT and other services. Our international ICT and other revenues increased by 50.1% from
NT$1.0 billion in 2014 to NT$1.6 billion in 2015. The increase was mainly due to increased revenues generated from
the wholesale of international long distance minutes derived from one of our overseas subsidiaries, Chunghwa
Telecom Singapore Pte., Ltd.
MOD. Revenues generated from our MOD services decreased by 3.0% from NT$2.6 billion in 2014 to
NT$2.5 billion in 2015. This decrease was due to the adjustment in our cooperation schemes with channel providers.
The new schemes bring down our operating expenses while also impacting our revenues at the same time. We expect
this structural shift to enhance our IPTV margins in the mid-to-long term.
Others
Other revenues accounted for 1.1% and 1.3% of our revenues in 2014 and 2015, respectively. Our other
revenues increased by 22.3% from NT$2.5 billion in 2014 to NT$3.1 billion in 2015. The increase was mainly due to
operating growth derived from one of our subsidiaries, CHPT, a semiconductor testing company.
Others. Other revenues increased by 39.6% from NT$6.9 billion in 2014 to NT$9.6 billion in 2015. This
increase was mainly due to the increased number of ICT projects generated by enterprises and government.
Operating Costs
Mobile communications
Revenues from our mobile communications business segment accounted for 48.8% and 49.6% of our
revenues in 2014 and 2015, respectively. Revenues from our mobile communications business segment increased by
3.8% from NT$110.7 billion in 2014 to NT$114.9 billion in 2015. This increase was principally due to growth in
mobile VAS revenues and was partially offset by a decline in mobile voice telecommunication revenues. The
decrease in mobile voice telecommunication traffic was mainly due to migration to free VoIP applications.
Mobile services. Revenues from our mobile services accounted for 34.2% and 34.9% of our revenues in
2014 and 2015, respectively. Revenues from our mobile services increased by 4.4% from NT$77.5 billion in 2014 to
NT$80.9 billion in 2015 due to an increase in mobile VAS revenues from NT$34.8 billion in 2014 to NT$39.6 billion
in 2015, which was partially offset by a decline in mobile voice telecommunication revenues.
Sales of mobile handsets, tablets and data cards. Revenues from our sales of mobile handsets, tablets and
data cards accounted for 14.3% of our revenues both in 2014 and 2015. Revenues from our sales of mobile handsets,
tablets and data cards increased by 2.2% from NT$32.5 billion in 2014 to NT$33.2 billion in 2015. This increase was
principally due to an increase in sales of smart devices such as iPhone.
Internet
Revenues from internet business accounted for 11.5% and 11.1% of our revenues in 2014 and 2015,
respectively. Revenues from our internet services decreased slightly by 0.8% from NT$26.0 billion in 2014 to
NT$25.8 billion in 2015 due to a decrease in VAS revenue generated from information services of the land
administration system that we established for the Land Administration Department of local governments, and the
decrease was primarily affected by the downturn in the property market.
International fixed communications
International fixed communications revenues accounted for 6.8% and 6.7% of our revenues in 2014 and
2015, respectively. Our international fixed communications revenues increased by 1.0% from NT$15.3 billion in
2014 to NT$15.5 billion in 2015. This increase was mainly derived from one of our overseas subsidiaries, and from
international leased line and international data services.
International long distance telephone services. Our international long distance telephone revenues decreased
by 7.5% from NT$10.4 billion in 2014 to NT$9.6 billion in 2015 due to migration to VoIP-based international long
distance service providers and free VoIP applications.
International leased line and international data services. Our international leased line and international data
revenues increased by 13.1% from NT$3.2 billion in 2014 to NT$3.6 billion in 2015. The increase was mainly due to
Operating costs include depreciation and amortization expenses, personnel expenses, cost of goods sold,
interconnection and service expenses, costs of materials and maintenance and spectrum usage and license fees.
Our operating costs decreased by 0.2% from NT$148.4 billion in 2014 to NT$148.1 billion in 2015. This
decrease was primarily due to a decrease of NT$2.8 billion in interconnection and service expenses, and a decrease of
NT$1.4 billion in depreciation expenses. The decrease was partially offset by an increase of NT$2.3 billion in ICT
costs, an increase of NT$1.0 billion in cost of goods sold and an increase of NT$0.8 billion in amortization expenses.
Operating Expenses
Our operating expenses decreased by 2.5% from NT$34.0 billion in 2014 to NT$33.2 billion in 2015. This
decrease was primarily due to a decrease in marketing expenses.
Marketing
Our marketing expenses, which include personnel expenses, expenses relating to advertising and marketing-
related activities and provision for bad debt, decreased by 4.1% from NT$26.1 billion in 2014 to NT$25.1 billion in
2015. This decrease was primarily due to a decrease of outsourcing expenses in 2015 and the voluntary retirement
program implemented in 2014, which resulted in a higher pension expense in 2014.
General and administrative
Our general and administrative expenses increased by 2.3% from NT$4.4 billion in 2014 to NT$4.5 billion
in 2015. This increase was primarily due to an increase in bonuses to employees.
Research and development
Our research and development expenses increased by 3.2% from NT$3.5 billion in 2014 to NT$3.6 billion in
2015. This increase was primarily due to an increase in personnel expenses for research and development. In 2014
and 2015, we did not capitalize any research and development expenses as intangible assets because there were no
research and development expenses related to development or the development phase of an internal project in 2014
and 2015.
77
Operating Costs and Expenses by Business Segment
Other Income and Expenses
Domestic Fixed
Communications
Mobile
International
Fixed
Communications Internet
Communications Others Adjustment Total
(in billions of NT$)
We recorded net other income of NT$0.6 billion in 2014 and net other expenses of NT$0.1 billion in 2015,
respectively. The difference between 2014 and 2015 was primarily due to the gain on disposal of investment
properties of NT$0.6 billion in 2014 by our subsidiary, Light Era.
For the year ended
December 31, 2015
Operating costs and expenses .....
Depreciation and
amortization ..........................
For the year ended
December 31, 2014
Operating costs and expenses .....
Depreciation and
amortization ..........................
Domestic fixed communications
71.0
17.5
72.6
18.6
98.9
10.4
96.9
9.9
20.6
20.6
3.6
3.6
21.3
21.3
3.4
3.4
16.5
1.5
17.5
1.8
9.2
0.4
8.5
0.4
(34.9)
181.3
181.3
—
33.4
33.4
(34.4)
182.4
182.4
—
34.1
34.1
Our domestic fixed communications costs and expenses decreased by 2.2% from NT$72.6 billion in 2014 to
NT$71.0 billion in 2015, primarily due to a decrease of NT$2.1 billion in intersegment interconnection costs, a
decrease of NT$1.1 billion in depreciation and amortization expenses, a decrease of NT$0.7 billion in personnel
expenses, and a decrease of NT$0.7 billion in material expenses. The decrease in our operating costs was partially
offset by an increase of NT$2.7 billion in ICT costs.
Mobile communications
Our mobile communications operating costs and expenses increased by 2.1% from NT$96.9 billion in 2014
to NT$98.9 billion in 2015. This increase was primarily due to an increase of NT$2.4 billion in leased line expenses,
an increase of NT$1.0 billion in cost of goods sold, and an increase of NT$0.5 billion in depreciation and
amortization expenses from 4G mobile broadband construction and license fees. The increase in our operating costs
was partially offset by a decrease of NT$1.6 billion in interconnection costs.
Internet
Our internet operating costs and expenses decreased by 2.9% from NT$21.3 billion in 2014 to NT$20.6
billion in 2015. This decrease was primarily due to a decrease of NT$0.6 billion in internet VAS expenses and a
decrease of NT$0.5 billion in ICT costs. The decrease in our operating costs was partially offset by an increase of
NT$0.6 billion in maintenance and rental expenses.
International fixed communications
Our international fixed communications costs and expenses decreased by 5.6% from NT$17.5 billion in 2014
to NT$16.5 billion in 2015. The decrease was primarily due to a decrease of NT$0.6 billion in intersegment
interconnection costs, a decrease of NT$0.3 billion in depreciation and amortization expenses, a decrease of NT$0.2
billion in personnel expenses and a decrease of NT$0.2 billion in rental expenses for international communications
equipment. The decrease in our operating costs was partially offset by an increase of NT$0.5 billion in operating costs
and expenses from our subsidiaries, Chunghwa Telecom Singapore Pte., Ltd, and Donghwa Telecom Co., Ltd. due to
the business growth of these two entities.
Others
The costs and expenses from our other business increased by 9.4% from NT$8.5 billion in 2014 to NT$9.2
billion in 2015. The increase was primarily due to an increase in personnel expenses from our subsidiary, Honghwa.
The increase was partially offset by a decrease in personnel costs and ICT costs of Chunghwa Telecom Co., Ltd.
Income from Operations and Operating Margin
As a result of the foregoing, our income from operations increased by 12.4% from NT$44.8 billion in 2014
to NT$50.4 billion in 2015. Our operating margin increased from 19.8% in 2014 to 21.7% in 2015.
The following table sets forth certain information regarding our revenues and income before income tax by
business segment for the periods indicated.
Domestic Fixed
Mobile
Communications
Communications
Internet
Communications
Others
Adjustment
Total
International
Fixed
(in billions of NT$)
For the year ended
December 31, 2015
Revenues from external
customers .......................
Intersegment service
revenues .........................
Segment income before
income tax .....................
For the year ended
December 31, 2014
Revenues from external
customers .......................
Intersegment service
revenues .........................
Segment income before
income tax .....................
72.5
21.4
93.9
23.3
72.1
19.7
91.8
19.5
114.9
3.5
118.4
19.4
110.7
5.3
116.0
19.3
25.8
4.7
30.5
9.9
26.0
4.7
30.7
9.6
(1.7)
—
15.5
2.1
17.6
1.1
15.3
2.3
17.6
3.1
3.2
6.3
2.6
2.4
4.9
—
231.8
(34.9)
(34.9)
231.8
52.0
226.6
46.6
—
226.6
(34.4)
(34.4)
0.2
(2.0)
—
As a result of the foregoing, segment income before tax for our domestic fixed communications business
increased by 18.9% from NT$19.5 billion in 2014 to NT$23.3 billion in 2015; segment income before tax for our
mobile communications business increased by 0.4% from NT$19.3 billion in 2014 to NT$19.4 billion in 2015;
segment income before tax for our internet business increased by 3.9% from NT$9.6 billion in 2014 to NT$9.9 billion
in 2015; segment income before tax for our international fixed communications business increased by 486.4% from
NT$0.2 billion in 2014 to NT$1.1 billion in 2015; and segment loss for our other business segments decreased by
16.3% from NT$2.0 billion in 2014 to NT$1.7 billion in 2015.
Our non-operating income decreased from NT$1.8 billion in 2014 to NT$1.6 billion in 2015. This decrease
was primarily due to a decrease in foreign currency exchange gains and an increase in impairment losses on available-
Non-operating Income and Expenses
for-sale financial assets.
Income Tax
Our income tax was NT$9.0 billion and NT$9.1 billion in 2014 and 2015, respectively. Our effective tax rate
was 19.3% in 2014 and 17.5% in 2015. The decrease in our effective tax rate from 2014 to 2015 was primarily due to
a decrease in the accrued 10% tax on unappropriated earnings. See “Item 5. Operating and Financial Review and
Prospects—Overview—Taxation” for a discussion of the change in tax rate.
78
For the year ended
December 31, 2015
Operating costs and expenses .....
Depreciation and
amortization ..........................
For the year ended
December 31, 2014
Operating costs and expenses .....
Depreciation and
amortization ..........................
Domestic fixed communications
71.0
17.5
72.6
18.6
98.9
10.4
96.9
9.9
20.6
3.6
21.3
3.4
16.5
1.5
17.5
1.8
9.2
0.4
8.5
0.4
(34.9)
—
(34.4)
—
181.3
33.4
182.4
34.1
Our domestic fixed communications costs and expenses decreased by 2.2% from NT$72.6 billion in 2014 to
NT$71.0 billion in 2015, primarily due to a decrease of NT$2.1 billion in intersegment interconnection costs, a
decrease of NT$1.1 billion in depreciation and amortization expenses, a decrease of NT$0.7 billion in personnel
expenses, and a decrease of NT$0.7 billion in material expenses. The decrease in our operating costs was partially
offset by an increase of NT$2.7 billion in ICT costs.
Our mobile communications operating costs and expenses increased by 2.1% from NT$96.9 billion in 2014
to NT$98.9 billion in 2015. This increase was primarily due to an increase of NT$2.4 billion in leased line expenses,
an increase of NT$1.0 billion in cost of goods sold, and an increase of NT$0.5 billion in depreciation and
amortization expenses from 4G mobile broadband construction and license fees. The increase in our operating costs
was partially offset by a decrease of NT$1.6 billion in interconnection costs.
Mobile communications
Internet
Our internet operating costs and expenses decreased by 2.9% from NT$21.3 billion in 2014 to NT$20.6
billion in 2015. This decrease was primarily due to a decrease of NT$0.6 billion in internet VAS expenses and a
decrease of NT$0.5 billion in ICT costs. The decrease in our operating costs was partially offset by an increase of
NT$0.6 billion in maintenance and rental expenses.
International fixed communications
Our international fixed communications costs and expenses decreased by 5.6% from NT$17.5 billion in 2014
to NT$16.5 billion in 2015. The decrease was primarily due to a decrease of NT$0.6 billion in intersegment
interconnection costs, a decrease of NT$0.3 billion in depreciation and amortization expenses, a decrease of NT$0.2
billion in personnel expenses and a decrease of NT$0.2 billion in rental expenses for international communications
equipment. The decrease in our operating costs was partially offset by an increase of NT$0.5 billion in operating costs
and expenses from our subsidiaries, Chunghwa Telecom Singapore Pte., Ltd, and Donghwa Telecom Co., Ltd. due to
the business growth of these two entities.
Others
The costs and expenses from our other business increased by 9.4% from NT$8.5 billion in 2014 to NT$9.2
billion in 2015. The increase was primarily due to an increase in personnel expenses from our subsidiary, Honghwa.
The increase was partially offset by a decrease in personnel costs and ICT costs of Chunghwa Telecom Co., Ltd.
Operating Costs and Expenses by Business Segment
Other Income and Expenses
Domestic Fixed
Mobile
Communications
Communications Internet
Communications Others Adjustment Total
International
Fixed
(in billions of NT$)
We recorded net other income of NT$0.6 billion in 2014 and net other expenses of NT$0.1 billion in 2015,
respectively. The difference between 2014 and 2015 was primarily due to the gain on disposal of investment
properties of NT$0.6 billion in 2014 by our subsidiary, Light Era.
Income from Operations and Operating Margin
As a result of the foregoing, our income from operations increased by 12.4% from NT$44.8 billion in 2014
to NT$50.4 billion in 2015. Our operating margin increased from 19.8% in 2014 to 21.7% in 2015.
The following table sets forth certain information regarding our revenues and income before income tax by
business segment for the periods indicated.
Domestic Fixed
Communications
Mobile
Communications
Internet
International
Fixed
Communications
(in billions of NT$)
Others
Adjustment
Total
For the year ended
December 31, 2015
Revenues from external
customers .......................
Intersegment service
revenues .........................
Segment income before
income tax .....................
For the year ended
December 31, 2014
Revenues from external
customers .......................
Intersegment service
revenues .........................
Segment income before
income tax .....................
72.5
21.4
93.9
23.3
72.1
19.7
91.8
19.5
114.9
3.5
118.4
19.4
110.7
5.3
116.0
19.3
25.8
4.7
30.5
9.9
26.0
4.7
30.7
9.6
(1.7)
—
15.5
2.1
17.6
1.1
15.3
2.3
17.6
3.1
3.2
6.3
2.5
2.6
2.4
4.9
—
231.8
(34.9)
(34.9)
231.8
52.0
226.6
46.6
—
226.6
(34.4)
(34.4)
0.2
(2.0)
—
As a result of the foregoing, segment income before tax for our domestic fixed communications business
increased by 18.9% from NT$19.5 billion in 2014 to NT$23.3 billion in 2015; segment income before tax for our
mobile communications business increased by 0.4% from NT$19.3 billion in 2014 to NT$19.4 billion in 2015;
segment income before tax for our internet business increased by 3.9% from NT$9.6 billion in 2014 to NT$9.9 billion
in 2015; segment income before tax for our international fixed communications business increased by 486.4% from
NT$0.2 billion in 2014 to NT$1.1 billion in 2015; and segment loss for our other business segments decreased by
16.3% from NT$2.0 billion in 2014 to NT$1.7 billion in 2015.
Non-operating Income and Expenses
Our non-operating income decreased from NT$1.8 billion in 2014 to NT$1.6 billion in 2015. This decrease
was primarily due to a decrease in foreign currency exchange gains and an increase in impairment losses on available-
for-sale financial assets.
Income Tax
Our income tax was NT$9.0 billion and NT$9.1 billion in 2014 and 2015, respectively. Our effective tax rate
was 19.3% in 2014 and 17.5% in 2015. The decrease in our effective tax rate from 2014 to 2015 was primarily due to
a decrease in the accrued 10% tax on unappropriated earnings. See “Item 5. Operating and Financial Review and
Prospects—Overview—Taxation” for a discussion of the change in tax rate.
79
Net Income
As a result of the foregoing, our net income attributable to stockholders of the parent was NT$37.0 billion
and NT$42.1 billion in 2014 and 2015, respectively. Our net margin increased from 16.3% in 2014 to 18.2% in 2015.
B. Liquidity and Capital Resources
Liquidity
The following table sets forth the summary of our cash flows for the periods indicated:
billion in dividends paid during that period.
Net cash provided by operating activities .............................................
Net cash used in investing activities .....................................................
Net cash used in financing activities .....................................................
Effect of exchange rate changes............................................................
Net increase in cash and cash equivalents .............................................
Cash and cash equivalents at end of year ..............................................
Year Ended December 31
2014
NT$
2015
NT$
2016
NT$
US$
(in billions)
71.4
(27.3)
(35.1)
0.0
9.0
23.6
76.3
(30.4)
(39.2)
0.0
6.7
30.3
65.0
(21.7)
(42.5)
0.0
0.8
31.1
2.0
(0.7)
(1.3)
0.0
0.0
1.0
Our primary source of liquidity is cash flow from operations, which represents operating profit adjusted for
non-cash items, primarily depreciation and amortization and changes in current assets and liabilities. Notes 22 and 23
to our consolidated financial statements, included elsewhere in this annual report, provide additional details as to our
bank loans. We believe that our working capital is sufficient to meet our present cash flow requirements.
In 2016, we generated NT$65.0 billion (US$2.0 billion) in net cash from operating activities as compared to
NT$76.3 billion in 2015. The decrease was primarily due to a decrease in income from our operations, an increase in
cash outflows for the contribution to the pension funds according to the minimum contribution requirement in
accordance with the revised Labor Standards Law of the ROC which was effective from 2016, and an increase in cash
outflows relating to income tax from operating activities.
In 2015, we generated NT$76.3 billion in net cash from operating activities as compared to NT$71.4 billion
in 2014. The increase was primarily due to an increase in income from our operations, an increase in cash inflows
from accounts receivables, an increase in amortization expense, and a decrease in cash outflows relating to income tax
from operating activities.
In 2014, we generated NT$71.4 billion net cash from operating activities as compared to NT$75.3 billion in
2013. The decrease was primarily due to the decrease in income from operation, the decrease in cash inflows relating
to accounts receivables, and the increase in cash outflows relating to income tax and other payables from operating
activities.
Historically, net cash from operating activities has been sufficient to cover our capital expenditures,
including ongoing expansion and modernization of our networks.
In 2016, net cash used in investing activities was NT$21.7 billion (US$0.7 billion), a decrease from NT$30.4
billion in 2015. The change was primarily due to a one-time payment of NT$10.0 billion in 2015 for acquiring the 4G
mobile broadband spectrum in the auction held by the NCC, but there was no such cash outflows in 2016.
In 2015, net cash used in investing activities was NT$30.4 billion, an increase from NT$27.3 billion in 2014.
The change was primarily due to a one-time payment of NT$10.0 billion in 2015 for acquiring the 4G mobile
broadband spectrum in the auction held by the NCC, which payment was partially offset by a net decrease of NT$7.5
billion for acquisition of property, plant and equipment.
80
In 2014, net cash used in investing activities was NT$27.3 billion, a decrease from NT$49.1 billion in 2013.
The change was primarily due to the one-time payment of NT$39.1 billion in 2013 for acquiring the 4G mobile
broadband spectrum in the auction held by the NCC, which was partially offset by a net decrease of NT$19.7 billion
of time deposits and negotiable certificate of deposit with maturities of more than three months.
In 2016, our net cash used in financing activities totaled NT$42.5 billion (US$1.3 billion), which mainly
reflected NT$42.6 billion in dividends paid during that period.
In 2015, our net cash used in financing activities totaled NT$39.2 billion, which mainly reflected NT$37.7
In 2014, our net cash used in financing activities totaled NT$35.1 billion, which mainly reflected NT$18.5
billion of payment of dividends during that period and NT$16.6 billion of cash distribution from our capital surplus to
our stockholders.
Capital Resources
We have historically financed our capital expenditure requirements with our cash flows from operations and
some bank loans. In future years, we have capital expenditure requirements for the ongoing expansion and upgrade of
our networks, including 4G mobile broadband, FTTx, service platforms, and IDC. We also expect to make dividend
payments on an ongoing basis. See “Item 8. Financial Information—A.” Consolidated Statements and Other Financial
Information.” Furthermore, we may require working capital from time to time to finance purchases of materials for
our maintenance and other overhead expenses. We expect to primarily rely on cash generated from operations and, to
a lesser extent, loans from commercial banks to meet our planned capital expenditures, make our planned dividend
payments, repay debts and fulfill other commitments over the next twelve months.
As of December 31, 2016, our primary source of liquidity was NT$31.1 billion (US$1.0 billion) in cash and
cash equivalents. In addition, the unused line of credit for unsecured and secured bank loans amounted to NT$46.2
billion (US$1.4 billion) and NT$0.2 billion (US$6.2 million), respectively, as of December 31, 2016.
As of December 31, 2016, our subsidiary, Chunghwa Sochamp Technology Inc., had short-term unsecured
loans of NT$70.0 million (US$2.2 million) at interest rates ranging from 2.14% to 2.25%.
As of December 31, 2016, our subsidiary, Youth Co., Ltd. had short-term unsecured loans of NT$48.0
million (US$1.5 million) at interest rates ranging from 1.95% to 1.97%; and short-term secured loans of NT$20.0
million (US$0.6 million) with an interest rate at 1.98%.
As of December 31, 2016, our subsidiary Light Era had long-term secured loans in the amount of NT$1.6
billion (US$49.4 million) due in 2018 with an interest rate at 0.91%.
As part of the government’s effort to upgrade the existing telecommunications infrastructure, we and other
public utility companies were required by the ROC government to contribute a total of NT$1.0 billion to a Piping
Fund, administered by the Taipei City Government. This fund is used to finance various telecommunications
infrastructure projects. We accounted for the contribution as other financial assets on our consolidated balance sheets.
Note 41 to our consolidated financial statements included elsewhere in this annual report provides a
description of the assets that are pledged as collateral for long-term bank loans and contract deposits.
Capital Expenditures
Substantially all of our capital expenditures in 2014, 2015 and 2016 were made for operations in the ROC.
We have financed our capital expenditures using cash flow from operations and bank loans. The following table sets
forth a summary of our capital expenditures for the periods indicated.
Year Ended December 31
As a result of the foregoing, our net income attributable to stockholders of the parent was NT$37.0 billion
and NT$42.1 billion in 2014 and 2015, respectively. Our net margin increased from 16.3% in 2014 to 18.2% in 2015.
Net Income
B. Liquidity and Capital Resources
Liquidity
In 2014, net cash used in investing activities was NT$27.3 billion, a decrease from NT$49.1 billion in 2013.
The change was primarily due to the one-time payment of NT$39.1 billion in 2013 for acquiring the 4G mobile
broadband spectrum in the auction held by the NCC, which was partially offset by a net decrease of NT$19.7 billion
of time deposits and negotiable certificate of deposit with maturities of more than three months.
In 2016, our net cash used in financing activities totaled NT$42.5 billion (US$1.3 billion), which mainly
reflected NT$42.6 billion in dividends paid during that period.
In 2015, our net cash used in financing activities totaled NT$39.2 billion, which mainly reflected NT$37.7
The following table sets forth the summary of our cash flows for the periods indicated:
billion in dividends paid during that period.
Net cash provided by operating activities .............................................
Net cash used in investing activities .....................................................
Net cash used in financing activities .....................................................
Effect of exchange rate changes............................................................
Net increase in cash and cash equivalents .............................................
Cash and cash equivalents at end of year ..............................................
Year Ended December 31
(in billions)
2014
NT$
71.4
(27.3)
(35.1)
0.0
9.0
23.6
2015
NT$
76.3
(30.4)
(39.2)
0.0
6.7
30.3
2016
NT$
US$
65.0
(21.7)
(42.5)
0.0
0.8
31.1
2.0
(0.7)
(1.3)
0.0
0.0
1.0
Our primary source of liquidity is cash flow from operations, which represents operating profit adjusted for
non-cash items, primarily depreciation and amortization and changes in current assets and liabilities. Notes 22 and 23
to our consolidated financial statements, included elsewhere in this annual report, provide additional details as to our
bank loans. We believe that our working capital is sufficient to meet our present cash flow requirements.
In 2016, we generated NT$65.0 billion (US$2.0 billion) in net cash from operating activities as compared to
NT$76.3 billion in 2015. The decrease was primarily due to a decrease in income from our operations, an increase in
cash outflows for the contribution to the pension funds according to the minimum contribution requirement in
accordance with the revised Labor Standards Law of the ROC which was effective from 2016, and an increase in cash
outflows relating to income tax from operating activities.
In 2015, we generated NT$76.3 billion in net cash from operating activities as compared to NT$71.4 billion
in 2014. The increase was primarily due to an increase in income from our operations, an increase in cash inflows
from accounts receivables, an increase in amortization expense, and a decrease in cash outflows relating to income tax
from operating activities.
In 2014, we generated NT$71.4 billion net cash from operating activities as compared to NT$75.3 billion in
2013. The decrease was primarily due to the decrease in income from operation, the decrease in cash inflows relating
to accounts receivables, and the increase in cash outflows relating to income tax and other payables from operating
activities.
Historically, net cash from operating activities has been sufficient to cover our capital expenditures,
including ongoing expansion and modernization of our networks.
In 2016, net cash used in investing activities was NT$21.7 billion (US$0.7 billion), a decrease from NT$30.4
billion in 2015. The change was primarily due to a one-time payment of NT$10.0 billion in 2015 for acquiring the 4G
mobile broadband spectrum in the auction held by the NCC, but there was no such cash outflows in 2016.
In 2015, net cash used in investing activities was NT$30.4 billion, an increase from NT$27.3 billion in 2014.
The change was primarily due to a one-time payment of NT$10.0 billion in 2015 for acquiring the 4G mobile
broadband spectrum in the auction held by the NCC, which payment was partially offset by a net decrease of NT$7.5
billion for acquisition of property, plant and equipment.
In 2014, our net cash used in financing activities totaled NT$35.1 billion, which mainly reflected NT$18.5
billion of payment of dividends during that period and NT$16.6 billion of cash distribution from our capital surplus to
our stockholders.
Capital Resources
We have historically financed our capital expenditure requirements with our cash flows from operations and
some bank loans. In future years, we have capital expenditure requirements for the ongoing expansion and upgrade of
our networks, including 4G mobile broadband, FTTx, service platforms, and IDC. We also expect to make dividend
payments on an ongoing basis. See “Item 8. Financial Information—A.” Consolidated Statements and Other Financial
Information.” Furthermore, we may require working capital from time to time to finance purchases of materials for
our maintenance and other overhead expenses. We expect to primarily rely on cash generated from operations and, to
a lesser extent, loans from commercial banks to meet our planned capital expenditures, make our planned dividend
payments, repay debts and fulfill other commitments over the next twelve months.
As of December 31, 2016, our primary source of liquidity was NT$31.1 billion (US$1.0 billion) in cash and
cash equivalents. In addition, the unused line of credit for unsecured and secured bank loans amounted to NT$46.2
billion (US$1.4 billion) and NT$0.2 billion (US$6.2 million), respectively, as of December 31, 2016.
As of December 31, 2016, our subsidiary, Chunghwa Sochamp Technology Inc., had short-term unsecured
loans of NT$70.0 million (US$2.2 million) at interest rates ranging from 2.14% to 2.25%.
As of December 31, 2016, our subsidiary, Youth Co., Ltd. had short-term unsecured loans of NT$48.0
million (US$1.5 million) at interest rates ranging from 1.95% to 1.97%; and short-term secured loans of NT$20.0
million (US$0.6 million) with an interest rate at 1.98%.
As of December 31, 2016, our subsidiary Light Era had long-term secured loans in the amount of NT$1.6
billion (US$49.4 million) due in 2018 with an interest rate at 0.91%.
As part of the government’s effort to upgrade the existing telecommunications infrastructure, we and other
public utility companies were required by the ROC government to contribute a total of NT$1.0 billion to a Piping
Fund, administered by the Taipei City Government. This fund is used to finance various telecommunications
infrastructure projects. We accounted for the contribution as other financial assets on our consolidated balance sheets.
Note 41 to our consolidated financial statements included elsewhere in this annual report provides a
description of the assets that are pledged as collateral for long-term bank loans and contract deposits.
Capital Expenditures
Substantially all of our capital expenditures in 2014, 2015 and 2016 were made for operations in the ROC.
We have financed our capital expenditures using cash flow from operations and bank loans. The following table sets
forth a summary of our capital expenditures for the periods indicated.
Year Ended December 31
81
2014
2015
(in billions of NT$, except percentages)
2016
Capital Expenditures:
Domestic fixed communications business .........................
Mobile communications business ......................................
Internet business ................................................................
International fixed communications business ....................
Others ................................................................................
Total capital expenditures ...............................................
16.2
9.6
4.4
1.5
0.9
32.6
50%
30
14
4
2
100%
10.2
8.6
4.8
1.0
0.5
25.1
41%
34
19
4
2
100%
9.9
9.0
2.7
1.1
0.8
23.5
42%
38
12
5
3
100%
The following table sets forth a summary of our planned capital expenditures for the year ending December
31, 2017.
Year Ending
December 31, 2017
(in billions of NT$,
except percentages)
Capital Expenditures:
Domestic fixed communications business ................................................................................
Mobile communications business .............................................................................................
Internet business .......................................................................................................................
International fixed communications business ...........................................................................
Others .......................................................................................................................................
Total capital expenditures ......................................................................................................
14.2
9.4
3.3
1.8
1.6
30.3
47.0%
31.1
10.8
5.8
5.3
100.0%
We expect our total capital expenditures to be approximately NT$30.3 billion in 2017. Our capital
expenditures for 2017 are planned to be allocated to our 4G LTE network deployment, FTTx network expansion,
service platforms, cloud computing and IDC construction. We expect to finance these capital expenditures with our
cash flows from operations and bank loans.
Inflation
We do not believe that inflation in Taiwan has had a material impact on our results of operations in 2014,
2015 and 2016.
Recent Accounting Pronouncements
Major differences between IFRSs and Taiwan IFRSs
While we have adopted Taiwan IFRSs for ROC reporting purposes, we adopt IFRSs for certain filings with
the SEC, including our annual reports on Form 20-F for the year ended December 31, 2013 and thereafter. Following
our adoption of IFRSs for SEC filing purposes, we are no longer required to prepare any reconciliation of our
consolidated financial statements with U.S. GAAP.
Taiwan IFRSs differs from IFRSs in certain significant respects, including to the extent that any new or
amended standards or interpretations applicable under IFRSs may not be timely endorsed by the FSC. Therefore,
these pronouncements will not be applicable to Taiwan IFRSs until endorsed by the FSC. Some of the major
differences between IFRSs and Taiwan IFRSs that are relevant to us as of the date of this annual report are set forth
below.
• The “income taxes on unappropriated earnings” should be recognized at the year of earnings under
IFRSs, while it should be recognized at the year of distribution under Taiwan IFRSs.
• Prior to incorporation, according to the laws and regulations applicable to state-owned enterprises in
Taiwan, we recorded revenue from fixed-line service at the time the connection service was performed
or the prepaid card was sold. Upon incorporation, net assets greater than capital stock was credited as
82
additional paid-in capital. Part of our additional paid-in capital was from unearned revenues from fixed-
line services as of that date. Under IFRSs, following the revenue recognition guidance, the above service
revenue should be treated as deferred income and recognized over the time when the service is
continuously provided or as consumed. Therefore, upon our first adoption of IFRSs, we should
retrospectively decrease additional paid-in capital while increase unappropriated earnings on the
transition date of January 1, 2012. There is no difference in the recognition of unearned revenues or
deferred income between IFRSs and Taiwan IFRSs. However, according to the guidance released by the
TWSE in March 2012, which is a part of Taiwan IFRSs, the additional paid-in capital under ROC
GAAP that is not specifically promulgated under Taiwan IFRSs should not be adjusted on the transition
date of January 1, 2012. Therefore, we retain such additional paid-in capital under Taiwan IFRSs.
It is difficult for us to determine the differences between Taiwan IFRSs and IFRSs on our financial
statements as any new or amended standards or interpretations applicable under IFRSs may not be timely endorsed by
the FSC.
Other recent accounting pronouncements under IFRSs
For a summary of new standards, amendments and interpretations issued under IFRSs but not effective for
2016 and which have not been adopted early by us, see Note 5 to our consolidated financial statements included
elsewhere in this annual report.
C. Research and Development, Patents and Licenses
Research and Development
Our research and development efforts are focused on the development of advanced network services and
operation technologies as well as the development of core technologies for the domestic telecommunications market.
For 2014, 2015 and 2016, our research and development expenses were NT$3.5 billion, NT$3.6 billion and NT$3.8
billion (US$0.1 billion), or approximately 1.5%, 1.6% and 1.6% of our revenues, respectively.
As of March 31, 2017, we had 2,368 researchers focusing on the following areas:
• Convergence Services: value-add communications services, intelligent interactive technologies,
location-based application technology, content convergence services, E-commerce, mobile lifestyle
apps, and video convergence services;
IoT: intelligent IoT service platform, driving behavioral analysis solutions, intelligent manufacturing
solutions, and health cloud services;
Information Security: identification solutions and enterprise advanced persistent threat defense
•
•
solutions;
• Big Data: big data operations, storage and analysis solutions;
• Cloud Computing: virtual data center service solutions, integrated surveillance solutions of information
and communications equipment; and
•
Intelligent Broadband: LWA solutions, site selection and resource allocation solutions for telecom cloud
stations, multiband carrier aggregation technology, VoIP four-in-one loading process, and intelligent
data traffic forecast.
With our consistent investment in research and development, we have developed a number of advanced
network services, operation technologies and VAS which successfully support our business operations and expansion,
including our FTTx deployment, security, mobile payment, smart Home, enterprise ICT solution, cloud business and
operation supporting system, and various IoT services, such as ITS, iEN, intelligent video surveillance, or IVS, and
Capital Expenditures:
Domestic fixed communications business .........................
Mobile communications business ......................................
Internet business ................................................................
International fixed communications business ....................
Others ................................................................................
Total capital expenditures ...............................................
2014
2015
2016
(in billions of NT$, except percentages)
16.2
9.6
4.4
1.5
0.9
50%
30
14
4
2
10.2
8.6
4.8
1.0
0.5
41%
34
19
4
2
9.9
9.0
2.7
1.1
0.8
42%
38
12
5
3
32.6
100%
25.1
100%
23.5
100%
The following table sets forth a summary of our planned capital expenditures for the year ending December
31, 2017.
Year Ending
December 31, 2017
(in billions of NT$,
except percentages)
Capital Expenditures:
Domestic fixed communications business ................................................................................
Mobile communications business .............................................................................................
Internet business .......................................................................................................................
International fixed communications business ...........................................................................
Others .......................................................................................................................................
Total capital expenditures ......................................................................................................
14.2
9.4
3.3
1.8
1.6
30.3
47.0%
31.1
10.8
5.8
5.3
100.0%
We expect our total capital expenditures to be approximately NT$30.3 billion in 2017. Our capital
expenditures for 2017 are planned to be allocated to our 4G LTE network deployment, FTTx network expansion,
service platforms, cloud computing and IDC construction. We expect to finance these capital expenditures with our
cash flows from operations and bank loans.
We do not believe that inflation in Taiwan has had a material impact on our results of operations in 2014,
Inflation
2015 and 2016.
Recent Accounting Pronouncements
Major differences between IFRSs and Taiwan IFRSs
While we have adopted Taiwan IFRSs for ROC reporting purposes, we adopt IFRSs for certain filings with
the SEC, including our annual reports on Form 20-F for the year ended December 31, 2013 and thereafter. Following
our adoption of IFRSs for SEC filing purposes, we are no longer required to prepare any reconciliation of our
consolidated financial statements with U.S. GAAP.
Taiwan IFRSs differs from IFRSs in certain significant respects, including to the extent that any new or
amended standards or interpretations applicable under IFRSs may not be timely endorsed by the FSC. Therefore,
these pronouncements will not be applicable to Taiwan IFRSs until endorsed by the FSC. Some of the major
differences between IFRSs and Taiwan IFRSs that are relevant to us as of the date of this annual report are set forth
below.
• The “income taxes on unappropriated earnings” should be recognized at the year of earnings under
IFRSs, while it should be recognized at the year of distribution under Taiwan IFRSs.
• Prior to incorporation, according to the laws and regulations applicable to state-owned enterprises in
Taiwan, we recorded revenue from fixed-line service at the time the connection service was performed
or the prepaid card was sold. Upon incorporation, net assets greater than capital stock was credited as
additional paid-in capital. Part of our additional paid-in capital was from unearned revenues from fixed-
line services as of that date. Under IFRSs, following the revenue recognition guidance, the above service
revenue should be treated as deferred income and recognized over the time when the service is
continuously provided or as consumed. Therefore, upon our first adoption of IFRSs, we should
retrospectively decrease additional paid-in capital while increase unappropriated earnings on the
transition date of January 1, 2012. There is no difference in the recognition of unearned revenues or
deferred income between IFRSs and Taiwan IFRSs. However, according to the guidance released by the
TWSE in March 2012, which is a part of Taiwan IFRSs, the additional paid-in capital under ROC
GAAP that is not specifically promulgated under Taiwan IFRSs should not be adjusted on the transition
date of January 1, 2012. Therefore, we retain such additional paid-in capital under Taiwan IFRSs.
It is difficult for us to determine the differences between Taiwan IFRSs and IFRSs on our financial
statements as any new or amended standards or interpretations applicable under IFRSs may not be timely endorsed by
the FSC.
Other recent accounting pronouncements under IFRSs
For a summary of new standards, amendments and interpretations issued under IFRSs but not effective for
2016 and which have not been adopted early by us, see Note 5 to our consolidated financial statements included
elsewhere in this annual report.
C. Research and Development, Patents and Licenses
Research and Development
Our research and development efforts are focused on the development of advanced network services and
operation technologies as well as the development of core technologies for the domestic telecommunications market.
For 2014, 2015 and 2016, our research and development expenses were NT$3.5 billion, NT$3.6 billion and NT$3.8
billion (US$0.1 billion), or approximately 1.5%, 1.6% and 1.6% of our revenues, respectively.
As of March 31, 2017, we had 2,368 researchers focusing on the following areas:
• Convergence Services: value-add communications services, intelligent interactive technologies,
location-based application technology, content convergence services, E-commerce, mobile lifestyle
apps, and video convergence services;
•
•
IoT: intelligent IoT service platform, driving behavioral analysis solutions, intelligent manufacturing
solutions, and health cloud services;
Information Security: identification solutions and enterprise advanced persistent threat defense
solutions;
• Big Data: big data operations, storage and analysis solutions;
• Cloud Computing: virtual data center service solutions, integrated surveillance solutions of information
and communications equipment; and
•
Intelligent Broadband: LWA solutions, site selection and resource allocation solutions for telecom cloud
stations, multiband carrier aggregation technology, VoIP four-in-one loading process, and intelligent
data traffic forecast.
With our consistent investment in research and development, we have developed a number of advanced
network services, operation technologies and VAS which successfully support our business operations and expansion,
including our FTTx deployment, security, mobile payment, smart Home, enterprise ICT solution, cloud business and
operation supporting system, and various IoT services, such as ITS, iEN, intelligent video surveillance, or IVS, and
83
the solution of industry 4.0. As of December 31, 2016, we have been granted 916 domestic patents and 64 foreign
patents.
D. Trend Information
See “—Overview” for a discussion of the most significant recent trends that have had, and in the future may
have, a material impact on our results of operations, financial condition and capital expenditures. In addition, see
discussions included in this Item for a discussion of known trends, uncertainties, demands, commitments or events
that we believe are reasonably likely to have a material effect on our net operating revenues, income from continuing
operations, profitability, liquidity or capital resources, or that would cause reported financial information not
necessarily to be indicative of future operating results or financial condition.
E. Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that are material to investors.
F. Tabular Disclosure of Contractual Obligations
Set forth below are our total contractual obligations as of December 31, 2016.
Contractual Obligations(1)
Short-term loans....................................................................
Long-term loans ....................................................................
Obligations related to ST-2 satellite ......................................
Operating leases(2) .................................................................
Total ......................................................................................
Payments Due by Period
Total
Less than 1
Year
1-3 years
3-5 years
More than
5 years
(in billions of NT$)
0.1
1.6
1.8
9.2
12.7
0.1
0.2
2.8
3.1
1.6
0.4
3.7
5.7
0.4
1.7
2.1
0.8
1.0
1.8
(1) Unfunded defined benefit obligation is not included as the schedule of payments is difficult to determine. We made pension
contributions of approximately NT$11.2 billion (US$0.3 billion) in 2016 and expected to made pension contributions of
approximately NT$2.7 billion (US$0.1 billion) in 2017. See Note 28 to our consolidated financial statements for additional details
regarding our pension plan.
(2) Operating leases obligations are described in Note 36 to our consolidated financial statements included elsewhere in the annual
report.
As of December 31, 2016, we had remaining commitments under non-cancelable contracts with various
parties, including acquisition of lands and buildings of NT$0.9 billion (US$26.9 million) and acquisition of
telecommunications equipment of NT$12.3 billion (US$0.4 billion).
Foreign Exchange
Our revenues and costs and expenses are largely denominated in NT dollars. Our principal expenses
denominated in foreign currencies are capital expenditures on telecommunications equipment and settlement
payments for the use of networks of carriers in foreign countries for outgoing international calls. Settlement receipts
have been a principal source of foreign currency for us. While future fluctuations of the NT dollar against foreign
currencies could impact our financial condition and results of operations, we have not yet been materially affected in
the past. See “Item 11. Quantitative and Qualitative Disclosures about Market RiskForeign Currency Risk” for
further details.
G. Safe Harbor
See “Forward-Looking Statements in This Annual Report May Not Be Realized.”
84
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Our Articles of Incorporation provides for a board of directors consisting of seven to fifteen directors
bestowed with a three-year tenure. The following table sets forth the name, age and position of each of our directors
and such person’s position as of March 31, 2017. There is no family relationship among any of these persons. These
directors have terms until June 23, 2019. Pursuant to the ROC Company Act, a person may serve as our director in his
or her personal capacity or as the representative of another legal entity. A director who serves as the representative of
a legal entity may be removed or replaced at any time at the discretion of that legal entity, and the replacement
director may serve the remainder of the term of office of the replaced director. All of our non-independent directors
are representatives of the MOTC.
Name
Age
Position
Yu Cheng ..................................................................
63
Chairman, chief executive officer and director
Chi-Mau Sheih ..........................................................
62
President and director
Chih-Ku Fan .............................................................
63
Shin-Yi Chang ..........................................................
59
Yi-Bing Lin...............................................................
56
Shu-Juan Huang ........................................................
52
Jen-Ran Chen(1) ........................................................
58
Zse-Hong Tsai(1) ......................................................
56
Kuo-Long Wu(1) .......................................................
65
Lo-Yu Yen(1) ............................................................
62
Chin-Tsai Pan ...........................................................
56
Director
Director
Director
Director
Director
Director
Director
Director
Director
(1)
Independent director.
Yu Cheng is the chairman, chief executive officer and director of our company. He is also an independent
director of Formosa Petrochemical Co., Ltd., Formosa Taffeta Co., Ltd. and Formosa Advanced Technologies Co.,
Ltd. Mr. Cheng assumed the role as a director of our company in August 2016. He was the former CEO of
Contemporary Taiwan Development Foundation. He also served as the editor-in-chief of Commercial Times from
2009 to 2016, the chairman of Radio Taiwan International from 2006 to 2008, the president of Taiwan Television
Enterprise Ltd. from 2002 to 2006, as well as the commissioner and vice chairman of Fair Trade Commission of
Executive Yuan from 1995 to 2002. Mr. Cheng holds a MBA degree from National Chengchi University.
Chi-Mau Sheih has served as the president and director of our company since January 2017. Mr. Sheih
served as a senior executive vice president of our company from 2010 to 2017, the president of Southern Taiwan
Business Group from 2007 to 2010, and the president of Central Taiwan Business Group from 2006 to 2007. Mr.
Sheih holds a master’s degree in Business Administration from National Taiwan University.
Chih-Ku Fan is a director of our company. Mr. Fan is also currently the deputy administrative minister of
the MOTC. Mr. Fan holds a Ph.D. degree in transportation technology and management from National Chiao Tung
University in Taiwan.
Shin-Yi Chang has served as a director of our company since January 2017. Mr. Chang is also currently the
director of the accounting department at the MOTC. He holds a MBA degree from National Taiwan University.
Yi-Bing Lin is a director of our company. Dr. Lin is the vice chancellor of the National Chiao Tung
University of the University System of Taiwan, or the UST. He holds a Ph.D. degree in Computer Science and
Engineering from University of Washington in Seattle.
Shu-Juan Huang is a director of our company. Ms. Huang is also currently the director of the Department
of Planning of the Directorate General of Budget, Accounting and Statistics at the Executive Yuan. Ms. Huang served
as our supervisor before June 25, 2013. Ms. Huang holds a bachelor’s degree in Accounting from Fu Jen Catholic
University in Taiwan.
patents.
D. Trend Information
See “—Overview” for a discussion of the most significant recent trends that have had, and in the future may
have, a material impact on our results of operations, financial condition and capital expenditures. In addition, see
discussions included in this Item for a discussion of known trends, uncertainties, demands, commitments or events
that we believe are reasonably likely to have a material effect on our net operating revenues, income from continuing
operations, profitability, liquidity or capital resources, or that would cause reported financial information not
necessarily to be indicative of future operating results or financial condition.
E. Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that are material to investors.
F. Tabular Disclosure of Contractual Obligations
Set forth below are our total contractual obligations as of December 31, 2016.
Contractual Obligations(1)
Short-term loans....................................................................
Long-term loans ....................................................................
Obligations related to ST-2 satellite ......................................
Operating leases(2) .................................................................
Total ......................................................................................
Payments Due by Period
Less than 1
Total
Year
1-3 years
3-5 years
(in billions of NT$)
More than
5 years
0.1
1.6
1.8
9.2
12.7
0.1
0.2
2.8
3.1
1.6
0.4
3.7
5.7
0.4
1.7
2.1
0.8
1.0
1.8
(1) Unfunded defined benefit obligation is not included as the schedule of payments is difficult to determine. We made pension
contributions of approximately NT$11.2 billion (US$0.3 billion) in 2016 and expected to made pension contributions of
approximately NT$2.7 billion (US$0.1 billion) in 2017. See Note 28 to our consolidated financial statements for additional details
(2) Operating leases obligations are described in Note 36 to our consolidated financial statements included elsewhere in the annual
regarding our pension plan.
report.
As of December 31, 2016, we had remaining commitments under non-cancelable contracts with various
parties, including acquisition of lands and buildings of NT$0.9 billion (US$26.9 million) and acquisition of
telecommunications equipment of NT$12.3 billion (US$0.4 billion).
Our revenues and costs and expenses are largely denominated in NT dollars. Our principal expenses
denominated in foreign currencies are capital expenditures on telecommunications equipment and settlement
payments for the use of networks of carriers in foreign countries for outgoing international calls. Settlement receipts
have been a principal source of foreign currency for us. While future fluctuations of the NT dollar against foreign
currencies could impact our financial condition and results of operations, we have not yet been materially affected in
the past. See “Item 11. Quantitative and Qualitative Disclosures about Market RiskForeign Currency Risk” for
Foreign Exchange
further details.
G. Safe Harbor
See “Forward-Looking Statements in This Annual Report May Not Be Realized.”
the solution of industry 4.0. As of December 31, 2016, we have been granted 916 domestic patents and 64 foreign
ITEM 6.
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
A. Directors and Senior Management
Our Articles of Incorporation provides for a board of directors consisting of seven to fifteen directors
bestowed with a three-year tenure. The following table sets forth the name, age and position of each of our directors
and such person’s position as of March 31, 2017. There is no family relationship among any of these persons. These
directors have terms until June 23, 2019. Pursuant to the ROC Company Act, a person may serve as our director in his
or her personal capacity or as the representative of another legal entity. A director who serves as the representative of
a legal entity may be removed or replaced at any time at the discretion of that legal entity, and the replacement
director may serve the remainder of the term of office of the replaced director. All of our non-independent directors
are representatives of the MOTC.
Our Articles of Incorporation provides for a board of directors consisting of seven to fifteen directors
bestowed with a three-year tenure. The following table sets forth the name, age and position of each of our directors
and such person’s position as of March 31, 2017. There is no family relationship among any of these persons. These
directors have terms until June 23, 2019. Pursuant to the ROC Company Act, a person may serve as our director in his
or her personal capacity or as the representative of another legal entity. A director who serves as the representative of
a legal entity may be removed or replaced at any time at the discretion of that legal entity, and the replacement
director may serve the remainder of the term of office of the replaced director. All of our non-independent directors
are representatives of the MOTC.
Name
Yu Cheng ..................................................................
Chi-Mau Sheih ..........................................................
Chih-Ku Fan .............................................................
Shin-Yi Chang ..........................................................
Yi-Bing Lin...............................................................
Shu-Juan Huang ........................................................
Jen-Ran Chen(1) ........................................................
Zse-Hong Tsai(1) ......................................................
Kuo-Long Wu(1) .......................................................
Lo-Yu Yen(1) ............................................................
Chin-Tsai Pan ...........................................................
Name
Age
Yu Cheng ..................................................................
63
Chi-Mau Sheih ..........................................................
62
Chih-Ku Fan .............................................................
63
Shin-Yi Chang ..........................................................
59
Yi-Bing Lin...............................................................
56
Shu-Juan Huang ........................................................
52
Jen-Ran Chen(1) ........................................................
58
Zse-Hong Tsai(1) ......................................................
56
Kuo-Long Wu(1) .......................................................
65
Lo-Yu Yen(1) ............................................................
62
Chin-Tsai Pan ...........................................................
56
Age
63
62
63
59
56
52
58
56
65
62
56
Position
Chairman, chief executive officer and director
President and director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Position
Chairman, chief executive officer and director
President and director
Director
Director
Director
Director
Director
Director
Director
Director
Director
(1)
(1)
Independent director.
Independent director.
Yu Cheng is the chairman, chief executive officer and director of our company. He is also an independent
director of Formosa Petrochemical Co., Ltd., Formosa Taffeta Co., Ltd. and Formosa Advanced Technologies Co.,
Ltd. Mr. Cheng assumed the role as a director of our company in August 2016. He was the former CEO of
Contemporary Taiwan Development Foundation. He also served as the editor-in-chief of Commercial Times from
2009 to 2016, the chairman of Radio Taiwan International from 2006 to 2008, the president of Taiwan Television
Enterprise Ltd. from 2002 to 2006, as well as the commissioner and vice chairman of Fair Trade Commission of
Executive Yuan from 1995 to 2002. Mr. Cheng holds a MBA degree from National Chengchi University.
Yu Cheng is the chairman, chief executive officer and director of our company. He is also an independent
director of Formosa Petrochemical Co., Ltd., Formosa Taffeta Co., Ltd. and Formosa Advanced Technologies Co.,
Ltd. Mr. Cheng assumed the role as a director of our company in August 2016. He was the former CEO of
Contemporary Taiwan Development Foundation. He also served as the editor-in-chief of Commercial Times from
2009 to 2016, the chairman of Radio Taiwan International from 2006 to 2008, the president of Taiwan Television
Enterprise Ltd. from 2002 to 2006, as well as the commissioner and vice chairman of Fair Trade Commission of
Executive Yuan from 1995 to 2002. Mr. Cheng holds a MBA degree from National Chengchi University.
Chi-Mau Sheih has served as the president and director of our company since January 2017. Mr. Sheih
served as a senior executive vice president of our company from 2010 to 2017, the president of Southern Taiwan
Business Group from 2007 to 2010, and the president of Central Taiwan Business Group from 2006 to 2007. Mr.
Sheih holds a master’s degree in Business Administration from National Taiwan University.
Chi-Mau Sheih has served as the president and director of our company since January 2017. Mr. Sheih
served as a senior executive vice president of our company from 2010 to 2017, the president of Southern Taiwan
Business Group from 2007 to 2010, and the president of Central Taiwan Business Group from 2006 to 2007. Mr.
Sheih holds a master’s degree in Business Administration from National Taiwan University.
Chih-Ku Fan is a director of our company. Mr. Fan is also currently the deputy administrative minister of
the MOTC. Mr. Fan holds a Ph.D. degree in transportation technology and management from National Chiao Tung
University in Taiwan.
Chih-Ku Fan is a director of our company. Mr. Fan is also currently the deputy administrative minister of
the MOTC. Mr. Fan holds a Ph.D. degree in transportation technology and management from National Chiao Tung
University in Taiwan.
Shin-Yi Chang has served as a director of our company since January 2017. Mr. Chang is also currently the
Shin-Yi Chang has served as a director of our company since January 2017. Mr. Chang is also currently the
director of the accounting department at the MOTC. He holds a MBA degree from National Taiwan University.
director of the accounting department at the MOTC. He holds a MBA degree from National Taiwan University.
Yi-Bing Lin is a director of our company. Dr. Lin is the vice chancellor of the National Chiao Tung
University of the University System of Taiwan, or the UST. He holds a Ph.D. degree in Computer Science and
Engineering from University of Washington in Seattle.
Yi-Bing Lin is a director of our company. Dr. Lin is the vice chancellor of the National Chiao Tung
University of the University System of Taiwan, or the UST. He holds a Ph.D. degree in Computer Science and
Engineering from University of Washington in Seattle.
Shu-Juan Huang is a director of our company. Ms. Huang is also currently the director of the Department
of Planning of the Directorate General of Budget, Accounting and Statistics at the Executive Yuan. Ms. Huang served
as our supervisor before June 25, 2013. Ms. Huang holds a bachelor’s degree in Accounting from Fu Jen Catholic
University in Taiwan.
Shu-Juan Huang is a director of our company. Ms. Huang is also currently the director of the Department
of Planning of the Directorate General of Budget, Accounting and Statistics at the Executive Yuan. Ms. Huang served
as our supervisor before June 25, 2013. Ms. Huang holds a bachelor’s degree in Accounting from Fu Jen Catholic
University in Taiwan.
85
Jen-Ran Chen is currently an independent director of our company. Mr. Chen is currently the executive
board director of Pixnet Digital Media Technology Co., Ltd., the largest social media in Taiwan, and has been invited
to be independent director and consultant for several IT companies and research institutes. He is the co-founder and
ex-CEO of Yam, the very first Chinese search engine, and former president of Chinese Television System. Mr. Chen
holds a master’s degree in Sociology from National Taiwan University.
Zse-Hong Tsai is an independent director of our company. Dr. Tsai is also currently a professor of electrical
engineering at the National Taiwan University. His research interest includes broadband networking, performance
evaluation and telecommunication regulations. Dr. Tsai holds a Ph.D. degree and a Master of Science degree in
Electrical Engineering from the University of California, Los Angeles, and a Bachelor of Science degree in Electrical
Engineering from National Taiwan University.
Kuo-Long Wu is an independent director of our company. Mr. Wu is also currently the consultant of the
National Information Infrastructure Enterprise Promotion Association. He was a board member of the Internet
Corporation for Assigned Names and Numbers from 2010 to 2016. Mr. Wu holds a master’s degree in Computer
Science from Columbia University.
Lo-Yu Yen is an independent director of our company. Mr. Yen is the co-founder and principal of AAMA
Taipei Cradle Program. He is also an independent director of ANZ Bank (Taiwan). Mr. Lo worked at international
accounting and consulting firms in Taiwan, USA and Mainland China for 30 years. He holds a master’s degree in
Accounting from National Chengchi University. He has CPA certificates both in the ROC and the United States.
Chin-Tsai Pan is a director of our company. Mr. Pan is currently a representative of the Member's
Convention of Chunghwa Telecom Workers Union and an engineer of our Southern Taiwan Business Group. Mr. Pan
graduated from Kaohsiung Industrial High School.
The following persons served as directors on our board during 2016 but are no longer serving with us due to
retirement and replacement.
Lih-Shyng Tsai was the chairman, chief executive officer and director of our company from January 2014
to August 2016. Dr. Tsai was the chairman and chief executive officer of TSMC Solar Ltd. and TSMC Solid State
Lighting Ltd. from 2011 to 2013, the president of TSMC’s new business department from 2009 to 2011 and the
president and chief executive officer of TSMC from 2005 to 2009. Dr. Tsai holds a Ph.D. degree in Material Science
and Engineering from Cornell University.
Mu-Piao Shih was the president and director of our company from June 2013 to January 2017. Mr. Shih
served as a senior executive vice president of our company from August 2011 to April 2013, an executive vice
president of our company and the manager of our Mobile Business Group from September 2009 to August 2011. Mr.
Shih holds a master’s degree in Electronic Engineering from National Taiwan University.
Yu-Fen Hong was a director of our company from June 2013 to January 2017. Ms. Hong is currently the
director of the accounting department at the Ministry of Economic Affairs. She holds a master's degree from National
Chiao Tung University in Taiwan.
Chich-Chiang Fan was a director of our company from September 9 to August 2016. Dr. Fan assumed
chairmanship of Yuanta Commercial Bank Company Ltd. starting from March 2015, after his term as the chairman of
Taiwan High Speed Rail Corporation from 2014 to 2015. Dr. Fan is also the chairman of Taiwan Futures Exchange
starting from July 2010, after his term as the chairman of the Taiwan Depository & Clearing Corporation from 2008
to 2010. Dr. Fan received a Ph.D. degree from the University of Cambridge, United Kingdom, in 1993.
Shih-Peng Tsai was a director of our company from June 2016 to March 2017. Mr. Tsai is currently a
representative of the Member’s Convention of Chunghwa Telecom Workers Union. Mr. Tsai graduated from Ta Tung
Junior Technological College of Commerce.
The following table sets forth the name, age and position of each of our executive officers and such person’s
position as of March 31, 2017. There is no family relationship among any of these persons.
Chief financial officer and senior executive vice president
Name
Age
Position
Bo-Yung Chen ..........................................................
Li-Show Wu .............................................................
Kuo-Feng Lin ...........................................................
Shyang-Yih Chen......................................................
Shui-Yi Kuo ..............................................................
Ming-Shih Chen........................................................
Hui-Min Wang ..........................................................
Hsiu-Gu Huang .........................................................
Yuan-Kuang Tu ........................................................
Chih-Cheng Chien ....................................................
Hong-Chan Ma .........................................................
53
58
61
64
51
61
64
63
61
56
60
Senior executive vice president
Senior executive vice president
Senior executive vice president
Senior executive vice president
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
Bo-Yung Chen is our chief financial officer and senior executive vice president starting from May 2014. He
served as the chief financial officer of TSMC Solid State Lighting from 2012 to 2014. Prior to that, he was the chief
financial officer and the operation general manager of Ralink Technology Corp. from 2008 to 2011. He also served as
the senior vice president of Silicon Integrated Systems Corp. from 2004 to 2008. Mr. Chen holds a master’s degree in
Business Administration from University of Pittsburgh.
Li-Show Wu is a senior executive vice president. Ms. Wu served as the vice president of our Marketing
Department from August 2015 to October 2016. Prior to that, she served as the vice president of Enterprise Business
Group from September 2012 to August 2015, and the assistant vice president of our Marketing Department from
January 2011 to September 2012. Ms. Wu holds a master’s degree in Applied Mathematics from National Chiao Tung
University in Taiwan.
Kuo-Feng Lin is a senior executive vice president. He was the president of our Mobile Business Group from
May 2012 to November 2016. Mr. Lin served as a deputy manager of our Mobil business group from October 2009 to
May 2012. Prior to that, he served as the manager of Taipei Branch, Mobile Business Group from April 2006 to
October 2009. Mr. Lin holds a bachelor’s degree in Electronic Engineering from National Taipei Institute of
Technology.
Shyang-Yih Chen is a senior executive vice president of our company and he is also the president of our
Telecommunication Laboratories. Mr. Chen served as the president of our Telecommunication Laboratories from
August 2015 to March 2017, a senior executive vice president of our company from August 2014 to August 2015, the
president of our Telecommunication Training Institute from March 2012 to August 2014, and an executive vice
president of our company and the president of the Data Communication Business Group from September 2006 to
March 2012. Mr. Chen holds a master’s degree in Electrical Engineering from National Taiwan University.
Shui-Yi Kuo is a senior executive vice president. Mr. Kuo was the vice president of our investment
department from November 2014 to March 2017. Prior to that, he served as the president of our subsidiary Light Era
from November 2013 to November 2014, and the vice president of our accounting department from March 2008 to
November 2013. Mr. Kuo holds a master's degree in Accounting from National Chengchi University.
Ming-Shih Chen is the president of our Northern Taiwan Business Group. Dr. Chen is also a director of
Senao. Prior to that, Dr. Chen was the president of our International Business Group from November 2016 to March
2017. Dr. Chen served as the vice president of our Data Communications Business Group from July 2012 to
November 2016, the deputy manager of our Data Communications Business Group from May 2012 to July 2012, the
senior managing director of our Information Technology Department from September 2008 to May 2012, and the
assistant vice president of our Information Technology Department from October 2006 to September 2008. Dr. Chen
holds a Ph.D. degree in Electrical Engineering from National Tsing Hua University in Taiwan.
Hui-Min Wang is the president of our Southern Taiwan Business Group since May 2016. Prior to that, he
served as a vice president of our Southern Taiwan Business Group from October 2015 to April 2016, and as the
86
Jen-Ran Chen is currently an independent director of our company. Mr. Chen is currently the executive
board director of Pixnet Digital Media Technology Co., Ltd., the largest social media in Taiwan, and has been invited
to be independent director and consultant for several IT companies and research institutes. He is the co-founder and
ex-CEO of Yam, the very first Chinese search engine, and former president of Chinese Television System. Mr. Chen
holds a master’s degree in Sociology from National Taiwan University.
Zse-Hong Tsai is an independent director of our company. Dr. Tsai is also currently a professor of electrical
engineering at the National Taiwan University. His research interest includes broadband networking, performance
evaluation and telecommunication regulations. Dr. Tsai holds a Ph.D. degree and a Master of Science degree in
Electrical Engineering from the University of California, Los Angeles, and a Bachelor of Science degree in Electrical
Engineering from National Taiwan University.
Kuo-Long Wu is an independent director of our company. Mr. Wu is also currently the consultant of the
National Information Infrastructure Enterprise Promotion Association. He was a board member of the Internet
Corporation for Assigned Names and Numbers from 2010 to 2016. Mr. Wu holds a master’s degree in Computer
Science from Columbia University.
Lo-Yu Yen is an independent director of our company. Mr. Yen is the co-founder and principal of AAMA
Taipei Cradle Program. He is also an independent director of ANZ Bank (Taiwan). Mr. Lo worked at international
accounting and consulting firms in Taiwan, USA and Mainland China for 30 years. He holds a master’s degree in
Accounting from National Chengchi University. He has CPA certificates both in the ROC and the United States.
Chin-Tsai Pan is a director of our company. Mr. Pan is currently a representative of the Member's
Convention of Chunghwa Telecom Workers Union and an engineer of our Southern Taiwan Business Group. Mr. Pan
graduated from Kaohsiung Industrial High School.
The following persons served as directors on our board during 2016 but are no longer serving with us due to
retirement and replacement.
Lih-Shyng Tsai was the chairman, chief executive officer and director of our company from January 2014
to August 2016. Dr. Tsai was the chairman and chief executive officer of TSMC Solar Ltd. and TSMC Solid State
Lighting Ltd. from 2011 to 2013, the president of TSMC’s new business department from 2009 to 2011 and the
president and chief executive officer of TSMC from 2005 to 2009. Dr. Tsai holds a Ph.D. degree in Material Science
and Engineering from Cornell University.
Mu-Piao Shih was the president and director of our company from June 2013 to January 2017. Mr. Shih
served as a senior executive vice president of our company from August 2011 to April 2013, an executive vice
president of our company and the manager of our Mobile Business Group from September 2009 to August 2011. Mr.
Shih holds a master’s degree in Electronic Engineering from National Taiwan University.
Yu-Fen Hong was a director of our company from June 2013 to January 2017. Ms. Hong is currently the
director of the accounting department at the Ministry of Economic Affairs. She holds a master's degree from National
Chiao Tung University in Taiwan.
Chich-Chiang Fan was a director of our company from September 9 to August 2016. Dr. Fan assumed
chairmanship of Yuanta Commercial Bank Company Ltd. starting from March 2015, after his term as the chairman of
Taiwan High Speed Rail Corporation from 2014 to 2015. Dr. Fan is also the chairman of Taiwan Futures Exchange
starting from July 2010, after his term as the chairman of the Taiwan Depository & Clearing Corporation from 2008
to 2010. Dr. Fan received a Ph.D. degree from the University of Cambridge, United Kingdom, in 1993.
Shih-Peng Tsai was a director of our company from June 2016 to March 2017. Mr. Tsai is currently a
representative of the Member’s Convention of Chunghwa Telecom Workers Union. Mr. Tsai graduated from Ta Tung
Junior Technological College of Commerce.
The following table sets forth the name, age and position of each of our executive officers and such person’s
The following table sets forth the name, age and position of each of our executive officers and such person’s
The following table sets forth the name, age and position of each of our executive officers and such person’s
The following table sets forth the name, age and position of each of our executive officers and such person’s
position as of March 31, 2017. There is no family relationship among any of these persons.
position as of March 31, 2017. There is no family relationship among any of these persons.
position as of March 31, 2017. There is no family relationship among any of these persons.
position as of March 31, 2017. There is no family relationship among any of these persons.
Name
Bo-Yung Chen ..........................................................
Li-Show Wu .............................................................
Kuo-Feng Lin ...........................................................
Shyang-Yih Chen......................................................
Shui-Yi Kuo ..............................................................
Ming-Shih Chen........................................................
Hui-Min Wang ..........................................................
Hsiu-Gu Huang .........................................................
Yuan-Kuang Tu ........................................................
Chih-Cheng Chien ....................................................
Hong-Chan Ma .........................................................
Name
Name
Name
Bo-Yung Chen ..........................................................
Bo-Yung Chen ..........................................................
Bo-Yung Chen ..........................................................
Li-Show Wu .............................................................
Li-Show Wu .............................................................
Li-Show Wu .............................................................
Kuo-Feng Lin ...........................................................
Kuo-Feng Lin ...........................................................
Kuo-Feng Lin ...........................................................
Shyang-Yih Chen......................................................
Shyang-Yih Chen......................................................
Shyang-Yih Chen......................................................
Shui-Yi Kuo ..............................................................
Shui-Yi Kuo ..............................................................
Shui-Yi Kuo ..............................................................
Ming-Shih Chen........................................................
Ming-Shih Chen........................................................
Ming-Shih Chen........................................................
Hui-Min Wang ..........................................................
Hui-Min Wang ..........................................................
Hui-Min Wang ..........................................................
Hsiu-Gu Huang .........................................................
Hsiu-Gu Huang .........................................................
Hsiu-Gu Huang .........................................................
Yuan-Kuang Tu ........................................................
Yuan-Kuang Tu ........................................................
Yuan-Kuang Tu ........................................................
Chih-Cheng Chien ....................................................
Chih-Cheng Chien ....................................................
Chih-Cheng Chien ....................................................
Hong-Chan Ma .........................................................
Hong-Chan Ma .........................................................
Hong-Chan Ma .........................................................
Age
Age
Age
Age
53
53
53
53
58
58
58
58
61
61
61
61
64
64
64
64
51
51
51
51
61
61
61
61
64
64
64
64
63
63
63
63
61
61
61
61
56
56
56
56
60
60
60
60
Position
Position
Position
Position
Chief financial officer and senior executive vice president
Chief financial officer and senior executive vice president
Chief financial officer and senior executive vice president
Chief financial officer and senior executive vice president
Senior executive vice president
Senior executive vice president
Senior executive vice president
Senior executive vice president
Senior executive vice president
Senior executive vice president
Senior executive vice president
Senior executive vice president
Senior executive vice president
Senior executive vice president
Senior executive vice president
Senior executive vice president
Senior executive vice president
Senior executive vice president
Senior executive vice president
Senior executive vice president
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
President of business group
Bo-Yung Chen is our chief financial officer and senior executive vice president starting from May 2014. He
served as the chief financial officer of TSMC Solid State Lighting from 2012 to 2014. Prior to that, he was the chief
financial officer and the operation general manager of Ralink Technology Corp. from 2008 to 2011. He also served as
the senior vice president of Silicon Integrated Systems Corp. from 2004 to 2008. Mr. Chen holds a master’s degree in
Business Administration from University of Pittsburgh.
Bo-Yung Chen is our chief financial officer and senior executive vice president starting from May 2014. He
Bo-Yung Chen is our chief financial officer and senior executive vice president starting from May 2014. He
Bo-Yung Chen is our chief financial officer and senior executive vice president starting from May 2014. He
served as the chief financial officer of TSMC Solid State Lighting from 2012 to 2014. Prior to that, he was the chief
served as the chief financial officer of TSMC Solid State Lighting from 2012 to 2014. Prior to that, he was the chief
served as the chief financial officer of TSMC Solid State Lighting from 2012 to 2014. Prior to that, he was the chief
financial officer and the operation general manager of Ralink Technology Corp. from 2008 to 2011. He also served as
financial officer and the operation general manager of Ralink Technology Corp. from 2008 to 2011. He also served as
financial officer and the operation general manager of Ralink Technology Corp. from 2008 to 2011. He also served as
the senior vice president of Silicon Integrated Systems Corp. from 2004 to 2008. Mr. Chen holds a master’s degree in
the senior vice president of Silicon Integrated Systems Corp. from 2004 to 2008. Mr. Chen holds a master’s degree in
the senior vice president of Silicon Integrated Systems Corp. from 2004 to 2008. Mr. Chen holds a master’s degree in
Business Administration from University of Pittsburgh.
Business Administration from University of Pittsburgh.
Business Administration from University of Pittsburgh.
Li-Show Wu is a senior executive vice president. Ms. Wu served as the vice president of our Marketing
Department from August 2015 to October 2016. Prior to that, she served as the vice president of Enterprise Business
Group from September 2012 to August 2015, and the assistant vice president of our Marketing Department from
January 2011 to September 2012. Ms. Wu holds a master’s degree in Applied Mathematics from National Chiao Tung
University in Taiwan.
Li-Show Wu is a senior executive vice president. Ms. Wu served as the vice president of our Marketing
Li-Show Wu is a senior executive vice president. Ms. Wu served as the vice president of our Marketing
Li-Show Wu is a senior executive vice president. Ms. Wu served as the vice president of our Marketing
Department from August 2015 to October 2016. Prior to that, she served as the vice president of Enterprise Business
Department from August 2015 to October 2016. Prior to that, she served as the vice president of Enterprise Business
Department from August 2015 to October 2016. Prior to that, she served as the vice president of Enterprise Business
Group from September 2012 to August 2015, and the assistant vice president of our Marketing Department from
Group from September 2012 to August 2015, and the assistant vice president of our Marketing Department from
Group from September 2012 to August 2015, and the assistant vice president of our Marketing Department from
January 2011 to September 2012. Ms. Wu holds a master’s degree in Applied Mathematics from National Chiao Tung
January 2011 to September 2012. Ms. Wu holds a master’s degree in Applied Mathematics from National Chiao Tung
January 2011 to September 2012. Ms. Wu holds a master’s degree in Applied Mathematics from National Chiao Tung
University in Taiwan.
University in Taiwan.
University in Taiwan.
Kuo-Feng Lin is a senior executive vice president. He was the president of our Mobile Business Group from
May 2012 to November 2016. Mr. Lin served as a deputy manager of our Mobil business group from October 2009 to
May 2012. Prior to that, he served as the manager of Taipei Branch, Mobile Business Group from April 2006 to
October 2009. Mr. Lin holds a bachelor’s degree in Electronic Engineering from National Taipei Institute of
Technology.
Kuo-Feng Lin is a senior executive vice president. He was the president of our Mobile Business Group from
Kuo-Feng Lin is a senior executive vice president. He was the president of our Mobile Business Group from
Kuo-Feng Lin is a senior executive vice president. He was the president of our Mobile Business Group from
May 2012 to November 2016. Mr. Lin served as a deputy manager of our Mobil business group from October 2009 to
May 2012 to November 2016. Mr. Lin served as a deputy manager of our Mobil business group from October 2009 to
May 2012 to November 2016. Mr. Lin served as a deputy manager of our Mobil business group from October 2009 to
May 2012. Prior to that, he served as the manager of Taipei Branch, Mobile Business Group from April 2006 to
May 2012. Prior to that, he served as the manager of Taipei Branch, Mobile Business Group from April 2006 to
May 2012. Prior to that, he served as the manager of Taipei Branch, Mobile Business Group from April 2006 to
October 2009. Mr. Lin holds a bachelor’s degree in Electronic Engineering from National Taipei Institute of
October 2009. Mr. Lin holds a bachelor’s degree in Electronic Engineering from National Taipei Institute of
October 2009. Mr. Lin holds a bachelor’s degree in Electronic Engineering from National Taipei Institute of
Technology.
Technology.
Technology.
Shyang-Yih Chen is a senior executive vice president of our company and he is also the president of our
Telecommunication Laboratories. Mr. Chen served as the president of our Telecommunication Laboratories from
August 2015 to March 2017, a senior executive vice president of our company from August 2014 to August 2015, the
president of our Telecommunication Training Institute from March 2012 to August 2014, and an executive vice
president of our company and the president of the Data Communication Business Group from September 2006 to
March 2012. Mr. Chen holds a master’s degree in Electrical Engineering from National Taiwan University.
Shyang-Yih Chen is a senior executive vice president of our company and he is also the president of our
Shyang-Yih Chen is a senior executive vice president of our company and he is also the president of our
Shyang-Yih Chen is a senior executive vice president of our company and he is also the president of our
Telecommunication Laboratories. Mr. Chen served as the president of our Telecommunication Laboratories from
Telecommunication Laboratories. Mr. Chen served as the president of our Telecommunication Laboratories from
Telecommunication Laboratories. Mr. Chen served as the president of our Telecommunication Laboratories from
August 2015 to March 2017, a senior executive vice president of our company from August 2014 to August 2015, the
August 2015 to March 2017, a senior executive vice president of our company from August 2014 to August 2015, the
August 2015 to March 2017, a senior executive vice president of our company from August 2014 to August 2015, the
president of our Telecommunication Training Institute from March 2012 to August 2014, and an executive vice
president of our Telecommunication Training Institute from March 2012 to August 2014, and an executive vice
president of our Telecommunication Training Institute from March 2012 to August 2014, and an executive vice
president of our company and the president of the Data Communication Business Group from September 2006 to
president of our company and the president of the Data Communication Business Group from September 2006 to
president of our company and the president of the Data Communication Business Group from September 2006 to
March 2012. Mr. Chen holds a master’s degree in Electrical Engineering from National Taiwan University.
March 2012. Mr. Chen holds a master’s degree in Electrical Engineering from National Taiwan University.
March 2012. Mr. Chen holds a master’s degree in Electrical Engineering from National Taiwan University.
Shui-Yi Kuo is a senior executive vice president. Mr. Kuo was the vice president of our investment
department from November 2014 to March 2017. Prior to that, he served as the president of our subsidiary Light Era
from November 2013 to November 2014, and the vice president of our accounting department from March 2008 to
November 2013. Mr. Kuo holds a master's degree in Accounting from National Chengchi University.
Shui-Yi Kuo is a senior executive vice president. Mr. Kuo was the vice president of our investment
Shui-Yi Kuo is a senior executive vice president. Mr. Kuo was the vice president of our investment
Shui-Yi Kuo is a senior executive vice president. Mr. Kuo was the vice president of our investment
department from November 2014 to March 2017. Prior to that, he served as the president of our subsidiary Light Era
department from November 2014 to March 2017. Prior to that, he served as the president of our subsidiary Light Era
department from November 2014 to March 2017. Prior to that, he served as the president of our subsidiary Light Era
from November 2013 to November 2014, and the vice president of our accounting department from March 2008 to
from November 2013 to November 2014, and the vice president of our accounting department from March 2008 to
from November 2013 to November 2014, and the vice president of our accounting department from March 2008 to
November 2013. Mr. Kuo holds a master's degree in Accounting from National Chengchi University.
November 2013. Mr. Kuo holds a master's degree in Accounting from National Chengchi University.
November 2013. Mr. Kuo holds a master's degree in Accounting from National Chengchi University.
Ming-Shih Chen is the president of our Northern Taiwan Business Group. Dr. Chen is also a director of
Senao. Prior to that, Dr. Chen was the president of our International Business Group from November 2016 to March
2017. Dr. Chen served as the vice president of our Data Communications Business Group from July 2012 to
November 2016, the deputy manager of our Data Communications Business Group from May 2012 to July 2012, the
senior managing director of our Information Technology Department from September 2008 to May 2012, and the
assistant vice president of our Information Technology Department from October 2006 to September 2008. Dr. Chen
holds a Ph.D. degree in Electrical Engineering from National Tsing Hua University in Taiwan.
Ming-Shih Chen is the president of our Northern Taiwan Business Group. Dr. Chen is also a director of
Ming-Shih Chen is the president of our Northern Taiwan Business Group. Dr. Chen is also a director of
Ming-Shih Chen is the president of our Northern Taiwan Business Group. Dr. Chen is also a director of
Senao. Prior to that, Dr. Chen was the president of our International Business Group from November 2016 to March
Senao. Prior to that, Dr. Chen was the president of our International Business Group from November 2016 to March
Senao. Prior to that, Dr. Chen was the president of our International Business Group from November 2016 to March
2017. Dr. Chen served as the vice president of our Data Communications Business Group from July 2012 to
2017. Dr. Chen served as the vice president of our Data Communications Business Group from July 2012 to
2017. Dr. Chen served as the vice president of our Data Communications Business Group from July 2012 to
November 2016, the deputy manager of our Data Communications Business Group from May 2012 to July 2012, the
November 2016, the deputy manager of our Data Communications Business Group from May 2012 to July 2012, the
November 2016, the deputy manager of our Data Communications Business Group from May 2012 to July 2012, the
senior managing director of our Information Technology Department from September 2008 to May 2012, and the
senior managing director of our Information Technology Department from September 2008 to May 2012, and the
senior managing director of our Information Technology Department from September 2008 to May 2012, and the
assistant vice president of our Information Technology Department from October 2006 to September 2008. Dr. Chen
assistant vice president of our Information Technology Department from October 2006 to September 2008. Dr. Chen
assistant vice president of our Information Technology Department from October 2006 to September 2008. Dr. Chen
holds a Ph.D. degree in Electrical Engineering from National Tsing Hua University in Taiwan.
holds a Ph.D. degree in Electrical Engineering from National Tsing Hua University in Taiwan.
holds a Ph.D. degree in Electrical Engineering from National Tsing Hua University in Taiwan.
Hui-Min Wang is the president of our Southern Taiwan Business Group since May 2016. Prior to that, he
served as a vice president of our Southern Taiwan Business Group from October 2015 to April 2016, and as the
Hui-Min Wang is the president of our Southern Taiwan Business Group since May 2016. Prior to that, he
Hui-Min Wang is the president of our Southern Taiwan Business Group since May 2016. Prior to that, he
Hui-Min Wang is the president of our Southern Taiwan Business Group since May 2016. Prior to that, he
served as a vice president of our Southern Taiwan Business Group from October 2015 to April 2016, and as the
served as a vice president of our Southern Taiwan Business Group from October 2015 to April 2016, and as the
served as a vice president of our Southern Taiwan Business Group from October 2015 to April 2016, and as the
87
president of our subsidiary Chunghwa Telecom (China), Co., Ltd. from March 2011 to October 2015. Mr. Wang
holds a master’s degree in Business Administration from Eastern New Mexico University in the United States.
director;
exceed his fixed income. The chairman will not receive any additional compensation for his role as a
Hsiu-Gu Huang is the president of our Enterprise Business Group. Mr. Huang is also a director of China
Airlines Co., Ltd. He was a senior executive vice president from May 2013 to November 2016. He already served as
the president of our Enterprise Business Group from September 2008 to May 2013, and an assistant vice president of
our company and a deputy manager of our Enterprise Business Group from January 2007 to September 2008. Mr.
Huang holds a master’s degree in Management Science from National Chiao Tung University in Taiwan.
Yuan-Kuang Tu is the president of our Mobile Business Group. Dr. Tu is also a director of Senao. Dr. Tu
served as the president of Enterprise Business Group from March 2015 to November 2016, the president of Northern
Taiwan Business Group from March 2012 to February 2015, the president of Chunghwa Telecom Laboratories from
May 2009 to March 2012, the senior managing director of our Corporate Planning Department from May 2007 to
May 2009, and the vice president of Chunghwa Telecom Laboratories from March 2006 to April 2007. Dr. Tu holds a
Ph.D. degree in Electrical Engineering from National Taiwan University.
Chih-Cheng Chien is the president of our International Business Group. Prior to that, Dr. Chien was the
vice president of our International Business Group from July 2012 to March 2017, the deputy manager of our
International Business Group from May 2012 to July 2012, the deputy manager of our Data Communications
Business Group from February 2011 to May 2012, and the senior managing director of our Customer Services
Department from January 2007 to February 2011. Dr. Chien holds a Ph.D. degree in Engineering Technology from
National Taiwan University of Science and Technology.
Hong-Chan Ma is the president of our Data Communications Business Group. Before being promoted to
this position, Mr. Ma served as the vice president of our Marketing Department from September 2012 to August 2015,
and the assistant vice president of our Marketing Department from January 2011 to September 2012. Mr. Ma holds a
master’s degree in Management Science from National Chiao Tung University in Taiwan.
The following person served as our executive officer during 2016 but is no longer serving with us due to
retirement and replacement.
Fu-Kuei Chung was the president of our Northern Taiwan Business Group. Mr. Chung was our senior
executive vice president from August 2015 to October 2016. He previously served as the president of our Data
Communications Business Group from March 2012 to August 2015, a deputy manager of our Data Communications
Business Group from September 2010 to March 2012, and the senior managing director of our Corporate Planning
Departing from May 2009 to August 2010. Mr. Chung holds the master’s degree in Information Management from
National Taiwan University.
Ming-Ching Cheng was the president of our Northern Taiwan Business Group. Before being promoted to
this position, Mr. Cheng served as a vice president of Mobile Business Group from July 2012 to February 2015. Mr.
Cheng holds a bachelor’s degree in Electrical Engineering from Provincial Kaohsiung Institute of Technology.
Ming-Yuan Lee was the president of our Southern Taiwan Business Group since November 2013. Prior to
that, he served as a vice president of our Southern Taiwan Business Group from July 2012 to November 2013 and as
the deputy manager of our Southern Taiwan Business Group from May 2007 to July 2012. Mr. Lee holds a master’s
degree in Telecommunications from National Chiao Tung University in Taiwan.
B. Compensation
The board of directors has set up a compensation committee to be responsible for drafting, approving and
periodically reviewing the compensation proposals for the directors and managers. See “C. Board Practices” for a
discussion of our compensation committee.
•
the chairman of our board of directors may receive a fixed monthly income of NT$342,900 and a non-
fixed income, including but not limited to performance-related bonuses or other rewards, which may not
88
•
•
•
our president may receive a fixed monthly income of NT$335,280 and a non-fixed income, including
but not limited to performance-related bonuses or other rewards, which may not exceed his fixed
income. The president will not receive any additional compensation for his role as a director;
independent directors who concurrently serve in military, public office or hold teaching or
administrative post may receive a fixed monthly compensation of NT$8,000, and those who do not
concurrently serve in military or public office or hold teaching or administrative post may receive a
monthly compensation of NT$60,000; and
directors who serve in military, public office or hold teaching or administrative post may receive a
monthly compensation of NT$8,000, and those directors who do not serve in military and public office
or hold teaching or administrative post may receive a monthly compensation of NT$30,000.
Our chairman and president to our board of directors, Yu Cheng and Chi-Mau Sheih, respectively, do not
receive monthly compensation for acting as our directors because they receive salaries as employees.
The aggregate amount of compensation to our directors and executive officers in 2014, 2015 and 2016 was
NT$152,242,029, NT$126,799,952 and NT$145,980,825 (US$4,505,581.0), respectively. The aggregate amount of
compensation in 2016 includes a NT$85,103,585 (US$2,626,653.9) salary payment for directors and executive
officers, a NT$12,719,821
(US$392,587.1) pension payment
for executive officers, a NT$42,087,419
(US$1,298,994.4) bonus accrued for directors and a NT$6,070,000 (US$187,345.7) bonus accrued for executive
officers. See “Item 10. Additional Information—B. Memorandum and Articles of Incorporation—Dividends and
Distributions” for a discussion of the distribution of bonuses and earnings.
All of our non-independent directors are legal representatives of the MOTC. The bonus in the amount of
NT$44,851,783 (US$1,384,314.3) were paid directly to the MOTC in 2016 because such earnings distributions are
not the individual income of these directors. Independent directors will not receive any earnings distributions.
Pursuant to ROC disclosure rules, we have disclosed the compensation range of our directors and senior
management for the fiscal year ended December 31, 2016 as follows, excluding bonus accrued for legal entity the
MOTC:
Total Compensation
Below NT$2,000,000 ............................................................................ Yu Cheng(2), Chung-Yu Wang(1), Zse-Hong Tsai, Chung-Fern
Directors
Wu(1), Tain-Jy Chen(1), Yun-Tsai Chou(1), Yi-Bing Lin, Yu-Fen
Hong(1), Chih-Ku Fan, Chich-Chiang Fan(1), Shu-Juan Huang,
Shih-Peng Tsai(1), Lo-Yu Yen, Jen-Ran Chen, Kuo-Long Wu
NT$2,000,000 to NT$4,999,999 ........................................................... None
NT$5,000,000 to NT$9,999,999 ........................................................... Mu-Piao Shih(3)
Over NT$10,000,000 ............................................................................ Lih-Shyng Tsai(4)
Total ...................................................................................................... 17 people
(1) This person has ceased to be a director of our company due to resignation and replacement prior to March 31, 2017.
