Annual Report 2017
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21-3 Hsinyi Rd., Sec. 1, Taipei 10048, Taiwan, R.O.C.
Tel: +886-2-2344-5488
E-mail : chtir@cht.com.tw
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Printed on April 27, 2018
Operating and Financial Summary
Revenues (a)
(in million NT$)
Operating Cash Flow (a)
(in million NT$)
231,795
229,991
227,514
250,000
200,000
150,000
100,000
50,000
0
100,000
80,000
60,000
40,000
20,000
0
76,325
64,952
70,932
2015
2016
2017
2015
2016
2017
Net Income (a)
(in million NT$)
Cash Distribution (in billion NT$)
42,852
41,626
40,160
60,000
48,000
36,000
24,000
12,000
0
42.6
37.7
38.3
50
40
30
20
10
0
2015
2016
2017
2015
2016
2017
Normal cash dividends payment from retained earnings
Broadband Subscriber Market Share
(d)
Mobile Subscriber Market Share(c) (d)
Other Operators
27.5%
Chunghwa Telecom
36.5%
Chunghwa Telecom
72.5%
(b)
Other Operators
63.5%
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 3G and 4G.
(d) Figures shown as of Dec. 2017.
Operating and Financial Summary
Dear Shareholders,
Letter to Shareholders
Revenues (a)
(in million NT$)
Operating Cash Flow (a)
(in million NT$)
231,795
229,991
227,514
76,325
64,952
70,932
2015
2016
2017
2015
2016
2017
Net Income (a)
(in million NT$)
Cash Distribution (in billion NT$)
42,852
41,626
40,160
42.6
37.7
38.3
250,000
200,000
150,000
100,000
50,000
0
60,000
48,000
36,000
24,000
12,000
0
100,000
80,000
60,000
40,000
20,000
0
50
40
30
20
10
0
2015
2016
2017
2015
2016
2017
Normal cash dividends payment from retained earnings
Broadband Subscriber Market Share
(d)
Mobile Subscriber Market Share(c) (d)
Other Operators
27.5%
Chunghwa Telecom
36.5%
Chunghwa Telecom
(b)
72.5%
Other Operators
63.5%
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 3G and 4G.
(d) Figures shown as of Dec. 2017.
In 2017, Chunghwa Telecom continued to solidify the fundamentals of each business line to improve our
foundation for future business growth while actively exploring emerging business opportunities despite price
pressure from peers in both the broadband and mobile markets, which increased industry competition. On the
mobile side, we now own the largest 4G bandwidth as well as continuous blocks after the 4G spectrum auction in
November 2017. Leveraging 180 MHz, the largest bandwidth for a single operator in Taiwan, we can offer high-
speed mobile broadband service with Multi-CA (Carrier Aggregation) technology. Besides, to prepare for new
opportunities in the era of Internet of Things (IoT), we actively collaborated with strategic partners to cultivate
innovative IoT-related applications and services on our IoT Smart Platform. Together with our competitive edge
in cloud resources, we are confident in forming the leading IoT ecosystem in Taiwan. Furthermore, we also
made efforts to capitalize on the digital convergence trend by strengthening our MOD (Multimedia on Demand)
service. The broadcasting of the 29th Summer Universiade in 4K quality was well-received, and the innovation
of carrying over-the-top (OTT) service on our MOD platform was another milestone of realizing digital
convergence.
The continuing growth of subscribers in our different business lines is a testament to the quality of our service.
By the end of 2017, the total number of mobile internet subscribers reached 8.3 million while the total number
of 4G subscribers exceeded 8.0 million. Broadband users reached 4.5 million, 1.3 million of whom signed
up for a connection speed of 100Mbps or higher. We are also excited about the significant breakthrough of
MOD subscriptions, which exceeded 1.6 million in 2017 due to our continued efforts in enriching content and
strengthening mechanics.
We continued to optimize our network infrastructure, aiming to navigate the digital economy with our cutting-
edge technology. In anticipation of strong demand from international content providers and the financial industry,
our world-class cloud data center in Banqiao, New Taipei City, has been fully occupied and started second phase
of installation in 2017. Moreover, Chunghwa Telecom established its 5G trial network and introduced a Pre-
5G core network to pave the way for 5G commercialization. We aim to combine this infrastructure with our
IoT Smart Platform, AI capabilities, and big data analyses to establish a leading position in the emerging digital
businesses.
Financial Results
Chunghwa Telecom’s consolidated revenue for the full year of 2017 was NT$227.51 billion, representing a
decrease of 1.1% as compared to the prior year, mainly due to the decrease of voice revenue that resulted from
VoIP substitution and market competition. However, mobile value-added services experienced healthy growth
in 2017 driven by mobile internet subscriber expansion and continuous 4G mobile broadband development.
Furthermore, the increase in handset sales and the healthy growth of ICT solutions sales to enterprise customers
also accounted for a significant portion of our total revenue.
Consolidated costs and expenses for the full year of 2017 was NT$180.71 billion, representing a decrease of
0.4% as compared to the prior year, mainly due to the decreases in interconnection and depreciation expenses
offset the increase of ICT project costs and cost of goods sold. CAPEX spending for 2017 was mainly used for
construction to support business growth and consolidate our market position, including expanding fiber coverage
and enhancing carrier aggregation to boost mobile broadband speeds. Moreover, we optimized our investment
review process and effectively negotiated with vendors during procurement. As a result of the successful
execution of our business strategies and effective cost control initiatives, CAPEX spending was NT$26.9 billion,
and net income attributable to stockholders of the parent company was NT$38.87 billion, or NT$5.01 per share.
In 2017, our overall net reinvestment income was NT$1.7 billion. We are pleased with the successful listing of
Chief Telecom Co., Ltd., our strategic investment company focused on Internet Data Center (IDC) solutions,
on the Taipei Exchange Emerging Stock Board in June 2017. It is scheduled to be listed and publicly traded
on the Taipei Exchange Mainboard in 2018, and it will continue to consolidate its leading brand in the Type II
industry. In addition, our subsidiary CHT Security Co., Ltd, established at the end of 2017, started operations
in January 2018 to provide industry-leading total information security solutions at home and abroad. We also
upgraded our branch office in Thailand to a subsidiary company in March 2017 to further enhance our local
presence, southbound business development and investment capacity. Going forward, we will continue to
prudentially develop our strategic overseas investments to consolidate core businesses as well as to accelerating
the development of an innovative digital business, especially in the ASEAN market.
Enhance mobile broadband quality to ensure a leading market position
At the end of 2017, we continued to enjoy a leading position in the mobile market with an encouraging 36.5%
subscriber market share and a 37.2% revenue market share. However, given the increasingly saturated 4G market
and price promotions from competitors, we experienced a small subscriber loss due to price competitions. We
therefore further solidified our subscriber base to ensure revenue through different channels. One was to re-
allocate subsidy resources to guide mobile subscribers toward higher-end plans to drive up our product margin.
Moreover, to respond to market competition, we rolled out multi-dimensional price promotion plans in our
internet stores to cater to price sensitive customers as well as to create a more complete price structure.
In 2017, we invested in infrastructure construction to further enhance our mobile broadband quality. By the end
of the year, we had the leading number of base stations in Taiwan, and became the first operator in Taiwan to
reach 100% nationwide 4G coverage. We also took the lead in introducing U900 technology and now provide the
largest degree of voice coverage in Taiwan. Moreover, we acquired the most bandwidth in the spectrum auction
in November, and thus we are currently the only operator with three consecutive 20 MHz spectrums on the 1800
MHZ, 2100 MHz and 2600 MHz spectrums. Coupled with our leading 4CA and 5CC (Component Carrier)
exclusive services, our customers are now able to enjoy high speed mobile broadband services in crowded
business districts and areas along the High Speed Railway.
We consistently promoted “Hami VAS Bundles” to offer high quality services including music, TV, movies,
games, and OTT at reasonable prices. We further enhanced Hami Wallet, our mobile payment service, by
collaborating with the convenient store chain and e-ticket service providers to offer mobile payment services. In
2017, overall mobile value-added service revenue increased 4.2% year over year. Revenue from micro-payments
increased 18.4% as well due to the development of the mobile payment business.
Acquire digital convergence opportunities with network advantages
We successfully narrowed the subscriber loss year by year even though broadband market is even increasingly
competitive. In 2017, cable operators aggressively rolled out broadband and TV bundled plans to grab market
share, and even the ever lower plans in certain competitive areas. We further addressed our higher speed fiber
broadband services to make differentiation, which is effective. We are encouraged to see the overall broadband
subscriber loss has been mitigated, and the number of our users signing up for connection speeds of 100Mbps or
higher grew 9.5% year over year to the total amount of 1.3 million.
Moreover, we further addressed our product advantages, such as the nationwide CHT Wi-Fi hotspots and the
value-added offerings of Home Wi-Fi, cyber security and MOD service, to surpass competitors by holding
an impressive lead. In 2017, we bundled broadband and MOD services to meet customers’ demand of home
amusement and connections. We also highly emphasized the improvement of MOD business by facilitating
the overall TV operational environment and created single channel subscription mechanism to encourage user-
centric viewing. Our content, including international sport games, popular channels and dramas, continued to
be in customers’ favor. We are pleased that SVOD (Subscription Video on Demand) subscription successfully
exceeded 1 million, and Movie 199 package become the flagship product in Pay-TV industry due to its largest
subscription base. Our all-out efforts led in a brilliant return of a 20.3% year-over-year growth of subscription
and a 8.3% accumulated growth of annual revenue.
Sustain a digital economy with ICT capabilities
Rapidly advancing technologies have pushed telecom operators all over the world to face the inevitable impact
of new technology and business models. At Chunghwa Telecom, we proactively capture opportunities that
arise from market challenges. This year, as we positioned ourselves to be the engine of the digital economy, we
focused on driving growth in our ICT business and establishing our broadband network as the backbone of the
development of the domestic digital economy.
We proactively developed ICT solutions based on our existing foundational advantages in IDC, undersea cables,
Content Delivery Network, and abundant research ability in AI and big data analysis. In 2017, revenue from
information security, IDC, IoT, cloud computing, smart security, smart buildings, and smart green energy all
continued growing. IDC and IoT business, the two significant driving forces, brought about 18.0% and 23.3%
annual growth in revenue respectively. As of the end of 2017, consolidated ICT service revenue accounted for
10% of our total revenue.
To accelerate IoT development, we actively teamed up with partners to build a complete IoT ecosystem in
Taiwan. In 2017, content providers and IoT developers were able to develop and transmit their applications
on our IoT Smart Platform, which featured capabilities including communications connectivity, AI, big data
analysis, and information security. Moreover, our information security service, which includes an anti-hacker
service and mobile information security service, grew as well, with revenues increasing 6.7% year over year
in 2017. Our DDoS (Distributed Denial of Service) service revenue grew significantly at 177% year over year
due to the increasing demand from corporations eager to resist cyber-attack threats. In 2017, we successfully
assisted financial institutions that suffered from serious hacker attacks to enhance financial security by
establishing information security protection frameworks capable of conducting activities including financial
security assessments, information security health assessments, SOC (Security Operation Center) monitoring and
management, and digital forensics. Given vigorous demand and our superior products, we founded a subsidiary
in late 2017 to further boost the business by serving clients on a network neutral basis.
Going forward, we will consistently pursue the standardization of our products to enhance ICT project margins
and drive long-term ICT growth.
R&D and Achievements
In 2017, Chunghwa Telecom’s research and development efforts covered the seven areas of Intelligent
Broadband Networking, Intelligent Business, Cloud Computing, Information Security Applications, Big Data,
Internet of Things, and Convergence Services. Key developments include:
(1) Intelligent Broadband networking : the world's premiere posed LTE WLAN Aggregation solution, the
first domestic posed NB-IoT end-to-end application experiment network, Software Defined Network
solution, Telecom Cloud Test-bed;
Yu Cheng
Chairman and Chief Executive Officer
(2)
Intelligent Business : Fixed-Line Order and Billing Management System with New Generation Architecture,
Mobile Order and Billing Management System, Business Customer Relationship Management System, e-Shop
Customer Self-Services Website, Call Center Application System, Customer Self-Services App;
(3)
(4)
(5)
(6)
Cloud Computing : Software-defined Data Center Solution, ICT Integrated Management solution;
Information Security Application : Digital Identity Solution, Enterprise Security Solution;
Big Data : Big data customer journey processing, analysis and application solution;
Internet of Things : IoT Service Platform, Smart City Solution, Intelligent Manufacturing Solution, Health Cloud
Service, Travel Time Prediction Service, Distributed Image Recognition System;
(7)
Convergence Services : Unified MOD Service Platform, Mobile Payment Techniques and Hami wallet, AI
Technologies and Application Platform, Value-added Communication Services, Convergent Messaging
and Content Services.
(8)
Layout of core competencies : In 2017, we applied for 174 patents and obtained 188. In addition, we won 32
important awards.
High Standards of Corporate Social Responsibility
Chunghwa Telecom is fully committed to corporate social responsibility (CSR). We continue to utilize our information and
communication technologies to create a positive influence by helping Taiwanese businesses realize sustainable operations. We
devote ourselves to supporting the minority in remote areas and promoting long-term CSR programs such as “Read with You -
Community Network Tutoring” and “EYE Social Innovative Call Center.”
We also make our best effort to safeguard Taiwan. Whenever heavy rainfall strikes and causes damage, we immediately send
people and resources into disaster areas for emergency repair. We further offered monthly fee discounts for affected subscribers.
“Always Ahead” is not only our brand spirit but also the mission and vision that leads our corporate social responsibility
Chi-Mau Sheih
President
initiatives. In 2017, Chunghwa Telecom was the first telecom operator in Taiwan to produce a Corporate Social Responsibility
Report in accordance with Global Reporting Initiative Standards. Moreover, our 8th Board Meeting approved the “Corporate
Social Responsibility Best-Practice Principles for Chunghwa Telecom Co., Ltd.” to establish a set of fundamental guidelines that
bridges our operating activities and CSR initiatives to achieve sustainability. Meanwhile, as more and more organizations advocate
a low carbon economy, we joined the CDP (Carbon Disclosure Project) with our supply chain, committing to a future with lower
carbon emission.
Chunghwa Telecom’s CSR initiatives reveal our past ten years of progressive energy. We will continue to leverage our professional
knowledge and forward-looking spirit to fulfill the vision of being the most valuable and trusted information and communication
company in Taiwan.
Awards
Chunghwa Telecom has been a well-known household brand due to our nationwide infrastructure and service centers. In order
to fulfill our brand commitment, “Always Ahead,” we have always acted in accordance with the highest corporate governance
standards. Our focus on customer needs and satisfaction has generated additional value for shareholders. Our efforts have been
recognized and endorsed by many international and domestic awards.
In 2017, Chunghwa Telecom was the only winner in Taiwan’s telecom industry to receive the “Brand of the Year” award from the
World Brand forum, an honor we won for the third consecutive year. In the “Global 500 2017” from the globally renowned brand
valuation consultant, Brand Finance, Chunghwa Telecom, one of the few Taiwanese companies that entered the ranking, placed
475th among the world’s top 500 brands. Chunghwa Telecom was also included in the DJSI Emerging Markets Index for the sixth
consecutive year, reflecting the fact that our sustainability has been recognized by international investors. In addition, we received
the “Trusted Brands” Platinum Award in the telecom category from Reader's Digest for the 13th year in a row as well as 1st place
in Business Today’s Best Brand Award for the telecommunications sector, which demonstrate customers' trust in our innovative
and compassionate services. Business Weekly also awarded us 1st place for “Taiwan Top 100 Brand” in the telecommunications
category and 3rd place for “Original Brand” in 2017. Furthermore, we received the Platinum Corporate Award for five
consecutive years from The Asset magazine, which reflects our achievements in earnings, management, governance,
social and environmental responsibility, and investor relations.
These are the highlights from a long list of 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
Network quality is our strongest advantage and the foundation of our business. Going forward, the overall enhancement
and maintenance of our mobile broadband network, fiber network, and undersea cables is one of our priorities. Coupled
with our deployment of Next Generation Network technology, we are confident that we can provide high-quality,
diversified cross-platform digital convergence services in addition to existing quality mobile broadband and fixed-line
broadband services, value-added products, and ICT solutions. Our proactive marketing strategy will focus on designing
competitive promotion plans and integrating service centers and internet stores to optimize the customer experience,
which we believe will ultimately improve contribution per user and overall profit.
Speaking of leading an innovative digital economy, we aim to transform our services and internal management with
a customer-centered mindset. In our core business, we will focus on channel restructuring and enterprise customer
development to enhance user experience. In our video services, we will continue to integrate MOD and Hami Video/
OTT services, acquire popular content and promote multi-screen applications. We aim to position ourselves as the smart
home hub in customers’ living spaces while offering high-standard entertainment services. This is how we differentiate
our services and provide value to customers.
Envisioning digital business opportunities, Chunghwa Telecom consistently invests in R&D and talent acquisition,
especially in emerging fields like IoT, big data, Fintech, AR (Augmented Reality), and AI. Our outstanding platforms are
key fundamentals that we can leverage to team up with partners to build an ecosystem for developing innovative ICT
services. We will also leverage opportunities from the national “Asia Silicon Valley Project” and Taiwan’s southbound
policy to extend services and acquire enterprise customers in overseas markets. We are dedicated to implementing
strategies to lead the digital economy and innovations in industry, and remain committed to delivering additional value
to our shareholders, customers, employees, and society at large.
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, 2017
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
Date of event requiring this shell company report
For the transition period from to
Commission file number 001-31731
Chunghwa Telecom Co., Ltd.
(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)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Shares, par value NT$10 per share
American Depositary Shares, as evidenced by American
Depositary Receipts, each representing 10 Common Shares
New York Stock Exchange*
New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
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.
Yes No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes No
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
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).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act
Large accelerated filer Accelerated filer Non-accelerated filer Emerging growth company
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
International Financial Reporting Standards as issued by the
Other
International Accounting Standards Board
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if
the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards† provided pursuant to Section 13(a) of the Exchange Act
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards
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
registrant has elected to follow.
Item 17 Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes No
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.
Yes No
• Not for trading, but only in connection with the listing on the New York Stock Exchange of the American Depositary Shares
CHUNGHWA TELECOM CO., LTD.
FORM 20-F ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2017
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 .............................................................................57
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS.....................................57
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES......................................83
ITEM 7.
MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS.....................92
ITEM 8.
FINANCIAL INFORMATION..........................................................................................93
ITEM 9.
THE OFFER AND LISTING.............................................................................................94
ITEM 10.
ADDITIONAL INFORMATION.......................................................................................96
ITEM 11.
MARKET RISK...............................................................................................................111
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES...................................................................................................................112
PART II.........................................................................................................................................................114
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ...........................115
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS
OF SECURITY HOLDERS AND USE OF PROCEEDS................................................115
ITEM 15. CONTROLS AND PROCEDURES.................................................................................115
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT................................................................117
ITEM 16B. CODE OF ETHICS...........................................................................................................117
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES ...................................................117
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES.................................................................................................................118
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER
AND AFFILIATED PURCHASERS ................................................................................118
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT....................................118
ITEM 16G. CORPORATE GOVERNANCE .......................................................................................118
ITEM 16H. MINE SAFETY DISCLOSURE .......................................................................................120
PART III.......................................................................................................................................................122
ITEM 17.
FINANCIAL STATEMENTS.........................................................................................123
ITEM 18.
FINANCIAL STATEMENTS.........................................................................................123
ITEM 19.
EXHIBITS......................................................................................................................124
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 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.
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 on
August 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 STATEMENTS IN THIS ANNUAL REPORT MAY NOT BE
FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT MAY NOT BE
REALIZED
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 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.
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 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.
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.
August 12, 2005.
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 on
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 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 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.
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
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
PART I
PART I
ITEM 1.
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3.
ITEM 3.
KEY INFORMATION
KEY INFORMATION
A. Selected Financial Data
A. Selected Financial Data
The selected consolidated statements of comprehensive income data and consolidated cash flows data for the
years ended December 31, 2015, 2016 and 2017, and the selected consolidated balance sheets data as of December
31, 2016 and 2017 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, 2013 and 2014, and
the selected consolidated balance sheet data as of December 31, 2013, 2014 and 2015 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.
2013
NT$
2014
NT$
2015
NT$
2016
NT$
2017
NT$
US$
Year Ended December 31
(in billions, except for
per share and per ADS data)
Consolidated Statements of Comprehensive
Income Data:
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:
228.0 226.6 231.8 230.0 227.5
(147.3 ) (148.4 ) (148.1 ) (147.6 ) (146.8 )
80.7
(33.9 )
(0.1 )
46.7
1.3
48.0
(7.8 )
40.2
80.7
(33.1 )
0.1
47.7
1.4
49.1
(6.5 )
42.6
82.4
(33.8 )
(0.5 )
48.1
1.3
49.4
(7.8 )
41.6
83.7
(33.2 )
(0.1 )
50.4
1.6
52.0
(9.1 )
42.9
78.2
(34.0 )
0.6
44.8
1.8
46.6
(9.0 )
37.6
7.7
(5.0 )
2.7
(1.1 )
—
1.6
—
1.6
(0.2 )
1.4
1.3
0.1
1.4
Stockholders of the parent
Noncontrolling interests
Earnings per share:
Basic
Diluted
Earnings per ADS equivalent:
Basic
Diluted
41.5
1.1
42.6
37.0
0.6
37.6
42.1
0.8
42.9
40.5
1.1
41.6
39.0
1.2
40.2
5.35
5.34
4.77
4.76
5.42
5.41
5.22
5.21
5.03
5.02
0.17
0.17
53.49 47.66 54.19 52.19 50.26
53.40 47.58 54.06 52.11 50.19
1.70
1.69
3
Consolidated Balance Sheets Data:
Working capital
Long-term investments
Property, plant and equipment
Investment properties
Intangible assets
Net defined benefit assets
Total assets
Short-term loans
Current portion of long-term loans
Long-term loans(2)
Customers’ deposits
Net defined benefit liabilities
Deferred revenue
Total liabilities
Net assets
Capital stock
Equity attributable to stockholders of the
parent
Noncontrolling interests
Consolidated Cash Flows Data:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net increase (decrease) in cash and cash
equivalents
Other Financial Data:
Gross margin(3)
Operating margin(4)
Net margin(5)
Capital expenditures
Depreciation and amortization
Cash dividends declared per share
Stock dividends declared per share
2013
NT$
2014
NT$
As of December 31
2016
2015
NT$
NT$
(in billions)
NT$
2017
US$
6.9
13.1
(0.3 )
15.3
17.5
7.2
13.3
10.5
7.6
42.8
0.0
8.0
44.4
0.0
7.9
50.4
0.0
8.1
47.4
0.9
15.4
8.1
302.7 302.7 296.4 291.2 288.7
8.0
54.9
—
441.0 446.5 452.8 446.9 450.9
0.1
—
1.6
4.7
2.7
3.6
81.5
363.2 365.7 369.4 367.0 369.4
77.6
0.1
—
1.6
4.6
1.5
3.5
79.9
0.3
0.3
1.4
4.8
5.5
3.7
77.8
0.1
0.0
1.7
4.7
7.1
3.6
83.4
0.6
—
1.9
4.8
6.5
3.4
80.8
77.6
77.6
77.6
77.6
358.3 360.8 364.3 360.7 360.9
8.5
6.3
4.9
5.1
4.9
0.5
0.3
9.7
0.3
1.9
—
15.2
—
—
0.1
0.2
0.1
0.1
2.7
12.5
2.6
12.2
0.3
2013
NT$
2014
NT$
Year Ended December 31
2015
NT$
2016
NT$
(in billions, except for
percentages and per share)
2017
NT$
US$
75.3 71.4 76.3 65.0 70.9
(49.1 ) (27.3 ) (30.4 ) (21.7 ) (36.7 )
(42.5 ) (35.1 ) (39.2 ) (42.5 ) (36.6 )
2.4
(1.2 )
(1.2 )
(16.3 )
9.0
6.7
0.8
(2.3 )
—
35 %
21 %
18 %
35 %
20 %
16 %
36 %
22 %
18 %
36 %
21 %
18 %
35 %
21 %
17 %
36.4 32.6 25.1 23.5 26.9
32.2 34.1 33.4 32.5 31.9
(7)
2.3881 (6) 4.8564 5.4852 4.9419 4.796 (7) 0.16 (7)
— — — — — —
(6)
(7)
35 %
21 %
17 %
0.9
1.1
(1)
(1)
Includes interest income of NT$563 million, NT$288 million, NT$306 million, NT$189 million and NT$205 million (US$6.9
Includes interest income of NT$563 million, NT$288 million, NT$306 million, NT$189 million and NT$205 million (US$6.9 million) for
the years ended December 31, 2013, 2014, 2015, 2016 and 2017, respectively, and interest expense of NT$36 million, NT$46 million,
million) for the years ended December 31, 2013, 2014, 2015, 2016 and 2017, respectively, and interest expense of NT$36 million, NT$46
NT$33 million, NT$20 million and NT$22 million (US$0.7 million) for the years ended December 31, 2013, 2014, 2015, 2016 and 2017,
million, NT$33 million, NT$20 million and NT$22 million (US$0.7 million) for the years ended December 31, 2013, 2014, 2015, 2016 and
respectively.
2017, respectively.
Excludes current portion of long-term loans.
(2)
Excludes current portion of long-term loans.
(2)
Represents gross profit divided by revenues.
(3)
Represents income from operations divided by revenues.
(4)
Represents gross profit divided by revenues.
(3)
Represents net income attributed to stockholders of the parent divided by revenues.
(5)
Represents income from operations divided by revenues.
(4)
(6)
In addition to the cash dividends from unappropriated earnings disclosed in the table above, we also made cash distributions of NT$2.137
Represents net income attributed to stockholders of the parent divided by revenues.
(5)
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.”
(6)
In addition to the cash dividends from unappropriated earnings disclosed in the table above, we also made cash distributions of NT$2.137 per
Dividends for 2017, which are calculated based on Taiwan IFRSs, were approved by the board of directors in March 2018 and are
share, which amounted to an aggregate of NT$16.6 billion, from additional paid-in capital. See “Item 5. Operating and Financial Review and
expected to be declared at our annual general stockholders’ meeting scheduled on June 15, 2018.
Prospects—Overview—Effect of adopting Taiwan IFRSs on our dividends and employee bonuses.”
(7)
be declared at our annual general stockholders’ meeting scheduled on June 15, 2018.
Dividends for 2017, which are calculated based on Taiwan IFRSs, were approved by the board of directors in March 2018 and are expected to
(7)
4
Property, plant and equipment
302.7 302.7 296.4 291.2 288.7
Consolidated Balance Sheets Data:
Working capital
Long-term investments
Investment properties
Intangible assets
Net defined benefit assets
Total assets
Short-term loans
Current portion of long-term loans
Long-term loans(2)
Customers’ deposits
Net defined benefit liabilities
Deferred revenue
Total liabilities
Net assets
Capital stock
Equity attributable to stockholders of the
parent
Noncontrolling interests
Consolidated Cash Flows Data:
Net cash used in investing activities
Net cash used in financing activities
Net increase (decrease) in cash and cash
equivalents
Other Financial Data:
Gross margin(3)
Operating margin(4)
Net margin(5)
Capital expenditures
Depreciation and amortization
Cash dividends declared per share
Stock dividends declared per share
2013
2014
2015
2016
2017
NT$
NT$
NT$
NT$
NT$
US$
As of December 31
(in billions)
(0.3 )
15.3
6.9
13.1
13.3
10.5
17.5
7.2
15.4
8.1
8.0
44.4
0.0
7.6
42.8
0.0
7.9
50.4
0.0
8.1
47.4
0.9
8.0
54.9
—
441.0 446.5 452.8 446.9 450.9
15.2
0.3
0.3
1.4
4.8
5.5
3.7
0.6
—
1.9
4.8
6.5
3.4
0.1
0.0
1.7
4.7
7.1
3.6
0.1
—
1.6
4.6
1.5
3.5
0.1
—
1.6
4.7
2.7
3.6
77.8
80.8
83.4
79.9
81.5
363.2 365.7 369.4 367.0 369.4
77.6
77.6
77.6
77.6
77.6
358.3 360.8 364.3 360.7 360.9
4.9
4.9
5.1
6.3
8.5
2013
NT$
Year Ended December 31
2014
NT$
2015
NT$
2016
NT$
(in billions, except for
percentages and per share)
2017
NT$
US$
(16.3 )
9.0
6.7
0.8
(2.3 )
—
35 %
21 %
18 %
35 %
20 %
16 %
36 %
22 %
18 %
36 %
21 %
18 %
35 %
21 %
17 %
36.4 32.6 25.1 23.5 26.9
32.2 34.1 33.4 32.5 31.9
2.3881 (6) 4.8564 5.4852 4.9419 4.796 (7) 0.16 (7)
— — — — — —
0.5
0.3
9.7
0.3
1.9
—
—
—
0.1
0.2
0.1
0.1
2.7
12.5
2.6
12.2
0.3
2.4
(1.2 )
(1.2 )
35 %
21 %
17 %
0.9
1.1
(1)
Includes interest income of NT$563 million, NT$288 million, NT$306 million, NT$189 million and NT$205 million (US$6.9 million) for
the years ended December 31, 2013, 2014, 2015, 2016 and 2017, respectively, and interest expense of NT$36 million, NT$46 million,
NT$33 million, NT$20 million and NT$22 million (US$0.7 million) for the years ended December 31, 2013, 2014, 2015, 2016 and 2017,
respectively.
Excludes current portion of long-term loans.
Represents gross profit divided by revenues.
Represents income from operations divided by revenues.
(2)
(3)
(4)
(5)
(6)
Represents net income attributed to stockholders of the parent divided by revenues.
In addition to the cash dividends from unappropriated earnings disclosed in the table above, we also made cash distributions of NT$2.137
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.”
(7)
Dividends for 2017, which are calculated based on Taiwan IFRSs, were approved by the board of directors in March 2018 and are
expected to be declared at our annual general stockholders’ meeting scheduled on June 15, 2018.
Currency Translations and Exchange Rates
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, 2017 have been translated into U.S. dollar amounts using US$1.00=NT$29.64, set forth in the
statistical release of the Federal Reserve Board on December 29, 2017. 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 20, 2018, the exchange rate was NT$29.48 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
2013
2014
2015
2016
2017
October
November
December
2018 (through April 20)
January
February
March
April (through April 20)
Average(1)
High
Low
At Period
End
29.73
30.38
31.80
32.13
30.27
30.25
30.08
29.95
29.27
29.40
29.25
29.20
29.28
30.20
31.80
33.17
33.74
31.19
30.44
30.21
30.05
29.61
29.61
29.42
29.35
29.48
29.93
29.85
30.37
31.05
29.64
30.12
29.97
29.64
29.03
29.05
29.03
29.10
29.14
29.83
31.60
32.79
32.40
29.64
30.12
29.98
29.64
29.48
29.16
29.32
29.10
29.48
Net cash provided by operating activities
75.3 71.4 76.3 65.0 70.9
(49.1 ) (27.3 ) (30.4 ) (21.7 ) (36.7 )
(42.5 ) (35.1 ) (39.2 ) (42.5 ) (36.6 )
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
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
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.
5
Risks Relating to Our Company and the Taiwan Telecommunications Industry
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
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 April 5, 2017 the NCC drafted “the Telecommunications Management Act” and “the
Digital Communications Act” and submitted them to the Executive Yuan for review. On November 16, 2017, the
Executive Yuan approved the drafts and submitted them to the Legislative Yuan. The draft is being reviewed by the
Transportation Committee of the Legislative Yuan now. 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 scale down the range of 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 public-private partnership
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 scale-down range 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. In May 2017,
the NCC restarted the amendments to the Radio and Television Act, the Cable Radio and Television Act and the
Satellite Broadcasting Act with an aim to remove restrictions on governmental and political parties’ investments in
the broadcasting industries. However, the NCC have not released any draft until now, and our MOD business
remains subject to such restrictions.
We have been designated by the government as a dominant provider of fixed communications 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 several rounds of tariff
reduction plan, 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
6
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
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 April 5, 2017 the NCC drafted “the Telecommunications Management Act” and “the
Digital Communications Act” and submitted them to the Executive Yuan for review. On November 16, 2017, the
Executive Yuan approved the drafts and submitted them to the Legislative Yuan. The draft is being reviewed by the
Transportation Committee of the Legislative Yuan now. 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 scale down the range of 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 public-private partnership
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 scale-down range 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. In May 2017,
the NCC restarted the amendments to the Radio and Television Act, the Cable Radio and Television Act and the
Satellite Broadcasting Act with an aim to remove restrictions on governmental and political parties’ investments in
the broadcasting industries. However, the NCC have not released any draft until now, and our MOD business
remains subject to such restrictions.
We have been designated by the government as a dominant provider of fixed communications 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 several rounds of tariff
reduction plan, 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 regulatory
measures or administrative planning. For example, on November 4, 2015, the NCC determined to decrease our fixed
telecommunications network interconnection fees and it was made retroactive since January 1, 2015. Furthermore, the
NCC amended the article 14 and 17 of the Regulations Governing Network Interconnection among
Telecommunications Enterprises on November 11, 2017, and announced “Upper Limit on Access Charge for the
Third Generation Mobile Telecommunications Operators and Mobile Broadband Operators.” Pursuant to the
amendment(cid:2)(cid:1)starting from November 1, 2017, the tariff in the mobile interconnection fees will decrease over a period
of four years, except the telecommunication fees (including interconnection fees) for incoming international long
distance, or ILD, calls remain subject to mutual agreement between operators. See “Item 5. Operating and Financial
Review and Prospects—Overview—Tariff adjustments.” 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 business 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 the auction for such license was held in the fourth quarter of 2017. In November 2017, we obtained
4G mobile broadband services spectrum in 1800MHz and 2100MHz frequency bands, which are valid until the end
of 2030 and 2033, respectively. Furthermore, the NCC may hold the auction for the license of the fifth generation, or
5G, mobile networks in 2020. 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 3G service license will expire on December
31, 2018, and the NCC will not issue a new 3G license to us in accordance with their policy to cease such 3G service
in Taiwan. As a result, we may cease to provide such 3G service by the end of 2018 subject to the discussion with
7
the NCC. If some of our 3G service customers are unwilling to migrate by then, we may face complaints 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.