(2) This person started to serve as our chief executive officer in December 2016. The compensation in 2016 was paid for his service as a
(3) This person has ceased to be the president and director of our company due to retirement in January 2017.
(4) This person has ceased to be the chairman, a director and chief executive officer of our company due to replacement in December
2016. The compensation was counted as salary for serving as our chief executive officer prior to the cessation and retirement pension
director of our company.
payment.
president of our subsidiary Chunghwa Telecom (China), Co., Ltd. from March 2011 to October 2015. Mr. Wang
holds a master’s degree in Business Administration from Eastern New Mexico University in the United States.
exceed his fixed income. The chairman will not receive any additional compensation for his role as a
director;
Hsiu-Gu Huang is the president of our Enterprise Business Group. Mr. Huang is also a director of China
Airlines Co., Ltd. He was a senior executive vice president from May 2013 to November 2016. He already served as
the president of our Enterprise Business Group from September 2008 to May 2013, and an assistant vice president of
our company and a deputy manager of our Enterprise Business Group from January 2007 to September 2008. Mr.
Huang holds a master’s degree in Management Science from National Chiao Tung University in Taiwan.
Yuan-Kuang Tu is the president of our Mobile Business Group. Dr. Tu is also a director of Senao. Dr. Tu
served as the president of Enterprise Business Group from March 2015 to November 2016, the president of Northern
Taiwan Business Group from March 2012 to February 2015, the president of Chunghwa Telecom Laboratories from
May 2009 to March 2012, the senior managing director of our Corporate Planning Department from May 2007 to
May 2009, and the vice president of Chunghwa Telecom Laboratories from March 2006 to April 2007. Dr. Tu holds a
Ph.D. degree in Electrical Engineering from National Taiwan University.
Chih-Cheng Chien is the president of our International Business Group. Prior to that, Dr. Chien was the
vice president of our International Business Group from July 2012 to March 2017, the deputy manager of our
International Business Group from May 2012 to July 2012, the deputy manager of our Data Communications
Business Group from February 2011 to May 2012, and the senior managing director of our Customer Services
Department from January 2007 to February 2011. Dr. Chien holds a Ph.D. degree in Engineering Technology from
National Taiwan University of Science and Technology.
Hong-Chan Ma is the president of our Data Communications Business Group. Before being promoted to
this position, Mr. Ma served as the vice president of our Marketing Department from September 2012 to August 2015,
and the assistant vice president of our Marketing Department from January 2011 to September 2012. Mr. Ma holds a
master’s degree in Management Science from National Chiao Tung University in Taiwan.
The following person served as our executive officer during 2016 but is no longer serving with us due to
retirement and replacement.
Fu-Kuei Chung was the president of our Northern Taiwan Business Group. Mr. Chung was our senior
executive vice president from August 2015 to October 2016. He previously served as the president of our Data
Communications Business Group from March 2012 to August 2015, a deputy manager of our Data Communications
Business Group from September 2010 to March 2012, and the senior managing director of our Corporate Planning
Departing from May 2009 to August 2010. Mr. Chung holds the master’s degree in Information Management from
National Taiwan University.
Ming-Ching Cheng was the president of our Northern Taiwan Business Group. Before being promoted to
this position, Mr. Cheng served as a vice president of Mobile Business Group from July 2012 to February 2015. Mr.
Cheng holds a bachelor’s degree in Electrical Engineering from Provincial Kaohsiung Institute of Technology.
Ming-Yuan Lee was the president of our Southern Taiwan Business Group since November 2013. Prior to
that, he served as a vice president of our Southern Taiwan Business Group from July 2012 to November 2013 and as
the deputy manager of our Southern Taiwan Business Group from May 2007 to July 2012. Mr. Lee holds a master’s
degree in Telecommunications from National Chiao Tung University in Taiwan.
B. Compensation
The board of directors has set up a compensation committee to be responsible for drafting, approving and
periodically reviewing the compensation proposals for the directors and managers. See “C. Board Practices” for a
discussion of our compensation committee.
•
the chairman of our board of directors may receive a fixed monthly income of NT$342,900 and a non-
fixed income, including but not limited to performance-related bonuses or other rewards, which may not
•
•
•
our president may receive a fixed monthly income of NT$335,280 and a non-fixed income, including
but not limited to performance-related bonuses or other rewards, which may not exceed his fixed
income. The president will not receive any additional compensation for his role as a director;
independent directors who concurrently serve in military, public office or hold teaching or
administrative post may receive a fixed monthly compensation of NT$8,000, and those who do not
concurrently serve in military or public office or hold teaching or administrative post may receive a
monthly compensation of NT$60,000; and
directors who serve in military, public office or hold teaching or administrative post may receive a
monthly compensation of NT$8,000, and those directors who do not serve in military and public office
or hold teaching or administrative post may receive a monthly compensation of NT$30,000.
Our chairman and president to our board of directors, Yu Cheng and Chi-Mau Sheih, respectively, do not
receive monthly compensation for acting as our directors because they receive salaries as employees.
The aggregate amount of compensation to our directors and executive officers in 2014, 2015 and 2016 was
NT$152,242,029, NT$126,799,952 and NT$145,980,825 (US$4,505,581.0), respectively. The aggregate amount of
compensation in 2016 includes a NT$85,103,585 (US$2,626,653.9) salary payment for directors and executive
officers, a NT$12,719,821
for executive officers, a NT$42,087,419
(US$1,298,994.4) bonus accrued for directors and a NT$6,070,000 (US$187,345.7) bonus accrued for executive
officers. See “Item 10. Additional Information—B. Memorandum and Articles of Incorporation—Dividends and
Distributions” for a discussion of the distribution of bonuses and earnings.
(US$392,587.1) pension payment
All of our non-independent directors are legal representatives of the MOTC. The bonus in the amount of
NT$44,851,783 (US$1,384,314.3) were paid directly to the MOTC in 2016 because such earnings distributions are
not the individual income of these directors. Independent directors will not receive any earnings distributions.
Pursuant to ROC disclosure rules, we have disclosed the compensation range of our directors and senior
management for the fiscal year ended December 31, 2016 as follows, excluding bonus accrued for legal entity the
MOTC:
Total Compensation
Below NT$2,000,000 ............................................................................ Yu Cheng(2), Chung-Yu Wang(1), Zse-Hong Tsai, Chung-Fern
Directors
Wu(1), Tain-Jy Chen(1), Yun-Tsai Chou(1), Yi-Bing Lin, Yu-Fen
Hong(1), Chih-Ku Fan, Chich-Chiang Fan(1), Shu-Juan Huang,
Shih-Peng Tsai(1), Lo-Yu Yen, Jen-Ran Chen, Kuo-Long Wu
NT$2,000,000 to NT$4,999,999 ........................................................... None
NT$5,000,000 to NT$9,999,999 ........................................................... Mu-Piao Shih(3)
Over NT$10,000,000 ............................................................................ Lih-Shyng Tsai(4)
Total ...................................................................................................... 17 people
(1) This person has ceased to be a director of our company due to resignation and replacement prior to March 31, 2017.
(2) This person started to serve as our chief executive officer in December 2016. The compensation in 2016 was paid for his service as a
director of our company.
(3) This person has ceased to be the president and director of our company due to retirement in January 2017.
(4) This person has ceased to be the chairman, a director and chief executive officer of our company due to replacement in December
2016. The compensation was counted as salary for serving as our chief executive officer prior to the cessation and retirement pension
payment.
89
Total Compensation
Below NT$2,000,000 ............................................................................ None
NT$2,000,000 to NT$4,999,999 ........................................................... Li-Show Wu, Hui-Min Wang, Ming-Shih Chen
NT$5,000,000 to NT$9,999,999 ........................................................... Bo-Yung Chen, Chi-Mau Sheih, Hsiu-Gu Huang, Ming-Yuan
Senior Management
Lee(1)(2), Fu-Kuei Chung(4), Kuo-Feng Lin, Yuan-Kuang Tu,
Shyang-Yih Chen, Hong-Chan Ma
Over NT$10,000,000 ............................................................................ Ming-Ching Cheng(1)(3)
Total ...................................................................................................... 13 people
Including retirement pension payment.
(1)
(2) This person has ceased to be a member of the senior management of our company due to retirement in May 2016.
(3) This person has ceased to be a member of the senior management of our company due to retirement in November 2016.
(4) This person has ceased to be a member of the senior management of our company due to replacement in March 2017.
We accrued NT$5,161,732 (US$159,312.7) pension expense for executive officers mentioned above in 2016.
See “Item 5. Operating and Financial Review and Prospects—Overview—Personnel expenses” and Note 28 to our
consolidated financial statements included elsewhere in this annual report for descriptions about our pension plans.
We do not have any service contracts with any directors providing for any benefits upon termination of employment.
C. Board Practices
We currently have 11 directors, including four independent directors. All of our directors were elected on
June 24, 2016 for a term of three years until June 23, 2019, except for Mr. Yu Cheng, Mr. Chi-Mau Sheih, Mr. Shin-
Yi Chang and Mr. Chin-Tsai Pan, as they were reassigned as a juristic-person director by MOTC prior to March 31,
2017. Pursuant to the ROC Company Act, the directors may be removed from office at any time by a resolution
adopted at a stockholders’ meeting. The chairman of our board of directors is elected by our directors. Our chairman
presides at all meetings of our board of directors and also has the authority to act as our representative. We have not
entered into any contract with any of our directors by which our directors are expected to receive benefits upon
termination of their employment.
Our Articles of Incorporation provides for a board of directors consisting of seven to fifteen directors, one-
fifth of whom shall be expert representatives. Pursuant to the ROC Company Act, the ROC Securities and Exchange
Act and Article 12-1 of our Articles of Incorporation provides for the election of, starting from the fifth
commencement of the board of directors, at least three independent directors out of the 7-to-15-member board. The
term “independent director” may have a different meaning when used in Taiwan than in other jurisdictions. We have
used a nominating process, with the stockholders choosing the independent directors from the list of nominees. With
respect to certain material decisions to be made by our board of directors as specified in the ROC Securities and
Exchange Act, including the adoption or amendment to our internal control system, material loans or guarantees, the
issuance of equity-type securities, matters in which directors have personal interests, the appointment and discharge
of auditors, approval of financial reports, the appointment and discharge of financial, accounting or internal auditing
officers and other matters prescribed by the ROC FSC, the dissenting opinion or qualified opinion of an independent
director is required to be noted in the minutes of the board of directors’ meeting.
Our audit committee was established in September 2004 in accordance with the rules set forth in the NYSE
Listed Company Manual, and was comprised of three independent directors. See “Item 16G. Corporate Governance—
Audit Committee.” Starting from the date of the annual general meeting in June 2013, we have established a new
audit committee that replaces our supervisors and our old audit committee in accordance with Paragraph 1, Article 14-
4 of the ROC Securities and Exchange Act and our Articles of Incorporation, and as a result, we simultaneously
comply with the relevant rules of the NYSE Listed Company Manual and the relevant rules and regulations in the
ROC. Accordingly, our audit committee is currently composed of the four independent directors, namely Zse-Hong
Tsai, Mr. Kuo-Long Wu, Lo-Yu Yen and Jen-Ran Chen to be the members of the audit committee.
90
Under the ROC Company Act, a person may serve as our director in his personal capacity or as the
representative of another legal entity. A director who serves as the representative of a legal entity may be removed or
replaced at any time at the discretion of that legal entity, and the replacement director may serve the remainder of the
term of office of the replaced director. Except for our four independent directors, all of our directors are
representatives of the MOTC.
The business address of our directors and executive officers is the same as our registered address.
Our audit committee should approve and deal following matters: (i) the adoption or amendment of the
internal control system pursuant to Article 14-1 of the Securities and Exchange Act; (ii) the assessment of the
effectiveness of the internal control system; (iii) the adoption or amendment, pursuant to Article 36-1 of the Securities
and Exchange Act, of procedures governing material financial or operational actions, such as acquisition or disposal
of assets and derivatives trading, loaning of funds to others, and endorsements or guarantees for others; (iv) a matter
relating to the personal interest of a director; (v) a material asset or derivatives transaction; (vi) a matter relating to
significant loan, endorsement or guarantee arrangement;(vii) the offering, issuance, or private placement of any
equity-related securities; (viii) the designation or dismissal of an attesting CPA, or the compensation given thereto;
(ix) the appointment or discharge of a financial, accounting, or internal auditing officer; (x) annual and semi-annual
financial reports; (xi) the first and third quarter financial reports; (xii) communicating with our independent auditor;
(xiii) negotiating the conflicts over our financial reports between our management and independent auditor; (xiv)
discussing and reporting other financial information and required disclosure under the Securities Exchange Act of
1934 with our management and independent auditor; (xv) accounting firm’s annual audit and non-audit service items;
(xvi) performing one-self review each year; (xvii) evaluating the fairness and rationality of merger and acquisition
transactions; and (xviii) any other material matter so required by the Company or the competent authorities. Our
board of directors has concluded that Lo-Yu Yen is our audit committee financial expert.
In addition to our audit committee, we also have a corporate strategy committee. Our corporate strategy
committee may be composed of five to nine directors. Currently, there are seven directors in the Committee. It is
responsible for reviewing and advising on the budgets, financial forecasts, capital requirements, matters related to
investments, business license matters, corporate reorganization, development plans and other major issues affecting
our development. The conclusions of the corporate strategy committee are considered at a subsequent board of
directors meeting.
The Article 14-6 of ROC Securities and Exchange Act requires all listed companies to establish a
compensation committee for directors, supervisors and managers’ compensation, which includes salary, stock options
and other rewards, as well as authorizes the Competent Authority (i.e., FSC) to enact a regulation on the authorities of
the compensation committee and the qualifications of its members. Accordingly, our compensation committee is
composed of three independent directors (Zse-Hong Tsai, Lo-Yu Yen and Jen-Ran Chen) and is responsible for
drafting, assessing and periodically reviewing the compensation proposals for the directors and managers. See “Item
10. Additional Information—B. Memorandum and Articles of Incorporation—Directors and Audit Committee.”
In November 2003, the SEC approved changes to the NYSE’s listing standards related to the corporate
governance practices of listed companies. Under these rules, listed foreign private issuers, like us, must disclose any
significant ways in which their corporate governance practices differ from those followed by NYSE-listed non-
foreign private issuers under the NYSE’s listing standards. See “Item 16G. Corporate Governance.” A copy of the
significant differences between our corporate governance practices and NYSE corporate governance rules applicable
to non-foreign private issuers is also available on our website http://www.cht.com.tw. The information contained on
our website is not a part of this annual report.
D. Employees
consolidated basis.
As of December 31, 2016, we had 32,856 employees on a consolidated basis. Approximately 99% of our
employees were based in the ROC. The following table is a breakdown of our employees from 2014 to 2016 on a
Total Compensation
Senior Management
Below NT$2,000,000 ............................................................................ None
NT$2,000,000 to NT$4,999,999 ........................................................... Li-Show Wu, Hui-Min Wang, Ming-Shih Chen
NT$5,000,000 to NT$9,999,999 ........................................................... Bo-Yung Chen, Chi-Mau Sheih, Hsiu-Gu Huang, Ming-Yuan
Lee(1)(2), Fu-Kuei Chung(4), Kuo-Feng Lin, Yuan-Kuang Tu,
Shyang-Yih Chen, Hong-Chan Ma
Over NT$10,000,000 ............................................................................ Ming-Ching Cheng(1)(3)
Total ...................................................................................................... 13 people
(1)
Including retirement pension payment.
(2) This person has ceased to be a member of the senior management of our company due to retirement in May 2016.
(3) This person has ceased to be a member of the senior management of our company due to retirement in November 2016.
(4) This person has ceased to be a member of the senior management of our company due to replacement in March 2017.
We accrued NT$5,161,732 (US$159,312.7) pension expense for executive officers mentioned above in 2016.
See “Item 5. Operating and Financial Review and Prospects—Overview—Personnel expenses” and Note 28 to our
consolidated financial statements included elsewhere in this annual report for descriptions about our pension plans.
We do not have any service contracts with any directors providing for any benefits upon termination of employment.
C. Board Practices
We currently have 11 directors, including four independent directors. All of our directors were elected on
June 24, 2016 for a term of three years until June 23, 2019, except for Mr. Yu Cheng, Mr. Chi-Mau Sheih, Mr. Shin-
Yi Chang and Mr. Chin-Tsai Pan, as they were reassigned as a juristic-person director by MOTC prior to March 31,
2017. Pursuant to the ROC Company Act, the directors may be removed from office at any time by a resolution
adopted at a stockholders’ meeting. The chairman of our board of directors is elected by our directors. Our chairman
presides at all meetings of our board of directors and also has the authority to act as our representative. We have not
entered into any contract with any of our directors by which our directors are expected to receive benefits upon
termination of their employment.
Our Articles of Incorporation provides for a board of directors consisting of seven to fifteen directors, one-
fifth of whom shall be expert representatives. Pursuant to the ROC Company Act, the ROC Securities and Exchange
Act and Article 12-1 of our Articles of Incorporation provides for the election of, starting from the fifth
commencement of the board of directors, at least three independent directors out of the 7-to-15-member board. The
term “independent director” may have a different meaning when used in Taiwan than in other jurisdictions. We have
used a nominating process, with the stockholders choosing the independent directors from the list of nominees. With
respect to certain material decisions to be made by our board of directors as specified in the ROC Securities and
Exchange Act, including the adoption or amendment to our internal control system, material loans or guarantees, the
issuance of equity-type securities, matters in which directors have personal interests, the appointment and discharge
of auditors, approval of financial reports, the appointment and discharge of financial, accounting or internal auditing
officers and other matters prescribed by the ROC FSC, the dissenting opinion or qualified opinion of an independent
director is required to be noted in the minutes of the board of directors’ meeting.
Our audit committee was established in September 2004 in accordance with the rules set forth in the NYSE
Listed Company Manual, and was comprised of three independent directors. See “Item 16G. Corporate Governance—
Audit Committee.” Starting from the date of the annual general meeting in June 2013, we have established a new
audit committee that replaces our supervisors and our old audit committee in accordance with Paragraph 1, Article 14-
4 of the ROC Securities and Exchange Act and our Articles of Incorporation, and as a result, we simultaneously
comply with the relevant rules of the NYSE Listed Company Manual and the relevant rules and regulations in the
ROC. Accordingly, our audit committee is currently composed of the four independent directors, namely Zse-Hong
Tsai, Mr. Kuo-Long Wu, Lo-Yu Yen and Jen-Ran Chen to be the members of the audit committee.
Under the ROC Company Act, a person may serve as our director in his personal capacity or as the
representative of another legal entity. A director who serves as the representative of a legal entity may be removed or
replaced at any time at the discretion of that legal entity, and the replacement director may serve the remainder of the
term of office of the replaced director. Except for our four independent directors, all of our directors are
representatives of the MOTC.
The business address of our directors and executive officers is the same as our registered address.
Our audit committee should approve and deal following matters: (i) the adoption or amendment of the
internal control system pursuant to Article 14-1 of the Securities and Exchange Act; (ii) the assessment of the
effectiveness of the internal control system; (iii) the adoption or amendment, pursuant to Article 36-1 of the Securities
and Exchange Act, of procedures governing material financial or operational actions, such as acquisition or disposal
of assets and derivatives trading, loaning of funds to others, and endorsements or guarantees for others; (iv) a matter
relating to the personal interest of a director; (v) a material asset or derivatives transaction; (vi) a matter relating to
significant loan, endorsement or guarantee arrangement;(vii) the offering, issuance, or private placement of any
equity-related securities; (viii) the designation or dismissal of an attesting CPA, or the compensation given thereto;
(ix) the appointment or discharge of a financial, accounting, or internal auditing officer; (x) annual and semi-annual
financial reports; (xi) the first and third quarter financial reports; (xii) communicating with our independent auditor;
(xiii) negotiating the conflicts over our financial reports between our management and independent auditor; (xiv)
discussing and reporting other financial information and required disclosure under the Securities Exchange Act of
1934 with our management and independent auditor; (xv) accounting firm’s annual audit and non-audit service items;
(xvi) performing one-self review each year; (xvii) evaluating the fairness and rationality of merger and acquisition
transactions; and (xviii) any other material matter so required by the Company or the competent authorities. Our
board of directors has concluded that Lo-Yu Yen is our audit committee financial expert.
In addition to our audit committee, we also have a corporate strategy committee. Our corporate strategy
committee may be composed of five to nine directors. Currently, there are seven directors in the Committee. It is
responsible for reviewing and advising on the budgets, financial forecasts, capital requirements, matters related to
investments, business license matters, corporate reorganization, development plans and other major issues affecting
our development. The conclusions of the corporate strategy committee are considered at a subsequent board of
directors meeting.
The Article 14-6 of ROC Securities and Exchange Act requires all listed companies to establish a
compensation committee for directors, supervisors and managers’ compensation, which includes salary, stock options
and other rewards, as well as authorizes the Competent Authority (i.e., FSC) to enact a regulation on the authorities of
the compensation committee and the qualifications of its members. Accordingly, our compensation committee is
composed of three independent directors (Zse-Hong Tsai, Lo-Yu Yen and Jen-Ran Chen) and is responsible for
drafting, assessing and periodically reviewing the compensation proposals for the directors and managers. See “Item
10. Additional Information—B. Memorandum and Articles of Incorporation—Directors and Audit Committee.”
In November 2003, the SEC approved changes to the NYSE’s listing standards related to the corporate
governance practices of listed companies. Under these rules, listed foreign private issuers, like us, must disclose any
significant ways in which their corporate governance practices differ from those followed by NYSE-listed non-
foreign private issuers under the NYSE’s listing standards. See “Item 16G. Corporate Governance.” A copy of the
significant differences between our corporate governance practices and NYSE corporate governance rules applicable
to non-foreign private issuers is also available on our website http://www.cht.com.tw. The information contained on
our website is not a part of this annual report.
D. Employees
As of December 31, 2016, we had 32,856 employees on a consolidated basis. Approximately 99% of our
employees were based in the ROC. The following table is a breakdown of our employees from 2014 to 2016 on a
consolidated basis.
91
2014
2015
2016
Name
Number
%
Employees
Technical ....................................................................................................................
15,217
15,640
Operations ..................................................................................................................
1,739
Administrative ............................................................................................................
32,596
Total ..................................................................................................................
15,467
15,558
1,709
32,734
15,760
15,417
1,679
32,856
The following table is a breakdown of our employees of Chunghwa Telecom Co., Ltd. from 2014 to 2016.
Employees
Technical .................................................................................................................
13,773
8,464
Operations ...............................................................................................................
1,298
Administrative .........................................................................................................
23,535
Total ...............................................................................................................
13,540
8,312
1,289
23,141
13,195
8,191
1,268
22,654
2014
2015
2016
As of December 31, 2016, approximately 77.03% of our employees of Chunghwa Telecom Co., Ltd. had
university, graduate or post-graduate degrees. To improve our operational efficiency by reducing personnel costs, we
offered a number of voluntary retirement programs between June 1, 2000 and December 31, 2014, which resulted in a
reduction of approximately 14,386 employees.
As of December 31, 2016, approximately 99% of our employees on a non-consolidated basis were members
of our principal labor union. Our collective agreement sets forth work rules, grievance procedures and provides for
union participation in performance evaluations and promotion decisions. Our union members also occupy a majority
of the seats on our employee welfare and pension fund committees. We will continue to maintain a good relationship
with our labor unions. We strive to have good communication with our employees and the labor unions by inviting
representatives of our labor unions to attend various meetings related to the performance of our employees.
Pursuant to our Articles of Incorporation, our employees are entitled to 1.7% to 4.3% of the distributable
earnings as employee compensation. Our practice in the past to determine the amount of the compensation has been
based on the operating results. In the third quarter of 2016, we distributed compensation to our employees of NT$1.9
billion (US$59.5 million).
E. Share Ownership
As of March 31, 2017, our directors and executive officers personally held an aggregate 375,335 shares of
our common shares, representing around 0.005% of our outstanding common shares. The following table sets forth
information with respect to the beneficial ownership of our common shares as of March 31, 2017 by each of our
directors and executive officers.
Number
Name
Yu Cheng..................................................................................................
Chi-Mau Sheih ......................................................................................... 72,054
Shin-Yi Chang ..........................................................................................
Yi-Bing Lin ..............................................................................................
Jen-Ran Chen ...........................................................................................
Zse-Hong Tsai ..........................................................................................
Kuo-Long Wu ..........................................................................................
Chin-Tsai Pan ........................................................................................... 2,000
Shu-Juan Huang .......................................................................................
Lo-Yu Yen................................................................................................
Chih-Ku Fan .............................................................................................
Bo-Yung Chen ..........................................................................................
Li-Show Wu ............................................................................................. 32,964
Kuo-Feng Lin ........................................................................................... 42,771
%
*
*
*
*
92
Shyang-Yih Chen ..................................................................................... 78,840
Shui-Yi Kuo .............................................................................................
Ming-Shih Chen ....................................................................................... 25,641
Hui-Min Wang ......................................................................................... 1,462
Hsiu-Gu Huang ........................................................................................ 18,698
Yuan-Kuang Tu ........................................................................................ 81,305
Chih-Cheng Chien .................................................................................... 19,600
Hong-Chan Ma .........................................................................................
*
*
*
*
*
*
*
Stockholder beneficially owns less than 1.0% of our outstanding common shares.
Employee Stock Subscription Program
Under our Articles of Incorporation, we must reserve up to 10% to 15% of any new shares for subscription
by our employees whenever we issue new shares for cash, unless otherwise approved by the central competent
authority.
Our consolidated subsidiary, Senao, is publicly traded on the TWSE and resolved to grant the stock options
plan for its employees to purchase common stock of Senao. As of December 31, 2014, 2015 and 2016, participants in
Senao’s stock incentive plan had outstanding stock options to purchase 9.0 million, 7.8 million and 6.6 million
common shares of Senao, respectively.
In 2015, our consolidated subsidiary, CHIEF, which has been a public company since November 17, 2015,
granted stock options to its employees entitling them to purchase common stock of CHIEF. As of December 31, 2015
and 2016, participants in CHIEF’s stock incentive plan had outstanding stock options to purchase 2.0 million and 1.9
million common shares of CHIEF.
Our another consolidated subsidiary, CHPT, granted its employees the right to subscribe new shares reserved
for employees under cash injection. See Note 34 to our consolidated financial statements, included elsewhere in this
annual report, for additional details regarding CHPT’s share-based payment arrangement.
ITEM 7. MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Stockholders
The following table sets forth information known to us with respect to the beneficial ownership of our shares
(i) as of March 31, 2017, the most recent practicable date and (ii) as of certain book closure dates in each of the
preceding three years, for the stockholders known by us to own at least 5.0% of our outstanding common shares.
Beneficial ownership is determined in accordance with the SEC’s rules.
As of March 31, 2014
As of March 31, 2015 As of March 31, 2016 As of March 31, 2017
Name
number
%
number
%
number
%
number
%
The ROC government(1)(2)
The MOTC
Fubon Life Assurance Co., Ltd(2)
3,099,602,788
2,737,718,976
450,471,087
39.96 3,095,559,716 39.90 3,123,092,684 40.11 3,086,749,684 39.79
35.29 2,737,718,976 35.29 2,737,718,976 35.29 2,737,718,976 35.29
5.81
449,451,087
5.79
449,451,087
5.79
389,146,087
5.02
(1)
Includes shares held through the MOTC and other government-controlled entities.
(2) The information as of July 18, 2013, July 18, 2014, July 19, 2015 and July 23, 2016, the latest book closure date, which were the
most recent practicable dates for us to obtain complete ownership information.
As of March 31, 2017, 28 record holders held 29,332,729 ADSs (each representing ten common shares),
which represents approximately 3.8% of our total outstanding common shares. Because many of these ADSs were
held by brokers or other nominees, we cannot ascertain the exact number of beneficial shareholders with addresses in
the United States.
2014
2015
2016
Employees
Employees
Technical ....................................................................................................................
15,217
Operations ..................................................................................................................
15,640
Administrative ............................................................................................................
Total ..................................................................................................................
1,739
32,596
15,467
15,558
1,709
32,734
15,760
15,417
1,679
32,856
The following table is a breakdown of our employees of Chunghwa Telecom Co., Ltd. from 2014 to 2016.
2014
2015
2016
Technical .................................................................................................................
13,773
Operations ...............................................................................................................
8,464
Administrative .........................................................................................................
1,298
Total ...............................................................................................................
23,535
13,540
8,312
1,289
23,141
13,195
8,191
1,268
22,654
As of December 31, 2016, approximately 77.03% of our employees of Chunghwa Telecom Co., Ltd. had
university, graduate or post-graduate degrees. To improve our operational efficiency by reducing personnel costs, we
offered a number of voluntary retirement programs between June 1, 2000 and December 31, 2014, which resulted in a
reduction of approximately 14,386 employees.
As of December 31, 2016, approximately 99% of our employees on a non-consolidated basis were members
of our principal labor union. Our collective agreement sets forth work rules, grievance procedures and provides for
union participation in performance evaluations and promotion decisions. Our union members also occupy a majority
of the seats on our employee welfare and pension fund committees. We will continue to maintain a good relationship
with our labor unions. We strive to have good communication with our employees and the labor unions by inviting
representatives of our labor unions to attend various meetings related to the performance of our employees.
Pursuant to our Articles of Incorporation, our employees are entitled to 1.7% to 4.3% of the distributable
earnings as employee compensation. Our practice in the past to determine the amount of the compensation has been
based on the operating results. In the third quarter of 2016, we distributed compensation to our employees of NT$1.9
billion (US$59.5 million).
E. Share Ownership
As of March 31, 2017, our directors and executive officers personally held an aggregate 375,335 shares of
our common shares, representing around 0.005% of our outstanding common shares. The following table sets forth
information with respect to the beneficial ownership of our common shares as of March 31, 2017 by each of our
directors and executive officers.
Name
Number
%
Yu Cheng..................................................................................................
Chi-Mau Sheih ......................................................................................... 72,054
Shin-Yi Chang ..........................................................................................
Yi-Bing Lin ..............................................................................................
Jen-Ran Chen ...........................................................................................
Zse-Hong Tsai ..........................................................................................
Kuo-Long Wu ..........................................................................................
Chin-Tsai Pan ........................................................................................... 2,000
Shu-Juan Huang .......................................................................................
Lo-Yu Yen................................................................................................
Chih-Ku Fan .............................................................................................
Bo-Yung Chen ..........................................................................................
Li-Show Wu ............................................................................................. 32,964
Kuo-Feng Lin ........................................................................................... 42,771
*
*
*
*
Name
Number
Shyang-Yih Chen ..................................................................................... 78,840
Shui-Yi Kuo .............................................................................................
Ming-Shih Chen ....................................................................................... 25,641
Hui-Min Wang ......................................................................................... 1,462
Hsiu-Gu Huang ........................................................................................ 18,698
Yuan-Kuang Tu ........................................................................................ 81,305
Chih-Cheng Chien .................................................................................... 19,600
Hong-Chan Ma .........................................................................................
%
*
*
*
*
*
*
*
Stockholder beneficially owns less than 1.0% of our outstanding common shares.
Employee Stock Subscription Program
Under our Articles of Incorporation, we must reserve up to 10% to 15% of any new shares for subscription
by our employees whenever we issue new shares for cash, unless otherwise approved by the central competent
authority.
Our consolidated subsidiary, Senao, is publicly traded on the TWSE and resolved to grant the stock options
plan for its employees to purchase common stock of Senao. As of December 31, 2014, 2015 and 2016, participants in
Senao’s stock incentive plan had outstanding stock options to purchase 9.0 million, 7.8 million and 6.6 million
common shares of Senao, respectively.
In 2015, our consolidated subsidiary, CHIEF, which has been a public company since November 17, 2015,
granted stock options to its employees entitling them to purchase common stock of CHIEF. As of December 31, 2015
and 2016, participants in CHIEF’s stock incentive plan had outstanding stock options to purchase 2.0 million and 1.9
million common shares of CHIEF.
Our another consolidated subsidiary, CHPT, granted its employees the right to subscribe new shares reserved
for employees under cash injection. See Note 34 to our consolidated financial statements, included elsewhere in this
annual report, for additional details regarding CHPT’s share-based payment arrangement.
ITEM 7. MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Stockholders
The following table sets forth information known to us with respect to the beneficial ownership of our shares
(i) as of March 31, 2017, the most recent practicable date and (ii) as of certain book closure dates in each of the
preceding three years, for the stockholders known by us to own at least 5.0% of our outstanding common shares.
Beneficial ownership is determined in accordance with the SEC’s rules.
Name
The ROC government(1)(2)
The MOTC
Fubon Life Assurance Co., Ltd(2)
As of March 31, 2014
%
number
39.96 3,095,559,716 39.90 3,123,092,684 40.11 3,086,749,684 39.79
35.29 2,737,718,976 35.29 2,737,718,976 35.29 2,737,718,976 35.29
5.02
449,451,087
5.81
As of March 31, 2015 As of March 31, 2016 As of March 31, 2017
%
number
3,099,602,788
2,737,718,976
450,471,087
389,146,087
449,451,087
number
number
5.79
5.79
%
%
Includes shares held through the MOTC and other government-controlled entities.
(1)
(2) The information as of July 18, 2013, July 18, 2014, July 19, 2015 and July 23, 2016, the latest book closure date, which were the
most recent practicable dates for us to obtain complete ownership information.
As of March 31, 2017, 28 record holders held 29,332,729 ADSs (each representing ten common shares),
which represents approximately 3.8% of our total outstanding common shares. Because many of these ADSs were
held by brokers or other nominees, we cannot ascertain the exact number of beneficial shareholders with addresses in
the United States.
93
None of our shareholders has different voting rights from other shareholders. See “Item 10. Additional
Information—B. Memorandum and Articles of Incorporation—Voting Rights.” We are not aware of any arrangement
that may, at a subsequent date, result in a change of control of our company.
B. Related Party Transactions
We have not extended any loans or credit to any of our directors or executive officers, and we have not
provided guarantees for borrowings by any of these persons. We have not entered into any fee-paying contract with
any of these persons for them to provide services not within his or her capacity as a director or executive officer of
our company, except that two of our directors who are also our employees receive salaries from our company in their
capacity as our employees.
Please refer to “Item 4. Information on the Company—A. History and Development of the Company” for a
discussion of our alliances, acquisitions and investments. Please refer to Notes 3, 15, 16 and 40 to our consolidated
financial statements included elsewhere in this annual report for descriptions of Chunghwa’s subsidiaries, investments
accounted for using equity method, and related party transactions.
On April 1, 2007, Chunghwa entered into an agreement with Senao making Senao the exclusive distributor
of mobile handsets to Chunghwa’s retail outlets. Under the terms of the agreement, Senao also provides mobile
handset sales services in Chunghwa’s retail outlets, exclusively sells Chunghwa’s SIM cards in Senao’s own retail
stores, and gets commission, subsidies of handset sold and warranties from Chunghwa. For the year ended December
31, 2016, Senao received NT$11.0 billion (US$0.3 billion) from Chunghwa. Chunghwa also sells mobile handsets
and data cards to Senao. For the year ended December 31, 2016, Chunghwa sold mobile handsets and data cards to
Senao that amounted to NT$0.8 billion (US$26.1 million).
Honghwa contracted with Chunghwa to provide on-site sales services in Chunghwa’s retail stores and on-site
equipment installation services to Chunghwa’s customers. Chunghwa paid Honghwa approximately NT$4.5 billion
(US$0.1 billion) in 2016 for these services.
Chunghwa acquired network equipment and related supplies from Chunghwa System Integration for
approximately NT$1.4 billion (US$42.6 million) in 2016.
B. Significant Changes
Chunghwa paid Taiwan International Standard Electronics approximately NT$0.8 billion (US$25.9 million)
in 2016 for the purchase of telecommunications exchange facilities and related supplies, and the maintenance
expenses.
Terms and conditions of the foregoing transactions with related parties were not significantly different from
transactions with non-related parties. When no similar transactions with non-related parties can be referenced, terms
and conditions were determined in accordance with mutual agreements.
ITEM 9.
THE OFFER AND LISTING
A. Offer and Listing Details
Market Price Information for Our Common Shares
C.
Interests of Experts and Counsel
Not applicable.
ITEM 8.
FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
See Item 18 for a list of all consolidated financial statements filed as part of this annual report on Form 20-F.
We are not currently involved in material litigation or other proceedings that may have or have had in the
recent past, significant effects on our financial position or profitability, see “Item 4. Information on the Company—B.
Business Overview—Legal Proceedings.”
94
For our policy on dividend distributions, see “Item 10. Additional Information—B. Memorandum and
Articles of Incorporation—Dividends and Distributions.” The following table sets forth the dividends declared on
each of our common shares and in the aggregate for each of the years from 2012 to 2016. All of these dividends were
paid, in the fiscal year following the period with respect to which the dividends relate.
Year ended December 31, 2012(2)
Year ended December 31, 2013(3)
Year ended December 31, 2014
Year ended December 31, 2015
Year ended December 31, 2016(4)
Dividends Per
Common Share(1)
NT$
4.63
2.39
4.86
5.49
4.94
Total Dividends(1)
NT$ in billions
35.9
18.5
37.7
42.6
38.3
(1) Cash dividend unless otherwise indicated.
(2)
In addition to the cash dividends from unappropriated earnings disclosed in the table above, we also made cash distributions from
additional paid-in capital of NT$0.72 per share, which amounted to an aggregate of NT$5.6 billion.
(3)
In addition to the cash dividends from unappropriated earnings disclosed in the table above, we also made cash distributions from
additional paid-in capital of NT$2.14 per share, which amounted to an aggregate of NT$16.6 billion. See “Item 5. Operating and
Financial Review and Prospects—Overview—Effect of adopting Taiwan IFRSs on our dividends and employee bonuses.”
(4) Dividends for 2016, which are calculated based on Taiwan IFRSs, were approved by the board of directors in March 2017 and are
expected to be declared at our annual general stockholders’ meeting scheduled on June 23, 2017. The accumulated legal reserve that
we had set aside in the past years has amounted to the aggregate par value of our outstanding share capital. Therefore, according to
the relevant regulations, we are not required to appropriate profits as legal reserve starting from 2016. Our payout ratio was 95.7% in
2016 after the adjustment of unappropriated earnings and the appropriation of special reserve.
We are committed to maximizing stockholder value and intend to maintain a sustainable dividend policy,
subject to a number of commercial factors, including the interests of our stockholders, cash requirements for future
capital expenditures and investments, as well as relevant industry and market practice. The amount of our net income
determined for purposes of calculating our annual dividend payout will be calculated based on Taiwan IFRSs, which
may differ from the amount of our net income determined in accordance with IFRSs.
Other than as disclosed elsewhere in this annual report, we have not experienced any significant changes
since the date of the annual consolidated financial statements included in this annual report.
Our common shares have been listed on the TWSE since October 27, 2000. There is no public market
outside Taiwan for our common shares. The table below shows, for the periods indicated, the high and low closing
prices and the average daily volume of trading activity on the TWSE for our common shares. The closing price for
our common shares on the TWSE on April 18, 2017 was NT$104.00 per share.
(3)
(3)
(3)
(1) Cash dividend unless otherwise indicated.
(1) Cash dividend unless otherwise indicated.
(1) Cash dividend unless otherwise indicated.
(2)
(2)
(2)
In addition to the cash dividends from unappropriated earnings disclosed in the table above, we also made cash distributions from
In addition to the cash dividends from unappropriated earnings disclosed in the table above, we also made cash distributions from
In addition to the cash dividends from unappropriated earnings disclosed in the table above, we also made cash distributions from
additional paid-in capital of NT$0.72 per share, which amounted to an aggregate of NT$5.6 billion.
additional paid-in capital of NT$0.72 per share, which amounted to an aggregate of NT$5.6 billion.
additional paid-in capital of NT$0.72 per share, which amounted to an aggregate of NT$5.6 billion.
In addition to the cash dividends from unappropriated earnings disclosed in the table above, we also made cash distributions from
In addition to the cash dividends from unappropriated earnings disclosed in the table above, we also made cash distributions from
In addition to the cash dividends from unappropriated earnings disclosed in the table above, we also made cash distributions from
additional paid-in capital of NT$2.14 per share, which amounted to an aggregate of NT$16.6 billion. See “Item 5. Operating and
additional paid-in capital of NT$2.14 per share, which amounted to an aggregate of NT$16.6 billion. See “Item 5. Operating and
additional paid-in capital of NT$2.14 per share, which amounted to an aggregate of NT$16.6 billion. See “Item 5. Operating and
Financial Review and Prospects—Overview—Effect of adopting Taiwan IFRSs on our dividends and employee bonuses.”
Financial Review and Prospects—Overview—Effect of adopting Taiwan IFRSs on our dividends and employee bonuses.”
Financial Review and Prospects—Overview—Effect of adopting Taiwan IFRSs on our dividends and employee bonuses.”
For our policy on dividend distributions, see “Item 10. Additional Information—B. Memorandum and
For our policy on dividend distributions, see “Item 10. Additional Information—B. Memorandum and
For our policy on dividend distributions, see “Item 10. Additional Information—B. Memorandum and
Articles of Incorporation—Dividends and Distributions.” The following table sets forth the dividends declared on
Articles of Incorporation—Dividends and Distributions.” The following table sets forth the dividends declared on
Articles of Incorporation—Dividends and Distributions.” The following table sets forth the dividends declared on
each of our common shares and in the aggregate for each of the years from 2012 to 2016. All of these dividends were
each of our common shares and in the aggregate for each of the years from 2012 to 2016. All of these dividends were
each of our common shares and in the aggregate for each of the years from 2012 to 2016. All of these dividends were
paid, in the fiscal year following the period with respect to which the dividends relate.
paid, in the fiscal year following the period with respect to which the dividends relate.
paid, in the fiscal year following the period with respect to which the dividends relate.
Year ended December 31, 2012(2)
Year ended December 31, 2012(2)
Year ended December 31, 2012(2)
Year ended December 31, 2013(3)
Year ended December 31, 2013(3)
Year ended December 31, 2013(3)
Year ended December 31, 2014
Year ended December 31, 2014
Year ended December 31, 2014
Year ended December 31, 2015
Year ended December 31, 2015
Year ended December 31, 2015
Year ended December 31, 2016(4)
Year ended December 31, 2016(4)
Year ended December 31, 2016(4)
Dividends Per
Dividends Per
Dividends Per
Common Share(1)
Common Share(1)
Common Share(1)
NT$
NT$
NT$
4.63
4.63
4.63
2.39
2.39
2.39
4.86
4.86
4.86
5.49
5.49
5.49
4.94
4.94
4.94
Total Dividends(1)
Total Dividends(1)
Total Dividends(1)
NT$ in billions
NT$ in billions
NT$ in billions
35.9
35.9
35.9
18.5
18.5
18.5
37.7
37.7
37.7
42.6
42.6
42.6
38.3
38.3
38.3
None of our shareholders has different voting rights from other shareholders. See “Item 10. Additional
Information—B. Memorandum and Articles of Incorporation—Voting Rights.” We are not aware of any arrangement
that may, at a subsequent date, result in a change of control of our company.
B. Related Party Transactions
We have not extended any loans or credit to any of our directors or executive officers, and we have not
provided guarantees for borrowings by any of these persons. We have not entered into any fee-paying contract with
any of these persons for them to provide services not within his or her capacity as a director or executive officer of
our company, except that two of our directors who are also our employees receive salaries from our company in their
capacity as our employees.
Please refer to “Item 4. Information on the Company—A. History and Development of the Company” for a
discussion of our alliances, acquisitions and investments. Please refer to Notes 3, 15, 16 and 40 to our consolidated
financial statements included elsewhere in this annual report for descriptions of Chunghwa’s subsidiaries, investments
accounted for using equity method, and related party transactions.
On April 1, 2007, Chunghwa entered into an agreement with Senao making Senao the exclusive distributor
of mobile handsets to Chunghwa’s retail outlets. Under the terms of the agreement, Senao also provides mobile
handset sales services in Chunghwa’s retail outlets, exclusively sells Chunghwa’s SIM cards in Senao’s own retail
stores, and gets commission, subsidies of handset sold and warranties from Chunghwa. For the year ended December
31, 2016, Senao received NT$11.0 billion (US$0.3 billion) from Chunghwa. Chunghwa also sells mobile handsets
and data cards to Senao. For the year ended December 31, 2016, Chunghwa sold mobile handsets and data cards to
Senao that amounted to NT$0.8 billion (US$26.1 million).
Honghwa contracted with Chunghwa to provide on-site sales services in Chunghwa’s retail stores and on-site
equipment installation services to Chunghwa’s customers. Chunghwa paid Honghwa approximately NT$4.5 billion
(US$0.1 billion) in 2016 for these services.
Chunghwa paid Taiwan International Standard Electronics approximately NT$0.8 billion (US$25.9 million)
in 2016 for the purchase of telecommunications exchange facilities and related supplies, and the maintenance
expenses.
Terms and conditions of the foregoing transactions with related parties were not significantly different from
transactions with non-related parties. When no similar transactions with non-related parties can be referenced, terms
and conditions were determined in accordance with mutual agreements.
C.
Interests of Experts and Counsel
Not applicable.
ITEM 8.
FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
See Item 18 for a list of all consolidated financial statements filed as part of this annual report on Form 20-F.
We are not currently involved in material litigation or other proceedings that may have or have had in the
recent past, significant effects on our financial position or profitability, see “Item 4. Information on the Company—B.
Business Overview—Legal Proceedings.”
Chunghwa acquired network equipment and related supplies from Chunghwa System Integration for
approximately NT$1.4 billion (US$42.6 million) in 2016.
B. Significant Changes
B. Significant Changes
B. Significant Changes
(4) Dividends for 2016, which are calculated based on Taiwan IFRSs, were approved by the board of directors in March 2017 and are
(4) Dividends for 2016, which are calculated based on Taiwan IFRSs, were approved by the board of directors in March 2017 and are
(4) Dividends for 2016, which are calculated based on Taiwan IFRSs, were approved by the board of directors in March 2017 and are
expected to be declared at our annual general stockholders’ meeting scheduled on June 23, 2017. The accumulated legal reserve that
expected to be declared at our annual general stockholders’ meeting scheduled on June 23, 2017. The accumulated legal reserve that
expected to be declared at our annual general stockholders’ meeting scheduled on June 23, 2017. The accumulated legal reserve that
we had set aside in the past years has amounted to the aggregate par value of our outstanding share capital. Therefore, according to
we had set aside in the past years has amounted to the aggregate par value of our outstanding share capital. Therefore, according to
we had set aside in the past years has amounted to the aggregate par value of our outstanding share capital. Therefore, according to
the relevant regulations, we are not required to appropriate profits as legal reserve starting from 2016. Our payout ratio was 95.7% in
the relevant regulations, we are not required to appropriate profits as legal reserve starting from 2016. Our payout ratio was 95.7% in
the relevant regulations, we are not required to appropriate profits as legal reserve starting from 2016. Our payout ratio was 95.7% in
2016 after the adjustment of unappropriated earnings and the appropriation of special reserve.
2016 after the adjustment of unappropriated earnings and the appropriation of special reserve.
2016 after the adjustment of unappropriated earnings and the appropriation of special reserve.
We are committed to maximizing stockholder value and intend to maintain a sustainable dividend policy,
We are committed to maximizing stockholder value and intend to maintain a sustainable dividend policy,
We are committed to maximizing stockholder value and intend to maintain a sustainable dividend policy,
subject to a number of commercial factors, including the interests of our stockholders, cash requirements for future
subject to a number of commercial factors, including the interests of our stockholders, cash requirements for future
subject to a number of commercial factors, including the interests of our stockholders, cash requirements for future
capital expenditures and investments, as well as relevant industry and market practice. The amount of our net income
capital expenditures and investments, as well as relevant industry and market practice. The amount of our net income
capital expenditures and investments, as well as relevant industry and market practice. The amount of our net income
determined for purposes of calculating our annual dividend payout will be calculated based on Taiwan IFRSs, which
determined for purposes of calculating our annual dividend payout will be calculated based on Taiwan IFRSs, which
determined for purposes of calculating our annual dividend payout will be calculated based on Taiwan IFRSs, which
may differ from the amount of our net income determined in accordance with IFRSs.
may differ from the amount of our net income determined in accordance with IFRSs.
may differ from the amount of our net income determined in accordance with IFRSs.
Other than as disclosed elsewhere in this annual report, we have not experienced any significant changes
Other than as disclosed elsewhere in this annual report, we have not experienced any significant changes
Other than as disclosed elsewhere in this annual report, we have not experienced any significant changes
since the date of the annual consolidated financial statements included in this annual report.
since the date of the annual consolidated financial statements included in this annual report.
since the date of the annual consolidated financial statements included in this annual report.
ITEM 9.
ITEM 9.
ITEM 9.
THE OFFER AND LISTING
THE OFFER AND LISTING
THE OFFER AND LISTING
A. Offer and Listing Details
A. Offer and Listing Details
A. Offer and Listing Details
Market Price Information for Our Common Shares
Market Price Information for Our Common Shares
Market Price Information for Our Common Shares
Our common shares have been listed on the TWSE since October 27, 2000. There is no public market
Our common shares have been listed on the TWSE since October 27, 2000. There is no public market
Our common shares have been listed on the TWSE since October 27, 2000. There is no public market
outside Taiwan for our common shares. The table below shows, for the periods indicated, the high and low closing
outside Taiwan for our common shares. The table below shows, for the periods indicated, the high and low closing
outside Taiwan for our common shares. The table below shows, for the periods indicated, the high and low closing
prices and the average daily volume of trading activity on the TWSE for our common shares. The closing price for
prices and the average daily volume of trading activity on the TWSE for our common shares. The closing price for
prices and the average daily volume of trading activity on the TWSE for our common shares. The closing price for
our common shares on the TWSE on April 18, 2017 was NT$104.00 per share.
our common shares on the TWSE on April 18, 2017 was NT$104.00 per share.
our common shares on the TWSE on April 18, 2017 was NT$104.00 per share.
95
US$
Low
High
November ..........................................................
December ..........................................................
2017 (through April 18) .......................................................
First Quarter ................................................................
January ..............................................................
February ............................................................
March ................................................................
Second Quarter (through April 18) .............................
April (through April 18) ....................................
Average
Average
Average
Average
Average
Average
Daily
Average
Average
Daily
Average
Daily
Daily
Daily
Daily
Average ADS
Trading
Daily
Daily
Trading
Daily
Trading
Trading
Trading
Trading
Daily Trading
Volume
Trading
Volume
Trading
Trading
Volume
Volume
Volume
Volume
Volume
Volume
Volume
Volume
(in
(in
(in
(in
(in
(in
(in thousands)
thousands)
(in
thousands)
(in
(in
thousands)
thousands)
thousands)
thousands)
401
thousands)
thousands)
11,753
thousands)
11,753
11,753
11,753
11,753
11,753
11,753
11,753
11,753
223
7,498
7,498
7,498
7,498
7,498
7,498
7,498
7,498
7,498
299
6,307
6,307
6,307
6,307
6,307
6,307
6,307
6,307
6,307
313
8,292
8,292
8,292
8,292
8,292
8,292
8,292
8,292
8,292
285
7,366
7,366
7,366
7,366
7,366
7,366
7,366
7,366
7,366
429
6,177
6,177
6,177
6,177
6,177
6,177
6,177
6,177
6,177
242
11,510
11,510
11,510
11,510
11,510
11,510
11,510
11,510
11,510
216
7,942
7,942
7,942
7,942
7,942
7,942
7,942
7,942
7,942
216
11,059
11,059
11,059
11,059
11,059
11,059
11,059
11,059
11,059
10,744
10,744
10,744
10,744
10,744
10,744
10,744
10,744
10,744
7,982
7,982
7,982
7,982
7,982
7,982
7,982
7,982
7,982
11,624
11,624
11,624
11,624
11,624
11,624
11,624
11,624
11,624
13,621
13,621
13,621
13,621
13,621
13,621
13,621
13,621
13,621
13,179
13,179
13,179
13,179
13,179
13,179
13,179
13,179
13,179
14,346
14,346
14,346
14,346
14,346
14,346
14,346
14,346
14,346
13,298
13,298
13,298
13,298
13,298
13,298
13,298
13,298
13,298
9,942
9,942
9,942
9,942
9,942
9,942
9,942
9,942
9,942
10,602
10,602
10,602
10,602
10,602
10,602
10,602
10,602
10,602
9,716
9,716
9,716
9,716
9,716
9,716
9,716
9,716
9,716
12,545
12,545
12,545
12,545
12,545
12,545
12,545
12,545
12,545
9,697
9,697
9,697
9,697
9,697
9,697
9,697
9,697
9,697
6,182
6,182
6,182
6,182
6,182
6,182
6,182
6,182
6,182
6,182
6,182
6,182
6,182
6,182
6,182
6,182
6,182
6,182
(1) The historical prices and volumes of our common shares traded on the TWSE have been adjusted based on prior cash dividend
(1) The historical prices and volumes of our common shares traded on the TWSE have been adjusted based on prior cash dividend
(1) The historical prices and volumes of our common shares traded on the TWSE have been adjusted based on prior cash dividend
(1) The historical prices and volumes of our common shares traded on the TWSE have been adjusted based on prior cash dividend
(1) The historical prices and volumes of our common shares traded on the TWSE have been adjusted based on prior cash dividend
(1) The historical prices and volumes of our common shares traded on the TWSE have been adjusted based on prior cash dividend
(1) The historical prices and volumes of our common shares traded on the TWSE have been adjusted based on prior cash dividend
(1) The historical prices and volumes of our common shares traded on the TWSE have been adjusted based on prior cash dividend
(1) The historical prices and volumes of our common shares traded on the TWSE have been adjusted based on prior cash dividend
payments, capital increases and capital reductions.
payments, capital increases and capital reductions.
payments, capital increases and capital reductions.
payments, capital increases and capital reductions.
payments, capital increases and capital reductions.
2012 ......................................................................................................
2012 ......................................................................................................
2012 ......................................................................................................
2012 ......................................................................................................
2012 ......................................................................................................
2012 ......................................................................................................
2012 ......................................................................................................
2012 ......................................................................................................
2012 ......................................................................................................
2013 ......................................................................................................
2013 ......................................................................................................
2013 ......................................................................................................
2013 ......................................................................................................
2013 ......................................................................................................
2013 ......................................................................................................
2013 ......................................................................................................
2013 ......................................................................................................
2013 ......................................................................................................
2014 ......................................................................................................
2014 ......................................................................................................
2014 ......................................................................................................
2014 ......................................................................................................
2014 ......................................................................................................
2014 ......................................................................................................
2014 ......................................................................................................
2014 ......................................................................................................
2014 ......................................................................................................
2015 ......................................................................................................
2015 ......................................................................................................
2015 ......................................................................................................
2015 ......................................................................................................
2015 ......................................................................................................
2015 ......................................................................................................
2015 ......................................................................................................
2015 ......................................................................................................
2015 ......................................................................................................
First Quarter ...............................................................................
First Quarter ...............................................................................
First Quarter ...............................................................................
First Quarter ...............................................................................
First Quarter ...............................................................................
First Quarter ...............................................................................
First Quarter ...............................................................................
First Quarter ...............................................................................
First Quarter ...............................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Fourth Quarter ............................................................................
Fourth Quarter ............................................................................
Fourth Quarter ............................................................................
Fourth Quarter ............................................................................
Fourth Quarter ............................................................................
Fourth Quarter ............................................................................
Fourth Quarter ............................................................................
Fourth Quarter ............................................................................
Fourth Quarter ............................................................................
2016 ......................................................................................................
2016 ......................................................................................................
2016 ......................................................................................................
2016 ......................................................................................................
2016 ......................................................................................................
2016 ......................................................................................................
2016 ......................................................................................................
2016 ......................................................................................................
2016 ......................................................................................................
First Quarter ................................................................................
First Quarter ................................................................................
First Quarter ................................................................................
First Quarter ................................................................................
First Quarter ................................................................................
First Quarter ................................................................................
First Quarter ................................................................................
First Quarter ................................................................................
First Quarter ................................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Fourth Quarter .............................................................................
Fourth Quarter .............................................................................
Fourth Quarter .............................................................................
Fourth Quarter .............................................................................
Fourth Quarter .............................................................................
Fourth Quarter .............................................................................
Fourth Quarter .............................................................................
Fourth Quarter .............................................................................
Fourth Quarter .............................................................................
October ..............................................................................
October ..............................................................................
October ..............................................................................
October ..............................................................................
October ..............................................................................
As of April 18, 2017, a total of 28,772,429 ADSs and 7,757,446,545 common shares (including those
October ..............................................................................
October ..............................................................................
October ..............................................................................
October ..............................................................................
November ..........................................................................
November ..........................................................................
November ..........................................................................
November ..........................................................................
November ..........................................................................
November ..........................................................................
represented by ADSs) were outstanding. With certain limited exceptions, holders of shares that are not ROC persons
November ..........................................................................
November ..........................................................................
November ..........................................................................
December ..........................................................................
December ..........................................................................
December ..........................................................................
December ..........................................................................
December ..........................................................................
December ..........................................................................
are required to hold these shares through a brokerage or custodial account in the ROC.
December ..........................................................................
December ..........................................................................
December ..........................................................................
2017 (through April 18) ........................................................................
2017 (through April 18) ........................................................................
2017 (through April 18) ........................................................................
2017 (through April 18) ........................................................................
2017 (through April 18) ........................................................................
2017 (through April 18) ........................................................................
2017 (through April 18) ........................................................................
2017 (through April 18) ........................................................................
2017 (through April 18) ........................................................................
First Quarter ................................................................................
First Quarter ................................................................................
First Quarter ................................................................................
First Quarter ................................................................................
First Quarter ................................................................................
First Quarter ................................................................................
B. Plan of Distribution
First Quarter ................................................................................
First Quarter ................................................................................
First Quarter ................................................................................
January ..............................................................................
January ..............................................................................
January ..............................................................................
January ..............................................................................
January ..............................................................................
January ..............................................................................
January ..............................................................................
January ..............................................................................
January ..............................................................................
February ............................................................................
February ............................................................................
February ............................................................................
February ............................................................................
February ............................................................................
February ............................................................................
February ............................................................................
February ............................................................................
February ............................................................................
March ................................................................................
March ................................................................................
March ................................................................................
March ................................................................................
March ................................................................................
March ................................................................................
March ................................................................................
March ................................................................................
March ................................................................................
Second Quarter(through April 18) ..............................................
Second Quarter(through April 18) ..............................................
Second Quarter(through April 18) ..............................................
Second Quarter(through April 18) ..............................................
Second Quarter(through April 18) ..............................................
Second Quarter(through April 18) ..............................................
Second Quarter(through April 18) ..............................................
Second Quarter(through April 18) ..............................................
Second Quarter(through April 18) ..............................................
April (through April 18) ....................................................
April (through April 18) ....................................................
April (through April 18) ....................................................
April (through April 18) ....................................................
April (through April 18) ....................................................
April (through April 18) ....................................................
C. Markets
April (through April 18) ....................................................
April (through April 18) ....................................................
April (through April 18) ....................................................
Closing Price
Closing Price
Closing Price
Closing Price
Closing Price
Closing Price
Per Common Share(1)
Per Common Share(1)
Per Common Share(1)
Per Common Share(1)
Per Common Share(1)
Closing Price
Closing Price
Closing Price
Per Common Share(1)
Closing Price Per ADS (1)
Per Common Share(1)
Per Common Share(1)
Per Common Share(1)
High
Low
Low
High
Low
High
Low
High
Low
High
Low
High
Low
High
Low
High
Low
High
US$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
32.71
34.90
NT$
NT$
NT$
NT$
81.42
70.70
NT$
NT$
70.70
81.42
70.70
81.42
70.70
81.42
70.70
81.42
70.70
81.42
70.70
81.42
81.42
70.70
70.70
81.42
31.36
33.59
78.59
87.57
78.59
87.57
78.59
87.57
78.59
87.57
78.59
87.57
78.59
87.57
78.59
87.57
78.59
87.57
78.59
87.57
31.37
34.82
81.59
89.35
81.59
89.35
81.59
89.35
81.59
89.35
81.59
89.35
89.35
81.59
81.59
89.35
81.59
89.35
81.59
89.35
31.37
34.82
100.50
87.93
87.93
100.50
87.93
100.50
87.93
87.93
100.50
100.50
87.93
100.50
87.93
100.50
100.50
87.93
87.93
100.50
31.49
32.79
87.93
94.86
87.93
94.86
87.93
94.86
87.93
87.93
94.86
94.86
94.86
87.93
87.93
94.86
87.93
94.86
87.93
94.86
31.37
33.16
90.97
94.67
90.97
94.67
90.97
94.67
90.97
94.67
90.97
94.67
90.97
94.67
90.97
94.67
90.97
94.67
90.97
94.67
32.78
34.82
92.87
99.30
92.87
99.30
92.87
99.30
92.87
92.87
99.30
99.30
99.30
92.87
92.87
99.30
92.87
99.30
92.87
99.30
33.65
34.27
100.50
97.30
97.30
100.50
97.30
100.50
97.30
100.50
97.30
100.50
97.30
100.50
97.30
100.50
100.50
97.30
97.30
100.50
33.65
34.27
93.82
118.50
93.82
118.50
93.82
118.50
118.50
93.82
118.50
93.82
118.50
93.82
93.82
118.50
93.82
118.50
93.82
118.50
98.20
110.50
98.20
110.50
98.20
110.50
110.50
98.20
110.50
98.20
98.20
110.50
98.20
110.50
98.20
110.50
98.20
110.50
107.00
116.50
107.00
116.50
107.00
116.50
107.00
116.50
107.00
116.50
107.00
116.50
107.00
116.50
107.00
116.50
107.00
116.50
110.50
118.50
110.50
118.50
110.50
118.50
110.50
118.50
110.50
118.50
110.50
118.50
110.50
118.50
110.50
118.50
110.50
118.50
101.00
112.50
101.00
112.50
101.00
112.50
101.00
112.50
101.00
112.50
101.00
112.50
101.00
112.50
101.00
112.50
101.00
112.50
108.00
112.50
108.00
112.50
108.00
112.50
108.00
112.50
108.00
112.50
108.00
112.50
108.00
112.50
108.00
112.50
108.00
112.50
104.00
110.00
104.00
110.00
104.00
110.00
104.00
110.00
104.00
110.00
104.00
110.00
104.00
110.00
104.00
110.00
104.00
110.00
101.00
106.50
101.00
106.50
101.00
106.50
101.00
106.50
101.00
106.50
101.00
106.50
101.00
106.50
106.50
101.00
101.00
106.50
100.00
106.00
100.00
106.00
100.00
106.00
100.00
100.00
106.00
106.00
100.00
106.00
100.00
106.00
106.00
100.00
100.00
106.00
100.00
106.00
100.00
106.00
100.00
106.00
100.00
100.00
106.00
106.00
106.00
100.00
100.00
106.00
100.00
106.00
100.00
106.00
101.00
104.50
101.00
104.50
101.00
104.50
101.00
104.50
101.00
104.50
101.00
104.50
101.00
104.50
101.00
104.50
101.00
104.50
100.00
102.00
100.00
102.00
100.00
102.00
100.00
102.00
100.00
102.00
100.00
102.00
100.00
102.00
100.00
102.00
100.00
102.00
101.50
106.00
101.50
106.00
101.50
106.00
101.50
106.00
101.50
106.00
101.50
106.00
101.50
106.00
101.50
106.00
101.50
106.00
103.50
104.50
103.50
104.50
103.50
104.50
103.50
104.50
103.50
104.50
103.50
104.50
103.50
104.50
103.50
104.50
103.50
104.50
103.50
104.50
103.50
104.50
103.50
104.50
103.50
104.50
103.50
104.50
103.50
104.50
103.50
104.50
103.50
104.50
103.50
104.50
The principal trading market for our common shares is the TWSE and the principal trading market for our
(1) The historical prices and volumes of our ADSs traded on the NYSE have been adjusted based on prior cash dividend payments,
payments, capital increases and capital reductions.
payments, capital increases and capital reductions.
payments, capital increases and capital reductions.
payments, capital increases and capital reductions.
capital increases and capital reductions.
ADSs is the NYSE.
Not applicable.
Market Price Information for Our American Depositary Shares
Market Price Information for Our American Depositary Shares
Market Price Information for Our American Depositary Shares
Market Price Information for Our American Depositary Shares
Market Price Information for Our American Depositary Shares
Market Price Information for Our American Depositary Shares
Market Price Information for Our American Depositary Shares
Market Price Information for Our American Depositary Shares
Market Price Information for Our American Depositary Shares
D. Selling Stockholders
Not applicable.
Our ADSs have been listed on the NYSE under the symbol “CHT” since July 17, 2003. The outstanding
Our ADSs have been listed on the NYSE under the symbol “CHT” since July 17, 2003. The outstanding
Our ADSs have been listed on the NYSE under the symbol “CHT” since July 17, 2003. The outstanding
Our ADSs have been listed on the NYSE under the symbol “CHT” since July 17, 2003. The outstanding
Our ADSs have been listed on the NYSE under the symbol “CHT” since July 17, 2003. The outstanding
Our ADSs have been listed on the NYSE under the symbol “CHT” since July 17, 2003. The outstanding
Our ADSs have been listed on the NYSE under the symbol “CHT” since July 17, 2003. The outstanding
Our ADSs have been listed on the NYSE under the symbol “CHT” since July 17, 2003. The outstanding
Our ADSs have been listed on the NYSE under the symbol “CHT” since July 17, 2003. The outstanding
ADSs are identified by the CUSIP number 17133Q502. The table below shows, for the periods indicated, the high
ADSs are identified by the CUSIP number 17133Q502. The table below shows, for the periods indicated, the high
ADSs are identified by the CUSIP number 17133Q502. The table below shows, for the periods indicated, the high
ADSs are identified by the CUSIP number 17133Q502. The table below shows, for the periods indicated, the high
ADSs are identified by the CUSIP number 17133Q502. The table below shows, for the periods indicated, the high
ADSs are identified by the CUSIP number 17133Q502. The table below shows, for the periods indicated, the high
ADSs are identified by the CUSIP number 17133Q502. The table below shows, for the periods indicated, the high
ADSs are identified by the CUSIP number 17133Q502. The table below shows, for the periods indicated, the high
ADSs are identified by the CUSIP number 17133Q502. The table below shows, for the periods indicated, the high
and low closing prices and the average daily volume of trading activity on the NYSE for our ADSs. The closing price
and low closing prices and the average daily volume of trading activity on the NYSE for our ADSs. The closing price
and low closing prices and the average daily volume of trading activity on the NYSE for our ADSs. The closing price
and low closing prices and the average daily volume of trading activity on the NYSE for our ADSs. The closing price
and low closing prices and the average daily volume of trading activity on the NYSE for our ADSs. The closing price
and low closing prices and the average daily volume of trading activity on the NYSE for our ADSs. The closing price
and low closing prices and the average daily volume of trading activity on the NYSE for our ADSs. The closing price
and low closing prices and the average daily volume of trading activity on the NYSE for our ADSs. The closing price
and low closing prices and the average daily volume of trading activity on the NYSE for our ADSs. The closing price
for our ADSs on the NYSE on April 18, 2017 was US$33.95 per ADS. Each of our ADSs represents the right to
for our ADSs on the NYSE on April 18, 2017 was US$33.95 per ADS. Each of our ADSs represents the right to
for our ADSs on the NYSE on April 18, 2017 was US$33.95 per ADS. Each of our ADSs represents the right to
for our ADSs on the NYSE on April 18, 2017 was US$33.95 per ADS. Each of our ADSs represents the right to
for our ADSs on the NYSE on April 18, 2017 was US$33.95 per ADS. Each of our ADSs represents the right to
for our ADSs on the NYSE on April 18, 2017 was US$33.95 per ADS. Each of our ADSs represents the right to
for our ADSs on the NYSE on April 18, 2017 was US$33.95 per ADS. Each of our ADSs represents the right to
for our ADSs on the NYSE on April 18, 2017 was US$33.95 per ADS. Each of our ADSs represents the right to
for our ADSs on the NYSE on April 18, 2017 was US$33.95 per ADS. Each of our ADSs represents the right to
receive ten shares.
receive ten shares.
receive ten shares.
receive ten shares.
receive ten shares.
receive ten shares.
receive ten shares.
receive ten shares.
receive ten shares.
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Closing Price Per ADS (1)
Closing Price Per ADS (1)
Closing Price Per ADS (1)
Closing Price Per ADS (1)
Closing Price Per ADS (1)
Closing Price Per ADS (1)
Closing Price Per ADS (1)
Closing Price Per ADS (1)
Closing Price Per ADS (1)
Low
High
Low
High
Low
High
Low
High
Low
High
High
Low
Low
High
Low
High
Low
High
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
23.93
28.06
2012 .....................................................................................
US$
US$
23.93
28.06
2012 .....................................................................................
23.93
28.06
2012 .....................................................................................
23.93
28.06
2012 .....................................................................................
23.93
28.06
2012 .....................................................................................
23.93
28.06
2012 .....................................................................................
23.93
28.06
2012 .....................................................................................
23.93
28.06
2012 .....................................................................................
23.93
28.06
2012 .....................................................................................
26.43
29.64
2013 .....................................................................................
26.43
29.64
2013 .....................................................................................
26.43
29.64
2013 .....................................................................................
26.43
29.64
2013 .....................................................................................
26.43
29.64
2013 .....................................................................................
26.43
29.64
2013 .....................................................................................
ITEM 10. ADDITIONAL INFORMATION
26.43
29.64
2013 .....................................................................................
26.43
29.64
2013 .....................................................................................
26.43
29.64
2013 .....................................................................................
26.50
29.99
2014 .....................................................................................
26.50
29.99
2014 .....................................................................................
26.50
29.99
2014 .....................................................................................
26.50
29.99
2014 .....................................................................................
26.50
29.99
2014 .....................................................................................
26.50
29.99
2014 .....................................................................................
26.50
29.99
2014 .....................................................................................
26.50
29.99
2014 .....................................................................................
26.50
29.99
2014 .....................................................................................
27.66
31.58
2015 .....................................................................................
2015 .....................................................................................
27.66
31.58
27.66
31.58
2015 .....................................................................................
27.66
31.58
2015 .....................................................................................
27.66
31.58
2015 .....................................................................................
27.66
31.58
2015 .....................................................................................
A. Share Capital
27.66
31.58
2015 .....................................................................................
27.66
31.58
2015 .....................................................................................
27.66
31.58
2015 .....................................................................................
27.66
30.58
First Quarter ................................................................
27.66
30.58
First Quarter ................................................................
27.66
30.58
First Quarter ................................................................
27.66
30.58
First Quarter ................................................................
27.66
30.58
First Quarter ................................................................
First Quarter ................................................................
27.66
30.58
27.66
30.58
First Quarter ................................................................
27.66
30.58
First Quarter ................................................................
27.66
30.58
First Quarter ................................................................
29.54
31.09
Second Quarter ...........................................................
29.54
31.09
Second Quarter ...........................................................
29.54
31.09
Second Quarter ...........................................................
29.54
31.09
Second Quarter ...........................................................
29.54
31.09
Second Quarter ...........................................................
29.54
31.09
Second Quarter ...........................................................
29.54
31.09
Second Quarter ...........................................................
29.54
31.09
Second Quarter ...........................................................
29.54
31.09
Second Quarter ...........................................................
29.20
31.58
Third Quarter ..............................................................
29.20
31.58
Third Quarter ..............................................................
29.20
31.58
Third Quarter ..............................................................
29.20
31.58
29.20
31.58
Third Quarter ..............................................................
Third Quarter ..............................................................
29.20
31.58
Third Quarter ..............................................................
29.20
31.58
Third Quarter ..............................................................
29.20
31.58
Third Quarter ..............................................................
29.20
31.58
Third Quarter ..............................................................
29.40
31.18
Fourth Quarter ............................................................
29.40
31.18
Fourth Quarter ............................................................
29.40
31.18
Fourth Quarter ............................................................
29.40
31.18
29.40
31.18
Fourth Quarter ............................................................
Fourth Quarter ............................................................
29.40
31.18
Fourth Quarter ............................................................
29.40
31.18
Fourth Quarter ............................................................
29.40
31.18
Fourth Quarter ............................................................
29.40
31.18
Fourth Quarter ............................................................
2016 .....................................................................................
28.24
37.38
2016 .....................................................................................
28.24
37.38
28.24
37.38
2016 .....................................................................................
28.24
37.38
2016 .....................................................................................
28.24
37.38
2016 .....................................................................................
28.24
37.38
2016 .....................................................................................
B. Memorandum and Articles of Incorporation
28.24
37.38
2016 .....................................................................................
2016 .....................................................................................
28.24
37.38
28.24
37.38
2016 .....................................................................................
29.57
34.22
First Quarter ................................................................
29.57
34.22
First Quarter ................................................................
29.57
34.22
First Quarter ................................................................
29.57
34.22
First Quarter ................................................................
29.57
34.22
First Quarter ................................................................
29.57
34.22
First Quarter ................................................................
29.57
34.22
First Quarter ................................................................
29.57
34.22
First Quarter ................................................................
29.57
34.22
First Quarter ................................................................
35.03
38.41
Second Quarter ...........................................................
35.03
38.41
Second Quarter ...........................................................
35.03
38.41
Second Quarter ...........................................................
35.03
38.41
Second Quarter ...........................................................
35.03
38.41
Second Quarter ...........................................................
35.03
38.41
Second Quarter ...........................................................
Set forth below is information relating to our capital structure, including brief summaries of material
35.03
38.41
Second Quarter ...........................................................
35.03
38.41
Second Quarter ...........................................................
35.03
38.41
Second Quarter ...........................................................
34.64
37.38
Third Quarter ..............................................................
34.64
37.38
Third Quarter ..............................................................
34.64
37.38
Third Quarter ..............................................................
34.64
37.38
Third Quarter ..............................................................
34.64
37.38
Third Quarter ..............................................................
Third Quarter ..............................................................
34.64
37.38
provisions of our Articles of Incorporation, the ROC Securities and Exchange Law, the ROC Company Act, and the
34.64
37.38
Third Quarter ..............................................................
34.64
37.38
Third Quarter ..............................................................
34.64
37.38
Third Quarter ..............................................................
31.36
35.42
Fourth Quarter ............................................................
Fourth Quarter ............................................................
31.36
35.42
31.36
35.42
Fourth Quarter ............................................................
31.36
35.42
Fourth Quarter ............................................................
31.36
35.42
Fourth Quarter ............................................................
Fourth Quarter ............................................................
31.36
35.42
Telecommunications Act, all as currently in effect. The following summaries are qualified in their entirety by
31.36
35.42
Fourth Quarter ............................................................
31.36
35.42
Fourth Quarter ............................................................
31.36
35.42
Fourth Quarter ............................................................
34.15
35.42
October ..............................................................
34.15
35.42
October ..............................................................
34.15
35.42
October ..............................................................
34.15
35.42
October ..............................................................
34.15
35.42
October ..............................................................
34.15
35.42
October ..............................................................
reference to our Articles of Incorporation, the ROC Securities and Exchange Law, the ROC Company Act, and the
34.15
35.42
October ..............................................................
34.15
35.42
October ..............................................................
34.15
35.42
October ..............................................................
Telecommunications Act.
Average ADS
Average ADS
Average ADS
Average ADS
Average ADS
Average ADS
Daily Trading
Average ADS
Average ADS
Daily Trading
Average ADS
Daily Trading
Daily Trading
Daily Trading
Daily Trading
Volume
Daily Trading
Volume
Daily Trading
Daily Trading
Volume
Volume
Volume
Volume
Volume
Volume
Volume
(in thousands)
(in thousands)
(in thousands)
(in thousands)
(in thousands)
(in thousands)
(in thousands)
(in thousands)
355
(in thousands)
355
355
355
355
355
355
355
355
206
206
206
206
206
206
206
206
206
111
111
111
111
111
111
111
111
111
186
186
186
186
186
186
186
186
186
128
128
128
128
128
128
128
128
128
116
116
116
116
116
116
116
116
116
284
284
284
284
284
284
284
284
284
213
213
213
213
213
213
213
213
213
262
262
262
262
262
262
262
262
262
257
257
257
257
257
257
257
257
257
214
214
214
214
214
214
214
214
214
215
215
215
215
215
215
215
215
215
316
316
316
316
316
316
316
316
316
324
324
324
324
324
324
324
324
324
Not applicable.
96
Closing Price Per ADS (1)
High
US$
Low
US$
Average ADS
Daily Trading
Volume
(in thousands)
November ..........................................................
December ..........................................................
2017 (through April 18) .......................................................
First Quarter ................................................................
January ..............................................................
February ............................................................
March ................................................................
Second Quarter (through April 18) .............................
April (through April 18) ....................................
34.90
33.59
34.82
34.82
32.79
33.16
34.82
34.27
34.27
32.71
31.36
31.37
31.37
31.49
31.37
32.78
33.65
33.65
401
223
299
313
285
429
242
216
216
(1) The historical prices and volumes of our ADSs traded on the NYSE have been adjusted based on prior cash dividend payments,
capital increases and capital reductions.
As of April 18, 2017, a total of 28,772,429 ADSs and 7,757,446,545 common shares (including those
represented by ADSs) were outstanding. With certain limited exceptions, holders of shares that are not ROC persons
are required to hold these shares through a brokerage or custodial account in the ROC.
The principal trading market for our common shares is the TWSE and the principal trading market for our
B. Plan of Distribution
Not applicable.
C. Markets
ADSs is the NYSE.
D. Selling Stockholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
A. Share Capital
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
B. Memorandum and Articles of Incorporation
Set forth below is information relating to our capital structure, including brief summaries of material
provisions of our Articles of Incorporation, the ROC Securities and Exchange Law, the ROC Company Act, and the
Telecommunications Act, all as currently in effect. The following summaries are qualified in their entirety by
reference to our Articles of Incorporation, the ROC Securities and Exchange Law, the ROC Company Act, and the
Telecommunications Act.
2012 ......................................................................................................
2012 ......................................................................................................
2013 ......................................................................................................
2013 ......................................................................................................
2014 ......................................................................................................
2014 ......................................................................................................
2015 ......................................................................................................
2015 ......................................................................................................
First Quarter ...............................................................................
First Quarter ...............................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Fourth Quarter ............................................................................
2016 ......................................................................................................
Fourth Quarter ............................................................................
2016 ......................................................................................................
First Quarter ................................................................................
First Quarter ................................................................................
Second Quarter ...........................................................................
Second Quarter ...........................................................................
Third Quarter ..............................................................................
Third Quarter ..............................................................................
Fourth Quarter .............................................................................
Fourth Quarter .............................................................................
October ..............................................................................
October ..............................................................................
November ..........................................................................
November ..........................................................................
December ..........................................................................
2017 (through April 18) ........................................................................
December ..........................................................................
2017 (through April 18) ........................................................................
First Quarter ................................................................................
First Quarter ................................................................................
January ..............................................................................
January ..............................................................................
February ............................................................................
February ............................................................................
March ................................................................................
Second Quarter(through April 18) ..............................................
March ................................................................................
Second Quarter(through April 18) ..............................................
April (through April 18) ....................................................
April (through April 18) ....................................................
Closing Price
Per Common Share(1)
Closing Price
Per Common Share(1)
Average
Average
Daily
Trading
Daily
Volume
Trading
Volume
(in
thousands)
(in
thousands)
11,753
11,753
7,498
7,498
6,307
6,307
8,292
8,292
7,366
7,366
6,177
6,177
11,510
11,510
7,942
7,942
11,059
11,059
10,744
10,744
7,982
7,982
11,624
11,624
13,621
13,621
13,179
13,179
14,346
14,346
13,298
13,298
9,942
9,942
10,602
10,602
9,716
9,716
12,545
12,545
9,697
9,697
6,182
6,182
6,182
6,182
Low
Low
NT$
NT$
70.70
70.70
78.59
78.59
81.59
81.59
87.93
87.93
87.93
87.93
90.97
90.97
92.87
92.87
97.30
97.30
93.82
93.82
98.20
98.20
107.00
107.00
110.50
110.50
101.00
101.00
108.00
108.00
104.00
104.00
101.00
101.00
100.00
100.00
100.00
100.00
101.00
101.00
100.00
100.00
101.50
101.50
103.50
103.50
103.50
103.50
High
High
NT$
81.42
NT$
81.42
87.57
87.57
89.35
89.35
100.50
100.50
94.86
94.86
94.67
94.67
99.30
99.30
100.50
100.50
118.50
118.50
110.50
110.50
116.50
116.50
118.50
118.50
112.50
112.50
112.50
112.50
110.00
110.00
106.50
106.50
106.00
106.00
106.00
106.00
104.50
104.50
102.00
102.00
106.00
106.00
104.50
104.50
104.50
104.50
(1) The historical prices and volumes of our common shares traded on the TWSE have been adjusted based on prior cash dividend
(1) The historical prices and volumes of our common shares traded on the TWSE have been adjusted based on prior cash dividend
payments, capital increases and capital reductions.
payments, capital increases and capital reductions.
Market Price Information for Our American Depositary Shares
Market Price Information for Our American Depositary Shares
Our ADSs have been listed on the NYSE under the symbol “CHT” since July 17, 2003. The outstanding
ADSs are identified by the CUSIP number 17133Q502. The table below shows, for the periods indicated, the high
Our ADSs have been listed on the NYSE under the symbol “CHT” since July 17, 2003. The outstanding
ADSs are identified by the CUSIP number 17133Q502. The table below shows, for the periods indicated, the high
and low closing prices and the average daily volume of trading activity on the NYSE for our ADSs. The closing price
and low closing prices and the average daily volume of trading activity on the NYSE for our ADSs. The closing price
for our ADSs on the NYSE on April 18, 2017 was US$33.95 per ADS. Each of our ADSs represents the right to
for our ADSs on the NYSE on April 18, 2017 was US$33.95 per ADS. Each of our ADSs represents the right to
receive ten shares.
receive ten shares.
Closing Price Per ADS (1)
Closing Price Per ADS (1)
High
High
US$
US$
28.06
Low
Low
US$
US$
23.93
Average ADS
Daily Trading
Average ADS
Daily Trading
Volume
Volume
(in thousands)
(in thousands)
355
2012 .....................................................................................
2012 .....................................................................................
2013 .....................................................................................
2013 .....................................................................................
2014 .....................................................................................
2014 .....................................................................................
2015 .....................................................................................
2015 .....................................................................................
First Quarter ................................................................
First Quarter ................................................................
Second Quarter ...........................................................
Second Quarter ...........................................................
Third Quarter ..............................................................
Third Quarter ..............................................................
Fourth Quarter ............................................................
2016 .....................................................................................
Fourth Quarter ............................................................
2016 .....................................................................................
First Quarter ................................................................
First Quarter ................................................................
Second Quarter ...........................................................
Second Quarter ...........................................................
Third Quarter ..............................................................
Third Quarter ..............................................................
Fourth Quarter ............................................................
Fourth Quarter ............................................................
October ..............................................................
October ..............................................................
28.06
29.64
29.64
29.99
29.99
31.58
31.58
30.58
30.58
31.09
31.09
31.58
31.58
31.18
31.18
37.38
37.38
34.22
34.22
38.41
38.41
37.38
37.38
35.42
35.42
35.42
35.42
23.93
26.43
26.43
26.50
26.50
27.66
27.66
27.66
27.66
29.54
29.54
29.20
29.20
29.40
29.40
28.24
28.24
29.57
29.57
35.03
35.03
34.64
34.64
31.36
31.36
34.15
34.15
355
206
206
111
111
186
186
128
128
116
116
284
284
213
213
262
262
257
257
214
214
215
215
316
316
324
324
Closing Price Per ADS (1)
Closing Price Per ADS (1)
High
High
Low
Low
Average ADS
Average ADS
Daily Trading
Daily Trading
Volume
Volume
November ..........................................................
November ..........................................................
December ..........................................................
December ..........................................................
2017 (through April 18) .......................................................
2017 (through April 18) .......................................................
First Quarter ................................................................
First Quarter ................................................................
January ..............................................................
January ..............................................................
February ............................................................
February ............................................................
March ................................................................
March ................................................................
Second Quarter (through April 18) .............................
Second Quarter (through April 18) .............................
April (through April 18) ....................................
April (through April 18) ....................................
US$
US$
34.90
33.59
34.82
34.82
32.79
33.16
34.82
34.27
34.27
34.90
33.59
34.82
34.82
32.79
33.16
34.82
34.27
34.27
US$
US$
32.71
31.36
31.37
31.37
31.49
31.37
32.78
33.65
33.65
32.71
31.36
31.37
31.37
31.49
31.37
32.78
33.65
33.65
(in thousands)
(in thousands)
401
223
299
313
285
429
242
216
216
401
223
299
313
285
429
242
216
216
(1) The historical prices and volumes of our ADSs traded on the NYSE have been adjusted based on prior cash dividend payments,
(1) The historical prices and volumes of our ADSs traded on the NYSE have been adjusted based on prior cash dividend payments,
capital increases and capital reductions.
capital increases and capital reductions.
As of April 18, 2017, a total of 28,772,429 ADSs and 7,757,446,545 common shares (including those
represented by ADSs) were outstanding. With certain limited exceptions, holders of shares that are not ROC persons
are required to hold these shares through a brokerage or custodial account in the ROC.
As of April 18, 2017, a total of 28,772,429 ADSs and 7,757,446,545 common shares (including those
represented by ADSs) were outstanding. With certain limited exceptions, holders of shares that are not ROC persons
are required to hold these shares through a brokerage or custodial account in the ROC.
B. Plan of Distribution
B. Plan of Distribution
Not applicable.
Not applicable.
C. Markets
C. Markets
The principal trading market for our common shares is the TWSE and the principal trading market for our
The principal trading market for our common shares is the TWSE and the principal trading market for our
ADSs is the NYSE.
ADSs is the NYSE.
D. Selling Stockholders
D. Selling Stockholders
Not applicable.
Not applicable.
E. Dilution
E. Dilution
Not applicable.
Not applicable.
F. Expenses of the Issue
F. Expenses of the Issue
Not applicable.
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
A. Share Capital
Not applicable.
Not applicable.
B. Memorandum and Articles of Incorporation
B. Memorandum and Articles of Incorporation
Set forth below is information relating to our capital structure, including brief summaries of material
provisions of our Articles of Incorporation, the ROC Securities and Exchange Law, the ROC Company Act, and the
Telecommunications Act, all as currently in effect. The following summaries are qualified in their entirety by
reference to our Articles of Incorporation, the ROC Securities and Exchange Law, the ROC Company Act, and the
Telecommunications Act.
Set forth below is information relating to our capital structure, including brief summaries of material
provisions of our Articles of Incorporation, the ROC Securities and Exchange Law, the ROC Company Act, and the
Telecommunications Act, all as currently in effect. The following summaries are qualified in their entirety by
reference to our Articles of Incorporation, the ROC Securities and Exchange Law, the ROC Company Act, and the
Telecommunications Act.