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
percentage of digitization of cable television networks by December 31, 2017 has already been 99.46%, which
increased 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 networks, 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 2017, we recorded
losses on property, plant and equipment arising from natural disasters such as earthquakes and typhoons in the
amount of approximately NT$1.4 million (US$0.05 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
8
the NCC. If some of our 3G service customers are unwilling to migrate by then, we may face complaints from such
customers.
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.
Increasing market competition may adversely affect our growth and profitability by causing us to lose customers,
We depend on select personnel and could be affected by the loss of their services.
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.
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
percentage of digitization of cable television networks by December 31, 2017 has already been 99.46%, which
increased 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 networks, 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 2017, we recorded
losses on property, plant and equipment arising from natural disasters such as earthquakes and typhoons in the
amount of approximately NT$1.4 million (US$0.05 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
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, Communication and 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. 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, Wi-Fi Calling, Artificial
Intelligence, or AI, Augmented Reality, or AR, Virtual Reality, or VR 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 an impairment losses for investment properties, equipment and
intangible assets in the past. In 2017, 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$11.0 million (US$0.4(cid:1)million) and the amount was recognized only to the extent of
impairment losses that had been recognized in prior years.
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-
9
owned subsidiary, we will no longer be able to consolidate the results of operations of such subsidiary, which could
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
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.
adversely affect our consolidated results of operations and ability to meet the operating results guidance that we
have projected.
have projected.
We may also from time to time make equity investments in companies, but we cannot assure you of their
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
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.
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.
effect on our financial condition or results of operations.
In 2017, our subsidiary, SENAO, evaluated the goodwill that arose in the acquisition of Youth Co., Ltd and its
In 2017, our subsidiary, SENAO, evaluated the goodwill that arose in the acquisition of Youth Co., Ltd and its
subsidiaries, or Youth, and concluded that the recoverable amount of the goodwill was lower than the carrying value
In 2017, our subsidiary, SENAO, evaluated the goodwill that arose in the acquisition of Youth Co., Ltd and its
subsidiaries, or Youth, and concluded that the recoverable amount of the goodwill was lower than the carrying value
and recognized an impairment loss of NT$9 million (US$0.3 million).
subsidiaries, or Youth, and concluded that the recoverable amount of the goodwill was lower than the carrying value
and recognized an impairment loss of NT$9 million (US$0.3 million).
and recognized an impairment loss of NT$9 million (US$0.3 million).
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 us on
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 us on
favorable commercial terms or at all.
introducing new services or make substantial capital investments, financing for which may not be available to us on
favorable commercial terms or at all.
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
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
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
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
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
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
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.
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.
and market share and become less profitable.
In addition, the cost of implementing new technologies, upgrading our networks or expanding capacity could be
In addition, the cost of implementing new technologies, upgrading our networks or expanding capacity could be
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
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
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
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,
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. Also, we continue to deploy 4G mobile broadband base stations
convergence services, we continue to expand construction of fiber optic networks, including passive optical networks,
or PONs, and optical distribution networks, or ODNs. Also, we continue to deploy 4G mobile broadband base stations
and to enhance our 4G mobile broadband coverage and capacity. In November 2017, we obtained 4G mobile
or PONs, and optical distribution networks, or ODNs. Also, we continue to deploy 4G mobile broadband base stations
and to enhance our 4G mobile broadband coverage and capacity. In November 2017, we obtained 4G mobile
broadband services spectrum in 1800MHz and 2100MHz frequency bands. After that, we own three consecutive
and to enhance our 4G mobile broadband coverage and capacity. In November 2017, we obtained 4G mobile
broadband services spectrum in 1800MHz and 2100MHz frequency bands. After that, we own three consecutive
20MHz spectrum in 1800MHz, 2100MHz and 2600MHz frequency bands, which may provide higher data
broadband services spectrum in 1800MHz and 2100MHz frequency bands. After that, we own three consecutive
20MHz spectrum in 1800MHz, 2100MHz and 2600MHz frequency bands, which may provide higher data
transmission rates. To the extent these expenditures exceed our cash resources, we will be required to seek additional
20MHz spectrum in 1800MHz, 2100MHz and 2600MHz frequency bands, which may provide higher data
transmission rates. 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
transmission rates. 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
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
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
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
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.
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.
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
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
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.
services based on these technologies in a commercially viable manner, our revenue growth and profitability will
decline.
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.
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 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
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
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.
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
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
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
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
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
developed to support the deployment of our mobile data services. If we are unable to deliver commercially viable
10
owned subsidiary, we will no longer be able to consolidate the results of operations of such subsidiary, which could
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
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
adversely affect our consolidated results of operations and ability to meet the operating results guidance that we
have projected.
have projected.
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
We may also from time to time make equity investments in companies, but we cannot assure you of their
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
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.
effect on our financial condition or results of operations.
effect on our financial condition or results of operations.
In 2017, our subsidiary, SENAO, evaluated the goodwill that arose in the acquisition of Youth Co., Ltd and its
subsidiaries, or Youth, and concluded that the recoverable amount of the goodwill was lower than the carrying value
In 2017, our subsidiary, SENAO, evaluated the goodwill that arose in the acquisition of Youth Co., Ltd and its
In 2017, our subsidiary, SENAO, evaluated the goodwill that arose in the acquisition of Youth Co., Ltd and its
subsidiaries, or Youth, and concluded that the recoverable amount of the goodwill was lower than the carrying value
subsidiaries, or Youth, and concluded that the recoverable amount of the goodwill was lower than the carrying value
and recognized an impairment loss of NT$9 million (US$0.3 million).
and recognized an impairment loss of NT$9 million (US$0.3 million).
and recognized an impairment loss of NT$9 million (US$0.3 million).
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 us on
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 us on
introducing new services or make substantial capital investments, financing for which may not be available to us on
favorable commercial terms or at all.
favorable commercial terms or at all.
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
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 our telecommunications technologies and services in order to respond to competitive industry conditions
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
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
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
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
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.
and market share and become less profitable.
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 addition, the cost of implementing new technologies, upgrading our networks or expanding capacity could be
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
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
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,
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. Also, we continue to deploy 4G mobile broadband base stations
convergence services, we continue to expand construction of fiber optic networks, including passive optical networks,
or PONs, and optical distribution networks, or ODNs. Also, we continue to deploy 4G mobile broadband base stations
and to enhance our 4G mobile broadband coverage and capacity. In November 2017, we obtained 4G mobile
or PONs, and optical distribution networks, or ODNs. Also, we continue to deploy 4G mobile broadband base stations
and to enhance our 4G mobile broadband coverage and capacity. In November 2017, we obtained 4G mobile
broadband services spectrum in 1800MHz and 2100MHz frequency bands. After that, we own three consecutive
and to enhance our 4G mobile broadband coverage and capacity. In November 2017, we obtained 4G mobile
broadband services spectrum in 1800MHz and 2100MHz frequency bands. After that, we own three consecutive
20MHz spectrum in 1800MHz, 2100MHz and 2600MHz frequency bands, which may provide higher data
broadband services spectrum in 1800MHz and 2100MHz frequency bands. After that, we own three consecutive
20MHz spectrum in 1800MHz, 2100MHz and 2600MHz frequency bands, which may provide higher data
transmission rates. To the extent these expenditures exceed our cash resources, we will be required to seek additional
20MHz spectrum in 1800MHz, 2100MHz and 2600MHz frequency bands, which may provide higher data
transmission rates. 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
transmission rates. 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
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
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
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
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.
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.
plans and materially and adversely affect our business prospects and future results of operations.
decline.
decline.
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 will
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
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.
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.
Our ability to deploy and deliver these services will depend, in many instances, on new but unproven technologies.
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
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
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.
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
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
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
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
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
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 information from cyber
attacks, nor protect our services from disruptions due to cybersecurity breaches.
As an internet service provider, our system is susceptible to cybersecurity 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.
Currently, the Legislative Yuan is reviewing the draft of “Information Communication Security Management
Act” submitted by the Executive Yuan on April 27, 2017. According to the draft under review by the Legislative
Yuan, providers of key basic infrastructure are required to establish, amend and implement the maintenance plan of
information communication security, and report the result of the implementation to the NCC. Once the draft
“Information Communication Security Management Act” is approved by the Legislative Yuan, it is likely that the
NCC regard us as a provider of key basic infrastructure in the communication area and then we will therefore be
subject to special obligations. If we fail to comply with such requirements, we may be subject to administrative
penalty. Furthermore, the European Union promulgated the General Data Protection Regulation, including strict
requirements to protect personal information of customers and suppliers from countries in the European Union. We
cannot assure you 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 cybersecurity
protection costs, lost revenues, litigation and reputational damage due to cyber attacks. See “Item 4. Information on
the Company—B. Business Overview—Cybersecurity and Personal Information Protection.”
Our largest stockholder may take actions that conflict with our public stockholders’ best interests.
As of December 31, 2017, 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
11
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, 2017. 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 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.
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.
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 Asia Pacific (particularly the
Korean Peninsula and the South China Sea) , which has resulted or could result 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 exit of the United Kingdom from the European
Union, worldwide populism trend that call for protectionism trade policy and potential international trade disputes,
all of which could 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
12
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.
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.
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, 2017. 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 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.
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.
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 Asia Pacific (particularly the
Korean Peninsula and the South China Sea) , which has resulted or could result 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 exit of the United Kingdom from the European
Union, worldwide populism trend that call for protectionism trade policy and potential international trade disputes,
all of which could 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
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 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.
Stockholders may have more difficulty protecting their interests under the laws of the ROC than they would
under the laws of the United States.
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.
13
Our actual financial results may differ materially from our published guidance.
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 2017 that are expected to be declared at our 2018
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.
Risks Relating to Ownership of Our ADSs and Common Shares
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 2017, the TWSE Index reached a low of 9,272.88 on January
3, 2017, and peaked at 10,854.57 on November 23, 2017. On April 20, 2018, the TWSE Index closed at 10,779.38.
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.
14
Our actual financial results may differ materially from our published guidance.
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 2017 that are expected to be declared at our 2018
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.
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 2017, the TWSE Index reached a low of 9,272.88 on January
3, 2017, and peaked at 10,854.57 on November 23, 2017. On April 20, 2018, the TWSE Index closed at 10,779.38.
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 20, 2018, foreign direct holdings of our outstanding share capital is at 17.70%. 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
15
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 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.
16
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
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.
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 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.
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.
ITEM 4.
INFORMATION ON THE COMPANY
INFORMATION ON THE COMPANY
A. History and Development of 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 ILD telephone services, international leased line
services, international data services, satellite services and other international services; and
17
•
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(cid:1)and internet service provider; and
we are Taiwan’s largest IPTV service provider.
In 2017, our revenues were NT$227.5 billion (US$7.7 billion), our consolidated net income was NT$40.2
billion (US$1.4 billion) and our basic earnings per share was NT$5.03 (US$0.17).
In 2017, we made capital expenditures totaling NT$26.9 billion (US$0.9 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
Competitive Strengths
We believe that our primary competitive strengths are:
•
•
our position as an integrated, full-service telecommunications provider and our premium brand and
broad customer base in Taiwan; and
our capital resources and technology.
We are an integrated full-service telecommunications provider and have premium brand and broad customer
base in Taiwan.
We are the largest telecommunications service provider in Taiwan with a leading position in fixed
communications 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. 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. As of December 31, 2017,
network coverage of FTTx with speeds of 100 Mbps and higher was approximately 89.81%. 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
18
•
•
•
•
•
•
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(cid:1)and internet service provider; and
we are Taiwan’s largest IPTV service provider.
In 2017, our revenues were NT$227.5 billion (US$7.7 billion), our consolidated net income was NT$40.2
billion (US$1.4 billion) and our basic earnings per share was NT$5.03 (US$0.17).
number of our service centers throughout Taiwan. Our extensive sales and distribution channels help us attract
additional customers and develop new business opportunities. We eagerly enhance user experience at different
channels. We integrate our online e-Shop and offline channels, with our Big Data capability, to accelerate
development of our Online-to-Offline business. 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.
In 2017, 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 13
consecutive years since 2005. We also have been awarded The Asset Corporate Platinum Award by The Asset
Magazine for five consecutive years since 2013. In addition, we were 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 three consecutive years since 2015. Furthermore, we were also awarded the
Excellence in Corporate Social Responsibility Award in Taiwan by Common Wealth Magazine for 11
consecutive years since 2007.
In 2017, we made capital expenditures totaling NT$26.9 billion (US$0.9 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.
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.
Competitive Strengths
We believe that our primary competitive strengths are:
our position as an integrated, full-service telecommunications provider and our premium brand and
broad customer base in Taiwan; and
our capital resources and technology.
We are an integrated full-service telecommunications provider and have premium brand and broad customer
base in Taiwan.
We are the largest telecommunications service provider in Taiwan with a leading position in fixed
communications 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. 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. As of December 31, 2017,
network coverage of FTTx with speeds of 100 Mbps and higher was approximately 89.81%. 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
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. We continue construction of our existing 4G mobile broadband
networks, our expansion of fiber to the x, or FTTx, broadband access services, IP-based MOD/OTT services, fixed-
line/mobile VAS, ICT-related services and service platforms. We will also continue to make investments in or to
acquire other companies which provide complementary telecommunication(cid:1)VAS, contents 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 to achieve network coverage of FTTx with speed of 1 Gbps to 90% by 2020. In 2017, 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 2017, our research and development expenses accounted for 1.7% of
our revenues. See “Item 5. Operating and Financial Review and Prospects—C. Research and Development, Patents
and Licenses—Research and Development” for descriptions about areas of our research and development. 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
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
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. 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. By offering 4K services,
we enable our customers to enjoy quality content via our MOD platform. We leverage our robust cloud
infrastructure to offer IPTV/OTT service and stay abreast with international trends. We also endeavor to improve
our MOD business by facilitating the overall TV operational environment and created single channel subscription
mechanism to encourage user-centric viewing. To further develop our MOD service, we will continue our revenue
sharing arrangement with channel providers.
We have been building relationships with content providers and service providers to offer attractive content
and services. Our strategy on MOD/VOD/OTT services is to enrich content, including by providing movies, drama,
and TV series for SVOD, to leverage our existing base of fixed broadband and 4G mobile broadband subscribers to
boost our MOD and OTT subscribers.
Since 2018, we plan to promote intelligent living services, especially in surveillance and health care services,
to enhance value of our fixed broadband services. We consistently expand the scope and variety of our integrated
services to create more value for our customers.
Mobile Communications: We obtained the 4G mobile broadband license in April 2014 and launched our 4G
mobile broadband services in May 2014. Our strategy for mobile services includes the following initiatives:
•
•
•
Enhancing 4G mobile broadband network construction to accommodate the increasing mobile data
usage;
Encouraging the migration of 3G service subscribers to 4G mobile services by offering attractive
packages;
Reallocating resources to guide mobile subscriptions toward high-end plans;
• Maintaining ample Wi-Fi hotspots to offer more wireless internet access service and to offload data
traffic from our mobile networks; we had offered more than 64 thousand Wi-Fi hotspots by the end of
2017; and
•
Leveraging our technology capabilities and cooperating with potential partners to explore opportunities
for future 5G IoT business development.
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 Security Operation Center, or SOC, Internet Data Center, or IDC
and cloud services. Our Panchiao IDC, the largest cloud computing data center in Taiwan, commenced operations
since July 2016, and we have started the second phase rack installation to meet increasing demands from the
financial industry and international content providers.
Emerging services: 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 information security. In addition, we are developing in-house Blockchain, Big Data, AI and AR capability
for future commercialization as well as cooperating with partners to develop an IoT ecosystem across various
industries. We plan to set 400 thousand IoT devices connected with our IoT platform by the end of 2018 in Taiwan.
20
Focus on our core strengths while expanding our scope of services to capture new growth opportunities
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. 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. By offering 4K services,
we enable our customers to enjoy quality content via our MOD platform. We leverage our robust cloud
infrastructure to offer IPTV/OTT service and stay abreast with international trends. We also endeavor to improve
our MOD business by facilitating the overall TV operational environment and created single channel subscription
mechanism to encourage user-centric viewing. To further develop our MOD service, we will continue our revenue
sharing arrangement with channel providers.
We have been building relationships with content providers and service providers to offer attractive content
and services. Our strategy on MOD/VOD/OTT services is to enrich content, including by providing movies, drama,
and TV series for SVOD, to leverage our existing base of fixed broadband and 4G mobile broadband subscribers to
boost our MOD and OTT subscribers.
Since 2018, we plan to promote intelligent living services, especially in surveillance and health care services,
to enhance value of our fixed broadband services. We consistently expand the scope and variety of our integrated
services to create more value for our customers.
Mobile Communications: We obtained the 4G mobile broadband license in April 2014 and launched our 4G
mobile broadband services in May 2014. Our strategy for mobile services includes the following initiatives:
Enhancing 4G mobile broadband network construction to accommodate the increasing mobile data
Encouraging the migration of 3G service subscribers to 4G mobile services by offering attractive
Reallocating resources to guide mobile subscriptions toward high-end plans;
• Maintaining ample Wi-Fi hotspots to offer more wireless internet access service and to offload data
traffic from our mobile networks; we had offered more than 64 thousand Wi-Fi hotspots by the end of
•
•
•
•
usage;
packages;
2017; and
Leveraging our technology capabilities and cooperating with potential partners to explore opportunities
for future 5G IoT business development.
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 Security Operation Center, or SOC, Internet Data Center, or IDC
and cloud services. Our Panchiao IDC, the largest cloud computing data center in Taiwan, commenced operations
since July 2016, and we have started the second phase rack installation to meet increasing demands from the
financial industry and international content providers.
Emerging services: 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 information security. In addition, we are developing in-house Blockchain, Big Data, AI and AR capability
for future commercialization as well as cooperating with partners to develop an IoT ecosystem across various
industries. We plan to set 400 thousand IoT devices connected with our IoT platform by the end of 2018 in Taiwan.
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.
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, 2017, our
Enterprise Business Group employed 499 professionals and offered packaged and customized services, customer-
oriented solutions and integrated ICT services. 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 offer 24-hour customer service, including consolidated billing for all services and online bill
payment service at our website.
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 enhance LTE network construction 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 September 2017, we entered into a
memorandum of understanding with Cisco Systems, Inc. to cooperate more deeply and leverage advantages of the
two parties in areas of(cid:1)SDN and NFV technology, data center, information security, IoT and smart city. In
November 2017, we formed an alliance with companies in telecommunications, financial and payments industries to
enlarge mobile payment services and raise the popularity of mobile payment in Taiwan. In January 2018, we formed
an alliance with industries, government and research institutions, to build an end-to-end 5G industry chain. In
February 2018, we cooperated with NTT to demonstrate SDN technology in NTT R&D Forum 2018. In addition, in
Mobile World Congress 2018, we cooperated with Nokia and Ericsson to build 5G trial network, and aim to pre-
21
commercialize in 2020. In March 2018, we cooperated with Tata Communications Limited and leveraged our IoT
platform to provide enterprise customers complete and timely multinational services.
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:
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. On March 23, 2018, we announced our plan to dispose of
1.5 million common shares of CHPT to fund future investment. We plan to complete the disposal by mid-May 2018.
After the disposal, our ownership interest in CHPT will decrease from 38.30% to 33.72%.
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.
Pursuant to the government’s southbound development policy, we set up Chunghwa Telecom (Thailand) Co.,
Ltd. in March 2017. The subsidiary currently provides international private leased circuit and internet protocol
virtual private network, or IP VPN, services, and aimed to extend to ICT and IoT business in the future.
CHT Security Co., Ltd., or CHT Security, was founded in December 2017, and we hold 80.27% of its equity
interests. CHT Security’s management team came from our Cyber Security Department of Data Communications
Business Group. The company currently provides network certification services, management consulting services,
data processing services, computer equipment installation, wholesale and retail of information software and
electronic supply services.
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, 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, ICT or IoT businesses.
Maintain focus on maximizing stockholder value
We are committed to maximizing stockholder value and intend to maintain a sustainable dividend policy.
Under the ROC Company Act, companies are allowed to distribute special cash dividend from capital surplus. 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
2018, our payout ratio was 95.7% in 2017 after adjusting for unappropriated earnings and setting aside the special
reserve. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information.”
22
commercialize in 2020. In March 2018, we cooperated with Tata Communications Limited and leveraged our IoT
platform to provide enterprise customers complete and timely multinational services.
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:
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. On March 23, 2018, we announced our plan to dispose of
1.5 million common shares of CHPT to fund future investment. We plan to complete the disposal by mid-May 2018.
After the disposal, our ownership interest in CHPT will decrease from 38.30% to 33.72%.
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.
Pursuant to the government’s southbound development policy, we set up Chunghwa Telecom (Thailand) Co.,
Ltd. in March 2017. The subsidiary currently provides international private leased circuit and internet protocol
virtual private network, or IP VPN, services, and aimed to extend to ICT and IoT business in the future.
CHT Security Co., Ltd., or CHT Security, was founded in December 2017, and we hold 80.27% of its equity
interests. CHT Security’s management team came from our Cyber Security Department of Data Communications
Business Group. The company currently provides network certification services, management consulting services,
data processing services, computer equipment installation, wholesale and retail of information software and
electronic supply services.
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, 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, ICT or IoT businesses.
Maintain focus on maximizing stockholder value
We are committed to maximizing stockholder value and intend to maintain a sustainable dividend policy.
Under the ROC Company Act, companies are allowed to distribute special cash dividend from capital surplus. 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
2018, our payout ratio was 95.7% in 2017 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
B. Business Overview
Our Principal Lines of Business
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
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$72.5 billion, NT$72.8 billion and NT$71.1 billion (US$2.4 billion), respectively, in 2015, 2016 and 2017,
representing 31.3%, 31.6% and 31.3% of our total revenue in such periods.
Local Telephone
The following table sets forth our revenues from local telephone services for the periods indicated.
Local telephone revenues:
Usage
Subscription
Interconnection
Pay telephone
Other
Total
Year Ended December 31
2015
NT$
2016
NT$
(in billions)
2017
NT$
US$
(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
11.3
15.7
0.7
0.2
1.7
29.6
382.6
529.5
23.0
6.1
57.4
998.6
We provide local telephone services to approximately 10.69 million customers in Taiwan. Our fixed-line
network reaches virtually all homes and businesses in Taiwan. Revenues from local telephone services comprised
14.5%, 13.8% and 13.0% of our total revenues in 2015, 2016 and 2017, respectively. Approximately 73.8% of our
local telephone customers as of December 31, 2017 were residential customers. We are currently the leader of the
local telephone service market, with an average subscriber market share of approximately 94.0%, 93.5% and 93.3%
in 2015, 2016 and 2017, 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:
Residential
Business
Total
2015
As of December 31
2016
(in thousands, except percentages and per
household data)
23,492 23,540 23,571
2017
8,239
2,928
7,883
2,804
11,167 10,939 10,687
8,067
2,872
Penetration rate (as a percentage of the population)
Lines in service per household
47.5 %
0.97
46.5 %
0.94
45.3 %
0.91
(1)
Data from the Department of Population, Ministry of the Interior, ROC.
23
With the continued development of internet technologies, demand for local customer lines has been declining.
The number of fixed-line customers decreased by 1.7% in 2015 compared to 2014, 2.0% in 2016 compared to 2015
and 2.3% in 2017 compared to 2016. We attribute the decrease in fixed-line customers to a general industry-wide
trend of migrating from fixed-line services to internet telephony services.
The following table sets forth information with respect to local telephone usage for the periods indicated.
2015
Year Ended December 31
2016
(in millions, except percentages)
2017
Minutes from local calls (1)(2)
Growth rate (compared to the same period in the
prior year)
10,511
9,481
8,335
(9.1 )%
(9.8 )%
(12.1 )%
(1)
(2)
Includes minutes from local calls made on pay telephones and minutes from fixed line-to-mobile calls.
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 2015, 2016 and 2017 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$1.0 for ten minutes. Our usage fees are the same for residential and business customers.
The following table sets forth information with respect to the average local telephone usage charge per minute
for the periods indicated.
Year Ended December 31
2016
NT$
2017
NT$
2015
NT$
Average local telephone usage fee (per minute)
Growth rate (compared to the same period in the
prior year)
1.39
1.37
1.37
—
(1.4 )
—
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. Average per minute usage charges remained relatively stable from 2016 to 2017.
Domestic Long Distance Telephone
We provide domestic long distance telephone services in Taiwan. Total revenues from domestic long distance
telephone services were NT$3.1 billion, NT$2.9 billion and NT$2.6 billion (US$0.1 billion) in 2015, 2016 and
2017, respectively, representing 1.3%, 1.3% and 1.2% 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 82.2%, 83.0% and 82.7% in 2015, 2016 and 2017, 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.
24
With the continued development of internet technologies, demand for local customer lines has been declining.
The number of fixed-line customers decreased by 1.7% in 2015 compared to 2014, 2.0% in 2016 compared to 2015
and 2.3% in 2017 compared to 2016. We attribute the decrease in fixed-line customers to a general industry-wide
trend of migrating from fixed-line services to internet telephony services.
The following table sets forth information with respect to local telephone usage for the periods indicated.
Minutes from local calls (1)(2)
Growth rate (compared to the same period in the
prior year)
Year Ended December 31
2015
2016
2017
(in millions, except percentages)
10,511
9,481
8,335
(9.1 )%
(9.8 )%
(12.1 )%
Includes minutes from local calls made on pay telephones and minutes from fixed line-to-mobile calls.
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)
revenues.
Minutes from local calls decreased in 2015, 2016 and 2017 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$1.0 for ten minutes. Our usage fees are the same for residential and business customers.
The following table sets forth information with respect to the average local telephone usage charge per minute
for the periods indicated.
Average local telephone usage fee (per minute)
Growth rate (compared to the same period in the
prior year)
Year Ended December 31
2015
NT$
2016
NT$
2017
NT$
1.39
1.37
1.37
—
(1.4 )
—
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. Average per minute usage charges remained relatively stable from 2016 to 2017.
Domestic Long Distance Telephone
We provide domestic long distance telephone services in Taiwan. Total revenues from domestic long distance
telephone services were NT$3.1 billion, NT$2.9 billion and NT$2.6 billion (US$0.1 billion) in 2015, 2016 and
2017, respectively, representing 1.3%, 1.3% and 1.2% 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 82.2%, 83.0% and 82.7% in 2015, 2016 and 2017, 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. We
are continuing the build-out of our FTTx infrastructure.
Our revenues from our broadband access services in 2015, 2016 and 2017 were NT$19.3 billion, NT$19.0
billion and NT$18.7 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 2015 to 2017, we continued accelerating our high speed FTTx household coverage. We offer various
promotional packages to encourage more migration of our FTTx subscribers to higher speed FTTx service. In 2017,
FTTx revenue reached 91.5% of our total broadband revenue. As of December 31, 2017, 92.0% of our FTTx service
customers subscribe HiNet ISP service.
Our subscriber market share of Taiwan’s broadband market was approximately 75.8%, 74.3% and 72.5% in
2015, 2016 and 2017, respectively.
The following table sets forth our broadband service customers as of each of the dates indicated.
Year Ended December 31
2016
2017
2015
FTTx service customers (in thousands)
ADSL service customers (in thousands)
3,358
1,138
3,484
992
3,552
916
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 vary based on connection speed.
The following table sets forth our ARPU for each of the periods indicated.
Year Ended December 31
2016
NT$
2017
NT$
2015
NT$
ARPU for broadband services per month(1)
ARPU for FTTx services per month(2)
714
828
717
811
718
801
(1)
(2)
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.
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.
25
Despite tariff reductions mandated by the NCC, our overall broadband ARPU increased in 2016 and 2017,
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, 2015, 2016 and 2017, the total bandwidths of local and domestic long
distance lines leased to third parties were 1,556.8, 1,678.8 and 2,025.2 Gbps, respectively. The number increased
from 2015 to 2017 mainly due to the increase in demand for the bandwidth of backbone network for 4G mobile
broadband services.
Our local and domestic long distance leased line services revenues were NT$4.4 billion, NT$4.3 billion, and
Our local and domestic long distance leased line services revenues were NT$4.4 billion, NT$4.3 and NT$4.3
(US$0.1 billion) in 2015, 2016 and 2017, respectively. Although the bandwidth leased to third parties increased, the
NT$4.3 billion (US$0.1 billion) in 2015, 2016 and 2017, respectively. Although the bandwidth leased to third parties
revenue decreased year over year mainly due to the decline in rental fees.
increased, the revenue decreased year over year mainly due to the decline in rental fees.
Wi-Fi Services
As of December 31, 2015, 2016 and 2017, we had a total of approximately 2.4 million, 2.6 million and 2.7
million residential and business customers that leased our access points, respectively. In addition, we had more than
64 thousand hot spots in public areas by the end of 2017, 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 202,
including 177 high definition, or HD, broadcasting channels and over 23,000 hours of on-demand programs. In
addition to our regular packaged offerings, we also offer SVoD services for film and drama. Furthermore, starting
from the second half of 2017, our MOD platform started to offer OTT service such as KKTV and FOX+. As of
December 31, 2017, we had 1.6 million MOD customers, including 977 thousand SVoD subscribers.
Our MOD revenues from 2015 to 2017 were NT$2.5 billion, NT$2.4 billion and NT$2.5 billion (US$86.1
million) in 2015, 2016 and 2017, respectively. The decrease in revenue from 2015 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. The increase in
revenue from 2016 to 2017 was mainly due to the increase in the number of IPTV and SVoD subscribers, which was
attribute to the enhancement of local contents. We are pleased to see that our IPTV customers continued to sign up
for additional SVoD programs.
ICT and Other Services
Our ICT and other services in domestic fixed communications business include ICT services, corporate
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.
26
Despite tariff reductions mandated by the NCC, our overall broadband ARPU increased in 2016 and 2017,
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, 2015, 2016 and 2017, the total bandwidths of local and domestic long
distance lines leased to third parties were 1,556.8, 1,678.8 and 2,025.2 Gbps, respectively. The number increased
from 2015 to 2017 mainly due to the increase in demand for the bandwidth of backbone network for 4G mobile
broadband services.
Our local and domestic long distance leased line services revenues were NT$4.4 billion, NT$4.3 and NT$4.3
(US$0.1 billion) in 2015, 2016 and 2017, respectively. Although the bandwidth leased to third parties increased, the
revenue decreased year over year mainly due to the decline in rental fees.
As of December 31, 2015, 2016 and 2017, we had a total of approximately 2.4 million, 2.6 million and 2.7
million residential and business customers that leased our access points, respectively. In addition, we had more than
64 thousand hot spots in public areas by the end of 2017, 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
Wi-Fi Services
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 202,
including 177 high definition, or HD, broadcasting channels and over 23,000 hours of on-demand programs. In
addition to our regular packaged offerings, we also offer SVoD services for film and drama. Furthermore, starting
from the second half of 2017, our MOD platform started to offer OTT service such as KKTV and FOX+. As of
December 31, 2017, we had 1.6 million MOD customers, including 977 thousand SVoD subscribers.
Our MOD revenues from 2015 to 2017 were NT$2.5 billion, NT$2.4 billion and NT$2.5 billion (US$86.1
million) in 2015, 2016 and 2017, respectively. The decrease in revenue from 2015 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. The increase in
revenue from 2016 to 2017 was mainly due to the increase in the number of IPTV and SVoD subscribers, which was
attribute to the enhancement of local contents. We are pleased to see that our IPTV customers continued to sign up
for additional SVoD programs.
ICT and Other Services
Our ICT and other services in domestic fixed communications business include ICT services, corporate
solution and bill handling services. See “Emerging Services.”
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.
Mobile Services
We are Taiwan’s largest provider of mobile services in terms of both revenues and customers. 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, or 34.3% of our total revenues, from mobile services. In 2017, we generated revenues
of NT$75.8 billion (US$2.6 billion), or 33.3% of our total revenues, from mobile services. Our mobile VAS revenue
grew by 4.8% from 2015 to 2016 and by 4.2% from 2016 to 2017 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.
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. Our
ARPU per month further decreased to NT$595 in 2017 mainly due to market competition. See “—Competition—
Mobile Communications.”
Revenues from mobile VAS represented 49.0%, 52.7% and 57.0% of our total mobile services revenues in
2015, 2016 and 2017, respectively. The increase of mobile VAS revenue percentage was mainly attributed to the
increase in mobile data plan subscribers.(cid:1)
Year Ended December 31
2015
NT$
2016
NT$
(in billions)
2017
NT$
US$
(in millions)
Mobile services revenues:
Usage(1)
Interconnection
Mobile VAS
Other
Total mobile services
(1)
Includes monthly fees.
35.8
3.7
39.6
1.8
80.9
33.0
2.7
41.5
1.6
78.8
29.2
2.1
984.6
71.2
43.2 1,458.3
44.0
75.8 2,558.1
1.3
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 10.45 million
mobile customers, for a market share of approximately 36.5% of total mobile customers and approximately 37.2%
of total mobile services revenues in Taiwan, as of December 31, 2017.
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. 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.
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. The
license is valid until December 31, 2033. We put these 2500MHz and 2600MHz frequency bands into use on March
24, 2016.
In November 2017, we further obtained spectrum for 4G mobile broadband services of 5 MHz paired
spectrum in the 1800 MHz frequency band and 20 MHz paired spectrum in the 2100 MHz frequency band,
including 15 MHz paired spectrum in the 2100MHz frequency band now for our 3G mobile services, and we paid
NT$10.9 billion to the government. The license is valid until December 31 of 2030 and 2033, respectively. We will
continue enhancing our 4G mobile broadband network capacity.
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
27
detail in mobile spectrum allocation in “Network Infrastructure.” Meanwhile, our 2G service license has expired in
June 2017, and we have ceased our 2G service afterward.
Chunghwa Telecom is the pioneer and leader of roaming services in Taiwan. By the end of 2017, we
commercially launched roaming services with 468 networks in 198 countries, including 146 LTE roaming
partners in 75 countries. Meanwhile, we offer diverse and competitive roaming services in order to meet
customers’ demand. By strategically cooperating with the chief mobile companies, ultimately we won high
reputation and the best brand value in roaming market.
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)
2015
As of or for the Year Ended December 31
2016
23,492 23,540 23,571
NT$217.1 NT$211.9 NT$201.2
2017
18.17 %
22.80 %
21.98 %
11,428
9,953
11,626 10,245
153
172
8,424
8,722
135
(1)
(2)
Data from the Department of Population, Ministry of the Interior, ROC.
Data from the statistical monthly release by the NCC, in the ROC, which include mobile revenues from 2G, 3G and 4G mobile broadband
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.
The number of mobile customers is based on the number of SIM cards.
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.
(4)
(5)
The total mobile customers in Taiwan had reached approximately 28.7 million as of December 31, 2017.
Mobile penetration was approximately 121.6% on the same date. The overall mobile services market experienced a
slight decrease of 5.0% in revenues in 2017 mainly due to the decrease in total number of customers in the mobile
market. As of December 31, 2017, we had 8.0 million and 2.5 million subscribers for 4G and 3G services,
respectively.
We offer incentives, such as mobile handset subsidies for the immediate purchase, 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.
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, 2017, we had approximately 1.6 million prepaid
customers, representing approximately 15.2% 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.
28
detail in mobile spectrum allocation in “Network Infrastructure.” Meanwhile, our 2G service license has expired in
Sales of Mobile Handsets, Tablets and Data Cards
June 2017, and we have ceased our 2G service afterward.
Chunghwa Telecom is the pioneer and leader of roaming services in Taiwan. By the end of 2017, we
commercially launched roaming services with 468 networks in 198 countries, including 146 LTE roaming
partners in 75 countries. Meanwhile, we offer diverse and competitive roaming services in order to meet
customers’ demand. By strategically cooperating with the chief mobile companies, ultimately we won high
reputation and the best brand value in roaming market.
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
2015
2016
2017
23,492 23,540 23,571
NT$217.1 NT$211.9 NT$201.2
18.17 %
22.80 %
21.98 %
11,428
9,953
11,626 10,245
172
153
8,424
8,722
135
Data from the Department of Population, Ministry of the Interior, ROC.
Data from the statistical monthly release by the NCC, in the ROC, which include mobile revenues from 2G, 3G and 4G mobile broadband
(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.
The number of mobile customers is based on the number of SIM cards.
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
The total mobile customers in Taiwan had reached approximately 28.7 million as of December 31, 2017.
Mobile penetration was approximately 121.6% on the same date. The overall mobile services market experienced a
slight decrease of 5.0% in revenues in 2017 mainly due to the decrease in total number of customers in the mobile
market. As of December 31, 2017, we had 8.0 million and 2.5 million subscribers for 4G and 3G services,
We offer incentives, such as mobile handset subsidies for the immediate purchase, when new customers agree
to sign a service contract with us or when existing customers renew their contracts with us ranging from 12 months
(1)
(2)
(4)
(5)
services.
period.
respectively.
to 30 months.
service.
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
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, 2017, we had approximately 1.6 million prepaid
customers, representing approximately 15.2% 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 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 online e-Shop, 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
Internet Business
Our internet business includes data communication services, application VAS and services provided to the
government. Our revenues from internet business represented 11.1%, 12.2% and 12.7% of our revenues in 2015,
2016 and 2017, respectively. In 2017, 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, HiNet, HiLink, information security
and IoT.
Data Communication 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
2015
As of December 31
2016
(in thousands)
2017
6,151
6,099
6,113
3,083
688
426
2
4,199
3,221
539
413
2
4,175
3,294
439
400
1
4,134
Our ISP service subscribers decreased from 2015 to 2017 mainly due to the competition from cable broadband
operators and substitution by mobile broadband services.(cid:1) We are still the largest ISP in Taiwan, with a subscriber
market share of 67.6% among 412 ISPs in ROC as of December 31, 2017. As of December 31, 2017, approximately
83.6% of our broadband customers were also HiNet subscribers, using HiNet as their ISP.
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.” In 2017, we developed an open IoT application
platform featured with functions of cloud computing, Big Data analysis, artificial intelligence and augmented reality,
etc. to enlarge the cooperation with IoT industry as well as strengthen its domestic ecosystem. We will continue to
explore new IoT applications such as remote water control, smart metering and smart lightening.
International Fixed Communications Business
International Fixed Communications Business
Our international fixed communications business includes ILD telephone services, international leased line
services, satellite services and ICT and other international services.
29
ILD Telephone Services
We provide ILD telephone services in Taiwan. Total revenues from ILD telephone services comprised 4.2%,
3.8% and 3.2% of our revenues in 2015, 2016 and 2017, respectively. Our ILD telephone revenues decreased by
8.5% to NT$8.8 billion in 2016, and further decreased by 16.4% to NT$7.4 billion (US$0.2 billion) in 2017,
primarily due to the intense competition from VoIP-based ILD service providers and free VoIP applications. Our
average market share of the ILD market by minutes was approximately 57.8%, 55.8% and 62.5% in 2015, 2016 and
2017, respectively. Our ILD services consist primarily of international direct dial services and the wholesale of ILD
traffic. The wholesale of ILD outgoing traffic accounted for 54.7% of our total ILD outgoing minutes in 2017.
We provide wholesale ILD services to international simple resale, or ISR, operators that do not possess their own
telephone network or infrastructure.
International calls to our top five destinations represented 50.6% of our outgoing ILD call traffic in 2017,
including Mainland China, Philippines, Indonesia, the United States and Japan. International calls from our top five
destinations represented 56.7% of our incoming ILD call traffic in 2017, including Canada, Mainland China, the
United States, Korea and Indonesia.
The following table sets forth information with respect to usage of our ILD services for the periods indicated.
Incoming minutes
Outgoing minutes
Total minutes
Incoming/outgoing ratio
Year Ended December 31
2017
2016
2015
(in millions, except incoming/outgoing
ratio)
937
1,346
2,283
0.70
787
1,022
1,809
0.77
756
854
1,610
0.89
Total incoming call volume decreased by 16.0% from 2015 to 2016, and further decreased by 3.9% in 2017,
mainly due to the intensified market competition from VoIP-based ILD service providers, free VoIP applications
and other ILD service providers. Similarly, due to this intensified competition, total outgoing call volume decreased
by 24.1% from 2015 to 2016 and further decreased by 16.4% in 2017.
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.
Leased Line Services—International
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 a total of five undersea cable operators, including us, 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, and further increased by 73.6% to 4,855.6 Gbps in 2017.
30
ILD Telephone Services
We provide ILD telephone services in Taiwan. Total revenues from ILD telephone services comprised 4.2%,
3.8% and 3.2% of our revenues in 2015, 2016 and 2017, respectively. Our ILD telephone revenues decreased by
8.5% to NT$8.8 billion in 2016, and further decreased by 16.4% to NT$7.4 billion (US$0.2 billion) in 2017,
primarily due to the intense competition from VoIP-based ILD service providers and free VoIP applications. Our
average market share of the ILD market by minutes was approximately 57.8%, 55.8% and 62.5% in 2015, 2016 and
2017, respectively. Our ILD services consist primarily of international direct dial services and the wholesale of ILD
traffic. The wholesale of ILD outgoing traffic accounted for 54.7% of our total ILD outgoing minutes in 2017.
We provide wholesale ILD services to international simple resale, or ISR, operators that do not possess their own
telephone network or infrastructure.
International calls to our top five destinations represented 50.6% of our outgoing ILD call traffic in 2017,
including Mainland China, Philippines, Indonesia, the United States and Japan. International calls from our top five
destinations represented 56.7% of our incoming ILD call traffic in 2017, including Canada, Mainland China, the
United States, Korea and Indonesia.
Incoming minutes
Outgoing minutes
Total minutes
Incoming/outgoing ratio
Year Ended December 31
2015
2017
(in millions, except incoming/outgoing
2016
ratio)
937
1,346
2,283
0.70
787
1,022
1,809
0.77
756
854
1,610
0.89
Total incoming call volume decreased by 16.0% from 2015 to 2016, and further decreased by 3.9% in 2017,
mainly due to the intensified market competition from VoIP-based ILD service providers, free VoIP applications
and other ILD service providers. Similarly, due to this intensified competition, total outgoing call volume decreased
by 24.1% from 2015 to 2016 and further decreased by 16.4% in 2017.
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.
Leased Line Services—International
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 a total of five undersea cable operators, including us, 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, and further increased by 73.6% to 4,855.6 Gbps in 2017.
Rental fees for ILD 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$1.7 billion, NT$1.8 billion and NT$1.9 billion (US$65.7 million) in 2015, 2016 and 2017, respectively,
mainly due to our expansion to the overseas markets and growing consumer demand mentioned above.
Satellite Services
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. 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.
The following table sets forth information with respect to usage of our ILD services for the periods indicated.
ICT and Other Services
Our ICT and other services in our international fixed communications business include corporate solution
services. See “Emerging Services.”
Others
Others
Our other business segment includes our non-telecom services, including semiconductor testing components
and printed circuit board sales made by our subsidiary, CHPT, and property development and management services
provided by our subsidiary, Light Era Development Co., Ltd., or Light Era.
Emerging 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.
Our ICT services includes integrated services such as our iEN, ITS, Internet of Vehicles, and eHome. 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. Besides, we
also help household as well as enterprise to build an automatic interior environment in areas including security,
parking and communications. 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. We will expedite CDN
construction to enhance digital convergence product competitiveness.
Interconnection
Interconnection
We provide interconnection of our fixed line network and mobile network with other operators.
31
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
2015
NT$
2016
NT$
(in billions)
2017
NT$
US$
(in millions)
1.0
3.7
2.3
3.9
0.9
2.7
1.6
3.0
0.8
2.1
1.2
2.5
26.0
71.2
39.4
83.3
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 mandated mobile interconnection rate reduction over a period of four years starting on January 5,
2013. The NCC further mandated a mobile interconnection rate reduction over a period of four years starting from
November 2017 from NT$1.15 per minute to NT$0.571 per minute. Therefore, our mobile interconnection revenues
and costs decreased from 2015 to 2017.
Currently, for fixed-line-to-mobile calls, (i) the fixed-line network operators have the right to set the rates of
telecommunication fees and to be charged to customers; (ii) fixed-line network operators have to pay
interconnection fees to mobile network operators in accordance with the interconnection rate prescribed by the
NCC. In addition, we are specifically required by the NCC to pay transition fees on top of the interconnection fees
mentioned in (ii) from January 1, 2011 to January 1, 2017.
Fixed interconnection costs decreased from 2015 to 2017 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, 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
32
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
Fixed line
Mobile
Interconnection costs:
Year Ended December 31
2015
NT$
2016
NT$
2017
NT$
US$
(in billions)
(in millions)
1.0
3.7
2.3
3.9
0.9
2.7
1.6
3.0
0.8
2.1
1.2
2.5
26.0
71.2
39.4
83.3
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 mandated mobile interconnection rate reduction over a period of four years starting on January 5,
2013. The NCC further mandated a mobile interconnection rate reduction over a period of four years starting from
November 2017 from NT$1.15 per minute to NT$0.571 per minute. Therefore, our mobile interconnection revenues
and costs decreased from 2015 to 2017.
Currently, for fixed-line-to-mobile calls, (i) the fixed-line network operators have the right to set the rates of
telecommunication fees and to be charged to customers; (ii) fixed-line network operators have to pay
interconnection fees to mobile network operators in accordance with the interconnection rate prescribed by the
NCC. In addition, we are specifically required by the NCC to pay transition fees on top of the interconnection fees
mentioned in (ii) from January 1, 2011 to January 1, 2017.
Fixed interconnection costs decreased from 2015 to 2017 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.(cid:1)In addition, we have set online e-Shop to improve our operational efficiency
and to reach more young people.
Business Customers. We devote an account manager to serve corporate customers and develop
customized solutions for their needs. In addition, we continually update and expand our service
offerings so that we can remain a one-stop services provider to our corporate customers, including
providing ICT products such as Big Data analysis, information security and cloud computing to help our
corporate customers improve their efficiency and competitiveness.
Branding. 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,
emome and Hami. 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, 2017, we had 17 operations offices for operations, 465 service centers and 6 customer
service call centers for sales and customer service. In addition, in 2017, visits to our online e-Shop were over 30
milllion times, and the number of transaction was triple compared with that in 2016.
We also had 285 Senao exclusive service stores as of December 31, 2017. 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 28.93% as of March 31, 2018. 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.
Competition
Competition
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, 27 independent MSOs as
well as OTT service providers. The different service providers compete on the basis of the multimedia
33
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 recent two years, T-Star
and APTG provided unlimited data plans with extremely low prices, and indeed acquired many subscribers. In
addition to the 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 compete in the wireless services market primarily on the basis of premium brand, price, quality of service,
network reliability and attractiveness of service packages. See “Network Infrastructure—Mobile Services Network”
for a discussion on our advantage of 4G mobile broadband services spectrum. (cid:1)
Internet
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 ILD services and corporate
customer services, which typically generate higher revenue than residential customers.
There have been four alternative 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 ILD services compete with ILD resale services and VoIP services such as those provided by mobile
applications.
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, SYSCOM Group, IBM Corporation, HP Company and Stark Technology Inc.
Network Infrastructure
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.
34
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 recent two years, T-Star
and APTG provided unlimited data plans with extremely low prices, and indeed acquired many subscribers. In
addition to the 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 compete in the wireless services market primarily on the basis of premium brand, price, quality of service,
network reliability and attractiveness of service packages. See “Network Infrastructure—Mobile Services Network”
for a discussion on our advantage of 4G mobile broadband services spectrum. (cid:1)
Internet
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 ILD services and corporate
customer services, which typically generate higher revenue than residential customers.
There have been four alternative 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 ILD services compete with ILD resale services and VoIP services such as those provided by mobile
applications.
Emerging Services
Network Infrastructure
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 13,078 of our employees were engaged in network infrastructure development, maintenance,
operations and planning as of December 31, 2017.
Transmission Networks
As of December 31, 2017, our transmission networks consisted of approximately 2.5 million fiber kilometers
of fiber optic cable for trunking and approximately 9.3 million fiber kilometers of fiber optic cable for local loop.
Due to the high utilization of our existing Re-configurable Optical Add-Drop Multiplexer, or ROADM
network, we began to introduce the optical transport network, or OTN, trial network to meet the demand of 100G
wavelength services in 2014. We had completed the deployment of 232 wavelength OTN by the end of 2017. We
had a trial of one wavelength 200Gbps transmission technology in 2017. This trial verified 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, 2017, we have constructed approximately 9.2 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, 2017, we had 38 long distance
exchanges, which are interconnection points between our telecommunications network and approximately 16.7
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, 2017, our Next Generation Network, or NGN core network capacity consisted of
1,240,000 local telephone subscribers, comprising 448,000 Session Initiation Protocol-based, or SIP-based, and
792,000 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 2017 with 12 sets of 4Tbps 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 1,790 Gbps as of the end of 2017. 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.
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, SYSCOM Group, IBM Corporation, HP Company and Stark Technology Inc.
International network. Our international transmission infrastructure consists of both submarine cable and
satellite transmission systems, which link our national network directly to 94 telecommunications service providers
in 42 international destinations.
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.
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 149,820 channels in total as of December 31, 2017.
35
As of December 31, 2017, we had invested in 20 submarine cables, nine of which land in Taiwan. We had
increased the capacity of each of our current submarine cables, increasing our aggregate total capacity from 4,025
Gbps in 2016 to 5,028 Gbps in 2017.
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 RNC (radio network controller) for 3G, which connect to, and control,
the base station within each cell site;
cellular switching service centers for 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 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 have 15 MHz paired spectrum in the 2100MHz frequency band for our 3G mobile services, which was
launched in July 2005 to provide voice communication services and 3G data services.
In May 2014, we launched our 4G mobile broadband services with 10 MHz paired spectrum in the 900 MHz
frequency band and 25 MHz paired spectrum in the 1800 MHz frequency band. 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 June 2017, we implement four frequency band CA technology into our 1800/2600 MHz
frequency band base stations that is expected to increase users’ downlink speed over 500 Mbps. In November 2017,
we further obtained spectrum for 4G mobile broadband services of 5 MHz paired spectrum in the 1800 MHz
frequency band and 20 MHz paired spectrum in the 2100 MHz frequency band, including 15 MHz paired spectrum
in the 2100MHz frequency band now for our 3G mobile services. After that, we own three consecutive 20MHz
spectrum in 1800MHz, 2100MHz and 2600MHz frequency bands, which may provide higher data transmission
rates.
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 5,664,000 broadband remote access server ports and a backbone bandwidth of
approximately 7,217 Gbps as of December 31, 2017. We aim to achieve HiNet’s points of presence and backbone
bandwidth to approximately 8,937 Gbps by the end of 2018.
36
As of December 31, 2017, we had invested in 20 submarine cables, nine of which land in Taiwan. We had
increased the capacity of each of our current submarine cables, increasing our aggregate total capacity from 4,025
Gbps in 2016 to 5,028 Gbps in 2017.
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
BSC (base station controllers) for RNC (radio network controller) for 3G, which connect to, and control,
within the range of a cell;
the base station within each cell site;
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 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 have 15 MHz paired spectrum in the 2100MHz frequency band for our 3G mobile services, which was
launched in July 2005 to provide voice communication services and 3G data services.
In May 2014, we launched our 4G mobile broadband services with 10 MHz paired spectrum in the 900 MHz
frequency band and 25 MHz paired spectrum in the 1800 MHz frequency band. 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 June 2017, we implement four frequency band CA technology into our 1800/2600 MHz
frequency band base stations that is expected to increase users’ downlink speed over 500 Mbps. In November 2017,
we further obtained spectrum for 4G mobile broadband services of 5 MHz paired spectrum in the 1800 MHz
frequency band and 20 MHz paired spectrum in the 2100 MHz frequency band, including 15 MHz paired spectrum
in the 2100MHz frequency band now for our 3G mobile services. After that, we own three consecutive 20MHz
spectrum in 1800MHz, 2100MHz and 2600MHz frequency bands, which may provide higher data transmission
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.
rates.
Internet Network
HiNet, our internet service provider, has the largest internet access network in Taiwan, with 34 points of
presence approximately 5,664,000 broadband remote access server ports and a backbone bandwidth of
approximately 7,217 Gbps as of December 31, 2017. We aim to achieve HiNet’s points of presence and backbone
bandwidth to approximately 8,937 Gbps by the end of 2018.
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 2017 with 20 sets of 46Tbps/30Tbps
/12.8Tbps/10.24Tbps/4.48Tbps switch routers for the inner core network and more than 54 sets of
10.56Tbps/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 400 Gbps. We believe these networks will enable us to meet the
increasing demand for our internet services.
HiNet’s total international connection bandwidth is 1,286 Gbps as of December 31, 2017. 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, Thailand and the United Kingdom.
cellular switching service centers for 3G, which control the base station controllers and the processing
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, 2017, we
had 324 frame relay ports, 870 asynchronous transfer mode ports and approximately 104,283 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
Cybersecurity and Personal Information Protection
Our planning and promotion of information security and personal information protection policy is based on
the Plan-Do-Check-Act (PDCA cycle) and was established complying with the ISO27001, BS10012, Information
Security Management System and Personal Information Protection Management System.
In addition, these policies and procedures have been defined in operational rules for all of our business and
service contracts. These documents are available to internal use for all of our employees.
Cybersecurity risks have been included in the overall risk management framework. Our information security
and personal information protection policy is reviewed and amended in accordance with international trend of
cybersecurity and governmental regulations. We also put results of annual audit program and external threats
discovered by our SOC into consideration.
The aforementioned information security strategy and action solution as well as key performance indicators
are required our president’s approval. Our senior executive vice president of business, concurrently served as our
chief information security officer and data protection officer, convenes regular meeting in order to conduct review
37
and the procedure of improvements. In addition, the board of directors engaged in the discussion and review of
information security/cybersecurity and personal information protection strategy.
To prevent increasing cyber risks and threats, we have implemented the measures described below.
•
Responsibilities, accountabilities and reporting lines are systemically defined in all divisions and group
companies.
• We implement social engineering drill annually to enhance security awareness for all personnel.
•
•
•
All of the high-availability systems in our data centers are deployed with firewall and Intrusion
Prevention System, or IPS. We also provided DDoS mitigation solution to defend against hackers’
attacks.
All of the information systems and websites are scanned for vulnerabilities and a dedicated team of
information security experts is responsible for conducting penetration testing on our information
system, websites and Apps, to prevent leakage of customer information.
System developers of our company, including outsource developers, are required to attend secure
coding training courses and obtain relevant certifications.
• 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 implement adverse situation drills annually to ensure the established and implemented Business
Continuity Planning are valid and effective. In addition, we participate in drills held by the government
regularly.
• We established CHT SOC, which is responsible for incidents and threats monitoring, notification and
emergency response.
• We actively cooperate with industries, the government, and academic sectors in order to exchange the
information and foresee relevant threats and perform early preventions necessitated.
• We required our branch offices to comply with ISO27001 and obtain the ISO27001 certification.
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. We have posted a copy of our privacy policy on our website at(cid:1)
http://www.cht.com.tw/en/csr/upload/content/CHT_Privacy_Policy.pdf.
To comply with the PIPA, we implemented a series of measures to avoid the leakage of customers’
information:
•
•
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.
Documents containing customer’s personal information are labeled “highly confidential.”
• We required our branch offices to implement a drill in personal data leakage incident handling once a
year.
•
Any access to the system including personal information should be monitored and recorded, and these
records will be reviewed by relevant supervisors regularly.
38
and the procedure of improvements. In addition, the board of directors engaged in the discussion and review of
information security/cybersecurity and personal information protection strategy.
To prevent increasing cyber risks and threats, we have implemented the measures described below.
Responsibilities, accountabilities and reporting lines are systemically defined in all divisions and group
• We implement social engineering drill annually to enhance security awareness for all personnel.
All of the high-availability systems in our data centers are deployed with firewall and Intrusion
Prevention System, or IPS. We also provided DDoS mitigation solution to defend against hackers’
companies.
attacks.
All of the information systems and websites are scanned for vulnerabilities and a dedicated team of
information security experts is responsible for conducting penetration testing on our information
system, websites and Apps, to prevent leakage of customer information.
System developers of our company, including outsource developers, are required to attend secure
coding training courses and obtain relevant certifications.
• 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.
regularly.
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. We have posted a copy of our privacy policy on our website at(cid:1)
http://www.cht.com.tw/en/csr/upload/content/CHT_Privacy_Policy.pdf.
To comply with the PIPA, we implemented a series of measures to avoid the leakage of customers’
information:
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.
Documents containing customer’s personal information are labeled “highly confidential.”
• We required our branch offices to implement a drill in personal data leakage incident handling once a
year.
Any access to the system including personal information should be monitored and recorded, and these
records will be reviewed by relevant supervisors regularly.
•
•
•
•
•
•
•
• We has developed a Segregation of Duties, or SoD, requirement to avoid unauthorized behavior.
Relevant supervisors are asked to review access authorization of systems, and to ensure the compliance
with SoD.
•
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.
Property, plant and equipment
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$609.1 million (US$20.5 million) in rental income from properties
in 2017.
• We implement adverse situation drills annually to ensure the established and implemented Business
Continuity Planning are valid and effective. In addition, we participate in drills held by the government
Insurance
Insurance
• We established CHT SOC, which is responsible for incidents and threats monitoring, notification and
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.
• We actively cooperate with industries, the government, and academic sectors in order to exchange the
information and foresee relevant threats and perform early preventions necessitated.
Employees
Employees
• We required our branch offices to comply with ISO27001 and obtain the ISO27001 certification.
Please refer to “Item 6. Directors, Senior Management and Employees—D. Employees” for a discussion of
our employees.
Our Pension Plans
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
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 2015, 2016 or 2017 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.
39
Capital Expenditures
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.
Enforceability of Judgments in Taiwan
Enforceability of Judgments in Taiwan
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
Regulation
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.
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
participants;
40
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.
Enforceability of Judgments in Taiwan
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
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
ROC;
good morals of the ROC;
ROC; and
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
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.
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
participants;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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;
maintaining competition order in the telecommunication and broadcasting industries;
governing technical standards in connection with the safety of information communications;
managing and facilitating the resolution of disputes pertaining to the Taiwan telecommunications and
broadcasting industries;
managing offshore matters relating to Taiwan’s telecommunications and broadcasting industries
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.
judgments at the courts of the ROC are recognized and enforceable in the court rendering the judgment
Telecommunications Act
The Telecommunications Act and the regulations under the Telecommunications Act establish the framework
and govern the various aspects of the Taiwan telecommunications industry, including:
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•
•
•
•
•
•
•
•
•
•
•
•
•
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;
spectrum allocation;
provision of universal services;
equal access;
number portability;
local loop unbundling;
co-location; and
ownership limitations.
Each of these aspects is described below. The Telecommunications Act also establishes a non-auction pricing
system for assignment of radio frequencies.
41
Licensing of Telecommunications Services
Type I and Type II Service Providers
Under the Telecommunications Act, telecommunications service providers are classified into two
categories:
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 ILD 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
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
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.
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%
42
Licensing of Telecommunications Services
Type I and Type II Service Providers
Under the Telecommunications Act, telecommunications service providers are classified into two
categories:
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 ILD 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
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.
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.
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•
•
integrated services, including local, domestic long distance and ILD telephone services;
local telephone services;
domestic long distance telephone services;
ILD telephone services; and
local, domestic long distance and ILD leased line services.
Licenses for local telephone and integrated services are valid for 25 years. Licenses for domestic long
distance and ILD 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 ILD
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.
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
43
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 license of 1800 MHz and 2100 MHz granted for the
application in 2017 is valid from the license issue date until December 31, 2030, and December 31, 2033,
respectively. 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 licenses were released for the first time in 2013, and we received the
license on April 30, 2014. As a result, we started to launch the mobile services on May 29, 2014. The mobile
broadband services licenses were released for bidding for a second time in 2015, and we received the license to
operate these frequency bands on March 23, 2016. On November 15, 2017, the NCC completed the third round
of bidding on the mobile broadband services licenses, and we were the one of the winning bidders. We(cid:1)have
obtained the license on April 11, 2018.
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 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,
and we will apply for extension.
Type II
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
44
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 license of 1800 MHz and 2100 MHz granted for the
application in 2017 is valid from the license issue date until December 31, 2030, and December 31, 2033,
respectively. 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 licenses were released for the first time in 2013, and we received the
license on April 30, 2014. As a result, we started to launch the mobile services on May 29, 2014. The mobile
broadband services licenses were released for bidding for a second time in 2015, and we received the license to
operate these frequency bands on March 23, 2016. On November 15, 2017, the NCC completed the third round
of bidding on the mobile broadband services licenses, and we were the one of the winning bidders. We(cid:1)have
obtained the license on April 11, 2018.
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 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,
and we will apply for extension.
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.
Restrictions on Dominant Telecommunications Services Providers
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 any of the following criteria and was declared by the MOTC or now the NCC as dominant:
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controls key basic telecommunications infrastructure;
has dominant power over market price; or
has more than a 25% market share in terms of customers or revenues.
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
45
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:
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directly or indirectly hinder a request for interconnection with its proprietary technology by other
Type I service providers;
refuse to release to other Type I service providers the calculation methods of its interconnection
fees and other relevant materials;
improperly determine, maintain or change its tariffs or means of services;
reject, without due cause, a request for leasing network components by other Type I service
providers;
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
customers;
reject, without due cause, a request for negotiation for co-location by other service providers;
discriminate, without due cause, against other service providers or customers; or
abuse its position as a dominant provider, or engage in other unfair competition activities as
determined by the regulatory authorities.
In addition, a dominant Type I service provider is subject to special regulations limiting its tariff
changes.
Tariff Control and Price Cap Regulation
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 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
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
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.
Primary tariffs include:
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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 ILD 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
46
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:
telecommunication services and their suitable targets, all of which are subject to annual reviews by the NCC,
include:
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directly or indirectly hinder a request for interconnection with its proprietary technology by other
Type I service providers;
fees and other relevant materials;
refuse to release to other Type I service providers the calculation methods of its interconnection
improperly determine, maintain or change its tariffs or means of services;
reject, without due cause, a request for leasing network components by other Type I service
providers;
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 for co-location by other service providers;
discriminate, without due cause, against other service providers or customers; or
abuse its position as a dominant provider, or engage in other unfair competition activities as
determined by the regulatory authorities.
In addition, a dominant Type I service provider is subject to special regulations limiting its tariff
changes.
Tariff Control and Price Cap Regulation
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 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
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
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.
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 ILD 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
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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 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:
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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;
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:
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the set constant to be applied to the tariff adjustment for the fixed line integrated services is
5.1749% and covers the following:
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dominant providers of local network services and long-distance network services in Type I
service
tariffs of the following:
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the monthly fee for fixed-line broadband access services (excluding FTTH and
FTTB)
wholesale prices of the following:
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the monthly fee for leased lines services (including local and domestic long
distance leased lines) between internet service providers and their customers
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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
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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.
On March 8, 2017, the NCC announced that effective from April 1, 2017 to March 31, 2020:
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the set constant to be applied to the tariff adjustment for the fixed line integrated services is 3.19%
and covers the following:
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dominant providers of local network services and long-distance network services in Type I
service
tariffs of the following:
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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 set constant to be applied to the tariff adjustment for the fixed line integrated services is
5.1749% and covers the following:
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dominant providers of local network services and long-distance network services in Type I
service
tariffs of the following:
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wholesale prices of the following:
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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
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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.
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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
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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.
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%
dominant providers of local network services and long-distance network services in Type I
and covers the following:
service
tariffs of the following:
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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)
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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
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service
tariffs of the following:
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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
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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.
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:
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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 the 3G mobile
communications business and the mobile broadband 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.
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Unbundled network components of the providers for the 3G mobile communications business(cid:1)and the
mobile broadband business include:
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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:
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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 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.
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, and the revenues or any uncollectible accounts from such tariffs shall go to the call-
originating service providers.
Tariffs for communications between fixed-line network will be determined by the following
principles:
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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 providers, and revenues or any uncollectible accounts from such tariffs shall be
allocated to the call-originating service providers;
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 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 domestic long-distance telephone service providers; and
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 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 international long-distance telephone service providers.
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 by the call-originating service providers. Revenues or any uncollectible accounts
from such the tariffs shall go to the call-originating service providers.
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 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.
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Unbundled network components of the providers for the 3G mobile communications business(cid:1)and the
Bottleneck Facilities
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mobile broadband 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 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.
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, and the revenues or any uncollectible accounts from such tariffs shall go to the call-
originating service providers.
principles:
Tariffs for communications between fixed-line network will be determined by the following
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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 providers, and revenues or any uncollectible accounts from such tariffs shall be
allocated to the call-originating service providers;
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 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 domestic long-distance telephone service providers; and
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 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 international long-distance telephone service providers.
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 by the call-originating service providers. Revenues or any uncollectible accounts
from such the tariffs shall go to the call-originating service providers.
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 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.
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 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 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
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
“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
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.
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.(cid:1)A total of 20 MHz of FDD spectrum around the 850 MHz frequency band and a total of
110 MHz of FDD spectrum around the 2100 MHz 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. 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, including us, and the licenses will expire in December 2033. On November 15, 2017, the
NCC completed a third round of bidding on 4G mobile broadband spectrum. A total of 130MHz of FDD
spectrum over 1800MHz and 2100MHz frequency bands have been assigned to four nominated bidders, Far
EasTone, Taiwan Mobile, T-Star and us, and the licenses will expire in December 2030 and 2033, respectively.
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 ILD 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
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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.
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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.
Regulation on Telecommunications Enterprise with Monopoly Status
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;
the combined market share of two enterprises in a relevant market reaches two-thirds of the
market; and
the combined market share of three enterprises in a relevant market reaches three-fourths of the
market.
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;
improperly set, maintain or change the price for goods or the remuneration for services;
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.
53
Regulations 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;
where any enterprise holds or acquires more than one-thirds of total voting shares or capital of
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
disadvantage of the reduction in competition.
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.
54
Regulations 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;
•
•
•
•
•
•
•
•
where any enterprise holds or acquires more than one-thirds of total voting shares or capital of
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
disadvantage of the reduction in competition.
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.
Regulations on Unfair Competition in Telecommunication Industry
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.
55
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.
Administrative Fee Law and Public Road Law
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.
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.
56
Other Regulations
order.
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
Administrative Fee Law and Public Road Law
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.
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.
C. Organizational Structure
C. Organizational Structure
The following diagram presents information regarding the relationship and ownership percentages
between Chunghwa and its subsidiaries as of March 31, 2018:
Set forth below is a diagram indicating our organization structure as of March 31, 2018.