97
Objects and Purpose
The scope of business of Chunghwa Telecom Co., Ltd. as set forth in Article 2 of our Articles of
Incorporation, includes (i) telecommunications Enterprise Type 1 and Type 2 businesses pursuant to the
Telecommunications Act of the ROC, (ii) installation of the computer equipment and radio-frequency equipment
whose operation is controlled by the telecommunication business, (iii) telecommunications equipment wholesale,
retail and engineering businesses, (iv) engineering and operation of information software and information process
service businesses, (v) apparatus and electric appliance installation and construction business, (vi) television program
production, distribution and commercial business, (vii) broadcasting program distribution and commercial business,
(viii) the third party payment business, (ix) water pipe construction business, (x) machinery and equipment
manufacturing business, and (xi) other businesses, except any business requiring a special permit or otherwise
restricted by law or regulation.
General
Under our Articles of Incorporation, our authorized capital was NT$120,000,000,000 divided into
12,000,000,000 common shares, with par value of NT$10 per share. We have set aside 200,000,000 common shares
from the aforementioned common shares for the exercise of any future issuances of stock warrants, preferred shares
with warrants, and bonds with warrants. Our paid-in capital is NT$77,574,465,450 divided into 7,757,446,545
common shares. We currently do not have any other equity in the form of preferred shares, bonds or otherwise
outstanding as of the date of this annual report.
The MOTC, on behalf of the government of the ROC, owned approximately 35.29% of our outstanding
common shares as of December 31, 2016. The remainder of our outstanding shares is held by public stockholders and
other investors.
Directors and Audit Committee
Our Articles of Incorporation provide for a board of directors consisting of seven to fifteen directors, and
one-fifth of these directors shall be professionals of domain knowledge. See “Item 6. Directors, Senior Management
and Employees—C. Board Practices.” Pursuant to Article 14-4 of the ROC Securities and Exchange Act, for a
company that has established an audit committee, unless otherwise provided for by law, the provisions regarding
supervisors in ROC Securities and Exchange Act, the ROC Company Act, and other laws and regulations shall apply
mutatis mutandis to the audit committee.
Under the ROC Company Act, our board of directors, in conducting our business, shall act in accordance
with laws and regulations, our Articles of Incorporation and the resolutions adopted at the meetings of stockholders.
Where any resolution adopted by our board of directors contravenes laws, our Articles of Incorporation and the
resolutions adopted at the meetings of stockholders, thereby causing loss or damage to us, all directors taking part in
the adoption of such resolution shall be liable to compensate us for such loss or damage; however, those directors
whose disagreement appears on record or is expressed in writing shall be exempted from liability.
If our board of directors decides, by resolution, to commit any act in violation of any law or our Articles of
Incorporation, any of our independent directors or any stockholder who has continuously held our shares for a period
of one year or longer may request our board of directors to discontinue such act. One or more stockholders who have
held more than 3% of our issued and outstanding shares for over one year may send a written request to require an
independent director to bring an action on our behalf against a director for losses suffered by us as a result of unlawful
actions. In addition, if our stockholders’ meeting resolves to institute an action against a director, we shall, within 30
days from the date of such resolution, institute the action. In case of a lawsuit between us and a director, an
independent director shall act on our behalf, unless otherwise provided by law; and our stockholders meeting may
also appoint some other person to act on our behalf in a lawsuit.
According to the ROC Company Act, our board of directors owes fiduciary duty to us. Our directors are
liable for the damages to be sustained by us if they breach their fiduciary duty. In addition, a director who has a
personal interest in a matter to be discussed at the meeting of the board of directors, shall specify such conflict; if the
98
conflict may cause damages to the company, the director shall abstain from voting on the matter, and shall not serve
as a proxy and vote on behalf of another director.
According to our Articles of Incorporation, the remuneration and compensation of the directors shall be
determined by the board of directors based on the participation and the contribution of each director in the business
operation of the Company and referencing the regular standards of other corporations in the similar industry. Our
Articles of Incorporation do not impose a mandatory retirement age for our directors. Furthermore, our Articles of
Incorporation do not impose a shareholding qualification for each director. According to our Code of Ethics, we may
not extend any loan to our directors.
Dividends and Distributions
At each annual general stockholders’ meeting, our board of directors submits to the stockholders for their
approval any proposal for the distribution of dividend or the making of any other distribution to stockholders from our
net income for the preceding fiscal year. All common shares outstanding and fully paid as of the relevant record date
are entitled to share equally in any dividend or other distribution so approved. Dividends may be distributed in cash,
in the form of common shares or a combination of the two, as determined by the stockholders at the meeting.
We are not permitted to distribute dividends or make other distributions to stockholders in any year in which
we do not have any net income or unappropriated earnings (excluding reserves). The ROC Company Act also requires
that 10% of our annual net income, less prior years’ losses and outstanding tax, if any, be set aside as a legal reserve
until the accumulated legal reserve equals our paid-in capital. We may also set aside special reserve by the resolution
of our stockholders’ meeting. In addition, our Articles of Incorporation provide that at least 50% of the remaining
portion of the net income, less accumulated losses, outstanding taxes, the legal reserve and any special reserve, plus
accumulated retained earnings from prior years will be distributed as dividends to stockholders. Under our Articles of
Incorporation, not less than 50% of the total amount of the distributed dividends must be in cash, but if the cash
dividends to be distributed are less than NT$0.10 per share, the dividends may be distributed in the form of shares.
The actual percentage of distribution would take actual profitability of the year, capital budgeting, and status of
finance into consideration, and would be executed following a resolution of shareholders’ meeting. According to the
ROC Company Act amended as of May 20, 2015, earnings can no longer be distributed to employees. Rather,
earnings may be distributed to shareholders, excluding employees and directors. To mitigate the impact on
employees’ lost potential earnings, the amended ROC Company Act provides that the company must stipulate a
specific amount or percentage of profits to be distributed to employees as compensation. The compensation may,
subject to a resolution which is adopted by a majority vote at a meeting of the board of directors attended by two-third
of total number of directors, be distributed to employees in way of cash or shares. In addition, a report of such
distribution shall be submitted to the shareholders’ meeting. As a result, we amended our Articles of Incorporation at
our annual general stockholders’ meeting on June 24, 2016. Pursuant to our current Articles of Incorporation, in
annual profit-making year, we should distribute 1.7% to 4.3% of profit as employees’ compensation, and not more
than 0.17% of profit should be distributed as directors' compensation; however, if we have any accumulated losses, an
amount to offset losses should be reserved in advance. The changes do not have a material impact on our financial
results, because we have categorized employee bonuses as an expense instead of as distributable earnings since 2008
in accordance with a clarification letter issued by the Ministry of Economic Affairs of Taiwan for the explanation of
Article 64 of the Business Accounting Law.
Under the ROC Company Act, if we do not incur a loss, we are permitted to make distributions on a pro rata
basis to our stockholders of additional common shares or cash by the legal reserve, the premium derived from the
issuance of new shares and the income from endowments received by us. We are allowed to make the above
distributions to our stockholders by legal reserve only if the legal reserve exceeds 25% of our paid-in capital.
Furthermore, subject to the provision under our Articles of Incorporation, such distribution should firstly be made by
the premium derived from the issuance of new shares.
Changes in Share Capital
Under the ROC Company Act, any change in our authorized share capital requires an amendment to our
Articles of Incorporation, which in turn requires approval at our stockholders’ meeting. Authorized but unissued
common shares may be issued, subject to applicable ROC law, upon terms as our board of directors may determine.
Objects and Purpose
The scope of business of Chunghwa Telecom Co., Ltd. as set forth in Article 2 of our Articles of
Incorporation, includes (i) telecommunications Enterprise Type 1 and Type 2 businesses pursuant to the
Telecommunications Act of the ROC, (ii) installation of the computer equipment and radio-frequency equipment
whose operation is controlled by the telecommunication business, (iii) telecommunications equipment wholesale,
retail and engineering businesses, (iv) engineering and operation of information software and information process
service businesses, (v) apparatus and electric appliance installation and construction business, (vi) television program
production, distribution and commercial business, (vii) broadcasting program distribution and commercial business,
(viii) the third party payment business, (ix) water pipe construction business, (x) machinery and equipment
manufacturing business, and (xi) other businesses, except any business requiring a special permit or otherwise
restricted by law or regulation.
General
Under our Articles of Incorporation, our authorized capital was NT$120,000,000,000 divided into
12,000,000,000 common shares, with par value of NT$10 per share. We have set aside 200,000,000 common shares
from the aforementioned common shares for the exercise of any future issuances of stock warrants, preferred shares
with warrants, and bonds with warrants. Our paid-in capital is NT$77,574,465,450 divided into 7,757,446,545
common shares. We currently do not have any other equity in the form of preferred shares, bonds or otherwise
outstanding as of the date of this annual report.
The MOTC, on behalf of the government of the ROC, owned approximately 35.29% of our outstanding
common shares as of December 31, 2016. The remainder of our outstanding shares is held by public stockholders and
other investors.
Directors and Audit Committee
Our Articles of Incorporation provide for a board of directors consisting of seven to fifteen directors, and
one-fifth of these directors shall be professionals of domain knowledge. See “Item 6. Directors, Senior Management
and Employees—C. Board Practices.” Pursuant to Article 14-4 of the ROC Securities and Exchange Act, for a
company that has established an audit committee, unless otherwise provided for by law, the provisions regarding
supervisors in ROC Securities and Exchange Act, the ROC Company Act, and other laws and regulations shall apply
mutatis mutandis to the audit committee.
Under the ROC Company Act, our board of directors, in conducting our business, shall act in accordance
with laws and regulations, our Articles of Incorporation and the resolutions adopted at the meetings of stockholders.
Where any resolution adopted by our board of directors contravenes laws, our Articles of Incorporation and the
resolutions adopted at the meetings of stockholders, thereby causing loss or damage to us, all directors taking part in
the adoption of such resolution shall be liable to compensate us for such loss or damage; however, those directors
whose disagreement appears on record or is expressed in writing shall be exempted from liability.
If our board of directors decides, by resolution, to commit any act in violation of any law or our Articles of
Incorporation, any of our independent directors or any stockholder who has continuously held our shares for a period
of one year or longer may request our board of directors to discontinue such act. One or more stockholders who have
held more than 3% of our issued and outstanding shares for over one year may send a written request to require an
independent director to bring an action on our behalf against a director for losses suffered by us as a result of unlawful
actions. In addition, if our stockholders’ meeting resolves to institute an action against a director, we shall, within 30
days from the date of such resolution, institute the action. In case of a lawsuit between us and a director, an
independent director shall act on our behalf, unless otherwise provided by law; and our stockholders meeting may
also appoint some other person to act on our behalf in a lawsuit.
According to the ROC Company Act, our board of directors owes fiduciary duty to us. Our directors are
liable for the damages to be sustained by us if they breach their fiduciary duty. In addition, a director who has a
personal interest in a matter to be discussed at the meeting of the board of directors, shall specify such conflict; if the
conflict may cause damages to the company, the director shall abstain from voting on the matter, and shall not serve
as a proxy and vote on behalf of another director.
According to our Articles of Incorporation, the remuneration and compensation of the directors shall be
determined by the board of directors based on the participation and the contribution of each director in the business
operation of the Company and referencing the regular standards of other corporations in the similar industry. Our
Articles of Incorporation do not impose a mandatory retirement age for our directors. Furthermore, our Articles of
Incorporation do not impose a shareholding qualification for each director. According to our Code of Ethics, we may
not extend any loan to our directors.
Dividends and Distributions
At each annual general stockholders’ meeting, our board of directors submits to the stockholders for their
approval any proposal for the distribution of dividend or the making of any other distribution to stockholders from our
net income for the preceding fiscal year. All common shares outstanding and fully paid as of the relevant record date
are entitled to share equally in any dividend or other distribution so approved. Dividends may be distributed in cash,
in the form of common shares or a combination of the two, as determined by the stockholders at the meeting.
We are not permitted to distribute dividends or make other distributions to stockholders in any year in which
we do not have any net income or unappropriated earnings (excluding reserves). The ROC Company Act also requires
that 10% of our annual net income, less prior years’ losses and outstanding tax, if any, be set aside as a legal reserve
until the accumulated legal reserve equals our paid-in capital. We may also set aside special reserve by the resolution
of our stockholders’ meeting. In addition, our Articles of Incorporation provide that at least 50% of the remaining
portion of the net income, less accumulated losses, outstanding taxes, the legal reserve and any special reserve, plus
accumulated retained earnings from prior years will be distributed as dividends to stockholders. Under our Articles of
Incorporation, not less than 50% of the total amount of the distributed dividends must be in cash, but if the cash
dividends to be distributed are less than NT$0.10 per share, the dividends may be distributed in the form of shares.
The actual percentage of distribution would take actual profitability of the year, capital budgeting, and status of
finance into consideration, and would be executed following a resolution of shareholders’ meeting. According to the
ROC Company Act amended as of May 20, 2015, earnings can no longer be distributed to employees. Rather,
earnings may be distributed to shareholders, excluding employees and directors. To mitigate the impact on
employees’ lost potential earnings, the amended ROC Company Act provides that the company must stipulate a
specific amount or percentage of profits to be distributed to employees as compensation. The compensation may,
subject to a resolution which is adopted by a majority vote at a meeting of the board of directors attended by two-third
of total number of directors, be distributed to employees in way of cash or shares. In addition, a report of such
distribution shall be submitted to the shareholders’ meeting. As a result, we amended our Articles of Incorporation at
our annual general stockholders’ meeting on June 24, 2016. Pursuant to our current Articles of Incorporation, in
annual profit-making year, we should distribute 1.7% to 4.3% of profit as employees’ compensation, and not more
than 0.17% of profit should be distributed as directors' compensation; however, if we have any accumulated losses, an
amount to offset losses should be reserved in advance. The changes do not have a material impact on our financial
results, because we have categorized employee bonuses as an expense instead of as distributable earnings since 2008
in accordance with a clarification letter issued by the Ministry of Economic Affairs of Taiwan for the explanation of
Article 64 of the Business Accounting Law.
Under the ROC Company Act, if we do not incur a loss, we are permitted to make distributions on a pro rata
basis to our stockholders of additional common shares or cash by the legal reserve, the premium derived from the
issuance of new shares and the income from endowments received by us. We are allowed to make the above
distributions to our stockholders by legal reserve only if the legal reserve exceeds 25% of our paid-in capital.
Furthermore, subject to the provision under our Articles of Incorporation, such distribution should firstly be made by
the premium derived from the issuance of new shares.
Changes in Share Capital
Under the ROC Company Act, any change in our authorized share capital requires an amendment to our
Articles of Incorporation, which in turn requires approval at our stockholders’ meeting. Authorized but unissued
common shares may be issued, subject to applicable ROC law, upon terms as our board of directors may determine.
99
Preemptive Rights
taking over of the whole of the business or assets of any other company which would have significant
Under the ROC Company Act and our Articles of Incorporation, when we issue new shares for cash, unless
otherwise approved by the central competent authority, our employees have rights to subscribe for between 10% and
15% of the new issue, and we have rights to restrain the shares subscribes by employees from being transferred within
a specific period of time, which should not be longer than two years. Except for the shares reserved in accordance
with the ROC Company Act, we are required to inform our existing shareholders of their rights to subscribe for
additional shares pro rata to their respective shareholding and to note that the shareholders will lose their pre-emptive
right if they fail to subscribe for the new shares within the prescribed period. In the event that there is any new share
that has not been subscribed by the existing shareholders pursuant to their respective pre-emptive rights, we may offer
such shares to other investors through public offering or private negotiation with any person designated by us.
In addition, in accordance with the ROC Securities and Exchange Act, a public company that intends to offer
new shares for cash must offer to the public at least 10% of the shares to be sold except in certain limited
circumstances. This percentage can be increased by a resolution passed at a stockholders’ meeting, held in accordance
with the Company Act and our Articles of Incorporation which would diminish the number of new shares subject to
the preemptive rights of existing stockholders.
Meetings of Stockholders
Pursuant to the ROC Securities and Exchange Act, as a listed company, we must hold a general shareholders’
meeting within six months after the end of each fiscal year and may not seek any extension for such meeting
accordingly to Article 36 of Securities and Exchange Act. These meetings are generally held in New Taipei City,
Taiwan. Special stockholders’ meetings may be convened by resolution of the board of directors or by the board of
directors upon the written request of any stockholder or stockholders who have held 3% or more of the outstanding
common shares for more than one year. Stockholders’ meetings may also be convened by an independent director.
Notice in writing of general meetings of stockholders, stating the place, time and agenda must be dispatched to each
stockholder at least 30 days, in the case of general meetings, and 15 days, in the case of special meetings, before the
date set for each meeting. Except in certain circumstances described below, a majority of the holders of all issued and
outstanding common shares present at a stockholders’ meeting constitutes a quorum for meetings of stockholders.
Stockholders of 1% or more of our issued and outstanding shares are entitled to submit, during the period of time
prescribed by us no less than ten days, one written proposal each year for consideration at our annual general
stockholders’ meeting in accordance with the ROC Company Act.
Voting Rights
As previously required by the ROC Company Act, our Articles of Incorporation provide that a holder of
common shares has one vote for each common share. Cumulative voting applies to the election of our directors. The
election of independent and non-independent directors should be held simultaneously while the ballots for the election
of directors and independent directors are cast separately. According to Article 146-1 of the Insurance Act of the
ROC, insurance companies that hold our shares may not be our directors or vote for the election of our directors.
In general, a resolution can be adopted by the holders of at least a majority of the common shares represented
at a stockholders’ meeting at which the holders of more than half of all issued and outstanding common shares are
present. Under the ROC Company Act, the approval by at least a majority of the common shares represented at a
stockholders’ meeting in which a quorum of at least two-thirds of all issued and outstanding common shares are
represented is required for major corporate actions, including:
•
•
•
amendment to our Articles of Incorporation;
entering into, modification or termination of any contracts regarding leasing of all business, outsourcing
of operations or joint operations;
transfer of the whole or substantial part of our business or assets;
100
•
•
•
impact on our operations;
distribution of any share dividend;
dissolution;
• merger or spin-off; and
•
removing of directors.
Alternatively, the ROC Company Act provides that in the case of a public company, such as us, a resolution
may be adopted by the holders of at least two-thirds of the common shares represented at a meeting of stockholders at
which holders of at least a majority of issued and outstanding common shares are present.
A stockholder may be represented at a general or special meeting by proxy if a valid proxy form is delivered
to us five days before the commencement of the general or special stockholders’ meeting. Except for trust enterprises
or share registrar approved by the Securities and Futures Bureau of the FSC, where one person is appointed as proxy
by two or more stockholders who together hold more than 3% of the total issued common shares, the votes of those
stockholders in excess of 3% of the outstanding common shares shall not be counted. Alternatively, if the stockholder
would like to exercise its voting right at a general or special meeting but cannot be present at the meeting in person,
according to the regulations promulgated by the FSC on February 20, 2012, starting from our 2012 general meeting,
we are required to set up an electronic voting mechanism for such stockholder to exercise voting right. The
stockholder is not allowed to exercise voting right through electronic voting mechanism if such stockholder fails to
revoke the granted proxy (if any) at least two days prior to the general or special meeting.
At the time of any vote, if a director of a public company has pledged more than half of the holding at the
time the director was elected, such director will not be allowed to exercise the voting rights with respect to the
number of shares pledged in excess of the half of the number of shares that such director held in such public company
at the time the director was elected. The maximum number of shares ineligible for voting pursuant to the provision
above cannot exceed half of the number of shares that such director held in such public company at the time the
director was elected. In addition, any shares that were ineligible for voting pursuant to the above provision would not
count as being present for such vote.
Any stockholder who has a personal interest in the matter under discussion at a stockholders’ meeting, the
outcome of which may impair our interests, shall not vote or exercise voting rights on behalf of another stockholder;
however, the shares held by such stockholder may be counted as present for calculation of attendance quorum.
Holders of our ADSs generally will not be able to exercise voting rights on the common shares underlying
ADSs on an individual basis.
Other Rights of Stockholders
Under the ROC Company Act, dissenting stockholders are entitled to appraisal rights in certain major
corporate actions, such as a planned transfer of the whole or part of the business or a proposed merger by us. A
dissenting stockholder may request us to purchase back all of the shares owned by the stockholder at a fair price
determined by mutual agreement or determined by the court if a mutual agreement cannot be reached. Stockholders
may exercise their appraisal rights by serving notice in writing to us prior to the related stockholders’ meeting and/or
by raising his objection at the stockholders’ meeting. Moreover, a stockholder has the right to file a petition in the
court for annulment of any resolution adopted at a stockholders’ meeting where the procedures for convening the
stockholders’ meeting or the method of adopting the resolutions at the meeting is contrary to law or our Articles of
Incorporation. One or more stockholders who have held more than 3% of the issued and outstanding shares of a
company continuously for more than one year may require an independent director to institute, on behalf of us, an
action against a director. In addition, one or more stockholders who has/have continuously held 3% or more of the
Preemptive Rights
Under the ROC Company Act and our Articles of Incorporation, when we issue new shares for cash, unless
otherwise approved by the central competent authority, our employees have rights to subscribe for between 10% and
15% of the new issue, and we have rights to restrain the shares subscribes by employees from being transferred within
a specific period of time, which should not be longer than two years. Except for the shares reserved in accordance
with the ROC Company Act, we are required to inform our existing shareholders of their rights to subscribe for
additional shares pro rata to their respective shareholding and to note that the shareholders will lose their pre-emptive
right if they fail to subscribe for the new shares within the prescribed period. In the event that there is any new share
that has not been subscribed by the existing shareholders pursuant to their respective pre-emptive rights, we may offer
such shares to other investors through public offering or private negotiation with any person designated by us.
In addition, in accordance with the ROC Securities and Exchange Act, a public company that intends to offer
new shares for cash must offer to the public at least 10% of the shares to be sold except in certain limited
circumstances. This percentage can be increased by a resolution passed at a stockholders’ meeting, held in accordance
with the Company Act and our Articles of Incorporation which would diminish the number of new shares subject to
the preemptive rights of existing stockholders.
Meetings of Stockholders
Pursuant to the ROC Securities and Exchange Act, as a listed company, we must hold a general shareholders’
meeting within six months after the end of each fiscal year and may not seek any extension for such meeting
accordingly to Article 36 of Securities and Exchange Act. These meetings are generally held in New Taipei City,
Taiwan. Special stockholders’ meetings may be convened by resolution of the board of directors or by the board of
directors upon the written request of any stockholder or stockholders who have held 3% or more of the outstanding
common shares for more than one year. Stockholders’ meetings may also be convened by an independent director.
Notice in writing of general meetings of stockholders, stating the place, time and agenda must be dispatched to each
stockholder at least 30 days, in the case of general meetings, and 15 days, in the case of special meetings, before the
date set for each meeting. Except in certain circumstances described below, a majority of the holders of all issued and
outstanding common shares present at a stockholders’ meeting constitutes a quorum for meetings of stockholders.
Stockholders of 1% or more of our issued and outstanding shares are entitled to submit, during the period of time
prescribed by us no less than ten days, one written proposal each year for consideration at our annual general
stockholders’ meeting in accordance with the ROC Company Act.
Voting Rights
As previously required by the ROC Company Act, our Articles of Incorporation provide that a holder of
common shares has one vote for each common share. Cumulative voting applies to the election of our directors. The
election of independent and non-independent directors should be held simultaneously while the ballots for the election
of directors and independent directors are cast separately. According to Article 146-1 of the Insurance Act of the
ROC, insurance companies that hold our shares may not be our directors or vote for the election of our directors.
In general, a resolution can be adopted by the holders of at least a majority of the common shares represented
at a stockholders’ meeting at which the holders of more than half of all issued and outstanding common shares are
present. Under the ROC Company Act, the approval by at least a majority of the common shares represented at a
stockholders’ meeting in which a quorum of at least two-thirds of all issued and outstanding common shares are
represented is required for major corporate actions, including:
•
•
•
amendment to our Articles of Incorporation;
entering into, modification or termination of any contracts regarding leasing of all business, outsourcing
of operations or joint operations;
transfer of the whole or substantial part of our business or assets;
•
•
•
taking over of the whole of the business or assets of any other company which would have significant
impact on our operations;
distribution of any share dividend;
dissolution;
• merger or spin-off; and
•
removing of directors.
Alternatively, the ROC Company Act provides that in the case of a public company, such as us, a resolution
may be adopted by the holders of at least two-thirds of the common shares represented at a meeting of stockholders at
which holders of at least a majority of issued and outstanding common shares are present.
A stockholder may be represented at a general or special meeting by proxy if a valid proxy form is delivered
to us five days before the commencement of the general or special stockholders’ meeting. Except for trust enterprises
or share registrar approved by the Securities and Futures Bureau of the FSC, where one person is appointed as proxy
by two or more stockholders who together hold more than 3% of the total issued common shares, the votes of those
stockholders in excess of 3% of the outstanding common shares shall not be counted. Alternatively, if the stockholder
would like to exercise its voting right at a general or special meeting but cannot be present at the meeting in person,
according to the regulations promulgated by the FSC on February 20, 2012, starting from our 2012 general meeting,
we are required to set up an electronic voting mechanism for such stockholder to exercise voting right. The
stockholder is not allowed to exercise voting right through electronic voting mechanism if such stockholder fails to
revoke the granted proxy (if any) at least two days prior to the general or special meeting.
At the time of any vote, if a director of a public company has pledged more than half of the holding at the
time the director was elected, such director will not be allowed to exercise the voting rights with respect to the
number of shares pledged in excess of the half of the number of shares that such director held in such public company
at the time the director was elected. The maximum number of shares ineligible for voting pursuant to the provision
above cannot exceed half of the number of shares that such director held in such public company at the time the
director was elected. In addition, any shares that were ineligible for voting pursuant to the above provision would not
count as being present for such vote.
Any stockholder who has a personal interest in the matter under discussion at a stockholders’ meeting, the
outcome of which may impair our interests, shall not vote or exercise voting rights on behalf of another stockholder;
however, the shares held by such stockholder may be counted as present for calculation of attendance quorum.
Holders of our ADSs generally will not be able to exercise voting rights on the common shares underlying
ADSs on an individual basis.
Other Rights of Stockholders
Under the ROC Company Act, dissenting stockholders are entitled to appraisal rights in certain major
corporate actions, such as a planned transfer of the whole or part of the business or a proposed merger by us. A
dissenting stockholder may request us to purchase back all of the shares owned by the stockholder at a fair price
determined by mutual agreement or determined by the court if a mutual agreement cannot be reached. Stockholders
may exercise their appraisal rights by serving notice in writing to us prior to the related stockholders’ meeting and/or
by raising his objection at the stockholders’ meeting. Moreover, a stockholder has the right to file a petition in the
court for annulment of any resolution adopted at a stockholders’ meeting where the procedures for convening the
stockholders’ meeting or the method of adopting the resolutions at the meeting is contrary to law or our Articles of
Incorporation. One or more stockholders who have held more than 3% of the issued and outstanding shares of a
company continuously for more than one year may require an independent director to institute, on behalf of us, an
action against a director. In addition, one or more stockholders who has/have continuously held 3% or more of the
101
total number of the outstanding shares of our company for more than one year may require the board of directors to
convene a special stockholders’ meeting by sending a written request to the board of directors.
(3) for maintaining its credit and its stockholders’ equity, provided that the shares so purchased shall be
cancelled thereafter.
The ROC Company Act provides that a company may adopt a nomination procedure for election of
directors. We have adopted a nomination procedure for election of directors as stipulated in our Articles of
Incorporation which provides that stockholders holding 1% or more of our total issued shares may submit to us a list
of candidates for director, including independent director, along with relevant information and supporting documents.
Register of Stockholders and Record Dates
Our share registrar, Yuanta Securities Co., Ltd., maintains our register of stockholders at its offices in Taipei,
Taiwan. Under the ROC Company Act, we may, by giving advance public notice, set a record date and close the
register of stockholders for a specified period in order for us to determine the stockholders or pledgees that are
entitled to rights pertaining to the common shares. The specified period starting from such record date (to determine
the entitled stockholders or pledgees) required is as follows:
•
•
•
general stockholders’ meeting—60 days;
special stockholders’ meeting—30 days; and
relevant record date for distribution of dividends or other entitlements—5 days.
Annual Consolidated Financial Statements
At least ten days before the annual general stockholders’ meeting, our annual consolidated financial
statements prepared in accordance with Taiwan IFRSs, the business report, and the earnings distribution or losses
offsetting proposal, must be available at our principal office in Taipei, Taiwan for inspection by the stockholders.
Transfer of Common Shares
Under the current ROC Company Act, a public company, such as our company, may issue individual share
certificates, one master certificate or no certificate at all, to evidence common shares. In accordance with our Articles
of Incorporation, all of our shares are currently issued and transferred in book-entry form instead of issuing physical
share certificates. After the book closure date, the Taiwan Depository & Clearing Corporation, or the TDCC, will
deliver the names and addresses of the shareholders as of the book closure date to our registrar, Yuanta Securities Co.,
Ltd. Only shareholders as of the book closure date can assert shareholder rights against us.
Acquisition of Our Own Common Shares
Under the ROC Company Act, with minor exceptions, we cannot acquire our own common shares. Any
common shares acquired by us, under certain of such minor exceptions, must be sold at the market price within six
months after their acquisition.
In addition, under the Republic of China Securities and Exchange Act, a company whose shares are listed on
the TWSE or traded on the Taipei Exchange (formerly known as Gre Tai Securities Market) may, pursuant to a board
resolution adopted by a majority consent at a meeting attended by more than two-thirds of the directors and pursuant
to the procedures prescribed by the Securities and Futures Bureau of the FSC, purchase its shares for the following
purposes on the TWSE, the Taipei Exchange or by a tender offer:
(1) for transfers of shares to its employees;
(2) for conversion into shares from bonds with warrants, preferred shares with warrants, convertible bonds,
convertible preferred shares or certificates of warrants issued by us; and
The total shares purchased by us shall not exceed 10% of its total issued and outstanding shares. In addition,
the total amount for purchase of the shares shall not exceed the aggregate amount of the retained earnings, the
premium from shares issues and the realized portion of the capital surplus.
The shares purchased by us pursuant to items (1) and (2) above shall be transferred to the intended
transferees within three years after the purchase; otherwise the same shall be cancelled. For the shares to be cancelled
pursuant to item (3) above, we shall complete amendment registration for such cancellation within six months after
the purchase.
The shares purchased by us shall not be pledged or hypothecated. In addition, we may not exercise any
stockholders’ rights attaching to these shares. Under ROC Company Act, we may transfer the treasury stock to our
employees and impose transfer restrictions on the shares up to two years.
Liquidation Rights
In the event of our liquidation, the assets remaining after payment of all debts, liquidation expenses and taxes
will be distributed pro rata to the stockholders in accordance with the relevant provisions of the ROC Company Act.
Substantial Stockholders and Transfer Restrictions
The ROC Securities and Exchange Act currently requires for public companies that (i) each director,
supervisor, manager, as well as their respective spouses, minor children and nominees, and substantial stockholder
(i.e., a stockholder who together with his or her spouse, minor children or nominees, holds more than 10% of the
shares of a public company) to report any change in that person’s shareholding to the issuer of the shares on a
monthly basis and (ii) each director, supervisor, manager or substantial stockholder holding such common shares for
more than a six month period to report his or her intent to transfer any shares listed on the TWSE or traded on the
Taipei Exchange (formerly known as Gre Tai Securities Market) to the Securities and Futures Bureau of the FSC at
least three days before the intended transfer, unless the number of shares to be transferred each day is no more than
10,000 shares. ADS holders holding more than 10% of our common shares, including common shares represented by
ADSs, may be subject to the above-mentioned obligations.
In addition, the number of shares that can be sold or transferred on the TWSE or the Taipei Exchange
(formerly known as Gre Tai Securities Market) by any person subject to the restrictions described above on any given
day may not exceed:
•
•
•
0.2% of the outstanding shares of the company in the case of a company with no more than 30 million
outstanding shares;
0.2% of 30 million shares plus 0.1% of the outstanding shares exceeding 30 million shares in the case of
a company with more than 30 million outstanding shares; or
in any case, 5% of the average daily trading volume (number of shares) on the TWSE or the Taipei
Exchange for the ten consecutive trading days preceding the reporting day on which day the director,
supervisor, manager or substantial stockholder or their respective spouse, minor child or nominee
reports the intended share transfer to the Securities and Futures Bureau.
These restrictions do not apply to block trading, auction sale, purchase by auction, after-hour trading and
sales or transfers of our ADSs. However, these restrictions will apply to sales of common shares upon withdrawal.
102
total number of the outstanding shares of our company for more than one year may require the board of directors to
(3) for maintaining its credit and its stockholders’ equity, provided that the shares so purchased shall be
convene a special stockholders’ meeting by sending a written request to the board of directors.
cancelled thereafter.
The ROC Company Act provides that a company may adopt a nomination procedure for election of
directors. We have adopted a nomination procedure for election of directors as stipulated in our Articles of
Incorporation which provides that stockholders holding 1% or more of our total issued shares may submit to us a list
of candidates for director, including independent director, along with relevant information and supporting documents.
Register of Stockholders and Record Dates
Our share registrar, Yuanta Securities Co., Ltd., maintains our register of stockholders at its offices in Taipei,
Taiwan. Under the ROC Company Act, we may, by giving advance public notice, set a record date and close the
register of stockholders for a specified period in order for us to determine the stockholders or pledgees that are
entitled to rights pertaining to the common shares. The specified period starting from such record date (to determine
the entitled stockholders or pledgees) required is as follows:
general stockholders’ meeting—60 days;
special stockholders’ meeting—30 days; and
•
•
•
relevant record date for distribution of dividends or other entitlements—5 days.
Annual Consolidated Financial Statements
At least ten days before the annual general stockholders’ meeting, our annual consolidated financial
statements prepared in accordance with Taiwan IFRSs, the business report, and the earnings distribution or losses
offsetting proposal, must be available at our principal office in Taipei, Taiwan for inspection by the stockholders.
Transfer of Common Shares
Under the current ROC Company Act, a public company, such as our company, may issue individual share
certificates, one master certificate or no certificate at all, to evidence common shares. In accordance with our Articles
of Incorporation, all of our shares are currently issued and transferred in book-entry form instead of issuing physical
share certificates. After the book closure date, the Taiwan Depository & Clearing Corporation, or the TDCC, will
deliver the names and addresses of the shareholders as of the book closure date to our registrar, Yuanta Securities Co.,
Ltd. Only shareholders as of the book closure date can assert shareholder rights against us.
Acquisition of Our Own Common Shares
Under the ROC Company Act, with minor exceptions, we cannot acquire our own common shares. Any
common shares acquired by us, under certain of such minor exceptions, must be sold at the market price within six
months after their acquisition.
In addition, under the Republic of China Securities and Exchange Act, a company whose shares are listed on
the TWSE or traded on the Taipei Exchange (formerly known as Gre Tai Securities Market) may, pursuant to a board
resolution adopted by a majority consent at a meeting attended by more than two-thirds of the directors and pursuant
to the procedures prescribed by the Securities and Futures Bureau of the FSC, purchase its shares for the following
purposes on the TWSE, the Taipei Exchange or by a tender offer:
(1) for transfers of shares to its employees;
(2) for conversion into shares from bonds with warrants, preferred shares with warrants, convertible bonds,
convertible preferred shares or certificates of warrants issued by us; and
The total shares purchased by us shall not exceed 10% of its total issued and outstanding shares. In addition,
the total amount for purchase of the shares shall not exceed the aggregate amount of the retained earnings, the
premium from shares issues and the realized portion of the capital surplus.
The shares purchased by us pursuant to items (1) and (2) above shall be transferred to the intended
transferees within three years after the purchase; otherwise the same shall be cancelled. For the shares to be cancelled
pursuant to item (3) above, we shall complete amendment registration for such cancellation within six months after
the purchase.
The shares purchased by us shall not be pledged or hypothecated. In addition, we may not exercise any
stockholders’ rights attaching to these shares. Under ROC Company Act, we may transfer the treasury stock to our
employees and impose transfer restrictions on the shares up to two years.
Liquidation Rights
In the event of our liquidation, the assets remaining after payment of all debts, liquidation expenses and taxes
will be distributed pro rata to the stockholders in accordance with the relevant provisions of the ROC Company Act.
Substantial Stockholders and Transfer Restrictions
The ROC Securities and Exchange Act currently requires for public companies that (i) each director,
supervisor, manager, as well as their respective spouses, minor children and nominees, and substantial stockholder
(i.e., a stockholder who together with his or her spouse, minor children or nominees, holds more than 10% of the
shares of a public company) to report any change in that person’s shareholding to the issuer of the shares on a
monthly basis and (ii) each director, supervisor, manager or substantial stockholder holding such common shares for
more than a six month period to report his or her intent to transfer any shares listed on the TWSE or traded on the
Taipei Exchange (formerly known as Gre Tai Securities Market) to the Securities and Futures Bureau of the FSC at
least three days before the intended transfer, unless the number of shares to be transferred each day is no more than
10,000 shares. ADS holders holding more than 10% of our common shares, including common shares represented by
ADSs, may be subject to the above-mentioned obligations.
In addition, the number of shares that can be sold or transferred on the TWSE or the Taipei Exchange
(formerly known as Gre Tai Securities Market) by any person subject to the restrictions described above on any given
day may not exceed:
•
•
•
0.2% of the outstanding shares of the company in the case of a company with no more than 30 million
outstanding shares;
0.2% of 30 million shares plus 0.1% of the outstanding shares exceeding 30 million shares in the case of
a company with more than 30 million outstanding shares; or
in any case, 5% of the average daily trading volume (number of shares) on the TWSE or the Taipei
Exchange for the ten consecutive trading days preceding the reporting day on which day the director,
supervisor, manager or substantial stockholder or their respective spouse, minor child or nominee
reports the intended share transfer to the Securities and Futures Bureau.
These restrictions do not apply to block trading, auction sale, purchase by auction, after-hour trading and
sales or transfers of our ADSs. However, these restrictions will apply to sales of common shares upon withdrawal.
103
C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than
those described elsewhere in this annual report.
D. Exchange Controls
Foreign Investment and Exchange Controls in Taiwan
We have extracted from publicly available documents the information presented in this section. Please note
that citizens of the PRC and entities organized in the PRC are subject to special ROC laws, rules and regulations,
which are not discussed in this section.
General
Historically, foreign investments in the securities market of Taiwan were restricted. However, commencing
in 1983, the Taiwan government has from time to time enacted legislation and adopted regulations to make foreign
investment in the Taiwan securities market possible. Initially, only overseas investment trust funds of authorized
securities investment trust enterprises established in Taiwan were permitted to invest in the Taiwan securities market.
Since January 1, 1991, qualified foreign institutional investors are allowed to make investments in the Taiwan listed
securities market. Since March 1, 1996, overseas Chinese, non-resident foreign institutional and individual investors
(other than qualified foreign institutional investors), called “general foreign investors,” are permitted to make direct
investments in the Taiwan securities market.
Foreign Investment in Taiwan Securities Market
On December 28, 1990, the Executive Yuan, the cabinet of the ROC government, approved guidelines
drafted by the Securities and Futures Commission (the predecessor of the Securities and Futures Bureau), which,
since January 1, 1991, has allowed direct foreign investment in Taiwan’s securities that are listed on the TWSE or
other Taiwan securities approved by the Securities and Futures Bureau by certain eligible qualified foreign
institutional investors.
In addition to qualified foreign institutional investors, certain individual and foreign institutional investors
which meet certain qualifications set by the Securities and Futures Bureau may invest in the shares of TWSE-listed
companies, the Taipei Exchange (formerly known as Gre Tai Securities Market) traded companies, emerging market
companies or other Taiwan securities approved by the Securities and Futures Bureau up to a limit of US$50 million
(in the case of institutional investors) and US$5 million (in the case of individual investors) after obtaining permission
from the TWSE.
On September 30, 2003 and June 15, 2004, the Securities and Futures Bureau issued amendments to the
“Guideline Governing Investment in Securities by Overseas Chinese and Foreign Nationals” and relevant regulations,
in which the Securities and Futures Bureau lifted certain restrictions and simplified the procedures required for
foreign investments in Taiwan’s securities market. The amendment focuses mainly on the following aspects:
• The concept of “qualified foreign institutional investors” no longer exists. Foreign investors are
reclassified as “off-shore foreign institutional investors,” “on-shore foreign institutional investors,” “off-
shore general foreign investors,” and “on-shore general foreign investors” based on whether they are
institutions or natural persons, and whether they have presence in Taiwan.
• For foreign investors to invest in Taiwan’s securities market, registration with the TWSE, instead of the
approval of the Securities and Futures Bureau, is required. The TWSE may withdraw or rescind the
registration if the application documents submitted by foreign investors are untrue or incomplete, or if
any material violation of the relevant regulations exists.
• Off-shore foreign investors may provide the securities they hold as the underlying shares of depositary
receipts and act as selling stockholders in depositary receipts offerings.
• Off-shore foreign institutional investors are required to appoint their agent or nominee to attend the
stockholders’ meeting of the invested company.
Currently, subject to the specific restriction imposed by relevant regulations, the off-shore foreign
institutional investors may invest in the Taiwan securities market without any amount restriction. However, a ceiling
will be separately determined by the Securities and Futures Bureau after consultation with the Central Bank of the
ROC (Taiwan) for investment by offshore oversea Chinese and foreign individual investors.
Foreign Investment Approval
Other than:
foreign institutional investors;
foreign individual investors; and
•
•
•
investors in overseas convertible bonds and depositary receipts,
foreign investors who wish to make direct investments in the shares of Taiwan companies may submit a “foreign
investment approval” application to the Investment Commission of the Ministry of Economic Affairs of Taiwan or
other government authority to qualify for benefits granted under the Statute for Investment by Foreign Nationals. The
Investment Commission or other government authority reviews each foreign investment approval application and
approves or disapproves the application after consultation with other governmental agencies. Any non-Taiwan person
possessing a foreign investment approval may remit capital for the approved investment and repatriate annual net
profits and interests and cash dividends attributable to an approved investment. Stock dividends, investment capital
and capital gains attributable to the investment may be repatriated with approval of the Investment Commission or
other government authority.
In addition to the general restrictions against direct investment by non-Taiwan persons in Taiwan companies,
non-Taiwan persons are currently prohibited from investing in prohibited industries in Taiwan under the Negative
List promulgated by the Executive Yuan from time to time. The prohibition on direct foreign investment in the
prohibited industries in the Negative List is absolute with the consequence of certain specific exemption from the
application of the Negative List. Under the Negative List, some other industries are restricted so that non-Taiwan
persons may directly invest only up to a specified level and with the specific approval of the relevant authority which
is responsible for enforcing the legislation which the negative list is intended to implement. The telecommunication
industry is a restricted industry under the Negative List.
Depositary Receipts
In April 1992, the Securities and Futures Bureau began allowing Taiwan companies listed on the TWSE,
with the prior approval of the Securities and Futures Bureau, to sponsor the issuance and sale of depositary receipts
evidencing depositary shares. In December 1994, the ROC Ministry of Finance began allowing companies whose
shares are traded on the Taipei Exchange (formerly known as Gre Tai Securities Market) also to sponsor the issuance
and sale of depositary receipts evidencing depositary shares representing shares of its capital stock. Approvals for
these issuances are still required.
After the issuance of a depositary share, a holder of the depositary receipt evidencing the depositary shares
may request the depositary issuing the depositary share to cause the underlying shares to be sold in Taiwan and to
distribute the proceeds of the sale to or to withdraw the shares and deliver the shares to the depositary receipt holder.
A citizen of the PRC is not permitted to withdraw and hold our shares.
104
We have not entered into any material contracts other than in the ordinary course of business and other than
C. Material Contracts
those described elsewhere in this annual report.
D. Exchange Controls
Foreign Investment and Exchange Controls in Taiwan
which are not discussed in this section.
General
We have extracted from publicly available documents the information presented in this section. Please note
that citizens of the PRC and entities organized in the PRC are subject to special ROC laws, rules and regulations,
Historically, foreign investments in the securities market of Taiwan were restricted. However, commencing
in 1983, the Taiwan government has from time to time enacted legislation and adopted regulations to make foreign
investment in the Taiwan securities market possible. Initially, only overseas investment trust funds of authorized
securities investment trust enterprises established in Taiwan were permitted to invest in the Taiwan securities market.
Since January 1, 1991, qualified foreign institutional investors are allowed to make investments in the Taiwan listed
securities market. Since March 1, 1996, overseas Chinese, non-resident foreign institutional and individual investors
(other than qualified foreign institutional investors), called “general foreign investors,” are permitted to make direct
investments in the Taiwan securities market.
Foreign Investment in Taiwan Securities Market
On December 28, 1990, the Executive Yuan, the cabinet of the ROC government, approved guidelines
drafted by the Securities and Futures Commission (the predecessor of the Securities and Futures Bureau), which,
since January 1, 1991, has allowed direct foreign investment in Taiwan’s securities that are listed on the TWSE or
other Taiwan securities approved by the Securities and Futures Bureau by certain eligible qualified foreign
institutional investors.
In addition to qualified foreign institutional investors, certain individual and foreign institutional investors
which meet certain qualifications set by the Securities and Futures Bureau may invest in the shares of TWSE-listed
companies, the Taipei Exchange (formerly known as Gre Tai Securities Market) traded companies, emerging market
companies or other Taiwan securities approved by the Securities and Futures Bureau up to a limit of US$50 million
(in the case of institutional investors) and US$5 million (in the case of individual investors) after obtaining permission
from the TWSE.
On September 30, 2003 and June 15, 2004, the Securities and Futures Bureau issued amendments to the
“Guideline Governing Investment in Securities by Overseas Chinese and Foreign Nationals” and relevant regulations,
in which the Securities and Futures Bureau lifted certain restrictions and simplified the procedures required for
foreign investments in Taiwan’s securities market. The amendment focuses mainly on the following aspects:
• The concept of “qualified foreign institutional investors” no longer exists. Foreign investors are
reclassified as “off-shore foreign institutional investors,” “on-shore foreign institutional investors,” “off-
shore general foreign investors,” and “on-shore general foreign investors” based on whether they are
institutions or natural persons, and whether they have presence in Taiwan.
• For foreign investors to invest in Taiwan’s securities market, registration with the TWSE, instead of the
approval of the Securities and Futures Bureau, is required. The TWSE may withdraw or rescind the
registration if the application documents submitted by foreign investors are untrue or incomplete, or if
any material violation of the relevant regulations exists.
• Off-shore foreign investors may provide the securities they hold as the underlying shares of depositary
receipts and act as selling stockholders in depositary receipts offerings.
• Off-shore foreign institutional investors are required to appoint their agent or nominee to attend the
stockholders’ meeting of the invested company.
Currently, subject to the specific restriction imposed by relevant regulations, the off-shore foreign
institutional investors may invest in the Taiwan securities market without any amount restriction. However, a ceiling
will be separately determined by the Securities and Futures Bureau after consultation with the Central Bank of the
ROC (Taiwan) for investment by offshore oversea Chinese and foreign individual investors.
Foreign Investment Approval
Other than:
•
•
•
foreign institutional investors;
foreign individual investors; and
investors in overseas convertible bonds and depositary receipts,
foreign investors who wish to make direct investments in the shares of Taiwan companies may submit a “foreign
investment approval” application to the Investment Commission of the Ministry of Economic Affairs of Taiwan or
other government authority to qualify for benefits granted under the Statute for Investment by Foreign Nationals. The
Investment Commission or other government authority reviews each foreign investment approval application and
approves or disapproves the application after consultation with other governmental agencies. Any non-Taiwan person
possessing a foreign investment approval may remit capital for the approved investment and repatriate annual net
profits and interests and cash dividends attributable to an approved investment. Stock dividends, investment capital
and capital gains attributable to the investment may be repatriated with approval of the Investment Commission or
other government authority.
In addition to the general restrictions against direct investment by non-Taiwan persons in Taiwan companies,
non-Taiwan persons are currently prohibited from investing in prohibited industries in Taiwan under the Negative
List promulgated by the Executive Yuan from time to time. The prohibition on direct foreign investment in the
prohibited industries in the Negative List is absolute with the consequence of certain specific exemption from the
application of the Negative List. Under the Negative List, some other industries are restricted so that non-Taiwan
persons may directly invest only up to a specified level and with the specific approval of the relevant authority which
is responsible for enforcing the legislation which the negative list is intended to implement. The telecommunication
industry is a restricted industry under the Negative List.
Depositary Receipts
In April 1992, the Securities and Futures Bureau began allowing Taiwan companies listed on the TWSE,
with the prior approval of the Securities and Futures Bureau, to sponsor the issuance and sale of depositary receipts
evidencing depositary shares. In December 1994, the ROC Ministry of Finance began allowing companies whose
shares are traded on the Taipei Exchange (formerly known as Gre Tai Securities Market) also to sponsor the issuance
and sale of depositary receipts evidencing depositary shares representing shares of its capital stock. Approvals for
these issuances are still required.
After the issuance of a depositary share, a holder of the depositary receipt evidencing the depositary shares
may request the depositary issuing the depositary share to cause the underlying shares to be sold in Taiwan and to
distribute the proceeds of the sale to or to withdraw the shares and deliver the shares to the depositary receipt holder.
A citizen of the PRC is not permitted to withdraw and hold our shares.
105
If you are an offshore foreign institutional investor holding the depositary receipts, you must register with
the TWSE as a foreign investor before you will be permitted to withdraw the shares represented by the depositary
receipts. In addition to obtaining registration with the TWSE, you must also (i) appoint a qualified local agent to,
among other things, open a securities trading account with a local securities brokerage firm and a bank account to
remit funds, exercise stockholders’ rights and perform other functions as holders of ADSs may designate, (ii) appoint
a custodian bank to hold the securities and cash proceeds, confirm transactions, settle trades and report and declare
other relevant information and; (iii) appoint a tax guarantor as guarantor for the full compliance of the withdrawing
depositary receipt holders’ tax filing and payment obligations in the ROC. A depositary receipt holder not registered
as a foreign investor with the TWSE, or not has made the necessary appointments as outlined above, will be unable to
hold or subsequently transfer the shares withdrawn from the depositary receipt facility.
No deposits of shares may be made in a depositary receipt facility and no depositary shares may be issued
against deposits without specific Securities and Futures Bureau approval, unless they are:
foreign currency needed for the importation of merchandise and services may be purchased freely from the designated
foreign exchange banks.
Aside from trade-related foreign exchange transactions, Taiwan companies and residents may remit to and
from Taiwan foreign currencies of up to US$50 million (or its equivalent) and US$5 million, (or its equivalent),
respectively, in each calendar year. These limits apply to remittances involving a conversion between New Taiwan
dollars and U.S. dollars or other foreign currencies. A requirement is also imposed on all private enterprises to
register all medium and long-term foreign debt with the Central Bank of the ROC (Taiwan).
In addition, a foreign person without an alien resident card or an unrecognized foreign entity may remit to
and from Taiwan foreign currencies of up to US$100,000 per remittance if required documentation is provided to
Taiwan authorities. This limit applies only to remittances involving a conversion between New Taiwan dollars and
U.S. dollars or other foreign currencies.
(i)
(ii)
(iii)
(iv)
stock dividends;
free distributions of shares;
E. Taxation
ROC Taxation
due to the exercise by the depositary receipt holder preemptive rights in the event of capital
increases for cash; or
The discussion below describes the principal ROC tax consequences of the ownership and disposition of
ADSs representing common shares and of common shares. It applies to you only if you are:
if permitted under the deposit agreement and custody agreement and within the amount of
depositary receipts which have been withdrawn, due to the direct purchase by investors or purchase
through the depositary on the TWSE or the Taipei Exchange (formerly known as Gre Tai Securities
Market) or delivery by investors of the shares for deposit in the depositary receipt facility. In this
event, the total number of depositary receipts outstanding after an issuance cannot exceed the
number of issued depositary receipts previously approved by the Securities and Futures Bureau of
the FSC in connection with the offering plus any ADSs issued pursuant to the events described in
(i), (ii) and (iii) above.
An ADS holder or the depositary, without obtaining further approvals from the Central Bank of the ROC
(Taiwan) or any other governmental authority or agency of the ROC, may convert NT dollars into other currencies,
including U.S. dollars, in respect of:
Dividends
•
•
the proceeds of the sale of common shares represented by ADSs or received as share dividends with
respect to the common shares and deposited into the depositary receipt facility; and
any cash dividends or distributions received from the common shares.
In addition, the depositary may also convert into NT dollars incoming payments for purchases of common
shares for deposit in the depositary receipt facility against the creation of additional ADSs. If you withdraw the
common shares underlying your ADSs and become a holder of our common shares, you may convert into NT dollars
subscription payment for rights offerings. The depositary may be required to obtain foreign exchange payment
approval from the Central Bank of the ROC (Taiwan) on a payment-by-payment basis for conversion from NT dollars
into foreign currencies of the proceeds from the sale of subscription rights of new common shares. Although it is
expected that the Central Bank of the ROC (Taiwan) will grant approval as a routine matter, required approvals may
not be obtained in a timely manner, or at all.
Exchange Controls
Taiwan’s Foreign Exchange Control Statute and regulations provide that all foreign exchange transactions
must be executed by banks designated to handle foreign exchange transactions by the FSC and by the Central Bank of
the ROC (Taiwan). Current regulations favor trade-related foreign exchange transactions. Consequently, foreign
currency earned from exports of merchandise and services may now be retained and used freely by exporters. All
106
an individual who is not a citizen of the ROC, who owns ADSs or common shares and who is not
physically present in Taiwan for 183 days or more during any calendar year; or
a corporation or a non-corporate body that is organized under the laws of a jurisdiction other than the
ROC for profit-making purposes and has no fixed place of business or other permanent establishment in
•
•
Taiwan.
You should also consult your tax advisors concerning the tax consequences of owning ADSs and common
shares in the ROC and any other relevant taxing jurisdiction to which they are subject.
Dividends declared by us out of our retained earnings and distributed to you are subject to ROC withholding
tax, currently at the rate of 20%, on the amount of the distribution in the case of cash dividends or on the par value of
the common shares in the case of stock dividends. However, a 10% ROC unappropriated earnings tax paid by us on
our undistributed after-tax earnings, if any, may provide a credit of up to 10% of the gross amount of any dividends
declared out of such earnings that would reduce the 20% ROC withholding tax imposed on these distributions.
Starting from 2015, the allowed tax credit is adjusted to 50% of the unappropriated earnings tax paid by us.
Share or cash dividends paid by us out of our capital surplus which are derived from the issuance of shares at
a premium are not subject to ROC withholding tax. According to the rulings of Ref. Tai-Tsai-Hsuei-Tzi-09504509440
issued by the Ministry of Finance of the ROC, if a company reduces its share capital and redeems for cash its
outstanding common shares issued to the company’s stockholders by capitalization of capital surplus, those premiums
under the capitalized capital surplus derived from re-evaluation of assets, sale of lands and/or merger with other
enterprise shall be deemed as the gain in the stockholders’ capital investment, and shall be deemed as stockholders’
dividend income (or investment revenue) and be subject to ROC income tax.
As the legal reserve is set-aside from company’s profit earnings (after tax) in accordance with Article 237 of
ROC Company Act, receipt of distribution of legal reserve shall be deemed as stockholders’ dividend income (or
investment revenue) and be subject to ROC income tax collected by way of withholding at the time of distribution,
currently at the rate of 20%, unless a lower withholding rate is provided under a tax treaty between the ROC and the
jurisdiction where the Non-ROC Stockholder is a resident.
If you are an offshore foreign institutional investor holding the depositary receipts, you must register with
the TWSE as a foreign investor before you will be permitted to withdraw the shares represented by the depositary
receipts. In addition to obtaining registration with the TWSE, you must also (i) appoint a qualified local agent to,
among other things, open a securities trading account with a local securities brokerage firm and a bank account to
remit funds, exercise stockholders’ rights and perform other functions as holders of ADSs may designate, (ii) appoint
a custodian bank to hold the securities and cash proceeds, confirm transactions, settle trades and report and declare
other relevant information and; (iii) appoint a tax guarantor as guarantor for the full compliance of the withdrawing
depositary receipt holders’ tax filing and payment obligations in the ROC. A depositary receipt holder not registered
as a foreign investor with the TWSE, or not has made the necessary appointments as outlined above, will be unable to
hold or subsequently transfer the shares withdrawn from the depositary receipt facility.
No deposits of shares may be made in a depositary receipt facility and no depositary shares may be issued
against deposits without specific Securities and Futures Bureau approval, unless they are:
foreign currency needed for the importation of merchandise and services may be purchased freely from the designated
foreign exchange banks.
Aside from trade-related foreign exchange transactions, Taiwan companies and residents may remit to and
from Taiwan foreign currencies of up to US$50 million (or its equivalent) and US$5 million, (or its equivalent),
respectively, in each calendar year. These limits apply to remittances involving a conversion between New Taiwan
dollars and U.S. dollars or other foreign currencies. A requirement is also imposed on all private enterprises to
register all medium and long-term foreign debt with the Central Bank of the ROC (Taiwan).
In addition, a foreign person without an alien resident card or an unrecognized foreign entity may remit to
and from Taiwan foreign currencies of up to US$100,000 per remittance if required documentation is provided to
Taiwan authorities. This limit applies only to remittances involving a conversion between New Taiwan dollars and
U.S. dollars or other foreign currencies.
(i)
(ii)
stock dividends;
free distributions of shares;
E. Taxation
ROC Taxation
(iii)
due to the exercise by the depositary receipt holder preemptive rights in the event of capital
increases for cash; or
The discussion below describes the principal ROC tax consequences of the ownership and disposition of
ADSs representing common shares and of common shares. It applies to you only if you are:
(iv)
if permitted under the deposit agreement and custody agreement and within the amount of
depositary receipts which have been withdrawn, due to the direct purchase by investors or purchase
through the depositary on the TWSE or the Taipei Exchange (formerly known as Gre Tai Securities
Market) or delivery by investors of the shares for deposit in the depositary receipt facility. In this
event, the total number of depositary receipts outstanding after an issuance cannot exceed the
number of issued depositary receipts previously approved by the Securities and Futures Bureau of
the FSC in connection with the offering plus any ADSs issued pursuant to the events described in
(i), (ii) and (iii) above.
An ADS holder or the depositary, without obtaining further approvals from the Central Bank of the ROC
(Taiwan) or any other governmental authority or agency of the ROC, may convert NT dollars into other currencies,
including U.S. dollars, in respect of:
•
•
the proceeds of the sale of common shares represented by ADSs or received as share dividends with
respect to the common shares and deposited into the depositary receipt facility; and
any cash dividends or distributions received from the common shares.
In addition, the depositary may also convert into NT dollars incoming payments for purchases of common
shares for deposit in the depositary receipt facility against the creation of additional ADSs. If you withdraw the
common shares underlying your ADSs and become a holder of our common shares, you may convert into NT dollars
subscription payment for rights offerings. The depositary may be required to obtain foreign exchange payment
approval from the Central Bank of the ROC (Taiwan) on a payment-by-payment basis for conversion from NT dollars
into foreign currencies of the proceeds from the sale of subscription rights of new common shares. Although it is
expected that the Central Bank of the ROC (Taiwan) will grant approval as a routine matter, required approvals may
not be obtained in a timely manner, or at all.
Exchange Controls
Taiwan’s Foreign Exchange Control Statute and regulations provide that all foreign exchange transactions
must be executed by banks designated to handle foreign exchange transactions by the FSC and by the Central Bank of
the ROC (Taiwan). Current regulations favor trade-related foreign exchange transactions. Consequently, foreign
currency earned from exports of merchandise and services may now be retained and used freely by exporters. All
•
•
an individual who is not a citizen of the ROC, who owns ADSs or common shares and who is not
physically present in Taiwan for 183 days or more during any calendar year; or
a corporation or a non-corporate body that is organized under the laws of a jurisdiction other than the
ROC for profit-making purposes and has no fixed place of business or other permanent establishment in
Taiwan.
You should also consult your tax advisors concerning the tax consequences of owning ADSs and common
shares in the ROC and any other relevant taxing jurisdiction to which they are subject.
Dividends
Dividends declared by us out of our retained earnings and distributed to you are subject to ROC withholding
tax, currently at the rate of 20%, on the amount of the distribution in the case of cash dividends or on the par value of
the common shares in the case of stock dividends. However, a 10% ROC unappropriated earnings tax paid by us on
our undistributed after-tax earnings, if any, may provide a credit of up to 10% of the gross amount of any dividends
declared out of such earnings that would reduce the 20% ROC withholding tax imposed on these distributions.
Starting from 2015, the allowed tax credit is adjusted to 50% of the unappropriated earnings tax paid by us.
Share or cash dividends paid by us out of our capital surplus which are derived from the issuance of shares at
a premium are not subject to ROC withholding tax. According to the rulings of Ref. Tai-Tsai-Hsuei-Tzi-09504509440
issued by the Ministry of Finance of the ROC, if a company reduces its share capital and redeems for cash its
outstanding common shares issued to the company’s stockholders by capitalization of capital surplus, those premiums
under the capitalized capital surplus derived from re-evaluation of assets, sale of lands and/or merger with other
enterprise shall be deemed as the gain in the stockholders’ capital investment, and shall be deemed as stockholders’
dividend income (or investment revenue) and be subject to ROC income tax.
As the legal reserve is set-aside from company’s profit earnings (after tax) in accordance with Article 237 of
ROC Company Act, receipt of distribution of legal reserve shall be deemed as stockholders’ dividend income (or
investment revenue) and be subject to ROC income tax collected by way of withholding at the time of distribution,
currently at the rate of 20%, unless a lower withholding rate is provided under a tax treaty between the ROC and the
jurisdiction where the Non-ROC Stockholder is a resident.
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Capital Gains
Capital Gains
Capital Gains
U.S. Federal Income Tax Considerations for U.S. Holders
Gains from the sale of property in the ROC are generally subject to ROC income tax. Effective January 1,
Gains from the sale of property in the ROC are generally subject to ROC income tax. Effective January 1,
Gains from the sale of property in the ROC are generally subject to ROC income tax. Effective January 1,
2016, capital gains on the sale of common shares, including common shares withdrawn from the ADS facility,
2016, capital gains on the sale of common shares, including common shares withdrawn from the ADS facility,
2016, capital gains on the sale of common shares, including common shares withdrawn from the ADS facility,
received by a Non-Resident Individual or Non-Resident Entity is no longer subject to the capital gain tax and is
received by a Non-Resident Individual or Non-Resident Entity is no longer subject to the capital gain tax and is
received by a Non-Resident Individual or Non-Resident Entity is no longer subject to the capital gain tax and is
further exempted from Alternative Minimum Tax, or the AMT.
further exempted from Alternative Minimum Tax, or the AMT.
further exempted from Alternative Minimum Tax, or the AMT.
The following is a summary of certain U.S. federal income tax consequences of the ownership and
disposition of our shares and ADSs as of the date hereof. The discussion set forth below is applicable to beneficial
owners of our shares or ADSs that hold the shares or ADSs as capital assets and that are U.S. holders (defined below)
and non-residents of the ROC. You are a U.S. holder if you are:
Sales of ADSs by you are regarded as transactions relating to property located outside the ROC and thus any
Sales of ADSs by you are regarded as transactions relating to property located outside the ROC and thus any
Sales of ADSs by you are regarded as transactions relating to property located outside the ROC and thus any
an individual who is a citizen or resident of the United States;
gains derived therefrom are currently not subject to ROC income tax.
gains derived therefrom are currently not subject to ROC income tax.
gains derived therefrom are currently not subject to ROC income tax.
Preemptive Rights
Preemptive Rights
Preemptive Rights
Distributions of statutory preemptive rights for common shares in compliance with ROC law are not subject
Distributions of statutory preemptive rights for common shares in compliance with ROC law are not subject
Distributions of statutory preemptive rights for common shares in compliance with ROC law are not subject
to any ROC tax. Proceeds derived from sales of statutory preemptive rights evidenced by securities are subject to
to any ROC tax. Proceeds derived from sales of statutory preemptive rights evidenced by securities are subject to
to any ROC tax. Proceeds derived from sales of statutory preemptive rights evidenced by securities are subject to
securities transaction tax at the rate of 0.3% of the gross amount received. Proceeds derived from sales of statutory
securities transaction tax at the rate of 0.3% of the gross amount received. Proceeds derived from sales of statutory
securities transaction tax at the rate of 0.3% of the gross amount received. Proceeds derived from sales of statutory
preemptive rights which are not evidenced by securities are subject to capital gains tax at the rate of 20% of the gains
preemptive rights which are not evidenced by securities are subject to capital gains tax at the rate of 20% of the gains
preemptive rights which are not evidenced by securities are subject to capital gains tax at the rate of 20% of the gains
realized if the seller is a non-ROC resident regardless of whether the non-ROC resident is an individual or entity.
realized if the seller is a non-ROC resident regardless of whether the non-ROC resident is an individual or entity.
realized if the seller is a non-ROC resident regardless of whether the non-ROC resident is an individual or entity.
Subject to compliance with ROC law, we, at our sole discretion, can determine whether statutory preemptive
Subject to compliance with ROC law, we, at our sole discretion, can determine whether statutory preemptive
Subject to compliance with ROC law, we, at our sole discretion, can determine whether statutory preemptive
rights shall be evidenced by issuance of securities.
rights shall be evidenced by issuance of securities.
rights shall be evidenced by issuance of securities.
Securities Transaction Tax
Securities Transaction Tax
Securities Transaction Tax
A securities transaction tax, at the rate of 0.3% of the gross amount received, payable by the seller will be
A securities transaction tax, at the rate of 0.3% of the gross amount received, payable by the seller will be
A securities transaction tax, at the rate of 0.3% of the gross amount received, payable by the seller will be
withheld upon a sale of common shares in Taiwan. Transfers of ADSs are not subject to ROC securities transaction
withheld upon a sale of common shares in Taiwan. Transfers of ADSs are not subject to ROC securities transaction
withheld upon a sale of common shares in Taiwan. Transfers of ADSs are not subject to ROC securities transaction
tax. According to a letter issued by the Ministry of Finance of the ROC in 1996, withdrawal of common shares from
tax. According to a letter issued by the Ministry of Finance of the ROC in 1996, withdrawal of common shares from
tax. According to a letter issued by the Ministry of Finance of the ROC in 1996, withdrawal of common shares from
the deposit facility will not be subject to ROC securities transaction tax.
the deposit facility will not be subject to ROC securities transaction tax.
the deposit facility will not be subject to ROC securities transaction tax.
Estate Taxation and Gift Tax
Estate Taxation and Gift Tax
Estate Taxation and Gift Tax
ROC estate tax is payable on any property within Taiwan of a deceased person who is a non-resident
ROC estate tax is payable on any property within Taiwan of a deceased person who is a non-resident
ROC estate tax is payable on any property within Taiwan of a deceased person who is a non-resident
individual, and ROC gift tax is payable on any property within Taiwan donated by any such person. Under ROC
individual, and ROC gift tax is payable on any property within Taiwan donated by any such person. Under ROC
individual, and ROC gift tax is payable on any property within Taiwan donated by any such person. Under ROC
estate and gift tax laws, common shares issued by Taiwan companies are deemed located in Taiwan regardless of the
estate and gift tax laws, common shares issued by Taiwan companies are deemed located in Taiwan regardless of the
estate and gift tax laws, common shares issued by Taiwan companies are deemed located in Taiwan regardless of the
location of the owner. It is not clear whether the ADSs will be regarded as property located in Taiwan under ROC
location of the owner. It is not clear whether the ADSs will be regarded as property located in Taiwan under ROC
location of the owner. It is not clear whether the ADSs will be regarded as property located in Taiwan under ROC
estate and gift tax laws. Starting from January 21, 2009, the estate tax and gift tax rates were reduced to 10%.
estate and gift tax laws. Starting from January 21, 2009, the estate tax and gift tax rates were reduced to 10%.
estate and gift tax laws. Starting from January 21, 2009, the estate tax and gift tax rates were reduced to 10%.
Tax Treaty
Tax Treaty
Tax Treaty
The ROC does not have an income tax treaty with the United States. On the other hand, the ROC has income
The ROC does not have an income tax treaty with the United States. On the other hand, the ROC has income
The ROC does not have an income tax treaty with the United States. On the other hand, the ROC has income
tax treaties with Indonesia, Israel, Singapore, South Africa, Australia, Vietnam, New Zealand, Malaysia, Macedonia,
tax treaties with Indonesia, Israel, Singapore, South Africa, Australia, Vietnam, New Zealand, Malaysia, Macedonia,
tax treaties with Indonesia, Israel, Singapore, South Africa, Australia, Vietnam, New Zealand, Malaysia, Macedonia,
Swaziland, the Netherlands, United Kingdom, Gambia, Senegal, Sweden, Belgium, Denmark, Paraguay, Hungary,
Swaziland, the Netherlands, United Kingdom, Gambia, Senegal, Sweden, Belgium, Denmark, Paraguay, Hungary,
Swaziland, the Netherlands, United Kingdom, Gambia, Senegal, Sweden, Belgium, Denmark, Paraguay, Hungary,
France, India, Slovakia, Germany, Thailand, Switzerland, Luxembourg, Kiribati, Austria, Italy, Japan, Canada and
France, India, Slovakia, Germany, Thailand, Switzerland, Luxembourg, Kiribati, Austria, Italy, Japan, Canada and
France, India, Slovakia, Germany, Thailand, Switzerland, Luxembourg, Kiribati, Austria, Italy, Japan, Canada and
Poland, which may limit the rate of ROC withholding tax on dividends paid with respect to common shares in Taiwan
Poland, which may limit the rate of ROC withholding tax on dividends paid with respect to common shares in Taiwan
Poland, which may limit the rate of ROC withholding tax on dividends paid with respect to common shares in Taiwan
companies. It is unclear whether if you hold ADSs, you will be considered to hold common shares for the purposes of
companies. It is unclear whether if you hold ADSs, you will be considered to hold common shares for the purposes of
companies. It is unclear whether if you hold ADSs, you will be considered to hold common shares for the purposes of
these treaties. Accordingly, if you may otherwise be entitled to the benefits of the relevant income tax treaty, you
these treaties. Accordingly, if you may otherwise be entitled to the benefits of the relevant income tax treaty, you
these treaties. Accordingly, if you may otherwise be entitled to the benefits of the relevant income tax treaty, you
should consult your tax advisors concerning your eligibility for the benefits with respect to the ADSs.
should consult your tax advisors concerning your eligibility for the benefits with respect to the ADSs.
should consult your tax advisors concerning your eligibility for the benefits with respect to the ADSs.
Unappropriated Earnings Tax
Unappropriated Earnings Tax
Unappropriated Earnings Tax
Under the ROC Income Tax Act, a 10% unappropriated earnings tax will be imposed on a company for its
Under the ROC Income Tax Act, a 10% unappropriated earnings tax will be imposed on a company for its
Under the ROC Income Tax Act, a 10% unappropriated earnings tax will be imposed on a company for its
after-tax earnings generated after January 1, 1998 which are not distributed in the following year. The unappro-priated
after-tax earnings generated after January 1, 1998 which are not distributed in the following year. The unappro-priated
after-tax earnings generated after January 1, 1998 which are not distributed in the following year. The unappro-priated
earnings tax so paid will further reduce the retained earnings available for future distribution. When the company
earnings tax so paid will further reduce the retained earnings available for future distribution. When the company
earnings tax so paid will further reduce the retained earnings available for future distribution. When the company
declares dividends out of those retained earnings, up to a maximum amount of 10% of the declared dividends may be
declares dividends out of those retained earnings, up to a maximum amount of 10% of the declared dividends may be
declares dividends out of those retained earnings, up to a maximum amount of 10% of the declared dividends may be
credited against the 20% withholding tax imposed on the non-resident holders of its shares.
credited against the 20% withholding tax imposed on the non-resident holders of its shares.
credited against the 20% withholding tax imposed on the non-resident holders of its shares.
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a corporation or other entity taxable as a corporation for U.S. federal income tax purposes created or
organized in or under the laws of the United States, any state thereof or the District of Columbia;
an estate the income of which is subject to U.S. federal income taxation regardless of its source;
a trust that is subject to the primary supervision of a court within the United States and one or more U.S.
persons have the authority to control all substantial decisions of the trust; or
a trust that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a
U.S. person.
This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”),
and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be replaced,
revoked or modified so as to result in U.S. federal income tax consequences different from those discussed below. It
is for general purposes only and you should not consider it to be tax advice. In addition, it is also based in part on
representations made by the depositary and assumes that the deposit agreement and any related agreement will be
performed in accordance with their terms. This summary does not represent a detailed description of all the U.S.
federal income tax consequences to you in light of your particular circumstances and does not address the effects of
any state, local or non-U.S. tax laws (or other U.S. federal tax consequences, such as U.S. federal estate or gift tax
consequences or the Medicare tax on net investment income). In addition, it does not represent a detailed description
of the U.S. federal income tax consequences applicable to you if you are subject to special treatment under the U.S.
federal income tax laws, including if you are:
a dealer in securities or currencies;
a trader in securities if you elect to use a mark-to-market method of accounting for your securities
holdings;
a financial institution or an insurance company;
a regulated investment company;
a real estate investment trust;
a tax-exempt organization;
a person liable for alternative minimum tax;
a person holding shares or ADSs as part of a hedging, integrated or conversion transaction, constructive
sale or straddle;
a person owning, actually or constructively, 10% or more of our voting stock;
a partnership or other pass-through entity for U.S. federal income tax purposes; or
Capital Gains
U.S. Federal Income Tax Considerations for U.S. Holders
Gains from the sale of property in the ROC are generally subject to ROC income tax. Effective January 1,
2016, capital gains on the sale of common shares, including common shares withdrawn from the ADS facility,
received by a Non-Resident Individual or Non-Resident Entity is no longer subject to the capital gain tax and is
further exempted from Alternative Minimum Tax, or the AMT.
The following is a summary of certain U.S. federal income tax consequences of the ownership and
disposition of our shares and ADSs as of the date hereof. The discussion set forth below is applicable to beneficial
owners of our shares or ADSs that hold the shares or ADSs as capital assets and that are U.S. holders (defined below)
and non-residents of the ROC. You are a U.S. holder if you are:
Sales of ADSs by you are regarded as transactions relating to property located outside the ROC and thus any
gains derived therefrom are currently not subject to ROC income tax.
Preemptive Rights
Distributions of statutory preemptive rights for common shares in compliance with ROC law are not subject
to any ROC tax. Proceeds derived from sales of statutory preemptive rights evidenced by securities are subject to
securities transaction tax at the rate of 0.3% of the gross amount received. Proceeds derived from sales of statutory
preemptive rights which are not evidenced by securities are subject to capital gains tax at the rate of 20% of the gains
realized if the seller is a non-ROC resident regardless of whether the non-ROC resident is an individual or entity.
Subject to compliance with ROC law, we, at our sole discretion, can determine whether statutory preemptive
rights shall be evidenced by issuance of securities.
Securities Transaction Tax
A securities transaction tax, at the rate of 0.3% of the gross amount received, payable by the seller will be
withheld upon a sale of common shares in Taiwan. Transfers of ADSs are not subject to ROC securities transaction
tax. According to a letter issued by the Ministry of Finance of the ROC in 1996, withdrawal of common shares from
the deposit facility will not be subject to ROC securities transaction tax.
Estate Taxation and Gift Tax
ROC estate tax is payable on any property within Taiwan of a deceased person who is a non-resident
individual, and ROC gift tax is payable on any property within Taiwan donated by any such person. Under ROC
estate and gift tax laws, common shares issued by Taiwan companies are deemed located in Taiwan regardless of the
location of the owner. It is not clear whether the ADSs will be regarded as property located in Taiwan under ROC
estate and gift tax laws. Starting from January 21, 2009, the estate tax and gift tax rates were reduced to 10%.
Tax Treaty
The ROC does not have an income tax treaty with the United States. On the other hand, the ROC has income
tax treaties with Indonesia, Israel, Singapore, South Africa, Australia, Vietnam, New Zealand, Malaysia, Macedonia,
Swaziland, the Netherlands, United Kingdom, Gambia, Senegal, Sweden, Belgium, Denmark, Paraguay, Hungary,
France, India, Slovakia, Germany, Thailand, Switzerland, Luxembourg, Kiribati, Austria, Italy, Japan, Canada and
Poland, which may limit the rate of ROC withholding tax on dividends paid with respect to common shares in Taiwan
companies. It is unclear whether if you hold ADSs, you will be considered to hold common shares for the purposes of
these treaties. Accordingly, if you may otherwise be entitled to the benefits of the relevant income tax treaty, you
should consult your tax advisors concerning your eligibility for the benefits with respect to the ADSs.
Unappropriated Earnings Tax
Under the ROC Income Tax Act, a 10% unappropriated earnings tax will be imposed on a company for its
after-tax earnings generated after January 1, 1998 which are not distributed in the following year. The unappro-priated
earnings tax so paid will further reduce the retained earnings available for future distribution. When the company
declares dividends out of those retained earnings, up to a maximum amount of 10% of the declared dividends may be
credited against the 20% withholding tax imposed on the non-resident holders of its shares.
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an individual who is a citizen or resident of the United States;
a corporation or other entity taxable as a corporation for U.S. federal income tax purposes created or
organized in or under the laws of the United States, any state thereof or the District of Columbia;
an estate the income of which is subject to U.S. federal income taxation regardless of its source;
a trust that is subject to the primary supervision of a court within the United States and one or more U.S.
persons have the authority to control all substantial decisions of the trust; or
a trust that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a
U.S. person.
This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”),
and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be replaced,
revoked or modified so as to result in U.S. federal income tax consequences different from those discussed below. It
is for general purposes only and you should not consider it to be tax advice. In addition, it is also based in part on
representations made by the depositary and assumes that the deposit agreement and any related agreement will be
performed in accordance with their terms. This summary does not represent a detailed description of all the U.S.
federal income tax consequences to you in light of your particular circumstances and does not address the effects of
any state, local or non-U.S. tax laws (or other U.S. federal tax consequences, such as U.S. federal estate or gift tax
consequences or the Medicare tax on net investment income). In addition, it does not represent a detailed description
of the U.S. federal income tax consequences applicable to you if you are subject to special treatment under the U.S.
federal income tax laws, including if you are:
•
•
•
•
•
•
•
•
•
•
a dealer in securities or currencies;
a trader in securities if you elect to use a mark-to-market method of accounting for your securities
holdings;
a financial institution or an insurance company;
a regulated investment company;
a real estate investment trust;
a tax-exempt organization;
a person liable for alternative minimum tax;
a person holding shares or ADSs as part of a hedging, integrated or conversion transaction, constructive
sale or straddle;
a person owning, actually or constructively, 10% or more of our voting stock;
a partnership or other pass-through entity for U.S. federal income tax purposes; or
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a person whose “functional currency” is not the U.S. dollar.
We cannot assure you that a later change in law will not alter significantly the tax considerations that we
describe in this summary.
If a partnership (or other entity treated as a partnership for United States federal income tax purposes) holds
our shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the
activities of the partnership. If you are a partner of a partnership holding our shares or ADSs, you should consult your
tax advisor.
You should consult your own tax advisor concerning the particular U.S. federal income tax con-
sequences to you of the ownership and disposition of the shares or ADSs, as well as the consequences to you
arising under the laws of any other taxing jurisdiction.
In general, for U.S. federal income tax purposes, a U.S. holder who is the beneficial owner of an ADS will
be treated as the owner of the shares underlying such ADS. Deposits or withdrawals of shares, actually or
constructively, by U.S. holders for ADSs will not be subject to U.S. federal income tax.
Taxation of Dividends
is obligated to make payments related to the dividends,
The gross amount of distributions (other than certain pro rata distributions of shares to all stockholders) you
receive on your shares or ADSs, including net amounts withheld in respect of ROC withholding taxes, will generally
be treated as dividend income to you to the extent the distributions are made from our current and accumulated
earnings and profits as calculated according to U.S. federal income tax principles. These amounts (including withheld
taxes) will be includible in your gross income as ordinary income on the day you actually or constructively receive
the distributions, which in the case of an ADS will be the date actually or constructively received by the depositary.
You will not be entitled to claim a dividends-received deduction allowed to corporations under the Code with respect
to distributions you receive from us.
With respect to non-corporate U.S. holders, certain dividends received from a qualified foreign corporation,
on shares, or ADSs backed by such shares, that are readily tradable on an established securities market in the United
States may be subject to reduced rates of taxation, provided further that the foreign corporation was not, in the year
prior to the year in which the dividends are paid, and is not, in the year in which the dividends are paid, a passive
foreign investment company (see “Passive Foreign Investment Company” below). A foreign corporation is treated as
a qualified foreign corporation with respect to dividends paid by that corporation on shares (or ADSs backed by such
shares) that are readily tradable on an established securities market in the United States. Under current U.S. Treasury
Department guidance, our ADSs, which are listed on the NYSE, but not our shares, are treated as readily tradable on
an established securities market in the United States. Thus, we do not believe that dividends that we pay on our shares
that are not represented by ADSs currently meet the conditions required for these reduced tax rates. There can be no
assurance that our ADSs will continue to be readily tradable on an established securities market in later years, or that
our shares will be readily tradable on an established securities market in any given year. Non-corporate U.S. holders
that do not meet a minimum holding period requirement during which they are not protected from the risk of loss, or
that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code, will not be
eligible for the reduced rates of taxation regardless of the trading status of our shares or ADSs. In addition, the rate
reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect
to positions in substantially similar or related property. This disallowance applies even if the minimum holding period
has been met. You should consult your own tax advisor regarding the application of these rules given your particular
circumstances.
The amount of any dividend paid in NT dollars will equal the U.S. dollar value of the NT dollars you
receive, calculated by reference to the exchange rate in effect on the date you actually or constructively receive the
dividend, which in the case of an ADS will be the date actually or constructively received by the depositary,
regardless of whether the NT dollars are actually converted into U.S. dollars. If the NT dollars received as a dividend
are converted into U.S. dollars on the date they are actually or constructively received, you generally will not be
required to recognize foreign currency gain or loss in respect of the dividend income. If the NT dollars received as a
110
dividend are not converted into U.S. dollars on the date of receipt, you will have a basis in the NT dollars equal to
their U.S. dollar value on the date of receipt. Any gain or loss you realize if you subsequently sell or otherwise
dispose of the NT dollars will be treated as ordinary income or loss from sources within the United States for foreign
tax credit limitation purposes.
Subject to certain conditions and limitations under the Code, you may be entitled to a credit or deduction
against your U.S. federal income taxes for the net amount of any ROC taxes that are withheld from dividend
distributions made to you. In determining the amounts withheld in respect of ROC taxes, any reduction of the amount
withheld on account of a ROC credit in respect of the 10% unappropriated earnings tax imposed on us is not
considered a withholding tax and will not be treated as distributed to you or creditable by you against your U.S.
federal income tax. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific
classes of income. For purposes of calculating the foreign tax credit, dividends we pay with respect to shares or ADSs
will generally be considered passive category income from sources outside the United States. Further, a U.S. holder
has held shares or ADSs for less than a specified minimum period during which it is not protected from
risk of loss, or
that:
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may not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on shares or ADSs. The rules
governing the foreign tax credit are complex. We therefore urge you to consult your tax advisor regarding the
availability of the foreign tax credit under your particular circumstances.
To the extent that the amount of any distribution you receive exceeds our current and accumulated earnings
and profits for a taxable year, as determined under U.S. federal income tax principles, the distribution will first be
treated as a tax-free return of capital, causing a reduction in your adjusted basis in the shares or ADSs and thereby
increasing the amount of gain, or decreasing the amount of loss, you will recognize on a subsequent disposition of the
shares or ADSs. The balance in excess of adjusted basis, if any, will be taxable to you as capital gain recognized on a
sale or exchange. However, we do not expect to keep earnings and profits in accordance with U.S. federal income tax
principles. Therefore, you should expect that a distribution will generally be treated as a dividend.
It is possible that pro rata distributions of shares or ADSs to all stockholders may be made in a manner that is
not subject to U.S. federal income tax. The basis of any new shares or ADSs so received will generally be determined
by allocating your basis in the old shares or ADSs between the old shares or ADSs and the new shares or ADSs,
based on their relative fair market values on the date of distribution.
For U.S. tax purposes, any such tax-free share distribution would not result in foreign source income to you.
Consequently, you may not be able to use the foreign tax credit associated with any ROC withholding tax imposed on
such distributions unless you can use the credit (subject to applicable limitations) against U.S. federal income tax due
on other foreign source income in the appropriate category for foreign tax credit purposes.
Taxation of Capital Gains
When you sell or otherwise dispose of your shares or ADSs, you will generally recognize capital gain or loss
in an amount equal to the difference between the U.S. dollar value of the amount realized for the shares or ADSs and
your basis in the shares or ADSs, determined in U.S. dollars. Such gain or loss will generally be long-term capital
gain or loss if you have held the shares or ADSs for more than one year. If you are an individual or other non-
corporate holder, long-term capital gains will be eligible for reduced rates of taxation. Your ability to deduct capital
losses is subject to limitations. For foreign tax credit limitation purposes, such gain or loss will generally be treated as
U.S. source gain or loss. Consequently, you may not be able to use the foreign tax credit arising from any ROC tax
imposed on the disposition of shares or ADSs unless such credit can be applied (subject to applicable limitations)
against tax due on other income treated as derived from foreign sources.
•
a person whose “functional currency” is not the U.S. dollar.
We cannot assure you that a later change in law will not alter significantly the tax considerations that we
describe in this summary.
If a partnership (or other entity treated as a partnership for United States federal income tax purposes) holds
our shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the
activities of the partnership. If you are a partner of a partnership holding our shares or ADSs, you should consult your
tax advisor.
You should consult your own tax advisor concerning the particular U.S. federal income tax con-
sequences to you of the ownership and disposition of the shares or ADSs, as well as the consequences to you
arising under the laws of any other taxing jurisdiction.
In general, for U.S. federal income tax purposes, a U.S. holder who is the beneficial owner of an ADS will
be treated as the owner of the shares underlying such ADS. Deposits or withdrawals of shares, actually or
constructively, by U.S. holders for ADSs will not be subject to U.S. federal income tax.
Taxation of Dividends
The gross amount of distributions (other than certain pro rata distributions of shares to all stockholders) you
receive on your shares or ADSs, including net amounts withheld in respect of ROC withholding taxes, will generally
be treated as dividend income to you to the extent the distributions are made from our current and accumulated
earnings and profits as calculated according to U.S. federal income tax principles. These amounts (including withheld
taxes) will be includible in your gross income as ordinary income on the day you actually or constructively receive
the distributions, which in the case of an ADS will be the date actually or constructively received by the depositary.
You will not be entitled to claim a dividends-received deduction allowed to corporations under the Code with respect
to distributions you receive from us.