Chunghwa Telecom Co., Ltd.
(Chunghwa)
100%
28.53%
100%
100%
100%
100%
100%
56.04%
100%
65.84%
100%
89%
100%
51%
65%
100%
75%
100%
80%
Chunghwa
Telecom
Vietnam
Co., Ltd.
(“CHTV”)
Senao
International
Co., Ltd.
(“SENAO”)
CHYP
Multimedia
Marketing &
Communications
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”)
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”)
Chunghwa
Telecom
(Thailand)
Co., Ltd.
(“CHTT”)
CHT
Security
Co., Ltd.
(“CHTSC”)
100%
100%
89.48%
100%
SENYOUNG
Insurance Agent
Co., Ltd.
(“SENYOUNG”)
Aval
Technologies
Co., Ltd.
(“Aval”)
Youth
Co., Ltd.
(“Youth”)
Senao
International
(Samoa)
Holding Ltd.
(“SIS”)
60%
Taoyuan Asia
Silicon Valley
Innovation
Co., Ltd.
(“TASVI”)
100%
100%
100%
ISPOT Co.,
Ltd.
(“ISPOT”)
Youyi Co., Ltd.
(“Youyi”)
Senao
International
HK Limited
(“SIHK”)
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”)
D. Property, Plant and Equipment
D. Property, Plant and Equipment
3.47%
100%
100%
49%
Unigate
Telecom Inc.
(“Unigate”)
Chief
International
Corp. (“CIC”)
Shanghai
Chief
Telecom
Co., Ltd.
(“SCT”)
0.40%
38.30%
Chunghwa
Precision
Test Tech.
Co., Ltd.
(“CHPT”)
100%
Chunghwa
Hsingta
Co., Ltd.
(“CHC”)
100%
100%
100%
100%
75%
CHPT Japan
Co., Ltd.
(“CHPT (JP)”)
Chunghwa
Precision Test
Tech USA
Corporation
(“CHPT (US)”)
Chunghwa
Precision
Test Tech.
International, Ltd.
(“CHPT
(International)”)
Chunghwa
Telecom
(China)
Co., Ltd.
(“CTC”)
Jiangsu
Zhenhua
Information
Technology
Company,
LLC. (“JZIT”)
100%
Shanghai Taihua
Electronic
Technology
Limited
(“STET”)
Please refer to “—B. Business Overview” for a discussion of our property, plant and equipment.
ITEM 4A
ITEM 4A.
UNRESOLVED STAFF COMMENTS
UNRESOLVED STAFF COMMENTS
None.
ITEM 5.
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
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, 2017 have been translated into U.S. dollar amounts using US$1.00=NT$29.64, set forth in the
statistical release of the Federal Reserve Board on December 29, 2017. The U.S. dollar translation appears in
parentheses next to the relevant NT dollar amount.
Overview
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;
- 1 -
57
•
•
•
•
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 ILD, 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
Year Ended December 31
2016
2015
2017
31.3 %
49.6
11.1
6.7
1.3
100.0 %
31.6 %
48.2
12.2
6.3
1.7
100.0 %
31.3 %
48.1
12.7
5.9
2.0
100.0 %
Our domestic fixed communications business has been an important source of revenue over the last three
years. We derive domestic fixed communications revenue from the provision of FTTx and ADSL access services
that provides customers with data access lines. 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.
Revenue from domestic fixed communication decreased as a percentage of our total revenue in 2017 mainly due to
the decline of domestic long distance and local call service revenue because of mobile and VoIP substitution, and
mandatory reductions in tariffs for FTTx and ADSL services. We believe that domestic fixed communications
business will continue to generate a significant portion of our revenues.
Revenues from our mobile communications business was a major contributor to our revenues over the last
three years. 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. In 2017, Revenue from mobile communications
business decreased as a percentage of our total revenue mainly due to the decline in voice revenue, which was
partially offset by the increase in mobile VAS revenue and revenue from our sales of mobile handsets, tablets and
data cards. 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. In 2016 and 2017, the percentage of revenues from internet services within total revenues increased
58
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 ILD, 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
Year Ended December 31
2015
2016
2017
31.3 %
49.6
11.1
6.7
1.3
31.6 %
48.2
12.2
6.3
1.7
31.3 %
48.1
12.7
5.9
2.0
100.0 %
100.0 %
100.0 %
Our domestic fixed communications business has been an important source of revenue over the last three
years. We derive domestic fixed communications revenue from the provision of FTTx and ADSL access services
that provides customers with data access lines. 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.
Revenue from domestic fixed communication decreased as a percentage of our total revenue in 2017 mainly due to
the decline of domestic long distance and local call service revenue because of mobile and VoIP substitution, and
mandatory reductions in tariffs for FTTx and ADSL services. We believe that domestic fixed communications
business will continue to generate a significant portion of our revenues.
Revenues from our mobile communications business was a major contributor to our revenues over the last
three years. 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. In 2017, Revenue from mobile communications
business decreased as a percentage of our total revenue mainly due to the decline in voice revenue, which was
partially offset by the increase in mobile VAS revenue and revenue from our sales of mobile handsets, tablets and
data cards. 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. In 2016 and 2017, the percentage of revenues from internet services within total revenues increased
mainly due to the increase in revenues generated from services such as IDC, HiNet, HiLink, information security
and IoT.
We derived our international fixed communications revenues mainly from ILD telephone services and
international ICT services. Revenues from our international fixed communications business as a percentage of our
total revenues decreased from 2015 to 2017, because our ILD telephone services revenue continued to decline due to
VoIP substitution.
Our other revenues increased from 2015 to 2017, 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. 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%; the ∆CPI for 2017 that was used
for the tariff reduction starting from April 1, 2018 was 0.62%. 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.
In addition, on August 23, 2017, the NCC determined that, starting from November 2017, our tariff in the
mobile interconnection fees should be reduced from NT$1.15 per minute to NT$0.571 per minute in four years.
Besides mandatory tariff reduction mentioned above, we, from time to time, voluntarily implemented tariff
adjustments in our broadband and mobile businesses in the past few years to consolidate our market share.
Capital expenditures as a result of technological improvements and changes in our business
In recent years, we have focused on modernizing and upgrading our mobile services network and on
developing our FTTx network, which enables transmission of digital information at a high bandwidth over fiber
loops. Constructing fiber networks in new buildings and areas with demand for 500 Mbps and 1 Gbps per
household, and 10 Gbps for enterprise in the near future is our priority. In order to achieve this goal, we may invest
in new equipment with 10 Gbps Gigabit-capable Passive Optical Network technology in the third quarter of 2018.
Our long-term goal is to optimize our capital expenditures by focusing on investing in innovative products and
services with attractive return profiles. We evaluate our investment opportunities by benchmarking them against
internal return requirements.
59
Personnel expenses
Personnel expenses constitute a significant portion of our operating costs and expenses. In 2015, 2016 and
2017, personnel expenses represented 26.1%, 26.4% and 26.2% of our total operating costs and expenses,
respectively, and pension costs represented 1.9%, 1.9% and 1.9% of our total operating costs and expenses,
respectively. The table below sets forth information regarding our personnel expenses and as a percentage of our
total operating costs and expenses for the periods indicated.
2015
Year Ended December 31
2016
(in billions of NT$, except percentages)
2017
Personnel expenses:
Salaries
Insurance
Pension
Other(1)
Total personnel expenses
Total operating costs and expenses
(1)
Includes employees’ bonus or compensation.
25.5
2.6
3.4
15.8
47.3
14.3 %
1.5
1.9
8.5
26.2 %
181.3 100.0 % 181.4 100.0 % 180.7 100.0 %
14.1 %
1.4
1.9
8.7
26.1 %
14.3 %
1.5
1.9
8.7
26.4 %
25.8
2.7
3.4
15.5
47.4
26.0
2.7
3.4
15.7
47.8
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
Prior to 2018, 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. Starting from 2018, the income tax rate for profit-seeking enterprises is
adjusted from 17% to 20%.
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 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 and
2017. As a result, our effective tax rate decreased from 17.5% in 2015 to 15.8% in 2016 and increased from 15.8% in
2016 to 16.3% in 2017.
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
60
Personnel expenses
Personnel expenses constitute a significant portion of our operating costs and expenses. In 2015, 2016 and
2017, personnel expenses represented 26.1%, 26.4% and 26.2% 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.
Year Ended December 31
2015
2016
2017
(in billions of NT$, except percentages)
25.5
14.1 %
26.0
14.3 %
25.8
14.3 %
2.6
3.4
15.8
47.3
1.4
1.9
8.7
26.1 %
2.7
3.4
15.7
47.8
1.5
1.9
8.7
26.4 %
2.7
3.4
15.5
47.4
1.5
1.9
8.5
26.2 %
Personnel expenses:
Salaries
Insurance
Pension
Other(1)
Total personnel expenses
(1)
Includes employees’ bonus or compensation.
Total operating costs and expenses
181.3 100.0 % 181.4 100.0 % 180.7 100.0 %
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
Prior to 2018, 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. Starting from 2018, the income tax rate for profit-seeking enterprises is
adjusted from 17% to 20%.
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 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 and
2017. As a result, our effective tax rate decreased from 17.5% in 2015 to 15.8% in 2016 and increased from 15.8% in
2016 to 16.3% in 2017.
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
our shareholders were approved at our annual general stockholders’ meeting on June 24, 2014 and such amount was
subsequently paid in August 2014.
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
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
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
61
fair values limited to the amount paid by the customer for the products. Relative fair values are based on the selling
prices of handsets on a standalone basis and the monthly fees provided in the subscription contracts.
Revenue from a contract to provide services is recognized by reference to the stage of completion of the
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.
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
62
fair values limited to the amount paid by the customer for the products. Relative fair values are based on the selling
prices of handsets on a standalone basis and the monthly fees provided in the subscription contracts.
assets may need to be shortened, resulting in the recognition of increased depreciation and amortization in the
relevant periods.
Revenue from a contract to provide services is recognized by reference to the stage of completion of the
contract.
Control over Subsidiaries
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.
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
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
63
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 2015 and 2016, we recognized impairment losses of
NT$107 million and NT$577 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.
64
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.
In 2015 and 2016, we determined that some of our telecommunications equipment and miscellaneous
equipment were impaired and recognized an impairment loss of NT$138 million and NT$596 million, respectively.
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 2015 and 2016, we recognized impairment losses of
NT$107 million and NT$577 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.
In 2015, 2016 and 2017, 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, NT$148 million and NT$11 million (US$0.4 million),
respectively.
In 2017, our subsidiary, SENAO, evaluated that the goodwill that arose in the acquisition of Youth and its
subsidiaries and concluded the recoverable amount of the goodwill was lower than the carrying value and
recognized an impairment loss of NT$9 million (US$0.3 million).
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.
65
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
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 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.
66
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
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.
income.
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
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
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.
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
Year Ended December 31
2015
NT$
2016
NT$
2017
NT$
US$
(in billions)
72.5
114.9
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
72.8
110.8
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
71.1
109.4
28.9
13.6
4.5
227.5
146.8
25.4
4.6
3.9
33.9
(0.1 )
46.7
1.3
48.0
7.8
40.2
42.1
0.8
40.5
1.1
39.0
1.2
2.4
3.7
1.0
0.5
0.1
7.7
5.0
0.9
0.1
0.1
1.1
—
1.6
—
1.6
0.2
1.4
1.3
0.1
67
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.
2015
Year Ended December 31
2016
(as percentages of total revenues)
2017
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
31.3 %
49.6
11.1
6.7
1.3
100.0 %
63.9 %
31.6 %
48.2
12.2
6.3
1.7
100.0 %
64.2 %
31.3 %
48.1
12.7
5.9
2.0
100.0 %
64.6 %
10.8
1.9
1.6
14.3
(0.1 )
21.7
0.7
22.4
3.9
18.5 %
11.1
2.0
1.6
14.7
(0.2 )
20.9
0.6
21.5
3.4
18.1 %
11.2
2.0
1.7
14.9
—
20.5
0.6
21.1
3.4
17.7 %
18.2 %
0.3 %
17.6 %
0.5 %
17.2 %
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, 2017 compared with the year ended December 31, 2016
The year ended December 31, 2017 compared with the year ended December 31, 2016
Revenues
Our revenues decreased by 1.1% from NT$230.0 billion in 2016 to NT$227.5 billion (US$7.7 billion) in
2017, primarily due to the decrease in revenues generated from mobile communications and domestic fixed
communications.
Domestic fixed communications
Domestic fixed communications revenues accounted for 31.6% and 31.3% of our revenues in 2016 and 2017,
respectively. Our domestic fixed communications revenues decreased by 2.3% from NT$72.8 billion in 2016 to
NT$71.1 billion (US$2.4 billion) in 2017 primarily due to a decrease in local and domestic long distance telephone
revenues and a decrease in broadband access revenue, which were partially offset by growth in ICT revenues
generated by enterprises and government and MOD service revenues.
Local telephone services. Our local telephone revenues decreased from NT$31.6 billion in 2016 to NT$29.6
billion (US$1.0 billion) in 2017 with a 12.1% decline in traffic volume from 9.5 billion minutes in 2016 to 8.3
billion minutes in 2017. The decline in traffic volume was primarily due to the traffic migration from fixed-line
services to internet telephone services. We expect this trend to continue as broadband and mobile services become
more popular in Taiwan.
68
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.
Revenues:
Domestic fixed communications
Mobile communications
International fixed communications
Internet
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
Year Ended December 31
2015
2016
2017
(as percentages of total revenues)
31.3 %
49.6
11.1
6.7
1.3
31.6 %
48.2
12.2
6.3
1.7
31.3 %
48.1
12.7
5.9
2.0
100.0 %
100.0 %
100.0 %
63.9 %
64.2 %
64.6 %
10.8
11.1
1.9
1.6
14.3
(0.1 )
21.7
0.7
22.4
3.9
18.5 %
2.0
1.6
14.7
(0.2 )
20.9
0.6
21.5
3.4
18.1 %
11.2
2.0
1.7
14.9
—
20.5
0.6
21.1
3.4
17.7 %
18.2 %
0.3 %
17.6 %
0.5 %
17.2 %
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
The year ended December 31, 2017 compared with the year ended December 31, 2016
Our revenues decreased by 1.1% from NT$230.0 billion in 2016 to NT$227.5 billion (US$7.7 billion) in
2017, primarily due to the decrease in revenues generated from mobile communications and domestic fixed
income tax.
Revenues
communications.
Domestic fixed communications
Domestic fixed communications revenues accounted for 31.6% and 31.3% of our revenues in 2016 and 2017,
respectively. Our domestic fixed communications revenues decreased by 2.3% from NT$72.8 billion in 2016 to
NT$71.1 billion (US$2.4 billion) in 2017 primarily due to a decrease in local and domestic long distance telephone
revenues and a decrease in broadband access revenue, which were partially offset by growth in ICT revenues
generated by enterprises and government and MOD service revenues.
Local telephone services. Our local telephone revenues decreased from NT$31.6 billion in 2016 to NT$29.6
billion (US$1.0 billion) in 2017 with a 12.1% decline in traffic volume from 9.5 billion minutes in 2016 to 8.3
billion minutes in 2017. The decline in traffic volume was primarily due to the traffic migration from fixed-line
services to 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$2.9 billion in 2016 to NT$2.6 billion (US$0.1 billion) in 2017. This decrease was mainly due to the
increased use of VoIP applications.
Broadband access. The number of our FTTx customers increased from approximately 3.5 million in 2016 to
approximately 3.6 million in 2017. Revenues generated from broadband access slightly decreased from NT$19.0
billion in 2016 to NT$18.7 billion (US$0.6 billion) in 2017, 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 remained flat at NT$4.3 billion in 2016
and 2017.
MOD. Revenues generated from our MOD services increased by 8.3% from NT$2.4 billion in 2016 to NT$2.5
billion (US$86.1 million) in 2017. This increase was due to the increase in the number of IPTV and SVoD
subscribers.
Domestic ICT and other services. Other revenues increased by 6.4% from NT$12.6 billion in 2016 to
NT$13.4 billion (US$0.5 billion) in 2017. This increase was mainly due to the increased revenue from ICT projects.
Mobile communications
Revenues from our mobile communications business accounted for 48.2% and 48.1% of our revenues in 2016
and 2017, respectively. Revenues from our mobile communications business decreased by 1.3% from NT$110.8
billion in 2016 to NT$109.4 billion (US$3.7 billion) in 2017. This decrease was due to the decline in mobile voice
telecommunication revenues was partially offset by growth in mobile VAS revenues and sales of mobile handsets,
tablets and data cards. 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 33.3% of our revenues in 2016
and 2017, respectively. Revenues from our mobile services decreased by 2.6% from NT$78.8 billion in 2016 to NT$
75.8 billion (US$2.6 billion) in 2017 due to a decrease in mobile voice telecommunication revenues from NT$37.3
billion in 2016 to NT$32.6 billion (US$1.1 billion) in 2017, which was partially offset by the growth in mobile VAS
revenues.
Sales of mobile handsets, tablets and data cards. Revenues from our sales of mobile handsets, tablets and data
cards accounted for 13.4% and 14.2% of our revenues in 2016 and 2017, respectively. Revenues from our sales of
mobile handsets, tablets and data cards increased by 4.4% from NT$30.8 billion in 2016 to NT$32.2 billion (US$1.1
billion) in 2017 mainly due to the increase in the unit price of handsets, even though the number of handsets sold
slightly decreased.
Internet
Revenues from internet business accounted for 12.2% and 12.7% of our revenues in 2016 and 2017,
respectively. Revenues from our internet services increased by 2.9% from NT$28.1 billion in 2016 to NT$28.9
billion (US$1.0 billion) in 2017 mainly due to the increase in revenues generated from services such as IDC, HiNet,
HiLink, information security and IoT.
International fixed communications
International fixed communications revenues accounted for 6.3% and 5.9% of our revenues in 2016 and 2017,
respectively. Our international fixed communications revenues decreased by 6.1% from NT$14.4 billion in 2016 to
NT$13.6 billion (US$0.5 billion) in 2017. This decrease was mainly due to the decrease in revenues generated from
ILD telephone service.
69
ILD telephone services. Our ILD telephone revenues decreased by 16.4% from NT$8.8 billion in 2016 to
NT$7.4 billion (US$0.2 billion) in 2017 due to the migration to VoIP-based ILD service providers and free VoIP
applications.
International leased line and international data services. Our international leased line and international data
revenues increased by 5.6% from NT$3.7 billion in 2016 to NT$3.9 billion (US$0.1 billion) in 2017. The increase
was mainly due to our expansion to overseas markets and increased demand for our international leased line, IP
Transit and VPN services.
International ICT and other services. Our international ICT and other revenues remained flat at NT$1.7
billion in 2016 and 2017.
Others
Other revenues accounted for 1.7% and 2.0% of our revenues in 2016 and 2017, respectively. Our other
revenues increased by 17.0% from NT$3.9 billion in 2016 to NT$4.5 billion (US$0.1 billion) in 2017. 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, marketing expenses, costs of materials and maintenance and spectrum usage
and license fees.
Our operating costs decreased by 0.5% from NT$147.6 billion in 2016 to NT$146.8 billion (US$5.0 billion) in
2017. 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$0.8 billion (US$28.2 million) in depreciation expenses. The decrease was
partially offset by an increase of NT$1.0 billion (US$34.9 million) in ICT costs, and an increase of NT$0.8 billion
(US$27.3 million) in cost of goods sold.
Operating Expenses
Our operating expenses increased by 0.1% from NT$33.8 billion in 2016 to NT$33.9 billion (US$1.1 billion)
in 2017.
Marketing
Our marketing expenses, which include personnel expenses, expenses relating to advertising and marketing-
related activities and provision for bad debt, decreased by 0.6% from NT$25.5 billion in 2016 to NT$25.4 (US$0.9
billion) billion in 2017. This decrease was primarily due to decreases of provision for bad debt and rental expenses.
The decrease was partially offset by an increase of advertising and marketing-related expenses and an increase of
personnel expenses.
General and administrative
Our general and administrative expenses increased by 2.0% from NT$4.5 billion in 2016 to NT$4.6 billion
(US$0.1 billion) in 2017. This increase was primarily due to an increase in personnel expenses.
Research and development
Our research and development expenses increased by 2.7% from NT$3.8 billion in 2016 to NT$3.9 billion
(US$0.1 billion) in 2017. This increase was primarily due to an increase in professional service expenses. In 2016
and 2017, 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.
70
Mobile
International
Fixed
Communications Internet
Domestic Fixed
Communications
Communications Others Adjustment Total
Operating Costs and Expenses by Business Segment
ILD telephone services. Our ILD telephone revenues decreased by 16.4% from NT$8.8 billion in 2016 to
NT$7.4 billion (US$0.2 billion) in 2017 due to the migration to VoIP-based ILD service providers and free VoIP
applications.
International leased line and international data services. Our international leased line and international data
revenues increased by 5.6% from NT$3.7 billion in 2016 to NT$3.9 billion (US$0.1 billion) in 2017. The increase
was mainly due to our expansion to overseas markets and increased demand for our international leased line, IP
International ICT and other services. Our international ICT and other revenues remained flat at NT$1.7
Transit and VPN services.
billion in 2016 and 2017.
Others
Other revenues accounted for 1.7% and 2.0% of our revenues in 2016 and 2017, respectively. Our other
revenues increased by 17.0% from NT$3.9 billion in 2016 to NT$4.5 billion (US$0.1 billion) in 2017. The increase
was mainly due to operating growth derived from one of our subsidiaries, CHPT, a semiconductor testing company.
Operating Costs
and license fees.
Our operating costs include depreciation and amortization expenses, personnel expenses, cost of goods sold,
interconnection and service expenses, marketing expenses, costs of materials and maintenance and spectrum usage
Our operating costs decreased by 0.5% from NT$147.6 billion in 2016 to NT$146.8 billion (US$5.0 billion) in
2017. 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$0.8 billion (US$28.2 million) in depreciation expenses. The decrease was
partially offset by an increase of NT$1.0 billion (US$34.9 million) in ICT costs, and an increase of NT$0.8 billion
(US$27.3 million) in cost of goods sold.
Operating Expenses
in 2017.
Marketing
personnel expenses.
General and administrative
Research and development
Our marketing expenses, which include personnel expenses, expenses relating to advertising and marketing-
related activities and provision for bad debt, decreased by 0.6% from NT$25.5 billion in 2016 to NT$25.4 (US$0.9
billion) billion in 2017. This decrease was primarily due to decreases of provision for bad debt and rental expenses.
The decrease was partially offset by an increase of advertising and marketing-related expenses and an increase of
Our general and administrative expenses increased by 2.0% from NT$4.5 billion in 2016 to NT$4.6 billion
(US$0.1 billion) in 2017. This increase was primarily due to an increase in personnel expenses.
Our research and development expenses increased by 2.7% from NT$3.8 billion in 2016 to NT$3.9 billion
(US$0.1 billion) in 2017. This increase was primarily due to an increase in professional service expenses. In 2016
and 2017, we did not capitalize any research and development expenses as intangible assets because there were no
research and development expenses related to development or the development phase of an internal project.
For the year ended December 31,
2017
Operating costs and expenses
Depreciation and amortization
For the year ended December 31,
2016
Operating costs and expenses
Depreciation and amortization
Domestic fixed communications
(in billions of NT$)
68.9
15.6
70.3
16.4
99.0 22.1
3.4
11.0
14.9 11.5
1.5 0.4
(35.7 ) 180.7
— 31.9
99.1 22.1
3.6
10.6
16.0 10.6
1.5 0.4
(36.7 ) 181.4
— 32.5
Our domestic fixed communications costs and expenses decreased by 2.1% from NT$70.3 billion in 2016 to
NT$68.9 billion (US$2.3 billion) in 2017, primarily due to a decrease of NT$0.8 billion (US$27.0 million) in
depreciation and amortization expenses, a decrease of NT$0.7 billion (US$24.6 million) in interconnection costs,
and a decrease of NT$0.6 billion (US$21.3 million) in personnel expenses. The decrease in our operating costs and
expenses was partially offset by an increase of NT$0.8 billion (US$28.0 million) in ICT costs.
Mobile communications
Our mobile communications operating costs and expenses decreased by 0.04% from NT$99.1 billion in 2016
to NT$99.0 (US$3.3 billion) billion in 2017. This decrease was primarily due to a decrease of NT$1.0 billion
(US$34.4 million) in marketing expenses, a decrease of NT$0.5 billion (US$16.9 million) in intersegment internet
VAS expenses, and a decrease of NT$0.4 billion (US$12.8 million) in interconnection expenses. The decrease in our
operating costs and expenses was partially offset by an increase of NT$0.8 billion (US$27.7 million) in cost of
goods sold from our subsidiary, Senao, an increase of NT$0.7 billion (US$23.3 million) in maintenance expenses,
and an increase of NT$0.4 billion (US$12.8 million) in depreciation and amortization expenses.
Our operating expenses increased by 0.1% from NT$33.8 billion in 2016 to NT$33.9 billion (US$1.1 billion)
Internet
Our internet operating costs and expenses remained stable at NT$22.1 billion (US$0.7 billion) in 2016 and
2017.
International fixed communications
Our international fixed communications costs and expenses decreased by 7.0% from NT$16.0 billion in 2016
to NT$14.9 billion (US$0.5 billion) in 2017. The decrease was primarily due to a decrease of NT$1.1 billion
(US$35.8 million) in international settlement expenses.
71
Others
The costs and expenses from our other business increased by 9.1% from NT$10.6 billion in 2016 to NT$11.5
billion (US$0.4 billion) in 2017. 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.
Other Income and Expenses
We recorded net other expense of NT$0.5 billion in 2016 and NT$0.1 billion (US$3.5 million) in 2017,
respectively. The difference between 2016 and 2017 was primarily due to the impairment losses on some
telecommunications equipment of NT$0.6 billion in 2016.
Income from Operations and Operating Margin
As a result of the foregoing, our income from operations decreased by 2.9% from NT$48.1 billion in 2016 to
NT$46.7 billion (US$1.6 billion) in 2017. Our operating margin decreased from 20.9% in 2016 to 20.5% in 2017.
The following table sets forth certain information regarding our revenues and income before income tax by
business segment for the periods indicated.
Domestic Fixed
Communications
Mobile
Communications Internet
Communications Others Adjustment Total
International
Fixed
For the year ended December 31,
2017
Revenues from external customers
Intersegment service revenues
Segment income before income tax
For the year ended December 31,
2016
Revenues from external customers
Intersegment service revenues
Segment income before income tax
(in billions of NT$)
71.1
22.5
93.6
24.9
72.8
22.7
95.5
25.7
2.0
109.4 28.9
4.2
111.4 33.1
12.4 11.1
2.5
110.8 28.1
4.7
113.3 32.8
13.9 10.7
13.6 4.5
2.4 4.6
16.0 9.1
1.0 (1.4 )
— 227.5
(35.7 ) —
(35.7 ) 227.5
— 48.0
14.4 3.9
2.7 4.1
17.1 8.0
1.1 (2.0 )
— 230.0
(36.7 ) —
(36.7 ) 230.0
— 49.4
As a result of the foregoing, segment income before tax for our domestic fixed communications business
decreased by 3.0% from NT$25.7 billion in 2016 to NT$24.9 billion (US$0.8 billion) in 2017; segment income
before tax for our mobile communications business decreased by 10.7% from NT$13.9 billion in 2016 to NT$12.4
(US$0.4 billion) billion in 2017; segment income before tax for our internet business increased by 3.6% from
NT$10.7 billion in 2016 to NT$11.1 billion (US$0.4 billion) in 2017; segment income before tax for our
international fixed communications business decreased by 6.3% from NT$1.1 billion in 2016 to NT$1.0 billion
(US$34.7 million) in 2017; and segment loss for our other business segments decreased by 27.0% from NT$2.0
billion in 2016 to NT$1.4 billion (US$49.3 million) in 2017.
Non-operating Income and Expenses
Our non-operating income remained stable at NT$1.3 billion (US$44.1 million) in 2016 and 2017.
Income Tax
Our income tax was NT$7.8 billion and NT$7.8 billion (US$0.2 billion) in 2016 and 2017, respectively. Our
effective tax rate was 15.8% in 2016 and 16.3% in 2017. The increase in our effective tax rate from 2016 to 2017
72
Others
entities.
The costs and expenses from our other business increased by 9.1% from NT$10.6 billion in 2016 to NT$11.5
billion (US$0.4 billion) in 2017. 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
Other Income and Expenses
We recorded net other expense of NT$0.5 billion in 2016 and NT$0.1 billion (US$3.5 million) in 2017,
respectively. The difference between 2016 and 2017 was primarily due to the impairment losses on some
telecommunications equipment of NT$0.6 billion in 2016.
Income from Operations and Operating Margin
As a result of the foregoing, our income from operations decreased by 2.9% from NT$48.1 billion in 2016 to
NT$46.7 billion (US$1.6 billion) in 2017. Our operating margin decreased from 20.9% in 2016 to 20.5% in 2017.
business segment for the periods indicated.
For the year ended December 31,
2017
Revenues from external customers
Intersegment service revenues
Segment income before income tax
For the year ended December 31,
2016
Revenues from external customers
Intersegment service revenues
Segment income before income tax
Domestic Fixed
Mobile
Communications
Communications Internet
Communications Others Adjustment Total
International
Fixed
(in billions of NT$)
71.1
22.5
93.6
24.9
72.8
22.7
95.5
25.7
109.4 28.9
2.0
4.2
111.4 33.1
12.4 11.1
110.8 28.1
2.5
4.7
113.3 32.8
13.9 10.7
13.6 4.5
2.4 4.6
16.0 9.1
— 227.5
(35.7 ) —
(35.7 ) 227.5
1.0 (1.4 )
— 48.0
14.4 3.9
2.7 4.1
17.1 8.0
— 230.0
(36.7 ) —
(36.7 ) 230.0
1.1 (2.0 )
— 49.4
As a result of the foregoing, segment income before tax for our domestic fixed communications business
decreased by 3.0% from NT$25.7 billion in 2016 to NT$24.9 billion (US$0.8 billion) in 2017; segment income
before tax for our mobile communications business decreased by 10.7% from NT$13.9 billion in 2016 to NT$12.4
(US$0.4 billion) billion in 2017; segment income before tax for our internet business increased by 3.6% from
NT$10.7 billion in 2016 to NT$11.1 billion (US$0.4 billion) in 2017; segment income before tax for our
international fixed communications business decreased by 6.3% from NT$1.1 billion in 2016 to NT$1.0 billion
(US$34.7 million) in 2017; and segment loss for our other business segments decreased by 27.0% from NT$2.0
billion in 2016 to NT$1.4 billion (US$49.3 million) in 2017.
Non-operating Income and Expenses
Our non-operating income remained stable at NT$1.3 billion (US$44.1 million) in 2016 and 2017.
Income Tax
Our income tax was NT$7.8 billion and NT$7.8 billion (US$0.2 billion) in 2016 and 2017, respectively. Our
effective tax rate was 15.8% in 2016 and 16.3% in 2017. The increase in our effective tax rate from 2016 to 2017
was primarily due to an increase 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
As a result of the foregoing, our net income attributable to stockholders of the parent was NT$40.5 billion and
NT$39.0 billion (US$1.3 billion) in 2016 and 2017, respectively. Our net margin decreased from 17.6% in 2016 to
17.2% in 2017.
The year ended December 31, 2016 compared with the year ended December 31, 2015
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.
The following table sets forth certain information regarding our revenues and income before income tax by
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.
73
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
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.
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
ILD telephone service.
ILD telephone services. Our ILD 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 ILD 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.
74
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
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.
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
ILD telephone services. Our ILD 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 ILD service providers and free VoIP
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.
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.
ILD telephone service.
applications.
Others
Operating Costs
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.
Marketing
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$0.1 billion) in 2016. This increase was primarily due to an increase in personnel expenses. In 2015 and 2016,
we did not capitalize any research and development expenses as intangible assets because there were no research
and development expenses related to development or the development phase of an internal project in 2015 and 2016.
Operating Costs and Expenses by Business Segment
Domestic Fixed
Communications
Mobile
Communications Internet
Communications Others Adjustment Total
International
Fixed
For the year ended December 31,
2016
Operating costs and expenses
Depreciation and amortization
For the year ended December 31,
2015
Operating costs and expenses
Depreciation and amortization
Domestic fixed communications
(in billions of NT$)
70.3
16.4
71.0
17.5
99.1 22.1
3.6
10.6
16.0 10.6
1.5 0.4
(36.7 ) 181.4
— 32.5
98.9 20.6
3.6
10.4
16.5 9.2
1.5 0.4
(34.9 ) 181.3
— 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.
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 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
75
(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.
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, 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.
76
(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.
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
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)
Internet
expenses.
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, our income from operations decreased by 4.5% from NT$50.4 billion in 2015 to
NT$48.1 billion (US$1.5 billion) in 2016. Our operating margin decreased from 21.7% in 2015 to 20.9% in 2016.
The following table sets forth certain information regarding our revenues and income before income tax by
business segment for the periods indicated.
Domestic Fixed
Communications
Mobile
Communications Internet
Communications Others Adjustment Total
International
Fixed
For the year ended December 31,
2016
Revenues from external customers
Intersegment service revenues
Segment income before income tax
For the year ended December 31,
2015
Revenues from external customers
Intersegment service revenues
Segment income before income tax
(in billions of NT$)
72.8
22.7
95.5
25.7
72.5
21.4
93.9
23.3
2.5
110.8 28.1
4.7
113.3 32.8
13.9 10.7
14.4 3.9
2.7 4.1
17.1 8.0
1.1 (2.0 )
— 230.0
(36.7 ) —
(36.7 ) 230.0
— 49.4
3.5
114.9 25.8
4.7
118.4 30.5
9.9
19.4
15.5 3.1
2.1 3.2
17.6 6.3
1.1 (1.7 )
— 231.8
(34.9 ) —
(34.9 ) 231.8
— 52.0
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
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$1.3 billion) in 2015 and 2016, respectively. Our net margin decreased from 18.2% in 2015 to
17.6% in 2016.