With respect to non-corporate U.S. holders, certain dividends received from a qualified foreign corporation,
on shares, or ADSs backed by such shares, that are readily tradable on an established securities market in the United
States may be subject to reduced rates of taxation, provided further that the foreign corporation was not, in the year
prior to the year in which the dividends are paid, and is not, in the year in which the dividends are paid, a passive
foreign investment company (see “Passive Foreign Investment Company” below). A foreign corporation is treated as
a qualified foreign corporation with respect to dividends paid by that corporation on shares (or ADSs backed by such
shares) that are readily tradable on an established securities market in the United States. Under current U.S. Treasury
Department guidance, our ADSs, which are listed on the NYSE, but not our shares, are treated as readily tradable on
an established securities market in the United States. Thus, we do not believe that dividends that we pay on our shares
that are not represented by ADSs currently meet the conditions required for these reduced tax rates. There can be no
assurance that our ADSs will continue to be readily tradable on an established securities market in later years, or that
our shares will be readily tradable on an established securities market in any given year. Non-corporate U.S. holders
that do not meet a minimum holding period requirement during which they are not protected from the risk of loss, or
that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code, will not be
eligible for the reduced rates of taxation regardless of the trading status of our shares or ADSs. In addition, the rate
reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect
to positions in substantially similar or related property. This disallowance applies even if the minimum holding period
has been met. You should consult your own tax advisor regarding the application of these rules given your particular
circumstances.
The amount of any dividend paid in NT dollars will equal the U.S. dollar value of the NT dollars you
receive, calculated by reference to the exchange rate in effect on the date you actually or constructively receive the
dividend, which in the case of an ADS will be the date actually or constructively received by the depositary,
regardless of whether the NT dollars are actually converted into U.S. dollars. If the NT dollars received as a dividend
are converted into U.S. dollars on the date they are actually or constructively received, you generally will not be
required to recognize foreign currency gain or loss in respect of the dividend income. If the NT dollars received as a
dividend are not converted into U.S. dollars on the date of receipt, you will have a basis in the NT dollars equal to
their U.S. dollar value on the date of receipt. Any gain or loss you realize if you subsequently sell or otherwise
dispose of the NT dollars will be treated as ordinary income or loss from sources within the United States for foreign
tax credit limitation purposes.
Subject to certain conditions and limitations under the Code, you may be entitled to a credit or deduction
against your U.S. federal income taxes for the net amount of any ROC taxes that are withheld from dividend
distributions made to you. In determining the amounts withheld in respect of ROC taxes, any reduction of the amount
withheld on account of a ROC credit in respect of the 10% unappropriated earnings tax imposed on us is not
considered a withholding tax and will not be treated as distributed to you or creditable by you against your U.S.
federal income tax. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific
classes of income. For purposes of calculating the foreign tax credit, dividends we pay with respect to shares or ADSs
will generally be considered passive category income from sources outside the United States. Further, a U.S. holder
that:
•
•
has held shares or ADSs for less than a specified minimum period during which it is not protected from
risk of loss, or
is obligated to make payments related to the dividends,
may not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on shares or ADSs. The rules
governing the foreign tax credit are complex. We therefore urge you to consult your tax advisor regarding the
availability of the foreign tax credit under your particular circumstances.
To the extent that the amount of any distribution you receive exceeds our current and accumulated earnings
and profits for a taxable year, as determined under U.S. federal income tax principles, the distribution will first be
treated as a tax-free return of capital, causing a reduction in your adjusted basis in the shares or ADSs and thereby
increasing the amount of gain, or decreasing the amount of loss, you will recognize on a subsequent disposition of the
shares or ADSs. The balance in excess of adjusted basis, if any, will be taxable to you as capital gain recognized on a
sale or exchange. However, we do not expect to keep earnings and profits in accordance with U.S. federal income tax
principles. Therefore, you should expect that a distribution will generally be treated as a dividend.
It is possible that pro rata distributions of shares or ADSs to all stockholders may be made in a manner that is
not subject to U.S. federal income tax. The basis of any new shares or ADSs so received will generally be determined
by allocating your basis in the old shares or ADSs between the old shares or ADSs and the new shares or ADSs,
based on their relative fair market values on the date of distribution.
For U.S. tax purposes, any such tax-free share distribution would not result in foreign source income to you.
Consequently, you may not be able to use the foreign tax credit associated with any ROC withholding tax imposed on
such distributions unless you can use the credit (subject to applicable limitations) against U.S. federal income tax due
on other foreign source income in the appropriate category for foreign tax credit purposes.
Taxation of Capital Gains
When you sell or otherwise dispose of your shares or ADSs, you will generally recognize capital gain or loss
in an amount equal to the difference between the U.S. dollar value of the amount realized for the shares or ADSs and
your basis in the shares or ADSs, determined in U.S. dollars. Such gain or loss will generally be long-term capital
gain or loss if you have held the shares or ADSs for more than one year. If you are an individual or other non-
corporate holder, long-term capital gains will be eligible for reduced rates of taxation. Your ability to deduct capital
losses is subject to limitations. For foreign tax credit limitation purposes, such gain or loss will generally be treated as
U.S. source gain or loss. Consequently, you may not be able to use the foreign tax credit arising from any ROC tax
imposed on the disposition of shares or ADSs unless such credit can be applied (subject to applicable limitations)
against tax due on other income treated as derived from foreign sources.
111
Any ROC securities transaction taxes that you pay generally will not be creditable foreign taxes for U.S.
federal income tax purposes, but you may be able to deduct such taxes, subject to certain limitations under the Code.
You are urged to consult your tax advisors regarding the U.S. federal income tax consequences of these taxes.
I.
Subsidiary Information
Not applicable.
Passive Foreign Investment Company
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe that we were not a “passive foreign investment company,” or PFIC, for U.S. federal income tax
purposes for our taxable year ending on December 31, 2016, and we do not expect to become a PFIC for our current
taxable year or in the future, although there can be no assurance in this regard. If we were treated as a PFIC for any
taxable year during which you held our shares or ADSs, you could be subject to additional U.S. federal income taxes
on gain recognized with respect to the shares or ADSs and on certain distributions, plus an interest charge on certain
taxes treated as having been deferred under the PFIC rules.
Market risk is the risk of loss related to adverse changes in market prices, including interest rates and foreign
exchange rates, of financial instruments. In the normal course of business, we are routinely subject to a variety of
risks, including market risk associated with interest rate movements, currency rate movements on non-NT dollar
denominated assets and liabilities and equity price movements on our portfolio of equity securities.
We regularly assess these financial instruments and their ability to address market risk and have established
policies and business practices to protect against the adverse effects of these and other potential exposures.
Non-corporate U.S. holders will not be eligible for reduced rates of taxation on any dividends received from
us, if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.
Interest Rate Risk
Information Reporting and Backup Withholding
In general, information reporting will apply to dividends in respect of our shares or ADSs and the proceeds
from the sale, exchange or other disposition of our shares or ADSs that are paid to you within the United States (and
in certain cases, outside the United States), unless you are an exempt recipient such as a corporation. A backup
withholding tax may apply to such payments if you fail to provide a taxpayer identification number or certification of
other exempt status or fail to report in full dividend and interest income.
Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules
will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information
is timely furnished to the Internal Revenue Service.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We have filed this annual report on Form 20-F, including exhibits, with the SEC. As allowed by the SEC, in
Item 19 of this annual report, we incorporate by reference certain information we have already filed with the SEC.
This means that we can disclose important information to you by referring you to another document filed separately
with the SEC. The information incorporated by reference is considered to be part of this annual report.
You may read and copy this annual report, including the exhibits incorporated by reference in this annual
report, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and at the SEC’s regional
offices in New York, New York and Chicago, Illinois. You also can obtain copies of this annual report, including the
exhibits incorporated by reference in this annual report, from the SEC’s Public Reference Room and regional offices
upon payment of a duplicating fee.
The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other
information regarding registrants that file electronically with the SEC. Our annual report and some of the other
information submitted by us to the SEC may be accessed through this web site.
We do not expect interest rate risk to have a material impact on our financial condition and results of
operations. Please refer to “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital
Resources” for a discussion of our loans.
For our non-fixed interest rate loans, the interest rates will change in accordance with the fixed rates of the
banks we borrowed from. For the financial assets, the risk associated with fluctuating interest rates is principally
confined to our cash deposits in banks, which is one of the many ways we manage our capital. Assuming an increase
or decrease of 0.25% in the interest rates of our non-fixed interest rate financial assets and loans, our profit before tax
for the year ended December 31, 2016 would have increased or decreased by NT$12.1 million (US$0.4 million). We
have not used any derivative financial instruments to hedge interest rate risk. We have not been exposed nor do we
anticipate being exposed to material risks due to changes in interest rates. As of December 31, 2016, our cash and
cash equivalents amounted to NT$31.1 billion (US$1.0 billion). Interest income from our cash deposits in banks
accounts for only a very small percentage of our total revenue. Therefore, we believe our exposure to interest rate risk
is immaterial.
Foreign Currency Risk
We are exposed to foreign currency risk as a result of (i) our foreign currency and derivative trading
activities; (ii) our telecommunications equipment being sourced from overseas suppliers; (iii) our international
settlement payments associated with our services for international calls and roaming traffic; and (iv) securities
denominated in foreign currencies.
We entered into forward exchange contracts to reduce our exposure to foreign currency risk due to
fluctuations in exchange rates. Outstanding forward exchange contracts on December 31, 2016 were as follows:
FX Instrument
Forward exchange contracts-Buy
Forward exchange contracts-Buy
Forward exchange contracts-Buy
Currencies
Involved
EUR$/NT$
US$/NT$
EUR$/NT$
Maturity Period
Contract Amount
2017.03
2017.01
2017.03
EUR$5 million/NT$167 million
US$2 million/NT$55 million
EUR$3 million/NT$102 million
Note 38 to our consolidated financial statements included elsewhere in this annual report provides a
sensitivity analysis for foreign currency risk.
Equity Price Risk
procedures.
We are exposed to equity price risk as a result of our available-for-sale equity securities, including publicly-
traded equities, and we manage our equity investment portfolio in accordance with our internal policies and
112
Any ROC securities transaction taxes that you pay generally will not be creditable foreign taxes for U.S.
federal income tax purposes, but you may be able to deduct such taxes, subject to certain limitations under the Code.
You are urged to consult your tax advisors regarding the U.S. federal income tax consequences of these taxes.
I.
Subsidiary Information
Not applicable.
Passive Foreign Investment Company
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe that we were not a “passive foreign investment company,” or PFIC, for U.S. federal income tax
purposes for our taxable year ending on December 31, 2016, and we do not expect to become a PFIC for our current
taxable year or in the future, although there can be no assurance in this regard. If we were treated as a PFIC for any
taxable year during which you held our shares or ADSs, you could be subject to additional U.S. federal income taxes
on gain recognized with respect to the shares or ADSs and on certain distributions, plus an interest charge on certain
taxes treated as having been deferred under the PFIC rules.
Market risk is the risk of loss related to adverse changes in market prices, including interest rates and foreign
exchange rates, of financial instruments. In the normal course of business, we are routinely subject to a variety of
risks, including market risk associated with interest rate movements, currency rate movements on non-NT dollar
denominated assets and liabilities and equity price movements on our portfolio of equity securities.
We regularly assess these financial instruments and their ability to address market risk and have established
policies and business practices to protect against the adverse effects of these and other potential exposures.
Non-corporate U.S. holders will not be eligible for reduced rates of taxation on any dividends received from
us, if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.
Interest Rate Risk
Information Reporting and Backup Withholding
In general, information reporting will apply to dividends in respect of our shares or ADSs and the proceeds
from the sale, exchange or other disposition of our shares or ADSs that are paid to you within the United States (and
in certain cases, outside the United States), unless you are an exempt recipient such as a corporation. A backup
withholding tax may apply to such payments if you fail to provide a taxpayer identification number or certification of
other exempt status or fail to report in full dividend and interest income.
Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules
will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information
is timely furnished to the Internal Revenue Service.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We have filed this annual report on Form 20-F, including exhibits, with the SEC. As allowed by the SEC, in
Item 19 of this annual report, we incorporate by reference certain information we have already filed with the SEC.
This means that we can disclose important information to you by referring you to another document filed separately
with the SEC. The information incorporated by reference is considered to be part of this annual report.
You may read and copy this annual report, including the exhibits incorporated by reference in this annual
report, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and at the SEC’s regional
offices in New York, New York and Chicago, Illinois. You also can obtain copies of this annual report, including the
exhibits incorporated by reference in this annual report, from the SEC’s Public Reference Room and regional offices
upon payment of a duplicating fee.
The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other
information regarding registrants that file electronically with the SEC. Our annual report and some of the other
information submitted by us to the SEC may be accessed through this web site.
We do not expect interest rate risk to have a material impact on our financial condition and results of
operations. Please refer to “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital
Resources” for a discussion of our loans.
For our non-fixed interest rate loans, the interest rates will change in accordance with the fixed rates of the
banks we borrowed from. For the financial assets, the risk associated with fluctuating interest rates is principally
confined to our cash deposits in banks, which is one of the many ways we manage our capital. Assuming an increase
or decrease of 0.25% in the interest rates of our non-fixed interest rate financial assets and loans, our profit before tax
for the year ended December 31, 2016 would have increased or decreased by NT$12.1 million (US$0.4 million). We
have not used any derivative financial instruments to hedge interest rate risk. We have not been exposed nor do we
anticipate being exposed to material risks due to changes in interest rates. As of December 31, 2016, our cash and
cash equivalents amounted to NT$31.1 billion (US$1.0 billion). Interest income from our cash deposits in banks
accounts for only a very small percentage of our total revenue. Therefore, we believe our exposure to interest rate risk
is immaterial.
Foreign Currency Risk
We are exposed to foreign currency risk as a result of (i) our foreign currency and derivative trading
activities; (ii) our telecommunications equipment being sourced from overseas suppliers; (iii) our international
settlement payments associated with our services for international calls and roaming traffic; and (iv) securities
denominated in foreign currencies.
We entered into forward exchange contracts to reduce our exposure to foreign currency risk due to
fluctuations in exchange rates. Outstanding forward exchange contracts on December 31, 2016 were as follows:
FX Instrument
Forward exchange contracts-Buy
Forward exchange contracts-Buy
Forward exchange contracts-Buy
Currencies
Involved
EUR$/NT$
US$/NT$
EUR$/NT$
Maturity Period
2017.03
2017.01
2017.03
Contract Amount
EUR$5 million/NT$167 million
US$2 million/NT$55 million
EUR$3 million/NT$102 million
Note 38 to our consolidated financial statements included elsewhere in this annual report provides a
sensitivity analysis for foreign currency risk.
Equity Price Risk
We are exposed to equity price risk as a result of our available-for-sale equity securities, including publicly-
traded equities, and we manage our equity investment portfolio in accordance with our internal policies and
procedures.
113
The table below presents the carrying amount and unrealized gain or loss for our available-for-sale equity
Service
Fees
securities traded in an active market and with quoted market price as of December 31, 2016.
Available-for-sale equity securities...................................................
Domestic listed stocks .............................................................
Carrying
Amount
NT$
Unrealized
Gain
NT$
(in millions)
Unrealized
Loss
NT$
2,521
—
144
The total value of our listed available-for-sale equity portfolio amounted to NT$2.5 billion (US$77.8
million) as of December 31, 2016, which decreased approximately 22.3% compared with the total value of our listed
equity portfolio as of December 31, 2015. This decrease was mainly due to the decreasing price of the equity
securities held by us. For the year ended December 31, 2016, we recognized other-than-temporary impairment losses
for listed stocks of NT$577.3 million (US$17.8 million).
The value of our equity holdings fluctuates depending on the market conditions. Assuming an increase or
decrease of 5% in the equity prices, our comprehensive income for the year ended December 31, 2016 would have
increased or decreased by NT$126.1 million (US$3.9 million). However, we do not expect the gains and losses in the
values of the equities that we hold to have a material impact on our financial condition and results of operations.
Other Market Risk
We have made investments in corporate bonds and bank debentures issued by domestic public companies
with strong industry leadership and solid profits. Industries in which we have invested include financials, utilities,
technology, and so on. As of December 31, 2016, the fair value of our investments in corporate bonds and bank
debentures amounted to NT$2.1 billion (US$66.2 million), all of which were classified as held-to-maturity financial
assets. The fair value of these corporate bonds and bank debentures is valued using market-based observable inputs
including duration, yield rate and credit rating, which are subject to fluctuation based on many factors such as
prevailing market conditions. However, we do not expect the gains and losses in the values of these investments to
have a material impact on our financial condition and results of operations.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
Not applicable
B. Warrants and Rights
Not applicable
C. Other Securities
Not applicable
D. American Depositary Shares
Depositary Fees
Under the terms of the deposit agreement for our ADSs, an ADS holder may have to pay the following
service fees to the depositary:
Service
Issuance of ADSs
Cancellation of ADSs
Fees
Up to US$5.00 per 100 ADS issued
Up to US$5.00 per 100 ADS cancelled
114
Distribution of cash dividends or other cash distributions
Up to US$2.00 per 100 ADS held
Distribution of ADSs pursuant to stock dividends, free stock distributions or
Distribution of securities other than ADSs or rights to purchase additional
Up to US$5.00 per 100 ADS held
Up to US$5.00 per 100 ADS held
exercises of rights
ADSs
Depositary Charges
In addition, an ADS holder shall be responsible for the following charges:
taxes (including applicable interest and penalties) and other governmental charges;
•
•
•
•
•
such registration fees as may from time to time be in effect for the registration of common shares or
other deposited securities on the share register and applicable to transfers of common shares or other
deposited securities to or from the name of the custodian, the depositary or any nominees upon the
making of deposits and withdrawals, respectively;
such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the
deposit agreement to be at the expense of ADS holders and beneficial owners of ADSs;
the expenses and charges incurred by the depositary in the conversion of foreign currency; and
the fees and expenses incurred by the depositary, the custodian or any nominee in connection with the
servicing or delivery of deposited securities.
Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary by
the brokers (on behalf of their clients) receiving the newly-issued ADSs from the depositary and by the brokers (on
behalf of their clients) delivering the ADSs to the depositary for cancellation. The brokers in turn charge these
transaction fees to their clients.
Depositary fees payable in connection with distributions of cash or securities to ADS holders and the
depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS
record date. The depositary fees payable for cash distributions are generally deducted from the cash being distributed.
In the case of distributions other than cash (i.e., stock dividends, rights offerings), the depositary charges the
applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the
name of the investor (whether certificated or un-certificated in direct registration), the depositary sends invoices to the
applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts via the central
clearing and settlement system, The Depository Trust Company, or DTC, the depositary generally collects its fees
through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the
brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’
ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary.
In the event of refusal to pay the depositary fees and charges, the depositary may, under the terms of the
deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary
fees from any distribution to be made to the ADS holder.
The fees and charges ADS holders may be required to pay may vary over time and may be changed by us
and by the depositary. ADS holders will receive prior notice of such changes.
Payments by Depositary
In 2016, we received US$1.1 million net payments (after deducting the 30% U.S. withholding tax) from
JPMorgan Chase Bank, N.A., the Depositary Bank for our ADR program. The payments were intended to cover
certain of our expenses incurred in relation to the ADR program for the year, including:
The table below presents the carrying amount and unrealized gain or loss for our available-for-sale equity
securities traded in an active market and with quoted market price as of December 31, 2016.
Carrying
Amount
NT$
Unrealized
Unrealized
Gain
NT$
(in millions)
Loss
NT$
2,521
—
144
Available-for-sale equity securities...................................................
Domestic listed stocks .............................................................
The total value of our listed available-for-sale equity portfolio amounted to NT$2.5 billion (US$77.8
million) as of December 31, 2016, which decreased approximately 22.3% compared with the total value of our listed
equity portfolio as of December 31, 2015. This decrease was mainly due to the decreasing price of the equity
securities held by us. For the year ended December 31, 2016, we recognized other-than-temporary impairment losses
for listed stocks of NT$577.3 million (US$17.8 million).
The value of our equity holdings fluctuates depending on the market conditions. Assuming an increase or
decrease of 5% in the equity prices, our comprehensive income for the year ended December 31, 2016 would have
increased or decreased by NT$126.1 million (US$3.9 million). However, we do not expect the gains and losses in the
values of the equities that we hold to have a material impact on our financial condition and results of operations.
Other Market Risk
We have made investments in corporate bonds and bank debentures issued by domestic public companies
with strong industry leadership and solid profits. Industries in which we have invested include financials, utilities,
technology, and so on. As of December 31, 2016, the fair value of our investments in corporate bonds and bank
debentures amounted to NT$2.1 billion (US$66.2 million), all of which were classified as held-to-maturity financial
assets. The fair value of these corporate bonds and bank debentures is valued using market-based observable inputs
including duration, yield rate and credit rating, which are subject to fluctuation based on many factors such as
prevailing market conditions. However, we do not expect the gains and losses in the values of these investments to
have a material impact on our financial condition and results of operations.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
Not applicable
B. Warrants and Rights
Not applicable
C. Other Securities
Not applicable
D. American Depositary Shares
Depositary Fees
service fees to the depositary:
Service
Issuance of ADSs
Cancellation of ADSs
Service
Distribution of cash dividends or other cash distributions
Distribution of ADSs pursuant to stock dividends, free stock distributions or
exercises of rights
Distribution of securities other than ADSs or rights to purchase additional
ADSs
Depositary Charges
Up to US$2.00 per 100 ADS held
Fees
Up to US$5.00 per 100 ADS held
Up to US$5.00 per 100 ADS held
In addition, an ADS holder shall be responsible for the following charges:
•
•
•
•
•
taxes (including applicable interest and penalties) and other governmental charges;
such registration fees as may from time to time be in effect for the registration of common shares or
other deposited securities on the share register and applicable to transfers of common shares or other
deposited securities to or from the name of the custodian, the depositary or any nominees upon the
making of deposits and withdrawals, respectively;
such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the
deposit agreement to be at the expense of ADS holders and beneficial owners of ADSs;
the expenses and charges incurred by the depositary in the conversion of foreign currency; and
the fees and expenses incurred by the depositary, the custodian or any nominee in connection with the
servicing or delivery of deposited securities.
Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary by
the brokers (on behalf of their clients) receiving the newly-issued ADSs from the depositary and by the brokers (on
behalf of their clients) delivering the ADSs to the depositary for cancellation. The brokers in turn charge these
transaction fees to their clients.
Depositary fees payable in connection with distributions of cash or securities to ADS holders and the
depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS
record date. The depositary fees payable for cash distributions are generally deducted from the cash being distributed.
In the case of distributions other than cash (i.e., stock dividends, rights offerings), the depositary charges the
applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the
name of the investor (whether certificated or un-certificated in direct registration), the depositary sends invoices to the
applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts via the central
clearing and settlement system, The Depository Trust Company, or DTC, the depositary generally collects its fees
through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the
brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’
ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary.
In the event of refusal to pay the depositary fees and charges, the depositary may, under the terms of the
deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary
fees from any distribution to be made to the ADS holder.
The fees and charges ADS holders may be required to pay may vary over time and may be changed by us
and by the depositary. ADS holders will receive prior notice of such changes.
Under the terms of the deposit agreement for our ADSs, an ADS holder may have to pay the following
Payments by Depositary
Fees
Up to US$5.00 per 100 ADS issued
Up to US$5.00 per 100 ADS cancelled
In 2016, we received US$1.1 million net payments (after deducting the 30% U.S. withholding tax) from
JPMorgan Chase Bank, N.A., the Depositary Bank for our ADR program. The payments were intended to cover
certain of our expenses incurred in relation to the ADR program for the year, including:
115
•
•
investor relations efforts;
legal fees, NYSE listing fees, proxy process expenses, and SEC filing fees;
• Sarbanes-Oxley and accounting related expenses in connection with ongoing SEC compliance and
listing requirements; and
•
other ADR program-related expenses.
116
117
01
02.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF
SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 15. CONTROLS AND PROCEDURES
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B. CODE OF ETHICS
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR
AUDIT COMMITTEES
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
AFFILIATED PURCHASERS
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16G. CORPORATE GOVERNANCE
ITEM 16H. MINE SAFETY DISCLOSURE
118
•
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this annual report, an evaluation has been carried out under the
supervision and with the participation of our management, including our chief executive officer and our chief
financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such
term is defined under Rules 13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act of 1934, as
amended. Based on that evaluation, our chief executive officer and chief financial officer have concluded that our
disclosure controls and procedures are effective in ensuring that material information required to be disclosed in this
annual report is recorded, processed, summarized and reported to them for assessment, and required disclosure is
made within the time period specified in the rules and forms of the SEC.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended, for our
company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of consolidated financial statements in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB), or
IFRSs, and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in
accordance with IFRSs, and that a company’s receipts and expenditures are being made only in accordance with
authorizations of a company’s management and directors, and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of a company’s assets that could have a material
effect on the consolidated financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only
reasonable assurance with respect to consolidated financial statement preparation and presentation and may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the SEC,
management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016 using
criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Based on this assessment, management concluded that our internal control over financial reporting was
effective as of December 31, 2016 based on the criteria established in Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
119
Deloitte & Touche, an independent registered public accounting firm who has also audited our consolidated
financial statements as of and for the year ended December 31, 2016, has issued an attestation report on the
effectiveness of our internal control over financial reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States).
Attestation Report of the Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Chunghwa Telecom Co., Ltd.
We have audited the internal control over financial reporting of Chunghwa Telecom Co., Ltd. and
subsidiaries (the “Company”) as of December 31, 2016, based on criteria established in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The
Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying
“Management’s Annual Report on Internal Control over Financial Reporting.” Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of,
the company’s principal executive and principal financial officers, or persons performing similar functions, and
effected by the company’s board of directors, management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board (IASB) (“IFRSs”). A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with IFRSs, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control
over financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2016, based on the criteria established in Internal Control—Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements as of and for the year ended December 31, 2016 of the
Company and our report dated April 25, 2017 expressed an unqualified opinion on those financial statements and
included an explanatory paragraph regarding the convenience translation of New Taiwan dollar amounts into U.S.
dollar amounts.
/s/ DELOITTE & TOUCHE
Deloitte & Touche
Taipei, Taiwan
The Republic of China
April 25, 2017
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the year ended
December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Lo-Yu Yen is our audit committee financial expert and independent director. See “Item 6. Directors, Senior
Management and Employees —C. Board Practices.”
The SEC has indicated that the designation of Mr. Yen as the audit committee financial expert does not: (i)
make Mr. Yen an “expert” for any purpose, including without limitation for purposes of Section 11 of the Securities
Act of 1933, as amended, as a result of this designation; (ii) impose any duties, obligations or liability on Mr. Yen that
are greater than those imposed on him as a member of the audit committee and the board of directors in the absence of
such designation; or (iii) affect the duties, obligations or liability of any other member of the audit committee or the
board of directors.
ITEM 16B. CODE OF ETHICS
We have adopted a Code of Ethics and Ethical Corporate Management Best Practice Principles that applies
to our directors, managers and employees, including our chief executive officer and chief financial officer. We have
posted a copy of our Code of Ethics and Ethical Corporate Management Best Practice Principles on our website at
http://www.cht.com.tw/en/aboutus/companyrules.html.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain
professional services rendered by Deloitte & Touche, our principal accountant for the years indicated. We did not pay
any other fees to Deloitte & Touche during the periods indicated below.
Year Ended December 31
2016
NT$
(in millions)
US$
47.2
—
—
—
1.5
—
—
—
2015
NT$
63.0
—
0.2
—
Audit fees(1)..........................................................................................................
Audit-related fees(2) .............................................................................................
Tax fees(3) ............................................................................................................
All other fees(4) ....................................................................................................
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal
accountant for the audit of our annual consolidated financial statements or services that are normally provided by the auditors in
connection with statutory and regulatory filings or engagements.
(2) “Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services by our
principal accountant that are reasonably related to the performance of the audit or review of our consolidated financial statements and
are not reported under “Audit fees.” Services comprising the fees disclosed under the category of “Audit related fees” involve
principally the issuance of agreed upon procedures letters.
120
included an explanatory paragraph regarding the convenience translation of New Taiwan dollar amounts into U.S.
included an explanatory paragraph regarding the convenience translation of New Taiwan dollar amounts into U.S.
dollar amounts.
included an explanatory paragraph regarding the convenience translation of New Taiwan dollar amounts into U.S.
included an explanatory paragraph regarding the convenience translation of New Taiwan dollar amounts into U.S.
included an explanatory paragraph regarding the convenience translation of New Taiwan dollar amounts into U.S.
included an explanatory paragraph regarding the convenience translation of New Taiwan dollar amounts into U.S.
included an explanatory paragraph regarding the convenience translation of New Taiwan dollar amounts into U.S.
dollar amounts.
dollar amounts.
dollar amounts.
dollar amounts.
dollar amounts.
included an explanatory paragraph regarding the convenience translation of New Taiwan dollar amounts into U.S.
/s/ DELOITTE & TOUCHE
Deloitte & Touche
/s/ DELOITTE & TOUCHE
Deloitte & Touche
The Republic of China
/s/ DELOITTE & TOUCHE
/s/ DELOITTE & TOUCHE
/s/ DELOITTE & TOUCHE
/s/ DELOITTE & TOUCHE
/s/ DELOITTE & TOUCHE
/s/ DELOITTE & TOUCHE
Deloitte & Touche
Deloitte & Touche
Deloitte & Touche
Deloitte & Touche
Deloitte & Touche
Deloitte & Touche
Taipei, Taiwan
Taipei, Taiwan
Taipei, Taiwan
Taipei, Taiwan
Taipei, Taiwan
Taipei, Taiwan
The Republic of China
The Republic of China
The Republic of China
The Republic of China
The Republic of China
The Republic of China
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Republic of China
April 25, 2017
April 25, 2017
April 25, 2017
April 25, 2017
April 25, 2017
April 25, 2017
April 25, 2017
Changes in Internal Control Over Financial Reporting
Changes in Internal Control Over Financial Reporting
Changes in Internal Control Over Financial Reporting
Changes in Internal Control Over Financial Reporting
Changes in Internal Control Over Financial Reporting
Changes in Internal Control Over Financial Reporting
Changes in Internal Control Over Financial Reporting
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the year ended
December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control
There were no changes in our internal control over financial reporting that occurred during the year ended
over financial reporting.
December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
There were no changes in our internal control over financial reporting that occurred during the year ended
There were no changes in our internal control over financial reporting that occurred during the year ended
There were no changes in our internal control over financial reporting that occurred during the year ended
There were no changes in our internal control over financial reporting that occurred during the year ended
There were no changes in our internal control over financial reporting that occurred during the year ended
There were no changes in our internal control over financial reporting that occurred during the year ended
December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control
December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control
December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control
December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control
December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control
December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
over financial reporting.
over financial reporting.
over financial reporting.
over financial reporting.
over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Lo-Yu Yen is our audit committee financial expert and independent director. See “Item 6. Directors, Senior
Lo-Yu Yen is our audit committee financial expert and independent director. See “Item 6. Directors, Senior
Lo-Yu Yen is our audit committee financial expert and independent director. See “Item 6. Directors, Senior
Lo-Yu Yen is our audit committee financial expert and independent director. See “Item 6. Directors, Senior
Lo-Yu Yen is our audit committee financial expert and independent director. See “Item 6. Directors, Senior
Lo-Yu Yen is our audit committee financial expert and independent director. See “Item 6. Directors, Senior
Lo-Yu Yen is our audit committee financial expert and independent director. See “Item 6. Directors, Senior
Management and Employees —C. Board Practices.”
Management and Employees —C. Board Practices.”
Management and Employees —C. Board Practices.”
Management and Employees —C. Board Practices.”
Management and Employees —C. Board Practices.”
Management and Employees —C. Board Practices.”
Management and Employees —C. Board Practices.”
Lo-Yu Yen is our audit committee financial expert and independent director. See “Item 6. Directors, Senior
Management and Employees —C. Board Practices.”
The SEC has indicated that the designation of Mr. Yen as the audit committee financial expert does not: (i)
make Mr. Yen an “expert” for any purpose, including without limitation for purposes of Section 11 of the Securities
The SEC has indicated that the designation of Mr. Yen as the audit committee financial expert does not: (i)
Act of 1933, as amended, as a result of this designation; (ii) impose any duties, obligations or liability on Mr. Yen that
make Mr. Yen an “expert” for any purpose, including without limitation for purposes of Section 11 of the Securities
are greater than those imposed on him as a member of the audit committee and the board of directors in the absence of
Act of 1933, as amended, as a result of this designation; (ii) impose any duties, obligations or liability on Mr. Yen that
such designation; or (iii) affect the duties, obligations or liability of any other member of the audit committee or the
are greater than those imposed on him as a member of the audit committee and the board of directors in the absence of
board of directors.
such designation; or (iii) affect the duties, obligations or liability of any other member of the audit committee or the
board of directors.
ITEM 16B. CODE OF ETHICS
The SEC has indicated that the designation of Mr. Yen as the audit committee financial expert does not: (i)
The SEC has indicated that the designation of Mr. Yen as the audit committee financial expert does not: (i)
The SEC has indicated that the designation of Mr. Yen as the audit committee financial expert does not: (i)
The SEC has indicated that the designation of Mr. Yen as the audit committee financial expert does not: (i)
The SEC has indicated that the designation of Mr. Yen as the audit committee financial expert does not: (i)
The SEC has indicated that the designation of Mr. Yen as the audit committee financial expert does not: (i)
make Mr. Yen an “expert” for any purpose, including without limitation for purposes of Section 11 of the Securities
make Mr. Yen an “expert” for any purpose, including without limitation for purposes of Section 11 of the Securities
make Mr. Yen an “expert” for any purpose, including without limitation for purposes of Section 11 of the Securities
make Mr. Yen an “expert” for any purpose, including without limitation for purposes of Section 11 of the Securities
make Mr. Yen an “expert” for any purpose, including without limitation for purposes of Section 11 of the Securities
make Mr. Yen an “expert” for any purpose, including without limitation for purposes of Section 11 of the Securities
Act of 1933, as amended, as a result of this designation; (ii) impose any duties, obligations or liability on Mr. Yen that
Act of 1933, as amended, as a result of this designation; (ii) impose any duties, obligations or liability on Mr. Yen that
Act of 1933, as amended, as a result of this designation; (ii) impose any duties, obligations or liability on Mr. Yen that
Act of 1933, as amended, as a result of this designation; (ii) impose any duties, obligations or liability on Mr. Yen that
Act of 1933, as amended, as a result of this designation; (ii) impose any duties, obligations or liability on Mr. Yen that
Act of 1933, as amended, as a result of this designation; (ii) impose any duties, obligations or liability on Mr. Yen that
are greater than those imposed on him as a member of the audit committee and the board of directors in the absence of
are greater than those imposed on him as a member of the audit committee and the board of directors in the absence of
are greater than those imposed on him as a member of the audit committee and the board of directors in the absence of
are greater than those imposed on him as a member of the audit committee and the board of directors in the absence of
are greater than those imposed on him as a member of the audit committee and the board of directors in the absence of
are greater than those imposed on him as a member of the audit committee and the board of directors in the absence of
such designation; or (iii) affect the duties, obligations or liability of any other member of the audit committee or the
such designation; or (iii) affect the duties, obligations or liability of any other member of the audit committee or the
such designation; or (iii) affect the duties, obligations or liability of any other member of the audit committee or the
such designation; or (iii) affect the duties, obligations or liability of any other member of the audit committee or the
such designation; or (iii) affect the duties, obligations or liability of any other member of the audit committee or the
such designation; or (iii) affect the duties, obligations or liability of any other member of the audit committee or the
board of directors.
board of directors.
board of directors.
board of directors.
board of directors.
board of directors.
ITEM 16B. CODE OF ETHICS
ITEM 16B. CODE OF ETHICS
ITEM 16B. CODE OF ETHICS
ITEM 16B. CODE OF ETHICS
ITEM 16B. CODE OF ETHICS
ITEM 16B. CODE OF ETHICS
ITEM 16B. CODE OF ETHICS
We have adopted a Code of Ethics and Ethical Corporate Management Best Practice Principles that applies
We have adopted a Code of Ethics and Ethical Corporate Management Best Practice Principles that applies
We have adopted a Code of Ethics and Ethical Corporate Management Best Practice Principles that applies
We have adopted a Code of Ethics and Ethical Corporate Management Best Practice Principles that applies
We have adopted a Code of Ethics and Ethical Corporate Management Best Practice Principles that applies
We have adopted a Code of Ethics and Ethical Corporate Management Best Practice Principles that applies
We have adopted a Code of Ethics and Ethical Corporate Management Best Practice Principles that applies
to our directors, managers and employees, including our chief executive officer and chief financial officer. We have
to our directors, managers and employees, including our chief executive officer and chief financial officer. We have
to our directors, managers and employees, including our chief executive officer and chief financial officer. We have
to our directors, managers and employees, including our chief executive officer and chief financial officer. We have
to our directors, managers and employees, including our chief executive officer and chief financial officer. We have
to our directors, managers and employees, including our chief executive officer and chief financial officer. We have
to our directors, managers and employees, including our chief executive officer and chief financial officer. We have
We have adopted a Code of Ethics and Ethical Corporate Management Best Practice Principles that applies
posted a copy of our Code of Ethics and Ethical Corporate Management Best Practice Principles on our website at
posted a copy of our Code of Ethics and Ethical Corporate Management Best Practice Principles on our website at
posted a copy of our Code of Ethics and Ethical Corporate Management Best Practice Principles on our website at
posted a copy of our Code of Ethics and Ethical Corporate Management Best Practice Principles on our website at
posted a copy of our Code of Ethics and Ethical Corporate Management Best Practice Principles on our website at
posted a copy of our Code of Ethics and Ethical Corporate Management Best Practice Principles on our website at
posted a copy of our Code of Ethics and Ethical Corporate Management Best Practice Principles on our website at
to our directors, managers and employees, including our chief executive officer and chief financial officer. We have
http://www.cht.com.tw/en/aboutus/companyrules.html.
http://www.cht.com.tw/en/aboutus/companyrules.html.
http://www.cht.com.tw/en/aboutus/companyrules.html.
http://www.cht.com.tw/en/aboutus/companyrules.html.
http://www.cht.com.tw/en/aboutus/companyrules.html.
http://www.cht.com.tw/en/aboutus/companyrules.html.
http://www.cht.com.tw/en/aboutus/companyrules.html.
posted a copy of our Code of Ethics and Ethical Corporate Management Best Practice Principles on our website at
http://www.cht.com.tw/en/aboutus/companyrules.html.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Deloitte & Touche, an independent registered public accounting firm who has also audited our consolidated
financial statements as of and for the year ended December 31, 2016, has issued an attestation report on the
dollar amounts.
effectiveness of our internal control over financial reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States).
Attestation Report of the Registered Public Accounting Firm
dollar amounts.
Taipei, Taiwan
Taipei, Taiwan
April 25, 2017
The Board of Directors and Stockholders of
Chunghwa Telecom Co., Ltd.
We have audited the internal control over financial reporting of Chunghwa Telecom Co., Ltd. and
subsidiaries (the “Company”) as of December 31, 2016, based on criteria established in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The
Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying
“Management’s Annual Report on Internal Control over Financial Reporting.” Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of,
the company’s principal executive and principal financial officers, or persons performing similar functions, and
effected by the company’s board of directors, management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board (IASB) (“IFRSs”). A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with IFRSs, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control
over financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2016, based on the criteria established in Internal Control—Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements as of and for the year ended December 31, 2016 of the
Company and our report dated April 25, 2017 expressed an unqualified opinion on those financial statements and
NT$
2016
(in millions)
Audit fees(1)..........................................................................................................
Audit fees(1)..........................................................................................................
Audit fees(1)..........................................................................................................
Audit fees(1)..........................................................................................................
Audit fees(1)..........................................................................................................
Audit fees(1)..........................................................................................................
47.2
NT$
Audit-related fees(2) .............................................................................................
Audit-related fees(2) .............................................................................................
Audit-related fees(2) .............................................................................................
Audit-related fees(2) .............................................................................................
Audit-related fees(2) .............................................................................................
Audit-related fees(2) .............................................................................................
—
(in millions)
Tax fees(3) ............................................................................................................
Tax fees(3) ............................................................................................................
Tax fees(3) ............................................................................................................
Tax fees(3) ............................................................................................................
Tax fees(3) ............................................................................................................
47.2
Tax fees(3) ............................................................................................................
—
All other fees(4) ....................................................................................................
All other fees(4) ....................................................................................................
All other fees(4) ....................................................................................................
All other fees(4) ....................................................................................................
All other fees(4) ....................................................................................................
—
All other fees(4) ....................................................................................................
—
—
—
Audit fees(1)..........................................................................................................
Audit-related fees(2) .............................................................................................
Audit fees(1)..........................................................................................................
Tax fees(3) ............................................................................................................
Audit-related fees(2) .............................................................................................
All other fees(4) ....................................................................................................
Tax fees(3) ............................................................................................................
All other fees(4) ....................................................................................................
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal
accountant for the audit of our annual consolidated financial statements or services that are normally provided by the auditors in
accountant for the audit of our annual consolidated financial statements or services that are normally provided by the auditors in
accountant for the audit of our annual consolidated financial statements or services that are normally provided by the auditors in
accountant for the audit of our annual consolidated financial statements or services that are normally provided by the auditors in
accountant for the audit of our annual consolidated financial statements or services that are normally provided by the auditors in
accountant for the audit of our annual consolidated financial statements or services that are normally provided by the auditors in
accountant for the audit of our annual consolidated financial statements or services that are normally provided by the auditors in
connection with statutory and regulatory filings or engagements.
connection with statutory and regulatory filings or engagements.
connection with statutory and regulatory filings or engagements.
connection with statutory and regulatory filings or engagements.
connection with statutory and regulatory filings or engagements.
connection with statutory and regulatory filings or engagements.
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal
connection with statutory and regulatory filings or engagements.
(2) “Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services by our
(2) “Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services by our
(2) “Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services by our
(2) “Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services by our
(2) “Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services by our
(2) “Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services by our
accountant for the audit of our annual consolidated financial statements or services that are normally provided by the auditors in
(2) “Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services by our
principal accountant that are reasonably related to the performance of the audit or review of our consolidated financial statements and
principal accountant that are reasonably related to the performance of the audit or review of our consolidated financial statements and
principal accountant that are reasonably related to the performance of the audit or review of our consolidated financial statements and
principal accountant that are reasonably related to the performance of the audit or review of our consolidated financial statements and
principal accountant that are reasonably related to the performance of the audit or review of our consolidated financial statements and
principal accountant that are reasonably related to the performance of the audit or review of our consolidated financial statements and
connection with statutory and regulatory filings or engagements.
principal accountant that are reasonably related to the performance of the audit or review of our consolidated financial statements and
are not reported under “Audit fees.” Services comprising the fees disclosed under the category of “Audit related fees” involve
are not reported under “Audit fees.” Services comprising the fees disclosed under the category of “Audit related fees” involve
are not reported under “Audit fees.” Services comprising the fees disclosed under the category of “Audit related fees” involve
are not reported under “Audit fees.” Services comprising the fees disclosed under the category of “Audit related fees” involve
are not reported under “Audit fees.” Services comprising the fees disclosed under the category of “Audit related fees” involve
are not reported under “Audit fees.” Services comprising the fees disclosed under the category of “Audit related fees” involve
(2) “Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services by our
are not reported under “Audit fees.” Services comprising the fees disclosed under the category of “Audit related fees” involve
principally the issuance of agreed upon procedures letters.
principally the issuance of agreed upon procedures letters.
principally the issuance of agreed upon procedures letters.
principally the issuance of agreed upon procedures letters.
principally the issuance of agreed upon procedures letters.
principally the issuance of agreed upon procedures letters.
principal accountant that are reasonably related to the performance of the audit or review of our consolidated financial statements and
principally the issuance of agreed upon procedures letters.
are not reported under “Audit fees.” Services comprising the fees disclosed under the category of “Audit related fees” involve
principally the issuance of agreed upon procedures letters.
NT$
NT$
NT$
NT$
NT$
NT$
(in millions)
(in millions)
(in millions)
(in millions)
(in millions)
(in millions)
47.2
47.2
47.2
47.2
47.2
47.2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
63.0
63.0
63.0
1.5
63.0
63.0
US$
63.0
—
—
—
—
—
—
—
0.2
1.5
0.2
0.2
—
0.2
0.2
0.2
—
—
—
—
—
—
—
—
—
—
63.0
NT$
—
63.0
0.2
—
—
0.2
—
1.5
1.5
1.5
1.5
1.5
1.5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain
professional services rendered by Deloitte & Touche, our principal accountant for the years indicated. We did not pay
The following table sets forth the aggregate fees by categories specified below in connection with certain
any other fees to Deloitte & Touche during the periods indicated below.
professional services rendered by Deloitte & Touche, our principal accountant for the years indicated. We did not pay
any other fees to Deloitte & Touche during the periods indicated below.
The following table sets forth the aggregate fees by categories specified below in connection with certain
The following table sets forth the aggregate fees by categories specified below in connection with certain
The following table sets forth the aggregate fees by categories specified below in connection with certain
The following table sets forth the aggregate fees by categories specified below in connection with certain
The following table sets forth the aggregate fees by categories specified below in connection with certain
The following table sets forth the aggregate fees by categories specified below in connection with certain
professional services rendered by Deloitte & Touche, our principal accountant for the years indicated. We did not pay
professional services rendered by Deloitte & Touche, our principal accountant for the years indicated. We did not pay
professional services rendered by Deloitte & Touche, our principal accountant for the years indicated. We did not pay
professional services rendered by Deloitte & Touche, our principal accountant for the years indicated. We did not pay
professional services rendered by Deloitte & Touche, our principal accountant for the years indicated. We did not pay
professional services rendered by Deloitte & Touche, our principal accountant for the years indicated. We did not pay
any other fees to Deloitte & Touche during the periods indicated below.
any other fees to Deloitte & Touche during the periods indicated below.
any other fees to Deloitte & Touche during the periods indicated below.
any other fees to Deloitte & Touche during the periods indicated below.
any other fees to Deloitte & Touche during the periods indicated below.
any other fees to Deloitte & Touche during the periods indicated below.
Year Ended December 31
2016
2016
2016
Year Ended December 31
Year Ended December 31
Year Ended December 31
Year Ended December 31
Year Ended December 31
2016
2016
2015
2016
Year Ended December 31
Year Ended December 31
2015
2015
2015
2015
2015
NT$
NT$
NT$
US$
NT$
NT$
NT$
2015
US$
US$
US$
US$
US$
2015
2016
NT$
US$
121
(3) “Tax fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal
accountant for tax compliance, tax advice and tax planning. Services comprising the fees disclosed under the category of “Tax Fees”
involve tax advice.
(4) “All other fees” means the aggregate fees billed in each of the last two fiscal years for products and services provided by our
principal accountant other than the services reported in items (1) to (3) above.
All audit and non-audit services provided by Deloitte & Touche were pre-approved by our audit committee
according to the revised Rule 201(c) (7) of Regulation S-X, entitled “Audit Committee Administration of the
Engagement,” that served to strengthen requirements regarding auditor independence.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
As a ROC company listed on the NYSE, we are subject to the U.S. corporate governance rules to the extent
that these rules are applicable to foreign private issuers. The following summary details the significant differences
between our corporate governance practices and corporate governance standards for non-foreign private issuers (e.g.,
U.S. companies) under the NYSE Listed Company Manual.
Under Section 303A of the NYSE Listed Company Manual, NYSE-listed foreign private issuers may, in
general, follow their home country corporate governance practices in lieu of most of the new NYSE corporate
governance requirements. However, all NYSE-listed foreign private issuers must comply with Sections 303A.06,
303A.11, 303A.12(b) and 303A.12(c) of the NYSE Listed Company Manual.
The Legal Framework. In general, corporate governance principles for Taiwanese companies are set forth
in the ROC Company Act, the ROC Securities Exchange Act, regulations promulgated by the Securities and Futures
Bureau of the FSC and, to the extent they are listed on the TWSE, listing rules of the TWSE. Corporate governance
principles under provisions of ROC law may differ in significant ways to corporate governance standards for non-
foreign private issuers listed on the NYSE. Committed to high standards of corporate governance, we have generally
brought our corporate governance in line with U.S. regulations. However, we have not adopted certain recommended
NYSE corporate governance standards where such standards are not in conformity with ROC laws or regulations or
generally prevailing business practices in Taiwan. We believe the following to be the significant differences between
our corporate governance practices and NYSE corporate governance rules applicable to non-foreign private issuers
listed on the NYSE.
Director Independence. The NYSE corporate governance rules applicable to non-foreign private issuers
listed on the NYSE require companies to have a majority of independent directors on the board of directors. The ROC
Securities Exchange Act requires the independent directors of a public company to comprise of no less than two
persons and one-fifth of the total number of directors. We currently have four independent directors on our eleven-
member board of directors. We follow the standards regulated under ROC Securities Exchange Act and by the FSC
for determining director independence, which are comparable to the standards imposed by the NYSE.
In addition, under the ROC requirements, our board of directors is not required to make a formal
determination of a director’s independence. Nevertheless, we believe that our independent directors are free from any
business or other relationships that would impair the exercise of their independent judgment. Furthermore, pursuant to
the NYSE Listed Company Manual, non-executive directors must meet on a regular basis without the management
122
directors present. All of our directors attend our board of directors’ meetings; however, no separate meeting is held
among non-executive directors.
Audit Committee. On April 1, 2003, the SEC adopted final rules relating to the audit committee
requirements. Foreign private issuers listed on the NYSE were required to comply with the related NYSE corporate
governance rules by July 31, 2005. Our audit committee was established in September 2004 in accordance with the
rules set forth in the NYSE Listed Company Manual. According to the NYSE corporate governance rules applicable
to non-foreign private issuers listed on the NYSE, the board must review status of any audit member that serves on
more than three audit committees. There is no such requirement under the ROC law, which allows a person to serve
as an independent director on up to four public companies in the ROC.
Section 303A.07 of the NYSE Listed Company Manual requires issuers to have at least three directors on the
audit committee that meets the definition of independence set forth under Rule 10A-3 of the Exchange Act and
Section 303A of the NYSE Listed Company Manual. There is no such requirement under the ROC law, which
requires all independent directors of a public company to be members of the audit committee if the company has
established such a committee.
On February 20, 2013, the FSC of the ROC announced that any (i) financial holding company, bank, bill
finance company or insurance company, (ii) listed company whose paid-in capital reaches NT$50 billion or (iii)
integrated securities firm controlled by a financial holding company, should establish an audit committee to replace
supervisors. As a result, our new audit committee started from the date of the annual general meeting on June 25,
2013. See “Item 6. Directors, Senior Management and Employees—C. Board Practices.” As a result, we now
simultaneously comply with the relevant rules of the NYSE Listed Company Manual and the relevant rules and
regulations in the ROC.
Nominating/Corporate Governance Committee and Corporate Governance Principles. The NYSE
corporate governance rules applicable to non-foreign private issuers listed on the NYSE require companies to have a
nominating/corporate governance committee, composed entirely of independent directors. In addition to identifying
individuals qualified to become board members, the nominating/corporate governance committee must develop and
recommend to the board a set of corporate governance principles. The ROC Company Act does not require companies
incorporated in the ROC to have a nominating/corporate governance committee. We do not currently have a
nominating committee or a corporate governance committee.
Currently, our board of directors performs the duties of a corporate governance committee and regularly
reviews our corporate governance principles and practices. The ROC Company Act requires that directors shall be
elected by stockholders. Our Articles of Incorporation requires us, beginning in the fifth commencement, to establish
at least three independent directors in the number of directors. The elections for directors shall proceed with the
candidate nomination system; the stockholders shall elect the directors from among the nominees listed in the roster
of director candidates. Stockholders holding 1% or more of our outstanding shares are entitled to nominate candidates
of directors in written to us. The numbers of candidates nominated by stockholders shall not exceed the numbers of
directors to be elected; neither the numbers of candidates nominated by the Board. Elections for independent and non-
independent directors shall proceed concurrently, and the number of elected independent and non-independent
directors shall be calculated separately.
Non-foreign private issuers listed on the NYSE are also required to adopt and disclose corporate governance
guidelines. We currently comply with the ROC Non-Binding Corporate Governance Best Practice Principles for
TWSE/GTSM Listed Companies promulgated by the TWSE, or Best Practice Principles, and we provide an
explanation of differences between our practice and the principles, if any, in our ROC annual report.
Compensation Committee. The NYSE corporate governance rules applicable to non-foreign private issuers
listed on the NYSE require companies to have a compensation committee, composed entirely of independent
directors. The Article 14-6 of ROC Securities and Exchange Act requires all listed companies to establish a
compensation committee for directors, supervisors and managers’ compensation, which includes salary, stock options
and other rewards, as well as authorizes the Competent Authority (i.e., FSC) to enact a regulation on the authorities of
the compensation committee and the qualifications of its members. See “Item 6. Directors, Senior Management and
Employees—C. Board Practices” for description of our compliance.
None.
Not applicable.
Not applicable.
(3) “Tax fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal
accountant for tax compliance, tax advice and tax planning. Services comprising the fees disclosed under the category of “Tax Fees”
involve tax advice.
(4) “All other fees” means the aggregate fees billed in each of the last two fiscal years for products and services provided by our
principal accountant other than the services reported in items (1) to (3) above.
All audit and non-audit services provided by Deloitte & Touche were pre-approved by our audit committee
according to the revised Rule 201(c) (7) of Regulation S-X, entitled “Audit Committee Administration of the
Engagement,” that served to strengthen requirements regarding auditor independence.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16G. CORPORATE GOVERNANCE
As a ROC company listed on the NYSE, we are subject to the U.S. corporate governance rules to the extent
that these rules are applicable to foreign private issuers. The following summary details the significant differences
between our corporate governance practices and corporate governance standards for non-foreign private issuers (e.g.,
U.S. companies) under the NYSE Listed Company Manual.
Under Section 303A of the NYSE Listed Company Manual, NYSE-listed foreign private issuers may, in
general, follow their home country corporate governance practices in lieu of most of the new NYSE corporate
governance requirements. However, all NYSE-listed foreign private issuers must comply with Sections 303A.06,
303A.11, 303A.12(b) and 303A.12(c) of the NYSE Listed Company Manual.
The Legal Framework. In general, corporate governance principles for Taiwanese companies are set forth
in the ROC Company Act, the ROC Securities Exchange Act, regulations promulgated by the Securities and Futures
Bureau of the FSC and, to the extent they are listed on the TWSE, listing rules of the TWSE. Corporate governance
principles under provisions of ROC law may differ in significant ways to corporate governance standards for non-
foreign private issuers listed on the NYSE. Committed to high standards of corporate governance, we have generally
brought our corporate governance in line with U.S. regulations. However, we have not adopted certain recommended
NYSE corporate governance standards where such standards are not in conformity with ROC laws or regulations or
generally prevailing business practices in Taiwan. We believe the following to be the significant differences between
our corporate governance practices and NYSE corporate governance rules applicable to non-foreign private issuers
listed on the NYSE.
Director Independence. The NYSE corporate governance rules applicable to non-foreign private issuers
listed on the NYSE require companies to have a majority of independent directors on the board of directors. The ROC
Securities Exchange Act requires the independent directors of a public company to comprise of no less than two
persons and one-fifth of the total number of directors. We currently have four independent directors on our eleven-
member board of directors. We follow the standards regulated under ROC Securities Exchange Act and by the FSC
for determining director independence, which are comparable to the standards imposed by the NYSE.
In addition, under the ROC requirements, our board of directors is not required to make a formal
determination of a director’s independence. Nevertheless, we believe that our independent directors are free from any
business or other relationships that would impair the exercise of their independent judgment. Furthermore, pursuant to
the NYSE Listed Company Manual, non-executive directors must meet on a regular basis without the management
directors present. All of our directors attend our board of directors’ meetings; however, no separate meeting is held
among non-executive directors.
Audit Committee. On April 1, 2003, the SEC adopted final rules relating to the audit committee
requirements. Foreign private issuers listed on the NYSE were required to comply with the related NYSE corporate
governance rules by July 31, 2005. Our audit committee was established in September 2004 in accordance with the
rules set forth in the NYSE Listed Company Manual. According to the NYSE corporate governance rules applicable
to non-foreign private issuers listed on the NYSE, the board must review status of any audit member that serves on
more than three audit committees. There is no such requirement under the ROC law, which allows a person to serve
as an independent director on up to four public companies in the ROC.
Section 303A.07 of the NYSE Listed Company Manual requires issuers to have at least three directors on the
audit committee that meets the definition of independence set forth under Rule 10A-3 of the Exchange Act and
Section 303A of the NYSE Listed Company Manual. There is no such requirement under the ROC law, which
requires all independent directors of a public company to be members of the audit committee if the company has
established such a committee.
On February 20, 2013, the FSC of the ROC announced that any (i) financial holding company, bank, bill
finance company or insurance company, (ii) listed company whose paid-in capital reaches NT$50 billion or (iii)
integrated securities firm controlled by a financial holding company, should establish an audit committee to replace
supervisors. As a result, our new audit committee started from the date of the annual general meeting on June 25,
2013. See “Item 6. Directors, Senior Management and Employees—C. Board Practices.” As a result, we now
simultaneously comply with the relevant rules of the NYSE Listed Company Manual and the relevant rules and
regulations in the ROC.
Nominating/Corporate Governance Committee and Corporate Governance Principles. The NYSE
corporate governance rules applicable to non-foreign private issuers listed on the NYSE require companies to have a
nominating/corporate governance committee, composed entirely of independent directors. In addition to identifying
individuals qualified to become board members, the nominating/corporate governance committee must develop and
recommend to the board a set of corporate governance principles. The ROC Company Act does not require companies
incorporated in the ROC to have a nominating/corporate governance committee. We do not currently have a
nominating committee or a corporate governance committee.
Currently, our board of directors performs the duties of a corporate governance committee and regularly
reviews our corporate governance principles and practices. The ROC Company Act requires that directors shall be
elected by stockholders. Our Articles of Incorporation requires us, beginning in the fifth commencement, to establish
at least three independent directors in the number of directors. The elections for directors shall proceed with the
candidate nomination system; the stockholders shall elect the directors from among the nominees listed in the roster
of director candidates. Stockholders holding 1% or more of our outstanding shares are entitled to nominate candidates
of directors in written to us. The numbers of candidates nominated by stockholders shall not exceed the numbers of
directors to be elected; neither the numbers of candidates nominated by the Board. Elections for independent and non-
independent directors shall proceed concurrently, and the number of elected independent and non-independent
directors shall be calculated separately.
Non-foreign private issuers listed on the NYSE are also required to adopt and disclose corporate governance
guidelines. We currently comply with the ROC Non-Binding Corporate Governance Best Practice Principles for
TWSE/GTSM Listed Companies promulgated by the TWSE, or Best Practice Principles, and we provide an
explanation of differences between our practice and the principles, if any, in our ROC annual report.
Compensation Committee. The NYSE corporate governance rules applicable to non-foreign private issuers
listed on the NYSE require companies to have a compensation committee, composed entirely of independent
directors. The Article 14-6 of ROC Securities and Exchange Act requires all listed companies to establish a
compensation committee for directors, supervisors and managers’ compensation, which includes salary, stock options
and other rewards, as well as authorizes the Competent Authority (i.e., FSC) to enact a regulation on the authorities of
the compensation committee and the qualifications of its members. See “Item 6. Directors, Senior Management and
Employees—C. Board Practices” for description of our compliance.
123
Code of Business Conduct and Ethics. The NYSE corporate governance rules applicable to non-foreign
private issuers listed on the NYSE require companies must adopt a code of business conduct and ethics for directors,
officers and employees and promptly disclose any waivers of the code for directors or executive officers. We have
adopted Code of Ethics which applies to our directors, managers and employees, and Ethical Corporate Management
Best Practice Principles that applies to our directors, managers, employees and persons having substantial control
over us. We have filed Code of Ethics and Ethical Corporate Management Best Practice Principles as an exhibit to our
annual report filed with the U.S. SEC and a copy is available to any stockholder upon request.
Equity Compensation Plans. The NYSE corporate governance rules applicable to non-foreign private
issuers listed on the NYSE require that equity compensation plans be approved by a company’s stockholders. Under
the ROC Company Act and the ROC Securities and Exchange Act, the distribution of compensation to employees
should be decided by the board of directors and reported in stockholders’ meeting. The approval of stockholders’
meeting is required for any issuances of restricted stock to employees, and the board of director has authority to
approve employee stock option plans and to grant options to employees pursuant to such plans, subject to the
approval of the FSC, and to approve share buy-back programs and transfer of shares to employees under such
programs. We intend to follow only the ROC requirements.
Means to Communicate with Non-Management Directors. The NYSE corporate governance rules
applicable to non-foreign private issuers listed on the NYSE require companies to establish a means for stockholders,
employees and other interested parties to communicate with non-management directors. The ROC law does not have
comparable requirements. However, according to the Best Practice Principles, companies are required to establish
channels of communication with employees and encourage employees to communicate directly with the management
or directors so as to reflect employees’ opinions about the management, financial conditions and material decisions of
the company concerning employee welfare. We have complied with these provisions.
Internal Audit Function. The NYSE corporate governance rules applicable to non-foreign private issuers
listed on the NYSE require companies to establish an internal audit function to provide management and the audit
committee with assessments of the company’s risk management processes and system of internal control. We have
complied with the Best-Practice Principles by setting up an internal control/audit system in accordance with the ROC
Regulations Governing Establishment of Internal Control Systems by Public Companies.
CEO Certification to the NYSE. The NYSE listing standards require the CEO of companies to certify
compliance with NYSE corporate governance standards annually. ROC law does not contain such requirement. In this
regard, we only follow ROC corporate governance requirement which does not require CEO annual certification.
However, our CEO and CFO are required to certify in the 20-F annual report that, to his or her knowledge the
information contained therein fairly represents in all material respects the financial condition and results of operations
of our company.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
124
125
01
03.
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
126
03.
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
ITEM 17. FINANCIAL STATEMENTS
PART III
The Registrant has elected to provide the consolidated financial statements and related information specified
in Item 18 in lieu of Item 17.
ITEM 18. FINANCIAL STATEMENTS
The following is a list of the consolidated financial statements and report of independent registered public
accounting firm included in this annual report beginning on page F-1.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page
Page
Page
Report of Independent Registered Public Accounting Firm ................................................................................... F-1
Report of Independent Registered Public Accounting Firm ................................................................................... F-1
Report of Independent Registered Public Accounting Firm ................................................................................... F-1
Consolidated Balance Sheets as of December 31, 2015 and 2016 ......................................................................... F-2
Consolidated Balance Sheets as of December 31, 2015 and 2016 ......................................................................... F-2
Consolidated Balance Sheets as of December 31, 2015 and 2016 ......................................................................... F-2
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2015 and 2016 .... F-4
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2015 and 2016 .... F-4
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2015 and 2016 .... F-4
Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2015 and 2016 ............. F-6
Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2015 and 2016 ............. F-6
Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2015 and 2016 ............. F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2015 and 2016 ........................ F-8
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2015 and 2016 ........................ F-8
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2015 and 2016 ........................ F-8
Notes to Consolidated Financial Statements ........................................................................................................ F-11
Notes to Consolidated Financial Statements ........................................................................................................ F-11
Notes to Consolidated Financial Statements ........................................................................................................ F-11
01
127
ITEM 19. EXHIBITS
Exhibit
ITEM 19. EXHIBITS
Number
Description of Exhibits
Exhibit
1.1
Number
1.1
1.2*
2.1
1.2*
2.1
8.1*
11.1
8.1*
11.1
11.2
11.2
12.1*
12.2*
12.1*
13.1*
12.2*
13.2*
13.1*
Statute of Chunghwa Telecom Co., Ltd., as last amended on November 29, 2000, which was
Description of Exhibits
subsequently abolished by the President of the ROC on December 24, 2014 (English translation)
(incorporated by reference to Exhibit 1.1 to the Registrant’s Annual Report on Form 20-F for the fiscal
Statute of Chunghwa Telecom Co., Ltd., as last amended on November 29, 2000, which was
year ended December 31, 2003 (File No. 001-31731) filed with the Commission on May 17, 2004).
subsequently abolished by the President of the ROC on December 24, 2014 (English translation)
Articles of Incorporation of Chunghwa Telecom Co., Ltd. (English translation), as last amended by
(incorporated by reference to Exhibit 1.1 to the Registrant’s Annual Report on Form 20-F for the fiscal
Annual General Meeting on June 24, 2016.
year ended December 31, 2003 (File No. 001-31731) filed with the Commission on May 17, 2004).
Form of Amended and Restated Deposit Agreement dated as of November 2007 among Chunghwa
Articles of Incorporation of Chunghwa Telecom Co., Ltd. (English translation), as last amended by
Telecom Co. Ltd., JPMorgan Chase Bank, N.A., as depositary, and all holders from time to time of
Annual General Meeting on June 24, 2016.
ADRs issued thereunder, including the Form of American Depositary Receipt (incorporated by
Form of Amended and Restated Deposit Agreement dated as of November 2007 among Chunghwa
reference to Exhibit (a) to the Registrant’s Registration Statement on Form F-6 (File No. 333-147321)
Telecom Co. Ltd., JPMorgan Chase Bank, N.A., as depositary, and all holders from time to time of
filed with the Commission on November 13, 2007).
ADRs issued thereunder, including the Form of American Depositary Receipt (incorporated by
List of Subsidiaries.
reference to Exhibit (a) to the Registrant’s Registration Statement on Form F-6 (File No. 333-147321)
filed with the Commission on November 13, 2007).
Code of Ethics as approved by the board of directors on August 13, 2013 (English translation)
List of Subsidiaries.
(incorporated by reference to Exhibit 11.1 to the Registrant’s Annual Report on Form 20-F for the fiscal
year ended December 31, 2013 (File No. 001-31731) filed with the Commission on April 28, 2014).
Code of Ethics as approved by the board of directors on August 13, 2013 (English translation)
Ethical Corporate Management Best Practice Principles as approved by the board of directors on August
(incorporated by reference to Exhibit 11.1 to the Registrant’s Annual Report on Form 20-F for the fiscal
13, 2013 (English translation) (incorporated by reference to Exhibit 11.2 to the Registrant’s Annual
year ended December 31, 2013 (File No. 001-31731) filed with the Commission on April 28, 2014).
Report on Form 20-F for the fiscal year ended December 31, 2013 (File No. 001-31731) filed with the
Ethical Corporate Management Best Practice Principles as approved by the board of directors on August
Commission on April 28, 2014).
13, 2013 (English translation) (incorporated by reference to Exhibit 11.2 to the Registrant’s Annual
Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Report on Form 20-F for the fiscal year ended December 31, 2013 (File No. 001-31731) filed with the
Commission on April 28, 2014).
Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of our Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of our Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of our Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2*
* Filed herewith.
Certification of our Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
* Filed herewith.
duly caused and authorized the undersigned to sign this annual report on its behalf.
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has
SIGNATURES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Chunghwa Telecom Co., Ltd.
We have audited the accompanying consolidated balance sheets of Chunghwa Telecom Co., Ltd. and
subsidiaries (the “Company”) as of December 31, 2015 and 2016, and the related consolidated statements of
comprehensive income, changes in equity, and cash flows for each of the three years in the period ended
December 31, 2016 all expressed in New Taiwan dollars. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of Chunghwa Telecom Co., Ltd. and subsidiaries as of December 31, 2015 and 2016, and the results
of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in
conformity with International Financial Reporting Standards as issued by the International Accounting
Standard Board.
readers.
Our audits also comprehended the translation of New Taiwan dollar amounts into U.S. dollar amounts and,
in our opinion, such translation has been made in conformity with the basis stated in Note 6 to the
consolidated financial statements. Such U.S. dollar amounts are presented solely for the convenience of the
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2016, based on
the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated April 25, 2017 expressed an
unqualified opinion on the Company’s internal control over financial reporting.
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has
CHUNGHWA TELECOM CO., LTD.
duly caused and authorized the undersigned to sign this annual report on its behalf.
CHUNGHWA TELECOM CO., LTD.
By: /s/ YU CHEN
Name: Yu Cheng
Title: Chairman and Chief Executive Officer
By: /s/ YU CHEN
Name: Yu Cheng
Title: Chairman and Chief Executive Officer
Date: April 25, 2017
Date: April 25, 2017
/s/ DELOITTE & TOUCHE
Deloitte & Touche
Taipei, Taiwan
The Republic of China
April 25, 2017
128
ITEM 19. EXHIBITS
Exhibit
ITEM 19. EXHIBITS
Number
Exhibit
1.1
Number
Description of Exhibits
Statute of Chunghwa Telecom Co., Ltd., as last amended on November 29, 2000, which was
subsequently abolished by the President of the ROC on December 24, 2014 (English translation)
Description of Exhibits
(incorporated by reference to Exhibit 1.1 to the Registrant’s Annual Report on Form 20-F for the fiscal
Statute of Chunghwa Telecom Co., Ltd., as last amended on November 29, 2000, which was
year ended December 31, 2003 (File No. 001-31731) filed with the Commission on May 17, 2004).
subsequently abolished by the President of the ROC on December 24, 2014 (English translation)
Articles of Incorporation of Chunghwa Telecom Co., Ltd. (English translation), as last amended by
(incorporated by reference to Exhibit 1.1 to the Registrant’s Annual Report on Form 20-F for the fiscal
Annual General Meeting on June 24, 2016.
year ended December 31, 2003 (File No. 001-31731) filed with the Commission on May 17, 2004).
Form of Amended and Restated Deposit Agreement dated as of November 2007 among Chunghwa
Articles of Incorporation of Chunghwa Telecom Co., Ltd. (English translation), as last amended by
Telecom Co. Ltd., JPMorgan Chase Bank, N.A., as depositary, and all holders from time to time of
Annual General Meeting on June 24, 2016.
ADRs issued thereunder, including the Form of American Depositary Receipt (incorporated by
Form of Amended and Restated Deposit Agreement dated as of November 2007 among Chunghwa
reference to Exhibit (a) to the Registrant’s Registration Statement on Form F-6 (File No. 333-147321)
Telecom Co. Ltd., JPMorgan Chase Bank, N.A., as depositary, and all holders from time to time of
filed with the Commission on November 13, 2007).
ADRs issued thereunder, including the Form of American Depositary Receipt (incorporated by
8.1*
List of Subsidiaries.
reference to Exhibit (a) to the Registrant’s Registration Statement on Form F-6 (File No. 333-147321)
filed with the Commission on November 13, 2007).
Code of Ethics as approved by the board of directors on August 13, 2013 (English translation)
List of Subsidiaries.
(incorporated by reference to Exhibit 11.1 to the Registrant’s Annual Report on Form 20-F for the fiscal
year ended December 31, 2013 (File No. 001-31731) filed with the Commission on April 28, 2014).
Code of Ethics as approved by the board of directors on August 13, 2013 (English translation)
Ethical Corporate Management Best Practice Principles as approved by the board of directors on August
(incorporated by reference to Exhibit 11.1 to the Registrant’s Annual Report on Form 20-F for the fiscal
13, 2013 (English translation) (incorporated by reference to Exhibit 11.2 to the Registrant’s Annual
year ended December 31, 2013 (File No. 001-31731) filed with the Commission on April 28, 2014).
Report on Form 20-F for the fiscal year ended December 31, 2013 (File No. 001-31731) filed with the
Ethical Corporate Management Best Practice Principles as approved by the board of directors on August
Commission on April 28, 2014).
13, 2013 (English translation) (incorporated by reference to Exhibit 11.2 to the Registrant’s Annual
Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Report on Form 20-F for the fiscal year ended December 31, 2013 (File No. 001-31731) filed with the
Commission on April 28, 2014).
Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of our Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of our Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of our Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
1.1
1.2*
2.1
1.2*
2.1
11.1
8.1*
11.1
11.2
11.2
12.1*
12.2*
12.1*
13.1*
12.2*
13.2*
13.1*
13.2*
* Filed herewith.
Certification of our Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
* Filed herewith.
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has
duly caused and authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has
CHUNGHWA TELECOM CO., LTD.
duly caused and authorized the undersigned to sign this annual report on its behalf.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Chunghwa Telecom Co., Ltd.
We have audited the accompanying consolidated balance sheets of Chunghwa Telecom Co., Ltd. and
subsidiaries (the “Company”) as of December 31, 2015 and 2016, and the related consolidated statements of
comprehensive income, changes in equity, and cash flows for each of the three years in the period ended
December 31, 2016 all expressed in New Taiwan dollars. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of Chunghwa Telecom Co., Ltd. and subsidiaries as of December 31, 2015 and 2016, and the results
of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in
conformity with International Financial Reporting Standards as issued by the International Accounting
Standard Board.
Our audits also comprehended the translation of New Taiwan dollar amounts into U.S. dollar amounts and,
in our opinion, such translation has been made in conformity with the basis stated in Note 6 to the
consolidated financial statements. Such U.S. dollar amounts are presented solely for the convenience of the
readers.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2016, based on
the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated April 25, 2017 expressed an
unqualified opinion on the Company’s internal control over financial reporting.
CHUNGHWA TELECOM CO., LTD.
By: /s/ YU CHEN
Name: Yu Cheng
By: /s/ YU CHEN
Name: Yu Cheng
Title: Chairman and Chief Executive Officer
Title: Chairman and Chief Executive Officer
Date: April 25, 2017
Date: April 25, 2017
/s/ DELOITTE & TOUCHE
Deloitte & Touche
Taipei, Taiwan
The Republic of China
April 25, 2017
1
F
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2015 and 2016
(In Millions of New Taiwan or U.S. Dollars)
ASSETS
CURRENT ASSETS
Notes
2015
NT$
2016
NT$
US$ (Note 6)
LIABILITIES AND EQUITY
2015
NT$
2016
NT$
US$ (Note 6)
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
Cash and cash equivalents
Financial assets at fair value through profit or loss
Hedging derivative financial assets
Held-to-maturity financial assets
Trade notes and accounts receivable, net
Receivables from related parties
CONSOLIDATED BALANCE SHEETS
Inventories
DECEMBER 31, 2015 and 2016
Prepayments
(In Millions of New Taiwan or U.S. Dollars)
Other current monetary assets
Other current assets
Total current assets
ASSETS
NONCURRENT ASSETS
CURRENT ASSETS
Available-for-sale financial assets
Cash and cash equivalents
Held-to-maturity financial assets
Financial assets at fair value through profit or loss
Investments accounted for using equity method
Hedging derivative financial assets
Property, plant and equipment
Held-to-maturity financial assets
Investment properties
Trade notes and accounts receivable, net
Intangible assets
Receivables from related parties
Deferred income tax assets
Inventories
Net defined benefit assets
Prepayments
Prepayments
Other current monetary assets
Other noncurrent assets
Other current assets
Total noncurrent assets
Total current assets
NONCURRENT ASSETS
Available-for-sale financial assets
Held-to-maturity financial assets
Investments accounted for using equity method
Property, plant and equipment
Investment properties
Intangible assets
Deferred income tax assets
Net defined benefit assets
Prepayments
Other noncurrent assets
Total noncurrent assets
3, 7
3, 8
3, 21
3, 10
3, 4, 11
40
3, 4, 12, 41
13, 40
14, 28
20, 32, 41
Notes
3, 9
3, 7
3, 10
3, 8
3, 16
3, 21
3, 4, 17, 40, 41
3, 10
3, 4, 18
3, 4, 11
3, 4, 19
40
3, 32
3, 4, 12, 41
3, 4, 28
13, 40
13, 40
14, 28
20, 41
20, 32, 41
$ 30,271
-
1
1,881
26,926
42
8,780
2,669
3,301
2,336
2015
76,207
NT$
5,511
$ 30,271
2,140
-
2,895
1
296,399
1,881
7,902
26,926
50,447
42
2,061
8,780
11
2,669
3,612
3,301
5,586
2,336
376,564
76,207
3, 9
3, 10
3, 16
3, 4, 17, 40, 41
3, 4, 18
3, 4, 19
3, 32
3, 4, 28
13, 40
20, 41
5,511
2,140
2,895
296,399
7,902
50,447
2,061
11
3,612
5,586
$ 31,100
-
-
2,140
31,022
14
7,423
2,978
4,821
2,122
81,620
NT$
4,764
$ 31,100
-
-
2,386
-
291,170
2,140
8,115
31,022
47,353
14
2,322
7,423
919
2,978
3,241
4,821
5,025
2,122
365,295
81,620
4,764
-
2,386
291,170
8,115
47,353
2,322
919
3,241
5,025
$
960
-
-
66
957
-
229
92
149
66
2016
2,519
US$ (Note 6)
$
147
960
-
-
74
-
8,987
66
250
957
1,462
-
72
229
28
92
100
149
155
66
11,275
2,519
147
-
74
8,987
250
1,462
72
28
100
155
376,564
365,295
11,275
NONCONTROLLING INTERESTS
Total liabilities
EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE
Total equity
TOTAL
$ 452,771
$ 446,915
$ 13,794
The accompanying notes are an integral part of the consolidated financial statements.
TOTAL
$ 452,771
$ 446,915
$ 13,794
TOTAL
The accompanying notes are an integral part of the consolidated financial statements.
2
CURRENT LIABILITIES
Short-term loans
Financial liabilities at fair value through profit or loss
Hedging derivative financial liabilities
Trade notes and accounts payable
Payables to related parties
Current tax liabilities
Other payables
Provisions
Advance receipts
Current portion of long-term loans
Other current liabilities
LIABILITIES AND EQUITY
Total current liabilities
CURRENT LIABILITIES
NONCURRENT LIABILITIES
Short-term loans
Long-term loans
Financial liabilities at fair value through profit or loss
Deferred income tax liabilities
Hedging derivative financial liabilities
Provisions
Trade notes and accounts payable
Customers’ deposits
Payables to related parties
Net defined benefit liabilities
Current tax liabilities
Deferred revenue
Other payables
Other noncurrent liabilities
Provisions
Advance receipts
Total noncurrent liabilities
Current portion of long-term loans
Other current liabilities
Total liabilities
EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE
Total current liabilities
PARENT
NONCURRENT LIABILITIES
Common stocks
Long-term loans
Additional paid-in capital
Deferred income tax liabilities
Retained earnings
Provisions
Legal reserve
Customers’ deposits
Special reserve
Net defined benefit liabilities
Unappropriated earnings
Deferred revenue
Total retained earnings
Other noncurrent liabilities
Other adjustments
PARENT
Common stocks
TOTAL
Additional paid-in capital
Retained earnings
Legal reserve
Special reserve
Unappropriated earnings
Total retained earnings
Other adjustments
Total equity
Notes
22, 41
3, 8
3, 21
24
40
3, 32
25
3, 26
27
23, 41
Notes
22, 41
23, 41
3, 8
3, 32
3, 21
3, 26
24
40
40
3, 4, 28
3, 32
3
25
3, 26
27
23, 41
23, 41
3, 32
3, 26
40
3, 4, 28
3
15, 29
15, 29
$
110
$
138
$
2016
NT$
64,160
US$ (Note 6)
1,980
$
$
$
4
-
-
581
24
201
815
4
310
-
41
4
49
-
45
-
2
581
142
24
48
201
110
815
93
4
310
489
-
41
2,469
1,980
2,394
49
4,543
45
2
2,394
142
83
48
1,718
110
4,195
93
-
-
-
16,301
611
9,171
25,487
190
9,567
8
1,501
2015
NT$
62,946
110
1,742
-
148
-
58
16,301
4,726
611
7,099
9,171
3,616
25,487
3,097
190
9,567
20,486
8
1,501
83,432
62,946
148
58
77,574
4,726
2,676
7,099
59,448
1
1
18,810
762
6,522
26,418
119
10,059
-
1,330
138
1,600
1
1,464
1
66
18,810
4,610
762
1,537
6,522
3,546
26,418
3,004
119
10,059
15,827
-
1,330
79,987
64,160
1,464
66
77,574
4,610
2,676
1,537
55,657
77,574
146,733
1,742
77,574
147,180
1,600
139,698
3,616
3,097
269
135,907
3,546
3,004
(5)
83,432
5,065
79,987
6,272
2,469
193
369,339
366,928
11,325
$ 452,771
77,574
146,733
$ 446,915
77,574
147,180
2,394
$ 13,794
4,543
77,574
2,676
59,448
269
77,574
2,676
55,657
(5)
2,394
83
1,718
4,195
-
139,698
135,907
369,339
366,928
11,325
$ 452,771
$ 446,915
$ 13,794
Total equity attributable to stockholders of the parent
15, 29
364,274
360,656
11,132
NONCONTROLLING INTERESTS
15, 29
5,065
6,272
193
Total noncurrent liabilities
Total equity attributable to stockholders of the parent
364,274
20,486
360,656
15,827
11,132
489
F
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2015 and 2016
(In Millions of New Taiwan or U.S. Dollars)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Financial assets at fair value through profit or loss
Hedging derivative financial assets
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
Held-to-maturity financial assets
3, 10
Trade notes and accounts receivable, net
Receivables from related parties
CONSOLIDATED BALANCE SHEETS
Inventories
DECEMBER 31, 2015 and 2016
Prepayments
(In Millions of New Taiwan or U.S. Dollars)
Other current monetary assets
Other current assets
Total current assets
ASSETS
NONCURRENT ASSETS
CURRENT ASSETS
Available-for-sale financial assets
Cash and cash equivalents
Held-to-maturity financial assets
Financial assets at fair value through profit or loss
Investments accounted for using equity method
Hedging derivative financial assets
Property, plant and equipment
Held-to-maturity financial assets
Investment properties
Trade notes and accounts receivable, net
Intangible assets
Receivables from related parties
Deferred income tax assets
Inventories
Net defined benefit assets
Prepayments
Prepayments
Other current monetary assets
Other noncurrent assets
Other current assets
Total noncurrent assets
Total current assets
NONCURRENT ASSETS
Available-for-sale financial assets
Held-to-maturity financial assets
Investments accounted for using equity method
Property, plant and equipment
Investment properties
Intangible assets
Deferred income tax assets
Net defined benefit assets
Prepayments
Other noncurrent assets
Total noncurrent assets
$ 30,271
$ 31,100
$
960
Notes
3, 7
3, 8
3, 21
3, 4, 11
40
3, 4, 12, 41
13, 40
14, 28
20, 32, 41
Notes
3, 9
3, 7
3, 10
3, 8
3, 16
3, 21
3, 10
3, 4, 18
3, 4, 11
3, 4, 19
40
3, 32
3, 4, 12, 41
3, 4, 28
13, 40
13, 40
14, 28
20, 41
20, 32, 41
3, 9
3, 10
3, 16
3, 4, 18
3, 4, 19
3, 32
3, 4, 28
13, 40
20, 41
2015
NT$
-
1
1,881
26,926
42
8,780
2,669
3,301
2,336
2015
76,207
NT$
2,895
-
1
1,881
7,902
26,926
50,447
42
2,061
8,780
11
2,669
3,612
3,301
5,586
2,336
5,511
2,140
2,895
7,902
50,447
2,061
11
3,612
5,586
2016
81,620
NT$
2,519
US$ (Note 6)
5,511
$ 30,271
2,140
4,764
$ 31,100
$
3, 4, 17, 40, 41
296,399
291,170
376,564
76,207
365,295
81,620
11,275
2,519
3, 4, 17, 40, 41
296,399
291,170
-
-
2,140
31,022
14
7,423
2,978
4,821
2,122
2,386
-
-
-
2,140
8,115
31,022
47,353
14
2,322
7,423
919
2,978
3,241
4,821
5,025
2,122
4,764
-
2,386
8,115
47,353
2,322
919
3,241
5,025
-
-
66
957
-
229
92
149
66
147
960
-
-
74
8,987
-
66
250
957
1,462
-
72
229
28
92
100
149
155
66
147
-
74
8,987
250
1,462
72
28
100
155
TOTAL
$ 452,771
$ 446,915
$ 13,794
The accompanying notes are an integral part of the consolidated financial statements.
2016
NT$
US$ (Note 6)
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans
Financial liabilities at fair value through profit or loss
Hedging derivative financial liabilities
Trade notes and accounts payable
Payables to related parties
Current tax liabilities
Other payables
Provisions
Advance receipts
Current portion of long-term loans
Other current liabilities
LIABILITIES AND EQUITY
Total current liabilities
CURRENT LIABILITIES
NONCURRENT LIABILITIES
Short-term loans
Long-term loans
Financial liabilities at fair value through profit or loss
Deferred income tax liabilities
Hedging derivative financial liabilities
Provisions
Trade notes and accounts payable
Customers’ deposits
Payables to related parties
Net defined benefit liabilities
Current tax liabilities
Deferred revenue
Other payables
Other noncurrent liabilities
Provisions
Advance receipts
Total noncurrent liabilities
Current portion of long-term loans
Other current liabilities
Total liabilities
EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE
Total current liabilities
PARENT
NONCURRENT LIABILITIES
Common stocks
Long-term loans
Additional paid-in capital
Deferred income tax liabilities
Retained earnings
Provisions
Legal reserve
Customers’ deposits
Special reserve
Net defined benefit liabilities
Unappropriated earnings
Deferred revenue
Total retained earnings
Other noncurrent liabilities
Other adjustments
376,564
365,295
11,275
NONCONTROLLING INTERESTS
Total liabilities
Total noncurrent liabilities
Total equity attributable to stockholders of the parent
Notes
22, 41
3, 8
3, 21
24
40
3, 32
25
3, 26
27
23, 41
Notes
22, 41
23, 41
3, 8
3, 32
3, 21
3, 26
24
40
40
3, 4, 28
3, 32
3
25
3, 26
27
23, 41
23, 41
3, 32
3, 26
40
3, 4, 28
3
15, 29
15, 29
EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE
Total equity
TOTAL
PARENT
Common stocks
Additional paid-in capital
Retained earnings
Legal reserve
Special reserve
Unappropriated earnings
Total retained earnings
Other adjustments
2016
NT$
US$ (Note 6)
$
138
1
1
18,810
762
6,522
26,418
119
10,059
-
1,330
2016
4
-
-
581
24
201
815
4
310
-
41
NT$
64,160
US$ (Note 6)
1,980
$
$
$
$
2015
NT$
110
-
-
16,301
611
9,171
25,487
190
9,567
8
1,501
2015
NT$
62,946
110
1,742
-
148
-
58
16,301
4,726
611
7,099
9,171
3,616
25,487
3,097
190
9,567
20,486
8
1,501
83,432
62,946
138
1,600
1
1,464
1
66
18,810
4,610
762
1,537
6,522
3,546
26,418
3,004
119
10,059
15,827
-
1,330
79,987
64,160
77,574
1,742
146,733
148
58
77,574
4,726
2,676
7,099
59,448
3,616
139,698
3,097
269
77,574
1,600
147,180
1,464
66
77,574
4,610
2,676
1,537
55,657
3,546
135,907
3,004
(5)
20,486
364,274
15,827
360,656
489
11,132
83,432
5,065
79,987
6,272
2,469
193
369,339
366,928
11,325
77,574
$ 452,771
146,733
77,574
$ 446,915
147,180
2,394
$ 13,794
4,543
77,574
2,676
59,448
139,698
269
77,574
2,676
55,657
135,907
(5)
2,394
83
1,718
4,195
-
$
4
49
-
45
-
2
581
142
24
48
201
110
815
93
4
310
489
-
41
2,469
1,980
2,394
49
4,543
45
2
2,394
142
83
48
1,718
110
4,195
93
-
TOTAL
$ 452,771
$ 446,915
$ 13,794
TOTAL
Total equity
369,339
366,928
11,325
$ 452,771
$ 446,915
$ 13,794
Total equity attributable to stockholders of the parent
15, 29
364,274
360,656
11,132
NONCONTROLLING INTERESTS
15, 29
5,065
6,272
193
The accompanying notes are an integral part of the consolidated financial statements.