77
B. Liquidity and Capital Resources
B. Liquidity and Capital Resources
Liquidity
Liquidity
The following table sets forth the summary of our cash flows for the periods indicated:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes
Net increase in cash and cash equivalents
Cash and cash equivalents at end of year
Year Ended December 31
2015
NT$
2016
NT$
2017
NT$
US$
76.3
(30.4 )
(39.2 )
0.0
6.7
30.3
(in billions)
65.0
(21.7 )
(42.5 )
0.0
0.8
31.1
70.9
(36.7 )
(36.6 )
0.1
(2.3 )
28.8
2.4
(1.2 )
(1.2 )
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 2017, we generated NT$70.9 billion (US$2.4 billion) in net cash from operating activities as compared to
NT$65.0 billion in 2016. The increase was primarily due to a decrease in cash outflows for the contribution to the
pension funds, a decrease in cash outflows from accounts receivables, and a decrease in cash outflows relating to
income tax from operating activities.
In 2016, we generated NT$65.0 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.
Historically, net cash from operating activities has been sufficient to cover our capital expenditures, including
ongoing expansion and modernization of our networks.
In 2017, net cash used in investing activities was NT$36.7 billion (US$1.2 billion), an increase from NT$21.7
billion in 2016. The change was primarily due to a one-time payment of NT$10.9 billion in 2017 for acquiring the
4G mobile broadband spectrum, and an increase in acquisition of property, plant and equipment.
In 2016, net cash used in investing activities was NT$21.7 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$7.5 billion for acquisition of property, plant and equipment.
78
B. Liquidity and Capital Resources
Liquidity
The following table sets forth the summary of our cash flows for the periods indicated:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes
Net increase in cash and cash equivalents
Cash and cash equivalents at end of year
Year Ended December 31
2015
NT$
2016
NT$
2017
NT$
US$
76.3
(30.4 )
(39.2 )
0.0
6.7
30.3
(in billions)
65.0
(21.7 )
(42.5 )
0.0
0.8
31.1
70.9
(36.7 )
(36.6 )
0.1
(2.3 )
28.8
2.4
(1.2 )
(1.2 )
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 2017, we generated NT$70.9 billion (US$2.4 billion) in net cash from operating activities as compared to
NT$65.0 billion in 2016. The increase was primarily due to a decrease in cash outflows for the contribution to the
pension funds, a decrease in cash outflows from accounts receivables, and a decrease in cash outflows relating to
income tax from operating activities.
In 2016, we generated NT$65.0 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.
Historically, net cash from operating activities has been sufficient to cover our capital expenditures, including
ongoing expansion and modernization of our networks.
In 2017, net cash used in investing activities was NT$36.7 billion (US$1.2 billion), an increase from NT$21.7
billion in 2016. The change was primarily due to a one-time payment of NT$10.9 billion in 2017 for acquiring the
4G mobile broadband spectrum, and an increase in acquisition of property, plant and equipment.
In 2016, net cash used in investing activities was NT$21.7 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 2017, our net cash used in financing activities totaled NT$36.6 billion (US$1.2 billion), which mainly
reflected NT$38.3 billion in dividends paid during that period.
In 2016, our net cash used in financing activities totaled NT$42.5 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
billion in dividends paid during that period.
Capital Resources
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, 2017, our primary source of liquidity was NT$28.8 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$45.7
billion (US$1.5 billion) and NT$1.9 billion (US$0.1 billion), respectively, as of December 31, 2017.
As of December 31, 2017, our subsidiary, Chunghwa Sochamp Technology Inc., had short-term unsecured
loans of NT$70.0 million (US$2.4 million) at interest rates ranging from 2.15% to 2.19%.
As of December 31, 2017, our subsidiary Light Era had long-term secured loans in the amount of NT$1.6
billion (US$54.0 million) due in 2021 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$1.0 billion to a Piping
Fund, administered by the Taipei City Government. This fund is used to finance various telecommunications
infrastructure projects. We accounted for the contribution as other financial assets on our consolidated balance
sheets.
Note 41 to our consolidated financial statements included elsewhere in this annual report provides a
description of the assets that are pledged as collateral for long-term bank loans and contract deposits.
79
Capital Expenditures
Capital Expenditures
Substantially all of our capital expenditures in 2015, 2016 and 2017 were made for operations in the ROC. We
have financed our capital expenditures using cash flow from operations and bank loans. The following table sets
forth a summary of our capital expenditures for the periods indicated.
2015
Year Ended December 31
2016
(in billions of NT$, except percentages)
2017
Capital Expenditures:
Domestic fixed communications business
Mobile communications business
Internet business
International fixed communications
business
Others
Total capital expenditures
10.2
8.6
4.8
1.0
0.5
25.1
41 %
34
19
9.9
9.0
2.7
42 %
38
12
4
2
100 %
1.1
0.8
23.5
5
3
100 %
11.7
9.7
2.8
1.6
1.1
26.9
44 %
36
10
6
4
100 %
The following table sets forth a summary of our planned capital expenditures for the year ending December
31, 2018.
Year Ending December 31, 2018
(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
15.9
11.0
3.3
1.5
1.4
33.1
48 %
33
10
5
4
100 %
We expect our total capital expenditures to be approximately NT$33.1 billion in 2018. Our capital
expenditures for 2018 are planned to be allocated to our 4G LTE network deployment, FTTx network expansion,
service platforms, cloud computing and IDC construction. We expect to finance these capital expenditures with our
cash flows from operations and bank loans.
Inflation
Inflation
We do not believe that inflation in Taiwan has had a material impact on our results of operations in 2015,
2016 and 2017.
Recent Accounting Pronouncements
Recent Accounting Pronouncements
Major differences between IFRSs and Taiwan IFRSs
While we have adopted Taiwan IFRSs for ROC reporting purposes, we adopt IFRSs for certain filings with
the SEC, including our annual reports on Form 20-F for the year ended December 31, 2013 and thereafter.
Following our adoption of IFRSs for SEC filing purposes, we are no longer required to prepare any reconciliation of
our consolidated financial statements with U.S. GAAP.
80
Capital Expenditures
Substantially all of our capital expenditures in 2015, 2016 and 2017 were made for operations in the ROC. We
have financed our capital expenditures using cash flow from operations and bank loans. The following table sets
forth a summary of our capital expenditures for the periods indicated.
Capital Expenditures:
Domestic fixed communications business
10.2
Mobile communications business
Internet business
International fixed communications
business
Others
Year Ended December 31
2015
2016
2017
(in billions of NT$, except percentages)
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
11.7
9.7
2.8
5
3
1.6
1.1
44 %
36
10
6
4
Total capital expenditures
25.1
100 %
23.5
100 %
26.9
100 %
The following table sets forth a summary of our planned capital expenditures for the year ending December
31, 2018.
Year Ending December 31, 2018
(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
15.9
11.0
3.3
1.5
1.4
33.1
48 %
33
10
5
4
100 %
We expect our total capital expenditures to be approximately NT$33.1 billion in 2018. Our capital
expenditures for 2018 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 2015,
Inflation
2016 and 2017.
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
2017 and which have not been adopted early by us, see Note 5 to our consolidated financial statements included
elsewhere in this annual report. Furthermore, we have identified and implemented changes to our new revenue
accounting systems, processes and internal controls to meet the standard’s reporting and disclosure requirements.
C. Research and Development, Patents and Licenses
C. Research and Development, Patents and Licenses
Research and Development
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 2015, 2016 and 2017, our research and development expenses were NT$3.6 billion, NT$3.8 billion and NT$3.9
billion (US$0.1 billion), or approximately 1.6%, 1.6% and 1.7% of our revenues, respectively.
As of March 31, 2018, we had 2,343 researchers focusing on the following areas:
•
•
•
•
•
Intelligent Broadband Networking: 5G laboratory implementation, smart maintenance systems,
deployment capability for ultra-speed broadband service;
Intelligent Business: automatic speech recognition system, intention analysis techniques, retail robots,
customer self-services application;
Cloud Computing: advanced management mechanism of Container, Server-less and Virtual Network
Function of telecom cloud;
Information Security Application: Public Key Infrastructure and AI technologies, real-name
authentication for blockchain, detection and protection capabilities for information security;
Big Data: Big Data analysis, customer journey processing and analysis;
81
•
•
IoT: IoT service platform, health cloud service, smart security service; and
Convergence Services: unified MOD service platform, value-added applications for mobile payment
and AI technologies.
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 the solution of industry 4.0. As of December 31, 2017, we have been granted 155 domestic patents and
19 foreign patents.
D. Trend Information
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
E. Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that are material to investors.
F. Tabular Disclosure of Contractual Obligations
F. Tabular Disclosure of Contractual Obligations
Set forth below are our total contractual obligations as of December 31, 2017.
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
(in billions of NT$)
More than
5 years
0.10
1.60
1.60
9.50
12.80
0.10
—
0.20
2.90
3.20
—
—
0.40
4.00
4.40
—
1.60
0.40
1.80
3.80
—
—
0.60
0.80
1.40
(1)
(2)
Unfunded defined benefit obligation is not included as the schedule of payments is difficult to determine. We made pension contributions
of approximately NT$2.6 billion (US$0.1 billion) in 2017 and expected to made pension contributions of approximately NT$4.4 billion
(US$0.1 billion) in 2018. See Note 28 to our consolidated financial statements for additional details regarding our pension plan.
Operating leases obligations are described in Note 36 to our consolidated financial statements included elsewhere in the annual report.
As of December 31, 2017, we had remaining commitments under non-cancelable contracts with various
parties, including acquisition of lands and buildings of NT$0.1 billion (US$4.0 million) and acquisition of
telecommunications equipment of NT$16.2 billion (US$0.5 billion). In addition, our subsidiary, CHPT, entered into
a contract for the construction of its headquarters for NT$1.6 billion (US$54.5 million) in July 2017. We had not
made any payment under the contract as of December 31, 2017.
82
•
•
and AI technologies.
Convergence Services: unified MOD service platform, value-added applications for mobile payment
With our consistent investment in research and development, we have developed a number of advanced
network services, operation technologies and VAS which successfully support our business operations and
expansion, including our FTTx deployment, security, mobile payment, smart Home, enterprise ICT solution, cloud
business and operation supporting system, and various IoT services, such as ITS, iEN, intelligent video surveillance,
or IVS, and the solution of industry 4.0. As of December 31, 2017, we have been granted 155 domestic patents and
19 foreign patents.
D. Trend Information
See “—Overview” for a discussion of the most significant recent trends that have had, and in the future may
have, a material impact on our results of operations, financial condition and capital expenditures. In addition, see
discussions included in this Item for a discussion of known trends, uncertainties, demands, commitments or events
that we believe are reasonably likely to have a material effect on our net operating revenues, income from
continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information
not necessarily to be indicative of future operating results or financial condition.
E. Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that are material to investors.
F. Tabular Disclosure of Contractual Obligations
Set forth below are our total contractual obligations as of December 31, 2017.
Contractual Obligations(1)
Short-term loans
Long-term loans
Obligations related to ST-2 satellite
Operating leases(2)
Total
Payments Due by Period
Total
1-3 years 3-5 years
Less than
1 Year
More than
5 years
(in billions of NT$)
0.10
1.60
1.60
9.50
12.80
0.10
—
0.20
2.90
3.20
—
—
0.40
4.00
4.40
—
1.60
0.40
1.80
3.80
—
—
0.60
0.80
1.40
(1)
Unfunded defined benefit obligation is not included as the schedule of payments is difficult to determine. We made pension contributions
of approximately NT$2.6 billion (US$0.1 billion) in 2017 and expected to made pension contributions of approximately NT$4.4 billion
(US$0.1 billion) in 2018. 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, 2017, we had remaining commitments under non-cancelable contracts with various
parties, including acquisition of lands and buildings of NT$0.1 billion (US$4.0 million) and acquisition of
telecommunications equipment of NT$16.2 billion (US$0.5 billion). In addition, our subsidiary, CHPT, entered into
a contract for the construction of its headquarters for NT$1.6 billion (US$54.5 million) in July 2017. We had not
made any payment under the contract as of December 31, 2017.
IoT: IoT service platform, health cloud service, smart security service; and
Foreign Exchange
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 Risk—Foreign Currency Risk” for
further details.
G. Safe Harbor
G. Safe Harbor
See “Forward-Looking Statements in This Annual Report May Not Be Realized.”
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, 2018. 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
Mu-Han Wang
Shin-Yi Chang
Yi-Bing Lin
Wei-Ming Chang
Yih-Yu Lei
Jen-Ran Chen(1)
Yu-Fen Lin(1)
Kuo-Long Wu(1)
Lo-Yu Yen(1)
Chin-Tsai Pan
(1)
Independent director.
Age
65
64
64
63
55
58
57
51
50
59
47
66
63
57
Position
Chairman, chief executive officer and director
President and director
Director
Director
Director
Director
Director
Director
Director
Director
Director
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 MBA degree from National Taiwan University.
83
Mu-Han Wang is a director of our company since November 2017. Dr. Wang is currently the Senior
Counselor and concurrently the Director General of Department of Science and Technology Advisors of the MOTC.
He holds a master’s degree from Northwestern University and a Ph.D. degree from Purdue University, both in
transportation engineering.
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.
Wei-Ming Chang is a director of our company since August 2017. Mr. Chang is also currently the director of
the Department of Planning of the Directorate General of Budget, Accounting and Statistics at the Executive Yuan.
Mr. Chang holds a MBA degree from Tamkang University in Taiwan.
Yih-Yu Lei is a director of our company since April 2017. Ms. Lei is also currently the chief operations
officer at Gogoro where she is responsible for the company’s operations including all logistics, legal affairs,
intellectual property management and strategy, human resources and its overall global business development,
partnerships and expansion. Ms. Lei holds master's degrees in Laws from University of Pennsylvania and National
Taiwan University.
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.
Yu-Fen Lin is an independent director of our company since June 2017. Ms. Lin is the co-founder and
managing partner of Lex& Honor Law offices. She is a transactional attorney with a board practice in business
planning, corporate compliance and finance transactions. She holds bachelor’s degrees of Laws and Arts 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 2017 but are no longer serving with us due to
replacement and resignation.
Shu-Juan Huang was a director of our company. Ms. Huang was also 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.
84
Mu-Han Wang is a director of our company since November 2017. Dr. Wang is currently the Senior
Counselor and concurrently the Director General of Department of Science and Technology Advisors of the MOTC.
He holds a master’s degree from Northwestern University and a Ph.D. degree from Purdue University, both in
transportation engineering.
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.
Wei-Ming Chang is a director of our company since August 2017. Mr. Chang is also currently the director of
the Department of Planning of the Directorate General of Budget, Accounting and Statistics at the Executive Yuan.
Mr. Chang holds a MBA degree from Tamkang University in Taiwan.
Yih-Yu Lei is a director of our company since April 2017. Ms. Lei is also currently the chief operations
officer at Gogoro where she is responsible for the company’s operations including all logistics, legal affairs,
intellectual property management and strategy, human resources and its overall global business development,
partnerships and expansion. Ms. Lei holds master's degrees in Laws from University of Pennsylvania and National
Taiwan University.
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.
Yu-Fen Lin is an independent director of our company since June 2017. Ms. Lin is the co-founder and
managing partner of Lex& Honor Law offices. She is a transactional attorney with a board practice in business
planning, corporate compliance and finance transactions. She holds bachelor’s degrees of Laws and Arts 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 2017 but are no longer serving with us due to
replacement and resignation.
Shu-Juan Huang was a director of our company. Ms. Huang was also 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.
Zse-Hong Tsai was 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.
Chih-Ku Fan was a director of our company. Mr. Fan is 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.
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, 2018. There is no family relationship among any of these persons.
Name
Shui-Yi Kuo
Kuo-Feng Lin
Yung-Fong Song
Hsiu-Gu Huang
Tian-Tsair Su
Yuan-Kuang Tu
Chau-Young Lin
Ming-Shih Chen
Chih-Cheng Chien
Hong-Chan Ma
Rong-Syh Lin
Chen-Huiung Tsai
Age
52
62
57
64
55
62
55
62
57
61
52
64
Position
Chief financial officer and 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
Shui-Yi Kuo is the chief financial officer and senior executive vice president of finance since August 2017.
Mr. Kuo was the senior executive vice president of investment from March 2017 to August 2017. Prior to that, he
served as the vice president of our Investment Department from November 2014 to March 2017, and 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.
Kuo-Feng Lin is the senior executive vice president of technology since November 2016. Mr. Lin was the
president of our Mobile Business Group from May 2012 to November 2016. Prior to that, he served as the vice
president of our Mobil Business Group from October 2009 to May 2012, and the president 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.
Yung-Fong Song is the senior executive vice president of investment since August 2017. Mr. Song is also a
director of CHPT. He was the President of Chunghwa Investment Co., Ltd. from January 2017 to August 2017. Prior
to that, he served as Chairman of CIMB Advisory Taiwan from October 2011 to June 2016. Mr. Song holds a MBA
degree from University of Iowa.
Hsiu-Gu Huang is the senior executive vice president of business since November 2017. Mr. Huang is also
the chairman and(cid:1)director of CHPT. He was the president of our Enterprise Business Group from November 2016 to
November 2017. Prior to that, he served as the senior executive vice president of technology from May 2013 to
November 2016, and the president of our Enterprise Business Group from September 2008 to May 2013. Mr. Huang
holds a master’s degree in Management Science from National Chiao Tung University in Taiwan.
Tian-Tsair Su is the senior executive vice president of administration since November 2017. Mr. Su was the
vice president of our Corporate Planning Department from May 2013 to November 2017. Prior to that, he served as
the assistant vice president of our Corporate Planning Department from June 2012 to May 2013, and the Managing
85
Director of Corporate Planning Department of our International Business Group from June 2009 to June 2012. Mr.
Su holds a master’s degree in Electrical Engineering from National Cheng Kung University.
Yuan-Kuang Tu is the president of our Northern Taiwan Business Group since November 2017. Dr. Tu is
also a director of Senao. He was the president of our Mobil Business Group from November 2016 to November
2017. Prior to that, he served as the president of our Enterprise Business Group from March 2015 to November
2016, and the President of our Northern Taiwan Business Group from March 2012 to February 2015. Dr. Tu holds a
Ph.D. degree in Electrical Engineering from National Taiwan University.
Chau-Young Lin is the president of our Southern Taiwan Business Group since March 2018. Dr. Lin was the
vice president of our Enterprise Business Group from July 2016 to March 2018. Prior to that, he was the president of
our Hsinchu Branch, Northern Taiwan Business Group from January 2015 to July 2016, and the deputy principal
engineer of our Enterprise Business Group from September 2013 to January 2015. Dr. Lin holds a Ph.D. degree in
Electronic Engineering from National Taiwan University of Science and Technology.
Ming-Shih Chen is the president of our Mobile Business Group since November 2017. Dr. Chen is also a
director of Senao. He was the president of our Northern Taiwan Business Group from March 2017 to November
2017. Prior to that, he served as the president of our International Business Group from November 2016 to March
2017, the vice president of our Data Communications Business Group from May 2012 to November 2016. Dr. Chen
holds a Ph.D. degree in Electrical Engineering from National Tsing Hua University in Taiwan.
Chih-Cheng Chien is the president of our International Business Group since March 2017. Dr. Chien was the
vice president of our International Business Group from May 2012 to March 2017. Prior to that, he served as the
vice president of our Data Communications Business Group from February 2011 to May 2012, and the vice
president 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 since August 2015. Mr. Ma
was the vice president of our Marketing Department from September 2012 to August 2015. Prior to that, he served
as the assistant vice president of our Marketing Department from January 2011 to September 2012, and the
Managing Director of Marketing Department of our Data Communications Business Group from September 2008 to
January 2011. Mr. Ma holds a master’s degree in Management Science from National Chiao Tung University in
Taiwan.
Rong-Syh Lin is the president of our Telecommunication Laboratories since November 2017. Dr. Lin was the
vice president of our Telecommunication Laboratories from February 2017 to November 2017. Prior to that, he
served as the vice president of our Information Technology Department from July 2016 to February 2017, and the
vice president of our Enterprise Business Group from September 2015 to July 2016. Dr. Lin holds a Ph.D. degree in
Information Engineering from National Chiao Tung University in Taiwan.
Chen-Huiung Tsai is the president of our Telecommunication Training Institute since July 2017. Mr. Tsai
was the vice president of our Human Resource Department from May 2014 to July 2017. Prior to that, he served as
the vice president of our Administrative & Asset Management Department from November 2013 to May 2014, and
the vice president of our Telecommunication Training Institute from September 2009 to November 2013. Mr. Tsai
holds a bachelor’s degree in Law from National Taiwan University.
The following person served as our executive officer during 2017 but is no longer serving with us due to
resignation and retirement.
Bo-Yung Chen was our chief financial officer and senior executive vice president of finance. 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 MBA degree from
University of Pittsburgh.
86
Director of Corporate Planning Department of our International Business Group from June 2009 to June 2012. Mr.
Su holds a master’s degree in Electrical Engineering from National Cheng Kung University.
Yuan-Kuang Tu is the president of our Northern Taiwan Business Group since November 2017. Dr. Tu is
also a director of Senao. He was the president of our Mobil Business Group from November 2016 to November
2017. Prior to that, he served as the president of our Enterprise Business Group from March 2015 to November
2016, and the President of our Northern Taiwan Business Group from March 2012 to February 2015. Dr. Tu holds a
Ph.D. degree in Electrical Engineering from National Taiwan University.
Chau-Young Lin is the president of our Southern Taiwan Business Group since March 2018. Dr. Lin was the
vice president of our Enterprise Business Group from July 2016 to March 2018. Prior to that, he was the president of
our Hsinchu Branch, Northern Taiwan Business Group from January 2015 to July 2016, and the deputy principal
engineer of our Enterprise Business Group from September 2013 to January 2015. Dr. Lin holds a Ph.D. degree in
Electronic Engineering from National Taiwan University of Science and Technology.
Ming-Shih Chen is the president of our Mobile Business Group since November 2017. Dr. Chen is also a
director of Senao. He was the president of our Northern Taiwan Business Group from March 2017 to November
2017. Prior to that, he served as the president of our International Business Group from November 2016 to March
2017, the vice president of our Data Communications Business Group from May 2012 to November 2016. Dr. Chen
holds a Ph.D. degree in Electrical Engineering from National Tsing Hua University in Taiwan.
Chih-Cheng Chien is the president of our International Business Group since March 2017. Dr. Chien was the
vice president of our International Business Group from May 2012 to March 2017. Prior to that, he served as the
vice president of our Data Communications Business Group from February 2011 to May 2012, and the vice
president 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 since August 2015. Mr. Ma
was the vice president of our Marketing Department from September 2012 to August 2015. Prior to that, he served
as the assistant vice president of our Marketing Department from January 2011 to September 2012, and the
Managing Director of Marketing Department of our Data Communications Business Group from September 2008 to
January 2011. Mr. Ma holds a master’s degree in Management Science from National Chiao Tung University in
Taiwan.
Rong-Syh Lin is the president of our Telecommunication Laboratories since November 2017. Dr. Lin was the
vice president of our Telecommunication Laboratories from February 2017 to November 2017. Prior to that, he
served as the vice president of our Information Technology Department from July 2016 to February 2017, and the
vice president of our Enterprise Business Group from September 2015 to July 2016. Dr. Lin holds a Ph.D. degree in
Information Engineering from National Chiao Tung University in Taiwan.
Chen-Huiung Tsai is the president of our Telecommunication Training Institute since July 2017. Mr. Tsai
was the vice president of our Human Resource Department from May 2014 to July 2017. Prior to that, he served as
the vice president of our Administrative & Asset Management Department from November 2013 to May 2014, and
the vice president of our Telecommunication Training Institute from September 2009 to November 2013. Mr. Tsai
holds a bachelor’s degree in Law from National Taiwan University.
The following person served as our executive officer during 2017 but is no longer serving with us due to
resignation and retirement.
Bo-Yung Chen was our chief financial officer and senior executive vice president of finance. 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 MBA degree from
University of Pittsburgh.
Shyang-Yih Chen was a senior executive vice president of our company and he was 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.
Li-Show Wu was 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.
Hui-Min Wang was 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
president of our subsidiary Chunghwa Telecom (China), Co., Ltd. from March 2011 to October 2015. Mr. Wang
holds a MBA degree from Eastern New Mexico University in the United States.
B. Compensation
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
exceed his fixed income. The chairman will not receive any additional compensation for his role as a
director;
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 2015, 2016 and 2017 was
NT$126,799,952, NT$145,980,825 and NT$142,259,543 (US$4,799,579.7), respectively. The aggregate amount of
compensation in 2017 includes a NT$79,203,514 (US$2,672,183.3) salary payment for directors and executive
officers, a NT$17,335,977 (US$584,884.5) pension payment for executive officers, a NT$40,750,052
(US$1,374,833.1) bonus accrued for directors and a NT$4,970,000 (US$167,678.8) 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$42,087,419 (US$1,419,953.4) were paid directly to the MOTC in 2017 because such earnings distributions are
not the individual income of these directors. Independent directors will not receive any earnings distributions.
87
Pursuant to ROC disclosure rules, we have disclosed the compensation range of our directors and senior
management for the fiscal year ended December 31, 2017 as follows, excluding bonus accrued for legal entity the
MOTC:
Total Compensation
Below NT$2,000,000
NT$2,000,000 to NT$4,999,999
NT$5,000,000 to NT$9,999,999
Over NT$10,000,000
Total
Directors
Yu-Fen Hong(1), Shu-Juan Huang(1), Chih-Ku Fan(1),
Zse-Hong Tsai(1), Yi-Bing Lin, Shin-Yi Chang, Lo-Yu
Yen, Jen-Ran Chen, Kuo-Long Wu, Yih-Yu Lei, Wei-
Ming Chang, Yu-Fen Lin, Mu-Han Wang, Chin-Tsai
Pan(2)
None
Yu Cheng(3), Chi-Mau Sheih(4)
Mu-Piao Shih(5)
17 people
(1)
(2)
(3)
(4)
(5)
This person has ceased to be a director of our company due to resignation and replacement prior to March 31, 2018.
As salary for serving as our employee.
As salary for serving as our chief executive officer.
As salary for serving as our president.
This person has ceased to be the president and director of our company due to retirement in January 2017. The compensation was counted
as salary for serving as our president prior to the cessation and retirement pension payment.
Total Compensation
Below NT$2,000,000
NT$2,000,000 to NT$4,999,999
NT$5,000,000 to NT$9,999,999
Over NT$10,000,000
Total
Yung-Fong Song
Senior Management
Li-Show Wu(1), Fu-Kuei Chung(2), Shui-Yi Kuo, Tian-
Tsair Su, Ming-Shih Chen, Chih-Cheng Chien, Rong-
Syh Lin, Chen-Huiung Tsai
Bo-Yung Chen(3)(4), Hui-Min Wang(5), Hsiu-Gu Huang,
Kuo-Feng Lin, Hong-Chan Ma, Yuan-Kuang Tu
Shyang-Yih Chen(3)(6)
16 people
(1)
(2)
(3)
(4)
(5)
(6)
This person has ceased to be a member of the senior management of our company due to replacement in November 2017.
This person has ceased to be a member of the senior management of our company due to replacement in March 2017.
Including retirement pension payment.
This person has ceased to be a member of the senior management of our company due to resignation in June 2017.
This person has ceased to be a member of the senior management of our company due to retirement in February 2018.
This person has ceased to be a member of the senior management of our company due to retirement in November 2017.
We accrued NT$5,532,244 (US$186,648) pension expense for executive officers mentioned above in 2017.
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
C. Board Practices
We currently have 12 directors, including four independent directors. All of our directors were elected on June
24, 2016, except for Mr. Yu Cheng, Mr. Chi-Mau Sheih, Mr. Shin-Yi Chang, Mr. Chin-Tsai Pan, Dr. Mu-Han
Wang, Mr. Wei-Ming Chang and Ms. Yih-Yu Lei as they were reassigned as a juristic-person director by MOTC
prior to March 31, 2018. The term is until June 23, 2019, for each current director. 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
88
Pursuant to ROC disclosure rules, we have disclosed the compensation range of our directors and senior
management for the fiscal year ended December 31, 2017 as follows, excluding bonus accrued for legal entity the
MOTC:
Total Compensation
Below NT$2,000,000
NT$2,000,000 to NT$4,999,999
NT$5,000,000 to NT$9,999,999
Over NT$10,000,000
Total
(1)
(2)
(3)
(4)
(5)
Total Compensation
Below NT$2,000,000
NT$2,000,000 to NT$4,999,999
NT$5,000,000 to NT$9,999,999
Over NT$10,000,000
Total
Directors
Yu-Fen Hong(1), Shu-Juan Huang(1), Chih-Ku Fan(1),
Zse-Hong Tsai(1), Yi-Bing Lin, Shin-Yi Chang, Lo-Yu
Yen, Jen-Ran Chen, Kuo-Long Wu, Yih-Yu Lei, Wei-
Ming Chang, Yu-Fen Lin, Mu-Han Wang, Chin-Tsai
Pan(2)
None
Yu Cheng(3), Chi-Mau Sheih(4)
Mu-Piao Shih(5)
17 people
Yung-Fong Song
Senior Management
Li-Show Wu(1), Fu-Kuei Chung(2), Shui-Yi Kuo, Tian-
Tsair Su, Ming-Shih Chen, Chih-Cheng Chien, Rong-
Syh Lin, Chen-Huiung Tsai
Bo-Yung Chen(3)(4), Hui-Min Wang(5), Hsiu-Gu Huang,
Kuo-Feng Lin, Hong-Chan Ma, Yuan-Kuang Tu
Shyang-Yih Chen(3)(6)
16 people
This person has ceased to be a director of our company due to resignation and replacement prior to March 31, 2018.
As salary for serving as our employee.
As salary for serving as our chief executive officer.
As salary for serving as our president.
This person has ceased to be the president and director of our company due to retirement in January 2017. The compensation was counted
as salary for serving as our president prior to the cessation and retirement pension payment.
(1)
(2)
(3)
(4)
(5)
(6)
This person has ceased to be a member of the senior management of our company due to replacement in November 2017.
This person has ceased to be a member of the senior management of our company due to replacement in March 2017.
Including retirement pension payment.
This person has ceased to be a member of the senior management of our company due to resignation in June 2017.
This person has ceased to be a member of the senior management of our company due to retirement in February 2018.
This person has ceased to be a member of the senior management of our company due to retirement in November 2017.
We accrued NT$5,532,244 (US$186,648) pension expense for executive officers mentioned above in 2017.
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 12 directors, including four independent directors. All of our directors were elected on June
24, 2016, except for Mr. Yu Cheng, Mr. Chi-Mau Sheih, Mr. Shin-Yi Chang, Mr. Chin-Tsai Pan, Dr. Mu-Han
Wang, Mr. Wei-Ming Chang and Ms. Yih-Yu Lei as they were reassigned as a juristic-person director by MOTC
prior to March 31, 2018. The term is until June 23, 2019, for each current director. 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 all independent directors,
namely Kuo-Long Wu, Lo-Yu Yen, Jen-Ran Chen and Yu-Fen Lin 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 pursuant to the Business Mergers And Acquisitions Act; 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.
89
The Article 14-6 of ROC Securities and Exchange Act requires all listed companies to establish a
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
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
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
authorities of the compensation committee and the qualifications of its members. [Accordingly, our compensation
committee is composed of three independent directors (Lo-Yu Yen, Jen-Ran Chen and Yu-Fen Lin) and is
committee is composed of three independent directors (Lo-Yu Yen, Jen-Ran Chen and Yu-Fen Lin) and is
responsible for drafting, assessing and periodically reviewing the compensation proposals for the directors and
responsible for drafting, assessing and periodically reviewing the compensation proposals for the directors and
managers, and should submit its recommendations to the board of directors for discussion. See “Item 10. Additional
managers, and should submit its recommendations to the board of directors for discussion. See “Item 10. Additional
Information—B. Memorandum and Articles of Incorporation—Directors and Audit Committee.”
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
D. Employees
As of December 31, 2017, we had 33,311 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 2015 to 2017 on a
consolidated basis.
Employees
Technical
Operations
Administrative
Total
2015
2016
2017
15,467
15,558
1,709
32,734
15,760
15,417
1,679
32,856
16,010
15,468
1,833
33,311
The following table is a breakdown of our employees of Chunghwa Telecom Co., Ltd. from 2015 to 2017.
Employees
Technical
Operations
Administrative
Total
2015
2016
2017
13,540
8,312
1,289
23,141
13,195
8,191
1,268
22,654
13,078
8,120
1,262
22,460
As of December 31, 2017, 78.2% 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, 2017, 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.
90
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 (Lo-Yu Yen, Jen-Ran Chen and Yu-Fen Lin) and is
responsible for drafting, assessing and periodically reviewing the compensation proposals for the directors and
managers, and should submit its recommendations to the board of directors for discussion. 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, 2017, we had 33,311 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 2015 to 2017 on a
The following table is a breakdown of our employees of Chunghwa Telecom Co., Ltd. from 2015 to 2017.
Employees
Technical
Operations
Administrative
Total
Employees
Technical
Operations
Administrative
Total
2015
2016
2017
15,467
15,558
1,709
15,760
15,417
1,679
16,010
15,468
1,833
32,734
32,856
33,311
2015
2016
2017
13,540
13,195
13,078
8,312
1,289
8,191
1,268
8,120
1,262
23,141
22,654
22,460
As of December 31, 2017, 78.2% 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, 2017, 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 2017, we distributed compensation to our employees of NT$1.7
billion (US$57.4 million).
E. Share Ownership
E. Share Ownership
As of March 31, 2018, our directors and executive officers personally held an aggregate 425,689 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, 2018 by each of our
directors and executive officers.
Name
Yu Cheng
Chi-Mau Sheih
Shin-Yi Chang
Yi-Bing Lin
Yih-Yu Lei
Jen-Ran Chen
Yu-Fen Lin
Kuo-Long Wu
Chin-Tsai Pan
Wei-Ming Chang
Lo-Yu Yen
Mu-Han Wang
Shui-Yi Kuo
Kuo-Feng Lin
Yung-Fong Song
Hsiu-Gu Huang
Tian-Tsair Su
Yuan-Kuang Tu
Chau-Young Lin
Ming-Shih Chen
Chih-Cheng Chien
Hong-Chan Ma
Rong-Syh Lin
Chen-Huiung Tsai
Number
%
—
72,054
—
—
—
—
—
—
2,000
—
—
—
—
42,771
—
18,698
32,341
81,305
12,888
25,641
19,600
—
40,361
78,030
—
*
—
—
—
—
—
—
*
—
—
—
—
*
—
*
*
*
*
*
*
—
*
*
*
Stockholder beneficially owns less than 1.0% of our outstanding common shares.
Employee Stock Subscription Program
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, 2015, 2016 and 2017, participants
in Senao’s stock incentive plan had outstanding stock options to purchase 7.8 million, 6.6 million and 5.9 million
common shares of Senao, respectively.
Senao, transferred treasury stock to specific employees in 2017. See Note 34 to our consolidated financial
statements, included elsewhere in this annual report, for additional details regarding Senao’s share-based payment
arrangement.
91
In 2015(cid:1)and 2017, 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, 2016 and 2017, participants in CHIEF’s stock incentive plan had outstanding stock options to purchase 2.0
million, 1.9 million and 2.9 million common shares of CHIEF.
In 2016 and 2017, CHPT, another consolidated subsidiary of ours, 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.
ITEM 7. MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Stockholders
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, 2018, 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, 2015
%
number
As of March 31, 2016
%
number
As of March 31, 2017
%
number
As of March 31, 2018
%
number
3,095,559,716 39.90 3,123,092,684 40.11 3,086,749,684 39.79 3,248,754,663 41.88
2,737,718,976 35.29 2,737,718,976 35.29 2,737,718,976 35.29 2,737,718,976 35.29
449,451,087 5.79 449,451,087 5.79 389,146,087 5.02 344,933,087 4.45
(1)
(2)
Includes shares held through the MOTC and other government-controlled entities.
The information as of July 18, 2014, July 19, 2015, July 23, 2016 and July 25, 2017, the latest book closure date, which were the most recent
practicable dates for us to obtain complete ownership information.
As of March 31, 2018, 29 record holders held 25,062,495 ADSs (each representing ten common shares),
which represents approximately 3.2% 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.
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
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,
2017, Senao received NT$10.5 billion (US$0.4 billion) from Chunghwa. Chunghwa also sells mobile handsets and
92
data cards to Senao. For the year ended December 31, 2017, Chunghwa sold mobile handsets and data cards to
Senao that amounted to NT$1.7 billion (US$0.1 billion).
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$5.0 billion
(US$0.2 billion) in 2017 for these services.
Chunghwa acquired network equipment and related supplies from Chunghwa System Integration for
approximately NT$1.2 billion (US$41.7 million) in 2017.
Chunghwa paid Taiwan International Standard Electronics approximately NT$0.9 billion (US$31.6 million) in
2017 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
C. Interests of Experts and Counsel
Not applicable.
449,451,087 5.79 449,451,087 5.79 389,146,087 5.02 344,933,087 4.45
ITEM 8.
ITEM 8.
FINANCIAL INFORMATION
FINANCIAL INFORMATION
A. Consolidated Statements and Other 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.”
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 2013 to 2017. All of these dividends were paid,
in the fiscal year following the period with respect to which the dividends relate.
In 2015(cid:1)and 2017, 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, 2016 and 2017, participants in CHIEF’s stock incentive plan had outstanding stock options to purchase 2.0
million, 1.9 million and 2.9 million common shares of CHIEF.
In 2016 and 2017, CHPT, another consolidated subsidiary of ours, 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, 2018, 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
number
%
number
%
number
%
number
%
As of March 31, 2015
As of March 31, 2016
As of March 31, 2017
As of March 31, 2018
The ROC government(1)(2)
3,095,559,716 39.90 3,123,092,684 40.11 3,086,749,684 39.79 3,248,754,663 41.88
The MOTC
2,737,718,976 35.29 2,737,718,976 35.29 2,737,718,976 35.29 2,737,718,976 35.29
Fubon Life Assurance Co.,
Ltd(2)
(1)
(2)
Includes shares held through the MOTC and other government-controlled entities.
The information as of July 18, 2014, July 19, 2015, July 23, 2016 and July 25, 2017, the latest book closure date, which were the most recent
practicable dates for us to obtain complete ownership information.
As of March 31, 2018, 29 record holders held 25,062,495 ADSs (each representing ten common shares),
which represents approximately 3.2% 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.
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,
2017, Senao received NT$10.5 billion (US$0.4 billion) from Chunghwa. Chunghwa also sells mobile handsets and
Year ended December 31, 2013(2)
Year ended December 31, 2014
Year ended December 31, 2015
Year ended December 31, 2016
Year ended December 31, 2017(3)
Total
Dividends(1)
NT$ in billions
18.5
37.7
42.6
38.3
37.2
2.3881
4.8564
5.4852
4.9419
4.796
Dividends Per
Common Share(1)
NT$
(1)
(2)
(3)
Cash dividend unless otherwise indicated.
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$2.137 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.”
Dividends for 2017, which are calculated based on Taiwan IFRSs, were approved by the board of directors in March 2018 and are
expected to be declared at our annual general stockholders’ meeting scheduled on June 15, 2018. Our payout ratio was 95.7% in 2017
after the adjustment of unappropriated earnings and the reversal 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
93
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.
B. Significant Changes
B. 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.
ITEM 9.
ITEM 9.
THE OFFER AND LISTING
THE OFFER AND LISTING
A. Offer and Listing Details
A. Offer and Listing Details
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 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 20, 2018 was NT$113.50 per share.
2013
2014
2015
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
October
November
December
2018 (through April 20)
First Quarter
January
February
March
Second Quarter(through April 20)
April (through April 20)
Closing Price
Per Common Share(1)
Low
High
NT$
NT$
Average
Daily Trading
Volume
(in thousands)
7,498
6,307
8,292
11,059
10,744
7,982
11,624
13,621
8,703
10,602
8,157
8,062
8,175
7,797
8,349
8,335
9,081
9,382
9,672
10,759
8,325
7,629
7,629
78.59
87.57
81.59
89.35
87.93
100.50
93.82
118.50
98.20
110.50
116.50 107.00
118.50 110.50
112.50 101.00
95.49
106.00
95.49
101.22
104.08
97.40
105.51 102.00
106.00 102.00
103.50 102.50
104.50 102.00
106.00 104.00
114.50 106.50
113.00 106.50
109.50 107.50
110.00 106.50
113.00 108.00
114.50 112.00
114.50 112.00
(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.
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
and low closing prices and the average daily volume of trading activity on the NYSE for our ADSs. The closing
94
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.
price for our ADSs on the NYSE on April 20, 2018 was US$38.52 per ADS. Each of our ADSs represents the right
to receive ten shares.
B. 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.
ITEM 9.
THE OFFER AND LISTING
A. Offer and Listing Details
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 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 20, 2018 was NT$113.50 per share.
2013
2014
2015
2016
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
October
November
December
First Quarter
January
February
March
2018 (through April 20)
Closing Price
Per Common Share(1)
High
NT$
Low
NT$
Average
Daily Trading
Volume
(in thousands)
87.57
89.35
100.50
118.50
110.50
78.59
81.59
87.93
93.82
98.20
116.50 107.00
118.50 110.50
112.50 101.00
106.00
101.22
104.08
95.49
95.49
97.40
105.51 102.00
106.00 102.00
103.50 102.50
104.50 102.00
106.00 104.00
114.50 106.50
113.00 106.50
109.50 107.50
113.00 108.00
114.50 112.00
114.50 112.00
7,498
6,307
8,292
11,059
10,744
7,982
11,624
13,621
8,703
10,602
8,157
8,062
8,175
7,797
8,349
8,335
9,081
9,382
9,672
8,325
7,629
7,629
110.00 106.50
10,759
Second Quarter(through April 20)
April (through April 20)
(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.
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
and low closing prices and the average daily volume of trading activity on the NYSE for our ADSs. The closing
Closing Price
Per ADS(1)
High
US$
Low
US$
2013
2014
2015
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
October
November
December
2018 (through April 20)
First Quarter
January
February
March
Second Quarter (through April 20)
April (through April 20)
29.64
29.99
31.58
37.38
34.22
38.41
37.38
35.42
35.44
33.24
34.45
34.82
35.44
34.24
34.71
35.44
39.30
38.86
37.37
37.63
38.86
39.30
39.30
Average ADS
Daily Trading
Volume
(in thousands)
206
111
186
262
257
214
215
316
191
313
161
161
130
153
136
99
127
128
123
133
128
125
125
26.43
26.50
27.66
28.24
29.57
35.03
34.64
31.36
29.95
29.96
32.13
33.46
33.58
33.58
33.69
34.33
36.11
36.11
36.11
36.21
36.93
38.52
38.52
(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 20, 2018, a total of 25,198,895 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.
C. Markets
C. Markets
The principal trading market for our common shares is the TWSE and the principal trading market for our
ADSs is the NYSE.
D. Selling Stockholders
D. Selling Stockholders
Not applicable.
E. Dilution
E. Dilution
Not applicable.
95
F. Expenses of the Issue
F. Expenses of the Issue
Not applicable.
ITEM 10.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
A. Share Capital
ADDITIONAL INFORMATION
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.
Objects and Purpose
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
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 32.59% of our outstanding
common shares as of December 31, 2017. The remainder of our outstanding shares is held by public stockholders
and other investors.
Directors and Audit Committee
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
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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.
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 32.59% of our outstanding
common shares as of December 31, 2017. 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 the total number of our 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
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; however, if the
company still has accumulated losses, it should be covered first. 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
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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
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.
Preemptive Rights
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 or our employees 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
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 the total number of our 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.
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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.
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.
Changes in Share Capital
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 or our employees 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 the total number of our 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
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 one-half 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 one-half 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
dismissing 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 one-half 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.
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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
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.
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
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
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 City, Taiwan for inspection by the
stockholders.
Transfer of Common Shares
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
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.
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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.
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 City, 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)
(3)
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
for maintaining its credit and its stockholders’ equity, provided that the shares so purchased shall be
cancelled thereafter.
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
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
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,
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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.
C. Material Contracts
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
D. Exchange Controls
Foreign Investment and Exchange Controls in Taiwan
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
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
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.
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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.
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
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
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.
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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:
(i)
stock dividends;
(ii)
free distributions of shares;
(iii) due to the exercise by the depositary receipt holder preemptive rights in the event of capital increases
for cash; or
(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
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
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
104
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:
(i)
stock dividends;
(ii)
free distributions of shares;
for cash; or
(iii) due to the exercise by the depositary receipt holder preemptive rights in the event of capital increases
(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
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.
E. Taxation
E. Taxation
ROC Taxation
ROC Taxation
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:
•
•
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 21%, pursuant to the amendment to the Standards of Withholding Rates for Various
Incomes promulgated by the Ministry of Finance of the ROC effective from January 1, 2018, 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 21% 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.
According to the amendment to Income Tax Law, the rate of the ROC unappropriated earnings tax is adjusted
from 10% to 5% against our unappropriated earnings generated from January 1, 2018 and the allowed tax credit
(against our earnings generated since January 1, 2018) is canceled. Such amendment will apply to our annual tax
filings made since January 1, 2019.
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.
105
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 21%, 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.
Capital Gains
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.
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 May 12, 2017, estate tax is payable at rates ranging from 10% of the first
NT$50,000,000 to 20% of amounts over NT$100,000,000, and gift tax is payable at rates ranging from 10% of the
first NT$25,000,000 to 20% of amounts over NT$50,000,000.
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.
106
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 21%, 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.
Capital Gains
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.
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
unappropriated 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 21% withholding tax imposed on the non-resident holders of its shares.
Starting from 2015, the allowed tax credit is adjusted to 50% of the unappropriated earnings tax paid by us.
According to the amendment to Income Tax Law, the rate of the ROC unappropriated earnings tax is adjusted
from 10% to 5% against our unappropriated earnings generated from January 1, 2018 and the allowed tax credit
(against our earnings generated since January 1, 2018) is canceled. Such amendment will apply to our annual tax
filings made since January 1, 2019.
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.
U.S. Federal Income Tax Considerations for U.S. Holders
U.S. Federal Income Tax Considerations for U.S. Holders
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 May 12, 2017, estate tax is payable at rates ranging from 10% of the first
NT$50,000,000 to 20% of amounts over NT$100,000,000, and gift tax is payable at rates ranging from 10% of the
first NT$25,000,000 to 20% of amounts over NT$50,000,000.
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.
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:
•
•
•
•
•
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;
107
•
•
•
•
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
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
consequences 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
108
•
•
•
•
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
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
consequences 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.
109
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.
Passive Foreign Investment Company
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, 2017, 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.
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.
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
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
G. Statement by Experts
Not applicable.
H. Documents on Display
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.
110
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
I. Subsidiary Information
Not applicable.
Passive Foreign Investment Company
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, 2017, 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.
ITEM 11.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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
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, 2017 would have increased or decreased by NT$12.6 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, 2017, our cash
and cash equivalents amounted to NT$28.8 billion (US$1.0 billion). Interest income from our cash deposits in banks
accounts for only a very small percentage of our total revenue. Therefore, we believe our exposure to interest rate
risk is immaterial.
Foreign Currency Risk
Foreign Currency Risk
We are exposed to foreign currency risk as a result of (i) our foreign currency and derivative trading activities;
(ii) our telecommunications equipment being sourced from overseas suppliers; (iii) our international settlement
payments associated with our services for international calls and roaming traffic; and (iv) securities denominated in
foreign currencies.
We entered into forward exchange contracts to reduce our exposure to foreign currency risk due to
fluctuations in exchange rates. Outstanding forward exchange contracts on December 31, 2017 were as follows:
FX Instrument
Forward exchange contracts-Buy
Forward exchange contracts-Buy
Forward exchange contracts-Buy
Currencies
Involved
Maturity
Period
Contract
Amount
EUR$/NT$ 2018.03-06 EUR$2 million/NT$69 million
US$4 million/NT$125 million
US$/NT$ 2018.01
EUR$/NT$ 2018.03-06 EUR$4 million/NT$142 million
Note 38 to our consolidated financial statements included elsewhere in this annual report provides a sensitivity
analysis for foreign currency risk.
Equity Price Risk
Equity Price Risk
We are exposed to equity price risk as a result of our available-for-sale equity securities, including publicly-
traded equities, and we manage our equity investment portfolio in accordance with our internal policies and
procedures.
111
The table below presents the carrying amount and unrealized gain or loss for our available-for-sale equity
securities traded in an active market and with quoted market price as of December 31, 2017.
Available-for-sale equity securities
Domestic listed stocks
Carrying
Amount
NT$
Unrealized
Gain
NT$
(in millions)
Unrealized
Loss
NT$
3,125
620
15
The total value of our listed available-for-sale equity portfolio amounted to NT$3.1 billion (US$0.1 billion) as
of December 31, 2017, which increased approximately 24.0% compared with the total value of our listed equity
portfolio as of December 31, 2016. This increase was mainly due to the increasing price of the equity securities held
by us.
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, 2017 would have
increased or decreased by NT$156.3 million (US$5.3 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.
ITEM 12.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
A. Debt Securities
Not applicable
B. Warrants and Rights
B. Warrants and Rights
Not applicable
C. Other Securities
C. Other Securities
Not applicable
D. American Depositary Shares
D. American Depositary Shares
Depositary Fees
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
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
Fees
Up to US$5.00 per 100 ADS issued
Up to US$5.00 per 100 ADS cancelled
Up to US$2.00 per 100 ADS held
Up to US$5.00 per 100 ADS held
Up to US$5.00 per 100 ADS held
Depositary Charges
Depositary Charges
In addition, an ADS holder shall be responsible for the following charges:
•
taxes (including applicable interest and penalties) and other governmental charges;
112
The table below presents the carrying amount and unrealized gain or loss for our available-for-sale equity
securities traded in an active market and with quoted market price as of December 31, 2017.
Available-for-sale equity securities
Domestic listed stocks
Carrying
Amount
NT$
Unrealized
Unrealized
Gain
NT$
Loss
NT$
(in millions)
3,125
620
15
The total value of our listed available-for-sale equity portfolio amounted to NT$3.1 billion (US$0.1 billion) as
of December 31, 2017, which increased approximately 24.0% compared with the total value of our listed equity
portfolio as of December 31, 2016. This increase was mainly due to the increasing price of the equity securities held
by us.
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, 2017 would have
increased or decreased by NT$156.3 million (US$5.3 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.
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
fees to the depositary:
Service
Issuance of ADSs
Cancellation of ADSs
additional ADSs
Depositary Charges
Under the terms of the deposit agreement for our ADSs, an ADS holder may have to pay the following 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
Up to US$5.00 per 100 ADS held
Fees
Up to US$5.00 per 100 ADS issued
Up to US$5.00 per 100 ADS cancelled
Up to US$2.00 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
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
securities on the share register and applicable to transfers of common shares or other deposited
deposited securities to or from the name of the custodian, the depositary or any nominees upon the
securities to or from the name of the custodian, the depositary or any nominees upon the making of
making of deposits and withdrawals, respectively;
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
Payments by Depositary
In 2017, we received US$0.9 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:
•
•
•
•
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.
113
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
114
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
ITEM 13.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
01
PART II
PART II
None.
ITEM 14.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
PROCEEDS
USE OF PROCEEDS
None.
ITEM 15.
ITEM 15. CONTROLS AND PROCEDURES
CONTROLS AND PROCEDURES
Disclosure 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
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, 2017
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, 2017 based on the criteria established in Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
115
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, 2017, 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
Attestation Report of the Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Chunghwa Telecom Co., Ltd.
Opinion on Internal Control over Financial Reporting
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Chunghwa Telecom Co., Ltd. and subsidiaries
(the “Company”) as of December 31, 2017, based on criteria established in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by
COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017, of
the Company and our report dated April 27, 2018, expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
Basis for Opinion
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 are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
Definition and Limitations of Internal Control over Financial Reporting
A company’s 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 for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the consolidated financial statements.
116
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, 2017, 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).
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Attestation Report of the Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Chunghwa Telecom Co., Ltd.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Chunghwa Telecom Co., Ltd. and subsidiaries
(the “Company”) as of December 31, 2017, based on criteria established in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017, of
the Company and our report dated April 27, 2018, expressed an unqualified opinion on those consolidated financial
COSO.
statements.
Basis for Opinion
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 are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s 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 for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the consolidated financial statements.
/s/ DELOITTE & TOUCHE
Deloitte & Touche
Taipei, Taiwan
The Republic of China
April 27, 2018
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, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 16A.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
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.
ITEM 16B. CODE OF ETHICS
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.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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.
Audit fees(1)
Audit-related fees(2)
Tax fees(3)
All other fees(4)
Year Ended December 31
2016
NT$
2017
NT$
(in millions)
US$
47.2
—
—
—
38.2
—
—
—
1.3
—
—
—
(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.
117
(2)
(3)
(4)
“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.
“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.
“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.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
PURCHASERS
Not applicable.
ITEM 16F.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G.
ITEM 16G. CORPORATE GOVERNANCE
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
twelve-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
118
(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.
(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
(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
advice.
None.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
Not applicable.
Not applicable.
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
twelve-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.
119
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.
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
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
120
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.
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.
121
01
03.
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm....................................................................... F-1
Consolidated Balance Sheets as of December 31, 2016 and 2017.............................................................. F-2
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2016 and 2017 ..... F-4
Consolidated Statements of Changes in Equity for the years ended December 31, 2015, 2016 and 2017 .... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2016 and 2017 .............. F-7
Notes to Consolidated Financial Statements
F-10
122
ITEM 17.
FINANCIAL STATEMENTS
ITEM 17. FINANCIAL STATEMENTS
01
The Registrant has elected to provide the consolidated financial statements and related information specified
PART III
PART III
in Item 18 in lieu of Item 17.
ITEM 18.
FINANCIAL STATEMENTS
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.
03.
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm....................................................................... F-1
Consolidated Balance Sheets as of December 31, 2016 and 2017.............................................................. F-2
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2016 and 2017 ..... F-4
Consolidated Statements of Changes in Equity for the years ended December 31, 2015, 2016 and 2017 .... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2016 and 2017 .............. F-7
Notes to Consolidated Financial Statements
..................................................................................
F-10
123
ITEM 19.
EXHIBITS
ITEM 19. EXHIBITS
Exhibit
Number
1.1
2.1
Description of Exhibits
Articles of Incorporation of Chunghwa Telecom Co., Ltd. (English translation) (incorporated by
reference to Exhibit 1.2 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2016 (File No. 001-31731) filed with the Commission on April 25, 2017).
Form of Amended and Restated Deposit Agreement dated as of November 2007 among Chunghwa
Telecom Co. Ltd., JPMorgan Chase Bank, N.A., as depositary, and all holders from time to time of
ADRs issued thereunder, including the Form of American Depositary Receipt (incorporated by
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).
8.1*
List of Subsidiaries.
11.1
11.2
12.1*
12.2*
13.1*
13.2*
Code of Ethics as approved by the board of directors on August 13, 2013 (English translation)
(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).
Ethical Corporate Management Best Practice Principles as approved by the board of directors on
August 13, 2013 (English translation) (incorporated by reference to Exhibit 11.2 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).
Certification of our Chief Executive Officer pursuant to Section 302 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 Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Certification of our Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
101.INS*
XBRL Instance Document.
101.SCH*
XBRL Taxonomy Extension Schema Document.
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document.
*
Filed herewith.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has
SIGNATURES
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
duly caused and authorized the undersigned to sign this annual report on its behalf.
CHUNGHWA TELECOM CO., LTD.
By: /s/ YU CHENG
CHUNGHWA TELECOM CO., LTD.
Name: (cid:1)Yu Cheng
Title: (cid:1)Chairman and Chief Executive Officer
By: /s/ YU CHENG
Name: (cid:1)Yu Cheng
Title: (cid:1)Chairman and Chief Executive Officer
Date: April 27, 2018
Date: April 27, 2018
124
ITEM 19. EXHIBITS
Exhibit
Number
1.1
Articles of Incorporation of Chunghwa Telecom Co., Ltd. (English translation) (incorporated by
reference to Exhibit 1.2 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2016 (File No. 001-31731) filed with the Commission on April 25, 2017).
Description of Exhibits
2.1
Form of Amended and Restated Deposit Agreement dated as of November 2007 among Chunghwa
Telecom Co. Ltd., JPMorgan Chase Bank, N.A., as depositary, and all holders from time to time of
ADRs issued thereunder, including the Form of American Depositary Receipt (incorporated by
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).
8.1*
List of Subsidiaries.
11.1
Code of Ethics as approved by the board of directors on August 13, 2013 (English translation)
(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,
11.2
Ethical Corporate Management Best Practice Principles as approved by the board of directors on
August 13, 2013 (English translation) (incorporated by reference to Exhibit 11.2 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).
12.1*
Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
12.2*
Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
13.1*
Certification of our Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
13.2*
Certification of our Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2014).
2002.
2002.
2002.
2002.
101.INS*
XBRL Instance Document.
101.SCH*
XBRL Taxonomy Extension Schema Document.
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document.
*
Filed herewith.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Chunghwa Telecom Co., Ltd.
Opinion on the Consolidated Financial Statements
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Chunghwa Telecom Co., Ltd. and subsidiaries
(the "Company") as of December 31, 2016 and 2017, 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, 2017,
and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as
of December 31, 2016 and 2017, and the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2017, in conformity with International Financial Reporting Standards as issued
by the International Accounting Standards 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 readers outside Taiwan.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based
on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated April 27, 2018, expressed an unqualified opinion
on the Company's internal control over financial reporting.
Basis for Opinion
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility
is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
/s/ DELOITTE & TOUCHE
Deloitte & Touche
Taipei, Taiwan
The Republic of China
April 27, 2018
We have served as the Company's auditor since 1998.
1
F
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
Notes
3, 7
3, 8
3, 10
3, 4, 11
$
40
3, 4, 12,
41
13, 40
14, 28
20, 32, 41
3, 9
3, 16
3, 4, 17,
40, 41
3, 4, 18
3, 4, 19
3, 32
3, 4, 28
13, 40
20, 41
2016
NT$
2017
US$ (Note 6)
NT$
31,100 $
—
2,140
31,022
14
28,825 $
—
—
31,941
49
7,423
2,978
4,821
2,122
81,620
8,840
2,188
5,308
2,183
79,334
4,764
2,386
5,751
2,326
973
—
—
1,077
2
298
74
179
74
2,677
194
78
8,115
47,353
2,322
919
3,241
5,025
291,170 288,708
8,048
54,883
2,730
13
3,573
5,536
365,295 371,568
$ 446,915 $ 450,902 $
9,740
272
1,852
92
—
121
187
12,536
15,213
continued
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2016 and 2017
(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
Held-to-maturity financial assets
Trade notes and accounts receivable, net
Receivables from related parties
Inventories
Inventories
Prepayments
Other current monetary assets
Other current assets
Total current assets
NONCURRENT ASSETS
Available-for-sale financial assets
Investments accounted for using equity method
Property, plant and equipment
Property, Plant and equipment
Investment properties
Intangible assets
Deferred income tax assets
Net defined benefit assets
Prepayments
Other noncurrent assets
Total noncurrent assets
TOTAL
2
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
Other current liabilities
Total current liabilities
NONCURRENT LIABILITIES
Long-term loans
Deferred income tax liabilities
Provisions
Customers’ deposits
Net defined benefit liabilities
Deferred revenue
Other noncurrent liabilities
Total noncurrent liabilities
Total liabilities
OF THE PARENT
Common stocks
Additional paid-in capital
Retained earnings
Legal reserve
Special reserve
Unappropriated earnings
Total retained earnings
Other adjustments
EQUITY ATTRIBUTABLE TO STOCKHOLDERS
Notes
NT$
US$ (Note 6)
2016
NT$
2017
22, 41
$
138 $
70 $
2
64,160
63,939
2,157
3, 8
3, 21
24
40
3, 32
25
3, 26
27
23, 41
3, 32
3, 26
40
3, 4, 28
3
1
1
1
1
18,810
19,396
762
6,522
684
8,674
26,418
25,001
119
10,059
1,330
189
8,842
1,081
1,600
1,464
66
4,610
1,537
3,546
3,004
1,600
1,430
78
4,671
2,704
3,612
3,458
15,827
79,987
17,553
81,492
77,574
77,574
147,180 148,091
77,574
77,574
2,676
2,681
55,657
54,633
135,907 134,888
(5 )
383
—
—
654
23
293
844
6
298
37
54
48
3
158
91
122
117
593
2,750
2,617
4,996
2,617
91
1,843
4,551
13
Total equity attributable to stockholders
NONCONTROLLING INTERESTS
of the parent
Total equity
TOTAL
15, 29
15, 29
360,656 360,936
12,177
6,272
8,474
366,928 369,410
$ 446,915 $ 450,902 $
286
12,463
15,213
The accompanying notes are an integral part of the consolidated financial statements.
concluded
F
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2016 and 2017
(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
Held-to-maturity financial assets
2016
NT$
2017
NT$
US$ (Note 6)
$
31,100 $
28,825 $
—
2,140
—
—
Trade notes and accounts receivable, net
3, 4, 11
31,022
31,941
1,077
Receivables from related parties
14
49
2
Notes
3, 7
3, 8
3, 10
40
3, 4, 12,
41
13, 40
14, 28
973
—
—
298
74
179
74
194
78
9,740
272
1,852
92
—
121
187
20, 32, 41
7,423
2,978
4,821
2,122
8,840
2,188
5,308
2,183
81,620
79,334
2,677
40, 41
291,170 288,708
3, 4, 18
3, 4, 19
3, 32
3, 4, 28
13, 40
20, 41
8,115
8,048
47,353
54,883
2,322
919
3,241
5,025
2,730
13
3,573
5,536
365,295 371,568
$ 446,915 $ 450,902 $
12,536
15,213
continued
Inventories
Prepayments
Other current monetary assets
Other current assets
Total current assets
NONCURRENT ASSETS
Investment properties
Intangible assets
Deferred income tax assets
Net defined benefit assets
Prepayments
Other noncurrent assets
Total noncurrent assets
TOTAL
Available-for-sale financial assets
Investments accounted for using equity method
Property, plant and equipment
3, 9
3, 16
3, 4, 17,
4,764
2,386
5,751
2,326
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
Other current liabilities
Total current liabilities
NONCURRENT LIABILITIES
Long-term loans
Deferred income tax liabilities
Provisions
Customers’ deposits
Net defined benefit liabilities
Deferred revenue
Other noncurrent liabilities
Total noncurrent liabilities
Total liabilities
EQUITY ATTRIBUTABLE TO STOCKHOLDERS
OF THE PARENT
Common stocks
Additional paid-in capital
Retained earnings
Legal reserve
Special reserve
Unappropriated earnings
Total retained earnings
Other adjustments
Total equity attributable to stockholders
of the parent
NONCONTROLLING INTERESTS
Total equity
TOTAL
Notes
2016
NT$
2017
US$ (Note 6)
NT$
22, 41
$
138 $
70 $
2
3, 8
3, 21
24
40
3, 32
25
3, 26
27
23, 41
3, 32
3, 26
40
3, 4, 28
3
1
1
18,810
762
6,522
26,418
119
10,059
1,330
64,160
1,600
1,464
66
4,610
1,537
3,546
3,004
15,827
79,987
1
1
19,396
684
8,674
25,001
189
8,842
1,081
63,939
1,600
1,430
78
4,671
2,704
3,612
3,458
17,553
81,492
77,574
77,574
147,180 148,091
77,574
2,676
55,657
77,574
2,681
54,633
135,907 134,888
383
(5 )
—
—
654
23
293
844
6
298
37
2,157
54
48
3
158
91
122
117
593
2,750
2,617
4,996
2,617
91
1,843
4,551
13
15, 29
15, 29
6,272
360,656 360,936
8,474
366,928 369,410
$ 446,915 $ 450,902 $
12,177
286
12,463
15,213
concluded
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, 2015, 2016 and 2017
(In Millions of New Taiwan or U.S. Dollars, Except Earnings Per Share That Are in New Taiwan or U.S.
Dollars)
2015
NT$
2016
NT$
NT$
Notes
2017
4, 30, 40, 43 $ 231,795 $ 229,991 $ 227,514 $
12, 28, 31, 40 148,126 147,552 146,837
80,677
82,439
83,669
US$ (Note
6)
7,676
4,954
2,722
28, 31, 40
15, 17, 18, 31,
43
31, 40
31, 40
16
3, 32
28
16
32
25,071
4,515
3,617
33,203
25,516
4,537
3,785
33,838
25,357
4,626
3,886
33,869
856
156
131
1,143
(105 )
50,361
(496 )
48,105
(105 )
46,703
(3 )
1,576
306
650
(228 )
(33 )
189
1,072
(448 )
(20 )
205
836
(132 )
(22 )
7
28
(4 )
(1 )
897
1,592
51,953
9,101
42,852
515
1,308
49,413
7,787
41,626
419
1,306
48,009
7,849
40,160
14
44
1,620
265
1,355
(231 )
(2,043 )
(2,024 )
(68 )
(25 )
(44 )
1
—
39
(217 )
347
(1,740 )
344
(1,679 )
11
(57 )
(Continued)
REVENUES
OPERATING COSTS
GROSS PROFIT
OPERATING EXPENSES
Marketing
General and administrative
Research and development
Total operating expenses
OTHER INCOME AND EXPENSES
INCOME FROM OPERATIONS
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
INCOME TAX EXPENSE
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
4
F
REVENUES
OPERATING COSTS
GROSS PROFIT
OPERATING EXPENSES
Marketing
General and administrative
Research and development
Total operating expenses
OTHER INCOME AND EXPENSES
INCOME FROM OPERATIONS
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
INCOME TAX EXPENSE
NET INCOME
TOTAL OTHER COMPREHENSIVE INCOME
Items that will not be reclassified to profit or
(LOSS)
loss:
Remeasurements of defined benefit pension
plans
ventures
Share of remeasurements of defined benefit
pension plans of associates and joint
Income tax benefit relating to items that will
not be reclassified to profit or loss
31, 40
31, 40
16
3, 32
28
16
32
2015
NT$
2016
NT$
2017
NT$
US$ (Note
6)
Notes
4, 30, 40, 43 $ 231,795 $ 229,991 $ 227,514 $
12, 28, 31, 40 148,126 147,552 146,837
83,669
82,439
80,677
25,071
25,516
25,357
4,515
3,617
4,537
3,785
4,626
3,886
28, 31, 40
33,203
33,838
33,869
1,143
15, 17, 18, 31,
43
(105 )
(496 )
(105 )
(3 )
50,361
48,105
46,703
1,576
7,676
4,954
2,722
856
156
131
7
28
(4 )
(1 )
14
44
1,620
265
1,355
306
650
(228 )
(33 )
189
1,072
(448 )
(20 )
205
836
(132 )
(22 )
897
515
419
1,592
1,308
1,306
51,953
49,413
48,009
9,101
7,787
7,849
42,852
41,626
40,160
(231 )
(2,043 )
(2,024 )
(68 )
(25 )
(44 )
1
39
347
344
(217 )
(1,740 )
(1,679 )
—
11
(57 )
(Continued)
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2015, 2016 and 2017
(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, 2015, 2016 and 2017
(In Millions of New Taiwan or U.S. Dollars, Except Earnings Per Share That Are in New Taiwan or U.S.