3
F
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2014, 2015 and 2016
(In Millions of New Taiwan or U.S. Dollars, Except Earnings Per Share That Are in New Taiwan or U.S. Dollars)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2014, 2015 and 2016
(In Millions of New Taiwan or U.S. Dollars, Except Earnings Per Share That Are in New Taiwan or U.S. Dollars)
Notes
2014
NT$
2015
NT$
2016
NT$
US$ (Note 6)
Notes
2014
NT$
2015
NT$
2016
NT$
US$ (Note 6)
REVENUES
4, 30, 40, 43
$ 226,609
$ 231,795
$ 229,991
$ 7,099
OPERATING COSTS
12, 28, 31, 40
148,380
148,126
147,552
4,554
GROSS PROFIT
78,229
83,669
82,439
2,545
$
164
$
24
$
(170)
$
OPERATING EXPENSES
Marketing
General and administrative
Research and development
Total operating expenses
28, 31, 40
OTHER INCOME AND EXPENSES
17, 18, 31
26,145
4,414
3,504
34,063
631
25,071
4,515
3,617
33,203
25,516
4,537
3,785
788
140
117
33,838
1,045
(105)
(496)
(15)
INCOME FROM OPERATIONS
44,797
50,361
48,105
1,485
NON-OPERATING INCOME AND
EXPENSES
Interest income
Other income
Other gains and losses
Interest expenses
Share of the profits of associates and
joint ventures accounted for using
equity method
Total non-operating income and
expenses
INCOME BEFORE INCOME TAX
31, 40
31, 40
16
INCOME TAX EXPENSE
3, 32
NET INCOME
TOTAL OTHER COMPREHENSIVE
INCOME (LOSS)
Items that will not be reclassified to
profit or loss:
Remeasurements of defined benefit
pension plans
Share of remeasurements of defined
benefit pension plans of associates
and joint ventures
Income tax benefit relating to items
that will not be reclassified to
profit or loss
28
16
32
4
288
587
124
(46)
802
1,755
46,552
8,985
37,567
306
650
(228)
(33)
189
1,072
(448)
(20)
897
515
6
33
(14)
(1)
16
40
1,592
51,953
9,101
42,852
1,308
49,413
1,525
7,787
240
41,626
1,285
(492)
(231)
(2,043)
(63)
1
(25)
(44)
84
(407)
39
(217)
347
(1,740)
(2)
11
(54)
(Continued)
Items that may be reclassified
subsequently to profit or loss:
Exchange differences arising from the
translation of the foreign
operations
Unrealized gain (loss) on
available-for-sale financial assets
Cash flow hedges
Share of exchange differences arising
from the translation of the foreign
operations of associates and joint
ventures
Income tax benefit (expense) relating
to items that may be reclassified
subsequently
31
21, 31
16
32
NET INCOME ATTRIBUTABLE TO
Stockholders of the parent
Noncontrolling interests
COMPREHENSIVE INCOME
ATTRIBUTABLE TO
Stockholders of the parent
Noncontrolling interests
878
-
4
3
1,049
(645)
1
(144)
(1)
6
(3)
(2)
(616)
2
(316)
(5)
(5)
-
-
-
(10)
(64)
$ 36,970
$ 42,039
$ 40,485
$ 1,250
597
813
1,141
35
$ 37,567
$ 42,852
$ 41,626
$ 1,285
$ 37,594
$ 41,207
$ 38,486
$ 1,188
615
812
1,084
33
$ 38,209
$ 42,019
$ 39,570
$ 1,221
Total other comprehensive income
(loss), net of income tax
642
(833)
(2,056)
TOTAL COMPREHENSIVE INCOME
$ 38,209
$ 42,019
$ 39,570
$ 1,221
EARNINGS PER SHARE
33
Basic
Diluted
Basic
Diluted
EARNINGS PER EQUIVALENT ADS
$4.77
$4.76
$47.66
$47.58
$5.42
$5.41
$54.19
$54.06
$5.22
$5.21
$0.16
$0.16
$52.19
$52.11
$1.61
$1.61
The accompanying notes are an integral part of the consolidated financial statements.
(Concluded)
F
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2014, 2015 and 2016
(In Millions of New Taiwan or U.S. Dollars, Except Earnings Per Share That Are in New Taiwan or U.S. Dollars)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2014, 2015 and 2016
(In Millions of New Taiwan or U.S. Dollars, Except Earnings Per Share That Are in New Taiwan or U.S. Dollars)
Notes
2014
NT$
2015
NT$
2016
NT$
US$ (Note 6)
Notes
2014
NT$
2015
NT$
2016
NT$
US$ (Note 6)
REVENUES
4, 30, 40, 43
$ 226,609
$ 231,795
$ 229,991
$ 7,099
OPERATING COSTS
12, 28, 31, 40
148,380
148,126
147,552
4,554
GROSS PROFIT
78,229
83,669
82,439
2,545
OPERATING EXPENSES
Marketing
General and administrative
Research and development
Total operating expenses
28, 31, 40
25,071
4,515
3,617
33,203
25,516
4,537
3,785
788
140
117
33,838
1,045
OTHER INCOME AND EXPENSES
17, 18, 31
(105)
(496)
(15)
INCOME FROM OPERATIONS
44,797
50,361
48,105
1,485
NON-OPERATING INCOME AND
EXPENSES
Interest income
Other income
Other gains and losses
Interest expenses
Share of the profits of associates and
joint ventures accounted for using
equity method
Total non-operating income and
expenses
INCOME BEFORE INCOME TAX
NET INCOME
TOTAL OTHER COMPREHENSIVE
INCOME (LOSS)
Items that will not be reclassified to
profit or loss:
Remeasurements of defined benefit
pension plans
Share of remeasurements of defined
benefit pension plans of associates
and joint ventures
Income tax benefit relating to items
that will not be reclassified to
profit or loss
31, 40
31, 40
16
28
16
32
INCOME TAX EXPENSE
3, 32
26,145
4,414
3,504
34,063
631
288
587
124
(46)
802
1,755
46,552
8,985
37,567
897
515
306
650
(228)
(33)
1,592
51,953
9,101
42,852
189
1,072
(448)
(20)
1,308
6
33
(14)
(1)
16
40
49,413
1,525
7,787
240
41,626
1,285
(492)
(231)
(2,043)
(63)
1
(25)
(44)
84
(407)
39
(217)
347
(1,740)
(2)
11
(54)
(Continued)
Items that may be reclassified
subsequently to profit or loss:
Exchange differences arising from the
translation of the foreign
operations
Unrealized gain (loss) on
available-for-sale financial assets
Cash flow hedges
Share of exchange differences arising
from the translation of the foreign
operations of associates and joint
ventures
Income tax benefit (expense) relating
to items that may be reclassified
subsequently
Total other comprehensive income
(loss), net of income tax
$
164
$
24
$
(170)
$
31
21, 31
878
-
(645)
1
(144)
(1)
(5)
(5)
-
16
32
4
6
(3)
-
3
1,049
(2)
(616)
2
(316)
642
(833)
(2,056)
-
(10)
(64)
TOTAL COMPREHENSIVE INCOME
$ 38,209
$ 42,019
$ 39,570
$ 1,221
NET INCOME ATTRIBUTABLE TO
Stockholders of the parent
Noncontrolling interests
COMPREHENSIVE INCOME
ATTRIBUTABLE TO
Stockholders of the parent
Noncontrolling interests
$ 36,970
597
$ 42,039
813
$ 40,485
1,141
$ 1,250
35
$ 37,567
$ 42,852
$ 41,626
$ 1,285
$ 37,594
615
$ 41,207
812
$ 38,486
1,084
$ 1,188
33
$ 38,209
$ 42,019
$ 39,570
$ 1,221
EARNINGS PER SHARE
33
Basic
Diluted
EARNINGS PER EQUIVALENT ADS
Basic
Diluted
$4.77
$4.76
$47.66
$47.58
$5.42
$5.41
$54.19
$54.06
$5.22
$5.21
$0.16
$0.16
$52.19
$52.11
$1.61
$1.61
The accompanying notes are an integral part of the consolidated financial statements.
(Concluded)
5
F
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED DECEMBER 31, 2014, 2015 and 2016
(In Millions of New Taiwan or U.S. Dollars)
BALANCE, JANUARY 1, 2014
$
77,574
$ 163,294
$
74,819
$
2,676
$
40,075
$ 117,570
$
6
$
(150 )
$
$
(144 )
$ 358,294
$
4,846
$ 363,140
Common Stocks
NT$
Additional
Paid-in Capital
NT$
Legal Reserve
NT$
Special Reserve
NT$
Unappropriated
Earnings
NT$
Total Retained
Translation of the
Available-for-sale
Earnings
NT$
Foreign Operations
Financial Assets
Cash Flow Hedges
NT$
NT$
NT$
Total Other
Adjustments
NT$
Noncontrolling
Interests
NT$
Total Equity
NT$
Equity Attributable to Stockholders of the Parent
Retained Earnings
Exchange Differences
Arising from the
Unrealized
Gain (Loss) on
Other Adjustments
Appropriation of 2013 earnings
Legal reserve
Special reserve
Cash dividends paid by Chunghwa
Cash dividends distributed by subsidiaries
Cash distributed from additional paid-in capital
Change in additional paid-in capital from share subscription not based on
original ownership of a subsidiary
Net income for the year ended December 31, 2014
Other comprehensive income for the year ended December 31, 2014
Total comprehensive income for the year ended December 31, 2014
Compensation cost of employee stock options of a subsidiary
Employee stock bonus issued by a subsidiary
Net increase in noncontrolling interests
BALANCE, DECEMBER 31, 2014
Appropriation of 2014 earnings
Legal reserve
Special reserve
Cash dividends paid by Chunghwa
Cash dividends distributed by subsidiaries
Reversal of special reserve recognized from land disposal
Partial disposal of interests in subsidiaries
Other changes in additional paid-in capital in subsidiaries
Change in additional paid-in capital from share subscription not based on
original ownership of a subsidiary
Net income for the year ended December 31, 2015
Other comprehensive income for the year ended December 31, 2015
Total comprehensive income for the year ended December 31, 2015
Compensation cost of employee stock options of subsidiaries
Subsidiary purchased its treasury stock
Net increase in noncontrolling interests
BALANCE, DECEMBER 31, 2015
Appropriation of 2015 earnings
Cash dividends paid by Chunghwa
Cash dividends distributed by subsidiaries
Partial disposal of interests in subsidiaries
Change in additional paid-in capital for not participating in the capital
increase of a subsidiary
Net income for the year ended December 31, 2016
Other comprehensive loss for the year ended December 31, 2016
Total comprehensive income (loss) for the year ended December 31, 2016
Share-based payment transactions of subsidiaries
Net increase in noncontrolling interests
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(16,577 )
3
-
-
-
-
-
-
2,074
-
-
-
144
-
(2,074 )
(144 )
(18,526 )
(18,526 )
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
36,970
(406 )
36,564
-
-
-
140
140
890
890
1,030
1,030
77,574
146,720
76,893
2,820
55,895
135,608
146
740
886
360,788
4,924
365,712
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27
1
-
-
-
-
-
(15 )
-
681
-
-
-
(144 )
-
(681 )
144
(37,673 )
(37,673 )
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
42,039
(215 )
41,824
-
(61 )
-
31
31
(649 )
(649 )
(617 )
(617 )
77,574
146,733
77,574
2,676
59,448
139,698
177
91
269
364,274
-
-
-
-
-
-
-
-
-
-
-
58
389
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(42,551 )
(42,551 )
-
-
-
40,485
(1,725 )
38,760
-
-
(131 )
(131 )
(142 )
(142 )
(1 )
(1 )
(274 )
(274 )
BALANCE, DECEMBER 31, 2016
$
77,574
$ 147,180
$
77,574
BALANCE, DECEMBER 31, 2016 (IN MILLIONS OF US$ - Note 6)
$
2,394
$
4,543
$
2,394
6
The accompanying notes are an integral part of the consolidated financial statements.
$
$
2,676
83
$
55,657
$ 135,907
$
1,718
$
4,195
$
$
46
1
$
$
(51 )
(1 )
$
$
$
$
(5 )
$ 360,656
$
11,132
$
$
6,272
193
$ 366,928
$
11,325
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
36,970
(406 )
36,564
42,039
(215 )
41,824
(61 )
40,485
(1,725 )
38,760
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total Equity
Attributable to
Stockholders
of the Parent
NT$
-
-
-
3
-
-
-
-
-
-
-
(18,526 )
(16,577 )
36,970
624
37,594
(37,673 )
27
1
-
42,039
(832 )
41,207
(76 )
-
-
(42,551 )
-
58
389
40,485
(1,999 )
38,486
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(797 )
-
-
-
-
-
597
18
615
93
5
162
-
-
-
-
18
2
-
(350 )
813
(1 )
812
36
(416 )
39
5,065
-
(710 )
25
786
1,141
(57 )
1,084
17
5
-
-
(18,526 )
(797 )
(16,577 )
3
37,567
642
38,209
93
5
162
(37,673 )
(350 )
-
-
-
45
3
-
42,852
(833 )
42,019
(492 )
36
39
369,339
(42,551 )
(710 )
83
1,175
41,626
(2,056 )
39,570
17
5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
1
-
-
-
1
-
-
-
-
-
-
-
-
-
F
Common Stocks
NT$
Additional
Paid-in Capital
NT$
Legal Reserve
Special Reserve
NT$
NT$
Unappropriated
Earnings
NT$
Total Retained
Earnings
NT$
Retained Earnings
Other Adjustments
Exchange Differences
Arising from the
Translation of the
Foreign Operations
NT$
Unrealized
Gain (Loss) on
Available-for-sale
Financial Assets
NT$
Cash Flow Hedges
NT$
Total Other
Adjustments
NT$
Total Equity
Attributable to
Stockholders
of the Parent
NT$
Noncontrolling
Interests
NT$
Total Equity
NT$
Equity Attributable to Stockholders of the Parent
BALANCE, JANUARY 1, 2014
$
77,574
$ 163,294
$
74,819
$
2,676
$
40,075
$ 117,570
$
6
$
(150 )
$
2,074
144
(2,074 )
(144 )
(18,526 )
-
-
(18,526 )
-
-
-
36,970
(406 )
36,564
-
-
-
-
-
-
-
-
-
-
140
140
-
-
-
-
-
-
-
-
-
-
890
890
-
-
-
77,574
146,720
76,893
2,820
55,895
135,608
146
740
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED DECEMBER 31, 2014, 2015 and 2016
(In Millions of New Taiwan or U.S. Dollars)
Appropriation of 2013 earnings
Legal reserve
Special reserve
Cash dividends paid by Chunghwa
Cash dividends distributed by subsidiaries
Cash distributed from additional paid-in capital
Change in additional paid-in capital from share subscription not based on
original ownership of a subsidiary
Net income for the year ended December 31, 2014
Other comprehensive income for the year ended December 31, 2014
Total comprehensive income for the year ended December 31, 2014
Compensation cost of employee stock options of a subsidiary
Employee stock bonus issued by a subsidiary
Net increase in noncontrolling interests
BALANCE, DECEMBER 31, 2014
Appropriation of 2014 earnings
Legal reserve
Special reserve
Cash dividends paid by Chunghwa
Cash dividends distributed by subsidiaries
Reversal of special reserve recognized from land disposal
Partial disposal of interests in subsidiaries
Other changes in additional paid-in capital in subsidiaries
Change in additional paid-in capital from share subscription not based on
original ownership of a subsidiary
Net income for the year ended December 31, 2015
Other comprehensive income for the year ended December 31, 2015
Total comprehensive income for the year ended December 31, 2015
Compensation cost of employee stock options of subsidiaries
Subsidiary purchased its treasury stock
Net increase in noncontrolling interests
BALANCE, DECEMBER 31, 2015
Appropriation of 2015 earnings
Cash dividends paid by Chunghwa
Cash dividends distributed by subsidiaries
Partial disposal of interests in subsidiaries
Change in additional paid-in capital for not participating in the capital
increase of a subsidiary
Net income for the year ended December 31, 2016
Other comprehensive loss for the year ended December 31, 2016
Total comprehensive income (loss) for the year ended December 31, 2016
Share-based payment transactions of subsidiaries
Net increase in noncontrolling interests
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(16,577 )
3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27
1
(15 )
58
389
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
36,970
(406 )
36,564
42,039
(215 )
41,824
(61 )
40,485
(1,725 )
38,760
681
(144 )
(681 )
144
(37,673 )
-
-
(37,673 )
-
-
-
-
-
42,039
(215 )
41,824
-
(61 )
-
77,574
146,733
77,574
2,676
59,448
139,698
(42,551 )
(42,551 )
-
-
-
40,485
(1,725 )
38,760
-
-
BALANCE, DECEMBER 31, 2016
$
77,574
$ 147,180
$
77,574
$
55,657
$ 135,907
BALANCE, DECEMBER 31, 2016 (IN MILLIONS OF US$ - Note 6)
$
2,394
$
4,543
$
2,394
$
1,718
$
4,195
$
$
2,676
83
The accompanying notes are an integral part of the consolidated financial statements.
-
-
-
-
-
-
-
-
-
31
31
-
-
-
177
-
-
-
-
-
(131 )
(131 )
-
-
46
1
$
$
$
$
-
-
-
-
-
-
-
-
-
(649 )
(649 )
-
-
-
91
-
-
-
-
-
(142 )
(142 )
-
-
(51 )
(1 )
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
1
-
-
-
1
-
-
-
-
-
$
(144 )
$ 358,294
$
4,846
$ 363,140
-
-
-
-
-
-
-
1,030
1,030
-
-
-
-
-
(18,526 )
-
(16,577 )
3
36,970
624
37,594
-
-
-
-
-
-
(797 )
-
-
597
18
615
93
5
162
-
-
(18,526 )
(797 )
(16,577 )
3
37,567
642
38,209
93
5
162
886
360,788
4,924
365,712
-
-
-
-
-
-
-
-
-
(617 )
(617 )
-
-
-
-
-
(37,673 )
-
-
27
1
-
42,039
(832 )
41,207
-
(76 )
-
269
364,274
(42,551 )
-
58
389
40,485
(1,999 )
38,486
-
-
-
-
-
-
-
(274 )
(274 )
-
-
(5 )
-
-
-
-
(350 )
-
18
2
-
813
(1 )
812
36
(416 )
39
5,065
-
(710 )
25
786
1,141
(57 )
1,084
17
5
-
-
(37,673 )
(350 )
-
45
3
-
42,852
(833 )
42,019
36
(492 )
39
369,339
(42,551 )
(710 )
83
1,175
41,626
(2,056 )
39,570
17
5
(1 )
(1 )
-
-
-
-
$
$
$
$
$ 360,656
$
11,132
$
$
6,272
193
$ 366,928
$
11,325
7
F
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2014, 2015 and 2016
YEARS ENDED DECEMBER 31, 2014, 2015 and 2016
(In Millions of New Taiwan or U.S. Dollars)
(In Millions of New Taiwan or U.S. Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
CASH FLOWS FROM OPERATING ACTIVITIES
properties
properties
equipment
equipment
equity method
equity method
Income before income tax
Income before income tax
Adjustments to reconcile income before income tax to
Adjustments to reconcile income before income tax to
net cash provided by operating activities:
net cash provided by operating activities:
Depreciation
Depreciation
Amortization
Amortization
Provision for doubtful accounts
Provision for doubtful accounts
Interest expenses
Interest expenses
Interest income
Interest income
Dividend income
Dividend income
Compensation cost of share-based payment
Compensation cost of share-based payment
transactions
transactions
Share of profits of associates and joint ventures
Share of profits of associates and joint ventures
accounted for using equity method
accounted for using equity method
Loss (gain) on disposal of investments accounted for
Loss (gain) on disposal of investments accounted for
using equity method
using equity method
Impairment loss on available-for-sale financial assets
Impairment loss on available-for-sale financial assets
Impairment loss on investments accounted for using
Impairment loss on investments accounted for using
Provision for inventory and obsolescence
Provision for inventory and obsolescence
Impairment loss on property, plant and equipment
Impairment loss on property, plant and equipment
Reversal of impairment loss on investment
Reversal of impairment loss on investment
Impairment loss on intangible assets
Impairment loss on intangible assets
Gain on disposal of financial instruments
Gain on disposal of financial instruments
Loss (gain) on disposal of property, plant and
Loss (gain) on disposal of property, plant and
Gain on disposal of investment properties
Gain on disposal of investment properties
Loss on disposal of intangible assets
Loss on disposal of intangible assets
Valuation loss (gain) on financial assets and
Valuation loss (gain) on financial assets and
Loss (gain) on foreign exchange, net
Loss (gain) on foreign exchange, net
Changes in operating assets and liabilities:
Changes in operating assets and liabilities:
Financial assets held for trading
Financial assets held for trading
Trade notes and accounts receivable
Trade notes and accounts receivable
Receivables from related parties
Receivables from related parties
Inventories
Inventories
Prepayments
Prepayments
Other current monetary assets
Other current monetary assets
Other current assets
Other current assets
Increase (decrease) in:
Increase (decrease) in:
Trade notes and accounts payable
Trade notes and accounts payable
Payables to related parties
Payables to related parties
Other payables
Other payables
Provisions
Provisions
Advance receipts
Advance receipts
Other current liabilities
Other current liabilities
Deferred revenue
Deferred revenue
Net defined benefit plans
Net defined benefit plans
Cash generated from operations
Cash generated from operations
Interest paid
Interest paid
Income tax paid
Income tax paid
liabilities at fair value through profit or loss, net
liabilities at fair value through profit or loss, net
Decrease (increase) in:
Decrease (increase) in:
Net cash provided by operating activities
Net cash provided by operating activities
8
2014
2014
NT$
NT$
2015
2015
NT$
NT$
NT$
NT$
2016
2016
US$ (Note 6)
US$ (Note 6)
$ 46,552
$ 46,552
$ 51,953
$ 51,953
$ 49,413
$ 49,413
$
$
1,525
1,525
31,896
31,896
2,218
2,218
326
326
46
46
(288)
(288)
(78)
(78)
93
93
(802)
(802)
7
7
23
23
-
-
288
288
-
-
-
-
-
-
(46)
(46)
(26)
(26)
(605)
(605)
-
-
(1)
(1)
(164)
(164)
-
-
(3,617)
(3,617)
(12)
(12)
463
463
(116)
(116)
1,268
1,268
741
741
2,972
2,972
(149)
(149)
(1,868)
(1,868)
20
20
449
449
13
13
(303)
(303)
494
494
79,794
79,794
(43)
(43)
(8,373)
(8,373)
71,378
71,378
30,368
30,368
3,080
3,080
519
519
33
33
(306)
(306)
(218)
(218)
36
36
(897)
(897)
(4)
(4)
107
107
8
8
198
198
138
138
(142)
(142)
-
-
-
-
109
109
-
-
-
-
-
-
54
54
1
1
(1,172)
(1,172)
39
39
(1,852)
(1,852)
(327)
(327)
(357)
(357)
889
889
(2,223)
(2,223)
203
203
1,644
1,644
(24)
(24)
1,134
1,134
(112)
(112)
218
218
439
439
83,536
83,536
(33)
(33)
(7,178)
(7,178)
76,325
76,325
29,106
29,106
3,379
3,379
941
941
20
20
(189)
(189)
(391)
(391)
17
17
(515)
(515)
2
2
577
577
-
-
192
192
596
596
(148)
(148)
-
-
-
-
48
48
-
-
-
-
1
1
(80)
(80)
-
-
(4,613)
(4,613)
28
28
1,166
1,166
62
62
(242)
(242)
214
214
2,497
2,497
151
151
(76)
(76)
(63)
(63)
504
504
7
7
(70)
(70)
(8,539)
(8,539)
73,995
73,995
(20)
(20)
(9,023)
(9,023)
64,952
64,952
898
898
104
104
29
29
1
1
(6)
(6)
(12)
(12)
1
1
(16)
(16)
-
-
18
18
-
-
6
6
18
18
(5)
(5)
-
-
-
-
1
1
-
-
-
-
-
-
(2)
(2)
-
-
(142)
(142)
1
1
36
36
2
2
(7)
(7)
6
6
77
77
5
5
(2)
(2)
(2)
(2)
16
16
-
-
(2)
(2)
(264)
(264)
2,284
2,284
(1)
(1)
(278)
(278)
2,005
2,005
(Continued)
(Continued)
F
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2014, 2015 and 2016
YEARS ENDED DECEMBER 31, 2014, 2015 and 2016
(In Millions of New Taiwan or U.S. Dollars)
(In Millions of New Taiwan or U.S. Dollars)
2014
2014
NT$
NT$
2015
2015
NT$
NT$
2016
2016
NT$
NT$
US$ (Note 6)
US$ (Note 6)
$ 46,552
$ 46,552
$ 51,953
$ 51,953
$ 49,413
$ 49,413
$
$
1,525
1,525
31,896
31,896
2,218
2,218
326
30,368
30,368
3,080
3,080
519
29,106
29,106
3,379
3,379
941
CASH FLOWS FROM OPERATING ACTIVITIES
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Income before income tax
Adjustments to reconcile income before income tax to
Adjustments to reconcile income before income tax to
net cash provided by operating activities:
net cash provided by operating activities:
Depreciation
Depreciation
Amortization
Amortization
Provision for doubtful accounts
Provision for doubtful accounts
Interest expenses
Interest expenses
Interest income
Interest income
Dividend income
Dividend income
Compensation cost of share-based payment
Compensation cost of share-based payment
transactions
Share of profits of associates and joint ventures
transactions
Share of profits of associates and joint ventures
accounted for using equity method
Loss (gain) on disposal of investments accounted for
accounted for using equity method
Loss (gain) on disposal of investments accounted for
using equity method
Impairment loss on available-for-sale financial assets
using equity method
Impairment loss on available-for-sale financial assets
Impairment loss on investments accounted for using
Impairment loss on investments accounted for using
equity method
Provision for inventory and obsolescence
equity method
Provision for inventory and obsolescence
Impairment loss on property, plant and equipment
Impairment loss on property, plant and equipment
Reversal of impairment loss on investment
Reversal of impairment loss on investment
properties
Impairment loss on intangible assets
properties
Impairment loss on intangible assets
Gain on disposal of financial instruments
Gain on disposal of financial instruments
Loss (gain) on disposal of property, plant and
Loss (gain) on disposal of property, plant and
equipment
Gain on disposal of investment properties
equipment
Gain on disposal of investment properties
Loss on disposal of intangible assets
Loss on disposal of intangible assets
Valuation loss (gain) on financial assets and
Valuation loss (gain) on financial assets and
liabilities at fair value through profit or loss, net
Loss (gain) on foreign exchange, net
liabilities at fair value through profit or loss, net
Loss (gain) on foreign exchange, net
Changes in operating assets and liabilities:
Changes in operating assets and liabilities:
Decrease (increase) in:
Decrease (increase) in:
Financial assets held for trading
Financial assets held for trading
Trade notes and accounts receivable
Trade notes and accounts receivable
Receivables from related parties
Receivables from related parties
Inventories
Inventories
Prepayments
Prepayments
Other current monetary assets
Other current monetary assets
Other current assets
Increase (decrease) in:
Other current assets
Increase (decrease) in:
Trade notes and accounts payable
Trade notes and accounts payable
Payables to related parties
Payables to related parties
Other payables
Other payables
Provisions
Provisions
Advance receipts
Advance receipts
Other current liabilities
Other current liabilities
Deferred revenue
Deferred revenue
Net defined benefit plans
Cash generated from operations
Net defined benefit plans
Cash generated from operations
Interest paid
Interest paid
Income tax paid
Income tax paid
Net cash provided by operating activities
Net cash provided by operating activities
326
46
(288)
46
(288)
(78)
(78)
93
93
(802)
(802)
7
7
23
23
-
288
-
288
-
-
-
-
-
(46)
-
(46)
(26)
(26)
(605)
(605)
-
-
(1)
(164)
(1)
(164)
-
(3,617)
-
(3,617)
(12)
(12)
463
463
(116)
(116)
1,268
1,268
741
741
2,972
2,972
(149)
(1,868)
(149)
(1,868)
20
20
449
449
13
(303)
13
(303)
494
79,794
494
79,794
(43)
(8,373)
(43)
(8,373)
71,378
71,378
519
33
(306)
33
(306)
(218)
(218)
36
36
(897)
(897)
(4)
(4)
107
107
8
198
8
198
138
138
(142)
(142)
-
109
109
-
-
-
-
-
-
-
-
-
54
54
1
(1,172)
1
(1,172)
39
(1,852)
39
(1,852)
(327)
(327)
(357)
(357)
889
889
(2,223)
(2,223)
203
1,644
203
1,644
(24)
1,134
(24)
1,134
(112)
(112)
218
218
439
83,536
439
83,536
(33)
(7,178)
(33)
(7,178)
76,325
76,325
941
20
(189)
20
(189)
(391)
(391)
17
17
(515)
(515)
2
577
2
577
-
192
-
192
596
596
(148)
(148)
-
-
-
-
48
48
-
-
-
-
1
(80)
1
(80)
-
(4,613)
-
(4,613)
28
1,166
28
1,166
62
(242)
62
(242)
214
214
2,497
2,497
151
151
(76)
(76)
(63)
(63)
504
504
7
(70)
7
(8,539)
(70)
(8,539)
73,995
73,995
(20)
(9,023)
(20)
(9,023)
64,952
64,952
898
898
104
104
29
29
1
1
(6)
(6)
(12)
(12)
1
1
(16)
(16)
-
-
18
18
-
-
6
6
18
18
(5)
(5)
-
-
-
-
1
1
-
-
-
-
-
-
(2)
(2)
1
36
36
2
2
(7)
(7)
6
6
77
77
5
5
(2)
(2)
(2)
(2)
16
16
-
-
(2)
-
(142)
-
(142)
1
(264)
(2)
(264)
2,284
2,284
(1)
(278)
(1)
(278)
2,005
(Continued)
2,005
(Continued)
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2014, 2015 and 2016
(In Millions of New Taiwan or U.S. Dollars)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of available-for-sale financial assets
Proceeds from disposal of available-for-sale financial
assets
Acquisition of time deposits and negotiable certificate
2014
NT$
2015
NT$
2016
NT$
US$ (Note 6)
$
(59)
$
(29)
$
(53)
$
85
2
39
(2)
1
of deposit with maturities of more than three months
(411)
(11,494)
(4,119)
(127)
Proceeds from disposal of time deposits and negotiable
certificate of deposit with maturities of more than
three months
Acquisition of held-to-maturity financial assets
Proceeds from disposal of held-to-maturity financial
assets
Proceeds from capital reduction of available-for-sale
financial assets
Acquisition of investments accounted for using equity
method
Proceeds from disposal of investments accounted for
using equity method
Net cash outflow on acquisition of subsidiaries
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and
equipment
Proceeds from disposal of investment properties
Acquisition of intangible assets
Acquisition of investment properties
Decrease (increase) in other noncurrent assets
Interest received
Cash dividends received
471
-
4,258
84
(252)
-
-
(32,559)
150
1,215
(644)
-
(719)
340
667
11,824
(1,002)
4,450
44
(6)
16
(114)
(25,084)
4
-
(10,380)
-
72
337
907
2,834
-
1,875
37
(30)
182
-
(23,517)
44
-
(282)
-
63
198
1,066
88
-
58
1
(1)
6
-
(726)
1
-
(9)
-
2
6
33
Net cash used in investing activities
(27,374)
(30,453)
(21,663)
(669)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term loans
Repayment of short-term loans
Proceeds from long-term loans
Repayment of long-term loans
Increase in repurchase agreement collateralized by
bonds
Decrease in repurchase agreement collateralized by
bonds
Decrease in customers’ deposits
Increase (decrease) in other noncurrent liabilities
Cash dividends and cash distributed from additional
paid-in capital
Partial disposal of interests in subsidiaries without
losing control
Cash dividends distributed to noncontrolling interests
Change in other noncontrolling interests
895
(585)
348
(148)
13,000
(13,000)
(69)
181
2,750
(3,258)
-
(190)
-
-
(37)
12
1,415
(1,387)
-
(150)
-
-
(294)
(104)
44
(43)
-
(5)
-
-
(9)
(3)
(35,103)
(37,673)
(42,551)
(1,313)
-
(797)
162
45
(350)
(485)
83
(710)
1,180
Net cash used in financing activities
(35,116)
(39,186)
(42,518)
3
(22)
36
(1,312)
(Continued)
9
F
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2014, 2015 and 2016
(In Millions of New Taiwan or U.S. Dollars)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Millions of New Taiwan Dollars, Unless Stated Otherwise)
2014
NT$
2015
NT$
2016
NT$
US$ (Note 6)
1. GENERAL
$
87
$
25
$
58
$
2
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
NET INCREASE IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF
THE YEAR
14,585
23,560
30,271
8,975
6,711
829
26
934
CASH AND CASH EQUIVALENTS, END OF THE
YEAR
$ 23,560
$ 30,271
$ 31,100
$
960
The accompanying notes are an integral part of the consolidated financial statements.
(Concluded)
10
Chunghwa Telecom Co., Ltd. (“Chunghwa”) was incorporated on July 1, 1996 in the Republic of China
(“ROC”) pursuant to the Article 30 of the Telecommunications Act. Chunghwa is a company limited
by shares and, prior to August 2000, was wholly owned by the Ministry of Transportation and
Communications (“MOTC”). Prior to July 1, 1996, the current operations of Chunghwa were carried
out under the Directorate General of Telecommunications (“DGT”). The DGT was established by the
MOTC in June 1943 to take primary responsibility in the development of telecommunications
infrastructure and to formulate policies related to telecommunications. On July 1, 1996, the telecom
operations of the DGT were spun-off as Chunghwa which continues to carry out the business and the
DGT continues to be the industry regulator.
As the dominant telecommunications service provider of domestic and international fixed-line, Global
System for Mobile Communications (“GSM”), and Third Generation (“3G”) in the ROC, Chunghwa is
subject to additional regulations imposed by the ROC.
Effective August 12, 2005, the MOTC completed the process of privatizing Chunghwa by reducing the
government ownership to below 50% in various stages. In July 2000, Chunghwa received approval
from the Securities and Futures Commission (the “SFC”) for a domestic initial public offering and its
common stocks were listed and traded on the Taiwan Stock Exchange (the “TWSE”) on October 27,
2000. Certain of Chunghwa’s common stocks were sold, in connection with the foregoing
privatization plan, in domestic public offerings at various dates from August 2000 to July 2003.
Certain of Chunghwa’s common stocks were also sold in an international offering of securities in the
form of American Depository Shares (“ADS”) on July 17, 2003 and were listed and traded on the New
York Stock Exchange (the “NYSE”). The MOTC sold common stocks of Chunghwa by auction in the
ROC on August 9, 2005 and completed the second international offering on August 10, 2005. Upon
completion of the share transfers associated with these offerings on August 12, 2005, the MOTC owned
less than 50% of the outstanding shares of Chunghwa and completed the privatization plan.
Chunghwa together with its subsidiaries are hereinafter referred to collectively as “the Company”.
2. APPROVAL OF FINANCIAL STATEMENTS
The consolidated financial statements were authorized for issue by the management on April 17, 2017.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Compliance
The accompanying consolidated financial statements have been prepared in conformity with Inter-
national Financial Reporting Standards as issued by the International Accounting Standard Board
(collectively, “IFRSs”).
F
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2014, 2015 and 2016
(In Millions of New Taiwan or U.S. Dollars)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Millions of New Taiwan Dollars, Unless Stated Otherwise)
2014
NT$
2015
NT$
2016
NT$
US$ (Note 6)
1. GENERAL
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
NET INCREASE IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF
THE YEAR
YEAR
CASH AND CASH EQUIVALENTS, END OF THE
$
87
$
25
$
58
$
2
8,975
6,711
829
14,585
23,560
30,271
26
934
$ 23,560
$ 30,271
$ 31,100
$
960
The accompanying notes are an integral part of the consolidated financial statements.
(Concluded)
Chunghwa Telecom Co., Ltd. (“Chunghwa”) was incorporated on July 1, 1996 in the Republic of China
(“ROC”) pursuant to the Article 30 of the Telecommunications Act. Chunghwa is a company limited
by shares and, prior to August 2000, was wholly owned by the Ministry of Transportation and
Communications (“MOTC”). Prior to July 1, 1996, the current operations of Chunghwa were carried
out under the Directorate General of Telecommunications (“DGT”). The DGT was established by the
MOTC in June 1943 to take primary responsibility in the development of telecommunications
infrastructure and to formulate policies related to telecommunications. On July 1, 1996, the telecom
operations of the DGT were spun-off as Chunghwa which continues to carry out the business and the
DGT continues to be the industry regulator.
As the dominant telecommunications service provider of domestic and international fixed-line, Global
System for Mobile Communications (“GSM”), and Third Generation (“3G”) in the ROC, Chunghwa is
subject to additional regulations imposed by the ROC.
Effective August 12, 2005, the MOTC completed the process of privatizing Chunghwa by reducing the
government ownership to below 50% in various stages. In July 2000, Chunghwa received approval
from the Securities and Futures Commission (the “SFC”) for a domestic initial public offering and its
common stocks were listed and traded on the Taiwan Stock Exchange (the “TWSE”) on October 27,
2000. Certain of Chunghwa’s common stocks were sold, in connection with the foregoing
privatization plan, in domestic public offerings at various dates from August 2000 to July 2003.
Certain of Chunghwa’s common stocks were also sold in an international offering of securities in the
form of American Depository Shares (“ADS”) on July 17, 2003 and were listed and traded on the New
York Stock Exchange (the “NYSE”). The MOTC sold common stocks of Chunghwa by auction in the
ROC on August 9, 2005 and completed the second international offering on August 10, 2005. Upon
completion of the share transfers associated with these offerings on August 12, 2005, the MOTC owned
less than 50% of the outstanding shares of Chunghwa and completed the privatization plan.
Chunghwa together with its subsidiaries are hereinafter referred to collectively as “the Company”.
2. APPROVAL OF FINANCIAL STATEMENTS
The consolidated financial statements were authorized for issue by the management on April 17, 2017.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Compliance
The accompanying consolidated financial statements have been prepared in conformity with Inter-
national Financial Reporting Standards as issued by the International Accounting Standard Board
(collectively, “IFRSs”).
11
F
Basis of Preparation
Changes in the Company’s ownership interests in subsidiaries
The consolidated financial statements have been prepared on the historical cost basis except for certain
financial instruments that are measured at fair values.
Current and Noncurrent Assets and Liabilities
Current assets include:
Changes in the Company’s ownership interests in subsidiaries that do not result in the Company
losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts
of the Company’s interests and the noncontrolling interests are adjusted to reflect the changes in
their relative interests in the subsidiaries. Any difference between the amount by which the
noncontrolling interests are adjusted and the fair value of the consideration paid or received is
recognized directly in equity and attributed to stockholders of the parent.
a. Assets held primarily for the purpose of trading;
b. The subsidiaries in the consolidated financial statements
b. Assets expected to be realized within twelve months after the reporting period; and
The detail information of the subsidiaries at the end of reporting period was as follows:
c. Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a
liability for at least twelve months after the reporting period.
Current liabilities include:
a. Liabilities held primarily for the purpose of trading;
b. Liabilities due to be settled within twelve months after the reporting period; and
c. Liabilities for which the Company does not have an unconditional right to defer settlement for at
least twelve months after the reporting period.
Assets and liabilities that are not classified as current are classified as noncurrent.
Light Era Development Co., Ltd. (LED) engages mainly in development of property for rent and sale.
The assets and liabilities of LED related to property development within its operating cycle, which is
over one year, are classified as current items.
Basis of Consolidation
a. Principles for preparing consolidated financial statements
The consolidated financial statements incorporate the financial statements of Chunghwa and entities
controlled by Chunghwa (its subsidiaries).
Income and expenses of subsidiaries acquired during the period are included in the consolidated
statements of comprehensive income from the acquisition date.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies in line with those used by the Company.
All intra-company transactions, balances, income and expenses are eliminated in full upon con-
solidation.
Attribution of total comprehensive income to the noncontrolling interests
Profit or loss and each component of other comprehensive income are attributed to the stockholders
of the parent and to the noncontrolling interests. Total comprehensive income of subsidiaries is
attributed to the stockholders of the parent and to the noncontrolling interests even if it results in the
noncontrolling interests having a deficit balance.
12
Name of Investor
Name of Investee
Main Businesses and Products
2015
2016
Note
Chunghwa Telecom
Senao International Co., Ltd.
Handset and peripherals retailer; sales
29
29
1)
Co., Ltd.
(“SENAO”)
of CHT mobile phone plans as an
Percentage of Ownership
December 31
Chunghwa International
Digital information supply services and
100
Yellow Pages Co., Ltd.
advertisement services
agent
Light Era Development Co.,
Planning and development of real
Ltd. (“LED”)
estate and intelligent buildings, and
property management
Donghwa Telecom Co., Ltd.
International private leased circuit, IP
(“DHT”)
VPN service, and IP transit services
Chunghwa Telecom Singapore
International private leased circuit, IP
Pte., Ltd. (“CHTS”)
VPN service, and IP transit services
Chunghwa System Integration
Providing system integration services
Co., Ltd. (“CHSI”)
and telecommunications equipment
Chunghwa Investment Co.,
Investment
CHIEF Telecom Inc.
Network integration, internet data
Ltd. (“CHI”)
(“CHIEF”)
center (“IDC”), communications
integration and cloud application
services
(“CHYP”)
Prime Asia Investments Group
Investment
Ltd. (B.V.I.) (“Prime Asia”)
Spring House Entertainment
Digital entertainment contents
Tech. Inc. (“SHE”)
production, animated character
licensing and endorsement, and
mobile digital platform construction
Chunghwa Telecom Global,
International private leased circuit,
Inc. (“CHTG”)
internet services, and transit services
Chunghwa Telecom Vietnam
Intelligent energy saving solutions,
Co., Ltd. (“CHTV”)
international circuit, and information
and communication technology
(“ICT”) services.
Smartfun Digital Co., Ltd.
Providing diversified family education
(“SFD”)
digital services
Chunghwa Telecom Japan
International private leased circuit, IP
Co., Ltd. (“CHTJ”)
Chunghwa Sochamp
VPN service, and IP transit services
Design, development and production of
Technology Inc. (“CHST”)
Automatic License Plate
Recognition software and hardware
Honghwa International Co.,
Telecommunication engineering, sales
100
Ltd. (“HHI”)
agent of mobile phone plan
application and other business
services
Chunghwa Leading Photonics
Production and sale of electronic
Tech Co., Ltd. (“CLPT”)
components and finished products
New Prospect Investments
Investment
Holdings Ltd. (B.V.I.)
(“New Prospect”)
100
100
100
100
89
69
100
56
100
100
65
100
51
-
100
100
100
100
100
89
69
100
100
56
100
100
65
100
51
100
75
100
2)
13)
(Continued)
F
Changes in the Company’s ownership interests in subsidiaries
Changes in the Company’s ownership interests in subsidiaries that do not result in the Company
losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts
of the Company’s interests and the noncontrolling interests are adjusted to reflect the changes in
their relative interests in the subsidiaries. Any difference between the amount by which the
noncontrolling interests are adjusted and the fair value of the consideration paid or received is
recognized directly in equity and attributed to stockholders of the parent.
b. The subsidiaries in the consolidated financial statements
The detail information of the subsidiaries at the end of reporting period was as follows:
Name of Investor
Name of Investee
Main Businesses and Products
2015
2016
Note
Chunghwa Telecom
Senao International Co., Ltd.
Handset and peripherals retailer; sales
29
29
1)
Co., Ltd.
(“SENAO”)
of CHT mobile phone plans as an
agent
Percentage of Ownership
December 31
Light Era Development Co.,
Planning and development of real
Ltd. (“LED”)
Donghwa Telecom Co., Ltd.
(“DHT”)
Chunghwa Telecom Singapore
Pte., Ltd. (“CHTS”)
Chunghwa System Integration
Co., Ltd. (“CHSI”)
Chunghwa Investment Co.,
Ltd. (“CHI”)
CHIEF Telecom Inc.
(“CHIEF”)
estate and intelligent buildings, and
property management
International private leased circuit, IP
VPN service, and IP transit services
International private leased circuit, IP
VPN service, and IP transit services
Providing system integration services
and telecommunications equipment
Investment
Network integration, internet data
center (“IDC”), communications
integration and cloud application
services
100
100
100
100
89
69
Chunghwa International
Digital information supply services and
100
Yellow Pages Co., Ltd.
(“CHYP”)
Prime Asia Investments Group
Ltd. (B.V.I.) (“Prime Asia”)
Spring House Entertainment
Tech. Inc. (“SHE”)
advertisement services
Investment
Digital entertainment contents
production, animated character
licensing and endorsement, and
mobile digital platform construction
Chunghwa Telecom Global,
International private leased circuit,
Inc. (“CHTG”)
Chunghwa Telecom Vietnam
Co., Ltd. (“CHTV”)
internet services, and transit services
Intelligent energy saving solutions,
international circuit, and information
and communication technology
(“ICT”) services.
Smartfun Digital Co., Ltd.
Providing diversified family education
(“SFD”)
digital services
Chunghwa Telecom Japan
Co., Ltd. (“CHTJ”)
Chunghwa Sochamp
Technology Inc. (“CHST”)
Honghwa International Co.,
Ltd. (“HHI”)
Chunghwa Leading Photonics
Tech Co., Ltd. (“CLPT”)
New Prospect Investments
Holdings Ltd. (B.V.I.)
(“New Prospect”)
International private leased circuit, IP
VPN service, and IP transit services
Design, development and production of
Automatic License Plate
Recognition software and hardware
Telecommunication engineering, sales
agent of mobile phone plan
application and other business
services
Production and sale of electronic
components and finished products
Investment
100
56
100
100
65
100
51
100
-
100
100
100
100
100
89
69
100
100
56
100
100
65
100
51
100
75
100
2)
13)
(Continued)
13
F
Name of Investor
Name of Investee
Main Businesses and Products
2015
2016
Note
Name of Investor
Name of Investee
Main Businesses and Products
2016
Note
Percentage of Ownership
December 31
Senao International
Co., Ltd.
Senao International (Samoa)
Holding Ltd. (“SIS”)
Youth Co., Ltd. (“Youth”)
International investment
Sale of information and communication
technologies products
100
89
Aval Technologies Co., Ltd.
Sale of information and communication
100
(“Aval”)
technologies products
Youth Co., Ltd.
ISPOT Co., Ltd. (“ISPOT”)
Sale of information and communication
Youyi Co., Ltd. (“Youyi”)
technologies products
Maintenance of information and
communication technologies
products
CHIEF Telecom Inc.
Unigate Telecom Inc.
Telecommunications and internet
(“Unigate”)
service
Chief International Corp.
Telecommunications and internet
(“CIC”)
service
Shanghai Chief Telecom Co.,
Telecommunications and internet
Ltd. (“SCT”)
service
Chunghwa System
Integration Co.,
Ltd.
Concord Technology Co., Ltd.
Investment
(“Concord”)
100
100
100
100
49
100
100
89
100
100
100
100
100
49
100
Spring House
Ceylon Innovation Co., Ltd.
Entertainment
Tech. Inc.
(“CEI”)
E-book publishing and copyright
negotiation of digital music
100
-
Chunghwa Investment
Chunghwa Precision Test
Co., Ltd.
Tech. Co., Ltd. (“CHPT”)
Production and sale of semiconductor
testing components and printed
circuit board
Chunghwa Investment
Investment
Holding Co., Ltd. (“CIHC”)
Concord Technology
Glory Network System
Co., Ltd.
Service (Shanghai) Co.,
Ltd. (“GNSS (Shanghai)”)
Design, development and production of
computer and internet software,
installment, maintenance and
consulting services of information
system integration, and sales of
self-production products
46
100
100
Chunghwa Precision
Test Tech. Co., Ltd.
Chunghwa Precision Test
Tech. USA Corporation
(“CHPT (US)”)
CHPT Japan Co., Ltd.
(“CHPT (JP)”)
Chunghwa Precision Test
Tech. International, Ltd.
(“CHPT (International)”)
Design and after-sale services of
100
semiconductor testing components
and printed circuit board
Related services of electronic parts,
100
machinery processed products and
printed circuit board
Wholesale and retail of electronic
materials, and investment
100
41
-
100
100
100
100
3)
4)
3)
3)
5)
6)
7)
8)
9)
Senao International
(Samoa) Holding
Ltd.
Senao International HK
Limited (“SIHK”)
International investment
100
100
Chunghwa Investment
Holding Co., Ltd.
CHI One Investment Co.,
Limited (“COI”)
Investment
Senao International
HK Limited
Senao Trading (Fujian) Co.,
Sale of information and communication
Ltd. (“STF”)
technologies products
Senao International Trading
(Shanghai) Co., Ltd.
(“SITS”)
Senao International Trading
(Shanghai) Co., Ltd.
(“SEITS”)
Sale of information and communication
technologies products
Maintenance of information and
communication technologies
products
100
100
100
100
-
10)
100
100
100
14)
Senao International Trading
Sale of information and communication
100
100
(Jiangsu) Co., Ltd. (“SITJ”)
technologies products
(Continued)
14
Percentage of Ownership
December 31
2015
100
100
Prime Asia
Chunghwa Hsingta Co., Ltd.
Investment
Investments Group
(“CHC”)
Ltd. (B.V.I.)
Chunghwa Hsingta
Chunghwa Telecom (China)
Integrated information and
100
100
Co., Ltd. (“CHC”)
Co., Ltd. (“CTC”)
communication solution services for
enterprise clients, and intelligent
energy network service
Jiangsu Zhenhua Information
Providing intelligent energy saving
Technology Company,
solution and intelligent buildings
LLC. (“JZIT”)
services
Hua-Xiong Information
Providing intelligent buildings and
Technology Co., Ltd.
smart home services
(“HXIT”)
75
51
75
11)
-
12)
Chunghwa Precision
Shanghai Taihua Electronic
Design of printed circuit board and
100
100
Test Tech.
Technology Limited
related consultation service
International, Ltd.
(“STET”)
(Concluded)
1) Chunghwa owns approximately 29% equity shares of SENAO and had originally four out of
seven seats of the Board of Directors of SENAO through the support of large beneficial
stockholders. In order to comply with the local regulations, SENAO increased two seats of
independent directors in June 2016; therefore, total seats of its Board of Directors increased to
nine and Chunghwa continues to hold four out of nine seats of the Board of Directors. As
Chunghwa remains the control over SENAO’s relevant activities, the accounts of SENAO are
included in the consolidated financial statements. The Company’s equity ownership of
SENAO increased to 29.31% due to SENAO’s purchase of its treasury stock in June and July
2015.
2) Chunghwa invested 75% equity shares of CLPT in July 2016. CLPT mainly engages in
production and sale of electronic components and finished products.
3) SENAO acquired 70% equity shares of Youth in September 2015. SENAO participated in
Youth’s cash capital increase in December 2015; therefore, the ownership interests of Youth
increased to 89.48%. Youyi and ISPOT are 100% owned subsidiaries of Youth.
4) SENAO established a 100% owned subsidiary of Aval in October 2015. Aval mainly engages
in sale of information and communication technologies products.
5) CHIEF invested 49% equity shares of SCT in August 2015. Based on the written agreement
between the stockholders, CHIEF has two out of three seats of the Board of Directors of SCT.
Therefore, CHIEF has control over SCT and the accounts of SCT are included in the
consolidated financial statements.
6) CEI’s liquidation was completed in August 2016 and SHE received the proceeds from the
liquidation.
7) CHI disposed of some shares of CHPT in January 2015 and March 2016. Furthermore, CHI
did not participate in the capital increase of CHPT in March 2016. Therefore, its ownership
interest in CHPT decreased to 40.79%. However, considering the Company’s absolute size, the
relative size and the dispersion of shares owned by the other stockholders, the management
concluded that the Company has a sufficiently dominant voting interest to direct the relevant
activities; hence, CHPT is deemed as a subsidiary of the Company.
F
Name of Investor
Name of Investee
Main Businesses and Products
Prime Asia
Chunghwa Hsingta Co., Ltd.
Investment
Investments Group
Ltd. (B.V.I.)
(“CHC”)
Percentage of Ownership
December 31
2015
100
2016
Note
100
Chunghwa Hsingta
Chunghwa Telecom (China)
Integrated information and
100
100
Co., Ltd. (“CHC”)
Co., Ltd. (“CTC”)
Jiangsu Zhenhua Information
Technology Company,
LLC. (“JZIT”)
Hua-Xiong Information
Technology Co., Ltd.
(“HXIT”)
communication solution services for
enterprise clients, and intelligent
energy network service
Providing intelligent energy saving
solution and intelligent buildings
services
Providing intelligent buildings and
smart home services
75
51
75
11)
-
12)
Chunghwa Precision
Test Tech.
International, Ltd.
Shanghai Taihua Electronic
Technology Limited
(“STET”)
Design of printed circuit board and
related consultation service
100
100
(Concluded)
1) Chunghwa owns approximately 29% equity shares of SENAO and had originally four out of
seven seats of the Board of Directors of SENAO through the support of large beneficial
stockholders. In order to comply with the local regulations, SENAO increased two seats of
independent directors in June 2016; therefore, total seats of its Board of Directors increased to
nine and Chunghwa continues to hold four out of nine seats of the Board of Directors. As
Chunghwa remains the control over SENAO’s relevant activities, the accounts of SENAO are
included in the consolidated financial statements. The Company’s equity ownership of
SENAO increased to 29.31% due to SENAO’s purchase of its treasury stock in June and July
2015.
2) Chunghwa invested 75% equity shares of CLPT in July 2016. CLPT mainly engages in
production and sale of electronic components and finished products.
3) SENAO acquired 70% equity shares of Youth in September 2015. SENAO participated in
Youth’s cash capital increase in December 2015; therefore, the ownership interests of Youth
increased to 89.48%. Youyi and ISPOT are 100% owned subsidiaries of Youth.
4) SENAO established a 100% owned subsidiary of Aval in October 2015. Aval mainly engages
in sale of information and communication technologies products.
5) CHIEF invested 49% equity shares of SCT in August 2015. Based on the written agreement
between the stockholders, CHIEF has two out of three seats of the Board of Directors of SCT.
Therefore, CHIEF has control over SCT and the accounts of SCT are included in the
consolidated financial statements.
6) CEI’s liquidation was completed in August 2016 and SHE received the proceeds from the
liquidation.
7) CHI disposed of some shares of CHPT in January 2015 and March 2016. Furthermore, CHI
did not participate in the capital increase of CHPT in March 2016. Therefore, its ownership
interest in CHPT decreased to 40.79%. However, considering the Company’s absolute size, the
relative size and the dispersion of shares owned by the other stockholders, the management
concluded that the Company has a sufficiently dominant voting interest to direct the relevant
activities; hence, CHPT is deemed as a subsidiary of the Company.
15
F
8) CIHC’s dissolution was approved in August 2016 and the liquidation was completed in Sep-
Business Combination
tember 2016. CHI received the proceeds from the liquidation.
9) GNSS (Shanghai) was approved to end its business and dissolve. The liquidation of GNSS
are recognized in profit or loss as incurred.
(Shanghai) is still in progress.
10) COI completed its liquidation in July 2016 and CIHC received the proceeds from the liquidation.
11) JZIT was approved to end and dissolve its business in May 2016. The liquidation of JZIT is
and the liabilities assumed.
still in process.
12) HXIT’s dissolution was approved by local regulator in March 2016. HXIT completed its
liquidation and annulled its company registration in May 2016. CHC received the proceeds
from the liquidation.
13) New Prospect was approved to dissolve its business in April 2017. The liquidation of New
Prospect is still in process.
14) SEITS was approved to end and dissolve its business in March 2017. The liquidation of SEITS
is still in process.
15) Chunghwa invested 100% equity shares of Chunghwa Telecom (Thailand) Co., Ltd. (“CHTT”)
in March 2017.
The following diagram presents information regarding the relationship and ownership percentages
between Chunghwa and its subsidiaries as of December 31, 2016:
Chunghwa Telecom Co., Ltd.
(Chunghwa)
100%
28.91%
100%
100%
100%
100%
100%
56.04%
100%
68.88%
100%
89%
100%
100%
51%
65%
100%
75%
Chunghwa
Telecom
Vietnam
Co., Ltd.
(“CHTV”)
Senao
International
Co., Ltd.
(“SENAO”)
Chunghwa
International
Yellow
Pages Co.,
Ltd.
(“CHYP”)
Chunghwa
Telecom
Singapore
Pte., Ltd.
(“CHTS”)
Chunghwa
System
Integration
Co., Ltd.
(“CHSI”)
Chunghwa
Telecom
Global, Inc.
(“CHTG”)
Light Era
Development
Co., Ltd.
(“LED”)
Spring House
Entertainment
Tech. Inc.
(“SHE”)
Donghwa
Telecom
Co., Ltd.
(“DHT”)
CHIEF
Telecom
Inc.
(“CHIEF”)
Chunghwa
Telecom
Japan Co.,
Ltd.
(“CHTJ”)
Chunghwa
Investment
Co., Ltd.
(“CHI”)
New
Prospect
Investments
Holdings
Ltd. (“New
Prospect”)
Prime Asia
Investments
Group Ltd.
(“Prime
Asia”)
Chunghwa
Sochamp
Technology
Inc.
(“CHST”)
Smartfun
Digital Co.,
Ltd.
(“SFD”)
Honghwa
International
Co., Ltd.
(“HHI”)
Chunghwa
Leading
Photonics
Tech Co.,
Ltd.
(“CLPT”)
arise.
100%
89.48%
100%
Aval
Technologies
Co., Ltd.
(“Aval”)
Youth Co., Ltd.
(“Youth”)
Senao
International
(Samoa)
Holding Ltd.
(“SIS”)
100%
100%
100%
ISPOT Co.,
Ltd.
(“ISPOT”)
Youyi Co., Ltd.
(“Youyi”)
Senao
International
HK Limited
(“SIHK”)
100%
Concord
Technology
Co., Ltd.
(“Concord”)
100%
Glory
Network
System
Service
(Shanghai)
Co., Ltd.
(“GNSS
(Shanghai)”)
0.40%
100%
100%
100%
100%
Senao
Trading
(Fujian)
Co., Ltd.
(“STF”)
Senao
International
Trading
(Shanghai)
Co., Ltd.
(“SITS”)
Senao
International
Trading
(Jiangsu)
Co., Ltd.
(“SITJ”)
Senao
International
Trading
(Shanghai)
Co., Ltd.
(“SEITS”)
16
3.63%
100%
100%
49%
Unigate
Telecom Inc.
(“Unigate”)
Chief
International
Corp. (“CIC”)
Shanghai
Chief
Telecom
Co., Ltd.
(“SCT”)
40.79%
Chunghwa
Precision
Test Tech.
Co., Ltd.
(“CHPT”)
100%
100%
100%
Chunghwa
Precision Test
Tech. USA
Corporation
(“CHPT (US)”)
CHPT Japan
Co., Ltd.
(“CHPT (JP)”)
Chunghwa
Precision Test
Tech.
International, Ltd.
(“CHPT
(International)”)
100%
Shanghai
Taihua
Electronic
Technology
Limited
(“STET”)
100%
Chunghwa
Hsingta
Co., Ltd.
(“CHC”)
100%
75%
Chunghwa
Telecom
(China) Co.,
Ltd. (“CTC”)
Jiangsu
Zhenhua
Information
Technology
Company,
LLC.
(“JZIT”)
Acquisitions of businesses are accounted for using the acquisition method. Acquisition-related costs
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any
noncontrolling interests in the acquiree, and the fair value of the acquirer’s previously held equity
interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired
Noncontrolling interests that are present ownership interests and entitle their holders to a proportionate
share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or
at the present ownership instruments’ proportionate share in the recognized amounts of the acquiree’s
identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis.
Other types of noncontrolling interests are measured at fair value.
If the initial accounting for a business combination is incomplete by the end of the reporting period in
which the combination occurs, the Company reports its financial statements provisional amounts for the
items for which the accounting is incomplete. During the measurement period, the Company
retrospectively adjusts the provisional amounts recognized at the acquisition date or recognizes
additional assets or liabilities to reflect new information obtained about facts and circumstances that
existed as of the acquisition date and if known, would have affected the measurement of the amounts
recognized as of that date.
Foreign Currencies
In preparing the financial statements of each individual entity, transactions in currencies other than the
entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the
dates of the transactions.
At the end of each reporting period, monetary items denominated in foreign currencies are retranslated
at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or
translation denominated in foreign currencies are recognized in profit or loss in the period in which they
Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at
the rates prevailing at the date when the fair value was determined and related exchange differences are
recognized in profit or loss. Conversely, when the fair value changes were recognized in other
comprehensive income, related exchange difference shall be recognized in other comprehensive income.
Non-monetary items that are measured at historical cost in a foreign currency are not retranslated.
Chunghwa use New Taiwan dollars (NT$) as the functional currency. For the purposes of presenting
consolidated financial statements, the assets and liabilities of the Company’s foreign operations
(including of the subsidiaries and associates in other countries or currencies used different with
Chunghwa) are translated into New Taiwan dollars using exchange rates prevailing at the end of each
reporting period. Income and expense items are translated at the average exchange rates for the period.
Exchange differences arising, if any, are recognized in other comprehensive income and attributed to
stockholders of the parent and noncontrolling interests as appropriate.
Cash Equivalents
Cash equivalents include commercial paper, time deposits and negotiable certificate of deposit with
original maturities within three months from the date of acquisition, highly liquid, readily convertible to
a known amount of cash and are subject to an insignificant risk of changes in value. These cash
equivalents are held for the purpose of meeting short-term cash commitments.
F
Business Combination
Acquisitions of businesses are accounted for using the acquisition method. Acquisition-related costs
are recognized in profit or loss as incurred.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any
noncontrolling interests in the acquiree, and the fair value of the acquirer’s previously held equity
interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired
and the liabilities assumed.
Noncontrolling interests that are present ownership interests and entitle their holders to a proportionate
share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or
at the present ownership instruments’ proportionate share in the recognized amounts of the acquiree’s
identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis.
Other types of noncontrolling interests are measured at fair value.
If the initial accounting for a business combination is incomplete by the end of the reporting period in
which the combination occurs, the Company reports its financial statements provisional amounts for the
items for which the accounting is incomplete. During the measurement period, the Company
retrospectively adjusts the provisional amounts recognized at the acquisition date or recognizes
additional assets or liabilities to reflect new information obtained about facts and circumstances that
existed as of the acquisition date and if known, would have affected the measurement of the amounts
recognized as of that date.
Foreign Currencies
In preparing the financial statements of each individual entity, transactions in currencies other than the
entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the
dates of the transactions.
At the end of each reporting period, monetary items denominated in foreign currencies are retranslated
at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or
translation denominated in foreign currencies are recognized in profit or loss in the period in which they
arise.
Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at
the rates prevailing at the date when the fair value was determined and related exchange differences are
recognized in profit or loss. Conversely, when the fair value changes were recognized in other
comprehensive income, related exchange difference shall be recognized in other comprehensive income.
Non-monetary items that are measured at historical cost in a foreign currency are not retranslated.
Chunghwa use New Taiwan dollars (NT$) as the functional currency. For the purposes of presenting
consolidated financial statements, the assets and liabilities of the Company’s foreign operations
(including of the subsidiaries and associates in other countries or currencies used different with
Chunghwa) are translated into New Taiwan dollars using exchange rates prevailing at the end of each
reporting period. Income and expense items are translated at the average exchange rates for the period.
Exchange differences arising, if any, are recognized in other comprehensive income and attributed to
stockholders of the parent and noncontrolling interests as appropriate.
Cash Equivalents
Cash equivalents include commercial paper, time deposits and negotiable certificate of deposit with
original maturities within three months from the date of acquisition, highly liquid, readily convertible to
a known amount of cash and are subject to an insignificant risk of changes in value. These cash
equivalents are held for the purpose of meeting short-term cash commitments.
17
F
Inventories
Property, Plant and Equipment
Inventories are stated at the lower of cost or net realizable value item by item, except for those that may
be appropriate to group items of similar or related inventories. Net realizable value is the estimated
selling price of inventories less all estimated costs of completion and costs necessary to make the sale.
The calculation of the cost of inventory is derived using the weighted-average method.
Buildings and Land Consigned to Construction Contractors
Inventories of LED are stated at the lower of cost or net realizable value item by item, except for those
that may be appropriate to group as similar items or related inventories. Land acquired before
construction is classified as land held for development, and then reclassified as land held under
development after LED begins its construction project.
When using the completed-contract method for its construction projects, LED recognizes the proceeds
from customers as advances from customers for land and building before the construction project is
completed. After completion of the construction project and ownership is transferred to the customers,
LED recognizes the relevant revenues.
Investments in Associates and Joint Ventures
An associate is an entity over which the Company has significant influence and that is neither a
subsidiary nor an interest in a joint venture. A joint venture is a joint arrangement whereby the
Company and other parties that have joint control of the arrangement have rights to the net assets of the
arrangement.
Investments accounted for using the equity method include investments in associates and interests in
joint ventures. Under the equity method, an investment in an associate or a joint venture is initially
recognized at cost and adjusted thereafter to recognize the Company’s share of profit or loss and other
comprehensive income of the associate and joint venture as well as the distribution received.
When the Company reduces its ownership interest in an associate or a joint venture but the Company
continues to use the equity method, the Company reclassifies to profit or loss the proportion of the gain
or loss that had previously been recognized in other comprehensive income relating to that reduction in
ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related
assets or liabilities.
Any excess of the cost of acquisition over the Company’s share of the fair value of the identifiable net
assets and liabilities of an associate or a joint venture at the date of acquisition is recognized as
goodwill, which is included within the carrying amount of the investment and shall not be amortized.
Any excess of the Company’s share of the net fair value of the identifiable assets and liabilities over the
cost of acquisition is recognized immediately in profit or loss.
When necessary, the entire carrying amount of the investment (including goodwill) is tested for
impairment as a single asset by comparing its recoverable amount with its carrying amount. Any
impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that
impairment loss is recognized to the extent that the recoverable amount of the investment subsequently
increases.
When the Company transacts with its associate and joint venture, profits and losses resulting from the
transactions with the associate and joint venture are recognized in the Company’s consolidated financial
statements only to the extent of interests in the associate and joint venture that are not related to the
Company.
18
Property, plant and equipment are initially measured at cost and subsequently measured at cost less
accumulated depreciation and accumulated impairment loss.
Depreciation on property, plant and equipment is recognized using the straight-line method. Each
significant part is depreciated separately. The estimated useful lives, residual values and depreciation
method are reviewed at the end of each year, with the effect of any changes in estimate accounted for on
On derecognition of an item of property, plant and equipment, the difference between the net disposal
proceeds and the carrying amount of the asset is recognized in profit or loss in the period in which the
a prospective basis.
property is derecognized.
Investment Properties
Investment properties are properties held to earn rentals and/or for capital appreciation. Investment
properties also include land held for a currently undetermined future use.
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial
recognition, investment properties are measured at cost less accumulated depreciation and accumulated
impairment loss. Depreciation is recognized using the straight-line method.
On derecognition of the investment properties, the difference between the net disposal proceeds and the
carrying amount of the asset is recognized in profit or loss in the period in which the property is de-
recognized.
Goodwill
Goodwill arising from the acquisition of a business is carried at cost as established at the date of acquisi-
tion of the business less accumulated impairment loss.
For the purpose of impairment testing, goodwill is allocated to each of the Company’s cash-generating
units or groups of cash-generating units (referred to as “cash-generating unit”) that are expected to
benefit from the synergies of the business combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired, by comparing its carrying amount,
including the attributable goodwill, with its recoverable amount. However, if the goodwill allocated to
a cash-generating unit was acquired in a business combination during the current annual period, that unit
shall be tested for impairment before the end of the current annual period. If the recoverable amount of
the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce
the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata
based on the carrying amount of each asset in the unit. Any impairment loss is recognized directly in
profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.
Intangible Assets Other Than Goodwill
Intangible assets with finite useful lives that are acquired separately are initially measured at cost and
subsequently measured at cost less accumulated amortization and accumulated impairment loss.
Amortization is recognized on a straight-line basis. The estimated useful life, residual value and
amortization method are reviewed at the end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis. The residual value of an intangible asset with a
finite useful life shall be assumed to be zero unless the Company expects to dispose of the intangible
asset before the end of its economic life. Intangible assets with indefinite useful lives that are acquired
separately are measured at cost less accumulated impairment loss.
F
Property, Plant and Equipment
Property, plant and equipment are initially measured at cost and subsequently measured at cost less
accumulated depreciation and accumulated impairment loss.
Depreciation on property, plant and equipment is recognized using the straight-line method. Each
significant part is depreciated separately. The estimated useful lives, residual values and depreciation
method are reviewed at the end of each year, with the effect of any changes in estimate accounted for on
a prospective basis.
On derecognition of an item of property, plant and equipment, the difference between the net disposal
proceeds and the carrying amount of the asset is recognized in profit or loss in the period in which the
property is derecognized.
Investment Properties
Investment properties are properties held to earn rentals and/or for capital appreciation. Investment
properties also include land held for a currently undetermined future use.
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial
recognition, investment properties are measured at cost less accumulated depreciation and accumulated
impairment loss. Depreciation is recognized using the straight-line method.
On derecognition of the investment properties, the difference between the net disposal proceeds and the
carrying amount of the asset is recognized in profit or loss in the period in which the property is de-
recognized.
Goodwill
Goodwill arising from the acquisition of a business is carried at cost as established at the date of acquisi-
tion of the business less accumulated impairment loss.
For the purpose of impairment testing, goodwill is allocated to each of the Company’s cash-generating
units or groups of cash-generating units (referred to as “cash-generating unit”) that are expected to
benefit from the synergies of the business combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired, by comparing its carrying amount,
including the attributable goodwill, with its recoverable amount. However, if the goodwill allocated to
a cash-generating unit was acquired in a business combination during the current annual period, that unit
shall be tested for impairment before the end of the current annual period. If the recoverable amount of
the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce
the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata
based on the carrying amount of each asset in the unit. Any impairment loss is recognized directly in
profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.
Intangible Assets Other Than Goodwill
Intangible assets with finite useful lives that are acquired separately are initially measured at cost and
subsequently measured at cost less accumulated amortization and accumulated impairment loss.
Amortization is recognized on a straight-line basis. The estimated useful life, residual value and
amortization method are reviewed at the end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis. The residual value of an intangible asset with a
finite useful life shall be assumed to be zero unless the Company expects to dispose of the intangible
asset before the end of its economic life. Intangible assets with indefinite useful lives that are acquired
separately are measured at cost less accumulated impairment loss.
19
F
Intangible assets acquired in a business combination and recognized separately from goodwill are
initially recognized at their fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, they are measured on the same basis as intangible assets that are
acquired separately.
Gains or losses arising from derecognition of an intangible asset, measured as the difference between the
net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss in the period
in which the asset is derecognized.
Impairment of Tangible and Intangible Assets Other Than Goodwill
At the end of each reporting period, the Company reviews the carrying amounts of its tangible and
intangible assets, excluding goodwill, to determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss. When it is not possible to estimate
the recoverable amount of an individual asset, the Company estimates the recoverable amount of the
cash-generating unit to which the asset belongs.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for
impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable
amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying
amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting
impairment loss recognized in profit or loss.
When an impairment loss is subsequently reversed, the carrying amount of the asset or cash-generating
unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying
amount that would have been determined had no impairment loss been recognized for the asset or
cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.
Financial Instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the
contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial assets and financial liabilities (other than
financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from
the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair
value through profit or loss are recognized immediately in profit or loss.
a. Financial assets
All regular way purchases or sales of financial assets are recognized and derecognized on a trade
date basis. The regular way of transaction means the purchase or sale of financial assets delivered
within the time frame established by regulation or convention in the marketplace.
d) Loans and receivables
1) Measurement category
a) Financial assets at fair value through profit and loss (FVTPL)
Financial assets are classified as at FVTPL when the financial asset is either held for trading
or it is designated as at FVTPL.
20
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on
remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss
does not incorporate any dividend or interest earned on the financial asset.
b) Held-to-maturity financial assets
Held-to-maturity financial assets are non-derivative financial assets with fixed or
determinable payments and fixed maturity date that the Company has positive intention and
ability to hold to maturity other than those that are designated as at fair value through profit
or loss or as available-for-sale and those that meet the definition of loans and receivables on
initial recognition.
The Company invests in bank debentures and corporate bonds with specific credit ratings
and the Company has positive intent and ability to hold to maturity, are classified as
held-to-maturity investments.
Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized
cost using the effective interest method less any impairment loss.
c) Available-for-sale financial assets (AFS financial assets)
AFS financial assets are non-derivatives that are either designated as AFS or are not
classified as loans and receivables, held-to-maturity financial assets or financial assets at fair
value through profit or loss.
The Company invests in listed stocks, emerging market stocks, and unlisted stocks. Among
these investments, those that have a quoted market price in an active market are classified as
AFS and measured at fair value at the end of each reporting period; the others that do not
have a quoted market price in an active market and whose fair value cannot be reliably
measured are measured at cost less any identified impairment losses at the end of each
reporting period. If, in a subsequent period, the fair value of the financial assets can be
reliably measured, the financial assets are remeasured at fair value. The difference between
the carrying amount and the fair value is recognized in other comprehensive income. Any
impairment losses are recognized in profit or loss.
Changes in the carrying amount of AFS monetary financial assets relating to changes in
foreign currency exchange rates, interest income calculated using the effective interest
method and dividends on AFS equity investments are recognized in profit or loss. Other
changes in the carrying amount of AFS financial assets are recognized in other
comprehensive income and will be reclassified to profit or loss when the investment is
disposed of or is determined to be impaired.
Dividends on AFS equity instruments are recognized in profit or loss when the Company’s
right to receive the dividends is established.
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. Loans and receivables (including cash
and cash equivalents, trade notes and accounts receivable, receivables from related parties,
other financial assets and refundable deposits) are measured at amortized cost using the
effective interest method, less any impairment loss, except for short-term receivables as the
effect of discounting is immaterial.
F
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on
remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss
does not incorporate any dividend or interest earned on the financial asset.
b) Held-to-maturity financial assets
Held-to-maturity financial assets are non-derivative financial assets with fixed or
determinable payments and fixed maturity date that the Company has positive intention and
ability to hold to maturity other than those that are designated as at fair value through profit
or loss or as available-for-sale and those that meet the definition of loans and receivables on
initial recognition.
The Company invests in bank debentures and corporate bonds with specific credit ratings
and the Company has positive intent and ability to hold to maturity, are classified as
held-to-maturity investments.
Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized
cost using the effective interest method less any impairment loss.
c) Available-for-sale financial assets (AFS financial assets)
AFS financial assets are non-derivatives that are either designated as AFS or are not
classified as loans and receivables, held-to-maturity financial assets or financial assets at fair
value through profit or loss.
The Company invests in listed stocks, emerging market stocks, and unlisted stocks. Among
these investments, those that have a quoted market price in an active market are classified as
AFS and measured at fair value at the end of each reporting period; the others that do not
have a quoted market price in an active market and whose fair value cannot be reliably
measured are measured at cost less any identified impairment losses at the end of each
reporting period. If, in a subsequent period, the fair value of the financial assets can be
reliably measured, the financial assets are remeasured at fair value. The difference between
the carrying amount and the fair value is recognized in other comprehensive income. Any
impairment losses are recognized in profit or loss.
Changes in the carrying amount of AFS monetary financial assets relating to changes in
foreign currency exchange rates, interest income calculated using the effective interest
method and dividends on AFS equity investments are recognized in profit or loss. Other
changes in the carrying amount of AFS financial assets are recognized in other
comprehensive income and will be reclassified to profit or loss when the investment is
disposed of or is determined to be impaired.
Dividends on AFS equity instruments are recognized in profit or loss when the Company’s
right to receive the dividends is established.
d) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. Loans and receivables (including cash
and cash equivalents, trade notes and accounts receivable, receivables from related parties,
other financial assets and refundable deposits) are measured at amortized cost using the
effective interest method, less any impairment loss, except for short-term receivables as the
effect of discounting is immaterial.
21
F
2) Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed to determine whether there is objective
evidence that an impairment loss has occurred at the end of each reporting period. Financial
assets are considered to be impaired when there is objective evidence that, as a result of one or
more events that occurred after the initial recognition of the financial asset, the estimated future
cash flows of the investment have been affected.
For financial assets carried at amortized cost, such as held-to-maturity financial assets, assets
that are individually assessed and not impaired are, in addition, assessed for impairment on a
collective basis.
For financial assets carried at amortized cost, the amount of the impairment loss recognized is
mainly based on the difference between the asset’s carrying amount and the present value of
estimated future cash flows, discounted at the financial asset’s original effective interest rate.
However, since the discounted effect of short-term receivables is immaterial, the impairment
loss is recognized on the difference between carrying amount and estimated future cash flow.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the
impairment loss decreases and the decrease can be related objectively to an event occurring after
the impairment was recognized, the previously recognized impairment loss is reversed through
profit or loss to the extent that the carrying amount of the investment at the date the impairment
is reversed does not exceed what the amortized cost would have been had the impairment not
been recognized.
For AFS equity investments, a significant or prolonged decline in the fair value of the security
below its cost is considered to be objective evidence of impairment.
When an AFS financial asset is considered to be impaired, cumulative gains or losses previously
recognized in other comprehensive income are reclassified to profit or loss in the period.
In respect of AFS equity securities, impairment losses previously recognized in profit or loss are
not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss
is recognized in other comprehensive income.
For financial assets that are carried at cost, the amount of the impairment loss is mainly
measured as the difference between the asset’s carrying amount and the present value of the
estimated future cash flows discounted at the current market rate of return for a similar financial
asset. Such impairment loss is not reversed in subsequent periods.
The carrying amount of the financial asset is reduced by the impairment loss directly for all
financial assets with the exception of trade notes and accounts receivable and other receivables,
where the carrying amount is reduced through the use of an allowance account. When a trade
note and accounts receivable and other receivables are considered uncollectible, it is written off
against the allowance account. Subsequent recoveries of amounts previously written off are
credited against the allowance account. Changes in the carrying amount of the allowance
account are recognized in profit or loss except for uncollectible trade notes and accounts
receivable and other receivables that are written off against the allowance account.
3) Derecognition of financial assets
The Company derecognizes a financial asset only when the contractual rights to the cash flows
from the asset expire, or when it transfers the financial asset and substantially all the risks and
rewards of ownership of the asset to another entity.
22
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying
amount and the sum of the consideration received and receivable and the cumulative gain or loss
that had been recognized in other comprehensive income is recognized in profit or loss.
b. Financial liabilities
1) Subsequent measurement
Except for financial liabilities at FVTPL, all the financial liabilities are subsequently measured at
amortized cost using the effective interest method.
2) Derecognition of financial liabilities
The Company derecognizes financial liabilities when, and only when, the Company’s
obligations are discharged, cancelled or they expire. The difference between the carrying
amount of the financial liability derecognized and the consideration paid and payable, including
any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.
c. Derivative financial instruments
The Company enters into a variety of derivative financial instruments to manage its exposure to
foreign exchange rate risks, including forward exchange contracts.
Derivatives are initially measured at fair value at the date the derivative contracts are entered into
and are subsequently remeasured to their fair value at the end of each reporting period. The
resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated
and effective as a hedging instrument, in which event the timing of the recognition in profit or loss
depends on the nature of the hedge relationship. When the fair value of derivative financial
instruments is positive, the derivative is recognized as a financial asset; when the fair value of
derivative financial instruments is negative, the derivative is recognized as a financial liability.
Hedge Accounting
The Company designates some derivatives instruments as cash flow hedges. Hedges of foreign ex-
change risk on firm commitments are accounted for as cash flow hedges.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash
flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective
portion is recognized immediately in profit or loss.
The associated gains or losses that were recognized in other comprehensive income are reclassified from
equity to profit or loss as a reclassification adjustment in the line item relating to the hedged item in the
same period when the hedged item affects profit or loss. If a hedge of a forecast transaction
subsequently results in the recognition of a non-financial asset or a non-financial liability, the associated
gains and losses that were recognized in other comprehensive income are removed from equity and are
included in the initial cost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued prospectively when the Company revokes the designated hedging
relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it no
longer meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument
that has been previously recognized in other comprehensive income from the period when the hedge was
effective remains separately in equity until the forecast transaction occurs. When a forecast transaction
is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit
or loss.
F
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying
amount and the sum of the consideration received and receivable and the cumulative gain or loss
that had been recognized in other comprehensive income is recognized in profit or loss.
b. Financial liabilities
1) Subsequent measurement
Except for financial liabilities at FVTPL, all the financial liabilities are subsequently measured at
amortized cost using the effective interest method.
2) Derecognition of financial liabilities
The Company derecognizes financial liabilities when, and only when, the Company’s
obligations are discharged, cancelled or they expire. The difference between the carrying
amount of the financial liability derecognized and the consideration paid and payable, including
any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.
c. Derivative financial instruments
The Company enters into a variety of derivative financial instruments to manage its exposure to
foreign exchange rate risks, including forward exchange contracts.
Derivatives are initially measured at fair value at the date the derivative contracts are entered into
and are subsequently remeasured to their fair value at the end of each reporting period. The
resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated
and effective as a hedging instrument, in which event the timing of the recognition in profit or loss
depends on the nature of the hedge relationship. When the fair value of derivative financial
instruments is positive, the derivative is recognized as a financial asset; when the fair value of
derivative financial instruments is negative, the derivative is recognized as a financial liability.
Hedge Accounting
The Company designates some derivatives instruments as cash flow hedges. Hedges of foreign ex-
change risk on firm commitments are accounted for as cash flow hedges.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash
flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective
portion is recognized immediately in profit or loss.
The associated gains or losses that were recognized in other comprehensive income are reclassified from
equity to profit or loss as a reclassification adjustment in the line item relating to the hedged item in the
same period when the hedged item affects profit or loss. If a hedge of a forecast transaction
subsequently results in the recognition of a non-financial asset or a non-financial liability, the associated
gains and losses that were recognized in other comprehensive income are removed from equity and are
included in the initial cost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued prospectively when the Company revokes the designated hedging
relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it no
longer meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument
that has been previously recognized in other comprehensive income from the period when the hedge was
effective remains separately in equity until the forecast transaction occurs. When a forecast transaction
is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit
or loss.
23
F
Provisions
Provisions are measured at the best estimate of the expenditure required to settle the Company’s
obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding
the obligation. The provisions for warranties claims and trade-in right are made by management
according to the sales agreements which represent the management’s best estimate of the future outflow
of economic benefits. The provisions of warranties claims and trade-in right are recognized as
operating cost and the reduction of revenue, respectively, in the period in which the goods are sold.
Revenue Recognition
Interest income from a financial asset is recognized when it is probable that the economic benefits
related to the transactions will flow to the Company and the amount of income can be measured reliably.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective
interest rate applicable.
When another party is involved in providing goods or services to a customer, the Company is acting as a
principal when it has exposure to the significant risks and rewards associated with the sale of goods or
the rendering of services; otherwise, the Company is acting as an agent. When the Company is acting
as a principal, gross inflows of economic benefits arising from transactions is recognized as revenue.
When the Company is acting as an agent, revenue is recognized in the amount of commission.
Revenue from the sale of goods is recognized when all the following conditions are satisfied:
Leasing
a. The Company has transferred to the buyer the significant risks and rewards of ownership of the
a. The Company as lessor
goods;
b. The Company retains neither continuing managerial involvement to the degree usually associated
relevant lease.
Rental income from operating leases is recognized on a straight-line basis over the term of the
with ownership nor effective control over the goods sold;
c. The amount of revenue can be measured reliably;
d. It is probable that the economic benefits associated with the transaction will flow to the Company;
and
e. The costs incurred or to be incurred in respect of the transaction can be measured reliably.
Revenue is measured at the fair value of the consideration received or receivable and represents amounts
for goods sold in the normal course of business, net of sales discounts and volume rebates. For trade
notes and accounts receivable due within one year from the balance sheet date, as the nominal value of
the consideration to be received approximates its fair value and transactions are frequent, fair value of
the consideration is not determined by discounting all future receipts using an imputed rate of interest.
Usage revenues from fixed-line services (including local, domestic long distance and international long
distance telephone services), cellular services, Internet and data services, and interconnection and call
transfer fees from other telecommunications companies and carriers are billed in arrears and are
recognized based upon seconds or minutes of traffic processed when the services are provided in
accordance with contract terms.
Other revenues are recognized as follows: (a) one-time subscriber connection fees (on fixed-line
services) are deferred and recognized over the average expected customer service periods, (b) monthly
fees (on fixed-line services, mobile, Internet and data services) are accrued every month, and (c) prepaid
services (fixed-line, mobile, Internet and data services) are recognized as income based upon actual
usage by customers.
Where the Company enters into transactions which involve both the provision of telecommunications
service bundled with products such as handsets, total consideration received from products and
telecommunications service in these arrangements are allocated and measured using units of accounting
within the arrangement based on their relative fair values limited to the amount that is not contingent
upon the delivery of products.
Revenue from a contract to provide services is recognized by reference to the stage of completion of the
contract.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,
are added to the cost of those assets, until such time as the assets are substantially ready for their
Other than stated above, all other borrowing costs are recognized in profit or loss in the period in which
b. The Company as lessee
Borrowing Costs
intended use or sale.
they are incurred.
Employee Benefits
a. Short-term employee benefits
b. Retirement benefits
Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted
amount of the benefits expected to be paid in exchange for the related service.
Payments to defined contribution retirement benefit plans are recognized as an expense when
employees have rendered service entitling them to the contributions.
Defined benefit costs (including service cost, net interest and remeasurement) under the defined
benefit retirement benefit plans are determined using the projected unit credit method. Service cost
(including current service cost and gains or losses on settlements) and net interest on the net defined
benefit liability (asset) are recognized as employee benefits expense in the period they occur.
Remeasurement, comprising (a) actuarial gains and losses; and (b) the return on plan assets,
excluding amounts included in net interest on the net defined benefit liability (asset), is recognized
in other comprehensive income in the period in which they occur. Remeasurement recognized in
other comprehensive income is reflected immediately in retained earnings and will not be
reclassified to profit or loss.
Dividend income from investments is recognized when the stockholder’s right to receive payment has
been established under the premises when it is probable that the economic benefit related to the
transactions will flow to the Company and that the revenue can be reasonably measured.
Net defined benefit liability (asset) represents the actual deficit (surplus) in the Company’s defined
benefit plan. Any surplus resulting from this calculation is limited to the present value of any
refunds from the plans or reductions in future contributions to the plans.
24
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Interest income from a financial asset is recognized when it is probable that the economic benefits
related to the transactions will flow to the Company and the amount of income can be measured reliably.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective
interest rate applicable.
When another party is involved in providing goods or services to a customer, the Company is acting as a
principal when it has exposure to the significant risks and rewards associated with the sale of goods or
the rendering of services; otherwise, the Company is acting as an agent. When the Company is acting
as a principal, gross inflows of economic benefits arising from transactions is recognized as revenue.
When the Company is acting as an agent, revenue is recognized in the amount of commission.
Leasing
a. The Company as lessor
Rental income from operating leases is recognized on a straight-line basis over the term of the
relevant lease.
b. The Company as lessee
Operating lease payments are recognized as an expense on a straight-line basis over the lease term.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,
are added to the cost of those assets, until such time as the assets are substantially ready for their
intended use or sale.
Other than stated above, all other borrowing costs are recognized in profit or loss in the period in which
they are incurred.
Employee Benefits
a. Short-term employee benefits
Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted
amount of the benefits expected to be paid in exchange for the related service.
b. Retirement benefits
Payments to defined contribution retirement benefit plans are recognized as an expense when
employees have rendered service entitling them to the contributions.
Defined benefit costs (including service cost, net interest and remeasurement) under the defined
benefit retirement benefit plans are determined using the projected unit credit method. Service cost
(including current service cost and gains or losses on settlements) and net interest on the net defined
benefit liability (asset) are recognized as employee benefits expense in the period they occur.
Remeasurement, comprising (a) actuarial gains and losses; and (b) the return on plan assets,
excluding amounts included in net interest on the net defined benefit liability (asset), is recognized
in other comprehensive income in the period in which they occur. Remeasurement recognized in
other comprehensive income is reflected immediately in retained earnings and will not be
reclassified to profit or loss.
Net defined benefit liability (asset) represents the actual deficit (surplus) in the Company’s defined
benefit plan. Any surplus resulting from this calculation is limited to the present value of any
refunds from the plans or reductions in future contributions to the plans.
25
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c. Other long-term employee benefits
Other long-term employee benefits are accounted for in the same way as the accounting required for
defined benefit plan except that remeasurement is recognized in profit or loss.
Share-based Payment Arrangements - Employee Stock Options
The fair value determined at the grant date of the employee share options is expensed on a straight-line
basis over the vesting period, based on the Company’s estimate of employee share options that are
expected to ultimately vest, with a corresponding increase in additional paid-in capital - employee stock
options. If the equity instruments granted vest immediately at the grant date, expenses are recognized
in full in profit or loss.
At the end of each reporting period, the Company revises its estimate of the number of employee share
options expected to vest. The impact of the revision of the original estimates is recognized in profit or
loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to
additional paid-in capital - employee stock options.
Income Tax
Income tax expense represents the sum of the tax currently payable and deferred tax.
a. Current tax
The current tax is based on taxable profit for the year. Taxable profit differs from profit as reported
in the consolidated statement of comprehensive income because of items of income or expense that
are taxable or deductible in other years and items that are never taxable or deductible. The
Company’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted by the end of the reporting period.
Income tax (10%) on undistributed earnings is accrued during the period the earnings arise and
adjusted to the extent that distributions are approved by the stockholders in the following year.
Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax
provision.
b. Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and
liabilities in the consolidated financial statements and the corresponding tax bases used in the
computation of taxable profit. If the temporary difference arises from the initial recognition (other
than in a business combination) of assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit, the resulting deferred tax asset or liability is not recognized.
In addition, a deferred tax liability is not recognized on taxable temporary difference arising from
initial recognition of goodwill.
Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax
assets are generally recognized for all deductible temporary differences, unused loss carry forward
and unused tax credits from purchases of machinery, equipment and technology, and research and
development expenditures to the extent that it is probable that taxable profits will be available
against which those deductible temporary differences can be utilized.
26
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Deferred tax liabilities are recognized for taxable temporary differences associated with investments
in subsidiaries and associates, and interests in joint ventures, except where the Company 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. Deferred tax assets arising from deductible temporary
differences associated with such investments and interests are only recognized to the extent that it is
probable that there will be sufficient taxable profits against which to utilize the benefits of the
temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available to
allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also
reviewed at the end of each reporting period and recognized to the to the extent that it has become
probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that
have been enacted or substantively enacted by the end of the reporting period. The measurement of
deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in
which the Company expects, at the end of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.
c. Current and deferred tax for the year
Current and deferred tax are recognized in profit or loss, except when they relate to items that are
recognized in other comprehensive income, in which case, the current and deferred tax are also
recognized in other comprehensive income.
Where current tax or deferred tax arises from the initial accounting for a business combination, the
tax effect is included in the accounting for the business combination.
4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION,
UNCERTAINTY AND ASSUMPTION
In the application of the Company’s accounting policies, which are described in Note 3, the management
is required to make judgments, estimates and assumptions which are based on historical experience and
other factors that are not readily apparent from other sources. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed by the management on an ongoing basis.
Revisions to accounting estimates are recognized in the period in which the estimate is revised if the
revision affects only that period or in the period of the revision and future periods if the revision affects
both current and future periods.
The following are the key assumptions concerning the future, and other key sources of estimation and
uncertainty at the end of the reporting period. Actual results may differ from these estimates.
a. Revenue recognition
The Company’s project agreements are mainly to provide one or more equipment or services to
customers. In order to fulfill the agreements, another party may be involved in some agreements.
The Company considers the following factors to determine whether the Company is a principal of
the transaction: whether the Company is the primary obligation provider of the agreements, its
exposures to inventory risks and the discretion in establishing prices, etc. The determination of
whether the Company is a principal or an agent will affect the amount of revenue recognized by the
27
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Company. Only when the Company is acting as a principal, gross inflows of economic benefits
arising from transactions is recognized as revenue.
b. Impairment of trade notes and accounts receivable
When there is objective evidence showed indications of impairment, the Company considers the
estimation of future cash flows. The amount of impairment will be measured at the difference
between the carrying amount and the present value of estimated future cash flows discounted by the
original effective interest rates of the financial assets. However, as the impact from discounting
short-term receivables is not material, the impairment of short-term receivables is measured at the
difference between the carrying amount and the estimated undiscounted future cash flows. Where
the actual future cash flows are lower than expected, a material impairment loss may arise.
c. Provision for inventory valuation and obsolescence
Inventories are stated at the lower of cost or net realizable value. Estimates of net realizable value
are based on the most reliable evidence available at the time the estimates are made at the end of
reporting period. These estimates take into consideration fluctuations of price or cost directly
relating to events occurring after the end of the period to the extent that such events confirm
conditions existing at the end of the period. Inventory write-downs are determined on an item by
item basis, except for those similar items which could be categorized into the same groups. The
Company uses the inventory holding period and turnover as the evaluation basis for inventory
obsolescence losses.
d. Impairment of tangible and intangible assets
In the process of evaluating the potential impairment of tangible and intangible assets, the Company
is required to consider internal and external indicators of impairment and make subjective judgments
in determining the independent cash flows, useful lives, expected future revenue and expenses
related to the specific asset groups within the context of the telecommunication industry. Any
changes in these estimates based on changed economic conditions or business strategies could result
in significant impairment charges in future periods.
e. Useful lives of property, plant and equipment
As discussed in Note 3, “Summary of Significant Accounting Policies - Property, Plant and
Equipment”, the Company reviews estimated useful lives of property, plant and equipment at the
end of each year.
f. Recognition and measurement of defined benefit plans
Net defined benefit liabilities and the resulting pension expense under defined benefit pension plans
are calculated using the Projected Unit Credit Method. Actuarial assumptions comprise the
discount rate, rate of employee turnover, and long-term average future salary increase. Changes in
economic circumstances and market conditions will affect these assumptions and may have a
material impact on the amount of the expense and the liability.
g. Control over subsidiaries
As discussed in Note 3, some entities are subsidiaries of the Company although the Company only
owns less than 50% ownership interests in these entities. After considering the Company's absolute
size of holding in the entity and the relative size of and the dispersion of shares owned by the other
stockholders, and the contractual arrangements between the Company and other investors, potential
voting interests and the written agreement between stockholders, the management concluded that the
Company has a sufficiently dominant voting interest to direct the relevant activities of the entity and
therefore the Company has control over these entities.
28
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5. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING
STANDARDS
Amendments to IFRSs and the New Interpretation That Are Mandatorily Effective for the
Current Year
The Company has applied the amendments to IFRSs included in the Annual Improvements to IFRSs
2012- 2014 Cycle, Amendments to IAS 1: Disclosure Initiative, and Amendments to IAS 16 and IAS
38: Clarification of Acceptable Methods of Depreciation and Amortization for the first time in 2016.
The application of these amendments has had no impact on the disclosures or amounts recognized in the
Company's consolidated financial statements.
New and Revised IFRSs in Issue But Not Yet Effective
The Company has not applied the following new and revised IFRSs that have been issued but are not yet
effective.
New, Revised or Amended Standards and Interpretations
Effective Date
Issued by IASB
(Note 1)
Amendments to IFRSs
Annual Improvements to IFRSs
Note 2
2014-2016 Cycle
Amendments to IFRS 2
Classification and Measurement of
January 1, 2018
IFRS 9
Amendments to IFRS 9 and IFRS 7
Financial Instruments
Mandatory Effective Date of IFRS 9 and
January 1, 2018
January 1, 2018
Share-based Payment Transactions
Transition Disclosures
Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between
an Investor and its Associate or Joint
Venture
To be determined by
IASB
IFRS 15
Amendments to IFRS 15
IFRS 16
Amendments to IAS 7
Amendments to IAS 12
Revenue from Contracts with Customers January 1, 2018
January 1, 2018
Clarifications to IFRS 15
January 1, 2019
Leases
January 1, 2017
Disclosure Initiative
January 1, 2017
Deferred Tax: Recovery of Underlying
Assets
Amendments to IAS 40
IFRIC 22
Transfers of investment property
Foreign Currency Transactions and
January 1, 2018
January 1, 2018
Advance Consideration
Note 1: The aforementioned new, revised or amended standards or interpretations are effective after
fiscal year beginning on or after the effective dates, unless specified otherwise.
Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after
January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods
beginning on or after January 1, 2018.
29
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Except for the following items, the Company believes the adoption of the aforementioned new and
revised IFRSs will not have material impact on the Company’s consolidated financial statements.
b. IFRS 16 “Leases”
a. IFRS 15 “Revenue from Contracts with Customers” and related amendments
related interpretations.
IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of
IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers,
and will supersede IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of
revenue-related interpretations.
When applying IFRS 15, the Company shall recognize revenue by applying the following steps:
1) Identify the contract with the customer;
2) Identify the performance obligations in the contract;
3) Determine the transaction price;
4) Allocate the transaction price to the performance obligations in the contracts; and
5) Recognize revenue when the entity satisfies a performance obligation.
Upon the application of IFRS 15 and its related amendments, the Company will allocate the tran-
saction price to each performance obligation identified in the contract on a relative stand-alone
selling price basis.
Where the Company enters into transactions which involve both the provision of telecommunica-
tions service bundled with products such as handsets, total consideration received from products and
telecommunications service in these arrangements is allocated based on each performance
obligation’s relative selling price. The amount of sales revenue recognized for products is no
longer limited to the amount paid by the customer for the products. This will not change the total
revenue recognized, but will change the timing of revenue recognition. The Company may
recognize more revenue at the beginning of the contract period (i.e., at the time of sale of products),
and revenue recognized for telecommunications service in the subsequent contract periods will
decrease.
Incremental costs of obtaining a contract will be recognized as an asset to the extent the Company
expects to recover those costs. Such asset will be amortized on a basis that is consistent with the
transfer to the customer of the goods or services to which the asset relates. This will lead to the
later recognition of charges for certain customer-obtaining costs.
IFRS 15 and its related amendments require that when another party is involved in providing goods
or services to a customer, the Company is a principal if it controls the specified good or service
before that good or service is transferred to a customer. Before the application of IFRS 15, the
Company determines whether it is a principal or an agent based on its exposure to the significant
risks and rewards associated with the sale of goods or the rendering of services.
When IFRS 15 and its amendments become effective, entities may elect to apply this Standard and
the related amendments either retrospectively to each prior reporting period presented or
retrospectively with the cumulative effect of initially applying this Standard recognized at the date of
initial application. The Company is currently evaluating these transition methods and the related
impacts on the Company’s consolidated financial statements.
Under IFRS 16, if the Company is a lessee, it shall recognize right-of-use assets and lease liabilities
for all leases on the consolidated balance sheets except for low-value and short-term leases. The
Company may elect to apply the accounting method similar to the accounting for operating lease
under IAS 17 to the low-value and short-term leases. On the consolidated statements of
comprehensive income, the Company should present the depreciation expense charged on the
right-of-use asset separately from interest expense accrued on the lease liability and discloses such
amounts in the footnotes; interest is computed by using effective interest method. On the
consolidated statements of cash flows, cash payments for the principal portion of the lease liability
are classified within financing activities; cash payments for interest portion are classified within
The application of IFRS 16 is not expected to have a material impact on the accounting of the
operating activities.
Company as lessor.
When IFRS 16 becomes effective, the Company may elect to apply this Standard either
retrospectively to each prior reporting period presented or retrospectively with the cumulative effect
of the initial application of this Standard recognized at the date of initial application.
Except for the abovementioned impact, as of the date the consolidated financial statements were
authorized for issue, the Company is continuously assessing the possible impact that the application of
other standards and interpretations will have on the Company’s financial position and operating result,
and will disclose the relevant impact when the assessment is completed.
6. U.S. DOLLAR AMOUNTS
The Company maintains its accounts and expresses its consolidated financial statements in New Taiwan
dollars. For readers’ convenience only, U.S. dollar amounts presented in the accompanying
consolidated financial statements have been translated from New Taiwan dollars as set forth in the
statistical release of the Federal Reserve Board of the United States as of December 30, 2016, which was
NT$32.40 to US$1.00. The convenience translations should not be construed as representations that
the New Taiwan dollar amounts have been, could have been, or could in the future be, converted into
U.S. dollars at this or any other rate of exchange.
7. CASH AND CASH EQUIVALENTS
Cash
Cash on hand
Bank deposits
December 31
2015
NT$
2016
NT$
(In Millions)
$
333
7,616
7,949
$
370
7,240
7,610
(Continued)
30
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b. IFRS 16 “Leases”
IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of
related interpretations.
Under IFRS 16, if the Company is a lessee, it shall recognize right-of-use assets and lease liabilities
for all leases on the consolidated balance sheets except for low-value and short-term leases. The
Company may elect to apply the accounting method similar to the accounting for operating lease
under IAS 17 to the low-value and short-term leases. On the consolidated statements of
comprehensive income, the Company should present the depreciation expense charged on the
right-of-use asset separately from interest expense accrued on the lease liability and discloses such
amounts in the footnotes; interest is computed by using effective interest method. On the
consolidated statements of cash flows, cash payments for the principal portion of the lease liability
are classified within financing activities; cash payments for interest portion are classified within
operating activities.
The application of IFRS 16 is not expected to have a material impact on the accounting of the
Company as lessor.
When IFRS 16 becomes effective, the Company may elect to apply this Standard either
retrospectively to each prior reporting period presented or retrospectively with the cumulative effect
of the initial application of this Standard recognized at the date of initial application.
Except for the abovementioned impact, as of the date the consolidated financial statements were
authorized for issue, the Company is continuously assessing the possible impact that the application of
other standards and interpretations will have on the Company’s financial position and operating result,
and will disclose the relevant impact when the assessment is completed.
6. U.S. DOLLAR AMOUNTS
The Company maintains its accounts and expresses its consolidated financial statements in New Taiwan
dollars. For readers’ convenience only, U.S. dollar amounts presented in the accompanying
consolidated financial statements have been translated from New Taiwan dollars as set forth in the
statistical release of the Federal Reserve Board of the United States as of December 30, 2016, which was
NT$32.40 to US$1.00. The convenience translations should not be construed as representations that
the New Taiwan dollar amounts have been, could have been, or could in the future be, converted into
U.S. dollars at this or any other rate of exchange.
7. CASH AND CASH EQUIVALENTS
Cash
Cash on hand
Bank deposits
December 31
2015
NT$
2016
NT$
(In Millions)
$
333
7,616
7,949
$
370
7,240
7,610
(Continued)
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Cash equivalents (investments with maturities of less than three
months)
Commercial paper
Negotiable certificate of deposit
Time deposits
December 31
2015
NT$
2016
NT$
(In Millions)
$ 11,914
7,600
2,808
22,322
$ 30,271
$ 11,436
10,800
1,254
23,490
$ 31,100
(Concluded)
Currency
Maturity Period
(In Millions)
Contract Amount
December 31, 2016
Forward exchange contracts - buy
Forward exchange contracts - buy
EUR/NT$
US$/NT$
2017.03
2017.01
EUR5/NT$167
US$2/NT$55
(Concluded)
The Company entered into the above forward exchange contracts to manage its exposure to foreign
currency risk due to fluctuations in exchange rates. However, the aforementioned derivatives did not
meet the criteria for hedge accounting.
The annual yield rates of bank deposits, commercial paper, negotiable certificate of deposit and time
deposits as of balance sheet dates were as follows:
9. AVAILABLE-FOR-SALE FINANCIAL ASSETS
Bank deposits
Commercial paper
Negotiable certificate of deposit
Time deposits
December 31
2015
2016
0.00%-1.10%
0.35%-0.41%
0.36%-0.45%
0.55%-3.80%
0.00%-0.42%
0.32%-0.42%
0.35%-0.50%
0.40%-3.30%
8. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Financial assets held for trading
Derivatives (not designated for hedge)
Forward exchange contracts
Financial liabilities held for trading
Derivatives (not designated for hedge)
Forward exchange contracts
December 31
2015
NT$
2016
NT$
(In Millions)
$
$
-
-
$
-
$
1
Outstanding forward exchange contracts not designated for hedge as of balance sheet dates were as
follows:
Currency
Maturity Period
Contract Amount
(In Millions)
December 31, 2015
Forward exchange contracts - buy
Forward exchange contracts - buy
EUR/NT$
US$/NT$
2016.03-06
2016.01
EUR18/NT$659
US$1/NT$26
(Continued)
32
Equity securities
Domestic listed stocks
Domestic non-listed stocks
Foreign non-listed stocks
Current
Noncurrent
December 31
2015
NT$
2016
NT$
(In Millions)
$ 3,243
$ 2,521
1,990
278
1,949
294
$ 5,511
$ 4,764
$
-
5,511
$
-
4,764
$ 5,511
$ 4,764
CHI evaluated and concluded its listed available-for-sale financial assets were partially impaired and
recorded an impairment loss of $26 million for the year ended December 31, 2015. Chunghwa
evaluated and concluded its listed available-for-sale financial assets were impaired and recorded an
impairment loss of $577 million for the year ended December 31, 2016.
The fair values of the above non-listed stocks investments cannot be reliably measured due to the range
of reasonable fair value estimates was so significant, the above non-listed stocks investments owned by
the Company were carried at costs less any impairment losses at the balance sheet dates.
The Company disposed non-listed available-for-sale financial assets with carrying amounts of $6
million, $2 million and $9 million for the years ended 2014, 2015 and 2016, respectively, and
recognized the gains (losses) from the disposal of $1 million, $(0.4) million and $1 million for the years
ended December 31, 2014, 2015 and 2016, respectively.
After the Company evaluated the financial positions and future operation results of non-listed
available-for-sale financial assets, the Company concluded some of its investments that have ceased
their operations were fully impaired, and recognized an impairment loss of $9 million, $77 million and
nil for the years ended December 31, 2014, 2015 and 2016, respectively. In addition, some of its
investments were encountering profit recession or deficit. The Company concluded the recoverable
amount of such investments which represented present value of estimated future cash flows discounted
at the current market rate of return for a similar financial asset or based on the market approach using
financial indicators such as PE ratios of the comparable listed companies was lower than the carrying
F
Currency
Maturity Period
Contract Amount
(In Millions)
December 31, 2016
Forward exchange contracts - buy
Forward exchange contracts - buy
EUR/NT$
US$/NT$
2017.03
2017.01
EUR5/NT$167
US$2/NT$55
(Concluded)
The Company entered into the above forward exchange contracts to manage its exposure to foreign
currency risk due to fluctuations in exchange rates. However, the aforementioned derivatives did not
meet the criteria for hedge accounting.
9. AVAILABLE-FOR-SALE FINANCIAL ASSETS
Equity securities
Domestic listed stocks
Domestic non-listed stocks
Foreign non-listed stocks
Current
Noncurrent
December 31
2015
NT$
2016
NT$
(In Millions)
$ 3,243
1,990
278
$ 2,521
1,949
294
$ 5,511
$ 4,764
$
-
5,511
$
-
4,764
$ 5,511
$ 4,764
CHI evaluated and concluded its listed available-for-sale financial assets were partially impaired and
recorded an impairment loss of $26 million for the year ended December 31, 2015. Chunghwa
evaluated and concluded its listed available-for-sale financial assets were impaired and recorded an
impairment loss of $577 million for the year ended December 31, 2016.
The fair values of the above non-listed stocks investments cannot be reliably measured due to the range
of reasonable fair value estimates was so significant, the above non-listed stocks investments owned by
the Company were carried at costs less any impairment losses at the balance sheet dates.
The Company disposed non-listed available-for-sale financial assets with carrying amounts of $6
million, $2 million and $9 million for the years ended 2014, 2015 and 2016, respectively, and
recognized the gains (losses) from the disposal of $1 million, $(0.4) million and $1 million for the years
ended December 31, 2014, 2015 and 2016, respectively.
After the Company evaluated the financial positions and future operation results of non-listed
available-for-sale financial assets, the Company concluded some of its investments that have ceased
their operations were fully impaired, and recognized an impairment loss of $9 million, $77 million and
nil for the years ended December 31, 2014, 2015 and 2016, respectively. In addition, some of its
investments were encountering profit recession or deficit. The Company concluded the recoverable
amount of such investments which represented present value of estimated future cash flows discounted
at the current market rate of return for a similar financial asset or based on the market approach using
financial indicators such as PE ratios of the comparable listed companies was lower than the carrying
33
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amount. Therefore, the Company recognized impairment losses of $14 million, $4 million and nil for
the years ended December 31, 2014, 2015 and 2016, respectively.
10. HELD-TO-MATURITY FINANCIAL ASSETS
Corporate bonds
Bank debentures
Current
Noncurrent
December 31
2015
NT$
2016
NT$
(In Millions)
$ 3,871
150
$ 1,990
150
$ 4,021
$ 2,140
$ 1,881
2,140
$ 2,140
-
$ 4,021
$ 2,140
The related information of corporate bonds and bank debentures as of balance sheet dates was as
follows:
Corporate bonds
Par value
Nominal interest rate
Effective interest rate
Average remaining maturity life
Bank debentures
Par value
Nominal interest rate
Effective interest rate
Average remaining maturity life
11. TRADE NOTES AND ACCOUNTS RECEIVABLE, NET
Trade notes and accounts receivable
Less: Allowance for doubtful accounts
34
December 31
2015
NT$
2016
NT$
(In Millions)
$ 3,865
1.18%-2.49%
1.15%-1.54%
1.04 years
$ 1,990
1.18%-1.35%
1.20%-1.35%
0.34 year
$
150
1.25%
1.25%
1.41 years
$
150
1.25%
1.25%
0.41 year
December 31
2015
NT$
2016
NT$
(In Millions)
$ 28,260
(1,334)
$ 32,795
(1,773)
$ 26,926
$ 31,022
F
amount. Therefore, the Company recognized impairment losses of $14 million, $4 million and nil for
the years ended December 31, 2014, 2015 and 2016, respectively.
10. HELD-TO-MATURITY FINANCIAL ASSETS
The average credit terms range from 30 to 90 days. In determining the recoverability of trade notes
and accounts receivable, the Company considers significant change in the credit quality of the trade
notes and receivables from the date credit was initially granted up to the end of the reporting period. In
general, with few exceptional cases, it is unlikely for the notes and accounts receivable due longer than
180 days to be collected, therefore the Company recognized 100% allowance of notes and accounts
receivable overdue longer than 180 days. For the notes and accounts receivable less than 180 days, the
allowance for doubtful accounts was estimated based on the Company’s historical recovery experience.
The Company serves a large consumer base; therefore, the concentration of credit risk is limited.
The aging analysis for trade notes and accounts receivable as of balance sheet dates was as follows:
The related information of corporate bonds and bank debentures as of balance sheet dates was as
Non-overdue
Less than 30 days
31-60 days
61-90 days
91-120 days
121-180 days
More than 181 days
December 31
2015
NT$
2016
NT$
(In Millions)
$ 25,708
733
346
241
193
121
918
$ 29,596
1,050
348
286
198
119
1,198
$ 28,260
$ 32,795
The above aging analysis was based on days overdue.
At the balance sheet dates, the receivables that were past due but not impaired were considered
recoverable by the management of the Company. The aging of these receivables as of balance sheets
dates was as follows:
Less than 30 days
31-60 days
61-90 days
91-120 days
121-180 days
More than 181 days
The above aging analysis was based on days overdue.
December 31
2015
NT$
2016
NT$
(In Millions)
$
128
16
95
58
2
20
$
256
47
9
74
1
13
$
319
$
400
35
Corporate bonds
Bank debentures
Current
Noncurrent
follows:
Average remaining maturity life
Corporate bonds
Par value
Nominal interest rate
Effective interest rate
Bank debentures
Par value
Nominal interest rate
Effective interest rate
Average remaining maturity life
11. TRADE NOTES AND ACCOUNTS RECEIVABLE, NET
Trade notes and accounts receivable
Less: Allowance for doubtful accounts
December 31
2015
NT$
2016
NT$
(In Millions)
$ 3,871
150
$ 1,990
150
$ 4,021
$ 2,140
$ 1,881
2,140
$ 2,140
-
$ 4,021
$ 2,140
December 31
2015
NT$
2016
NT$
(In Millions)
$ 3,865
$ 1,990
1.18%-2.49%
1.18%-1.35%
1.15%-1.54%
1.20%-1.35%
1.04 years
0.34 year
$
150
1.25%
1.25%
1.41 years
$
150
1.25%
1.25%
0.41 year
December 31
2015
NT$
2016
NT$
(In Millions)
$ 28,260
(1,334)
$ 32,795
(1,773)
$ 26,926
$ 31,022
F
Movements of the allowance for doubtful accounts were as follows:
Individually
Assessed for
Impairment
NT$
Collectively
Assessed for
Impairment
NT$
(In Millions)
$
221
55
-
276
88
-
364
715
(274)
$
701
237
(165)
773
392
(195)
970
228
(230)
Total
NT$
$
922
292
(165)
1,049
480
(195)
1,334
943
(504)
Balance on January 1, 2014
Add: Provision for doubtful accounts
Deduct: Amounts written off
Balance on December 31, 2014
Add: Provision for doubtful accounts
Deduct: Amounts written off
Balance on December 31, 2015
Add: Provision for doubtful accounts
Deduct: Amounts written off
Balance on December 31, 2016
$
805
$
968
$ 1,773
12. INVENTORIES
Merchandise
Project in process
Work in process
Raw materials
Land held under development
Construction in progress
December 31
2015
NT$
2016
NT$
(In Millions)
$ 5,849
697
100
71
6,717
1,999
64
$ 4,136
961
109
143
5,349
1,999
75
$ 8,780
$ 7,423
The operating costs related to inventories were $51,341 million, $52,666 million and $54,183 million for
the years ended December 31, 2014, 2015 and 2016, respectively.
For the years ended December 31, 2014, 2015 and 2016, the valuation loss on inventories recognized as
operating costs included the amounts of $288 million, $198 million and $192 million, respectively.
As of December 31, 2015 and 2016, inventories of $2,063 million and $2,074 million, respectively,
were expected to be recovered for a time period longer than twelve months. The aforementioned
amount of inventories is related to property development owned by LED.
Land held under development and construction in progress on December 31, 2015 and 2016 was
developed by LED for Qingshan Sec., Dayuan Dist., Taoyuan City project.
36
F
Movements of the allowance for doubtful accounts were as follows:
13. PREPAYMENTS
Balance on December 31, 2016
$
805
$
968
$ 1,773
Balance on January 1, 2014
Add: Provision for doubtful accounts
Deduct: Amounts written off
Balance on December 31, 2014
Add: Provision for doubtful accounts
Deduct: Amounts written off
Balance on December 31, 2015
Add: Provision for doubtful accounts
Deduct: Amounts written off
12. INVENTORIES
Merchandise
Project in process
Work in process
Raw materials
Land held under development
Construction in progress
Individually
Assessed for
Impairment
NT$
Collectively
Assessed for
Impairment
NT$
(In Millions)
$
$
$
221
55
-
276
88
-
364
715
(274)
701
237
(165)
773
392
(195)
970
228
(230)
Total
NT$
922
292
(165)
1,049
480
(195)
1,334
943
(504)
December 31
2015
NT$
2016
NT$
(In Millions)
$ 5,849
$ 4,136
697
100
71
6,717
1,999
64
961
109
143
5,349
1,999
75
$ 8,780
$ 7,423
Prepaid rents
Others
Current
Prepaid rents
Others
Noncurrent
Prepaid rents
Others
14. OTHER CURRENT MONETARY ASSETS
Time deposits and negotiable certificates of deposit with
maturities of more than three months
Others
December 31
2015
NT$
2016
NT$
(In Millions)
$ 3,275
3,006
$ 2,934
3,285
$ 6,281
$ 6,219
$ 1,033
1,636
$
899
2,079
$ 2,669
$ 2,978
$ 2,242
1,370
$ 2,035
1,206
$ 3,612
$ 3,241
December 31
2015
NT$
2016
NT$
(In Millions)
$ 2,286
1,015
$ 3,568
1,253
$ 3,301
$ 4,821
The operating costs related to inventories were $51,341 million, $52,666 million and $54,183 million for
the years ended December 31, 2014, 2015 and 2016, respectively.
The annual yield rates of time deposits and negotiable certificates of deposit with maturities of more
than three months at the balance sheet dates were as follows:
For the years ended December 31, 2014, 2015 and 2016, the valuation loss on inventories recognized as
operating costs included the amounts of $288 million, $198 million and $192 million, respectively.
As of December 31, 2015 and 2016, inventories of $2,063 million and $2,074 million, respectively,
were expected to be recovered for a time period longer than twelve months. The aforementioned
amount of inventories is related to property development owned by LED.
Land held under development and construction in progress on December 31, 2015 and 2016 was
developed by LED for Qingshan Sec., Dayuan Dist., Taoyuan City project.
Time deposits and negotiable certificates of deposit with
maturities of more than three months
0.11%-3.50%
0.11%-1.95%
December 31
2015
2016
37
F
2014
NT$
2016
NT$
(In Millions)
Profit Allocated to
Noncontrolling Interests
Year Ended December 31
2015
NT$
Accumulated
Noncontrolling Interests
December 31
2015
NT$
2016
NT$
Profit for the year
$
607
$
773
$
977
15. SUBSIDIARIES
a. Information on significant noncontrolling interest subsidiary
The table below shows details of less than wholly owned subsidiaries of the Company that have
material noncontrolling interests:
Subsidiaries
SENAO
Place of Incorporation
and Principal
Place of Business
Taiwan
Proportion of Ownership
Interests and Voting Rights
Held by Noncontrolling Interests
December 31
2015
71%
2016
71%
Revenue
Expenses
Profit for the year
Profit attributable to the parent
Profit attributable to the noncontrolling
interests
Other comprehensive income attributable
to the parent
Other comprehensive income attributable
to the noncontrolling interests
Total comprehensive income attributable
Total comprehensive income attributable
to the noncontrolling interests
$
$
$
607
171
436
8
21
29
457
Year Ended December 31
2014
NT$
2015
NT$
(In Millions)
2016
NT$
$ 41,753
41,146
$ 35,944
35,171
$ 34,453
33,476
$
$
$
$
$
$
773
222
551
(1)
(2)
(3)
548
770
274
$
$
977
287
690
$
(21)
(53)
$
(74)
$
$
$
637
903
526
531
130
(677)
(7)
Net cash inflow from operating activities
Net cash inflow (outflow) from investing
activities
Net cash outflow from financing activities
Effect of exchange rate changes on cash
and cash equivalents
$ 1,233
$ 1,739
(115)
(533)
9
54
(1,530)
11
Net cash inflow (outflow)
$
594
$
274
$
(23)
b. Equity transactions with noncontrolling interests
The Company’s equity ownership of CHPT decreased from 50.62% as of January 1, 2014 to 47.65%
as of December 31, 2014 due to CHI did not participate the CHPT’s capital increase in August and
September 2014. CHI disposed of some shares of CHPT in January 2015, and the ownership
interest of CHPT decreased from 47.65% to 45.68%. The Company’s equity ownership of CHPT
decreased to 40.79% as of December 31, 2016 due to CHI disposed of some shares of CHPT and did
not participate the CHPT’S capital increase in March 2016.
SENAO participated in share subscription of Youth in December 2015 at a percentage different from
its original ownership interest. Therefore, the ownership interest of Youth increased from 70% to
89.48%.
SENAO
Individually immaterial
subsidiaries with
noncontrolling interests
$
436
$
551
$
690
$ 3,942
$ 4,069
Other comprehensive income for the year
$
1,123
2,203
$ 5,065
$ 6,272
to the parent
$
179
$
222
$
266
Summarized financial information in respect of SENAO and its subsidiaries that has material
noncontrolling interests is set out below. The summarized financial information below represents
amounts before intracompany eliminations.
Total comprehensive income for the year
$
636
Dividends paid to noncontrolling interests
$
742
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Equity attributable to the parent
Noncontrolling interests
December 31
2015
NT$
2016
NT$
(In Millions)
$ 7,423
$ 2,615
$ 4,398
$
138
$ 1,560
$ 3,942
$ 7,762
$ 2,535
$ 4,466
$
155
$ 1,607
$ 4,069
38
F
15. SUBSIDIARIES
a. Information on significant noncontrolling interest subsidiary
The table below shows details of less than wholly owned subsidiaries of the Company that have
material noncontrolling interests:
Proportion of Ownership
Interests and Voting Rights
Place of Incorporation
Held by Noncontrolling Interests
and Principal
Place of Business
Taiwan
December 31
2015
71%
2016
71%
Profit Allocated to
Noncontrolling Interests
Year Ended December 31
Accumulated
Noncontrolling Interests
December 31
2014
NT$
2015
NT$
2016
NT$
2015
NT$
2016
NT$
(In Millions)
Summarized financial information in respect of SENAO and its subsidiaries that has material
noncontrolling interests is set out below. The summarized financial information below represents
amounts before intracompany eliminations.
Subsidiaries
SENAO
Individually immaterial
subsidiaries with
noncontrolling interests
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Equity attributable to the parent
Noncontrolling interests
1,123
2,203
$ 5,065
$ 6,272
December 31
2015
NT$
2016
NT$
(In Millions)
$ 7,423
$ 2,615
$ 4,398
$
138
$ 1,560
$ 3,942
$ 7,762
$ 2,535
$ 4,466
$
155
$ 1,607
$ 4,069
Revenue
Expenses
Profit for the year
Profit attributable to the parent
Profit attributable to the noncontrolling
interests
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
$ 41,753
41,146
$ 35,944
35,171
$ 34,453
33,476
$
$
607
171
436
$
$
773
222
551
$
$
977
287
690
Profit for the year
$
607
$
773
$
977
SENAO
$
436
$
551
$
690
$ 3,942
$ 4,069
Other comprehensive income for the year
$
Other comprehensive income attributable
to the parent
$
Other comprehensive income attributable
to the noncontrolling interests
8
21
29
$
$
(1)
(2)
(3)
$
(21)
(53)
$
(74)
Total comprehensive income attributable
to the parent
$
179
$
222
$
266
Total comprehensive income attributable
to the noncontrolling interests
457
Total comprehensive income for the year
$
636
Dividends paid to noncontrolling interests
$
742
548
770
274
$
$
Net cash inflow from operating activities
Net cash inflow (outflow) from investing
activities
Net cash outflow from financing activities
Effect of exchange rate changes on cash
and cash equivalents
$ 1,233
$ 1,739
(115)
(533)
9
54
(1,530)
11
$
$
$
637
903
526
531
130
(677)
(7)
Net cash inflow (outflow)
$
594
$
274
$
(23)
b. Equity transactions with noncontrolling interests
The Company’s equity ownership of CHPT decreased from 50.62% as of January 1, 2014 to 47.65%
as of December 31, 2014 due to CHI did not participate the CHPT’s capital increase in August and
September 2014. CHI disposed of some shares of CHPT in January 2015, and the ownership
interest of CHPT decreased from 47.65% to 45.68%. The Company’s equity ownership of CHPT
decreased to 40.79% as of December 31, 2016 due to CHI disposed of some shares of CHPT and did
not participate the CHPT’S capital increase in March 2016.
SENAO participated in share subscription of Youth in December 2015 at a percentage different from
its original ownership interest. Therefore, the ownership interest of Youth increased from 70% to
89.48%.
39
F
SENAO purchased its treasury stock in June and July 2015, and the Company’s ownership interest
of SENAO increased from 28.18% to 29.31%.
The above transactions were accounted for as equity transactions since the Company did not cease to
have control over these subsidiaries.
The detailed information of the equity transactions for the years ended December 31, 2014, 2015 and
2016 was as follows:
2014
CHI Did Not
Participate in
the Capital
Increase of
CHPT
NT$
Year Ended December 31
2015
2016
CHI Disposed
Some Shares
of CHPT
NT$
SENAO
Purchased Its
Treasury
Stock
NT$
SENAO
Participated in
Youth's Share
Subscription
NT$
(In Millions)
CHI Did Not
Participate in
the Capital
Increase of
CHPT
NT$
CHI Disposed
Some Shares
of CHPT
NT$
Cash consideration received from (paid to)
Noncontrolling interests
$
162
$
45
$
(492 )
$
-
$
1,175
$
83
The proportionate share of the carrying
amount of the net assets of the subsidiary
transferred (to) from noncontrolling
interests
Differences arising from equity
transactions
Line items for equity transaction
adjustments
Additional paid-in capital - difference
between consideration received or paid
and the carrying amount of the
subsidiaries’ net assets upon actual
disposal or acquisition
Additional paid-in capital - arising from
changes in equities of subsidiaries
Unappropriated earnings
c. Business combinations
1) Subsidiaries acquired
(159 )
(18 )
416
(0.4 )
(786 )
(25 )
$
3
$
27
$
(76 )
$
(0.4 )
$
389
$
58
$
$
$
-
3
-
$
$
$
27
$
-
$
-
$
-
$
-
-
$
$
(15 )
(61 )
$
$
(0.4 )
-
$
$
389
-
$
$
58
-
-
Principal Activity
Date of
Acquisition
Proportion of
Voting
Equity
Interests
Acquired (％)
Consideration
Transferred
NT$
(In Millions)
Youth Co., Ltd.
and its
subsidiaries
Sale and maintenance
of information and
communication
technologies
products
September 2, 2015
70
$
135
Youth and its subsidiaries were acquired in cash in order to continue the expansion of SENAO’s
activities in selling telecommunications products.
40
F
2) Assets acquired and liabilities assumed at the date of acquisition
Current assets
Cash and cash equivalents
Accounts and other receivables
Inventories
Prepayments
Other current assets
Noncurrent assets
Property, plant and equipment
Intangible assets
Refundable deposits
Deferred income tax assets
Other noncurrent assets
Current liabilities
Short-term loans
Trade notes payable
Accounts and other payables
Other current liabilities
Noncurrent liabilities
Long-term loans
Deferred income tax liabilities
Other noncurrent liabilities
3) Goodwill arising on acquisition
Youth and Its
Subsidiaries
NT$
(In Millions)
$
21
10
30
6
6
36
259
22
4
32
(54)
(9)
(75)
(80)
(40)
(44)
(10)
$
114
Youth and Its
Subsidiaries
NT$
(In Millions)
Consideration transferred
Add: Noncontrolling interest (30% of the recognized amounts of Youth and
$
135
its subsidiaries’ identifiable net assets)
Less: Fair value of identifiable net assets acquired
Goodwill arising on acquisition
34
(114)
$
55
Goodwill that arose in the acquisition of Youth and its subsidiaries mainly included the amount
in relation to the benefit of expected synergies from integrating the businesses of Youth and its
subsidiaries into the Company that operate sales and maintenance of Apple’s products for many
years. These benefits were not recognized separately from goodwill because they did not meet
the recognition criteria for identifiable intangible assets.
Goodwill arising from business combinations is not deductible for tax purposes.
SENAO performed impairment test of goodwill arising from the above acquisition and
concluded that no impairment loss was required to recognize for the years ended December 31,
2015 and 2016.
41
F
4) Net cash outflow on acquisition of subsidiaries
Consideration paid in cash
Less: Cash and cash equivalents acquired
Youth and Its
Subsidiaries
NT$
(In Millions)
$
135
(21)
$
114
5) Impact of acquisitions on the results of the Company’s financial performance
The results of the acquired subsidiaries’ financial performance from the acquisition date to
December 31, 2015, were as follows:
Revenue
Net loss
Youth and Its
Subsidiaries
NT$
(In Millions)
$
$
188
18
Had these business combinations been in effect at the beginning of the annual reporting period,
the Company’s pro-forma revenue and net income would have been $232,187 million and
$42,774 million, respectively, for the year ended December 31, 2015. This pro-forma
information is for illustrative purposes only and is not necessarily an indication of revenue and
results of operations of the Company that actually would have been achieved had the acquisition
been completed on January 1, 2015, nor is it intended to be a projection of future results.
In determining the pro-forma revenue and net income of the Company had Youth and its
subsidiaries been acquired at the beginning of 2015, management calculated depreciation of
property, plant and equipment and amortization of intangible assets acquired on the basis of the
fair values arising in the initial accounting for the business combination rather than the carrying
amounts recognized in the pre-acquisition financial statements.
16. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD
December 31
2015
NT$
2016
NT$
(In Millions)
$ 2,668
227
$ 2,383
3
$ 2,895
$ 2,386
Investments in associates
Investments in joint ventures
42
F
a. Investments in associates
Investments in associates were as follows:
Carrying Amount
December 31
2015
NT$
2016
NT$
(In Millions)
Listed
Senao Networks, Inc. (“SNI”)
$
699
$
680
Non-listed
ST-2 Satellite Ventures Pte. Ltd. (“STS”)
International Integrated System, Inc. (“IISI”)
Viettel-CHT Co., Ltd. (“Viettel-CHT”)
Taiwan International Standard Electronics Co., Ltd. (“TISE”)
Skysoft Co., Ltd. (“SKYSOFT”)
KingwayTek Technology Co., Ltd. (“KWT”)
So-net Entertainment Taiwan Limited (“So-net”)
Taiwan International Ports Logistics Corporation (“TIPL”)
Click Force Co., Ltd. (“CF”)
Alliance Digital Tech Co., Ltd. (“ADT”)
Dian Zuan Integrating Marketing Co., Ltd. (“DZIM”)
HopeTech Technologies Limited (“HopeTech”)
MeWorks LIMITED (HK) (“MeWorks”)
495
297
316
338
137
82
106
69
39
14
40
36
-
467
307
275
142
145
84
111
57
37
32
22
24
-
The percentages of ownership and voting rights in associates held by the Company as of balance
sheet dates were as follows:
$ 2,668
$ 2,383
% of Ownership and
Voting Rights
December 31
2015
2016
Senao Networks, Inc. (“SNI”)
ST-2 Satellite Ventures Pte., Ltd. (“STS”)
International Integrated System, Inc. (“IISI”)
Viettel-CHT Co., Ltd. (“Viettel-CHT”)
Taiwan International Standard Electronics Co., Ltd. (“TISE”)
Skysoft Co., Ltd. (“SKYSOFT”)
KingwayTek Technology Co., Ltd. (“KWT”)
So-net Entertainment Taiwan Limited (“So-net”)
Taiwan International Ports Logistics Corporation (“TIPL”)
Click Force Co., Ltd. (“CF”)
Alliance Digital Tech Co., Ltd. (“ADT”)
Dian Zuan Integrating Marketing Co., Ltd. (“DZIM”)
HopeTech Technologies Limited (“HopeTech”)
MeWorks LIMITED (HK) (“MeWorks”)
34
38
33
30
40
30
26
30
27
49
13
26
45
20
34
38
32
30
40
30
26
30
27
49
14
26
45
20
43
F
None of the above associates is considered individually material to the Company. Summarized
financial information of associates that are not individually material was as follows:
The Company’s share of profits
The Company’s share of other
comprehensive income (loss)
The Company’s share of total
comprehensive income
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
$
823
$
926
$
557
5
(19)
(47)
$
828
$
907
$
510
The Level 1 fair values based on the closing market prices of SNI as of the balance sheet dates were
as follows:
SNI
December 31
2015
NT$
2016
NT$
(In Millions)
$ 3,556
$ 2,537
Chunghwa did not participate in the capital increase of KWT in August 2014 and November 2014
and the ownership interest decreased to 27% after the capital increase of KWT. Chunghwa sold its
partial ownership interest in KWT in January 2015. The gain on disposal of KWT was $7 million
and the ownership interest decreased to 26% after the disposal.
Chunghwa and Taiwan International Ports Corporation, Ltd. established TIPL in October 2014.
Chunghwa invested $80 million cash and held 27% ownership interest of TIPL. TIPL engages
mainly in logistics service of increasing cargo movement efficiency.
DZIM increased its capital in April 2014 and June 2014. Chunghwa participated in the capital
increase of DZIM by investing $49 million in April 2014. SENAO participated in the capital
increase of DZIM by investing $24 million in April 2014. As of December 31, 2016, the Company
held 26% ownership interest of DZIM. DZIM engages mainly in information technology service
and general advertisement service.
CHYP participated in the capital increase of CF by investing $39 million and $6 million in
November 2014 and April 2015, respectively. CHYP holds 49% ownership interest of CF. CF
engages mainly in advertisement services.
Chunghwa did not participate in the capital increase of ADT in April 2014 and October 2014, and
the ownership interest decreased to 13% after the capital increase of ADT. Chunghwa participated
in the capital increase of ADT by investing $30 million in December 2016 at a percentage different
from its original ownership interest and the ownership interest of ADT increased to 14%.
Chunghwa still has one out of five seats in the Board of Directors of ADT after the capital increase.
Therefore, Chunghwa remains significant influence over ADT. ADT engages mainly in the
development of mobile payments and information processing service.
Sertec completed its liquidation in June 2015. CHI recognized the gain on disposal of Sertec of $1
million and received the proceeds from disposal in July 2015.
44
CHI disposed all ownership interest in Panda Monium Company Ltd. in September 2015.
F
Prime Asia participated in the capital increase of MeWorks by investing $10 million and held 20%
ownership in May 2014. Based on the share of capital commitments, Prime Asia has two seats out
of five seats in the Board of Directors; therefore it has significant influence over MeWorks. As the
operation of MeWorks ceased, the Company concluded that this investment was fully impaired.
The Company recognized an impairment loss of $8 million for the year ended December 31, 2015.
MeWorks engages mainly in investment business.
The Company’s share of profit (loss) and other comprehensive income (loss) of associates was
recognized based on the audited financial statements.
b. Investments in joint ventures
Investments in joint ventures were as follows:
Carrying Amount
December 31
2015
NT$
2016
NT$
(In Millions)
% of Ownership and
Voting Rights
December 31
2015
2016
$
207
$
20
$
227
$
-
3
3
50
50
50
50
Non-listed
Huada Digital Corporation
(“HDD”)
Chunghwa Benefit One Co.,
Ltd. (“CBO”)
In March 2016, the stockholders of HDD approved that HDD should start its dissolution from March
31, 2016. Chunghwa received the proceeds from the liquidation in September 2016 and recognized
the disposal loss of $0.4 million. The liquidation of HDD was completed in March 2017.
Chunghwa invested in CBO in February 2014 at $50 million cash to acquire 50% of its shares and
the rest of 50% ownership interest was held by Benefit One Asia Pte. Ltd. (“BOA”), and each
obtained half of director seats. Thus, neither Chunghwa nor BOA obtained control over CBO.
CBO engages mainly in e-commerce business for employees of corporate members and personal
customers. In December 2016, the stockholders of CBO approved that CBO should start its
dissolution from December 31, 2016. The liquidation of CBO is still in process.
None of the above joint ventures is considered individually material to the Company. Summarized
financial information of joint ventures that was not material to the Company was as follows:
The Company’s share of loss
The Company’s share of other
comprehensive income
The Company’s share of total
comprehensive loss
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
$
(21)
$
(29)
$
(42)
-
-
-
$
(21)
$
(29)
$
(42)
45
F
The Company’s share of loss of joint ventures was recorded based on the audited financial
statements.
17. PROPERTY, PLANT AND EQUIPMENT
Carrying amount
Land
Land improvements
Buildings
Computer equipment
Telecommunications equipment
Transportation equipment
Miscellaneous equipment
Construction in progress and advances related to acquisition of
equipment
December 31
2015
NT$
2016
NT$
(In Millions)
$ 102,747
372
43,369
3,281
123,167
1,065
1,996
$ 103,872
333
42,147
2,713
119,195
629
2,140
20,402
20,141
$ 296,399
$ 291,170
Land
NT$
Land
Improvements
NT$
Buildings
NT$
Computer
Equipment
NT$
Telecommuni-
cations
Equipment
NT$
(In Millions)
Transportation
Equipment
NT$
Miscellaneous
Equipment
NT$
Construction
in Progress
and Advances
Related to
Acquisition of
Equipment
NT$
Total
NT$
Cost
Balance on January 1, 2014
Additions
Disposal
Effect of foreign exchange
differences
Others
Balance on December 31,
$ 102,263
308
(26 )
$
1,547
-
$
(12 )
$
67,558
136
(14 )
15,996
30
(1,805 )
$ 683,118
130
(19,208 )
$
3,745
1
$
(76 )
$
8,415
266
(539 )
22,853
31,213
-
$ 905,495
32,084
(21,680 )
-
229
-
23
-
(80 )
2
1,095
102
30,934
-
154
5
496
-
(33,136 )
109
(285 )
2014
$ 102,774
$
1,558
$
67,600
$
15,318
$ 695,076
$
3,824
$
8,643
$
20,930
$ 915,723
Accumulated depreciation
and impairment
Balance on January 1, 2014
Depreciation expenses
Disposal
Impairment losses
Effect of foreign exchange
differences
Others
Balance on December 31,
2014
Cost
Balance on January 1, 2015
Additions
Disposal
Effect of foreign exchange
differences
Acquisitions through
business combinations
Others
Balance on December 31,
$
-
-
-
-
-
-
$
(1,104 ) $
(53 )
12
-
(21,972 ) $
(1,252 )
13
-
(11,601 ) $ (560,314 ) $
(27,704 )
(1,473 )
19,194
1,800
-
-
-
-
-
9
(1 )
(33 )
(15 )
72
(1,672 ) $
(599 )
76
-
-
(13 )
(6,118 ) $
(799 )
461
-
(4 )
17
-
-
-
-
-
-
$ (602,781 )
(31,880 )
21,556
-
(20 )
52
$
-
$
(1,145 ) $
(23,202 ) $
(11,308 ) $ (568,767 ) $
(2,208 ) $
(6,443 ) $
-
$ (613,073 )
$ 102,774
-
-
$
1,558
-
-
$
$
67,600
59
(11 )
15,318
37
(1,073 )
$ 695,076
159
(13,047 )
$
$
3,824
-
(69 )
$
8,643
203
(511 )
20,930
23,993
-
$ 915,723
24,451
(14,711 )
-
19
(46 )
-
-
17
-
7
135
-
-
714
69
-
23,115
-
-
60
-
39
363
-
-
(24,521 )
69
65
(163 )
2015
$ 102,747
$
1,575
$
67,790
$
14,996
$ 705,372
$
3,815
$
8,737
$
20,402
$ 925,434
(Continued)
46
F
The Company’s share of loss of joint ventures was recorded based on the audited financial
statements.
17. PROPERTY, PLANT AND EQUIPMENT
Land
NT$
Land
Improvements
NT$
Buildings
NT$
Computer
Equipment
NT$
Telecommuni-
cations
Equipment
NT$
(In Millions)
Transportation
Equipment
NT$
Miscellaneous
Equipment
NT$
Construction
in Progress
and Advances
Related to
Acquisition of
Equipment
NT$
Total
NT$
Carrying amount
Land
Land improvements
Buildings
Computer equipment
Telecommunications equipment
Transportation equipment
Miscellaneous equipment
Construction in progress and advances related to acquisition of
equipment
December 31
2015
NT$
2016
NT$
(In Millions)
$ 102,747
$ 103,872
372
43,369
3,281
1,065
1,996
333
42,147
2,713
629
2,140
123,167
119,195
20,402
20,141
$ 296,399
$ 291,170
Construction
in Progress
and Advances
Related to
Land
NT$
Land
NT$
Improvements
Buildings
NT$
Computer
Equipment
NT$
cations
Transportation
Miscellaneous
Acquisition of
Equipment
Equipment
Equipment
Equipment
NT$
NT$
NT$
Total
NT$
Telecommuni-
NT$
(In Millions)
Balance on January 1, 2014
$
$
(1,104 ) $
(21,972 ) $
(11,601 ) $ (560,314 ) $
(1,672 ) $
(6,118 ) $
$ (602,781 )
(53 )
(1,252 )
(1,473 )
(27,704 )
(599 )
(799 )
Balance on January 1, 2014
$ 102,263
$
1,547
$
67,558
$
15,996
$ 683,118
$
3,745
$
8,415
$
$ 905,495
(26 )
(12 )
(14 )
(1,805 )
(19,208 )
(76 )
(539 )
136
30
130
266
22,853
31,213
-
(80 )
2
1,095
102
30,934
5
496
(33,136 )
2014
$ 102,774
$
1,558
$
67,600
$
15,318
$ 695,076
$
3,824
$
8,643
$
20,930
$ 915,723
308
-
229
-
-
-
-
-
-
-
-
-
19
-
-
23
12
-
-
-
-
-
-
-
1
-
154
76
-
-
-
-
-
60
-
-
-
-
-
-
-
-
-
-
-
20,930
23,993
32,084
(21,680 )
109
(285 )
(31,880 )
21,556
-
(20 )
52
24,451
(14,711 )
69
65
461
-
203
-
39
363
1,800
-
19,194
-
(1 )
(33 )
(15 )
72
(13 )
(4 )
17
13
-
-
9
59
-
7
135
37
-
-
714
159
69
-
23,115
Balance on January 1, 2015
$ 102,774
$
1,558
$
67,600
$
15,318
$ 695,076
$
3,824
$
8,643
$
$ 915,723
(11 )
(1,073 )
(13,047 )
(69 )
(511 )
$
-
$
(1,145 ) $
(23,202 ) $
(11,308 ) $ (568,767 ) $
(2,208 ) $
(6,443 ) $
-
$ (613,073 )
Cost
Additions
Disposal
differences
Others
Effect of foreign exchange
Balance on December 31,
Accumulated depreciation
and impairment
Depreciation expenses
Disposal
Impairment losses
Effect of foreign exchange
differences
Others
Balance on December 31,
2014
Cost
Additions
Disposal
Effect of foreign exchange
differences
Acquisitions through
business combinations
Others
2015
Balance on December 31,
(46 )
17
(24,521 )
(163 )
$ 102,747
$
1,575
$
67,790
$
14,996
$ 705,372
$
3,815
$
8,737
$
20,402
$ 925,434
(Continued)
Accumulated depreciation
and impairment
Balance on January 1, 2015
Depreciation expenses
Disposal
Impairment losses
Effect of foreign exchange
differences
Acquisitions through
business combinations
Others
Balance on December 31,
2015
Cost
Balance on January 1, 2016
Additions
Disposal
Effect of foreign exchange
differences
Others
Balance on December 31,
$
-
-
-
-
-
-
-
$
(1,145 ) $
(53 )
-
-
-
(23,202 ) $
(1,269 )
10
-
(11,308 ) $ (568,767 ) $
(26,291 )
(1,467 )
13,033
1,061
-
(138 )
-
-
(14 )
-
(5 )
(1 )
41
-
(1 )
-
(28 )
(12 )
(2,208 ) $
(599 )
69
-
-
-
(6,443 ) $
(671 )
425
-
-
(28 )
(24 )
-
-
-
-
-
-
-
$ (613,073 )
(30,350 )
14,598
(138 )
(14 )
(29 )
(29 )
$
-
$
(1,203 ) $
(24,421 ) $
(11,715 ) $ (582,205 ) $
(2,750 ) $
(6,741 ) $
-
$ (629,035 )
$ 102,747
791
$
(2 )
$
1,575
-
(6 )
$
67,790
36
(35 )
14,996
42
(1,546 )
$ 705,372
171
(11,542 )
$
3,815
1
$
(54 )
$
8,737
255
(625 )
20,402
23,295
-
$ 925,434
24,591
(13,810 )
-
336
-
12
-
(3 )
(35 )
(53 )
806
21,726
-
104
(4 )
580
-
(23,556 )
(42 )
(45 )
2016
$ 103,872
$
1,581
$
67,738
$
14,295
$ 715,692
$
3,866
$
8,943
$
20,141
$ 936,128
$
Accumulated depreciation
and impairment
Balance on January 1, 2016
Depreciation expenses
Disposal
Impairment losses
Effect of foreign exchange
differences
Others
Balance on December 31,
-
-
-
-
-
-
$
(1,203 ) $
(51 )
6
-
-
-
(24,421 ) $
(1,269 )
34
-
(11,715 ) $ (582,205 ) $
(25,280 )
(1,332 )
1,529
11,512
-
(596 )
-
65
1
(65 )
7
65
(2,750 ) $
(529 )
54
-
-
(6,741 ) $
(626 )
583
-
4
(12 )
(23 )
-
-
-
-
-
-
$ (629,035 )
(29,087 )
13,718
(596 )
12
30
2016
$
-
$
(1,248 ) $
(25,591 ) $
(11,582 ) $ (596,497 ) $
(3,237 ) $
(6,803 ) $
-
$ (644,958 )
(Concluded)
Due to technology upgrade, some telecommunications equipment became obsolete in 2014 and 2015.
The Company determined that some telecommunications equipment was impaired in 2016 due to the
expiration of 2G license in June 2017 which will lead to the termination of the related service. The
Company evaluated and concluded the recoverable amount determined on the basis of value in use of
aforementioned telecommunications equipment was lower than the carrying value, and recognized
impairment losses of $0.064 million, $138 million and $596 million for the years ended December 31,
2014, 2015 and 2016, respectively. In addition, the Company evaluated and concluded the recoverable
amount of partial computer and miscellaneous equipment was nil and recognized impairment losses of
$0.4 million for the year ended December 31, 2016. The impairment loss was included in other income
and expenses in the statements of comprehensive income.
Depreciation expense is computed using the straight-line method over the following estimated service
lives:
Land improvements
Buildings
Main buildings
Other building facilities
Computer equipment
Telecommunications equipment
Telecommunication circuits
Telecommunication machinery and antennas equipment
Transportation equipment
8-30 years
35-60 years
3-20 years
2-8 years
2-30 years
2-30 years
3-10 years
(Continued)
47
F
Miscellaneous equipment
Leasehold improvements
Mechanical and air conditioner equipment
Others
18. INVESTMENT PROPERTIES
Carrying amount
Investment properties
Cost
Balance on January 1, 2014
Disposal
Reclassification
Balance on December 31, 2014
Accumulated depreciation and impairment
Balance on January 1, 2014
Depreciation expense
Disposal
Reclassification
Balance on December 31, 2014
Cost
Balance on January 1, 2015
Disposal
Reclassification
Balance on December 31, 2015
48
1-6 years
3-16 years
1-10 years
(Concluded)
December 31
2015
NT$
2016
NT$
(In Millions)
$ 7,902
$ 8,115
Investment
Properties
NT$
(In Millions)
$ 9,260
(623)
246
$ 8,883
$ (1,242)
(16)
13
(17)
$ (1,262)
$ 8,883
-
175
$ 9,058
(Continued)
F
1-6 years
3-16 years
1-10 years
(Concluded)
Investment
Properties
NT$
(In Millions)
$ 9,260
(623)
246
$ 8,883
$ (1,242)
(16)
13
(17)
$ (1,262)
$ 8,883
-
175
$ 9,058
(Continued)
Accumulated depreciation and impairment
Cost
Balance on January 1, 2014
Disposal
Reclassification
Balance on December 31, 2014
Balance on January 1, 2014
Depreciation expense
Disposal
Reclassification
Balance on December 31, 2014
Cost
Balance on January 1, 2015
Disposal
Reclassification
Balance on December 31, 2015
Miscellaneous equipment
Leasehold improvements
Mechanical and air conditioner equipment
Others
18. INVESTMENT PROPERTIES
December 31
2015
NT$
2016
NT$
(In Millions)
Accumulated depreciation and impairment
Balance on January 1, 2015
Depreciation expense
Disposal
Reclassification
Reversal of impairment loss
Balance on December 31, 2015
Carrying amount
Investment properties
$ 7,902
$ 8,115
Cost
Balance on January 1, 2016
Additions
Reclassification
Balance on December 31, 2016
Accumulated depreciation and impairment
Balance on January 1, 2016
Depreciation expense
Reclassification
Reversal of impairment loss
Balance on December 31, 2016
Investment
Properties
NT$
(In Millions)
$ (1,262)
(18)
-
(18)
142
$ (1,156)
$ 9,058
-
137
$ 9,195
$ (1,156)
(19)
(53)
148
$ (1,080)
(Concluded)
Depreciation expense is computed using the straight-line method over the following estimated service
lives:
Land improvements
Buildings
Main buildings
Other building facilities
8-30 years
35-60 years
4-10 years
After the evaluation of land and buildings, the Company concluded the recoverable amount which
represented the fair value less costs to sell of some land and buildings was higher than the carrying
amount in 2015 and 2016. Therefore, the Company recognized reversals of impairment loss of $142
million and $148 million for the years ended December 31, 2015 and 2016, respectively, and the
amounts were recognized only to the extent of impairment losses that had been recognized in prior years.
The reversal of impairment loss was included in other income and expenses in the statements of
comprehensive income.
LED disposed its investment property in October 2014. The disposal price is $1,230 million, related
cost is $625 million (including carrying value of $610 million and related disposal expense of $15
million), and the disposal gain was $605 million.
49
F
The fair values of the Company’s investment properties as of December 31, 2015 and 2016 were
determined by Level 3 fair value measurements inputs based on the appraisal reports conducted by
independent appraisers. Those appraisal reports are based on the comparison approach, income
approach or cost approach. Key assumptions and the fair values were as follows:
Fair value
Overall capital interest rate
Profit margin ratio
Discount rate
Capitalization rate
December 31
2015
NT$
2016
NT$
(In Millions)
$ 17,694
1.49%-2.28%
10%-20%
1.21%-1.28%
0.44%-1.73%
$ 17,778
1.46%-2.20%
10%-20%
1.04%
0.43%-1.78%
All of the Company’s investment properties are held under freehold interest.
19. INTANGIBLE ASSETS
Carrying amount
3G and 4G concession
Computer software
Goodwill
Others
December 31
2015
NT$
2016
NT$
(In Millions)
$ 48,601
1,266
218
362
$ 45,796
995
218
344
$ 50,447
$ 47,353
3G and 4G
Concession
NT$
Computer
Software
NT$
Goodwill
NT$
(In Millions)
Others
NT$
Total
NT$
Cost
Balance on January 1, 2014
Additions-acquired separately
Disposal
Effect of foreign exchange difference
$ 49,254
-
-
-
$
$
2,637
611
(56)
-
181
-
-
-
$
118
33
-
-
$ 52,190
644
(56)
-
Balance on December 31, 2014
$ 49,254
$
3,192
$
181
$
151
$ 52,778
Accumulated amortization and
impairment
Balance on January 1, 2014
Amortization expenses
Disposal
Effect of foreign exchange difference
$
(6,436)
(1,668)
-
-
$
$
(1,306)
(543)
56
-
$
(18)
-
-
-
(31)
(7)
-
-
$
(7,791)
(2,218)
56
-
Balance on December 31, 2014
$
(8,104)
$
(1,793)
$
(18)
$
(38)
$
(9,953)
(Continued)
50
F
The fair values of the Company’s investment properties as of December 31, 2015 and 2016 were
determined by Level 3 fair value measurements inputs based on the appraisal reports conducted by
independent appraisers. Those appraisal reports are based on the comparison approach, income
approach or cost approach. Key assumptions and the fair values were as follows:
Fair value
Overall capital interest rate
Profit margin ratio
Discount rate
Capitalization rate
19. INTANGIBLE ASSETS
Carrying amount
3G and 4G concession
Computer software
Goodwill
Others
December 31
2015
NT$
2016
NT$
(In Millions)
$ 17,694
$ 17,778
1.49%-2.28%
1.46%-2.20%
10%-20%
1.21%-1.28%
10%-20%
1.04%
0.44%-1.73%
0.43%-1.78%
December 31
2015
NT$
2016
NT$
(In Millions)
$ 48,601
$ 45,796
1,266
218
362
995
218
344
$ 50,447
$ 47,353
3G and 4G
Concession
NT$
Computer
Software
NT$
Goodwill
NT$
(In Millions)
Others
NT$
Total
NT$
$ 49,254
$
2,637
$
181
$
$ 52,190
Balance on December 31, 2014
$ 49,254
$
3,192
$
181
$
151
$ 52,778
Cost
Balance on January 1, 2014
Additions-acquired separately
Disposal
Effect of foreign exchange difference
Accumulated amortization and
impairment
Balance on January 1, 2014
Amortization expenses
Disposal
Effect of foreign exchange difference
-
-
-
-
-
611
(56)
-
(543)
56
-
-
-
-
-
-
-
$
$
(1,306)
$
(18)
$
(31)
$
(6,436)
(1,668)
118
33
-
-
644
(56)
-
(7)
-
-
(7,791)
(2,218)
56
-
(Continued)
Balance on December 31, 2014
$
(8,104)
$
(1,793)
$
(18)
$
(38)
$
(9,953)
3G and 4G
Concession
NT$
Computer
Software
NT$
Goodwill
NT$
(In Millions)
Others
NT$
Total
NT$
Cost
Balance on January 1, 2015
Additions-acquired separately
Disposal
Effect of foreign exchange difference
Acquisitions through business
$ 49,254
9,955
-
-
$
combinations
Others
-
-
$
$
3,192
424
(375)
-
-
8
181
-
-
-
55
-
151
1
(2)
-
$ 52,778
10,380
(377)
-
259
-
314
8
Balance on December 31, 2015
$ 59,209
$
3,249
$
236
$
409
$ 63,103
All of the Company’s investment properties are held under freehold interest.
Accumulated amortization and
impairment
Balance on January 1, 2015
Amortization expenses
Disposal
Effect of foreign exchange difference
Others
$
(8,104)
(2,504)
-
-
-
$
$
$
(1,793)
(565)
375
-
-
(18)
-
-
-
-
(38)
(11)
2
-
-
$
(9,953)
(3,080)
377
-
-
Balance on December 31, 2015
$ (10,608)
$
(1,983)
$
(18)
$
(47)
$ (12,656)
Cost
Balance on January 1, 2016
Additions-acquired separately
Disposal
Effect of foreign exchange difference
Others
$ 59,209
-
-
-
-
$
$
$
3,249
277
(121)
-
3
236
-
-
-
-
409
5
-
-
-
$ 63,103
282
(121)
-
3
Balance on December 31, 2016
$ 59,209
$
3,408
$
236
$
414
$ 63,267
Accumulated amortization and
impairment
Balance on January 1, 2016
Amortization expenses
Disposal
Impairment losses
Effect of foreign exchange difference
$ (10,608)
(2,805)
-
-
-
$
$
$
(1,983)
(551)
121
-
-
(18)
-
-
-
-
(47)
(23)
-
-
-
$ (12,656)
(3,379)
121
-
-
Balance on December 31, 2016
$ (13,413)
$
(2,413)
$
(18)
$
(70)
$ (15,914)
(Concluded)
For long-term business development, Chunghwa participated in mobile broadband license (4G license)
in 2.5 and 2.6 GHz bands bidding process announced by NCC and obtained certain spectrums.
Chunghwa paid the 4G concession fees amounting to $9,955 million in December 2015.
The concessions are granted and issued by the NCC. The concession fees are amortized using the
straight-line method from the date operations commence through the date the license expires. The
carrying amount of 3G concession fee will be fully amortized by December 2018, and 4G concession
fees will be fully amortized by December 2030 and December 2033.
The computer software is amortized using the straight-line method over the estimated useful lives of 1 to
10 years. Other intangible assets are amortized using the straight-line method over the estimated useful
lives of 3 to 20 years. Goodwill is not amortized.
51
F
20. OTHER ASSETS
Spare parts
Refundable deposits
Other financial assets
Others
Current
Spare parts
Others
Noncurrent
Refundable deposits
Other financial assets
Others
December 31
2015
NT$
2016
NT$
(In Millions)
$ 1,876
2,198
1,000
2,848
$ 1,776
2,083
1,000
2,288
$ 7,922
$ 7,147
$ 1,876
460
$ 1,776
346
$ 2,336
$ 2,122
$ 2,198
1,000
2,388
$ 2,083
1,000
1,942
$ 5,586
$ 5,025
Other financial assets - noncurrent was Piping Fund. As part of the government’s effort to upgrade the
existing telecommunications infrastructure, Chunghwa and other public utility companies were required
by the ROC government to contribute to a Piping Fund administered by the Taipei City Government.
This fund was used to finance various telecommunications infrastructure projects. Net assets of this
fund will be returned proportionately after the project is completed.
21. HEDGING DERIVATIVE FINANCIAL INSTRUMENTS
December 31
2015
NT$
2016
NT$
(In Millions)
Hedging derivative financial assets
Cash flow hedge - forward exchange contracts
$
1
$
-
Hedging derivative financial liabilities
Cash flow hedge - forward exchange contracts
$
-
$
1
Chunghwa’s hedge strategy is to enter forward exchange contracts - buy to avoid its foreign currency
exposure to certain foreign currency denominated payments in the following six months. In addition,
Chunghwa’s management considers the market condition to determine the hedge ratio, and enters into
forward exchange contracts with the banks to avoid the foreign currency risk.
F
52
20. OTHER ASSETS
Spare parts
Refundable deposits
Other financial assets
Others
Current
Spare parts
Others
Noncurrent
Refundable deposits
Other financial assets
Others
December 31
2015
NT$
2016
NT$
(In Millions)
$ 1,876
$ 1,776
2,198
1,000
2,848
2,083
1,000
2,288
$ 7,922
$ 7,147
$ 1,876
460
$ 1,776
346
$ 2,336
$ 2,122
$ 2,198
$ 2,083
1,000
2,388
1,000
1,942
$ 5,586
$ 5,025
Other financial assets - noncurrent was Piping Fund. As part of the government’s effort to upgrade the
existing telecommunications infrastructure, Chunghwa and other public utility companies were required
by the ROC government to contribute to a Piping Fund administered by the Taipei City Government.
This fund was used to finance various telecommunications infrastructure projects. Net assets of this
fund will be returned proportionately after the project is completed.
21. HEDGING DERIVATIVE FINANCIAL INSTRUMENTS
Chunghwa signed equipment purchase contracts with suppliers, and entered into forward exchange
contracts to avoid foreign currency risk exposure to Euro-denominated purchase commitments. Those
forward exchange contracts were designated as cash flow hedges. For the years ended December 31,
2014, 2015 and 2016, gain (loss) arising from changes in fair value of the hedged items recognized in
other comprehensive income was loss of 0.3 million, gain of $1 million and loss of $1 million,
respectively. Upon the completion of the purchase transaction, the amount deferred and recognized in
equity initially will be reclassified into equipment as its carrying value.
As of December 31, 2015 and 2016, Chunghwa expected part of the equipment purchase transactions
will not occur and reclassified the related loss of $1 million and gain of $1 million, respectively, arising
from the forward exchange contracts of the aforementioned transactions from equity to profit or loss.
The outstanding forward exchange contracts at the balance sheet dates were as follows:
Currency
Maturity Period Contract Amount (Millions)
December 31, 2015
Forward exchange contracts - buy
EUR/NT$
2016.03-06
EUR9/NT$306
December 31, 2016
Forward exchange contracts - buy
EUR/NT$
2017.03
EUR3/NT$102
Loss (gain) arising from the hedging derivative financial instruments that have been reclassified from
equity to initial cost of the property, plant and equipment were as follows:
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
Construction in progress and advances related
to acquisition of equipment
$
18
$
(18)
$
(15)
December 31
2015
NT$
2016
NT$
(In Millions)
22. SHORT-TERM LOANS
Hedging derivative financial assets
Hedging derivative financial liabilities
Cash flow hedge - forward exchange contracts
$
1
$
-
Secured loans (Note 41)
Unsecured loans
December 31
2015
NT$
2016
NT$
(In Millions)
$
-
110
$
20
118
$
110
$
138
Cash flow hedge - forward exchange contracts
$
-
$
1
Chunghwa’s hedge strategy is to enter forward exchange contracts - buy to avoid its foreign currency
exposure to certain foreign currency denominated payments in the following six months. In addition,
Chunghwa’s management considers the market condition to determine the hedge ratio, and enters into
forward exchange contracts with the banks to avoid the foreign currency risk.
The annual interest rates of loans were as follows:
Secured loans
Unsecured loans
December 31
2015
-
2016
1.98%
1.29%-2.40%
1.95%-2.25%
F
53
23. LONG-TERM LOANS (INCLUDING LONG-TERM LOANS - CURRENT PORTION)
Secured loans (Note 41)
Less: Current portion of long-term loans
The annual interest rates of loans were as follows:
December 31
2015
NT$
2016
NT$
(In Millions)
$ 1,750
(8)
$ 1,600
-
$ 1,742
$ 1,600
December 31
2015
2016
Secured loans
1.11%-1.36%
0.91%
LED obtained a secured loan from Chang Hwa Bank in September 2010. Interest is paid monthly.
$300 million and $1,350 million were originally due in December 2014 and September 2015,
respectively. In October 2014, the bank borrowing mentioned above was extended to September 2018
for one time repayment. LED made an early repayment of $50 million in April 2015. LED obtained
another secured loan from Chang Hwa Bank in December 2012 in the amount of $400 million which is
due in December 2017; LED made early repayments of $350 million and $50 million in 2013 and
January 2015, respectively.
CHPT entered into a secured loan contract of $348 million with Bank of Taiwan in April 2014, interest
is paid monthly, amortization of principal began in May 2016, and the loan is due in April 2029.
CHPT made early repayments of $148 million, $50 million and $150 million from September to
December 2014, in November 2015 and from March to April 2016, respectively.
24. TRADE NOTES AND ACCOUNTS PAYABLE
December 31
2015
NT$
2016
NT$
(In Millions)
Trade notes and accounts payable
$ 16,301
$ 18,810
Trade notes and accounts payable were attributable to operating activities and the trading conditions
were agreed separately.
54
F
23. LONG-TERM LOANS (INCLUDING LONG-TERM LOANS - CURRENT PORTION)
25. OTHER PAYABLES
Secured loans (Note 41)
Less: Current portion of long-term loans
The annual interest rates of loans were as follows:
December 31
2015
NT$
2016
NT$
(In Millions)
$ 1,750
$ 1,600
(8)
-
$ 1,742
$ 1,600
December 31
2015
2016
Secured loans
1.11%-1.36%
0.91%
LED obtained a secured loan from Chang Hwa Bank in September 2010. Interest is paid monthly.
$300 million and $1,350 million were originally due in December 2014 and September 2015,
respectively. In October 2014, the bank borrowing mentioned above was extended to September 2018
for one time repayment. LED made an early repayment of $50 million in April 2015. LED obtained
another secured loan from Chang Hwa Bank in December 2012 in the amount of $400 million which is
due in December 2017; LED made early repayments of $350 million and $50 million in 2013 and
January 2015, respectively.
CHPT entered into a secured loan contract of $348 million with Bank of Taiwan in April 2014, interest
is paid monthly, amortization of principal began in May 2016, and the loan is due in April 2029.
CHPT made early repayments of $148 million, $50 million and $150 million from September to
December 2014, in November 2015 and from March to April 2016, respectively.
24. TRADE NOTES AND ACCOUNTS PAYABLE
December 31
2015
NT$
2016
NT$
(In Millions)
Trade notes and accounts payable
$ 16,301
$ 18,810
Trade notes and accounts payable were attributable to operating activities and the trading conditions
were agreed separately.
Accrued salary and compensation
Payables to contractors
Accrued compensation to employees and remuneration to
directors and supervisors
Payables to equipment suppliers
Amounts collected for others
Accrued franchise fees
Accrued maintenance costs
Others
26. PROVISIONS
Warranties
Employee benefits
Trade-in right
Others
Current
Noncurrent
December 31
2015
NT$
2016
NT$
(In Millions)
$ 10,430
1,452
$ 9,770
2,396
2,190
1,541
1,406
1,401
998
6,069
2,015
1,623
1,407
1,326
1,062
6,819
$ 25,487
$ 26,418
December 31
2015
NT$
2016
NT$
(In Millions)
$
$
$
213
30
-
5
248
190
58
$
$
$
111
38
31
5
185
119
66
$
248
$
185
Warranties
NT$
Employee
Benefits
NT$
Trade-in
rights
NT$
(In Millions)
Others
NT$
Total
NT$
Balance on January 1, 2014
Additional provisions recognized
Used during the year
Reversed during the year
$
$
201
192
(174)
(7)
$
47
8
-
-
$
-
-
-
-
$
4
1
-
-
252
201
(174)
(7)
Balance on December 31, 2014
$
212
$
55
$
-
$
5
$
272
(Continued)
55
F
Balance on January 1, 2015
Additional provisions recognized
Used during the year
Balance on December 31, 2015
Balance on January 1, 2016
Additional provisions recognized
Used during the year
$
$
$
Warranties
NT$
Employee
Benefits
NT$
Trade-in
rights
NT$
(In Millions)
Others
NT$
Total
NT$
$
212
100
(99)
$
55
12
(37)
$
-
-
-
$
5
-
-
272
112
(136)
213
$
30
$
-
$
5
$
248
$
213
81
(183)
$
30
9
(1)
$
-
31
-
5
-
-
5
$
248
121
(184)
185
$
(Concluded)
Balance on December 31, 2016
$
111
$
38
$
31
$
a. The provision for warranties claims represents the present value of the management’s best estimate
of the future outflow of economic benefits that will be required under the Company’s obligation for
warranties in sales agreements. The estimate has been made based on the historical warranty
experience.
b. The provision for employee benefits represents vested long-term service compensation accrued.
c. The provision for trade-in right is based on the management’s judgments to estimate the trade-in
right of products exercised by customers in the future. The provision is recognized as a reduction
of revenue in the period in which the goods are sold.
27. ADVANCE RECEIPTS
Advance receipts are mainly from advance telecommunication charges. In accordance with NCC’s
regulation named “Mandatory and Prohibitory Provisions To Be Included In Standard Contracts for
Telecommunication Goods (Services) Coupons”, the Company entered into a contract with Bank of
Taiwan to provide a performance guarantee for advance receipts from selling prepaid cards amounting
to $779 million as of December 31, 2016.
28. RETIREMENT BENEFIT PLANS
a. Defined contribution plans
The pension plan under the Labor Pension Act of ROC (the “LPA”) is considered as a defined
contribution plan. Based on the LPA, Chunghwa and its domestic subsidiaries make monthly
contributions to employees’ individual pension accounts at 6% of monthly salaries and wages. Its
foreign subsidiaries would make monthly contributions based on the local pension requirements.
56
b. Defined benefit plans
Chunghwa completed its privatization plans on August 12, 2005. Chunghwa is required to pay all
accrued pension obligations including service clearance payment, lump sum payment under civil
service plan, additional separation payments, etc. upon the completion of the privatization in
accordance with the Statute Governing Privatization of Stated-owned Enterprises. After paying all
pension obligations for privatization, the plan assets of Chunghwa should be transferred to the Fund
for Privatization of Government-owned Enterprises (the “Privatization Fund”) under the Executive
Yuan. On August 7, 2006, Chunghwa transferred the remaining balance of fund to the
Privatization Fund. However, according to the instructions of MOTC, Chunghwa was requested to
administer the distributions to employees for pension obligations including service clearance
payment, lump sum payment under civil service plan, additional separation payments, etc. upon the
completion of the privatization and recognized in other current monetary assets.
Chunghwa and its subsidiaries SENAO, CHIEF, CHSI, and SHE with the pension mechanism under
the Labor Standards Law are considered as defined benefit plans. These pension plans provide
benefits based on an employee’s length of service and average six-month salary prior to retirement.
Chunghwa and its subsidiaries contribute an amount no more than 15% of salaries paid each month
to their respective pension funds (the Funds), which are administered by the Labor Pension Fund
Supervisory Committee (the Committee) and deposited in the names of the Committees in the Bank
of Taiwan. The plan assets are held in a commingled fund which is operated and managed by the
government’s designated authorities; as such, the Company does not have any right to intervene in
the investments of the funds. According to the Article 56 of the Labor Standards Law of the ROC
revised in February 2015, entities are required to contribute the difference in one appropriation to the
Funds before the end of next March when the balance of the Funds is insufficient to pay employees
who will meet the retirement eligibility criteria within next year.
The amounts included in the consolidated balance sheets arising from the Company’s obligation in
respect of its defined benefit plans were as follows:
Present value of funded defined benefit obligation
Fair value of plan assets
$ 30,882
(23,794)
$ 34,572
(33,954)
Funded status - deficit
Net defined benefit liabilities
Net defined benefit assets
December 31
2015
NT$
2016
NT$
(In Millions)
$ 7,088
$
618
$ 7,099
(11)
$ 1,537
(919)
$ 7,088
$
618
F
Warranties
NT$
Employee
Benefits
NT$
Trade-in
rights
NT$
Others
NT$
Total
NT$
(In Millions)
Balance on January 1, 2015
$
Additional provisions recognized
Used during the year
$
212
100
$
55
12
(99)
(37)
-
-
-
$
$
Balance on December 31, 2015
213
$
30
$
-
$
5
$
248
Balance on January 1, 2016
Additional provisions recognized
Used during the year
213
$
30
$
-
$
$
81
(183)
9
(1)
31
-
Balance on December 31, 2016
$
111
$
38
$
31
$
5
$
185
$
$
5
-
-
5
-
-
272
112
(136)
248
121
(184)
(Concluded)
a. The provision for warranties claims represents the present value of the management’s best estimate
of the future outflow of economic benefits that will be required under the Company’s obligation for
warranties in sales agreements. The estimate has been made based on the historical warranty
experience.
b. The provision for employee benefits represents vested long-term service compensation accrued.
c. The provision for trade-in right is based on the management’s judgments to estimate the trade-in
right of products exercised by customers in the future. The provision is recognized as a reduction
of revenue in the period in which the goods are sold.
27. ADVANCE RECEIPTS
Advance receipts are mainly from advance telecommunication charges. In accordance with NCC’s
regulation named “Mandatory and Prohibitory Provisions To Be Included In Standard Contracts for
Telecommunication Goods (Services) Coupons”, the Company entered into a contract with Bank of
Taiwan to provide a performance guarantee for advance receipts from selling prepaid cards amounting
to $779 million as of December 31, 2016.
28. RETIREMENT BENEFIT PLANS
a. Defined contribution plans
The pension plan under the Labor Pension Act of ROC (the “LPA”) is considered as a defined
contribution plan. Based on the LPA, Chunghwa and its domestic subsidiaries make monthly
contributions to employees’ individual pension accounts at 6% of monthly salaries and wages. Its
foreign subsidiaries would make monthly contributions based on the local pension requirements.
b. Defined benefit plans
Chunghwa completed its privatization plans on August 12, 2005. Chunghwa is required to pay all
accrued pension obligations including service clearance payment, lump sum payment under civil
service plan, additional separation payments, etc. upon the completion of the privatization in
accordance with the Statute Governing Privatization of Stated-owned Enterprises. After paying all
pension obligations for privatization, the plan assets of Chunghwa should be transferred to the Fund
for Privatization of Government-owned Enterprises (the “Privatization Fund”) under the Executive
Yuan. On August 7, 2006, Chunghwa transferred the remaining balance of fund to the
Privatization Fund. However, according to the instructions of MOTC, Chunghwa was requested to
administer the distributions to employees for pension obligations including service clearance
payment, lump sum payment under civil service plan, additional separation payments, etc. upon the
completion of the privatization and recognized in other current monetary assets.
Chunghwa and its subsidiaries SENAO, CHIEF, CHSI, and SHE with the pension mechanism under
the Labor Standards Law are considered as defined benefit plans. These pension plans provide
benefits based on an employee’s length of service and average six-month salary prior to retirement.
Chunghwa and its subsidiaries contribute an amount no more than 15% of salaries paid each month
to their respective pension funds (the Funds), which are administered by the Labor Pension Fund
Supervisory Committee (the Committee) and deposited in the names of the Committees in the Bank
of Taiwan. The plan assets are held in a commingled fund which is operated and managed by the
government’s designated authorities; as such, the Company does not have any right to intervene in
the investments of the funds. According to the Article 56 of the Labor Standards Law of the ROC
revised in February 2015, entities are required to contribute the difference in one appropriation to the
Funds before the end of next March when the balance of the Funds is insufficient to pay employees
who will meet the retirement eligibility criteria within next year.