Dollars)
Items that may be reclassified subsequently to
profit or loss:
Notes
2015
NT$
2016
NT$
2017
NT$
US$ (Note
6)
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
TOTAL COMPREHENSIVE INCOME
NET INCOME ATTRIBUTABLE TO
Stockholders of the parent
Noncontrolling interests
COMPREHENSIVE INCOME
ATTRIBUTABLE TO
Stockholders of the parent
Noncontrolling interests
$
24 $
(170 ) $
(229 ) $
(8 )
(645 )
1
(144 )
(1 )
605
(1 )
21
—
31
21, 31
16
32
6
(3 )
(5 )
—
(2 )
(616 )
2
(316 )
3
373
—
13
(833 )
(1,306 )
$ 42,019 $ 39,570 $ 38,854 $
(2,056 )
$ 42,039 $ 40,485 $ 38,988 $
1,172
$ 42,852 $ 41,626 $ 40,160 $
1,141
813
$ 41,207 $ 38,486 $ 37,705 $
1,149
$ 42,019 $ 39,570 $ 38,854 $
1,084
812
(44 )
1,311
1,315
40
1,355
1,272
39
1,311
EARNINGS PER SHARE
33
Basic
Diluted
EARNINGS PER EQUIVALENT ADS
Basic
Diluted
$
$
$
$
5.42 $
5.41 $
5.22 $
5.21 $
5.03 $
5.02 $
0.17
0.17
54.19 $
54.06 $
52.19 $
52.11 $
50.26 $
50.19 $
1.70
1.69
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, 2015, 2016 and 2017
(In Millions of New Taiwan or U.S. Dollars)
BALANCE, JANUARY 1, 2015
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
BALANCE, DECEMBER 31, 2016
Appropriation of 2016 earnings
Special reserve
Cash dividends paid by Chunghwa
Cash dividends distributed by subsidiaries
Unclaimed dividend
Change in additional paid-in capital from investments
in associates and joint ventures accounted for
using equity method
Partial disposal of interests in subsidiaries
Change in additional paid-in capital for not participating
in the capital increase of a subsidiary
Other changes in additional paid-in capital of subsidiaries
Net income for the year ended December 31, 2017
Other comprehensive loss for the year ended
December 31, 2017
Total comprehensive income (loss) for the year ended
December 31, 2017
Share-based payment transactions of subsidiaries
Net increase in noncontrolling interests
Common Stocks
NT$
Additional Paid-in
Capital
NT$
Legal Reserve
NT$
Special Reserve
NT$
Unappropriated
Earnings
NT$
Total Retained
Earnings
NT$
$
77,574
$
146,720
$
76,893
$
2,820
$
55,895
$
135,608
$
146
$
740
$
—
$
886
$
360,788
$
4,924
$
365,712
Exchange
Differences
Arising from the
Translation of the
Foreign
Operations
NT$
Unrealized 'Gain
or Loss on
Available-for-sale
Financial Assets
Cash Flow Hedges
NT$
NT$
Total Other
Adjustments
NT$
Total Equity
Attributable to
Stockholders of
the Parent
NT$
Noncontrolling
Interests
NT$
Total Equity
NT$
Retained Earnings
Other Adjustments
Equity Attributable to Stockholders of the Parent
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
27
1
—
—
—
—
—
(15 )
—
681
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(144 )
—
(681 )
144
(37,673 )
(37,673 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
42,039
42,039
(215 )
(215 )
41,824
41,824
—
(61 )
—
77,574
146,733
77,574
2,676
59,448
139,698
177
—
—
—
—
—
—
—
—
—
—
—
58
389
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(42,551 )
(42,551 )
—
—
—
40,485
40,485
(1,725 )
(1,725 )
38,760
38,760
—
—
77,574
147,180
77,574
2,676
55,657
135,907
360,656
6,272
366,928
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3
—
77
802
—
—
—
—
2
27
—
—
—
—
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
—
—
(5 )
(38,336 )
—
(38,336 )
—
—
—
—
—
—
38,988
38,988
(1,671 )
(1,671 )
37,317
37,317
—
—
BALANCE, DECEMBER 31, 2017
$
77,574
BALANCE, DECEMBER 31, 2017
(IN MILLIONS OF US$ - Note 6)
6
$
2,617
The accompanying notes are an integral part of the consolidated financial statements.
$
$
148,091
4,996
$
$
77,574
2,617
$
$
2,681
91
$
$
54,633
134,888
1,843
4,551
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12,177
286
12,463
—
—
—
—
—
—
—
—
(61 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
31
31
—
—
—
—
—
—
—
—
—
—
46
—
—
—
—
—
—
—
—
—
(131 )
(131 )
(220 )
(220 )
—
—
(174 )
(6 )
$
$
(649 )
(649 )
—
—
—
—
—
—
—
—
—
—
—
—
91
—
—
—
—
—
(142 )
(142 )
—
—
(51 )
—
—
—
—
—
—
—
—
—
609
609
—
—
558
19
—
—
—
—
—
—
—
—
—
1
1
—
—
—
1
—
—
—
—
—
(1 )
(1 )
—
—
—
—
—
—
—
—
—
—
—
—
(1 )
(1 )
—
—
(1 )
—
(37,673 )
—
—
—
—
27
1
—
42,039
(832 )
41,207
—
(76 )
—
364,274
(42,551 )
—
58
389
40,485
(1,999 )
38,486
—
—
—
(38,336 )
—
3
—
77
802
—
38,988
(1,283 )
37,705
2
27
360,936
—
—
—
—
—
—
—
—
—
(617 )
(617 )
—
—
—
269
(274 )
(274 )
—
—
—
—
—
—
—
(5 )
—
—
—
—
—
—
—
—
—
388
388
—
—
383
13
(350 )
—
—
—
—
18
2
—
813
(1 )
812
36
(416 )
39
5,065
—
(710 )
25
786
1,141
1,084
17
5
—
—
(942 )
—
—
29
1,750
—
1,172
1,149
20
196
8,474
—
—
(37,673 )
(350 )
—
45
3
—
42,852
(833 )
42,019
36
(492 )
39
369,339
(42,551 )
(710 )
83
1,175
41,626
39,570
17
5
—
(38,336 )
(942 )
3
—
106
2,552
—
40,160
38,854
22
223
369,410
(57 )
(2,056 )
(23 )
(1,306 )
F
BALANCE, JANUARY 1, 2015
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
BALANCE, DECEMBER 31, 2016
Appropriation of 2016 earnings
Special reserve
Cash dividends paid by Chunghwa
Cash dividends distributed by subsidiaries
Unclaimed dividend
Change in additional paid-in capital from investments
in associates and joint ventures accounted for
using equity method
Partial disposal of interests in subsidiaries
Change in additional paid-in capital for not participating
in the capital increase of a subsidiary
Other changes in additional paid-in capital of subsidiaries
Net income for the year ended December 31, 2017
Other comprehensive loss for the year ended
December 31, 2017
Total comprehensive income (loss) for the year ended
December 31, 2017
Share-based payment transactions of subsidiaries
Net increase in noncontrolling interests
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
27
1
—
—
—
—
—
(15 )
—
—
—
58
389
—
—
—
—
—
—
—
—
3
—
77
—
—
—
—
2
27
802
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
—
—
91
BALANCE, DECEMBER 31, 2017
$
77,574
148,091
77,574
2,681
54,633
$
2,617
4,996
2,617
1,843
$
$
$
$
$
$
$
$
BALANCE, DECEMBER 31, 2017
(IN MILLIONS OF US$ - Note 6)
Common Stocks
NT$
Capital
NT$
Legal Reserve
Special Reserve
NT$
NT$
Additional Paid-in
Unappropriated
Earnings
NT$
Total Retained
Earnings
NT$
Exchange
Differences
Arising from the
Translation of the
Foreign
Operations
NT$
Unrealized 'Gain
or 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$
$
77,574
$
146,720
$
76,893
$
2,820
$
55,895
$
135,608
$
146
$
740
$
—
$
886
$
360,788
$
4,924
$
365,712
Retained Earnings
Other Adjustments
Equity Attributable to Stockholders of the Parent
681
—
(144 )
(681 )
144
(37,673 )
—
—
(37,673 )
—
—
—
—
—
42,039
42,039
(215 )
(215 )
41,824
41,824
—
(61 )
—
—
(61 )
—
—
—
—
—
—
—
—
—
—
31
31
—
—
—
77,574
146,733
77,574
2,676
59,448
139,698
177
(42,551 )
(42,551 )
—
—
—
40,485
40,485
(1,725 )
(1,725 )
38,760
38,760
—
—
77,574
147,180
77,574
2,676
55,657
135,907
(5 )
(38,336 )
—
(38,336 )
—
—
—
—
—
—
38,988
38,988
(1,671 )
(1,671 )
37,317
37,317
—
—
134,888
4,551
$
$
$
$
—
—
—
—
—
(131 )
(131 )
—
—
46
—
—
—
—
—
—
—
—
—
(220 )
(220 )
—
—
(174 )
(6 )
$
$
—
—
—
—
—
—
—
—
—
(649 )
(649 )
—
—
—
91
—
—
—
—
—
(142 )
(142 )
—
—
(51 )
—
—
—
—
—
—
—
—
—
609
609
—
—
558
19
$
$
—
—
—
—
—
—
—
—
—
1
1
—
—
—
1
—
—
—
—
—
(1 )
(1 )
—
—
—
—
—
—
—
—
—
—
—
—
(1 )
(1 )
—
—
(1 )
—
$
$
—
—
—
—
—
—
—
—
—
(617 )
(617 )
—
—
—
269
—
—
—
—
—
(274 )
(274 )
—
—
(5 )
—
—
—
—
—
—
—
—
—
388
388
—
—
383
13
—
—
(37,673 )
—
—
27
1
—
42,039
(832 )
41,207
—
(76 )
—
364,274
(42,551 )
—
58
389
40,485
(1,999 )
38,486
—
—
—
—
—
(350 )
—
18
2
—
813
(1 )
812
36
(416 )
39
5,065
—
(710 )
25
786
1,141
—
—
(37,673 )
(350 )
—
45
3
—
42,852
(833 )
42,019
36
(492 )
39
369,339
(42,551 )
(710 )
83
1,175
41,626
(57 )
(2,056 )
1,084
17
5
39,570
17
5
360,656
6,272
366,928
—
(38,336 )
—
3
—
77
802
—
38,988
(1,283 )
37,705
2
27
$
$
360,936
12,177
$
$
—
—
(942 )
—
—
29
1,750
—
1,172
—
(38,336 )
(942 )
3
—
106
2,552
—
40,160
(23 )
(1,306 )
1,149
20
196
8,474
286
$
$
38,854
22
223
369,410
12,463
7
F
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2015, 2016 and 2017
(In Millions of New Taiwan or U.S. Dollars)
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2015, 2016 and 2017
(In Millions of New Taiwan or U.S. Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments to reconcile income before income tax to net
cash provided by operating activities:
2015
NT$
2016
NT$
2017
US$ (Note 6)
NT$
$
51,953 $
49,413 $
48,009 $
1,620
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of available-for-sale financial assets
$
(29 ) $
(53 ) $
(400 ) $
(13 )
2015
NT$
2016
NT$
2017
NT$
US$ (Note 6)
950
127
22
1
(7 )
(11 )
1
(14 )
4
—
—
—
—
—
—
2
—
—
—
—
3
—
(40 )
(1 )
(50 )
15
(3 )
(2 )
30,368
3,080
519
33
(306 )
(218 )
36
29,106
3,379
941
20
(189 )
(391 )
17
28,164
3,766
643
22
(205 )
(328 )
22
(419 )
107
3
—
(3 )
—
—
—
52
—
(11 )
9
(1 )
83
—
(1,191 )
(36 )
(1,469 )
458
(81 )
(61 )
(897 )
109
—
—
—
(4 )
107
8
198
138
(142 )
—
—
54
1
(1,172 )
39
(1,852 )
(327 )
(357 )
889
(2,223 )
203
1,644
(24 )
1,134
(112 )
218
439
83,536
(33 )
(7,178 )
76,325
(515 )
48
—
—
—
2
577
—
192
596
(148 )
—
1
(80 )
—
(4,613 )
28
1,166
62
(242 )
214
2,497
151
(76 )
(63 )
504
7
(70 )
(8,539 )
73,995
(20 )
(9,023 )
64,952
587
(78 )
(691 )
82
(728 )
(76 )
66
49
76,744
(22 )
(5,790 )
70,932
20
(3 )
(24 )
3
(25 )
(3 )
2
2
2,589
(1 )
(195 )
2,393
(Continued)
Depreciation
Amortization
Provision for doubtful accounts
Interest expenses
Interest income
Dividend income
Compensation cost of share-based payment transactions
Share of profits of associates and joint ventures accounted for
using equity method
Loss on disposal of property, plant and equipment
Property, plant and equipment transferred to expenses
Loss on disposal of intangible assets
Gain on disposal of financial instruments
Loss (gain) on disposal of investments accounted for using
equity method
Impairment loss on available-for-sale financial assets
Impairment loss on investments accounted for using equity
method
Provision for inventory and obsolescence
Impairment loss on property, plant and equipment
Reversal of impairment loss on investment properties
Impairment loss on intangible assets
Valuation loss (gain) on financial assets and liabilities at fair
value through profit or loss, net
Loss (gain) on foreign exchange, net
Changes in operating assets and liabilities:
Decrease (increase) in:
Financial assets held for trading
Trade notes and accounts receivable
Receivables from related parties
Inventories
Prepayments
Other current monetary assets
Other current assets
Increase (decrease) in:
Trade notes and accounts payable
Payables to related parties
Other payables
Provisions
Advance receipts
Other current liabilities
Deferred revenue
Net defined benefit plans
Cash generated from operations
Interest paid
Income tax paid
Net cash provided by operating activities
8
Proceeds from disposal of available-for-sale
financial assets
financial assets
Proceeds from capital reduction of available-for-sale
Acquisition of time deposits and negotiable
certificate of deposit with maturities of more
than three months
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
Acquisition of investments accounted for using
Proceeds from disposal of investments accounted
assets
equity method
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
Acquisition of intangible assets
Acquisition of investment properties
Decrease (increase) in other noncurrent assets
Interest received
Cash dividends received
Proceeds from short-term loans
Repayment of short-term loans
Repayment of long-term loans
Decrease in customers’ deposits
Increase (decrease) in other noncurrent liabilities
Partial disposal of interests in subsidiaries without
losing control
interests
Cash dividends distributed to noncontrolling
Change in other noncontrolling interests
Unclaimed dividend
2
39
9
44
37
12
—
—
(11,494 )
(4,119 )
(6,231 )
(210 )
11,824
(1,002 )
2,834
5,650
—
—
191
—
4,450
1,875
2,140
(6 )
(30 )
—
16
(114 )
182
—
—
—
(25,084 )
(23,517 )
(26,875 )
(907 )
4
44
159
(10,380 )
(282 )
(11,305 )
—
72
337
907
—
63
198
1,066
—
(788 )
233
675
2,750
(3,258 )
(190 )
(37 )
12
1,415
(1,387 )
6,952
(7,020 )
(150 )
(294 )
(104 )
—
(111 )
(37 )
72
—
—
—
5
(381 )
—
(27 )
8
23
235
(237 )
—
(4 )
(1 )
45
83
106
4
(350 )
(485 )
—
(710 )
1,180
—
(942 )
2,777
3
(32 )
94
—
(Continued)
Cash dividends paid
(37,673 )
(42,551 )
(38,336 )
(1,293 )
Net cash used in financing activities
(39,186 )
(42,518 )
(36,608 )
(1,234 )
Net cash used in investing activities
(30,453 )
(21,663 )
(36,721 )
(1,239 )
CASH FLOWS FROM FINANCING ACTIVITIES
F
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2015, 2016 and 2017
YEARS ENDED DECEMBER 31, 2015, 2016 and 2017
YEARS ENDED DECEMBER 31, 2015, 2016 and 2017
YEARS ENDED DECEMBER 31, 2015, 2016 and 2017
(In Millions of New Taiwan or U.S. Dollars)
(In Millions of New Taiwan or U.S. Dollars)
(In Millions of New Taiwan or U.S. Dollars)
(In Millions of New Taiwan or U.S. Dollars)
$
$
$
$
CASH FLOWS FROM INVESTING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of available-for-sale financial assets
Acquisition of available-for-sale financial assets
Acquisition of available-for-sale financial assets
Acquisition of available-for-sale financial assets
Proceeds from disposal of available-for-sale
Proceeds from disposal of available-for-sale
Proceeds from disposal of available-for-sale
Proceeds from disposal of available-for-sale
financial assets
financial assets
financial assets
financial assets
Proceeds from capital reduction of available-for-sale
Proceeds from capital reduction of available-for-sale
Proceeds from capital reduction of available-for-sale
Proceeds from capital reduction of available-for-sale
financial assets
financial assets
financial assets
financial assets
Acquisition of time deposits and negotiable
Acquisition of time deposits and negotiable
Acquisition of time deposits and negotiable
Acquisition of time deposits and negotiable
certificate of deposit with maturities of more
certificate of deposit with maturities of more
certificate of deposit with maturities of more
certificate of deposit with maturities of more
than three months
than three months
than three months
than three months
Proceeds from disposal of time deposits and
Proceeds from disposal of time deposits and
Proceeds from disposal of time deposits and
Proceeds from disposal of time deposits and
negotiable certificate of deposit with
negotiable certificate of deposit with
negotiable certificate of deposit with
negotiable certificate of deposit with
maturities of more than three months
maturities of more than three months
maturities of more than three months
maturities of more than three months
Acquisition of held-to-maturity financial assets
Acquisition of held-to-maturity financial assets
Acquisition of held-to-maturity financial assets
Acquisition of held-to-maturity financial assets
Proceeds from disposal of held-to-maturity financial
Proceeds from disposal of held-to-maturity financial
Proceeds from disposal of held-to-maturity financial
Proceeds from disposal of held-to-maturity financial
assets
assets
assets
assets
Acquisition of investments accounted for using
Acquisition of investments accounted for using
Acquisition of investments accounted for using
Acquisition of investments accounted for using
equity method
equity method
equity method
equity method
Proceeds from disposal of investments accounted
Proceeds from disposal of investments accounted
Proceeds from disposal of investments accounted
Proceeds from disposal of investments accounted
for
for
for
using equity method
for
using equity method
using equity method
using equity method
Net cash outflow on acquisition of subsidiaries
Net cash outflow on acquisition of subsidiaries
Net cash outflow on acquisition of subsidiaries
Net cash outflow on acquisition of subsidiaries
Acquisition of property, plant and equipment
Acquisition of property, plant and equipment
Acquisition of property, plant and equipment
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and
Proceeds from disposal of property, plant and
Proceeds from disposal of property, plant and
equipment
Proceeds from disposal of property, plant and
equipment
equipment
equipment
Acquisition of intangible assets
Acquisition of intangible assets
Acquisition of intangible assets
Acquisition of intangible assets
Acquisition of investment properties
Acquisition of investment properties
Acquisition of investment properties
Acquisition of investment properties
Decrease (increase) in other noncurrent assets
Decrease (increase) in other noncurrent assets
Decrease (increase) in other noncurrent assets
Decrease (increase) in other noncurrent assets
Interest received
Interest received
Interest received
Interest received
Cash dividends received
Cash dividends received
Cash dividends received
Cash dividends received
Net cash used in investing activities
Net cash used in investing activities
Net cash used in investing activities
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term loans
Proceeds from short-term loans
Proceeds from short-term loans
Proceeds from short-term loans
Repayment of short-term loans
Repayment of short-term loans
Repayment of short-term loans
Repayment of short-term loans
Repayment of long-term loans
Repayment of long-term loans
Repayment of long-term loans
Repayment of long-term loans
Decrease in customers’ deposits
Decrease in customers’ deposits
Decrease in customers’ deposits
Decrease in customers’ deposits
Increase (decrease) in other noncurrent liabilities
Increase (decrease) in other noncurrent liabilities
Increase (decrease) in other noncurrent liabilities
Increase (decrease) in other noncurrent liabilities
Cash dividends paid
Cash dividends paid
Cash dividends paid
Cash dividends paid
Partial disposal of interests in subsidiaries without
Partial disposal of interests in subsidiaries without
Partial disposal of interests in subsidiaries without
Partial disposal of interests in subsidiaries without
losing control
losing control
losing control
losing control
Cash dividends distributed to noncontrolling
Cash dividends distributed to noncontrolling
Cash dividends distributed to noncontrolling
Cash dividends distributed to noncontrolling
interests
interests
interests
interests
Change in other noncontrolling interests
Change in other noncontrolling interests
Change in other noncontrolling interests
Change in other noncontrolling interests
Unclaimed dividend
Unclaimed dividend
Unclaimed dividend
Unclaimed dividend
Net cash used in financing activities
Net cash used in financing activities
Net cash used in financing activities
Net cash used in financing activities
2015
2015
2015
NT$
NT$
2015
NT$
NT$
2016
2016
2016
NT$
NT$
2016
NT$
NT$
NT$
NT$
NT$
NT$
(29 ) $
(29 ) $
(29 ) $
(29 ) $
2
2
2
2
44
44
44
44
(53 ) $
(53 ) $
(53 ) $
(53 ) $
39
39
39
39
37
37
37
37
2017
2017
2017
US$ (Note 6)
US$ (Note 6)
2017
US$ (Note 6)
US$ (Note 6)
(13 )
(13 )
(13 )
(13 )
—
—
—
—
—
—
—
—
(400 ) $
(400 ) $
(400 ) $
(400 ) $
9
9
9
9
12
12
12
12
(11,494 )
(11,494 )
(11,494 )
(11,494 )
(4,119 )
(4,119 )
(4,119 )
(4,119 )
(6,231 )
(6,231 )
(6,231 )
(6,231 )
(210 )
(210 )
(210 )
(210 )
11,824
11,824
11,824
11,824
(1,002 )
(1,002 )
(1,002 )
(1,002 )
4,450
4,450
4,450
4,450
(6 )
(6 )
(6 )
(6 )
16
16
16
16
(114 )
(114 )
(114 )
(114 )
(25,084 )
(25,084 )
(25,084 )
(25,084 )
4
4
4
4
(10,380 )
(10,380 )
(10,380 )
(10,380 )
—
—
—
—
72
72
72
72
337
337
337
337
907
907
907
907
(30,453 )
(30,453 )
(30,453 )
(30,453 )
2,750
2,750
2,750
2,750
(3,258 )
(3,258 )
(3,258 )
(3,258 )
(190 )
(190 )
(190 )
(190 )
(37 )
(37 )
(37 )
(37 )
12
12
12
12
(37,673 )
(37,673 )
(37,673 )
(37,673 )
45
45
45
45
(350 )
(350 )
(350 )
(350 )
(485 )
(485 )
(485 )
(485 )
—
—
—
—
(39,186 )
(39,186 )
(39,186 )
(39,186 )
2,834
2,834
2,834
2,834
—
—
—
—
1,875
1,875
1,875
1,875
(30 )
(30 )
(30 )
(30 )
5,650
5,650
5,650
5,650
—
—
—
—
2,140
2,140
2,140
2,140
—
—
—
—
191
191
191
191
—
—
—
—
72
72
72
72
—
—
—
—
182
182
182
182
—
—
—
—
(23,517 )
(23,517 )
(23,517 )
(23,517 )
44
44
44
44
(282 )
(282 )
(282 )
(282 )
—
—
—
—
63
63
63
63
198
198
198
198
1,066
1,066
1,066
1,066
(21,663 )
(21,663 )
(21,663 )
(21,663 )
1,415
1,415
1,415
1,415
(1,387 )
(1,387 )
(1,387 )
(1,387 )
(150 )
(150 )
(150 )
(150 )
(294 )
(294 )
(294 )
(294 )
(104 )
(104 )
(104 )
(104 )
(42,551 )
(42,551 )
(42,551 )
(42,551 )
83
83
83
83
(710 )
(710 )
(710 )
(710 )
1,180
1,180
1,180
1,180
—
—
—
—
(42,518 )
(42,518 )
(42,518 )
(42,518 )
—
—
—
—
—
—
—
—
(26,875 )
(26,875 )
(26,875 )
(26,875 )
159
159
159
159
(11,305 )
(11,305 )
(11,305 )
(11,305 )
—
—
—
—
(788 )
(788 )
(788 )
(788 )
233
233
233
233
675
675
675
675
(36,721 )
(36,721 )
(36,721 )
(36,721 )
6,952
6,952
6,952
6,952
(7,020 )
(7,020 )
(7,020 )
(7,020 )
—
—
—
—
(111 )
(111 )
(111 )
(111 )
(37 )
(37 )
(37 )
(37 )
(38,336 )
(38,336 )
(38,336 )
(38,336 )
106
106
106
106
(942 )
(942 )
(942 )
(942 )
2,777
2,777
2,777
2,777
3
3
3
3
(36,608 )
(36,608 )
(36,608 )
(36,608 )
—
—
—
—
—
—
—
—
(907 )
(907 )
(907 )
(907 )
5
5
5
5
(381 )
(381 )
(381 )
(381 )
—
—
—
—
(27 )
(27 )
(27 )
(27 )
8
8
8
8
23
23
23
23
(1,239 )
(1,239 )
(1,239 )
(1,239 )
235
235
235
235
(237 )
(237 )
(237 )
(237 )
—
—
—
—
(4 )
(4 )
(4 )
(4 )
(1 )
(1 )
(1 )
(1 )
(1,293 )
(1,293 )
(1,293 )
(1,293 )
4
4
4
4
(32 )
(32 )
(32 )
(32 )
94
94
94
94
—
—
—
—
(1,234 )
(1,234 )
(1,234 )
(1,234 )
(Continued)
(Continued)
(Continued)
(Continued)
9
F
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
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, 2015, 2016 and 2017
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2015, 2016 and 2017
(In Millions of New Taiwan or U.S. Dollars)
YEARS ENDED DECEMBER 31, 2015, 2016 and 2017
(In Millions of New Taiwan or U.S. Dollars)
(In Millions of New Taiwan or U.S. Dollars)
2015
2015
NT$
2015
NT$
NT$
2016
2016
NT$
2016
NT$
NT$
$
$
$
25 $
25 $
25 $
EFFECT OF EXCHANGE RATE CHANGES ON
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
NET INCREASE (DECREASE) IN CASH AND
CASH AND CASH EQUIVALENTS
NET INCREASE (DECREASE) IN CASH AND
CASH
NET INCREASE (DECREASE) IN CASH AND
NET INCREASE (DECREASE) IN CASH AND
CASH
EQUIVALENTS
CASH
CASH EQUIVALENTS
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING
OF THE YEAR
CASH AND CASH EQUIVALENTS, BEGINNING
OF THE YEAR
CASH AND CASH EQUIVALENTS, END OF THE
OF THE YEAR
CASH AND CASH EQUIVALENTS, END OF THE
YEAR
CASH AND CASH EQUIVALENTS, END OF THE
YEAR
YEAR
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
6,711
6,711
6,711
23,560
23,560
23,560
30,271 $
30,271 $
30,271 $
829
829
829
30,271
30,271
30,271
31,100 $
31,100 $
31,100 $
58 $
58 $
58 $
$
$
$
NT$
NT$
NT$
2017
2017
US$ (Note 6)
2017
US$ (Note 6)
US$ (Note 6)
4
4
4
122 $
122 $
122 $
(2,275 )
(2,275 )
(2,275 )
31,100
31,100
31,100
28,825 $
28,825 $
28,825 $
(76 )
(76 )
(76 )
1,049
1,049
1,049
973
973
973
(Concluded)
(Concluded)
(Concluded)
10
F
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Millions of New Taiwan Dollars, Unless Stated Otherwise)
1. GENERAL
1. GENERAL
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
2. APPROVAL OF FINANCIAL STATEMENTS
The consolidated financial statements were authorized for issue by the management on April 19, 2018.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.
Statement of Compliance
Statement of Compliance
The accompanying consolidated financial statements have been prepared in conformity with International Fina
ncial Reporting Standards as issued by the International Accounting Standards Board (collectively, “IFRSs”).
Basis of Preparation
Basis of Preparation
The consolidated financial statements have been prepared on the historical cost basis except for certain financial
instruments that are measured at fair values and net defined benefit liabilities (assets) which are measured at the
present value of the defined benefit obligation less the fair value of plan assets.
Current and Noncurrent Assets and Liabilities
Current and Noncurrent Assets and Liabilities
Current assets include:
a.
Assets held primarily for the purpose of trading;
11
F
b. Assets expected to be realized within twelve months after the reporting period; and
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.
b.
c.
Liabilities held primarily for the purpose of trading;
Liabilities due to be settled within twelve months after the reporting period; and
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
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 inter-company transactions, balances, income and expenses are eliminated in full upon
consolidation.
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.
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.
12
F
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
Chunghwa Telecom
Co., Ltd.
Name of Investee
Senao International Co.,
Ltd. (“SENAO”)
Light Era Development Co.,
Light Era Development Co.,
Ltd. (“LED”)
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 Telecom Inc.
(“CHIEF”)
(“CHIEF”)
CHYP Multimedia
Marketing &
Communications Co., Ltd.
(“CHYP”)
Prime Asia Investments
Group Ltd. (B.V.I.) (“Prime
Asia”)
Spring House Entertainment
Spring House Entertainment
Tech. Inc. (“SHE”)
Tech. Inc. (“SHE”)
Chunghwa Telecom Global,
Inc. (“CHTG”)
Chunghwa Telecom Vietnam
Chunghwa Telecom
Co., Ltd. (“CHTV”)
Vietnam Co., Ltd.
(“CHTV”)
Smartfun Digital Co., Ltd.
(“SFD”)
Chunghwa Telecom Japan
Co., Ltd. (“CHTJ”)
Chunghwa Sochamp
Chunghwa Sochamp
Technology Inc. (“CHST”)
Technology Inc. (“CHST”)
Honghwa International Co.,
Honghwa International Co.,
Ltd. (“HHI”)
Ltd. (“HHI”)
Chunghwa Leading
Photonics Tech Co., Ltd.
(“CLPT”)
Chunghwa Telecom
(Thailand) Co., Ltd.
(“CHTT”)
Percentage of
Ownership
December 31
Main Businesses and Products
Handset and peripherals retailer; sales of
CHT mobile phone plans as an agent
Planning and development of real 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
2016
29
100
100
100
2017
Note
29
1)
100
100
100
Providing system integration services
and telecommunications equipment
100
100
Investment
Network integration, internet data center
(“IDC”), communications integration
and cloud application services
89
69
89
67
Digital information supply services and
advertisement services
100
100
Investment
100
100
Digital entertainment contents
production, animated character licensing
and endorsement, and mobile digital
platform construction
International private leased circuit,
internet services, and transit services
Intelligent energy saving solutions,
international circuit, and information
and communication technology (“ICT”)
services
Providing diversified family education
digital services
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
International private leased circuit, IP
VPN service, ICT and cloud VAS
services
56
56
100
100
100
100
65
100
51
65
100
51
100
100
75
75
—
100
2)
3)
4)
5)
(Continued)
13
F
Name of Investor
Name of Investee
CHT Security Co., Ltd.
(“CHTSC”)
CHT Security Co., Ltd.
(“CHTSC”)
Main Businesses and Products
Computing equipment installation,
wholesale of computing and business
machinery equipment and software,
management consulting services, data
processing services, digital information
supply services and internet identify
services
Percentage of
Ownership
December 31
2016
2017
Note
—
80
6)
Senao International Co.,
Ltd.
Youth Co., Ltd.
Youth Co., Ltd.
CHIEF Telecom Inc.
CHIEF Telecom Inc.
Chunghwa System
Integration Co., Ltd.
Spring House
Entertainment Tech.
Inc.
Chunghwa Investment Co.,
Chunghwa Investment
Ltd.
Co., Ltd.
New Prospect Investments
Holdings Ltd. (B.V.I.)
(“New Prospect”)
Senao International (Samoa)
Holding Ltd. (“SIS”)
Youth Co., Ltd. (“Youth”)
Youth Co., Ltd. (“Youth”)
Aval Technologies Co., Ltd.
(“Aval”)
SENYOUNG Insurance
Agent Co., Ltd.
(“SENYOUNG”)
ISPOT Co., Ltd. (“ISPOT”)
ISPOT Co., Ltd. (“ISPOT”)
Youyi Co., Ltd. (“Youyi”)
Unigate Telecom Inc.
(“Unigate”)
Chief International Corp.
(“CIC”)
Shanghai Chief Telecom
Co., Ltd. (“SCT”)
Concord Technology Co.,
Ltd. (“Concord”)
Ceylon Innovation Co., Ltd.
Ceylon Innovation Co., Ltd.