The amounts included in the consolidated balance sheets arising from the Company’s obligation in
respect of its defined benefit plans were as follows:
December 31
2015
NT$
2016
NT$
(In Millions)
Present value of funded defined benefit obligation
Fair value of plan assets
$ 30,882
(23,794)
$ 34,572
(33,954)
Funded status - deficit
Net defined benefit liabilities
Net defined benefit assets
$ 7,088
$
618
$ 7,099
(11)
$ 1,537
(919)
$ 7,088
$
618
57
F
Movements in the defined benefit obligation and the fair value of plan assets were as follows:
Present Value
of Funded
Defined Benefit
Obligation
NT$
Fair Value of
Plan Assets
NT$
(In Millions)
Net Defined
Benefit
Liabilities
(Assets)
NT$
$ 25,457
$ 19,982
$ 5,475
2,920
76
509
3,505
-
4
(5)
545
-
-
415
415
52
-
-
-
544
-
(454)
(993)
(101)
27,958
2,884
546
3,430
52
2,486
(454)
(985)
-
21,496
-
444
444
-
11
(1)
357
136
-
-
-
2,920
76
94
3,090
(52)
4
(5)
545
492
(2,486)
-
(8)
(101)
6,462
2,884
102
2,986
(136)
11
(1)
357
367
-
(717)
(156)
30,882
136
2,435
(717)
-
23,794
231
(2,435)
-
(156)
7,088
(Continued)
Balance on January 1, 2014
Service cost
Current service cost
Loss on settlements
Interest expense/interest income
Amounts recognized in profit or loss
Remeasurement on the net defined benefit
liability
Return on plan assets (excluding
amounts included in net interest)
Actuarial losses recognized from
changes in demographic assumptions
Actuarial gains recognized from
changes in financial assumptions
Actuarial losses recognized from
experience adjustments
Amounts recognized in other
comprehensive income
Contributions from employer
Benefits paid
Settlements
Benefits paid directly by the Company
Balance on December 31, 2014
Current service cost
Interest expense/interest income
Amounts recognized in profit or loss
Remeasurement on the net defined benefit
liability
Return on plan assets (excluding
amounts included in net interest)
Actuarial losses recognized from
changes in demographic assumptions
Actuarial gains recognized from
changes in financial assumptions
Actuarial losses recognized from
experience adjustments
Amounts recognized in other
comprehensive income
Contributions from employer
Benefits paid
Benefits paid directly by the Company
Balance on December 31, 2015
58
F
Present Value
of Funded
Defined Benefit
Obligation
NT$
Fair Value of
Plan Assets
NT$
(In Millions)
Net Defined
Benefit
Liabilities
(Assets)
NT$
$ 2,866
600
3,466
$
-
573
573
$ 2,866
27
2,893
Current service cost
Interest expense/interest income
Amounts recognized in profit or loss
Remeasurement on the net defined benefit
liability
Return on plan assets (excluding
amounts included in net interest)
Actuarial gains recognized from
-
(352)
changes in demographic assumptions
(124)
Actuarial losses recognized from
changes in financial assumptions
Actuarial losses recognized from
experience adjustments
Amounts recognized in other
comprehensive income
Contributions from employer
Benefits paid
Benefits paid directly by the Company
1,715
100
1,691
-
(1,296)
(171)
-
-
-
(352)
11,235
(1,296)
-
Balance on December 31, 2016
$ 34,572
$ 33,954
352
(124)
1,715
100
2,043
(11,235)
-
(171)
$
618
(Concluded)
Relevant pension costs recognized in profit and loss for defined benefit plans were as follows:
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
Operating costs
Marketing expenses
General and administrative expenses
Research and development expenses
$ 1,849
888
169
106
$ 1,794
856
162
102
$ 1,732
838
155
97
$ 3,012
$ 2,914
$ 2,822
The Company is exposed to following risks for the defined benefits plans under the Labor Standards
Law:
a. Investment risk
Under the Labor Standards Law, the rate of return on assets shall not be lower than the average
interest rate on a two-year time deposit published by the local banks and the government is
responsible for any shortfall in the event that the rate of return is less than the required rate of return.
The plan assets are held in a commingled fund mainly invested in foreign and domestic equity and
debt securities and bank deposits which is operated and managed by the government’s designated
authorities; as such, the Company does not have any right to intervene in the investments of the
funds.
59
F
b. Interest rate risk
The decline in government bond interest rate will increase the present value of the obligation on the
defined benefit plan, while the return on plan assets will increase. The net effect on the present
value of the obligation on defined benefit plan is partially offset by the return on plan assets.
c. Salary risk
The calculation of the present value of defined benefit obligation is referred to the plan participants’
future salary. Hence, the increase in plan participants’ salary will increase the present value of the
defined benefit obligation.
The most recent actuarial valuation of plan assets and the present value of the defined benefit
obligation were carried out by the independent actuary.
The principal assumptions used for the purpose of the actuarial valuations were as follows:
There is no change in the methods and assumptions used in preparing the sensitivity analysis from
the previous period.
The expected contributions to the plan for the next year
The average duration of the defined benefit obligation
$ 11,302
6-15 years
$ 2,724
7-14 years
The Company’s maturity analysis of the undiscounted benefit payments as of December 31, 2016
Discount rates
Expected rates of salary increase
Measurement Date
December 31
2015
2.00%
2016
1.50%
1.00%-2.00%
1.20%-2.00%
2021 and thereafter
If reasonably possible changes of the respective significant actuarial assumptions occur at the end of
reporting periods, while holding all other assumptions constant, the present value of the defined
benefit obligation would increase (decrease) as follows:
Discount rates
0.5% increase
0.5% decrease
Expected rates of salary increase
0.5% increase
0.5% decrease
December 31
2015
NT$
2016
NT$
(In Millions)
$
(977)
$ 1,261
$ 1,332
$ (1,052)
$ (1,219)
$ 1,298
$ 1,379
$ (1,306)
The sensitivity analysis presented above may not be representative of the actual change in the
present value of the defined benefit obligation as it is unlikely that the change in assumptions would
occur in isolation of one another as some of the assumptions may be correlated.
Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit
obligation has been calculated using the projected unit credit method at the end of the reporting
period, which is the same as that applied in calculating the defined benefit obligation liability
recognized in the consolidated balance sheets.
60
was as follows:
Year
2017
2018
2019
2020
29. EQUITY
a. Share capital
1) Common stocks
December 31
2015
NT$
2016
NT$
(In Millions)
Amount
NT$
(In Millions)
$ 1,677
3,617
6,228
8,605
46,986
$ 67,113
December 31
2015
NT$
2016
NT$
(In Millions)
12,000
$ 120,000
7,757
12,000
$ 120,000
7,757
$ 77,574
$ 77,574
Number of authorized shares
Authorized shares
Number of issued and paid shares
Issued and outstanding shares
dividends.
2) Global depositary receipts
The issued common stocks of a par value at $10 per share entitled the right to vote and receive
The MOTC and some stockholders sold some common stocks of Chunghwa in an international
offering of securities in the form of American Depositary Shares (“ADS”) (one ADS represents
10 common stocks) in July 2003, August 2005, and September 2006. The ADSs were traded
on the New York Stock Exchange since July 17, 2003. As of December 31, 2016, the
outstanding ADSs were 351 million common stocks, which equaled 35 million units and
represented 4.52% of Chunghwa’s total outstanding common stocks.
F
There is no change in the methods and assumptions used in preparing the sensitivity analysis from
the previous period.
December 31
2015
NT$
2016
NT$
(In Millions)
The expected contributions to the plan for the next year
The average duration of the defined benefit obligation
$ 11,302
6-15 years
$ 2,724
7-14 years
The Company’s maturity analysis of the undiscounted benefit payments as of December 31, 2016
was as follows:
Year
2017
2018
2019
2020
2021 and thereafter
29. EQUITY
a. Share capital
1) Common stocks
Amount
NT$
(In Millions)
$ 1,677
3,617
6,228
8,605
46,986
$ 67,113
Number of authorized shares
Authorized shares
Number of issued and paid shares
Issued and outstanding shares
December 31
2015
NT$
2016
NT$
(In Millions)
12,000
$ 120,000
7,757
$ 77,574
12,000
$ 120,000
7,757
$ 77,574
The issued common stocks of a par value at $10 per share entitled the right to vote and receive
dividends.
2) Global depositary receipts
The MOTC and some stockholders sold some common stocks of Chunghwa in an international
offering of securities in the form of American Depositary Shares (“ADS”) (one ADS represents
10 common stocks) in July 2003, August 2005, and September 2006. The ADSs were traded
on the New York Stock Exchange since July 17, 2003. As of December 31, 2016, the
outstanding ADSs were 351 million common stocks, which equaled 35 million units and
represented 4.52% of Chunghwa’s total outstanding common stocks.
61
F
The ADS holders generally have the same rights and obligations as other common stockholders,
subject to the provision of relevant laws. The exercise of such rights and obligations shall
comply with the related regulations and deposit agreement, which stipulate, among other things,
that ADS holders are entitled to, through deposit agents:
a) Exercise their voting rights,
b) Sell their ADSs, and
c) Receive dividends declared and subscribe to the issuance of new shares.
b. Additional paid-in capital
The adjustments of additional paid-in capital for the years ended December 31, 2014, 2015 and 2016
were as follows:
Movements of
Additional
Paid-in
Capital
Arising from
Changes in
Equities of
Subsidiaries
NT$
Difference
between
Consideration
Received and
Carrying
Amount of the
Subsidiaries’
Net Assets
upon Disposal
NT$
Share
Premium
NT$
Stockholders’
Contribution
Due to
Privatization
NT$
Donated
Capital
NT$
Total
NT$
$ 142,622
$
11
$
Balance on January 1, 2014
Cash distributed from additional paid-in
capital
Change in additional paid-in capital from
share subscription not based on original
ownership of a subsidiary
Employee stock bonus issued by a
subsidiary
(16,577 )
-
-
Balance on December 31, 2014
$ 126,045
$
Balance on January 1, 2015
Partial disposal of interests in subsidiaries
Other changes in additional paid-in capital
in subsidiaries
Subsidiary purchased its treasury stock
$ 126,045
-
$
-
-
Balance on December 31, 2015
$ 126,045
$
Balance on January 1, 2016
Partial disposal of interests in subsidiaries
Change in additional paid-in capital for not
participating in the capital increase of a
subsidiary
Share-based payment transactions of
subsidiaries
$ 126,045
-
$
-
-
-
3
-
14
14
-
1
(15 )
-
-
-
389
-
$
$
$
$
(In Millions)
-
-
-
-
-
-
27
-
-
27
27
58
-
-
$
13
$
20,648
$ 163,294
$
$
$
$
-
-
-
13
13
-
-
-
13
13
-
-
-
-
-
-
(16,577 )
3
-
$
20,648
$ 146,720
$
20,648
-
$ 146,720
27
-
-
1
(15 )
$
20,648
$ 146,733
$
20,648
-
$ 146,733
58
-
-
389
-
Balance on December 31, 2016
$ 126,045
$
389
$
85
$
13
$
20,648
$ 147,180
Additional paid-in capital from share premium, donated capital and the difference between
consideration received and the carrying amount of the subsidiaries’ net assets upon disposal may be
utilized to offset deficits; furthermore, when Chunghwa has no deficit, it may be distributed in cash
or capitalized, which however is limited to a certain percentage of Chunghwa’s paid-in capital.
The additional paid-in capital from movements of paid-in capital arising from changes in equities of
subsidiaries may only be utilized to offset deficits. Additional paid-in capital from movements of
investments in associates and joint ventures accounted for using equity method may not be used for
any purpose.
62
F
c. Retained earnings and dividends policy
In accordance with the amendments to the Company Act of the ROC in May 2015, the recipients of
dividends and bonuses are limited to stockholders and do not include employees. To comply with
the above amendments to the Company Act of the ROC, amendments to the policy on dividend
distribution and the addition of the policy on distribution of employees’ and directors’ compensation
in Chunghwa’s Articles of Incorporation were approved by the stockholders in their meeting on June
24, 2016.
In accordance with the Chunghwa’s amended Articles of Incorporation, Chunghwa must pay all
outstanding taxes, offset deficits in prior years and set aside a legal reserve equal to 10% of its net
income before distributing a dividend or making any other distribution to stockholders, except when
the accumulated amount of such legal reserve equals to Chunghwa’s total issued capital, and
depending on its business needs or requirements, may also set aside or reverse special reserves. No
less than 50% of the remaining earnings comprising remaining balance of net income, if any, plus
cumulative undistributed earnings shall be distributed as stockholders’ dividends, of which cash
dividends to be distributed shall not be less than 50% of the total amount of dividends to be
distributed. If cash dividend to be distributed is less than $0.10 per share, such cash dividend shall
be distributed in the form of common stocks.
For the information on remuneration for the employees and directors based on the Chunghwa’s
pre-amended and amended Articles of Incorporation, please refer to Note 31.g. Employee benefit
expenses.
Special reserve was appropriated in accordance with the relevant laws and regulations or as
requested by local authority. Pursuant to existing regulations, Chunghwa is required to set aside
additional special reserve equivalent to debit balances under stockholder’s equity. For subsequent
decrease in the deduction amount to stockholder’s equity, the decreased amount could be reversed
from the special reserve to retained earnings.
The appropriation for legal reserve shall be made until the accumulated reserve equals the aggregate
par value of the outstanding capital stock of Chunghwa. This reserve can only be used to offset a
deficit, or, when the legal reserve has exceeded 25% of Chunghwa’s paid-in capital, the excess may
be transferred to capital or distributed in cash.
Except for non-ROC resident stockholders, all stockholders receiving the dividends are entitled to a
tax credit equal to their proportionate share of the income tax paid by the Company.
The appropriations of the 2014 and 2015 earnings of Chunghwa approved by the stockholders in
their meetings on June 26, 2015 and June 24, 2016 were as follows:
Appropriation of Earnings
For Fiscal
Year 2015
NT$
For Fiscal
Year 2014
NT$
Dividends Per Share
For Fiscal
For Fiscal
Year 2015
Year 2014
NT$
NT$
(In Millions)
$
681
(144)
37,673
$
-
-
42,551
$4.86
$5.49
Legal reserve
Special reserve
Cash dividends
63
F
The appropriations of earnings for 2016 had been proposed by Chunghwa’s Board of Directors on
March 7, 2017. The appropriations and dividends per share were as follows:
Special reserve
Cash dividends
For Fiscal Year 2016
Appropriation
of Earnings
NT$
(In Millions)
Dividends
Per Share
NT$
$
5
38,337
$4.94
The appropriations of earnings for 2016 are subject to the resolution of the stockholders’ meeting
planned to be held on June 23, 2017.
d. Other equity items
1) Exchange differences arising from the translation of the foreign operations
The exchange differences arising from the translation of the foreign operations from their
functional currency to New Taiwan dollars were recognized as exchange differences arising
from the translation of the foreign operations in other comprehensive income.
2) Unrealized gain (loss) on available-for-sale financial assets
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
$
(150)
$
740
$
91
Beginning balance
Unrealized gain (loss) on
available-for-sale financial assets
Income tax relating to unrealized gain
or loss on available-for-sale
financial assets
Amount reclassified from equity to
profit or loss on disposal of
available-for-sale financial assets
Amount reclassified from equity to
profit or loss on impairment of
available-for-sale financial assets
926
3
(39)
-
(670)
(721)
(2)
-
23
91
2
-
577
$
(51)
Ending balance
$
740
$
Unrealized gain (loss) on available-for-sale financial assets were accumulated gains and losses
on the available-for-sale financial assets measured at fair value, which were recognized in other
comprehensive income and were included in the calculation of the related disposal gain and loss
or impairment loss of such financial assets upon reclassified to profits or losses.
64
F
e. Noncontrolling interests
Beginning balance
Attributable to noncontrolling interests
Net income of the year
Exchange differences arising from the
translation of the foreign operations
Unrealized gain (loss) on
available-for-sale financial assets
Income tax relating to unrealized loss on
available-for-sale financial assets
Remeasurements of defined benefit
pension plans
Income tax relating to remeasurements
of defined benefit pension plans
Share of other comprehensive income of
associates accounted for using equity
method
Cash dividends distributed by subsidiaries
Change in additional paid-in capital for
not participating in the capital increase
of a subsidiary
Partial disposal of interests in subsidiaries
Other changes in additional paid-in capital
in subsidiaries
Employee stock bonus issued by a
subsidiary
Share-based payment transactions of
subsidiaries
Subsidiary purchased its treasury stock
Net increase in noncontrolling interests
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
$ 4,846
$ 4,924
$ 5,065
597
24
(9)
-
(3)
1
5
(797)
-
-
-
5
93
-
162
813
(3)
2
-
(3)
1
2
(350)
-
18
2
-
36
(416)
39
1,141
(41)
-
-
(18)
3
(1)
(710)
786
25
-
-
17
-
5
Ending balance
$ 4,924
$ 5,065
$ 6,272
30. REVENUE
The main source of revenue of the Company includes various telecommunications services in various
different streams, and the related information was as discussed in Note 43.
65
F
31. NET INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)
a. Other income and expenses
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
Impairment loss on property, plant and
equipment
Gain (loss) on disposal of property, plant
and equipment
Reversal of impairment loss on investment
properties
Impairment loss on intangible assets
Loss on disposal of intangible assets
Gain on disposal of investment properties
$
-
26
-
-
-
605
$
(138)
$
(596)
(109)
142
-
-
-
(48)
148
-
-
-
$
631
$
(105)
$
(496)
b. Other income
Dividend income
Income from Piping Fund
Rental income
Others
c. Other gains and losses
Net foreign currency exchange gains
Gain (loss) on disposal of financial
instruments
Gain (loss) on disposal of investments
accounted for using equity method
Valuation gain (loss) on financial assets
and liabilities at fair value through
profit or loss, net
Impairment loss on investments accounted
for using equity method
66
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
$
78
200
45
264
$
218
202
38
192
$
391
202
41
438
$
587
$
650
$ 1,072
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
$
201
$
63
$
181
46
(7)
1
-
-
4
-
(8)
-
(2)
(1)
-
(Continued)
F
31. NET INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)
a. Other income and expenses
Impairment loss on property, plant and
Gain (loss) on disposal of property, plant
equipment
and equipment
properties
Reversal of impairment loss on investment
Impairment loss on intangible assets
Loss on disposal of intangible assets
Gain on disposal of investment properties
b. Other income
Dividend income
Income from Piping Fund
Rental income
Others
c. Other gains and losses
Net foreign currency exchange gains
Gain (loss) on disposal of financial
instruments
Gain (loss) on disposal of investments
accounted for using equity method
Valuation gain (loss) on financial assets
and liabilities at fair value through
profit or loss, net
Impairment loss on investments accounted
for using equity method
Year Ended December 31
2014
NT$
2015
NT$
(In Millions)
2016
NT$
$
$
(138)
$
(596)
(48)
148
-
-
-
391
202
41
438
(109)
142
-
-
-
218
202
38
192
$
631
$
(105)
$
(496)
Year Ended December 31
2014
NT$
2015
NT$
(In Millions)
2016
NT$
$
$
$
$
587
$
650
$ 1,072
Year Ended December 31
2014
NT$
2015
NT$
(In Millions)
2016
NT$
$
201
$
63
$
181
26
-
-
-
-
605
78
200
45
264
46
(7)
1
-
-
4
-
(8)
-
(2)
(1)
-
(Continued)
Impairment loss on available-for-sale
financial assets
Others
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
$
(23)
(94)
$
(107)
(180)
$
(577)
(49)
$
124
$
(228)
$
(448)
(Concluded)
d. Impairment loss (reversal of impairment loss) on financial instruments
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
Notes and accounts receivable
Other receivables
Available-for-sale financial assets
$
$
$
292
34
23
$
$
$
480
39
107
$
$
$
943
(2)
577
e. Impairment loss (reversal of impairment loss) on non-financial assets
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
Inventories
Property, plant and equipment
Investments accounted for using equity
method
Investment properties
Intangible assets
$
$
$
$
$
288
-
-
-
-
$
$
$
$
$
198
138
8
(142)
-
$
$
$
$
$
192
596
-
(148)
-
f. Depreciation and amortization expenses
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
Property, plant and equipment
Investment properties
Intangible assets
$ 31,880
16
2,218
$ 30,350
18
3,080
$ 29,087
19
3,379
Total depreciation and amortization
expenses
$ 34,114
$ 33,448
$ 32,485
(Continued)
67
F
Depreciation expenses summarized by
functions
Operating costs
Operating expenses
Amortization expenses summarized by
functions
Operating costs
Marketing expenses
General and administrative expenses
Research and development expenses
g. Employee benefit expenses
Post-employment benefit
Defined contribution plans
Defined benefit plans
Share-based payment
Equity-settled share-based payment
Other employee benefit
Salaries
Insurance
Others
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
$ 29,682
2,214
$ 28,292
2,076
$ 27,214
1,892
$ 31,896
$ 30,368
$ 29,106
$ 1,915
161
97
45
$ 2,742
178
116
44
$ 2,218
$ 3,080
$ 3,042
173
126
38
$ 3,379
(Concluded)
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
$
441
3,012
3,453
93
24,857
2,565
15,659
43,081
$
489
2,914
3,403
36
25,526
2,643
15,717
43,886
$
544
2,822
3,366
17
25,985
2,652
15,730
44,367
Total employee benefit expenses
$ 46,627
$ 47,325
$ 47,750
Summary by functions
Operating costs
Operating expenses
$ 26,362
20,265
$ 25,320
22,005
$ 25,190
22,560
$ 46,627
$ 47,325
$ 47,750
The bonus to employees and the remuneration to directors as of December 31, 2014 were accrued
based on past experiences and the probable amount to be paid in accordance with Chunghwa’s
Articles of Incorporation and Implementation Guidance for the Employee’s Bonus Distribution of
Chunghwa Telecom Co., Ltd. According to the Company Act as amended in May 2015 and the
amendments to the Chunghwa’s Articles of Incorporation approved by the Chunghwa’s stockholders
in their meeting on June 24, 2016, Chunghwa distributes employees’ compensation at the rates from
68
F
1.7% to 4.3% and remuneration to directors not higher than 0.17%, respectively, of pre-tax income.
Chunghwa accrued employees’ compensation and remuneration to directors according to the
aforementioned policy for the years ended December 31, 2015 and 2016. As of December 31, 2016,
the payables of the employees’ compensation and of the remuneration to directors were $1,702
million and $42 million, respectively. Such amounts have been approved by the Chunghwa’s
Board of Directors on March 7, 2017 and will be reported to the stockholders in their meeting
planned to be held on June 23, 2017.
If there is a change in the proposed amounts after the annual financial statements are authorized for
issue, the differences are recorded as a change in accounting estimate.
The appropriations of the 2014 bonuses to employees and remuneration to directors of Chunghwa
were approved by the stockholders in their meeting on June 26, 2015. The appropriations of the
2015 employees’ compensation and remuneration to directors of Chunghwa were approved by the
Board of Directors on March 11, 2016 and reported to the stockholders in their meeting after the
amendments to Chunghwa’s Articles of Incorporation was approved by the Chunghwa’s stock-
holders in their meeting on June 24, 2016. The related information was as follows:
2014
Cash
NT$
2015
Cash
NT$
(In Millions)
Bonus or compensation distributed to the employees
Remuneration paid to the directors
$ 1,510
39
$ 1,928
45
There was no difference between the initial accrual amounts and the amounts paid of the aforemen-
tioned compensation or bonus to employees and the remuneration to directors.
h. Components of others comprehensive income - unrealized gain (loss)
Unrealized gain (loss) on
available-for-sale financial assets
Arising during the year
Reclassification adjustments
Upon disposal
Upon impairment
Cash flow hedges
Gain (loss) arising during the year
Reclassification adjustments included in
profit or loss
Adjusted against the carrying amount of
hedged items
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
$
925
$
(671)
$
(721)
(47)
-
-
26
-
577
$
878
$
(645)
$
(144)
$
(18)
$
18
$
15
-
18
1
(18)
(1)
(15)
$
-
$
1
$
(1)
69
F
32. INCOME TAX
32. INCOME TAX
32. INCOME TAX
32. INCOME TAX
a. Income tax recognized in profit or loss
a. Income tax recognized in profit or loss
a. Income tax recognized in profit or loss
a. Income tax recognized in profit or loss
The major components of income tax expense were as follows:
The major components of income tax expense were as follows:
The major components of income tax expense were as follows:
The major components of income tax expense were as follows:
2014
2014
NT$
NT$
2014
2014
NT$
NT$
Year Ended December 31
Year Ended December 31
Year Ended December 31
Year Ended December 31
2015
2015
2015
2015
NT$
NT$
NT$
NT$
(In Millions)
(In Millions)
(In Millions)
(In Millions)
2016
2016
NT$
NT$
2016
2016
NT$
NT$
Current tax
Current tax
year
year
Current tax
Current tax
Current tax expenses recognized for the
Current tax expenses recognized for the
Current tax expenses recognized for the
Current tax expenses recognized for the
year
year
Tax on unappropriated earnings
Tax on unappropriated earnings
Tax on unappropriated earnings
Tax on unappropriated earnings
Income tax adjustments on prior years
Income tax adjustments on prior years
Income tax adjustments on prior years
Income tax adjustments on prior years
Others
Others
Others
Others
Deferred tax
Deferred tax
Deferred tax
Deferred tax
Deferred tax expense recognized for the
Deferred tax expense recognized for the
Deferred tax expense recognized for the
Deferred tax expense recognized for the
year
year
year
year
$ 7,516
$ 7,516
$ 7,516
$ 7,516
1,626
1,626
1,626
1,626
4
4
4
4
41
41
41
41
9,187
9,187
9,187
9,187
$ 8,570
$ 8,570
$ 8,570
$ 8,570
821
821
821
821
(83)
(83)
(83)
(83)
15
15
15
15
9,323
9,323
9,323
9,323
$ 6,736
$ 6,736
$ 6,736
$ 6,736
(346)
(346)
(346)
(346)
(22)
(22)
(22)
(22)
15
15
15
15
6,383
6,383
6,383
6,383
(202)
(202)
(202)
(202)
(222)
(222)
(222)
(222)
1,404
1,404
1,404
1,404
Income tax recognized in profit or loss
Income tax recognized in profit or loss
Income tax recognized in profit or loss
Income tax recognized in profit or loss
$ 8,985
$ 8,985
$ 8,985
$ 8,985
$ 9,101
$ 9,101
$ 9,101
$ 9,101
$ 7,787
$ 7,787
$ 7,787
$ 7,787
Reconciliation of accounting profit and income tax expense was as follows:
Reconciliation of accounting profit and income tax expense was as follows:
Reconciliation of accounting profit and income tax expense was as follows:
Reconciliation of accounting profit and income tax expense was as follows:
2014
2014
NT$
NT$
2014
2014
NT$
NT$
Year Ended December 31
Year Ended December 31
Year Ended December 31
Year Ended December 31
2015
2015
2015
2015
NT$
NT$
NT$
NT$
(In Millions)
(In Millions)
(In Millions)
(In Millions)
2016
2016
NT$
NT$
2016
2016
NT$
NT$
Income before income tax
Income before income tax
Income before income tax
Income before income tax
$ 46,552
$ 46,552
$ 46,552
$ 46,552
$ 51,953
$ 51,953
$ 51,953
$ 51,953
$ 49,413
$ 49,413
$ 49,413
$ 49,413
differences
differences
statutory rate (17%)
statutory rate (17%)
Income tax expense calculated at the
Income tax expense calculated at the
Imputed income on tax
Imputed income on tax
Unrecognized deductible temporary
Unrecognized deductible temporary
Nondeductible revenues and expenses in
Nondeductible revenues and expenses in
determining taxable income
determining taxable income
Income tax expense calculated at the
Income tax expense calculated at the
statutory rate (17%)
statutory rate (17%)
Nondeductible revenues and expenses in
Nondeductible revenues and expenses in
determining taxable income
determining taxable income
Imputed income on tax
Imputed income on tax
Unrecognized deductible temporary
Unrecognized deductible temporary
differences
differences
Unrecognized loss carryforwards
Unrecognized loss carryforwards
Tax-exempt income
Tax-exempt income
Income tax on unappropriated earnings
Income tax on unappropriated earnings
Investment credits
Investment credits
Effect of different tax rates of group
Effect of different tax rates of group
entities operating in other jurisdictions
entities operating in other jurisdictions
entities operating in other jurisdictions
entities operating in other jurisdictions
Adjustments of tax expense on prior years
Adjustments of tax expense on prior years
Adjustments of tax expense on prior years
Adjustments of tax expense on prior years
Others
Others
Others
Others
Unrecognized loss carryforwards
Unrecognized loss carryforwards
Tax-exempt income
Tax-exempt income
Income tax on unappropriated earnings
Income tax on unappropriated earnings
Investment credits
Investment credits
Effect of different tax rates of group
Effect of different tax rates of group
$ 7,914
$ 7,914
$ 7,914
$ 7,914
47
47
1
1
47
47
1
1
(66)
(66)
161
161
(399)
(399)
1,626
1,626
(314)
(314)
(66)
(66)
161
161
(399)
(399)
1,626
1,626
(314)
(314)
(25)
(25)
4
4
36
36
(25)
(25)
4
4
36
36
$ 8,832
$ 8,832
$ 8,832
$ 8,832
$ 8,400
$ 8,400
$ 8,400
$ 8,400
28
28
-
-
28
28
-
-
11
11
83
83
(183)
(183)
821
821
(329)
(329)
11
11
83
83
(183)
(183)
821
821
(329)
(329)
(94)
(94)
(83)
(83)
15
15
(94)
(94)
(83)
(83)
15
15
5
5
-
-
5
5
-
-
(9)
(9)
12
12
(25)
(25)
(346)
(346)
(234)
(234)
(9)
(9)
12
12
(25)
(25)
(346)
(346)
(234)
(234)
(8)
(8)
(22)
(22)
14
14
(8)
(8)
(22)
(22)
14
14
Income tax expense recognized in profit or
Income tax expense recognized in profit or
Income tax expense recognized in profit or
Income tax expense recognized in profit or
loss
loss
loss
loss
$ 8,985
$ 8,985
$ 8,985
$ 8,985
$ 9,101
$ 9,101
$ 9,101
$ 9,101
$ 7,787
$ 7,787
$ 7,787
$ 7,787
The applicable tax rate used above is the corporate tax rate of 17% payable by the entities subject to
The applicable tax rate used above is the corporate tax rate of 17% payable by the entities subject to
the Income Tax Act of the Republic of China, while the applicable tax rate used by subsidiaries in
the Income Tax Act of the Republic of China, while the applicable tax rate used by subsidiaries in
China is 25%. Tax rates used by other entities in the Company operating in other jurisdictions are
China is 25%. Tax rates used by other entities in the Company operating in other jurisdictions are
based on the tax laws in those jurisdictions.
based on the tax laws in those jurisdictions.
The applicable tax rate used above is the corporate tax rate of 17% payable by the entities subject to
The applicable tax rate used above is the corporate tax rate of 17% payable by the entities subject to
the Income Tax Act of the Republic of China, while the applicable tax rate used by subsidiaries in
the Income Tax Act of the Republic of China, while the applicable tax rate used by subsidiaries in
China is 25%. Tax rates used by other entities in the Company operating in other jurisdictions are
China is 25%. Tax rates used by other entities in the Company operating in other jurisdictions are
based on the tax laws in those jurisdictions.
based on the tax laws in those jurisdictions.
70
F
32. INCOME TAX
a. Income tax recognized in profit or loss
The major components of income tax expense were as follows:
Year Ended December 31
2014
NT$
2015
NT$
(In Millions)
2016
NT$
$ 7,516
1,626
4
41
9,187
$ 8,570
$ 6,736
821
(83)
15
9,323
(346)
(22)
15
6,383
Current tax expenses recognized for the
Tax on unappropriated earnings
Income tax adjustments on prior years
Current tax
year
Others
Deferred tax
year
Deferred tax expense recognized for the
(202)
(222)
1,404
Income tax recognized in profit or loss
$ 8,985
$ 9,101
$ 7,787
Reconciliation of accounting profit and income tax expense was as follows:
Year Ended December 31
2014
NT$
2015
NT$
(In Millions)
2016
NT$
Income before income tax
$ 46,552
$ 51,953
$ 49,413
Income tax expense calculated at the
statutory rate (17%)
Nondeductible revenues and expenses in
determining taxable income
Imputed income on tax
Unrecognized deductible temporary
differences
Unrecognized loss carryforwards
Tax-exempt income
Income tax on unappropriated earnings
Investment credits
Effect of different tax rates of group
entities operating in other jurisdictions
Adjustments of tax expense on prior years
Income tax expense recognized in profit or
Others
loss
$ 7,914
$ 8,832
$ 8,400
47
1
(66)
161
(399)
1,626
(314)
(25)
4
36
28
-
11
83
(183)
821
(329)
(94)
(83)
15
5
-
(9)
12
(25)
(346)
(234)
(8)
(22)
14
$ 8,985
$ 9,101
$ 7,787
The applicable tax rate used above is the corporate tax rate of 17% payable by the entities subject to
the Income Tax Act of the Republic of China, while the applicable tax rate used by subsidiaries in
China is 25%. Tax rates used by other entities in the Company operating in other jurisdictions are
based on the tax laws in those jurisdictions.
b. Income tax expense (benefit) recognized in other comprehensive income
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
Deferred tax expense (benefit)
Unrealized gain or loss on
available-for-sale financial assets
$
Remeasurement on defined benefit plan
(3)
(84)
$
2
(39)
$
(2)
(347)
Total income tax benefit recognized in
other comprehensive income
c. Current tax assets and liabilities
$
(87)
$
(37)
$
(349)
December 31
2015
NT$
2016
NT$
(In Millions)
Current tax assets
Tax refund receivable (included in other current assets -
other)
Current tax liabilities
Income tax payable
$
8
$
5
$ 9,171
$ 6,522
d. Deferred income tax assets and liabilities
The movements of deferred income tax assets and liabilities were as follows:
For the year ended December 31, 2014
Deferred Income Tax
Assets
December 31,
2013
NT$
Recognized in
Profit or Loss
NT$
Recognized in
Other
Comprehensive
Income
NT$
December 31,
2014
NT$
(In Millions)
Temporary differences
Defined benefit
obligation
Share of profit of
associates and joint
ventures accounted
for using equity
method
Allowance for doubtful
receivables over
quota
$
928
$
84
$
84
$ 1,096
175
2
102
112
-
-
277
114
(Continued)
71
F
Deferred Income Tax
Assets
December 31,
2013
NT$
Recognized in
Profit or Loss
NT$
Recognized in
Other
Comprehensive
Income
NT$
December 31,
2014
NT$
Impairment loss on
property, plant and
equipment
Deferred revenue
Valuation loss on
inventory
Accrued award credits
liabilities
Estimated warranty
liabilities
Unrealized foreign
exchange loss, net
Others
Loss carryforwards
$
59
187
$
56
21
24
11
16
1,479
27
(In Millions)
$
(27)
(31)
(15)
7
(5)
(11)
18
234
2
$ 1,506
$
236
$
-
-
-
-
-
-
-
84
-
84
$
32
156
41
28
19
-
34
1,797
29
$ 1,826
(Concluded)
Deferred Income Tax
Liabilities
December 31,
2013
NT$
Recognized in
Profit or Loss
NT$
Recognized in
Other
Comprehensive
Income
NT$
December 31,
2014
NT$
(In Millions)
Temporary differences
Land value incremental
tax
Deferred revenue for
award credits
Unrealized foreign
exchange gain, net
Valuation gain or loss
on financial
instruments, net
Others
$
(95)
$
-
$
-
-
(6)
-
(5)
(29)
-
-
$
(101)
$
(34)
$
-
-
-
3
-
3
$
(95)
(5)
(29)
(3)
-
$
(132)
72
F
For the year ended December 31, 2015
Deferred Income Tax
Assets
December 31,
2014
NT$
Recognized in
Profit or Loss
NT$
Recognized in
Other
Comprehensive
Income
NT$
(In Millions)
From Business
Combination
NT$
December 31,
2015
NT$
Temporary differences
Defined benefit
obligation
Share of the profit of
associates and joint
ventures accounted
for using equity
method
Allowance for doubtful
receivables over
quota
Impairment loss on
property, plant and
equipment
Deferred revenue
Valuation loss on
inventory
Accrued award credits
liabilities
Estimated warranty
liabilities
Property, plant and
equipment
Unrealized foreign
exchange loss, net
Others
Loss carryforwards
$ 1,096
$
71
$
39
$
-
$ 1,206
277
114
32
156
41
28
19
-
-
34
1,797
29
48
55
12
(20)
(8)
(6)
(1)
-
18
6
175
17
$ 1,826
$
192
$
-
-
-
-
-
-
-
-
-
-
39
-
39
-
-
-
-
-
-
-
2
-
-
2
2
4
$
325
169
44
136
33
22
18
2
18
40
2,013
48
$ 2,061
Deferred Income Tax
Liabilities
December 31,
2014
NT$
Recognized in
Profit or Loss
NT$
Recognized in
Other
Comprehensive
Income
NT$
(In Millions)
From Business
Combination
NT$
December 31,
2015
NT$
Temporary differences
Defined benefit
obligation
Land value incremental
tax
Deferred revenue for
award credits
Intangible assets
Unrealized foreign
exchange gain, net
Valuation gain or loss on
financial instruments,
net
Others
$
-
$
(1)
$
(95)
(5)
-
(29)
(3)
-
-
3
1
28
-
(1)
$
(132)
$
30
$
-
-
-
-
-
(2)
-
(2)
$
-
-
-
(44)
-
-
-
$
(1)
(95)
(2)
(43)
(1)
(5)
(1)
$
(44)
$
(148)
73
F
For the year ended December 31, 2016
Deferred Income Tax
Assets
December 31,
2015
NT$
Recognized in
Profit or Loss
NT$
Recognized in
Other
Comprehensive
Income
NT$
December 31,
2016
NT$
(In Millions)
Deferred Income Tax
December 31,
Recognized in
Comprehensive
December 31,
Liabilities
2015
NT$
Profit or Loss
NT$
Income
NT$
2016
NT$
(In Millions)
Recognized in
Other
$ 1,206
$
(179)
$
347
$ 1,374
$
(1)
$ (1,268)
$
$ (1,269)
325
169
44
136
33
22
18
2
18
40
2,013
48
5
61
78
(19)
(13)
(2)
1
-
(18)
(6)
(92)
6
-
-
-
-
-
-
-
-
-
-
347
-
330
230
122
117
20
20
19
2
-
34
2,268
54
$ 2,061
$
(86)
$
347
$ 2,322
Temporary differences
Defined benefit
obligation
Land value incremental
tax
Deferred revenue for
award credits
Intangible assets
Unrealized foreign
exchange gain, net
Valuation gain or loss
on financial
instruments, net
Others
(95)
(2)
(43)
(1)
(5)
(1)
-
(44)
3
(9)
-
-
e. Items for which no deferred income tax assets have been recognized
$
(148)
$ (1,318)
$
$ (1,464)
Loss carryforwards
Expire in 2017
Expire in 2018
Expire in 2019
Expire in 2020
Expire in 2021
Expire in 2022
Expire in 2023
Expire in 2024
Expire in 2025
Expire in 2026
Deductible temporary differences
$
$
$
$
-
-
-
-
-
2
-
2
67
126
156
80
-
2
1
-
15
-
447
12
(95)
(46)
(40)
(10)
(3)
(1)
67
126
138
42
13
1
1
-
14
-
402
3
December 31
2015
NT$
2016
NT$
(In Millions)
$
$
Temporary differences
Defined benefit
obligation
Share of profits of
associates and joint
ventures accounted
for using equity
method
Allowance for doubtful
receivables over
quota
Impairment loss on
property, plant and
equipment
Deferred revenue
Valuation loss on
inventory
Accrued award credits
liabilities
Estimated warranty
liabilities
Property, plant and
equipment
Unrealized foreign
exchange loss, net
Others
Loss carryforwards
74
F
Deferred Income Tax
Liabilities
December 31,
2015
NT$
Recognized in
Profit or Loss
NT$
Recognized in
Other
Comprehensive
Income
NT$
December 31,
2016
NT$
(In Millions)
Temporary differences
Defined benefit
obligation
Land value incremental
tax
Deferred revenue for
award credits
Intangible assets
Unrealized foreign
exchange gain, net
Valuation gain or loss
on financial
instruments, net
Others
$
(1)
$ (1,268)
$
(95)
(2)
(43)
(1)
(5)
(1)
-
(44)
3
(9)
-
-
e. Items for which no deferred income tax assets have been recognized
$
(148)
$ (1,318)
$
-
-
-
-
-
2
-
2
$ (1,269)
(95)
(46)
(40)
(10)
(3)
(1)
$ (1,464)
Loss carryforwards
Expire in 2017
Expire in 2018
Expire in 2019
Expire in 2020
Expire in 2021
Expire in 2022
Expire in 2023
Expire in 2024
Expire in 2025
Expire in 2026
Deductible temporary differences
December 31
2015
NT$
2016
NT$
(In Millions)
$
$
$
67
126
156
80
-
2
1
-
15
-
447
12
$
$
$
67
126
138
42
13
1
1
-
14
-
402
3
75
F
f.
Information about unused loss carryforwards
As of December 31, 2016, unused loss carryforwards was as follows:
Remaining
Creditable Amount
NT$ (In Millions)
$
67
126
138
50
23
2
3
4
32
11
$ 456
Expiry Year
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
g. The related information under the Integrated Income Tax System was as follows:
Undistributed earnings information
All Chunghwa’s earnings generated prior to June 30, 1988 have been appropriated.
Imputation credit account
December 31
2015
NT$
2016
NT$
(In Millions)
Balance of Imputation Credit Account (“ICA”)
$ 7,516
$ 7,691
The creditable ratios for distribution of earnings of 2015 and 2016 were 20.48% and 20.48%
(estimated ratio), respectively. Effective from January 1, 2015, the creditable ratio for individual
stockholders residing in the Republic of China is half of the original creditable ratio according to the
revised Article 66-6 of the Income Tax Act of the ROC.
The actual imputation credits allocated to stockholders of the Chunghwa was based on the balance of
the Imputation Credit Accounts (ICA) as of the date of dividend distribution. Therefore, the
estimated creditable ratio for the 2016 earnings may differ from the actual creditable ratio to be used
in allocating imputation credits to the stockholders.
h. Income tax examinations
Income tax returns of Chunghwa have been examined by the tax authorities through 2014 (except
2013). Income tax returns of SENAO have been examined by the tax authorities through 2013.
Income tax returns of Youth, SHE and CEI have been examined by the tax authorities through 2014.
Income tax returns of LED (except 2014), CHIEF, HHI, CHI, CHSI, CHYP, CHPT, SFD, ISPOT,
Youyi, Aval, Unigate and CHST have been examined by the tax authorities through 2015. Income
tax returns of CEI’s 2015 current final reports on total business income to liquidation date and on
income earned from liquidation have been examined by the tax authorities.
76
Net income and weighted average number of common stocks used in the calculation of earnings per
33. EARNINGS PER SHARE
share were as follows:
Net Income
Year Ended December 31
2014
NT$
2015
NT$
(In Millions)
2016
NT$
Net income attributable to the parent
$ 36,970
$ 42,039
$ 40,485
Net income used to compute the basic
earnings per share
Assumed conversion of all dilutive potential
common stocks
Employee stock options, employee bonus
and compensation of subsidiaries
Net income used to compute the diluted
earnings per share
Weighted Average Number of Common Stocks
-
(1)
(1)
$ 36,970
$ 42,038
$ 40,484
(Millions Shares)
Year Ended December 31
2014
2015
2016
7,757
7,757
7,757
Weighted average number of common stocks
used to compute the basic earnings per
Assumed conversion of all dilutive potential
share
common stocks
Weighted average number of common stocks
used to compute the diluted earnings per
share
Employee bonus or employee compensation
13
19
12
7,770
7,776
7,769
Because Chunghwa may settle the employee bonus or employee compensation in shares or cash,
Chunghwa shall presume that it will be settled in shares and takes those shares into consideration when
calculating the weighted average number of outstanding shares used in the calculation of diluted EPS if
the shares have a dilutive effect. The dilutive effect of the shares needs to be considered until the
approval of the number of shares to be distributed to employees as compensation in the following year.
F
33. EARNINGS PER SHARE
33. EARNINGS PER SHARE
33. EARNINGS PER SHARE
Net income and weighted average number of common stocks used in the calculation of earnings per
Net income and weighted average number of common stocks used in the calculation of earnings per
share were as follows:
Net income and weighted average number of common stocks used in the calculation of earnings per
share were as follows:
share were as follows:
Net Income
Net Income
Net Income
2014
2014
NT$
2014
NT$
NT$
Year Ended December 31
Year Ended December 31
2015
Year Ended December 31
2015
NT$
2015
NT$
(In Millions)
NT$
(In Millions)
(In Millions)
2016
2016
NT$
2016
NT$
NT$
$ 36,970
$ 36,970
$ 36,970
$ 42,039
$ 42,039
$ 42,039
$ 40,485
$ 40,485
$ 40,485
-
-
-
(1)
(1)
(1)
(1)
(1)
(1)
$ 36,970
$ 36,970
$ 36,970
$ 42,038
$ 42,038
$ 42,038
$ 40,484
$ 40,484
$ 40,484
Net income used to compute the basic
Net income used to compute the basic
earnings per share
Net income used to compute the basic
earnings per share
Net income attributable to the parent
earnings per share
Net income attributable to the parent
Assumed conversion of all dilutive potential
Net income attributable to the parent
Assumed conversion of all dilutive potential
common stocks
Assumed conversion of all dilutive potential
common stocks
Employee stock options, employee bonus
common stocks
Employee stock options, employee bonus
Employee stock options, employee bonus
and compensation of subsidiaries
and compensation of subsidiaries
and compensation of subsidiaries
Net income used to compute the diluted
Net income used to compute the diluted
Net income used to compute the diluted
earnings per share
earnings per share
earnings per share
Weighted Average Number of Common Stocks
Weighted Average Number of Common Stocks
Weighted Average Number of Common Stocks
Weighted average number of common stocks
Weighted average number of common stocks
used to compute the basic earnings per
Weighted average number of common stocks
used to compute the basic earnings per
share
used to compute the basic earnings per
share
Assumed conversion of all dilutive potential
share
Assumed conversion of all dilutive potential
common stocks
Assumed conversion of all dilutive potential
common stocks
Employee bonus or employee compensation
common stocks
Employee bonus or employee compensation
Employee bonus or employee compensation
Weighted average number of common stocks
Weighted average number of common stocks
used to compute the diluted earnings per
Weighted average number of common stocks
used to compute the diluted earnings per
share
used to compute the diluted earnings per
share
share
2014
2014
2014
7,757
7,757
7,757
13
13
13
7,770
7,770
7,770
(Millions Shares)
(Millions Shares)
(Millions Shares)
Year Ended December 31
Year Ended December 31
2015
Year Ended December 31
2015
2015
2016
2016
2016
7,757
7,757
7,757
12
12
12
7,769
7,769
7,769
7,757
7,757
7,757
19
19
19
7,776
7,776
7,776
Because Chunghwa may settle the employee bonus or employee compensation in shares or cash,
Because Chunghwa may settle the employee bonus or employee compensation in shares or cash,
Chunghwa shall presume that it will be settled in shares and takes those shares into consideration when
Because Chunghwa may settle the employee bonus or employee compensation in shares or cash,
Chunghwa shall presume that it will be settled in shares and takes those shares into consideration when
calculating the weighted average number of outstanding shares used in the calculation of diluted EPS if
Chunghwa shall presume that it will be settled in shares and takes those shares into consideration when
calculating the weighted average number of outstanding shares used in the calculation of diluted EPS if
the shares have a dilutive effect. The dilutive effect of the shares needs to be considered until the
calculating the weighted average number of outstanding shares used in the calculation of diluted EPS if
the shares have a dilutive effect. The dilutive effect of the shares needs to be considered until the
approval of the number of shares to be distributed to employees as compensation in the following year.
the shares have a dilutive effect. The dilutive effect of the shares needs to be considered until the
approval of the number of shares to be distributed to employees as compensation in the following year.
approval of the number of shares to be distributed to employees as compensation in the following year.
77
F
34. SHARE-BASED PAYMENT ARRANGEMENT
34. SHARE-BASED PAYMENT ARRANGEMENT
34. SHARE-BASED PAYMENT ARRANGEMENT
34. SHARE-BASED PAYMENT ARRANGEMENT
34. SHARE-BASED PAYMENT ARRANGEMENT
a. SENAO share-based compensation plan (“SENAO Plan”) described as follows:
10,000
2012.05.28
2013.05.07
Grant Date
Exercise Price
NT$
$76.10
(Original price $93.00 )
Stock Options Units
Stock Options Units
(In Thousands)
Stock Options Units
Stock Options Units
Stock Options Units
(In Thousands)
(In Thousands)
(In Thousands)
(In Thousands)
10,000
10,000
10,000
10,000
Stock options granted on May 7, 2013 applied IFRS 2. The recognized compensation costs were
$93 million, $35 million and $13 million for the years ended December 31, 2014, 2015 and 2016,
respectively.
a. SENAO share-based compensation plan (“SENAO Plan”) described as follows:
a. SENAO share-based compensation plan (“SENAO Plan”) described as follows:
a. SENAO share-based compensation plan (“SENAO Plan”) described as follows:
a. SENAO share-based compensation plan (“SENAO Plan”) described as follows:
Grant Date
Grant Date
Grant Date
Grant Date
2013.05.07
2013.05.07
2013.05.07
2013.05.07
Each option is eligible to subscribe for one common share when exercisable. Under the terms of
the SENAO Plan, the options are granted at an exercise price equal to the closing price of the
SENAO’s common stocks listed on the TWSE on the higher of closing price or par value. The
SENAO Plan have exercise price adjustment formula upon the changes in common stocks equity
(including cash capital increase, new share issue through capitalization of earnings and additional
paid-in capital, merger, spin off and new share issue for Global Depositary Shares, and so on) or
distribution of cash dividends. The options of SENAO Plan are valid for six years and the graded
vesting schedule for which 50% of option granted will vest two years after the grant date and another
two tranches of 25%, each will vest three and four years after the grant date respectively.
Exercise Price
Effective Date
Exercise Price
Effective Date
NT$
Exercise Price
Effective Date
Effective Date
Exercise Price
Effective Date
NT$
NT$
NT$
$76.10
2012.05.28
$76.10
2012.05.28
(Original price $93.00 )
$76.10
2012.05.28
$76.10
2012.05.28
(Original price $93.00 )
(Original price $93.00 )
(Original price $93.00 )
Each option is eligible to subscribe for one common share when exercisable. Under the terms of
Each option is eligible to subscribe for one common share when exercisable. Under the terms of
the SENAO Plan, the options are granted at an exercise price equal to the closing price of the
Each option is eligible to subscribe for one common share when exercisable. Under the terms of
Each option is eligible to subscribe for one common share when exercisable. Under the terms of
the SENAO Plan, the options are granted at an exercise price equal to the closing price of the
SENAO’s common stocks listed on the TWSE on the higher of closing price or par value. The
the SENAO Plan, the options are granted at an exercise price equal to the closing price of the
the SENAO Plan, the options are granted at an exercise price equal to the closing price of the
SENAO’s common stocks listed on the TWSE on the higher of closing price or par value. The
SENAO Plan have exercise price adjustment formula upon the changes in common stocks equity
SENAO’s common stocks listed on the TWSE on the higher of closing price or par value. The
SENAO’s common stocks listed on the TWSE on the higher of closing price or par value. The
SENAO Plan have exercise price adjustment formula upon the changes in common stocks equity
(including cash capital increase, new share issue through capitalization of earnings and additional
SENAO Plan have exercise price adjustment formula upon the changes in common stocks equity
SENAO Plan have exercise price adjustment formula upon the changes in common stocks equity
(including cash capital increase, new share issue through capitalization of earnings and additional
paid-in capital, merger, spin off and new share issue for Global Depositary Shares, and so on) or
(including cash capital increase, new share issue through capitalization of earnings and additional
(including cash capital increase, new share issue through capitalization of earnings and additional
paid-in capital, merger, spin off and new share issue for Global Depositary Shares, and so on) or
distribution of cash dividends. The options of SENAO Plan are valid for six years and the graded
paid-in capital, merger, spin off and new share issue for Global Depositary Shares, and so on) or
paid-in capital, merger, spin off and new share issue for Global Depositary Shares, and so on) or
distribution of cash dividends. The options of SENAO Plan are valid for six years and the graded
vesting schedule for which 50% of option granted will vest two years after the grant date and another
distribution of cash dividends. The options of SENAO Plan are valid for six years and the graded
distribution of cash dividends. The options of SENAO Plan are valid for six years and the graded
vesting schedule for which 50% of option granted will vest two years after the grant date and another
two tranches of 25%, each will vest three and four years after the grant date respectively.
vesting schedule for which 50% of option granted will vest two years after the grant date and another
vesting schedule for which 50% of option granted will vest two years after the grant date and another
two tranches of 25%, each will vest three and four years after the grant date respectively.
two tranches of 25%, each will vest three and four years after the grant date respectively.
two tranches of 25%, each will vest three and four years after the grant date respectively.
Stock options granted on May 7, 2013 applied IFRS 2. The recognized compensation costs were
Stock options granted on May 7, 2013 applied IFRS 2. The recognized compensation costs were
$93 million, $35 million and $13 million for the years ended December 31, 2014, 2015 and 2016,
Stock options granted on May 7, 2013 applied IFRS 2. The recognized compensation costs were
Stock options granted on May 7, 2013 applied IFRS 2. The recognized compensation costs were
$93 million, $35 million and $13 million for the years ended December 31, 2014, 2015 and 2016,
respectively.
$93 million, $35 million and $13 million for the years ended December 31, 2014, 2015 and 2016,
$93 million, $35 million and $13 million for the years ended December 31, 2014, 2015 and 2016,
respectively.
respectively.
respectively.
SENAO modified the plan terms of the outstanding stock options in July 2014, the exercise price
SENAO modified the plan terms of the outstanding stock options in July 2014, the exercise price
changed from $89.40 to $84.30 per share. The modification did not cause any incremental fair
SENAO modified the plan terms of the outstanding stock options in July 2014, the exercise price
SENAO modified the plan terms of the outstanding stock options in July 2014, the exercise price
changed from $89.40 to $84.30 per share. The modification did not cause any incremental fair
value granted.
changed from $89.40 to $84.30 per share. The modification did not cause any incremental fair
changed from $89.40 to $84.30 per share. The modification did not cause any incremental fair
value granted.
value granted.
value granted.
SENAO modified the plan terms of the outstanding stock options in August 2015, the exercise price
SENAO modified the plan terms of the outstanding stock options in August 2015, the exercise price
changed from $84.30 to $81.40 per share. The modification did not cause any incremental fair
SENAO modified the plan terms of the outstanding stock options in August 2015, the exercise price
SENAO modified the plan terms of the outstanding stock options in August 2015, the exercise price
changed from $84.30 to $81.40 per share. The modification did not cause any incremental fair
value granted.
changed from $84.30 to $81.40 per share. The modification did not cause any incremental fair
changed from $84.30 to $81.40 per share. The modification did not cause any incremental fair
value granted.
value granted.
value granted.
SENAO modified the plan terms of the outstanding stock options in July 2016, the exercise price
SENAO modified the plan terms of the outstanding stock options in July 2016, the exercise price
changed from $81.40 to $76.10 per share. The modification did not cause any incremental fair
SENAO modified the plan terms of the outstanding stock options in July 2016, the exercise price
SENAO modified the plan terms of the outstanding stock options in July 2016, the exercise price
changed from $81.40 to $76.10 per share. The modification did not cause any incremental fair
value granted.
changed from $81.40 to $76.10 per share. The modification did not cause any incremental fair
changed from $81.40 to $76.10 per share. The modification did not cause any incremental fair
value granted.
value granted.
value granted.
Information about SENAO’s outstanding stock options for the years ended December 31, 2014,
Information about SENAO’s outstanding stock options for the years ended December 31, 2014,
2015 and 2016 was as follows:
Information about SENAO’s outstanding stock options for the years ended December 31, 2014,
Information about SENAO’s outstanding stock options for the years ended December 31, 2014,
2015 and 2016 was as follows:
2015 and 2016 was as follows:
2015 and 2016 was as follows:
Year Ended December 31, 2014
Year Ended December 31, 2014
Granted on May 7, 2013
Year Ended December 31, 2014
Year Ended December 31, 2014
Year Ended December 31, 2014
Granted on May 7, 2013
Weighted-
Granted on May 7, 2013
Granted on May 7, 2013
Granted on May 7, 2013
Weighted-
average
Number of
Weighted-
Weighted-
Weighted-
Number of
average
Exercise Price
Options
average
Number of
average
Number of
Number of
average
Exercise Price
Options
NT$
(In Thousands)
Exercise Price
Options
Exercise Price
Options
Exercise Price
Options
NT$
(In Thousands)
NT$
(In Thousands)
NT$
(In Thousands)
(In Thousands)
NT$
SENAO modified the plan terms of the outstanding stock options in August 2015, the exercise price
changed from $84.30 to $81.40 per share. The modification did not cause any incremental fair
value granted.
SENAO modified the plan terms of the outstanding stock options in July 2016, the exercise price
changed from $81.40 to $76.10 per share. The modification did not cause any incremental fair
value granted.
SENAO modified the plan terms of the outstanding stock options in July 2014, the exercise price
changed from $89.40 to $84.30 per share. The modification did not cause any incremental fair
value granted.
Information about SENAO’s outstanding stock options for the years ended December 31, 2014,
2015 and 2016 was as follows:
Options outstanding at beginning of the year
Options exercised
Options forfeited
Employee stock options
Employee stock options
Employee stock options
Employee stock options
Employee stock options
Options outstanding at beginning of the year
Options outstanding at beginning of the year
Options exercised
Options outstanding at beginning of the year
Options outstanding at beginning of the year
Options exercised
Options forfeited
Options exercised
Options exercised
Options forfeited
Options forfeited
Options forfeited
Options outstanding at end of the year
Options outstanding at end of the year
Options outstanding at end of the year
Options outstanding at end of the year
Options exercisable at end of the year
Options exercisable at end of the year
Options exercisable at end of the year
Options exercisable at end of the year
Options outstanding at end of the year
Options exercisable at end of the year
78
9,872
9,872
-
9,872
9,872
9,872
-
(845)
-
-
-
(845)
(845)
(845)
(845)
9,027
9,027
9,027
9,027
-
-
-
-
9,027
-
$ 89.40
$ 89.40
-
$ 89.40
$ 89.40
$ 89.40
-
-
-
-
-
-
-
-
-
84.30
84.30
84.30
84.30
84.30
-
-
-
-
-
F
34. SHARE-BASED PAYMENT ARRANGEMENT
34. SHARE-BASED PAYMENT ARRANGEMENT
34. SHARE-BASED PAYMENT ARRANGEMENT
34. SHARE-BASED PAYMENT ARRANGEMENT
a. SENAO share-based compensation plan (“SENAO Plan”) described as follows:
a. SENAO share-based compensation plan (“SENAO Plan”) described as follows:
a. SENAO share-based compensation plan (“SENAO Plan”) described as follows:
a. SENAO share-based compensation plan (“SENAO Plan”) described as follows:
Stock Options Units
Effective Date
Grant Date
Effective Date
Effective Date
Effective Date
2012.05.28
2012.05.28
2012.05.28
2012.05.28
Grant Date
Grant Date
Grant Date
2013.05.07
2013.05.07
2013.05.07
2013.05.07
Stock Options Units
(In Thousands)
Stock Options Units
Stock Options Units
(In Thousands)
(In Thousands)
(In Thousands)
10,000
Exercise Price
Exercise Price
NT$
Exercise Price
Exercise Price
NT$
NT$
NT$
$76.10
10,000
10,000
10,000
(Original price $93.00 )
$76.10
(Original price $93.00 )
$76.10
$76.10
Each option is eligible to subscribe for one common share when exercisable. Under the terms of
(Original price $93.00 )
(Original price $93.00 )
Each option is eligible to subscribe for one common share when exercisable. Under the terms of
the SENAO Plan, the options are granted at an exercise price equal to the closing price of the
Each option is eligible to subscribe for one common share when exercisable. Under the terms of
Each option is eligible to subscribe for one common share when exercisable. Under the terms of
the SENAO Plan, the options are granted at an exercise price equal to the closing price of the
SENAO’s common stocks listed on the TWSE on the higher of closing price or par value. The
the SENAO Plan, the options are granted at an exercise price equal to the closing price of the
the SENAO Plan, the options are granted at an exercise price equal to the closing price of the
SENAO’s common stocks listed on the TWSE on the higher of closing price or par value. The
SENAO Plan have exercise price adjustment formula upon the changes in common stocks equity
SENAO’s common stocks listed on the TWSE on the higher of closing price or par value. The
SENAO’s common stocks listed on the TWSE on the higher of closing price or par value. The
SENAO Plan have exercise price adjustment formula upon the changes in common stocks equity
(including cash capital increase, new share issue through capitalization of earnings and additional
SENAO Plan have exercise price adjustment formula upon the changes in common stocks equity
SENAO Plan have exercise price adjustment formula upon the changes in common stocks equity
(including cash capital increase, new share issue through capitalization of earnings and additional
paid-in capital, merger, spin off and new share issue for Global Depositary Shares, and so on) or
(including cash capital increase, new share issue through capitalization of earnings and additional
(including cash capital increase, new share issue through capitalization of earnings and additional
paid-in capital, merger, spin off and new share issue for Global Depositary Shares, and so on) or
distribution of cash dividends. The options of SENAO Plan are valid for six years and the graded
paid-in capital, merger, spin off and new share issue for Global Depositary Shares, and so on) or
paid-in capital, merger, spin off and new share issue for Global Depositary Shares, and so on) or
distribution of cash dividends. The options of SENAO Plan are valid for six years and the graded
vesting schedule for which 50% of option granted will vest two years after the grant date and another
distribution of cash dividends. The options of SENAO Plan are valid for six years and the graded
distribution of cash dividends. The options of SENAO Plan are valid for six years and the graded
vesting schedule for which 50% of option granted will vest two years after the grant date and another
two tranches of 25%, each will vest three and four years after the grant date respectively.
vesting schedule for which 50% of option granted will vest two years after the grant date and another
vesting schedule for which 50% of option granted will vest two years after the grant date and another
two tranches of 25%, each will vest three and four years after the grant date respectively.
two tranches of 25%, each will vest three and four years after the grant date respectively.
two tranches of 25%, each will vest three and four years after the grant date respectively.
Stock options granted on May 7, 2013 applied IFRS 2. The recognized compensation costs were
Stock options granted on May 7, 2013 applied IFRS 2. The recognized compensation costs were
$93 million, $35 million and $13 million for the years ended December 31, 2014, 2015 and 2016,
Stock options granted on May 7, 2013 applied IFRS 2. The recognized compensation costs were
Stock options granted on May 7, 2013 applied IFRS 2. The recognized compensation costs were
$93 million, $35 million and $13 million for the years ended December 31, 2014, 2015 and 2016,
respectively.
$93 million, $35 million and $13 million for the years ended December 31, 2014, 2015 and 2016,
$93 million, $35 million and $13 million for the years ended December 31, 2014, 2015 and 2016,
respectively.
respectively.
respectively.
SENAO modified the plan terms of the outstanding stock options in July 2014, the exercise price
SENAO modified the plan terms of the outstanding stock options in July 2014, the exercise price
changed from $89.40 to $84.30 per share. The modification did not cause any incremental fair
SENAO modified the plan terms of the outstanding stock options in July 2014, the exercise price
SENAO modified the plan terms of the outstanding stock options in July 2014, the exercise price
changed from $89.40 to $84.30 per share. The modification did not cause any incremental fair
value granted.
changed from $89.40 to $84.30 per share. The modification did not cause any incremental fair
changed from $89.40 to $84.30 per share. The modification did not cause any incremental fair
value granted.
value granted.
value granted.
SENAO modified the plan terms of the outstanding stock options in August 2015, the exercise price
SENAO modified the plan terms of the outstanding stock options in August 2015, the exercise price
changed from $84.30 to $81.40 per share. The modification did not cause any incremental fair
SENAO modified the plan terms of the outstanding stock options in August 2015, the exercise price
SENAO modified the plan terms of the outstanding stock options in August 2015, the exercise price
changed from $84.30 to $81.40 per share. The modification did not cause any incremental fair
value granted.
changed from $84.30 to $81.40 per share. The modification did not cause any incremental fair
changed from $84.30 to $81.40 per share. The modification did not cause any incremental fair
value granted.
value granted.
value granted.
SENAO modified the plan terms of the outstanding stock options in July 2016, the exercise price
SENAO modified the plan terms of the outstanding stock options in July 2016, the exercise price
changed from $81.40 to $76.10 per share. The modification did not cause any incremental fair
SENAO modified the plan terms of the outstanding stock options in July 2016, the exercise price
SENAO modified the plan terms of the outstanding stock options in July 2016, the exercise price
changed from $81.40 to $76.10 per share. The modification did not cause any incremental fair
value granted.
changed from $81.40 to $76.10 per share. The modification did not cause any incremental fair
changed from $81.40 to $76.10 per share. The modification did not cause any incremental fair
value granted.
value granted.
value granted.
Information about SENAO’s outstanding stock options for the years ended December 31, 2014,
Information about SENAO’s outstanding stock options for the years ended December 31, 2014,
2015 and 2016 was as follows:
Information about SENAO’s outstanding stock options for the years ended December 31, 2014,
Information about SENAO’s outstanding stock options for the years ended December 31, 2014,
2015 and 2016 was as follows:
2015 and 2016 was as follows:
2015 and 2016 was as follows:
Employee stock options
Employee stock options
Employee stock options
Employee stock options
Options outstanding at beginning of the year
Options outstanding at beginning of the year
Options exercised
Options outstanding at beginning of the year
Options outstanding at beginning of the year
Options exercised
Options forfeited
Options exercised
Options exercised
Options forfeited
Options forfeited
Options forfeited
Options outstanding at end of the year
Options outstanding at end of the year
Options outstanding at end of the year
Options outstanding at end of the year
Options exercisable at end of the year
Options exercisable at end of the year
Options exercisable at end of the year
Options exercisable at end of the year
Year Ended December 31, 2014
Year Ended December 31, 2014
Granted on May 7, 2013
Year Ended December 31, 2014
Year Ended December 31, 2014
Granted on May 7, 2013
Weighted-
Number of
Granted on May 7, 2013
Granted on May 7, 2013
Weighted-
average
Number of
Options
(In Thousands)
Number of
Number of
Options
(In Thousands)
Options
Options
(In Thousands)
(In Thousands)
Weighted-
Weighted-
Exercise Price
average
Exercise Price
average
average
NT$
Exercise Price
Exercise Price
NT$
NT$
NT$
9,872
9,872
-
9,872
9,872
(845)
-
(845)
-
-
(845)
(845)
9,027
9,027
9,027
9,027
-
-
-
-
$ 89.40
$ 89.40
-
$ 89.40
$ 89.40
-
-
84.30
-
-
84.30
84.30
84.30
-
-
-
-
-
-
-
Year Ended December 31, 2015
Year Ended December 31, 2015
Year Ended December 31, 2015
Year Ended December 31, 2015
Granted on May 7, 2013
Granted on May 7, 2013
Granted on May 7, 2013
Granted on May 7, 2013
Number of
Number of
Number of
Number of
Options
Options
Options
Options
(In Thousands)
(In Thousands)
(In Thousands)
(In Thousands)
Weighted-
Weighted-
Weighted-
Weighted-
average
average
average
average
Exercise Price
Exercise Price
Exercise Price
Exercise Price
NT$
NT$
NT$
NT$
Employee stock options
Employee stock options
Employee stock options
Employee stock options
Options outstanding at beginning of the year
Options exercised
Options forfeited
Options outstanding at beginning of the year
Options outstanding at beginning of the year
Options outstanding at beginning of the year
Options exercised
Options exercised
Options exercised
Options forfeited
Options forfeited
Options forfeited
9,027
9,027
9,027
9,027
-
-
-
-
(1,240)
(1,240)
(1,240)
(1,240)
$ 84.30
$ 84.30
$ 84.30
$ 84.30
-
-
-
-
-
-
-
-
Options outstanding at end of the year
Options outstanding at end of the year
Options outstanding at end of the year
Options outstanding at end of the year
7,787
7,787
7,787
7,787
81.40
81.40
81.40
81.40
Options exercisable at end of the year
Options exercisable at end of the year
Options exercisable at end of the year
Options exercisable at end of the year
4,049
4,049
4,049
4,049
81.40
81.40
81.40
81.40
Year Ended December 31, 2016
Year Ended December 31, 2016
Year Ended December 31, 2016
Year Ended December 31, 2016
Granted on May 7, 2013
Granted on May 7, 2013
Granted on May 7, 2013
Granted on May 7, 2013
Number of
Number of
Number of
Number of
Options
Options
Options
Options
(In Thousands)
(In Thousands)
(In Thousands)
(In Thousands)
Weighted-
Weighted-
Weighted-
Weighted-
average
average
average
average
Exercise Price
Exercise Price
Exercise Price
Exercise Price
NT$
NT$
NT$
NT$
Employee stock options
Employee stock options
Employee stock options
Employee stock options
Options outstanding at beginning of the year
Options exercised
Options forfeited
Options outstanding at beginning of the year
Options outstanding at beginning of the year
Options outstanding at beginning of the year
Options exercised
Options exercised
Options exercised
Options forfeited
Options forfeited
Options forfeited
7,787
7,787
7,787
7,787
-
-
-
-
(1,200)
(1,200)
(1,200)
(1,200)
$ 81.40
$ 81.40
$ 81.40
$ 81.40
-
-
-
-
-
-
-
-
Options outstanding at end of the year
Options outstanding at end of the year
Options outstanding at end of the year
Options outstanding at end of the year
6,587
6,587
6,587
6,587
76.10
76.10
76.10
76.10
Options exercisable at end of the year
Options exercisable at end of the year
Options exercisable at end of the year
Options exercisable at end of the year
4,947
4,947
4,947
4,947
76.10
76.10
76.10
76.10
As of December 31, 2015 information about employee stock options outstanding was as follows:
As of December 31, 2015 information about employee stock options outstanding was as follows:
As of December 31, 2015 information about employee stock options outstanding was as follows:
As of December 31, 2015 information about employee stock options outstanding was as follows:
Options Outstanding
Options Outstanding
Options Outstanding
Options Outstanding
Weighted-
Weighted-
Weighted-
Weighted-
average
average
average
average
Remaining
Remaining
Remaining
Remaining
Contractual
Contractual
Contractual
Contractual
Life
Life
Life
Life
(Years)
(Years)
(Years)
(Years)
Weighted-
average
Exercise
Price
NT$
Weighted-
Weighted-
Weighted-
average
average
average
Exercise
Exercise
Exercise
Price
Price
Price
NT$
NT$
NT$
Range of
Range of
Range of
Range of
Exercise Price
Exercise Price
Exercise Price
Exercise Price
NT$
NT$
NT$
NT$
Number of
Number of
Number of
Number of
Options
Options
Options
Options
(In Thousands)
(In Thousands)
(In Thousands)
(In Thousands)
Options Exercisable
Options Exercisable
Options Exercisable
Options Exercisable
Number of
Number of
Number of
Number of
Options
Options
Options
Options
(In Thousands)
(In Thousands)
(In Thousands)
(In Thousands)
Weighted-
average
Exercise
Price
NT$
Weighted-
Weighted-
Weighted-
average
average
average
Exercise
Exercise
Exercise
Price
Price
Price
NT$
NT$
NT$
$81.40
$81.40
$81.40
$81.40
7,787
7,787
7,787
7,787
3.35
3.35
3.35
3.35
$81.40
$81.40
$81.40
$81.40
4,049
4,049
4,049
4,049
$ 81.40
$ 81.40
$ 81.40
$ 81.40
79
F
As of December 31, 2016 information about employee stock options outstanding was as follows:
Information about CHIEF’s outstanding stock options for the years ended December 31, 2015 and
2016 was as follows:
Options Outstanding
Options Exercisable
Range of
Exercise Price
NT$
Number of
Options
(In Thousands)
Weighted-
average
Remaining
Contractual
Life
(Years)
Weighted-
average
Exercise
Price
NT$
Number of
Options
(In Thousands)
Weighted-
average
Exercise
Price
NT$
$76.10
6,587
2.35
$76.10
4,947
$ 76.10
SENAO used the fair value method to evaluate the options using the Black-Scholes model and the
related assumptions and the fair value of the options were as follows:
Grant-date share price (NT$)
Exercise price (NT$)
Dividends yield
Risk-free interest rate
Expected life
Expected volatility
Weighted-average fair value of grants (NT$)
Stock Options
Granted on
May 7, 2013
$93.00
$93.00
-
0.91%
4.375 years
36.22%
$28.72
Expected volatility was based on the historical share price volatility of SENAO over the period equal
to the expected life of SENAO Plan.
b. CHIEF share-based compensation plan (“CHIEF Plan”) described as follows:
Effective Date
Grant Date
Stock Options Units
2015.10.22
2015.10.22
2,000
Exercise Price
NT$
$34.40
(Original price $43.00)
Each option is eligible to subscribe for one thousand common stocks when exercisable. Under the
terms of the CHIEF Plan, the options are granted at an exercise price equal to $43.00. The options
are granted to specific employees that meet the vesting conditions. The CHIEF Plan has exercise
price adjustment formula upon the changes in common stocks or distribution of cash dividends.
The options of CHIEF Plan are valid for five years and the graded vesting schedule will vest two
years after the grant date.
Stock options granted on October 22, 2015 applied IFRS 2. The recognized compensation cost
were $1 million and $4 million for the years ended December 31, 2015 and 2016, respectively.
CHIEF modified the plan terms of the outstanding stock options in July 2016, the exercise price
changed from $43.00 to $34.40 per share. The modification did not cause any incremental fair
value granted.
80
For the year ended December 31
2015
2016
Granted on October 22, 2015 Granted on October 22, 2015
Weighted
Average
Exercise
Price
(NT$)
Number of
Options
Number of
Options
Weighted
Average
Exercise
Price
(NT$)
Employee stock options
Options outstanding at beginning
of the year
Options granted
Options forfeited
Options outstanding at end of the
Option exercisable at end of the
year
year
$
2,000
$ 43.00
2,000
43.00
-
-
-
-
-
-
-
(52)
-
-
-
-
2,000
43.00
1,948
34.40
As of December 31, 2015, information about employee stock options outstanding was as follows:
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Contractual
Life
(Years)
Weighted
Average
Exercise
Price
NT$
Number of
Options
Weighted
Average
Exercise
Price
NT$
Range of
Number of
Exercise Price
Options
NT$
$ 43.00
2,000
4.81
$ 43.00
-
$
-
As of December 31, 2016, information about employee stock options outstanding was as follows:
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Contractual
Life
(Years)
Weighted
Average
Exercise
Price
NT$
Number of
Options
Weighted
Average
Exercise
Price
NT$
Range of
Number of
Exercise Price
Options
NT$
$ 34.40
1,948
3.81
$ 34.40
-
$
-
F
Information about CHIEF’s outstanding stock options for the years ended December 31, 2015 and
2016 was as follows:
For the year ended December 31
2015
2016
Granted on October 22, 2015 Granted on October 22, 2015
Weighted
Average
Exercise
Price
(NT$)
Weighted
Average
Exercise
Price
(NT$)
Number of
Options
Number of
Options
Employee stock options
Options outstanding at beginning
of the year
Options granted
Options forfeited
Options outstanding at end of the
year
Option exercisable at end of the
year
-
2,000
-
-
$
43.00
-
2,000
-
(52)
$ 43.00
-
-
2,000
43.00
1,948
34.40
-
-
-
-
As of December 31, 2015, information about employee stock options outstanding was as follows:
Options Outstanding
Options Exercisable
Range of
Exercise Price
NT$
Number of
Options
Weighted
Average
Remaining
Contractual
Life
(Years)
Weighted
Average
Exercise
Price
NT$
Number of
Options
Weighted
Average
Exercise
Price
NT$
$ 43.00
2,000
4.81
$ 43.00
-
$
-
As of December 31, 2016, information about employee stock options outstanding was as follows:
Options Outstanding
Options Exercisable
Range of
Exercise Price
NT$
Number of
Options
Weighted
Average
Remaining
Contractual
Life
(Years)
Weighted
Average
Exercise
Price
NT$
Number of
Options
Weighted
Average
Exercise
Price
NT$
$ 34.40
1,948
3.81
$ 34.40
-
$
-
81
F
CHIEF used the fair value method to evaluate the options using the binomial option pricing model
and the related assumptions and the fair value of the options were as follows:
Grant-date share price (NT$)
Exercise price (NT$)
Dividends yield
Risk-free interest rate
Expected life
Expected volatility
Weighted average fair value of grants (NT$)
Stock Options
Granted on
October 22,
2015
$39.55
$43.00
-
0.86%
5 years
21.02%
$4,863
Expected volatility was based on the average annualized historical share price volatility of CHIEF’s
comparable companies before the grant date.
c. New shares reserved for subscription by employees under cash injection of CHPT
On December 8, 2015, the Board of Directors of CHPT approved the cash injection to issue 2,787
thousand shares and simultaneously reserved 418 thousand shares for subscription by employees
according to the Company Act of the ROC. Furthermore, when the employees subscribed some
shares or discarded their rights to subscribe shares, the Board of Directors of CHPT authorized the
chairman of the Board of Directors to contact specific people or group to subscribe.
The aforementioned options granted to employees are accounted for and measured at fair value in
accordance with IFRS 2. The recognized compensation cost was $0.016 million for the year ended
December 31, 2016.
CHPT used the fair value method to evaluate the options granted to employees on March 10, 2016
using the Black-Scholes model and the related assumptions and the fair value of the options were as
follows:
Grant-date share price (NT$)
Exercise price (NT$)
Dividends yield
Risk-free interest rate
Expected life
Expected volatility
Weighted average fair value of grants (NT$)
Stock Options
Granted on
March 10, 2016
$302.46
$360.00
-
0.37%
12 days
37.43%
$0.04
Expected volatility was based on the average annualized historical share price volatility of CHPT’s
comparable companies before the grant date.
82
F
35. NON-CASH TRANSACTIONS
For the years ended December 31, 2014, 2015 and 2016, the Company entered into the following
non-cash investing activities:
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
Increase in property, plant and equipment
Other payables
$ 32,084
475
$ 24,451
633
$ 24,591
(1,074)
$ 32,559
$ 25,084
$ 23,517
36. OPERATING LEASE ARRANGEMENTS
a. The Company as lessee
Except for the ST-2 satellite referred in Note 40 to the consolidated financial statements, the
Company entered into several lease agreements for base stations located all over in Taiwan. The
future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Within one year
Longer than one year but within five years
Longer than five years
b. The Company as lessor
December 31
2015
NT$
2016
NT$
(In Millions)
$ 3,173
5,614
1,186
$ 2,811
5,450
960
$ 9,973
$ 9,221
The Company leases out some land and buildings. The future aggregate minimum lease collection
under non-cancellable operating leases are as follows:
Within one year
Longer than one year but within five years
Longer than five years
December 31
2015
NT$
2016
NT$
(In Millions)
$
399
527
374
$
427
600
321
$ 1,300
$ 1,348
83
F
37. CAPITAL MANAGEMENT
The Company manages its capital to ensure that entities in the Company will be able to continue as
going concerns while maximizing the return to stakeholders through the optimization of the debt and
equity balance.
The capital structure of the Company consists of debt of the Company and the equity attributable to the
parent.
Some consolidated entities are required to maintain minimum paid-in capital amount as prescribed by
the applicable laws.
The management reviews the capital structure of the Company as needed. As part of this review, the
management considers the cost of capital and the risks associated with each class of capital.
According to the management’s suggestion, the Company maintains a balanced capital structure through
paying cash dividends, increasing its share capital, purchasing treasury stock, and proceeds from new
debt or repayment of debt.
38. FINANCIAL INSTRUMENTS
Categories of Financial Instruments
Financial assets
Measured at FVTPL
Held for trading
Hedging derivative financial assets
Held-to-maturity financial assets
Loans and receivables (Note a)
Available-for-sale financial assets
Financial liabilities
Measured at FVTPL
Held for trading
Hedging derivative financial liabilities
Measured at amortized cost (Note b)
December 31
2015
NT$
2016
NT$
(In Millions)
$
-
1
4,021
63,738
5,511
$
-
-
2,140
70,040
4,764
-
-
36,365
1
1
40,553
Note a: The balances included cash and cash equivalents, trade notes and accounts receivable, re-
ceivables from related parties, other current monetary assets, other financial assets and
refundable deposits (classified as other noncurrent assets) which were loans and receivables.
Please refer to Notes 7, 11, 14, 20 and 40.
Note b: The balances included short-term loans, trade notes and accounts payable, payables to related
parties, partial other payables, customers’ deposits and long-term loans which were financial
liabilities carried at amortized cost. Please refer to Notes 22, 23, 24, 25 and 40.
84
F
37. CAPITAL MANAGEMENT
Financial Risk Management Objectives
equity balance.
parent.
the applicable laws.
The Company manages its capital to ensure that entities in the Company will be able to continue as
going concerns while maximizing the return to stakeholders through the optimization of the debt and
The capital structure of the Company consists of debt of the Company and the equity attributable to the
Some consolidated entities are required to maintain minimum paid-in capital amount as prescribed by
The management reviews the capital structure of the Company as needed. As part of this review, the
management considers the cost of capital and the risks associated with each class of capital.
According to the management’s suggestion, the Company maintains a balanced capital structure through
paying cash dividends, increasing its share capital, purchasing treasury stock, and proceeds from new
debt or repayment of debt.
38. FINANCIAL INSTRUMENTS
Categories of Financial Instruments
Financial assets
Measured at FVTPL
Held for trading
Hedging derivative financial assets
Held-to-maturity financial assets
Loans and receivables (Note a)
Available-for-sale financial assets
Financial liabilities
Measured at FVTPL
Held for trading
Hedging derivative financial liabilities
Measured at amortized cost (Note b)
December 31
2015
NT$
2016
NT$
(In Millions)
$
$
4,021
63,738
5,511
2,140
70,040
4,764
-
-
1
1
-
1
-
-
36,365
40,553
Note a: The balances included cash and cash equivalents, trade notes and accounts receivable, re-
ceivables from related parties, other current monetary assets, other financial assets and
refundable deposits (classified as other noncurrent assets) which were loans and receivables.
Please refer to Notes 7, 11, 14, 20 and 40.
Note b: The balances included short-term loans, trade notes and accounts payable, payables to related
parties, partial other payables, customers’ deposits and long-term loans which were financial
liabilities carried at amortized cost. Please refer to Notes 22, 23, 24, 25 and 40.
The main financial instruments of the Company include equity and debt investments, accounts
receivable, accounts payable and loans. The Company’s Finance Department provides services to its
business units, co-ordinates access to domestic and international capital markets, monitors and manages
the financial risks relating to the operations of the Company through internal risk reports which analyze
exposures by degree and magnitude of risks. These risks include market risk (including foreign
currency risk, interest rate risk and other price risk), credit risk, and liquidity risk.
The Company seeks to minimize the effects of these risks by using derivative financial instruments to
hedge risk exposures. The use of financial derivatives is governed by the Company’s policies
approved by the Board of Directors. Those derivatives are used to hedge the risks of exchange rate
fluctuation arising from operating or investment activities. Compliance with policies and risk exposure
limits is reviewed by the Company’s Finance Department on a continuous basis. The Company does
not enter into or trade financial instruments, including derivative financial instruments, for speculative
purposes.
Chunghwa reports the significant risk exposures and related action plans timely and actively to the audit
committee and to the Board of Directors if needed.
a. Market risk
The Company is exposed to market risks of changes in foreign currency exchange rates and interest
rates. The Company uses forward exchange contracts to hedge the exchange rate risk arising from
assets and liabilities denominated in foreign currencies.
There were no changes to the Company’s exposure to market risks or the manner in which these
risks are managed and measured.
1) Foreign currency risk
The carrying amounts of the Company’s foreign currency denominated monetary assets and
monetary liabilities at the balance sheet dates were as follows:
Assets
USD
EUR
SGD
RMB
JPY
Liabilities
USD
EUR
SGD
RMB
JPY
December 31
2015
NT$
2016
NT$
(In Millions)
$ 4,596
47
110
41
245
4,172
1,293
3
-
14
$ 5,327
14
106
30
13
4,238
968
1
-
10
85
F
The carrying amounts of the Company’s derivatives with exchange rate risk exposures at the
balance sheet dates were as follows:
Assets
USD
EUR
Liabilities
USD
EUR
December 31
2015
NT$
2016
NT$
(In Millions)
$
-
1
-
-
$
-
-
-
2
Foreign currency sensitivity analysis
The Company is mainly exposed to the fluctuations of the currencies listed above.
The following table details the Company’s sensitivity to a 5% increase and decrease in the
functional currency against the relevant foreign currencies. 5% is the sensitivity rate used when
reporting foreign currency risk internally to key management personnel and represents
management’s assessment of the reasonably possible changes in foreign exchange rates. The
sensitivity analysis includes only outstanding foreign currency denominated monetary items and
forward exchange contracts. A positive number below indicates an increase in pre-tax profit or
equity where the functional currency weakens 5% against the relevant currency.
Profit or loss
Monetary assets and liabilities (a)
USD
EUR
SGD
RMB
JPY
Derivatives (b)
USD
EUR
Equity
Derivatives (c)
EUR
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
$
(3)
(38)
4
6
-
11
-
(5)
$
21
(62)
5
2
12
1
33
15
$
54
(48)
5
1
-
3
8
5
a) This is mainly attributable to the exposure to foreign currency denominated receivables and
payables of the Company outstanding at the balance sheet dates.
b) This is mainly attributable to the forward exchange contracts.
c) This is mainly attributable to the changes in the fair value of derivatives that are designated
as cash flow hedges.
For a 5% strengthening of the functional currency against the relevant currencies, it would have
the equal but opposite effect on the pre-tax profit or equity for the amounts shown above.
86
F
2) Interest rate risk
The carrying amounts of the Company’s exposures to interest rates on financial assets and
financial liabilities at the balance sheet dates were as follows:
Fair value interest rate risk
Financial assets
Financial liabilities
Cash flow interest rate risk
Financial assets
Financial liabilities
Interest rate sensitivity analysis
December 31
2015
NT$
2016
NT$
(In Millions)
$ 26,238
110
$ 28,303
-
6,461
1,750
6,582
1,738
The sensitivity analyses below have been determined based on the exposure to interest rates for
non-derivative instruments at the end of the reporting period. A 25 basis point increase or
decrease is used when reporting interest rate risk internally to key management personnel and
represents management’s assessment of the reasonably possible change in interest rates.
If interest rates had been 25 basis points higher/lower and all other variables were held constant,
the Company’s pre-tax income would increase/decrease by $6 million, $12 million and $12
million for the years ended December 31, 2014, 2015 and 2016, respectively. This is mainly
attributable to the Company’s exposure to floating interest rates on its financial assets and
short-term and long-term loan.
3) Other price risk
The Company is exposed to equity price risks arising from listed equity investments. Equity
investments are held for strategic rather than trading purposes. The management managed the
risk through holding various risk portfolios. Further, the Company assigned finance and invest-
ment departments to monitor the price risk.
Equity price sensitivity analysis
The sensitivity analyses below have been determined based on the exposure to equity price risks
at the end of the reporting period.
If equity prices of listed equity securities had been 5% higher/lower, other comprehensive
income would have increased/decreased by $196 million, $162 million and $126 million as a
result of the changes in fair value of available-for-sale assets for the years ended December 31,
2014, 2015 and 2016, respectively.
87
F
b. Credit risk
Credit risk refers to the risk that a counterparty would default on its contractual obligations resulting
in financial loss to the Company. The maximum credit exposure of the aforementioned financial
instruments is equal to their carrying amounts recognized in consolidated balance sheet as of the
balance sheet date.
The Company has large trade receivables outstanding with its customers. A substantial majority of
the Company’s outstanding trade receivables are not covered by collateral or credit insurance. The
Company has implemented ongoing measures including enhancing credit assessments and
strengthening overall risk management to reduce its credit risk. While the Company has
procedures to monitor and limit exposure to credit risk on trade receivables, there can be no
assurance such procedures will effectively limit its credit risk and avoid losses. This risk is
heightened during periods when economic conditions worsen.
As the Company serves a large number of unrelated consumers, the concentration of credit risk was
limited.
c. Liquidity risk
The Company manages and maintains sufficient cash and cash equivalent position to support the
operations and reduce the impact on fluctuation of cash flow.
1) Liquidity and interest risk tables
The following
tables detailed the Company’s remaining contractual maturity for its
non-derivative financial liabilities with agreed repayment periods. The tables had been drawn
up based on the undiscounted cash flows of financial liabilities based on the earliest date on
which the Company is required to pay.
Weighted
Average
Effective
Interest
Rate (%)
Less Than
1 Month
NT$
1-3 Months
NT$
3 Months to
1 Year
NT$
1-5 Years
NT$
More than
5 Year
NT$
Total
NT$
December 31, 2015
Non-derivative financial
liabilities
Non-interest bearing
Floating interest rate
instruments
Fixed interest rate
instruments
December 31, 2016
Non-derivative financial
liabilities
Non-interest bearing
Floating interest rate
instruments
(In Millions)
-
$ 40,209
$
-
$
2,190
$
4,726
$
-
$ 47,125
1.13
1.82
-
50
-
-
8
60
1,646
-
96
-
1,750
110
$ 40,259
$
-
$
2,258
$
6,372
$
96
$ 48,985
-
$ 43,975
$
-
$
2,015
$
4,610
$
-
$ 50,600
1.00
-
38
100
1,600
-
1,738
$ 43,975
$
38
$
2,115
$
6,210
$
-
$ 52,338
88
F
The following table detailed the Company’s liquidity analysis for its derivative financial
instruments. The table had been drawn up based on the undiscounted gross inflows and
outflows on those derivatives that require gross settlement.
Less Than
1 Month
NT$
1-3 Months
NT$
3 Months to
1 Year
NT$
(In Millions)
1-5 Years
NT$
Total
NT$
December 31, 2015
Gross settled
Forward exchange contracts
Inflows
Outflows
December 31, 2016
Gross settled
Forward exchange contracts
Inflows
Outflows
2) Financing facilities
Unsecured bank loan facility
Amount used
Amount unused
Secured bank loan facility
Amount used
Amount unused
$
$
26
26
$
474
476
492
489
$
$
-
$
(2)
$
3
$
$
$
55
55
$
267
269
$
-
$
(2)
$
-
-
-
$
$
-
-
-
-
-
-
$
992
991
$
1
$
322
324
$
(2)
December 31
2015
NT$
2016
NT$
(In Millions)
$
110
41,278
$
118
46,219
$ 41,388
$ 46,337
$ 1,750
200
$ 1,620
200
$ 1,950
$ 1,820
89
F
39. FAIR VALUE INFORMATION
39. FAIR VALUE INFORMATION
The fair value measurement guidance establishes a framework for measuring fair value and expands
disclosure about fair value measurements. The standard describes a fair value hierarchy based on three
The fair value measurement guidance establishes a framework for measuring fair value and expands
levels of inputs that may be used to measure fair value. These levels are:
disclosure about fair value measurements. The standard describes a fair value hierarchy based on three
levels of inputs that may be used to measure fair value. These levels are:
Level 1 fair value measurements: These measurements are those derived from quoted prices (un-
adjusted) in active markets for identical assets or liabilities.
Level 1 fair value measurements: These measurements are those derived from quoted prices (un-
adjusted) in active markets for identical assets or liabilities.
Level 2 fair value measurements: These measurements are those derived from inputs other than quoted
prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices)
Level 2 fair value measurements: These measurements are those derived from inputs other than quoted
or indirectly (i.e. derived from prices).
prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices).
Level 3 fair value measurements: These measurements are those derived from valuation techniques
that include inputs for the asset or liability that are not based on observable market data (unobservable
Level 3 fair value measurements: These measurements are those derived from valuation techniques
inputs).
that include inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
a. Financial instruments that are not measured at fair value but for which fair value is disclosed
a. Financial instruments that are not measured at fair value but for which fair value is disclosed
Except for what disclosed in the following table, the Company considers that the carrying amounts
of finanal assets and liabilities not measured at fair value approximate their fair values or the fair
Except for what disclosed in the following table, the Company considers that the carrying amounts
values cannot be reliable estimated:
of finanal assets and liabilities not measured at fair value approximate their fair values or the fair
values cannot be reliable estimated:
December 31, 2015
December 31, 2015
Carrying
Carrying
Amount
Amount
Level 1
Level 1
Fair Value
Fair Value
Level 2
Level 2
Level 3
Level 3
Held-to-maturity financial
Held-to-maturity financial
assets
Corporate bonds
assets
Bank debentures
Corporate bonds
Bank debentures
December 31, 2016
December 31, 2016
Held-to-maturity financial
Held-to-maturity financial
assets
Corporate bonds
assets
Bank debentures
Corporate bonds
Bank debentures
$
$
$
$
3,871
150
3,871
150
4,021
4,021
$
$
$
$
-
-
-
-
-
-
$
$
$
$
3,891
150
3,891
150
4,041
4,041
$
$
$
$
-
-
-
-
-
-
Carrying
Carrying
Amount
Amount
Level 1
Level 1
Fair Value
Fair Value
Level 2
Level 2
Level 3
Level 3
$
$
$
$
1,990
150
1,990
150
2,140
2,140
$
$
$
$
-
-
-
-
-
-
$
$
$
$
1,996
150
1,996
150
2,146
2,146
$
$
$
$
-
-
-
-
-
-
The Level 2 fair values are estimated using discounted cash flow models. The models use
market-based observable inputs including duration, yield rate and credit rating.
The Level 2 fair values are estimated using discounted cash flow models. The models use
market-based observable inputs including duration, yield rate and credit rating.
90
F
The fair value measurement guidance establishes a framework for measuring fair value and expands
disclosure about fair value measurements. The standard describes a fair value hierarchy based on three
levels of inputs that may be used to measure fair value. These levels are:
Level 1 fair value measurements: These measurements are those derived from quoted prices (un-
adjusted) in active markets for identical assets or liabilities.
Level 2 fair value measurements: These measurements are those derived from inputs other than quoted
prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices).
Level 3 fair value measurements: These measurements are those derived from valuation techniques
that include inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
Except for what disclosed in the following table, the Company considers that the carrying amounts
of finanal assets and liabilities not measured at fair value approximate their fair values or the fair
values cannot be reliable estimated:
December 31, 2015
Carrying
Amount
Level 1
Fair Value
Level 2
Level 3
Held-to-maturity financial
assets
Corporate bonds
Bank debentures
December 31, 2016
Held-to-maturity financial
assets
Corporate bonds
Bank debentures
$
3,871
$
$
3,891
$
150
150
$
4,021
$
$
4,041
$
Carrying
Amount
Level 1
Fair Value
Level 2
Level 3
$
1,990
$
$
1,996
$
150
150
$
2,140
$
$
2,146
$
-
-
-
-
-
-
-
-
-
-
-
-
The Level 2 fair values are estimated using discounted cash flow models. The models use
market-based observable inputs including duration, yield rate and credit rating.
39. FAIR VALUE INFORMATION
b. Financial instruments measured at fair value on a recurring basis
December 31, 2015
Financial assets at FVTPL
Derivatives
Hedging derivative financial
assets
Available-for-sale financial
assets
Listed securities
Level 1
Level 2
Level 3
Total
$
$
-
-
$
$
-
1
$
$
-
-
$
$
-
1
a. Financial instruments that are not measured at fair value but for which fair value is disclosed
December 31, 2016
Equity investments
$
3,243
$
-
$
-
$
3,243
Level 1
Level 2
Level 3
Total
$
-
$
-
$
-
$
-
Financial assets at FVTPL
Derivative
Available-for-sale financial
assets
Listed securities
Equity investments
$
2,521
$
Financial liabilities at FVTPL
Derivative
Hedging derivative financial
liabilities
$
$
-
-
$
$
-
1
1
$
$
$
-
-
-
$
2,521
$
$
1
1
There were no transfers between Levels 1 and 2 for the years ended December 31, 2015 and 2016.
There were no Level 3 investments measured at fair value on a recurring basis.
The fair values of financial assets and financial liabilities are determined as follows:
1) The fair values of financial assets and financial liabilities with standard terms and conditions and
traded in active markets are determined with reference to quoted market prices.
2) For derivatives, fair values are estimated using discounted cash flow model. Future cash flows
are estimated based on observable inputs including foreign exchange rates at the end of the
reporting periods, and forward and spot exchange rates stated in the contracts, discounted at a
rate that reflects the credit risk of various counterparties.
91
F
40. RELATED PARTIES TRANSACTIONS
The ROC Government, one of Chunghwa’s customers has significant equity interest in Chunghwa.
Chunghwa provides fixed-line services, wireless services, internet and data and other services to the
various departments and institutions of the ROC Government in the normal course of business and at
arm’s-length prices. The transactions with the ROC government bodies have not been provided
because the transactions are not individually or collectively significant. However, the related revenues
and operating costs have been appropriately recorded.
a. The Company engages in business transactions with the following related parties:
Company
Relationship
Taiwan International Standard Electronics Co., Ltd. Associate
Associate
So-net Entertainment Taiwan Limited
Associate
Skysoft Co., Ltd.
Associate
KingwayTek Technology Co., Ltd.
Associate
Dian Zuan Integrating Marketing Co., Ltd.
Associate
Taiwan International Ports Logistics Corporation
Joint venture
Huada Digital Corporation
Chunghwa Benefit One Co., Ltd.
Joint venture
Associate
International Integrated System, Inc.
Associate
Senao Networks, Inc.
Associate
HopeTech Technologies Limited
Associate
EnGenius Tech. Co., Ltd.
Associate
ST-2 Satellite Ventures Pte., Ltd.
Associate
Viettel-CHT Co., Ltd.
Associate
Xiamen Sertec Business Technology Co., Ltd.
Associate
Click Force Co., Ltd.
Other related parties
Chunghwa Telecom Foundation
A nonprofit organization of which the funds
donated by Chunghwa exceeds one third of
its total funds
Senao Technical and Cultural Foundation
A nonprofit organization of which the funds
Sochamp Technology Co., Ltd.
E-Life Mall Co., Ltd.
Engenius Technologies Co., Ltd.
United Daily News Co., Ltd.
Shenzhen Century Communication Co., Ltd.
donated by SENAO exceeds one third of its
total funds
Investor of significant influence over CHST
One of the directors of E-Life Mall and a
director of SENAO are members of an
immediate family
Chairman of Engenius Technologies Co., Ltd.
is a member of SENAO’s management
Investor of significant influence over SFD
Investor of significant influence over SCT
b. Balances and transactions between Chunghwa and its subsidiaries, which are related parties of
Chunghwa, have been eliminated on consolidation and are not disclosed in this note. Terms of the
foregoing transactions with related parties were not significantly different from transactions with
non-related parties. When no similar transactions with non-related parties can be referenced, terms
were determined in accordance with mutual agreements. Details of transactions between the
Company and other related parties are disclosed below:
1) Operating transactions
Associates
Joint ventures
Others
Associates
Joint ventures
Others
2) Non-operating transactions
Associates
Others
Revenues
Year Ended December 31
2014
NT$
329
7
97
2015
NT$
(In Millions)
333
9
81
$
$
$
2016
NT$
292
7
49
$
433
$
423
$
348
Operating Costs and Expenses
Year Ended December 31
2014
NT$
2015
NT$
(In Millions)
2016
NT$
$ 1,663
$ 1,451
$ 1,405
34
69
17
62
17
74
$ 1,766
$ 1,530
$ 1,496
Non-operating Income and Expenses
Year Ended December 31
2014
NT$
$
$
34
-
34
2015
NT$
(In Millions)
$
$
36
-
36
2016
NT$
$
$
37
-
37
92
F
b. Balances and transactions between Chunghwa and its subsidiaries, which are related parties of
Chunghwa, have been eliminated on consolidation and are not disclosed in this note. Terms of the
foregoing transactions with related parties were not significantly different from transactions with
non-related parties. When no similar transactions with non-related parties can be referenced, terms
were determined in accordance with mutual agreements. Details of transactions between the
Company and other related parties are disclosed below:
1) Operating transactions
40. RELATED PARTIES TRANSACTIONS
The ROC Government, one of Chunghwa’s customers has significant equity interest in Chunghwa.
Chunghwa provides fixed-line services, wireless services, internet and data and other services to the
various departments and institutions of the ROC Government in the normal course of business and at
arm’s-length prices. The transactions with the ROC government bodies have not been provided
because the transactions are not individually or collectively significant. However, the related revenues
and operating costs have been appropriately recorded.
a. The Company engages in business transactions with the following related parties:
Company
Relationship
Taiwan International Standard Electronics Co., Ltd. Associate
So-net Entertainment Taiwan Limited
Skysoft Co., Ltd.
KingwayTek Technology Co., Ltd.
Dian Zuan Integrating Marketing Co., Ltd.
Taiwan International Ports Logistics Corporation
Huada Digital Corporation
Chunghwa Benefit One Co., Ltd.
International Integrated System, Inc.
Senao Networks, Inc.
HopeTech Technologies Limited
EnGenius Tech. Co., Ltd.
ST-2 Satellite Ventures Pte., Ltd.
Viettel-CHT Co., Ltd.
Xiamen Sertec Business Technology Co., Ltd.
Click Force Co., Ltd.
Other related parties
Chunghwa Telecom Foundation
Associate
Associate
Associate
Associate
Associate
Joint venture
Joint venture
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
A nonprofit organization of which the funds
donated by Chunghwa exceeds one third of
its total funds
total funds
donated by SENAO exceeds one third of its
Investor of significant influence over CHST
One of the directors of E-Life Mall and a
director of SENAO are members of an
immediate family
Chairman of Engenius Technologies Co., Ltd.
is a member of SENAO’s management
Investor of significant influence over SFD
Sochamp Technology Co., Ltd.
E-Life Mall Co., Ltd.
Engenius Technologies Co., Ltd.
United Daily News Co., Ltd.
Shenzhen Century Communication Co., Ltd.
Investor of significant influence over SCT
Associates
Joint ventures
Others
Associates
Joint ventures
Others
Senao Technical and Cultural Foundation
A nonprofit organization of which the funds
2) Non-operating transactions
Revenues
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
2014
NT$
$
329
7
97
$
333
9
81
$
292
7
49
$
433
$
423
$
348
Operating Costs and Expenses
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
2014
NT$
$ 1,663
34
69
$ 1,451
17
62
$ 1,405
17
74
$ 1,766
$ 1,530
$ 1,496
Non-operating Income and Expenses
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
2014
NT$
Associates
Others
$
$
34
-
34
$
$
36
-
36
$
$
37
-
37
93
F
3) Receivables
Associates
Joint ventures
Others
4) Payables
Associates
Joint ventures
Others
5) Customers’ deposits
Associates
Joint ventures
December 31
2015
NT$
2016
NT$
(In Millions)
$
$
29
1
12
42
$
9
-
5
$
14
December 31
2015
NT$
2016
NT$
(In Millions)
$
602
5
4
$
757
1
4
$
611
$
762
December 31
2015
NT$
2016
NT$
(In Millions)
$
$
11
-
11
$
$
10
1
11
6) Acquisition of property, plant and equipment
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
Associates
Joint ventures
$
521
-
$
314
11
$
313
7
$
521
$
325
$
320
94
F
7) Prepayments
Chunghwa entered into a contract with ST-2 Satellite Ventures Pte., Ltd. on March 12, 2010 to
lease capacity on the ST-2 satellite. This lease is for 15 years which should start from the
official operation of ST-2 satellite and the total contract value is approximately $6,000 million
(SG$261 million), including a prepayment of $3,068 million, and the rest of amount should be
paid annually when ST-2 satellite starts its official operation. ST-2 satellite was launched in
May 2011, and began its official operation in August 2011. The total rental expense for the
year ended December 31, 2014 was $416 million, which consisted of an offsetting credit of the
prepayment of $199 million and an additional accrual of $217 million. The total rental expense
for the year ended December 31, 2015 was $404 million, which consisted of an offsetting credit
of the prepayment of $204 million and an additional accrual of $200 million. The total rental
expense for the year ended December 31, 2016 was $394 million, which consisted of an
offsetting credit of the prepayment of $204 million and an additional accrual of $190 million.
The prepaid rents (classified as prepayments) as of December 31, 2015 and 2016, were as
follows:
Prepaid rents - current
Prepaid rents - noncurrent
December 31
2015
NT$
2016
NT$
(In Millions)
$
204
1,959
$
204
1,755
$ 2,163
$ 1,959
c. Compensation of key management personnel
The compensation of directors and other key management personnel for the years ended December
31, 2014, 2015 and 2016 were as follows:
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
Short-term employee benefits
Share-based payment
Post-employment benefits
$
222
10
8
$
212
3
9
$
251
2
8
$
240
$
224
$
261
The compensation of directors and other key management personnel was mainly determined by the
compensation committee having regard to the performance of individual and market trends.
95
F
41. PLEDGED ASSETS
41. PLEDGED ASSETS
The following assets are pledged as collaterals for bank loans and custom duties of the imported
The following assets are pledged as collaterals for bank loans and custom duties of the imported
materials.
materials.
2015
2015
NT$
NT$
December 31
December 31
(In Millions)
(In Millions)
2016
2016
NT$
NT$
Property, plant and equipment
Property, plant and equipment
Land held under development (included in inventories)
Land held under development (included in inventories)
Restricted assets (included in other assets - others)
Restricted assets (included in other assets - others)
$ 3,101
$ 3,101
1,999
1,999
2
2
$ 5,102
$ 5,102
$ 2,580
$ 2,580
1,999
1,999
21
21
$ 4,600
$ 4,600
42. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS
42. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS
The Company’s remaining commitments under non-cancelable contracts with various parties, excluding
The Company’s remaining commitments under non-cancelable contracts with various parties, excluding
those disclosed in other notes, were as follows:
those disclosed in other notes, were as follows:
a. Acquisitions of land and buildings of $873 million as of December 31, 2016.
a. Acquisitions of land and buildings of $873 million as of December 31, 2016.
b. Acquisitions of telecommunications equipment of $12,293 million as of December 31, 2016.
b. Acquisitions of telecommunications equipment of $12,293 million as of December 31, 2016.
c. Unused letters of credit amounting to $50 million as of December 31, 2016.
c. Unused letters of credit amounting to $50 million as of December 31, 2016.
d. A commitment to contribute $2,000 million to a Piping Fund administered by the Taipei City
d. A commitment to contribute $2,000 million to a Piping Fund administered by the Taipei City
Government, of which $1,000 million was contributed by Chunghwa on August 15, 1996 (classified
Government, of which $1,000 million was contributed by Chunghwa on August 15, 1996 (classified
as other monetary assets - noncurrent). If the fund is not sufficient, Chunghwa will contribute the
as other monetary assets - noncurrent). If the fund is not sufficient, Chunghwa will contribute the
remaining $1,000 million upon notification from the Taipei City Government.
remaining $1,000 million upon notification from the Taipei City Government.
43. SEGMENT INFORMATION
43. SEGMENT INFORMATION
The Company has the following reportable segments that provide different products or services. The
The Company has the following reportable segments that provide different products or services. The
reportable segments are managed separately because each segment represents a strategic business unit
reportable segments are managed separately because each segment represents a strategic business unit
that serves different markets. Segment information is provided to CEO who allocates resources and
that serves different markets. Segment information is provided to CEO who allocates resources and
assesses segment performance. The Company’s measure of segment performance is mainly based on
assesses segment performance. The Company’s measure of segment performance is mainly based on
revenues and income before income tax. The Company’s reportable segments are as follows:
revenues and income before income tax. The Company’s reportable segments are as follows:
a. Domestic fixed communications business - the provision of local telephone services, domestic long
a. Domestic fixed communications business - the provision of local telephone services, domestic long
distance telephone services, broadband access, and related services;
distance telephone services, broadband access, and related services;
b. Mobile communications business - the provision of mobile services, sales of mobile handsets and
b. Mobile communications business - the provision of mobile services, sales of mobile handsets and
data cards, and related services;
data cards, and related services;
c. Internet business - the provision of HiNet services and related services;
c. Internet business - the provision of HiNet services and related services;
d. International fixed communications business - the provision of international long distance telephone
d. International fixed communications business - the provision of international long distance telephone
services and related services;
services and related services;
e. Others - the provision of non-telecom services and the corporate related items not allocated to
e. Others - the provision of non-telecom services and the corporate related items not allocated to
reportable segments.
reportable segments.
96
F
41. PLEDGED ASSETS
materials.
The following assets are pledged as collaterals for bank loans and custom duties of the imported
Property, plant and equipment
Land held under development (included in inventories)
Restricted assets (included in other assets - others)
December 31
2015
NT$
2016
NT$
(In Millions)
$ 3,101
$ 2,580
1,999
2
1,999
21
$ 5,102
$ 4,600
42. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS
The Company’s remaining commitments under non-cancelable contracts with various parties, excluding
those disclosed in other notes, were as follows:
a. Acquisitions of land and buildings of $873 million as of December 31, 2016.
b. Acquisitions of telecommunications equipment of $12,293 million as of December 31, 2016.
c. Unused letters of credit amounting to $50 million as of December 31, 2016.
d. A commitment to contribute $2,000 million to a Piping Fund administered by the Taipei City
Government, of which $1,000 million was contributed by Chunghwa on August 15, 1996 (classified
as other monetary assets - noncurrent). If the fund is not sufficient, Chunghwa will contribute the
remaining $1,000 million upon notification from the Taipei City Government.
43. SEGMENT INFORMATION
The Company has the following reportable segments that provide different products or services. The
reportable segments are managed separately because each segment represents a strategic business unit
that serves different markets. Segment information is provided to CEO who allocates resources and
assesses segment performance. The Company’s measure of segment performance is mainly based on
revenues and income before income tax. The Company’s reportable segments are as follows:
a. Domestic fixed communications business - the provision of local telephone services, domestic long
distance telephone services, broadband access, and related services;
b. Mobile communications business - the provision of mobile services, sales of mobile handsets and
data cards, and related services;
c. Internet business - the provision of HiNet services and related services;
d. International fixed communications business - the provision of international long distance telephone
services and related services;
reportable segments.
e. Others - the provision of non-telecom services and the corporate related items not allocated to
Some operating segments have been aggregated into a single operating segment taking into account the
following factors: (a) similar economic characteristics such as long-term gross profit margins; (b) the
nature of the telecommunications products and services are similar; (c) the nature of production
processes of the telecommunications products and services are similar; (d) the type or class of customer
for the telecommunications products and services; and (e) the methods used to provide the services to
the customers are the same.
There was no material differences between the accounting policies of the operating segments and the
accounting policies described in Note 3.
a. Segment information
Analysis by reportable segment of revenue and operating results of continuing operations was as
follows:
Domestic
Fixed
Communi-
cations
Business
NT$
Mobile
Communi-
cations
Business
NT$
International
Fixed
Communi-
cations
Business
NT$
Internet
Business
NT$
(In Millions)
Others
NT$
Total
NT$
Year ended December 31, 2014
Revenues
From external customers
Intersegment revenues
Segment revenues
Intersegment elimination
Consolidated revenues
Segment income before income tax
Year ended December 31, 2015
Revenues
From external customers
Intersegment revenues
Segment revenues
Intersegment elimination
Consolidated revenues
Segment income before income tax
Year ended December 31, 2016
Revenues
From external customers
Intersegment revenues
Segment revenues
Intersegment elimination
Consolidated revenues
Segment income before income tax
$ 72,062
19,728
$ 91,790
$ 110,665
5,324
$ 115,989
$ 25,997
4,705
$ 30,702
$ 15,314
2,256
$ 17,570
$
$
$ 19,535
$ 19,322
$
9,547
$
191
$
$ 72,535
21,401
$ 93,936
$ 114,877
3,475
$ 118,352
$ 25,777
4,701
$ 30,478
$ 15,460
2,120
$ 17,580
$
$
$ 23,231
$ 19,394
$
9,918
$
1,120
$
$ 72,784
22,669
$ 95,453
$ 110,801
2,530
$ 113,331
$ 28,100
4,734
$ 32,834
$ 14,434
2,680
$ 17,114
$
$
$ 25,658
$ 13,926
$ 10,729
$
1,098
$
2,571
2,422
4,993
$ 226,609
34,435
261,044
(34,435 )
$ 226,609
(2,043 ) $ 46,552
3,146
3,214
6,360
$ 231,795
34,911
266,706
(34,911 )
$ 231,795
(1,710 ) $ 51,953
3,872
4,122
7,994
$ 229,991
36,735
266,726
(36,735 )
$ 229,991
(1,998 ) $ 49,413
97
F
b. Other segment information
Other information reviewed by the chief operating decision maker or regularly provided to the chief
operating decision maker was as follows:
For the year ended December 31, 2014
Domestic
Fixed
Communi-
cations
Business
NT$
Mobile
Communi-
cations
Business
NT$
International
Fixed
Communi-
cations
Business
NT$
Internet
Business
NT$
(In Millions)
Others
NT$
Total
NT$
Share of the profit of associates and
joint ventures accounted for using
equity method
Interest income
Interest expenses
Operating costs and expenses
Depreciation and amortization
Capital expenditure
Impairment loss on property, plant
-
$
24
$
$
-
$ 66,465
$ 18,540
$ 16,165
-
$
12
$
$
13
$ 81,400
9,909
$
9,619
$
-
$
10
$
$
1
$ 11,975
3,422
$
4,425
$
-
$
2
$
$
-
$ 14,500
1,819
$
1,458
$
$
$
$
$
$
$
802
240
32
8,103
424
892
802
$
288
$
$
46
$ 182,443
$ 34,114
$ 32,559
and equipment
$
-
$
-
$
0.1
$
-
$
-
$
0.1
For the year ended December 31, 2015
Domestic
Fixed
Communi-
cations
Business
NT$
Mobile
Communi-
cations
Business
NT$
International
Fixed
Communi-
cations
Business
NT$
Internet
Business
NT$
(In Millions)
Share of the profit of associates and
joint ventures accounted for using
equity method
Interest income
Interest expenses
Operating costs and expenses
Depreciation and amortization
Capital expenditure
Impairment loss on property, plant
-
$
19
$
-
$
$ 64,960
$ 17,487
$ 10,196
-
$
19
$
10
$
$ 81,213
$ 10,444
8,596
$
-
$
11
$
-
$
$ 12,062
3,611
$
4,795
$
-
$
2
$
-
$
$ 14,411
1,536
$
968
$
and equipment
$
22
$
116
$
Reversal of impairment loss on
investment properties
$
142
$
-
$
-
-
$
$
-
-
For the year ended December 31, 2016
Others
NT$
Total
NT$
$
$
$
$
$
$
$
$
897
255
23
8,683
370
529
897
$
306
$
33
$
$ 181,329
$ 33,448
$ 25,084
-
-
$
138
$
142
Domestic
Fixed
Communi-
cations
Business
NT$
Mobile
Communi-
cations
Business
NT$
International
Fixed
Communi-
cations
Business
NT$
Internet
Business
NT$
(In Millions)
Others
NT$
Total
NT$
-
$
15
$
$
-
$ 64,230
$ 16,414
9,846
$
-
$
11
$
$
2
$ 79,593
$ 10,620
8,981
$
-
$
7
$
$
-
$ 13,160
3,626
$
2,718
$
-
$
6
$
$
-
$ 14,313
1,451
$
1,136
$
515
$
150
$
$
18
$ 10,094
374
$
836
$
515
$
189
$
$
20
$ 181,390
$ 32,485
$ 23,517
$
-
$
596
$
-
-
$
$
-
-
$
$
-
-
$
596
$
148
Share of the profit of associates and
joint ventures accounted for using
equity method
Interest income
Interest expenses
Operating costs and expenses
Depreciation and amortization
Capital expenditure
Impairment loss on property, plant
and equipment
Reversal of impairment loss on
investment properties
$
148
$
-
$
98
F
c. Main products and service revenues
The following is an analysis of the Company’s revenue from its major products and services.
Mobile services revenue
Local telephone and domestic long
distance telephone services revenue
Sales of product
Broadband access and domestic leased line
services revenue
Internet services revenue
International network and leased telephone
services revenue
Others
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
$ 77,469
$ 80,867
$ 78,788
38,905
34,795
23,681
17,241
11,951
22,567
36,690
36,509
23,711
17,455
11,319
25,244
34,531
35,377
23,315
20,906
10,634
26,440
$ 226,609
$ 231,795
$ 229,991
d. Geographic information
The users of the Company’s services are mainly from Taiwan, ROC. The revenues it derived
outside Taiwan are mainly revenues from international long distance telephone and leased line
services. The geographic information for revenues was as follows:
Taiwan, ROC
Overseas
2014
NT$
Year Ended December 31
2015
NT$
(In Millions)
2016
NT$
$ 216,173
10,436
$ 220,917
10,878
$ 218,933
11,058
$ 226,609
$ 231,795
$ 229,991
The Company has long-lived assets in U.S., Singapore, Hong Kong, China, Vietnam, and Japan and
except for $4,041 million and $3,947 million as of December 31, 2015 and 2016, respectively, in the
aforementioned areas, the other long-lived assets are located in Taiwan, ROC.
e. Major customers
For the years ended December 31, 2014, 2015 and 2016, the Company did not have any single
customer whose revenue exceeded 10% of the total revenues.
99
F
Articles of Incorporation of Chunghwa Telecom Co., Ltd.
Exhibit 1.2
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
All of 26 articles adopted by Promoters Meeting on June 11, 1996.
Article 15 amended by the Annual General Meeting on December 26, 1997.
Articles 2 and 22 amended by the Annual General Meeting on November 25, 1998.
Paragraph 1 of Article 21, amended by the Extraordinary General Meeting on July 13, 1999.
Articles 2, 3, 6, 7, 10, 12, 13, 19, 21, and 22 amended, and Articles 6-1 and 7-1 added by the Annual
General Meeting on June 4, 2001.
Articles 2, 7, 8, 9, 10, 19, 21, and 22 amended and Article 5 deleted by the Annual General Meeting on
June 21, 2002.
Article 2 amended by the Annual General Meeting on June 17, 2003.
Articles 2 and 22 amended by the Annual General Meeting on June 25, 2004.
Articles 2, 3, 6, 10, 11, 12, 14, 17, 19, 20, 22, 23, and 25 amended, and Articles 12-1, 18-1, and 18-2 added
by Annual General Meeting on May 30, 2006.
Articles 2, 12-1, 14, 22, and 23 amended, and Article 18-1 deleted by the Annual General Meeting on June
15, 2007.
Articles 2, 6, and 14 amended by the Annual General Meeting on June 19, 2008.
Articles 2, 6,12 and 13 amended, and Article 6-1 deleted by the Annual General Meeting on June 19, 2009.
Article 2 amended by the Annual General Meeting on June 18, 2010.
The title of Chapter IV and Articles 12, 12-1, 14, 19, 20, and 22 amended by the Annual General Meeting
on June 22, 2012.
The title of Chapter IV, Articles 2, 12, 13, 18-2, 21 and 22 amended; Articles 17 and 18 deleted, and
Article 13-1 added by the Annual General Meeting on June 25, 2013.
Articles 2 and 15 amended by the Annual General Meeting on June 24, 2014.
Articles 1, 2 and 7-1 amended by the Annual General Meeting on June 26, 2015.
Articles 2 and 22 amended, and Article 22-1 added by the Annual General Meeting on June 24, 2016.
Chapter I - General Provisions
Article 1 - The Company is promoted by the Ministry of Transportation and Communications ("MOTC") and
others and organized under the Telecommunication Law and the provisions of the Company Law
pertaining to companies limited by shares and is named "Chunghwa Telecom Co., Ltd."
The English name of the Company is "Chunghwa Telecom Co., Ltd."
Article 2 - The scope of business of the Company shall be as follows:
(1) Telecommunications Enterprise of Type 1 (G901011);
(2) Telecommunications Enterprise of Type 2 (G902011);
(3) Installation of the Computer Equipment Business (E605010);
(4) Telecommunication Equipment Wholesale Business (F113070);
(5) Telecommunication Equipment Retail Business (F213060);
(6) Telecommunication Engineering Business (E701010);
(7) Installation of the Radio-Frequency Equipment whose operation is controlled by the
Telecommunication Business (E701030);
(8) Information Software Service Business (I301010);
(9) Rental Business (JE01010);
(10) Other Wholesale Businesses【telephone card and IC card】(F199990);
(11) Management and Consulting Service Business (I103060);
(12) Other Corporation Service Businesses【telephone card, IC card, the research and development of
the telecommunication facilities and devices, accepting payment on behalf of businesses and
institutions, telecommunication equipment inspection services, and agency sale of entry tickets
and travel fares】(IZ99990);
(13) Other Retail Businesses【telephone card and IC card】(F299990);
1
(14) Online Certification Service Businesses (IZ13010);
(15) Supply of Electronic Information Service Businesses (I301030);
(16) Information Process Service Business (I301020);
(17) Telecommunication Account Application Agency Businesses (IE01010);
(18) Residential and Commercial Building Development, Rental and Sales Businesses (H701010);
(19) Development of Special District/Zone Businesses (H701040);
(20) Real Estate Rental Businesses (H703100);
(21) Community Common Cable Television Equipment Businesses (J502020);
(22) Exhibition Service Businesses (JB01010);
(23) Parking Lot Operation Businesses (G202010);
(24) Environmental Assessment Service Businesses (J101050);
(25) Computer and Accessories Manufacturing Service (CC01110);
(26) Information Storage and Process Equipment Manufacturing Businesses (CC01120);
(27) Other Electrical and Electronic Machinery & Equipment Manufacturing Businesses 【IC or
Optical Card Scanners】(CC01990);
(28) Radio-Frequency Equipment Import Business (F401021);
(29) General Hotel Business (J901020);
(30) Computer and Administrative Device Wholesale Businesses (F113050);
(31) Information Software Wholesale Businesses (F118010);
(32) Computer and Administrative Device Retail Businesses (F213030);
(33) Information Software Rental Businesses (F218010);
(34) Energy Service Business (IG03010);
(35) Engineering Consulting Business (I101061);
(36) Refrigeration and Air-Conditioning Consulting Business (E602011);
(37) Automatic Control Equipment Engineering Business (E603050);
(38) Lighting Equipment Installation Business (E603090);
(39) Non-store Retailer Business (F399040);
(40) Power Equipment Installation and Maintenance Business (E601010) ;
(41) Electrical Appliance Installation Business (E601020) ;
(42) Instrument Installation Engineering Business (EZ05010) ;
(43) Television Program Production Business (J503021) ;
(44) Broadcasting and Television Program Launch Business (J503031) ;
(45) Broadcasting and Television Advertising Business (J503041) ;
(46) Production, Licensed Recording and Supply of Videotape Program Business (J503051) ;
(47) The Third Party Payment Business (I301040);
(48) Water Pipe Construction Business (E501011);
(49) Machinery and Equipment Manufacturing (CB01010);
(50) Except the permitted business, the Company may engage in other businesses not prohibited or
restricted by laws and regulations (ZZ99999).
The Company may handle endorsement and guaranty affairs in accordance with the Operation
Procedures for the Endorsement and Guaranty of the Company if there is any business needs.
Article 3 -
In the event that the Company invests in another business as a limited-liability shareholder, the total
investment amount may not exceed the total paid-in capital of the Company. Investment not related
to telecommunications may not exceed 20% of the total paid-in capital of the Company.
Article 4 - The head office of the Company is located in Taipei City and the Company may establish branch
office(s) and liaison office(s) at appropriate locations within or outside the territory of the Republic of
China.
Article 5 -
(Deleted)
Articles of Incorporation of Chunghwa Telecom Co., Ltd.
Exhibit 1.2
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
All of 26 articles adopted by Promoters Meeting on June 11, 1996.
Article 15 amended by the Annual General Meeting on December 26, 1997.
Articles 2 and 22 amended by the Annual General Meeting on November 25, 1998.
Paragraph 1 of Article 21, amended by the Extraordinary General Meeting on July 13, 1999.
Articles 2, 3, 6, 7, 10, 12, 13, 19, 21, and 22 amended, and Articles 6-1 and 7-1 added by the Annual
Articles 2, 7, 8, 9, 10, 19, 21, and 22 amended and Article 5 deleted by the Annual General Meeting on
General Meeting on June 4, 2001.
June 21, 2002.
Article 2 amended by the Annual General Meeting on June 17, 2003.
Articles 2 and 22 amended by the Annual General Meeting on June 25, 2004.
Articles 2, 3, 6, 10, 11, 12, 14, 17, 19, 20, 22, 23, and 25 amended, and Articles 12-1, 18-1, and 18-2 added
by Annual General Meeting on May 30, 2006.
Articles 2, 12-1, 14, 22, and 23 amended, and Article 18-1 deleted by the Annual General Meeting on June
15, 2007.
on June 22, 2012.
Articles 2, 6, and 14 amended by the Annual General Meeting on June 19, 2008.
Articles 2, 6,12 and 13 amended, and Article 6-1 deleted by the Annual General Meeting on June 19, 2009.
Article 2 amended by the Annual General Meeting on June 18, 2010.
The title of Chapter IV and Articles 12, 12-1, 14, 19, 20, and 22 amended by the Annual General Meeting
The title of Chapter IV, Articles 2, 12, 13, 18-2, 21 and 22 amended; Articles 17 and 18 deleted, and
Article 13-1 added by the Annual General Meeting on June 25, 2013.
Articles 2 and 15 amended by the Annual General Meeting on June 24, 2014.
Articles 1, 2 and 7-1 amended by the Annual General Meeting on June 26, 2015.
Articles 2 and 22 amended, and Article 22-1 added by the Annual General Meeting on June 24, 2016.
Chapter I - General Provisions
Article 1 - The Company is promoted by the Ministry of Transportation and Communications ("MOTC") and
others and organized under the Telecommunication Law and the provisions of the Company Law
pertaining to companies limited by shares and is named "Chunghwa Telecom Co., Ltd."
The English name of the Company is "Chunghwa Telecom Co., Ltd."
Article 2 - The scope of business of the Company shall be as follows:
(1) Telecommunications Enterprise of Type 1 (G901011);
(2) Telecommunications Enterprise of Type 2 (G902011);
(3) Installation of the Computer Equipment Business (E605010);
(4) Telecommunication Equipment Wholesale Business (F113070);
(5) Telecommunication Equipment Retail Business (F213060);
(6) Telecommunication Engineering Business (E701010);
(7) Installation of the Radio-Frequency Equipment whose operation is controlled by the
Telecommunication Business (E701030);
(8) Information Software Service Business (I301010);
(9) Rental Business (JE01010);
(10) Other Wholesale Businesses【telephone card and IC card】(F199990);
(11) Management and Consulting Service Business (I103060);
(12) Other Corporation Service Businesses【telephone card, IC card, the research and development of
the telecommunication facilities and devices, accepting payment on behalf of businesses and
institutions, telecommunication equipment inspection services, and agency sale of entry tickets
and travel fares】(IZ99990);
(13) Other Retail Businesses【telephone card and IC card】(F299990);
1
(14) Online Certification Service Businesses (IZ13010);
(15) Supply of Electronic Information Service Businesses (I301030);
(16) Information Process Service Business (I301020);
(17) Telecommunication Account Application Agency Businesses (IE01010);
(18) Residential and Commercial Building Development, Rental and Sales Businesses (H701010);
(19) Development of Special District/Zone Businesses (H701040);
(20) Real Estate Rental Businesses (H703100);
(21) Community Common Cable Television Equipment Businesses (J502020);
(22) Exhibition Service Businesses (JB01010);
(23) Parking Lot Operation Businesses (G202010);
(24) Environmental Assessment Service Businesses (J101050);
(25) Computer and Accessories Manufacturing Service (CC01110);
(26) Information Storage and Process Equipment Manufacturing Businesses (CC01120);
(27) Other Electrical and Electronic Machinery & Equipment Manufacturing Businesses 【IC or
Optical Card Scanners】(CC01990);
(28) Radio-Frequency Equipment Import Business (F401021);
(29) General Hotel Business (J901020);
(30) Computer and Administrative Device Wholesale Businesses (F113050);
(31) Information Software Wholesale Businesses (F118010);
(32) Computer and Administrative Device Retail Businesses (F213030);
(33) Information Software Rental Businesses (F218010);
(34) Energy Service Business (IG03010);
(35) Engineering Consulting Business (I101061);
(36) Refrigeration and Air-Conditioning Consulting Business (E602011);
(37) Automatic Control Equipment Engineering Business (E603050);
(38) Lighting Equipment Installation Business (E603090);
(39) Non-store Retailer Business (F399040);
(40) Power Equipment Installation and Maintenance Business (E601010) ;
(41) Electrical Appliance Installation Business (E601020) ;
(42) Instrument Installation Engineering Business (EZ05010) ;
(43) Television Program Production Business (J503021) ;
(44) Broadcasting and Television Program Launch Business (J503031) ;
(45) Broadcasting and Television Advertising Business (J503041) ;
(46) Production, Licensed Recording and Supply of Videotape Program Business (J503051) ;
(47) The Third Party Payment Business (I301040);
(48) Water Pipe Construction Business (E501011);
(49) Machinery and Equipment Manufacturing (CB01010);
(50) Except the permitted business, the Company may engage in other businesses not prohibited or
restricted by laws and regulations (ZZ99999).
The Company may handle endorsement and guaranty affairs in accordance with the Operation
Procedures for the Endorsement and Guaranty of the Company if there is any business needs.
Article 3 -
In the event that the Company invests in another business as a limited-liability shareholder, the total
investment amount may not exceed the total paid-in capital of the Company. Investment not related
to telecommunications may not exceed 20% of the total paid-in capital of the Company.
Article 4 - The head office of the Company is located in Taipei City and the Company may establish branch
office(s) and liaison office(s) at appropriate locations within or outside the territory of the Republic of
China.
Article 5 -
(Deleted)
Chapter II - Shares
Article 6 - The registered capital of the Company shall be One Hundred Twenty Billion New Taiwan Dollars
(NT$120,000,000,000), divided into Twelve Billion (12,000,000,000) common shares with a par value
of Ten New Taiwan Dollars (NT$10) per share. All the shares shall be issued in increments.
Two Hundred Million shares shall be set aside from the aforementioned common shares for the use as
Stock Warrants, Preferred Shares with Warrants, and Bonds with Warrants.
For issuance of Stock Warrants where the price is less than the closing price of the Company shares on
the date of issuance, or where the price of the treasury stocks to be transferred to the employees is less
than the average price of the repurchased shares, shareholders representing the majority of the issued
shares shall be present and approval by at least 2/3 of the presenting shareholders shall be required.
Article 6-1 -
(Deleted)
Article 7 - The share certificates of the Company shall bear the shareholders' names, be signed or sealed by the
Chairman and at least two other directors, be serially numbered, affixed with the corporate seal of the
Company, and legalized by the Ministry of Economic Affairs ("MOEA") (hereinafter referred to as the
"Competent Authority") or its certified issuance registration agency before they are issued in
accordance with the relevant laws.
When issuing new shares, the Company may print a share certificate in respect of the full number of
shares to be issued at that time, and shall arrange for the certificate to be kept by a centralized
securities custodian institution, in which case the preceding requirement for serial numbering of share
certificates shall not apply.
Shares issued by the Company may also be exempt from printing of share certificates, and the
Company shall arrange for such shares to be recorded by a centralized securities custodian institution,
in which case the preceding 2 paragraphs shall not apply.
Any affair with regard to the shares of the Company shall be handled in accordance with the
Guidelines for Handling Stock Affairs by a Public Issuing Company.
Article 7-1 -The stocks issued by the Company, upon the request of the centralized securities custodian institution,
may be merged in exchange for the security with large par value.
Chapter III - Shareholders' Meeting
Article 8 - Shareholders' meetings shall be of two types: annual general meeting and extraordinary general
meeting. Except as otherwise provided in the Company Law, shareholders' meetings shall be
convened by the Board of Directors.
The annual general meeting shall be convened at least once every year and shall be convened within
six (6) months after the close of each fiscal year except as otherwise approved by the Competent
Authority for good cause shown.
The extraordinary general meeting shall be convened at such time as may be deemed necessary
pursuant to relevant laws and regulations.
Article 9 - Where a shareholders’ meeting is convened by the Board of Directors, the chairman of the Company
shall act as the chairman of the shareholders' meeting. In the event that the chairman is to be on leave
of absence or cannot attend the meeting for any cause whatsoever, the vice-chairman, or where the
chairman and the vice-chairman are both to be on leave of absence or cannot attend the meeting for
any cause whatsoever, one of the directors appointed by the chairman, or, where there is no
appointment, a director elected among all the directors, may act on behalf of the chairman.
Where a shareholders’ meeting is convened by a person with authority other than the Board of
Directors, such convener shall act as the chairman of the shareholders’ meeting. Where there are two
(2) or more conveners, the chairman of the meeting shall be elected amongst such conveners.
Article 10 - Unless otherwise specified by the law, each shareholder of the Company shall be entitled to one vote
for each share held.
Article 11 - (Deleted)
Chapter IV – Directors and Audit Committee
Article 12 - The Company shall have seven (7) to fifteen (15) directors to form the Board of Directors, one-fifth
(1/5) of whom shall be expert representatives.
The Board of Directors shall have one (1) chairman elected by and from among the directors with the
concurrence of a general majority of the directors present at a meeting attended by at least two-thirds
(2/3) of the directors and shall have one (1) vice-chairman elected in the same way.
The Board of Directors may establish various functional committees according to the laws and
regulations or business needs.
The Company shall establish an audit committee starting from the 7th Board of Directors. The
provisions related to supervisors under the Company Act, Securities and Exchange Act and other laws
shall apply mutatis mutandis to the audit committee.
Article 12-1- In accordance with Articles 181-2 and 183 of the Securities and Exchange Act, the Company shall,
beginning in the fifth commencement, establish at least three (3) independent directors to be included
in the number of directors designated in the preceding Article.
The elections for directors of the Company shall proceed with the candidate nomination system; the
shareholders shall elect the directors from among the nominees listed in the roster of candidates.
Elections for independent and non-independent directors shall proceed concurrently, and the number of
elected directors shall be calculated separately.
The professional qualifications, restrictions on shareholding and concurrent post, affirmation of
independence, nomination and election processes, exercise of authority and other requirements of
independent directors shall be determined and executed in accordance with the Securities and
Exchange Law and related regulations.
Article 13- The tenure of office of the directors will be three (3) years and they will be eligible for re-election.
In the event that the representative of a government or corporate body is elected as the director, the
government or corporate body may reappoint such representative at any time to supplement the
original tenure.
Article 13-1- The remuneration and compensation of the directors shall be determined by the Board of Directors
based on the participation and the contribution of each director in the business operation of the
Company and referencing the regular standards of other corporations in the similar industry.
Article 14 - The following items shall be decided by the Board of Directors:
Chapter II - Shares
Article 6 - The registered capital of the Company shall be One Hundred Twenty Billion New Taiwan Dollars
(NT$120,000,000,000), divided into Twelve Billion (12,000,000,000) common shares with a par value
of Ten New Taiwan Dollars (NT$10) per share. All the shares shall be issued in increments.
Two Hundred Million shares shall be set aside from the aforementioned common shares for the use as
Stock Warrants, Preferred Shares with Warrants, and Bonds with Warrants.
For issuance of Stock Warrants where the price is less than the closing price of the Company shares on
the date of issuance, or where the price of the treasury stocks to be transferred to the employees is less
than the average price of the repurchased shares, shareholders representing the majority of the issued
shares shall be present and approval by at least 2/3 of the presenting shareholders shall be required.
Article 6-1 -
(Deleted)
Article 7 - The share certificates of the Company shall bear the shareholders' names, be signed or sealed by the
Chairman and at least two other directors, be serially numbered, affixed with the corporate seal of the
Company, and legalized by the Ministry of Economic Affairs ("MOEA") (hereinafter referred to as the
"Competent Authority") or its certified issuance registration agency before they are issued in
accordance with the relevant laws.
When issuing new shares, the Company may print a share certificate in respect of the full number of
shares to be issued at that time, and shall arrange for the certificate to be kept by a centralized
securities custodian institution, in which case the preceding requirement for serial numbering of share
certificates shall not apply.
Shares issued by the Company may also be exempt from printing of share certificates, and the
Company shall arrange for such shares to be recorded by a centralized securities custodian institution,
in which case the preceding 2 paragraphs shall not apply.
Any affair with regard to the shares of the Company shall be handled in accordance with the
Guidelines for Handling Stock Affairs by a Public Issuing Company.
Article 7-1 -The stocks issued by the Company, upon the request of the centralized securities custodian institution,
may be merged in exchange for the security with large par value.
Chapter III - Shareholders' Meeting
Article 8 - Shareholders' meetings shall be of two types: annual general meeting and extraordinary general
meeting. Except as otherwise provided in the Company Law, shareholders' meetings shall be
convened by the Board of Directors.
The annual general meeting shall be convened at least once every year and shall be convened within
six (6) months after the close of each fiscal year except as otherwise approved by the Competent
Authority for good cause shown.
The extraordinary general meeting shall be convened at such time as may be deemed necessary
pursuant to relevant laws and regulations.
Article 9 - Where a shareholders’ meeting is convened by the Board of Directors, the chairman of the Company
shall act as the chairman of the shareholders' meeting. In the event that the chairman is to be on leave
of absence or cannot attend the meeting for any cause whatsoever, the vice-chairman, or where the
chairman and the vice-chairman are both to be on leave of absence or cannot attend the meeting for
any cause whatsoever, one of the directors appointed by the chairman, or, where there is no
appointment, a director elected among all the directors, may act on behalf of the chairman.
Where a shareholders’ meeting is convened by a person with authority other than the Board of
Directors, such convener shall act as the chairman of the shareholders’ meeting. Where there are two
(2) or more conveners, the chairman of the meeting shall be elected amongst such conveners.
Article 10 - Unless otherwise specified by the law, each shareholder of the Company shall be entitled to one vote
for each share held.
Article 11 - (Deleted)
Chapter IV – Directors and Audit Committee
Article 12 - The Company shall have seven (7) to fifteen (15) directors to form the Board of Directors, one-fifth
(1/5) of whom shall be expert representatives.
The Board of Directors shall have one (1) chairman elected by and from among the directors with the
concurrence of a general majority of the directors present at a meeting attended by at least two-thirds
(2/3) of the directors and shall have one (1) vice-chairman elected in the same way.
The Board of Directors may establish various functional committees according to the laws and
regulations or business needs.
The Company shall establish an audit committee starting from the 7th Board of Directors. The
provisions related to supervisors under the Company Act, Securities and Exchange Act and other laws
shall apply mutatis mutandis to the audit committee.
Article 12-1- In accordance with Articles 181-2 and 183 of the Securities and Exchange Act, the Company shall,
beginning in the fifth commencement, establish at least three (3) independent directors to be included
in the number of directors designated in the preceding Article.
The elections for directors of the Company shall proceed with the candidate nomination system; the
shareholders shall elect the directors from among the nominees listed in the roster of candidates.
Elections for independent and non-independent directors shall proceed concurrently, and the number of
elected directors shall be calculated separately.
The professional qualifications, restrictions on shareholding and concurrent post, affirmation of
independence, nomination and election processes, exercise of authority and other requirements of
independent directors shall be determined and executed in accordance with the Securities and
Exchange Law and related regulations.
Article 13- The tenure of office of the directors will be three (3) years and they will be eligible for re-election.
In the event that the representative of a government or corporate body is elected as the director, the
government or corporate body may reappoint such representative at any time to supplement the
original tenure.
Article 13-1- The remuneration and compensation of the directors shall be determined by the Board of Directors
based on the participation and the contribution of each director in the business operation of the
Company and referencing the regular standards of other corporations in the similar industry.
Article 14 - The following items shall be decided by the Board of Directors:
the Republic of China.
the Republic of China.
(1) Increase or reduction of capital of the Company.
(2) Regulations with regard to the organization of the Company.
(3) Establishment, amendment, and abolishment of the branch offices within or outside the territory of
(1) Increase or reduction of capital of the Company.
(2) Regulations with regard to the organization of the Company.
(4) Examination of annual business budgets and final closing report.
(3) Establishment, amendment, and abolishment of the branch offices within or outside the territory of
(1) Increase or reduction of capital of the Company.
(5) Distribution of earnings or off-set of deficit.
(2) Regulations with regard to the organization of the Company.
(6) The amount and term of domestic and foreign loan.
(4) Examination of annual business budgets and final closing report.
(3) Establishment, amendment, and abolishment of the branch offices within or outside the territory of
(7) The amount of Investment.
(5) Distribution of earnings or off-set of deficit.
the Republic of China.
(8) Issuance of corporate bonds.
(6) The amount and term of domestic and foreign loan.
(4) Examination of annual business budgets and final closing report.
(9) Policies regarding personnel matters, material purchase, accounting, and internal control.
(7) The amount of Investment.
(5) Distribution of earnings or off-set of deficit.
(10) Amendment and modifications of regulations of organization of the Board of Directors and the
(8) Issuance of corporate bonds.
(6) The amount and term of domestic and foreign loan.
functional committee.
(9) Policies regarding personnel matters, material purchase, accounting, and internal control.
(7) The amount of Investment.
(11) Amendment and modification of regulations with regard to the scope of duties of independent
(10) Amendment and modifications of regulations of organization of the Board of Directors and the
(8) Issuance of corporate bonds.
directors.
functional committee.
(9) Policies regarding personnel matters, material purchase, accounting, and internal control.
(12) Appointment and removal of the president, executive vice presidents, presidents of branch offices,
(11) Amendment and modification of regulations with regard to the scope of duties of independent
(10) Amendment and modifications of regulations of organization of the Board of Directors and the
president of Telecommunication Laboratories, and president of Telecommunication Training
directors.
functional committee.
Institute.
(12) Appointment and removal of the president, executive vice presidents, presidents of branch offices,
(11) Amendment and modification of regulations with regard to the scope of duties of independent
(13) Appointment and removal of the chiefs of finance, accounting and internal audit.
president of Telecommunication Laboratories, and president of Telecommunication Training
directors.
(14) The remuneration standard for employees.
Institute.
(12) Appointment and removal of the president, executive vice presidents, presidents of branch offices,
(15) Policies regarding recommendation of chairman and president to subsidiaries.
(13) Appointment and removal of the chiefs of finance, accounting and internal audit.
president of Telecommunication Laboratories, and president of Telecommunication Training
(16) Other duties and powers granted by the law or by shareholders’ meeting.
(14) The remuneration standard for employees.
Institute.
(15) Policies regarding recommendation of chairman and president to subsidiaries.
(13) Appointment and removal of the chiefs of finance, accounting and internal audit.
Article 15 - The Board of Directors' meeting shall be convened at least one time a quarter. The special Board of
(16) Other duties and powers granted by the law or by shareholders’ meeting.
(14) The remuneration standard for employees.
Directors' meeting shall be convened at such time as may be deemed necessary. Both meetings shall
(15) Policies regarding recommendation of chairman and president to subsidiaries.
be convened by the chairman of the Company and such chairman shall act as the chairman of the
Article 15 - The Board of Directors' meeting shall be convened at least one time a quarter. The special Board of
(16) Other duties and powers granted by the law or by shareholders’ meeting.
meeting. In the event that the chairman cannot attend the meeting for any cause whatsoever, the
Directors' meeting shall be convened at such time as may be deemed necessary. Both meetings shall
vice-chairman, or where the chairman and the vice-chairman are both to be on leave of absence or
be convened by the chairman of the Company and such chairman shall act as the chairman of the
Article 15 - The Board of Directors' meeting shall be convened at least one time a quarter. The special Board of
cannot attend the meeting for any cause whatsoever, one of the directors appointed by the chairman,
meeting. In the event that the chairman cannot attend the meeting for any cause whatsoever, the
Directors' meeting shall be convened at such time as may be deemed necessary. Both meetings shall
or, where there is no appointment, a director elected among all the directors, may act on behalf of the
vice-chairman, or where the chairman and the vice-chairman are both to be on leave of absence or
be convened by the chairman of the Company and such chairman shall act as the chairman of the
chairman.
cannot attend the meeting for any cause whatsoever, one of the directors appointed by the chairman,
meeting. In the event that the chairman cannot attend the meeting for any cause whatsoever, the
or, where there is no appointment, a director elected among all the directors, may act on behalf of the
vice-chairman, or where the chairman and the vice-chairman are both to be on leave of absence or
chairman.
Article 16 - All directors shall attend every Board of Directors' meeting; in case any of the directors cannot attend
cannot attend the meeting for any cause whatsoever, one of the directors appointed by the chairman,
the meeting for any cause whatsoever, he/she may designate the other directors to act on his/her behalf
or, where there is no appointment, a director elected among all the directors, may act on behalf of the
and such agent shall present the proxy setting forth the vested power of the purpose of the meeting
Article 16 - All directors shall attend every Board of Directors' meeting; in case any of the directors cannot attend
chairman.
each time. However, each agent shall only accept one appointment from the directors.
the meeting for any cause whatsoever, he/she may designate the other directors to act on his/her behalf
and such agent shall present the proxy setting forth the vested power of the purpose of the meeting
Article 16 - All directors shall attend every Board of Directors' meeting; in case any of the directors cannot attend
each time. However, each agent shall only accept one appointment from the directors.
the meeting for any cause whatsoever, he/she may designate the other directors to act on his/her behalf
Except as otherwise provided in the relevant laws or this Articles of Incorporation, any resolution of a
and such agent shall present the proxy setting forth the vested power of the purpose of the meeting
Board of Directors' meeting shall be adopted at a meeting which at least general majority of the
each time. However, each agent shall only accept one appointment from the directors.
directors attend and at which meeting a general majority of the directors present vote in favor of such
Except as otherwise provided in the relevant laws or this Articles of Incorporation, any resolution of a
resolution.
Board of Directors' meeting shall be adopted at a meeting which at least general majority of the
directors attend and at which meeting a general majority of the directors present vote in favor of such
Except as otherwise provided in the relevant laws or this Articles of Incorporation, any resolution of a
resolution.
Minutes of meetings shall be prepared for all resolutions adopted at a Board of Directors' meeting.
Board of Directors' meeting shall be adopted at a meeting which at least general majority of the
directors attend and at which meeting a general majority of the directors present vote in favor of such
Minutes of meetings shall be prepared for all resolutions adopted at a Board of Directors' meeting.
resolution.
Article 17 - (deleted).
Article 17 - (deleted).
Article 18 - (deleted).
Minutes of meetings shall be prepared for all resolutions adopted at a Board of Directors' meeting.
Article 18 - (deleted).
Article 18-1- (deleted).
Article 17 - (deleted).
Article 18-1- (deleted).
Article 18-2- The Company may purchase liability insurance policies for directors during the term of their offices
Article 18 - (deleted).
and within the scope of damages results from the performances of their official duties in order to
reduce and disperse the risks for the Company and shareholders due to the fault, mistake, violation of
Article 18-2- The Company may purchase liability insurance policies for directors during the term of their offices
Article 18-1- (deleted).
duty, and inaccurate or misleading statements on part of the directors during the performance of their
and within the scope of damages results from the performances of their official duties in order to
duties.
reduce and disperse the risks for the Company and shareholders due to the fault, mistake, violation of
Article 18-2- The Company may purchase liability insurance policies for directors during the term of their offices
duty, and inaccurate or misleading statements on part of the directors during the performance of their
and within the scope of damages results from the performances of their official duties in order to
duties.
reduce and disperse the risks for the Company and shareholders due to the fault, mistake, violation of
duty, and inaccurate or misleading statements on part of the directors during the performance of their
duties.
Chapter V - Managerial Officers
Article 19 - The Company shall have one (1) chief executive officer, to be served as a concurrent post by the
chairman or by the president, to lead the managers in proposing and making significant policy
decisions regarding to the Company and all affiliates of the Company.
The Company shall have one (1) president, several executive vice presidents and presidents of branch
offices, and one (1) president for each of Telecommunication Laboratories and Telecommunication
Training Institute.
The president shall be a director with professional knowledge in telecommunication business.
Article 20 - The president shall, in accordance with the decision made by the Board of Directors and with
instruction from the chief executive officer, take charge of the affairs of the Company, and shall have
the authority to sign on behalf of the Company; the executive vice presidents, presidents of branch
offices, president of Telecommunication Laboratories, and president of Telecommunication Training
Institute shall assist the president in all affairs, and shall have the power to sign on behalf of the
Company within the scope set by rules decided by the president or authorized in writing by the
president.
The division of powers and duties between the Board of Directors and the president shall be
determined in accordance with the Powers and Duties Chart.
Chapter VI - Accounting
Article 21 - The fiscal year of the Company shall be from January 1 to December 31 of each year.
At the end of each fiscal year, the Board of Directors shall prepare the following statements and
reports, and shall submit the same to the annual general meeting for adoption according to the relevant
legal procedures.
Report of Operations;
Financial statements;
(1)
(2)
(3)
Resolution governing the distribution of earnings or the making-up of losses.
Article 22 - In annual profit-making year, the Company should distribute 1.7% - 4.3% of profit as employees’
compensation, and not more than 0.17% of profit should be distributed as Directors' compensation,
however, that if the Company has any accumulated losses, an amount to offset should be reserved in
advance.
The Company should by a resolution adopted by a majority vote at a meeting of the Board of
Directors attended by two-thirds of the total number of directors, have the profit distributable as
employees’ compensation in the preceding paragraph distributed in the form of share or in cash; and
report at the General Meeting of shareholders.
The provisions in the two preceding Paragraphs have retrospective effect and should apply to the
determination of compensation to employees and Directors for the fiscal year of 2015.
Article 22-1- After the Company has paid all taxes due at the end of each fiscal year, the Company shall make up its
accumulated losses and set aside ten percent (10 %) earning as a statutory revenue reserve before
distribution of earnings, except when the accumulated amount of such legal reserve equals to the
Company's total authorized capital. The Company may also set aside or reverse special reserve(s)
according to the business needs or laws and regulations. A minimum of fifty percent (50%) of the
total amount of the remaining amount, along with the accumulated retained earnings from the previous
year, shall be distributed to shareholders. Cash dividends shall not be less than fifty percent (50%) of
(1) Increase or reduction of capital of the Company.
(2) Regulations with regard to the organization of the Company.
the Republic of China.
(4) Examination of annual business budgets and final closing report.
(5) Distribution of earnings or off-set of deficit.
(6) The amount and term of domestic and foreign loan.
(7) The amount of Investment.
(8) Issuance of corporate bonds.
(9) Policies regarding personnel matters, material purchase, accounting, and internal control.
(10) Amendment and modifications of regulations of organization of the Board of Directors and the
functional committee.
directors.
Institute.
(12) Appointment and removal of the president, executive vice presidents, presidents of branch offices,
president of Telecommunication Laboratories, and president of Telecommunication Training
(13) Appointment and removal of the chiefs of finance, accounting and internal audit.
(14) The remuneration standard for employees.
(15) Policies regarding recommendation of chairman and president to subsidiaries.
(16) Other duties and powers granted by the law or by shareholders’ meeting.
Article 15 - The Board of Directors' meeting shall be convened at least one time a quarter. The special Board of
Directors' meeting shall be convened at such time as may be deemed necessary. Both meetings shall
be convened by the chairman of the Company and such chairman shall act as the chairman of the
meeting. In the event that the chairman cannot attend the meeting for any cause whatsoever, the
vice-chairman, or where the chairman and the vice-chairman are both to be on leave of absence or
cannot attend the meeting for any cause whatsoever, one of the directors appointed by the chairman,
or, where there is no appointment, a director elected among all the directors, may act on behalf of the
chairman.
Article 16 - All directors shall attend every Board of Directors' meeting; in case any of the directors cannot attend
the meeting for any cause whatsoever, he/she may designate the other directors to act on his/her behalf
and such agent shall present the proxy setting forth the vested power of the purpose of the meeting
each time. However, each agent shall only accept one appointment from the directors.
Except as otherwise provided in the relevant laws or this Articles of Incorporation, any resolution of a
Board of Directors' meeting shall be adopted at a meeting which at least general majority of the
directors attend and at which meeting a general majority of the directors present vote in favor of such
resolution.
Minutes of meetings shall be prepared for all resolutions adopted at a Board of Directors' meeting.
Article 17 - (deleted).
Article 18 - (deleted).
Article 18-1- (deleted).
Article 18-2- The Company may purchase liability insurance policies for directors during the term of their offices
and within the scope of damages results from the performances of their official duties in order to
reduce and disperse the risks for the Company and shareholders due to the fault, mistake, violation of
duty, and inaccurate or misleading statements on part of the directors during the performance of their
duties.
(3) Establishment, amendment, and abolishment of the branch offices within or outside the territory of
Article 19 - The Company shall have one (1) chief executive officer, to be served as a concurrent post by the
Chapter V - Managerial Officers
chairman or by the president, to lead the managers in proposing and making significant policy
decisions regarding to the Company and all affiliates of the Company.
The Company shall have one (1) president, several executive vice presidents and presidents of branch
offices, and one (1) president for each of Telecommunication Laboratories and Telecommunication
Training Institute.
The president shall be a director with professional knowledge in telecommunication business.
(11) Amendment and modification of regulations with regard to the scope of duties of independent
Article 20 - The president shall, in accordance with the decision made by the Board of Directors and with
instruction from the chief executive officer, take charge of the affairs of the Company, and shall have
the authority to sign on behalf of the Company; the executive vice presidents, presidents of branch
offices, president of Telecommunication Laboratories, and president of Telecommunication Training
Institute shall assist the president in all affairs, and shall have the power to sign on behalf of the
Company within the scope set by rules decided by the president or authorized in writing by the
president.
The division of powers and duties between the Board of Directors and the president shall be
determined in accordance with the Powers and Duties Chart.
Chapter VI - Accounting
Article 21 - The fiscal year of the Company shall be from January 1 to December 31 of each year.
At the end of each fiscal year, the Board of Directors shall prepare the following statements and
reports, and shall submit the same to the annual general meeting for adoption according to the relevant
legal procedures.
(1)
(2)
(3)
Report of Operations;
Financial statements;
Resolution governing the distribution of earnings or the making-up of losses.
Article 22 - In annual profit-making year, the Company should distribute 1.7% - 4.3% of profit as employees’
compensation, and not more than 0.17% of profit should be distributed as Directors' compensation,
however, that if the Company has any accumulated losses, an amount to offset should be reserved in
advance.
The Company should by a resolution adopted by a majority vote at a meeting of the Board of
Directors attended by two-thirds of the total number of directors, have the profit distributable as
employees’ compensation in the preceding paragraph distributed in the form of share or in cash; and
report at the General Meeting of shareholders.
The provisions in the two preceding Paragraphs have retrospective effect and should apply to the
determination of compensation to employees and Directors for the fiscal year of 2015.
Article 22-1- After the Company has paid all taxes due at the end of each fiscal year, the Company shall make up its
accumulated losses and set aside ten percent (10 %) earning as a statutory revenue reserve before
distribution of earnings, except when the accumulated amount of such legal reserve equals to the
Company's total authorized capital. The Company may also set aside or reverse special reserve(s)
according to the business needs or laws and regulations. A minimum of fifty percent (50%) of the
total amount of the remaining amount, along with the accumulated retained earnings from the previous
year, shall be distributed to shareholders. Cash dividends shall not be less than fifty percent (50%) of
the total dividends, but when the cash dividends fall below NT$0.1 per share, dividends may be
distributed in the form of shares.
The percentage of distribution stipulated in the preceding paragraph shall take actual profitability of
the year, capital budgeting, and status of finance into consideration, and shall be executed following a
resolution of shareholders’ meeting.
Dividends and bonuses shall not be distributed where the Company has no earning.
Where the Company has no loss, it may distribute the capital reserve derived from the income of
issuance of new shares at a premium, in whole or in part, by issuing new shares or by cash to
shareholders in proportion to the number of their existing shares being held by each of them.
Article 23 - In the event that the Company issues new shares, excluding ad hoc ratification by the central
competent authority, the Company shall reserve ten percent (10%) to fifteen percent (15%) of the total
newly issued shares for preemptive subscription by employees of the Company.
Chapter VII - Supplementary Provisions
Article 24 - The regulations with regard to the organization of the Board of Directors and the Company shall be
separately adopted.
Article 25 - Matters not specified herein shall be resolved in accordance with the Company Law.
Article 26 - This Articles of Incorporation was adopted on June 11, 1996.
the total dividends, but when the cash dividends fall below NT$0.1 per share, dividends may be
distributed in the form of shares.
The percentage of distribution stipulated in the preceding paragraph shall take actual profitability of
the year, capital budgeting, and status of finance into consideration, and shall be executed following a
resolution of shareholders’ meeting.
Dividends and bonuses shall not be distributed where the Company has no earning.
Where the Company has no loss, it may distribute the capital reserve derived from the income of
issuance of new shares at a premium, in whole or in part, by issuing new shares or by cash to
shareholders in proportion to the number of their existing shares being held by each of them.
Article 23 - In the event that the Company issues new shares, excluding ad hoc ratification by the central
competent authority, the Company shall reserve ten percent (10%) to fifteen percent (15%) of the total
newly issued shares for preemptive subscription by employees of the Company.
Chapter VII - Supplementary Provisions
Article 24 - The regulations with regard to the organization of the Board of Directors and the Company shall be
separately adopted.
Article 25 - Matters not specified herein shall be resolved in accordance with the Company Law.
Article 26 - This Articles of Incorporation was adopted on June 11, 1996.
LIST OF SUBSIDIARIES
(as of March 31, 2017)
Exhibit 8.1
NAME OF ENTITY
JURISDICTION OF INCORPORATION
CHIEF Telecom Inc.
Taiwan, ROC
Chunghwa International Yellow Pages Co., Ltd.
Taiwan, ROC
Chunghwa Investment Co., Ltd.
Taiwan, ROC
Chunghwa Precision Test Tech. Co., Ltd.
Taiwan, ROC
Chunghwa System Integration Co., Ltd.
Taiwan, ROC
Light Era Development Co., Ltd.
Senao International Co., Ltd.
Spring House Entertainment Tech. Inc.
Unigate Telecom Inc.
Honghwa International Co., Ltd. (formerly known as
Honghwa Human Resources Co., Ltd.)
Taiwan, ROC
Taiwan, ROC
Taiwan, ROC
Taiwan, ROC
Taiwan, ROC
New Prospect Investments Holdings Ltd.
British Virgin Islands
Prime Asia Investments Group Ltd.
British Virgin Islands
Concord Technology Co., Ltd.
Donghwa Telecom Co., Ltd.
Senao International HK Limited
Chunghwa Hsingta Co., Ltd.
Chunghwa Telecom Japan Co., Ltd.
CHPT Japan Co., Ltd.
Brunei
Hong Kong
Hong Kong
Hong Kong
Japan
Japan
Chief International Corp.
Samoa Islands
Senao International (Samoa) Holding Ltd.
Samoa Islands
Chunghwa Precision Test Tech. International, Ltd.
Samoa Islands
Glory Network System Service (Shanghai) Co., Ltd.
People’s Republic of China
Chunghwa Telecom (China), Co., Ltd.
People’s Republic of China
1
NAME OF ENTITY
Chunghwa Telecom Singapore Pte., Ltd.
JURISDICTION OF INCORPORATION
Singapore
Chunghwa Telecom Global, Inc.
United States of America
Chunghwa Precision Test Tech. USA Corporation
United States of America
Chunghwa Telecom Vietnam Co., Ltd.
Vietnam
Chunghwa Sochamp Technology Inc.
Smartfun Digital Co., Ltd.
Taiwan, ROC
Taiwan, ROC
Senao Trading (Fujian) Co., Ltd.
People’s Republic of China
Senao International Trading (Shanghai) Co., Ltd.
People’s Republic of China
Senao International Trading (Shanghai) Co., Ltd.
People’s Republic of China
Senao International Trading (Jiangsu) Co., Ltd.
People’s Republic of China
Jiangsu Zhenhua Information Technology Company,
LLC.
People’s Republic of China
Shanghai Taihua Electronic Technology Limited
People’s Republic of China
Youth Co., Ltd.
Aval Technologies Co., Ltd.
ISPOT Co., Ltd.
Youyi Co., Ltd.
Taiwan, R.O.C.
Taiwan, R.O.C.
Taiwan, R.O.C.
Taiwan, R.O.C.
Shanghai Chief Telecom Co., Ltd.
People’s Republic of China
Chunghwa Leading Photonics Tech Co., Ltd.
Taiwan, R.O.C.
Chunghwa Telecom (Thailand) Co., Ltd.
Thailand
Exhibit 12.1
Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Yu Cheng, certify that:
1.
I have reviewed this annual report on Form 20-F of Chunghwa Telecom Co., Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the company as
of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the company’s auditors and the audit committee of the company’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the company’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the company’s internal control over financial reporting.
Date: April 25, 2017
By:
/s/ YU CHENG
Name:
Yu Cheng
Title: Chairman and Chief Executive Officer
2
1
NAME OF ENTITY
JURISDICTION OF INCORPORATION
Chunghwa Telecom Singapore Pte., Ltd.
Singapore
Chunghwa Telecom Global, Inc.
United States of America
Chunghwa Precision Test Tech. USA Corporation
United States of America
Chunghwa Telecom Vietnam Co., Ltd.
Vietnam
Chunghwa Sochamp Technology Inc.
Smartfun Digital Co., Ltd.
Taiwan, ROC
Taiwan, ROC
Senao Trading (Fujian) Co., Ltd.
People’s Republic of China
Senao International Trading (Shanghai) Co., Ltd.
People’s Republic of China
Senao International Trading (Shanghai) Co., Ltd.
People’s Republic of China
Senao International Trading (Jiangsu) Co., Ltd.
People’s Republic of China
Jiangsu Zhenhua Information Technology Company,
People’s Republic of China
LLC.
Shanghai Taihua Electronic Technology Limited
People’s Republic of China
Youth Co., Ltd.
Aval Technologies Co., Ltd.
ISPOT Co., Ltd.
Youyi Co., Ltd.
Taiwan, R.O.C.
Taiwan, R.O.C.
Taiwan, R.O.C.
Taiwan, R.O.C.
Shanghai Chief Telecom Co., Ltd.
People’s Republic of China
Chunghwa Leading Photonics Tech Co., Ltd.
Taiwan, R.O.C.
Chunghwa Telecom (Thailand) Co., Ltd.
Thailand
Exhibit 12.1
Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Yu Cheng, certify that:
1.
I have reviewed this annual report on Form 20-F of Chunghwa Telecom Co., Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the company as
of, and for, the periods presented in this report;
Exhibit 13.1
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
Certification by the Chief Executive Officer
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Designed such internal control over financial reporting, or caused such internal control over financial
In connection with the Annual Report on Form 20-F of Chunghwa Telecom Co., Ltd. (the “Company”) for
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this
“Report”), I, Yu Cheng, Chairman and Chief Executive Officer of the company, certify, pursuant to 18 U.S.C.
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the company’s internal control over financial reporting; and
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the company’s auditors and the audit committee of the company’s board of
directors (or persons performing the equivalent functions):
of 1934; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the company’s ability to record, process,
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
results of operations of the company.
role in the company’s internal control over financial reporting.
Date: April 25, 2017
Date: April 25, 2017
/s/ YU CHENG
Yu Cheng
By:
Name:
Title: Chairman and Chief Executive Officer
/s/ YU CHENG
Yu Cheng
By:
Name:
1
Title: Chairman and Chief Executive Officer
2
1
Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Bo-Yung Chen, certify that:
Certification by the Chief Executive Officer
Exhibit 12.2
Exhibit 13.1
1.
I have reviewed this annual report on Form 20-F of Chunghwa Telecom Co., Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the company as
of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
Exhibit 13.2
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
Certification by the Chief Financial Officer
designed under our supervision, to ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
In connection with the Annual Report on Form 20-F of Chunghwa Telecom Co., Ltd. (the “Company”) for
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this
the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
“Report”), I, Bo-Yung Chen, Chief Financial Officer of the company, certify, pursuant to 18 U.S.C. Section 1350, as
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the company’s internal control over financial reporting; and
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the company’s auditors and the audit committee of the company’s board of
directors (or persons performing the equivalent functions):
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 20-F of Chunghwa Telecom Co., Ltd. (the “Company”) for
the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Yu Cheng, Chairman and Chief Executive Officer of the company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
of 1934; and
results of operations of the company.
Date: April 25, 2017
By:
/s/ YU CHENG
Name:
Yu Cheng
Title: Chairman and Chief Executive Officer
1
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
role in the company’s internal control over financial reporting.
Date: April 25, 2017
results of operations of the company.
Date: April 25, 2017
/s/ BO-YUNG CHEN
Bo-Yung Chen
By:
Name:
Title: Chief Financial Officer
financial reporting which are reasonably likely to adversely affect the company’s ability to record, process,
summarize and report financial information; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
of 1934; and
1
/s/ BO-YUNG CHEN
Bo-Yung Chen
By:
Name:
Title: Chief Financial Officer
1
Exhibit 12.2
Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Bo-Yung Chen, certify that:
1.
I have reviewed this annual report on Form 20-F of Chunghwa Telecom Co., Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the company as
of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the company’s auditors and the audit committee of the company’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the company’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the company’s internal control over financial reporting.
Date: April 25, 2017
By:
/s/ BO-YUNG CHEN
Name:
Bo-Yung Chen
Title: Chief Financial Officer
1
Exhibit 13.1
Exhibit 13.1
Certification by the Chief Executive Officer
Certification by the Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 20-F of Chunghwa Telecom Co., Ltd. (the “Company”) for
In connection with the Annual Report on Form 20-F of Chunghwa Telecom Co., Ltd. (the “Company”) for
the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the
the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Yu Cheng, Chairman and Chief Executive Officer of the company, certify, pursuant to 18 U.S.C.
“Report”), I, Yu Cheng, Chairman and Chief Executive Officer of the company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the company.
results of operations of the company.
Date: April 25, 2017
Date: April 25, 2017
/s/ YU CHENG
/s/ YU CHENG
Yu Cheng
Yu Cheng
By:
By:
Name:
Name:
Title: Chairman and Chief Executive Officer
Title: Chairman and Chief Executive Officer
1
1
Certification by the Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification by the Chief Financial Officer
Exhibit 13.2
Exhibit 13.2
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 20-F of Chunghwa Telecom Co., Ltd. (the “Company”) for
the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the
In connection with the Annual Report on Form 20-F of Chunghwa Telecom Co., Ltd. (the “Company”) for
“Report”), I, Bo-Yung Chen, Chief Financial Officer of the company, certify, pursuant to 18 U.S.C. Section 1350, as
the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
“Report”), I, Bo-Yung Chen, Chief Financial Officer of the company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
of 1934; and
results of operations of the company.
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
Date: April 25, 2017
results of operations of the company.
Date: April 25, 2017
/s/ BO-YUNG CHEN
Bo-Yung Chen
By:
Name:
Title: Chief Financial Officer
/s/ BO-YUNG CHEN
Bo-Yung Chen
By:
Name:
Title: Chief Financial Officer
1
1
Exhibit 13.2
Certification by the Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 20-F of Chunghwa Telecom Co., Ltd. (the “Company”) for
“Report”), I, Bo-Yung Chen, Chief Financial Officer of the company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the company.
Date: April 25, 2017
By:
/s/ BO-YUNG CHEN
Name:
Bo-Yung Chen
Title: Chief Financial Officer
1
the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the
Acting Spokesperson
Shyang-Yih Chen
Chairman and CEO
Yu Cheng
President
Chi-Mau Sheih
Spokesperson
Bo-Yung Chen
Chief Financial Officer
Tel: +886-2-2344-3301
E-mail: bochen@cht.com.tw
Senior Executive Vice President
Tel: +886-2-2344-5768
E-mail: sean@cht.com.tw
Fu-Fu Shen
Assistant Vice President
Tel: +886-2-2344-5488
E-mail: ffshen@cht.com.tw
Stock Transfer Agent
Yuanta Securities Corp., Securities Registrar Department
Address: B1, No. 210, Sec. 3, Chengde Rd., Datong Dist.,
Taipei City 103
Tel: +886-2-2586-5859
website: http://www.yuanta.com.tw
Auditor
Deloitte & Touche
CPA: Ching-Pin Shih, Hung-Peng Lin
Address: 12th Floor, Hung Tai Finanical Plaza 156 Min
Sheng Road, Sec. 3, Songshan Dist., Taipei
Tel: +886-2-2545-9988
website: http://www.deloitte.com.tw
Exchange of ADR Listing
New York Stock Exchange Exchange Code: CHT
Information website: https://www.nyse.com
ADR Depositary Bank
JPMorgan Depositary Receipts
4 New York Plaza 12,
New York, NY 10004, U.S.A.
Service No. in USA: 1-866-JPM-ADRS
website: https://www.adr.com
Inquiries on ADR Investment
JPMorgan Depositary Receipts, ADR Service
Toll Free in USA: 1-800-990-1135
Tel No. out of USA: 1-651-453-2128
E-mail: jpmorgan.adr@wellsfargo.com
Ordinary mail: JPMorgan Chase Bank N.A.
P.O. Box 64504
St. Paul, MN 55164-0854, U.S.A.
Express mail: JPMorgan Chase Bank N.A.
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100, U.S.A.
Contact Information for Chunghwa Telecom Headquarters and Branches
Headquarters
21-3 Hsinyi Rd., Sec. 1, Taipei 10048, Taiwan, R.O.C.
Data Communications Business Group
21 Hsinyi Rd., Sec. 1, Taipei 10048, Taiwan, R.O.C.
Tel : +886-2-2344-6789
Fax: +886-2-2356-8306
http://www.cht.com.tw
Northern Taiwan Business Group
42 Renai Rd., Sec. 1, Taipei 10052, Taiwan, R.O.C.
Tel : +886-2-2344-2485
Fax: +886-2-2356-3401
Southern Taiwan Business Group
230 Linsen 1st Rd., Kaohsiung 80002, Taiwan, R.O.C.
Tel : +886-7-344-3350
Fax: +886-7-344-3391
Tel : +886-2-2344-4756
Fax: +886-2-2394-8404
Enterprise Business Group
16F., No.88, Hsinyi Rd., Sec. 4, Taipei 10682, Taiwan,
R.O.C.
Tel : +886-2-2326-6688
Fax: +886-2-2326-6837
Telecommunication Laboratories
No.99, Dianyan Rd., Yangmei Dist, Taoyuan City 32661,
Taiwan, R.O.C.
Mobile Business Group
35 Aikuo E. Rd., Taipei 10641, Taiwan, R.O.C.
Tel : +886-3-424-4512
Fax: +886-3-490-4464
Tel : +886-2-3316-6267
Fax: +886-2-3316-6454
International Business Group
31 Aikuo Rd., Taipei 10641, Taiwan, R.O.C.
Tel : +886-2-2344-3580
Fax: +886-2-2394-0944
Telecommunicatin Training Institute
No.168, Minzu Rd., Banqiao Dist., New Taipei City 22065,
Taiwan, R.O.C.
Tel : +886-2-2963-9588
Fax: +886-2-2955-4144
Chunghwa Telecom Overseas Offices
Chunghwa Telecom (China) Co., Ltd.
Room B-2, 5F, Yinglong Mansion, No.1358, Yan’an West
Road, Changning, Shanghai, China 200052
Tel : +86-21-5230-5021
Fax: +86-21-969-5569-472
E-mail: pota@cht.com.tw
Jiangsu Zhenhua Infomation Technology
Company, LLC
Room 705, No. 468, Ding-Mao-Jing 12 Road, New District,
Zhenjiang City, 212009 Jiangsu Province.
(R&D building A in the Zhenjiang Science Park)
Tel : +86-511-8086-6606
Fax: +86-511-8086-6604
E-mail: h5295sjm@cht.com.tw
Chunghwa Telecom Co., Ltd.
(Beijing Rep. Office)
A1709 Vantone Plaza, 2 Fuchengmenwai Dajie, Beijing
100037, China
Tel : +86-10-6801-8035
Fax: +86-10-6801-6309
E-mail: jianteng@cht.com.tw
Chunghwa Telecom (Thailand) Co., Ltd
(Bangkok Rep. Office)
65/131 16th Floor Chamnan Phenjati Business Centre, Rama
9 Rd., Huay Kwang District, Bangkok 10320, Thailand
Tel : +66-2-2487101
Fax: +66-2-2487100
E-mail: houwy@cht.com.tw
Chunghwa Telecom Co., Ltd.
(Amsterdam Rep. Office)
Prof. J.H. Bavincklaan 3, 1183 AT Amstelveen, Netherlands
Chunghwa Telecom Japan Co., Ltd.
Level 5, Asagawa Building 2-1-17 Shiba Daimon,
Minato-Ku, Tokyo 105-0012, Japan
Tel : +31 20-345-1343 #101
Fax: +31-20-545-3354
E-mail: andrewyeh@cht.com.tw
Tel : +81-3-3436-5988
Fax: +81-3-3436-7599
E-mail: escudo@cht.com.tw
Chunghwa Telecom Vietnam Co., Ltd.
Room 703, 7th Floor, 3D Viet Nam, Duy Tan St., Dich Vong Hau
Ward, Cau Giay Dist., Ha Noi, Vietnam 100000
Chunghwa Telecom Japan Co., Ltd.
(Osaka Office)
Room 112, 520 ATC O's N Bldg., 2-1-10, Nankokita
Tel : +84-4-3795-1150~1
E-mail: sschang@cht.com.tw
Suminoe-ku, Osaka 559-0034, Japan
Tel : +81-6-6614-9722
E-mail: escudo@cht.com.tw
Chunghwa Telecom Singapore Pte., Ltd.
No. 331 North Bridge Road, #03-05, Odeon Towers, Singapore
188720
Tel : +65-6337-2010
Fax: +65-6337-2047
E-mail: suwenmean@cht.sg
Chunghwa Telecom Singapore Pte., Ltd.
(Jakarta Office)
Cyber Building 6th Floor, Room 612, Jl. Kuningan Barat
No. 8 Jakarta 12710, Indonesia
Tel : +62-21-2996-6906
Fax: +62-21-2996-6907
E-mail: suwenmean@cht.sg
Chunghwa Telecom Co., Ltd.
(Yangon Rep. Office)
Room 7D,12/Sa, Tsuhtoopan Lane, Tarmwe Township,
Yangon, Myanmar
Tel: +95-9767-833-589
E-mail: chengku@cht.com.tw
Chunghwa Telecom Vietnam Co., Ltd.
HCMC Branch
Room 3, Floor 5th, Crescent Plaza, 105 Ton Dat Tien Street,
Tan Phu Ward, District 7, Ho Chi Minh City, Vietnam
Tel : +84-8-5413-8251
Fax: +84-8-5413-8252
E-mail: sschang@cht.com.tw
Chunghwa Telecom Global, Inc.
2107 North First Street, Ste. 580, San Jose, CA 95131, USA
Tel : +1-408-454-1698
Fax: +1-408-573-7168
E-mail: joe.yang@chtglobal.com
Chunghwa Telecom Global, Inc.
(Los Angeles Office)
21671 Gateway Center Drive, Suite 212, Diamond Bar,
CA 91765
Tel : +1-909-978-5388 #101
Fax: +1-909-978-5380
E-mail: joe.yang@chtglobal.com
Donghwa Telecom Co., Ltd.
Unit A, 7/F., Tower A, Billion Cenre, No. 1 Wang Kwong
Road, Kowloon Bay, Kowloon, Hong Kong
Tel : +852-3586-2600
Fax: +852-3586-3936
E-mail: phoebe@donghwatele.com.tw
21-3 Hsinyi Rd., Sec. 1, Taipei 10048, Taiwan, R.O.C.
Tel: +886-2-2344-5488
E-mail : chtir@cht.com.tw
htt p: //www.cht .com .tw