(“CEI”)
(“CEI”)
Investment
100
—
7)
International investment
Sale of information and communication
technologies products
Sale of information and communication
technologies products
Property and liability insurance agency
Sale of information and communication
technologies products
Maintenance of information and
communication technologies products
Telecommunications and internet
service
Telecommunications and internet
service
Telecommunications and internet
service
Investment
100
89
100
100
89
100
—
100
8)
100
100
100
100
49
100
100
100
100
100
49
100
9)
E-book publishing and copyright
negotiation of digital music
—
—
10)
Chunghwa Precision Test
Chunghwa Precision Test
Tech. Co., Ltd. (“CHPT”)
Tech. Co., Ltd. (“CHPT”)
Production and sale of semiconductor
testing components and printed circuit
board
Chunghwa Investment
Holding Co., Ltd. (“CIHC”)
Investment
41
38
—
—
11)
12)
Design, development and production of
computer and internet software,
installment, maintenance and consulting
services of information system
integration, and sales of self-production
products
Design and after-sale services of
semiconductor testing components and
printed circuit board
Related services of electronic parts,
machinery processed products and
printed circuit board
Wholesale and retail of electronic
materials, and investment
International investment
Concord Technology Co.,
Ltd.
Concord Technology
Co., Ltd.
G l o r y N e t w o r k S y s t e m
Service (Shanghai) Co., Ltd.
Glory Network System
(“GNSS (Shanghai)”)
Service (Shanghai) Co., Ltd.
(“GNSS (Shanghai)”)
Chunghwa Precision Test
Chunghwa Precision
Tech. Co., Ltd.
Test Tech. Co., Ltd.
Senao International
(Samoa) Holding Ltd.
Chunghwa Precision Test
Tech. USA Corporation
(“CHPT (US)”)
CHPT Japan Co., Ltd.
CHPT Japan Co., Ltd.
(“CHPT (JP)”)
(“CHPT (JP)”)
Chunghwa Precision Test
Tech. International, Ltd.
(“CHPT (International)”)
Senao International HK
Limited (“SIHK”)
14
100
—
13)
100
100
100
100
100
100
100
100
(Continued)
F
Name of Investee
Main Businesses and Products
2016
2017
Note
Percentage of
Ownership
December 31
Name of Investor
Chunghwa Investment
Holding Co., Ltd.
Senao International HK
Limited
Prime Asia Investments
Group Ltd. (B.V.I.)
CHI One Investment Co.,
Limited (“COI”)
Senao Trading (Fujian) Co.,
Ltd. (“STF”)
Senao International Trading
(Shanghai) Co., Ltd.
(“SITS”)
Senao International Trading
(Shanghai) Co., Ltd.
(“SEITS”)
Senao International Trading
(Jiangsu) Co., Ltd. (“SITJ”)
Chunghwa Hsingta Co., Ltd.
(“CHC”)
Chunghwa Hsingta Co.,
Chunghwa Hsingta Co.,
Ltd. (“CHC”)
Ltd. (“CHC”)
Chunghwa Telecom (China)
Chunghwa Telecom (China)
Co., Ltd. (“CTC”)
Co., Ltd. (“CTC”)
Chunghwa Precision
Test Tech. International,
Ltd.
Jiangsu Zhenhua
Information Technology
Company, LLC. (“JZIT”)
Shanghai Taihua Electronic
Technology Limited
(“STET”)
Investment
Sale of information and communication
technologies products
Sale of information and communication
technologies products
Maintenance of information and
communication technologies products
Sale of information and communication
technologies products
Investment
Integrated information and
communication solution services for
enterprise clients, and intelligent energy
network service
Providing intelligent energy saving
solution and intelligent buildings
services
Design of printed circuit board and
related consultation service
—
—
14)
100
100
100
100
100
100
100
100
15)
17)
100
100
100
100
75
75
16)
100
100
(Concluded)
1)
2)
3)
4)
5)
The Company owns 28.93% equity shares of SENAO. Chunghwa 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.
Chunghwa and CHI disposed some shares of CHIEF in June 2017 before CHIEF traded its shares
on the emerging stock market according to the local requirements. The Company’s equity
ownership of CHIEF decreased to 70.43% as of December 31, 2017. CHIEF issued new shares in
March 2018 as its employees exercised their options. The Company’s equity ownership
decreased to 69.31% on March 31, 2018.
Chunghwa International Yellow Pages Co., Ltd changed its name to CHYP Multimedia
Marketing & Communications Co., Ltd starting from September 4, 2017.
Chunghwa invested 75% equity shares of Chunghwa Leading Photonics Tech Co., Ltd. (“CLPT”)
in July 2016.
Chunghwa invested 100% equity shares of Chunghwa Telecom (Thailand) Co., Ltd. (“CHTT”) in
March 2017.
Chunghwa invested 80% equity shares of CHT Security Co., Ltd. (“CHTSC”) in December 2017.
6)
7) New Prospect was approved to dissolve its business in April 2017. The liquidation of New
8)
9)
Prospect was completed in May 2017.
SENAO invested 100% equity shares of SENYOUNG Insurance Agent Co., Ltd.
(“SENYOUNG”) in November 2017.
Concord was approved to end and dissolve its business in August 2017. The liquidation of
Concord was completed in January 2018.
10) CEI’s liquidation was completed in August 2016 and SHE received the proceeds from the
liquidation.
11) CHI disposed of some shares of CHPT in March 2016. Furthermore, CHI did not participate in
the capital increase of CHPT in March 2016 and September 2017. Therefore, its ownership
15
F
interest in CHPT decreased to 38.30%. However, considering absolute and relative size of
ownership interest, 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.
12) CIHC’s dissolution was approved in August 2016 and the liquidation was completed in
September 2016. CHI received the proceeds from the liquidation.
13) GNSS (Shanghai) completed its liquidation in August 2017 and Concord received the proceeds
from the liquidation.
14) COI completed its liquidation in July 2016 and CIHC received the proceeds from the liquidation.
15) SEITS was approved to end and dissolve its business in March 2017. The liquidation of SEITS
16)
was completed in March 2018.
JZIT was approved to end and dissolve its business in May 2016. The liquidation of JZIT is still
in process.
17) SITJ was approved to end and dissolve its business in April 2018. The liquidation of SITJ is still
in process.
18) LED invested 60% equity shares of Taoyuan Asia Silicon Valley Innovation Co., Ltd. (“TASVI”)
in March 2018.
The following diagram presents information regarding the relationship and ownership percentages between
Chunghwa and its subsidiaries as of December 31, 2017:
Chunghwa Telecom Co., Ltd.
(Chunghwa)
100%
28.53%
100%
100%
100%
100%
100%
56.04%
100%
66.90%
100%
89%
100%
51%
65%
100%
75%
100%
80%
Chunghwa
Telecom
Vietnam
Co., Ltd.
(“CHTV”)
Senao
International
Co., Ltd.
(“SENAO”)
CHYP
Multimedia
Marketing &
Communications
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”)
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”)
Chunghwa
Telecom
(Thailand)
Co., Ltd.
(“CHTT”)
CHT
Security
Co., Ltd.
(“CHTSC”)
100%
100%
89.48%
100%
SENYOUNG
Insurance Agent
Co., Ltd.
(“SENYOUNG”)
Aval
Technologies
Co., Ltd.
(“Aval”)
Youth
Co., Ltd.
(“Youth”)
Senao
International
(Samoa)
Holding Ltd.
(“SIS”)
100%
Concord
Technology
Co., Ltd.
(“Concord”)
100%
100%
100%
ISPOT Co.,
Ltd.
(“ISPOT”)
Youyi Co., Ltd.
(“Youyi”)
Senao
International
HK Limited
(“SIHK”)
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”)
3.53%
100%
100%
49%
Unigate
Telecom Inc.
(“Unigate”)
Chief
International
Corp. (“CIC”)
Shanghai
Chief
Telecom
Co., Ltd.
(“SCT”)
0.40%
100%
Chunghwa
Hsingta
Co., Ltd.
(“CHC”)
100%
75%
Chunghwa
Telecom
(China)
Co., Ltd.
(“CTC”)
Jiangsu
Zhenhua
Information
Technology
Company,
LLC. (“JZIT”)
38.30%
Chunghwa
Precision
Test Tech.
Co., Ltd.
(“CHPT”)
100%
Chunghwa
Precision Test
Tech USA
Corporation
(“CHPT (US)”)
100%
CHPT Japan
Co., Ltd.
(“CHPT (JP)”)
100%
Chunghwa
Precision
Test Tech.
International, Ltd.
(“CHPT
(International)”)
100%
Shanghai Taihua
Electronic
Technology
Limited
(“STET”)
16
- 1 -
F
Business Combination
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
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 uses 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
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
Inventories
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
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
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.
Property, Plant and Equipment
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.
18
F
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
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 derecognized.
Goodwill
Goodwill
Goodwill arising from the acquisition of a business is carried at cost as established at the date of acquisition 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 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.
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.
19
F
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
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 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.
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 held for trading.
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
20
F
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.
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, and trade
notes and accounts receivable, assets that are individually assessed and not impaired are, in
addition, assessed for impairment on a collective basis.
21
F
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.
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.
22
F
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
Hedge Accounting
The Company designates some derivatives instruments as cash flow hedges. Hedges of foreign exchange 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.
Provisions
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.
23
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Revenue Recognition
Revenue Recognition
Revenue from the sale of goods is recognized when all the following conditions are satisfied:
a.
b.
c.
d.
e.
The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
The Company retains 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 the Company; 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 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 paid by the customer for the products.
Revenue from a contract to provide services is recognized by reference to the stage of completion of the contract.
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.
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.
24
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Leasing
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
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
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.
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
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 stock 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.
25
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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
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.
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.
26
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c.
Current and deferred tax
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
JUDGMENTS AND KEY SOURCES OF ESTIMATION,
4. CRITICAL ACCOUNTING
AND ASSUMPTION
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 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.
27
F
d.
d.
e.
e.
f.
f.
g.
g.
Impairment of tangible and intangible assets
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
In the process of evaluating the potential impairment of tangible and intangible assets, the Company is
determining the independent cash flows, useful lives, expected future revenue and expenses related to
required to consider internal and external indicators of impairment and make subjective judgments in
the specific asset groups within the context of the telecommunication industry. Any changes in these
determining the independent cash flows, useful lives, expected future revenue and expenses related to
estimates based on changed economic conditions or business strategies could result in significant
the specific asset groups within the context of the telecommunication industry. Any changes in these
impairment charges in future periods.
estimates based on changed economic conditions or business strategies could result in significant
impairment charges in future periods.
Useful lives of property, plant and equipment
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
As discussed in Note 3, “Summary of Significant Accounting Policies - Property, Plant and
As discussed in Note 3, “Summary of Significant Accounting Policies - Property, Plant and Equipment”,
each year.
the Company reviews estimated useful lives of property, plant and equipment at the end of each year.
Equipment”, the Company reviews estimated useful lives of property, plant and equipment at the end of
each year.
Recognition and measurement of defined benefit plans
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,
Net defined benefit liabilities and the resulting pension expense under defined benefit pension plans are
rate of employee turnover, and long-term average future salary increase. Changes in economic
calculated using the Projected Unit Credit Method. Actuarial assumptions comprise the discount rate,
circumstances and market conditions will affect these assumptions and may have a material impact on
rate of employee turnover, and long-term average future salary increase. Changes in economic
the amount of the expense and the liability.
circumstances and market conditions will affect these assumptions and may have a material impact on
the amount of the expense and the liability.
Control over subsidiaries
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
As discussed in Note 3, some entities are subsidiaries of the Company although the Company only owns
holding in the entity and the relative size of and the dispersion of shares owned by the other
less than 50% ownership interests in these entities. After considering the Company's absolute size of
stockholders, and the contractual arrangements between the Company and other investors, potential
holding in the entity and the relative size of and the dispersion of shares owned by the other
voting interests and the written agreement between stockholders, the management concluded that the
stockholders, and the contractual arrangements between the Company and other investors, potential
Company has a sufficiently dominant voting interest to direct the relevant activities of the entity and
voting interests and the written agreement between stockholders, the management concluded that the
therefore the Company has control over these entities.
Company has a sufficiently dominant voting interest to direct the relevant activities of the entity and
therefore the Company has control over these entities.
5. APPLICATION OF NEW AND AMENDED INTERNATIONAL FINANCIAL REPORTING STANDARDS
5. APPLICATION OF NEW AND AMENDED INTERNATIONAL FINANCIAL REPORTING
STANDARDS
5. APPLICATION OF NEW AND AMENDED INTERNATIONAL FINANCIAL REPORTING
STANDARDS
Amendments to IFRSs and the New Interpretation That Are Mandatorily Effective for the Current Year
Amendments to IFRSs and the New Interpretation That Are Mandatorily Effective for the Current Year
Amendments to IFRSs and the New Interpretation That Are Mandatorily Effective for the Current Year
The Company has applied the amendments to IFRS 12 included in the Annual Improvements to IFRSs
The Company has applied the amendments to IFRS 12 included in the Annual Improvements to IFRSs
2014-2016 Cycle, Amendments to IAS 7: Disclosure Initiative, and Amendments to IAS 12:
Recognition of Deferred Tax Assets for Unrealized Losses for the first time in 2017. The application
2014-2016 Cycle, Amendments to IAS 7: Disclosure Initiative, and Amendments to IAS 12:
Recognition of Deferred Tax Assets for Unrealized Losses for the first time in 2017. The application
of these amendments has had no impact on the disclosures or amounts recognized in the Company's
of these amendments has had no impact on the disclosures or amounts recognized in the Company's
consolidated financial statements.
consolidated financial statements.
28
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New and Amended IFRSs in Issue But Not Yet Effective
New and Amended IFRSs in Issue But Not Yet Effective
The Company has not applied the following new and amended IFRSs that have been issued but are not yet
effective.
New or Amended Standards and Interpretations
Effective Date
Issued
by IASB (Note 1)
Amendments to IFRSs
Amendments to IFRSs
Amendments to IFRS 2
IFRS 9
Amendments to IFRS 9 and IFRS 7
Amendments to IFRS 9
Amendments to IFRS 10 and IAS 28
IFRS 15
Amendments to IFRS 15
IFRS 16
Amendments to IAS 40
IFRIC 22
Amendments to IAS 28
IFRIC 23
Amendments to IAS 19
Annual Improvements to IFRSs 2014-2016 Cycle
Annual Improvements to IFRSs 2015-2017 Cycle
Classification and Measurement of Share-based Payment
Transactions
Financial Instruments
Mandatory Effective Date of IFRS 9 and Transition
Disclosures
Prepayment Features with Negative Compensation
Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
Revenue from Contracts with Customers
Clarifications to IFRS 15
Leases
Transfers of investment property
Foreign Currency Transactions and Advance
Consideration
Long-term Interests in Associates and Joint Ventures
Uncertainty Over Income Tax Treatments
Plan Amendment, Curtailment or Settlement
Note 2
January 1, 2019
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2019
To be determine
d by IASB
January 1, 2018
January 1, 2018
January 1, 2019
January 1, 2018
January 1, 2018
January 1, 2019
January 1, 2019
January 1, 2019
(Note 3)
Note 1:
Note 2:
Note 3:
The aforementioned new or amended standards or interpretations are effective after fiscal year
beginning on or after the effective dates, unless specified otherwise.
The Company has applied the amendment to IFRS 12 included in the Annual Improvements to
IFRSs 2014-2016 Cycle for the first time in 2017; the amendment to IAS 28 is retrospectively
applied for annual periods beginning on or after January 1, 2018.
Companies shall apply the amendments to pension plan amendments, curtailments or settlements
occurring on or after January 1, 2019.
Except for the following items, the Company believes the adoption of the aforementioned new and amended
IFRSs will not have material impact on the Company’s consolidated financial statements.
a.
IFRS 15 “Revenue from Contracts with Customers” and related amendments
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)
2)
Identify the contract with the customer;
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.
29
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Upon the application of IFRS 15 and its related amendments, the Company will allocate the transaction
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 telecommunications
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. Before the application of
IFRS 15, the relevant expenditures were recognized as expenses.
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.Under IFRS 15, the net effect of revenue
recognized, consideration received and receivable is recognized as a contract asset or a contract liability.
Before the application of IFRS 15, receivable is recognized or advance receipts and deferred revenue is
reduced when revenue is recognized for the contract under IAS 18.
Under IFRS 15, the Company will recognize a trade-in liability (other current liability) and a right to
recover a product (other current asset) when recognizing revenue for the sale with a trade-in right.
Before the application of IFRS 15, trade-in right provisions and inventories are recognized when
recognizing revenue.
The Company elected to retrospectively apply IFRS 15 to contracts that were not completed on January
1, 2018 and recognized the cumulative effect of the change in the retained earnings on January 1, 2018.
In addition, the Company will disclose the difference between the amounts that result from applying
IFRS 15 and the amounts that result from applying current standards for 2018.
The anticipated significant impact on assets, liabilities and equity when retrospectively applying IFRS
15 on January 1, 2018 is showed as follows (The following table only disclosed the summary of
differences arising from recognitions and measurements. The differences arising from presentations are
not included.):
30
F
Contract assets - current
Contract assets - noncurrent
Incremental costs to obtain a contract
Total effect on assets
Contract liability - current
Contract liability - noncurrent
Current tax liabilities
Total effect on liabilities
Carrying
Amount as of
December 31,
2017
NT$
Adjustments
Arising from
Initial
Application of
IFRS 15
NT$
(In Millions)
Adjusted
Carrying
Amount as of
January 1, 2018
NT$
$
$
$
$
$
$
— $
—
—
$
— $
—
8,674
$
6,998 $
3,917 $
2,467 $
13,382
197 $
86 $
2,227 $
2,510
6,998
3,917
2,467
197
86
10,901
Total effect on equity (unappropriated earnings)
$
54,633 $
10,872 $
65,505
b.
IFRS 9 “Financial Instruments” and related amendments
With regard to financial assets, all recognized financial assets that are within the scope of IAS 39
“Financial Instruments: Recognition and Measurement” are subsequently measured at amortized cost or
fair value.
Non-debt financial instruments held by the Company are measured at fair values. Changes in fair values
are recognized in profit or loss. However, the Company may make an irrevocable election to designate
equity investments that are not held for trading as financial assets at fair value through other
comprehensive income with only dividend income recognized in profit or loss and subsequent changes
in the fair value of an equity investment recognized in other comprehensive income. No subsequent
impairment assessment is required, and the cumulative gain or loss previously recognized in other
comprehensive income cannot be reclassified from equity to profit or loss.
The Company analyzed the facts and circumstances of its financial assets that exist at December 31,
2017 and performed the assessment of the impact of IFRS 9 on the classification and measurement of
financial assets.
Under IFRS 9, except the available-for-sale financial asset listed on the TWSE will be designated as
financial asset at fair value through other comprehensive income, other listed available-for-sale equity
investment will be designated as financial asset at fair value through profit or loss. In addition,
investments in unlisted shares measured at cost will be measured at fair value, and designated as
financial assets at fair value through other comprehensive income at initial recognition.
IFRS 9 introduces a new expected loss impairment model to measure the impairment of financial assets
and recognize loss allowance for the related expected credit losses. If the credit risk on a financial
instrument has not increased significantly since initial recognition, the loss allowance for that financial
instrument should be measured at an amount equal to 12-month expected credit losses. If the credit risk
on a financial instrument has increased significantly since initial recognition and is not deemed to be a
low credit risk, the loss allowance for that financial instrument should be measured at an amount equal
to the lifetime expected credit losses. A simplified approach is used for trade accounts receivables and
contract assets and the loss allowance for these financial instruments could be measured at an amount
equal to lifetime expected credit losses. As a result of retrospective application of expected loss
impairment model, there was no material impact on the Company’s consolidated financial statements.
31
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The Company elected not to restate prior reporting periods when applying the requirements for the
financial assets under IFRS 9 with the cumulative effect of the initial application recognized at the date
of initial application and will provide the disclosures related to the classification and the adjustment
information upon the application of IFRS 9.
The anticipated significant impact on assets, liabilities and equity of retrospective application of the
IFRS 9 on January 1, 2018 is set out below:
Carrying
Amount as of
December 31,
2017
NT$
Adjustments
Arising from
Initial
Application of
IFRS 9
NT$
(In Millions)
Adjusted
Carrying
Amount as of
January 1, 2018
NT$
$
$
$
— $
54 $
54
—
7,539 $
7,539
5,751
$
(5,751 ) $
1,842
—
$
1,430 $
(1 ) $
1,429
$
558 $
(558 ) $
—
$
$
$
—
54,633
8,474
$
883 $
1,522 $
(4 ) $
1,843
883
56,155
8,470
Impact on assets, liabilities and equity
Financial assets at fair value through
profit or loss - noncurrent
Financial assets at fair value through other
comprehensive income - noncurrent
Available-for-sale financial assets -
noncurrent
Total effect on assets
Total effect on liabilities (deferred income
tax liabilities)
Unrealized gain or loss on
available-for-sale financial assets
Unrealized gain or loss on financial assets
at fair value through other
comprehensive income
Unappropriated earnings
Noncontrolling interests
Total effect on equity
c.
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 financial 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.
32
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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
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 29, 2017, which was NT$29.64 to US$1.00. The
convenience translations should not be construed as representations that the New Taiwan dollar amounts have
been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.
7. CASH AND CASH EQUIVALENTS
7. CASH AND CASH EQUIVALENTS
Cash
Cash on hand
Bank deposits
Cash equivalents (investments with maturities of less
than three months)
Commercial paper
Negotiable certificate of deposit
Time deposits
December 31
2016
NT$
2017
NT$
(In Millions)
370 $
7,240
7,610
383
7,877
8,260
11,436 $
10,800
1,254
23,490
31,100 $
10,179
7,950
2,436
20,565
28,825
$
$
$
The annual yield rates of bank deposits, commercial paper, negotiable certificate of deposit and time deposits
as of balance sheet dates were as follows:
Bank deposits
Commercial paper
Negotiable certificate of deposit
Time deposits
December 31
2016
0.00%-
0.42%
0.32%-
0.42%
0.35%-
0.50%
0.40%-
3.30%
2017
0.00%-
0.70%
0.32%-
0.40%
0.40%-
0.50%
0.52%-
4.40%
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F
8. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
8.
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
2016
NT$
2017
NT$
(In Millions)
$
— $
—
$
1 $
1
Outstanding forward exchange contracts not designated for hedge as of balance sheet dates were as follows:
December 31, 2016
December 31, 2016
Forward exchange contracts - buy
Forward exchange contracts - buy
December 31, 2017
December 31, 2017
Forward exchange contracts - buy
Forward exchange contracts - buy
Currency
Maturity
Period
Contract
Amount
(In Millions)
EUR/NT$ 2017.03 EUR5/NT$167
US$/NT$ 2017.01 US$2/NT$55
2018.03-
06
EUR/NT$
EUR2/NT$69
US$/NT$ 2018.01 US$4/NT$125
The Company entered into the above forward exchange contracts to manage its exposure to foreign currency
risk due to fluctuations in exchange rates. However, the aforementioned derivatives did not meet the criteria
for hedge accounting.
9. AVAILABLE-FOR-SALE FINANCIAL ASSETS - NONCURRENT
9. AVAILABLE-FOR-SALE FINANCIAL ASSETS - NONCURRENT
Equity securities
Domestic listed stocks
Domestic non-listed stocks
Foreign non-listed stocks
December 31
2016
NT$
2017
NT$
(In Millions)
$
$
2,521 $
1,949
294
4,764 $
3,125
2,332
294
5,751
CHI evaluated and concluded its listed available-for-sale financial assets were partially impaired and recorded
an impairment loss of $26(cid:1) 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(cid:1) million
for the year ended December 31, 2016. The Company evaluated and concluded that there was no indication
that its listed available-for-sale financial assets were impaired; therefore, no impairment loss was recognized for
the year ended December 31, 2017.
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.
34
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The Company invested $300 million to invest Taiwania Capital Buffalo Fund Co., Ltd. in December 2017 and
owns 12.9% equity shares of Taiwania Capital Buffalo Fund Co., Ltd.. Taiwania Capital Buffalo Fund Co., Ltd.
engaged mainly in investment business.
The Company disposed non-listed available-for-sale financial assets with carrying amounts of $2 million, $9
million and $5 million for the years ended 2015, 2016 and 2017, respectively, and recognized the gains (losses)
from the disposal of $(0.4) million, $1 million and $3 million for the years ended December 31, 2015, 2016 and
2017, 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 $77 million for the year ended December 31, 2015. 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 amount. Therefore,
the Company recognized impairment losses of $4 million for the year ended December 31, 2015. The Company
evaluated and concluded that there was no indication that non-listed available-for-sale financial assets were
impaired; therefore, no impairment loss was recognized for the years ended December 31, 2016 and 2017.
10. HELD-TO-MATURITY FINANCIAL ASSETS - CURRENT
10. HELD-TO-MATURITY FINANCIAL ASSETS - CURRENT
Corporate bonds
Bank debentures
December 31
2016
NT$
2017
NT$
(In Millions)
1,990 $
150
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
December 31
2016
NT$
2017
NT$
(In Millions)
$
1,990 $
—
1.18%-
1.35% —
1.20%-
1.35% —
0.34 year —
—
$
150 $
1.25 % —
1.25 % —
0.41 year —
35
F
11. TRADE NOTES AND ACCOUNTS RECEIVABLE, NET
11. TRADE NOTES AND ACCOUNTS RECEIVABLE, NET
Trade notes and accounts receivable
Less: Allowance for doubtful accounts
December 31
2016
NT$
2017
NT$
(In Millions)
$
$
32,795 $
(1,773 )
31,022 $
34,058
(2,117 )
31,941
The average credit terms range from 30 to 90 days. In determining the recoverability of trade notes and
The average credit terms range from 30 to 90 days. In determining the recoverability of trade notes and accounts
accounts receivable, the Company considers significant change in the credit quality of the trade notes
receivable, the Company considers significant change in the credit quality of the trade notes and accounts receivable
and accounts receivable from the date credit was initially granted up to the end of the reporting period.
from the date credit was initially granted up to the end of the reporting period. In general, with few exceptional cases,
In general, with few exceptional cases, it is unlikely for the notes and accounts receivable due longer
it is unlikely for the notes and accounts receivable due longer than 180 days to be collected, therefore the Company
than 180 days to be collected, therefore the Company recognized 100% allowance of notes and accounts
recognized 100% allowance of notes and accounts receivable overdue longer than 180 days. For the notes and
receivable overdue longer than 180 days. For the notes and accounts receivable less than 180 days, the
accounts receivable less than 180 days, the allowance for doubtful accounts was estimated based on the Company’s
historical recovery experience.
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:
Non-overdue
Less than 30 days
31-60 days
61-90 days
91-120 days
121-180 days
More than 181 days
December 31
2016
NT$
2017
NT$
(In Millions)
$
$
29,596 $
1,050
348
286
198
119
1,198
32,795 $
30,032
1,280
485
278
253
122
1,608
34,058
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 sheet 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
2016
NT$
2017
NT$
(In Millions)
256 $
47
9
74
1
13
400 $
328
36
7
70
1
7
449
$
$
36
F
Movements of the allowance for doubtful accounts were as follows:
Balance on January 1, 2015
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
Add: Provision for doubtful accounts
Deduct: Amounts written off
Balance on December 31, 2017
12. INVENTORIES
INVENTORIES
12.
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)
Total
NT$
$
$
276 $
88
—
364
715
(274 )
805
535
(15 )
1,325 $
773 $
392
(195 )
970
228
(230 )
968
43
(219 )
792 $
1,049
480
(195 )
1,334
943
(504 )
1,773
578
(234 )
2,117
December 31
2016
NT$
2017
NT$
(In Millions)
$
$
4,136 $
961
109
143
5,349
1,999
75
7,423 $
5,133
1,390
152
89
6,764
1,999
77
8,840
The operating costs related to inventories were $52,666 million, $54,183 million and $56,342 million for the y
ears ended December 31, 2015, 2016 and 2017, respectively.
For the years ended December 31, 2015, 2016 and 2017, the provisions for inventory and obsolescence recogn
ized as operating costs included the amounts of $198 million, $192 million and $52 million, respectively.
As of December 31, 2016 and 2017, inventories of $2,074 million and $2,076 million, respectively, were expe
cted to be recovered for a time period longer than twelve months. The aforementioned amount of inventories i
s related to property development owned by LED.
Land held under development and construction in progress on December 31, 2016 and 2017 was developed by
LED for Qingshan Sec., Dayuan Dist., Taoyuan City project.
37
F
13. PREPAYMENTS
13. PREPAYMENTS
Prepaid rents
Others
Current
Prepaid rents
Others
Noncurrent
Prepaid rents
Others
14. OTHER CURRENT MONETARY ASSETS
14. OTHER CURRENT MONETARY ASSETS
Time deposits and negotiable certificates of deposit
with maturities of more than three months
Others
December 31
2016
NT$
2017
NT$
(In Millions)
2,934 $
3,285
6,219 $
899 $
2,079
2,978 $
2,035 $
1,206
3,241 $
2,687
3,074
5,761
812
1,376
2,188
1,875
1,698
3,573
$
$
$
$
$
$
December 31
2016
NT$
2017
NT$
(In Millions)
$
$
3,568 $
1,253
4,821 $
4,054
1,254
5,308
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:
Time deposits and negotiable certificates of deposit
with maturities of more than three months
December 31
2016
0.11%-
1.95%
2017
0.06%-
4.15%
15. SUBSIDIARIES
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
CHPT
Place of Incorporation
and Principal
Place of Business
Taiwan
Taiwan
Taiwan
Taiwan
Proportion of Ownership
Interests and Voting Rights
Held by Noncontrolling Interests
December 31
2016
71%
59%
2017
71%
62%
38
F
Profit Allocated to
Noncontrolling Interests
Year Ended December 31
2016
NT$
2017
NT$
2015
NT$
Accumulated
Noncontrolling Interests
December 31
2016
NT$
2017
NT$
SENAO
CHPT
Individually immaterial subsidiaries with
noncontrolling interests
$
$
551 $
212 $
(In Millions)
690 $
341 $
592 $
431
4,069 $
1,575
4,092
3,513
628
6,272 $
869
8,474
$
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
intercompany eliminations.
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Equity attributable to the parent
Equity attributable to noncontrolling interests
December 31
2016
NT$
2017
NT$
(In Millions)
$
$
$
$
$
$
7,762 $
2,535 $
4,466 $
155 $
1,607 $
4,069 $
7,584
2,531
4,278
160
1,585
4,092
39
F
Revenue and income
Costs and expenses
Profit for the year
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
$ 35,944 $ 34,453 $ 36,038
35,200
838
35,171
773 $
33,476
977 $
2017
NT$
$
Profit attributable to the parent
Profit attributable to noncontrolling interests
Profit for the year
$
$
222 $
551
773 $
287 $
690
977 $
246
592
838
Other comprehensive income (loss) attributable
to the parent
Other comprehensive loss attributable to
noncontrolling interests
Other comprehensive loss for the year
$
(1 ) $
(21 ) $
3
$
(2 )
(3 ) $
(53 )
(74 ) $
(17 )
(14 )
Total comprehensive income attributable to the
parent
Total comprehensive income attributable to
noncontrolling interests
Total comprehensive income for the year
Dividends paid to noncontrolling interests
Net cash flow from operating activities
Net cash flow from investing activities
Net cash flow from financing activities
Effect of exchange rate changes on cash and cash
equivalents
Net cash inflow (outflow)
$
222 $
266 $
249
548
770 $
637
903 $
575
824
274 $
526 $
703
1,739 $
54
(1,530 )
531 $
130
(677 )
1,081
(57 )
(897 )
11
274 $
(7 )
(23 ) $
(2 )
125
$
$
$
$
Summarized financial information in respect of CHPT and its subsidiaries that has material noncontrolling
interests is set out below. The summarized financial information below represents amounts before
intercompany eliminations.
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Equity attributable to CHI
Equity attributable to noncontrolling interests
December 31
2016
NT$
2017
NT$
(In Millions)
$
$
$
$
$
$
2,116 $
1,872 $
1,323 $
1 $
1,089 $
1,575 $
4,496
2,167
965
1
2,184
3,513
40
F
Revenue and income
Costs and expenses
Profit for the year
Profit attributable to CHI
Profit attributable to noncontrolling interests
Profit for the year
Other comprehensive loss attributable
to CHI
Other comprehensive loss attributable to
noncontrolling interests
Other comprehensive loss for the year
Total comprehensive income attributable
to CHI
Total comprehensive income attributable to
noncontrolling interests
Total comprehensive income for the year
Dividends paid to noncontrolling interests
Net cash flow from operating activities
Net cash flow from investing activities
Net cash flow from financing activities
Effect of exchange rate changes on cash and cash
equivalents
Net cash inflow
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
2,607 $
2,020
587 $
1,735 $
1,341
394 $
182 $
212
394 $
246 $
341
587 $
2017
NT$
3,127
2,402
725
294
431
725
$
$
$
$
$
— $
— $
$
—
— $
—
— $
(1 )
(2 )
(3 )
$
182 $
246 $
293
212
394 $
341
587 $
429
722
35 $
109 $
146
532 $
(200 )
(112 )
671 $
(904 )
841
1,052
(639 )
2,306
3
223 $
(2 )
606 $
(4 )
2,715
$
$
$
$
b.
Equity transactions with noncontrolling interests
CHI disposed of some shares of CHPT in January 2015 and March 2016, and did not participate in the capital
increase of CHPT in March 2016 and September 2017. Therefore, the Company’s ownership interest in CHPT
decreased to 38.30%. See Note 34(d) for details.
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%.
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 transferred its treasury stock to employees in May and November 2017 and the Company’s ownership
interest in SENAO decreased to 28.93%. See Note 34(b) for details.
Chunghwa and CHI disposed some shares of CHIEF in June 2017 before CHIEF traded its shares on the
emerging stock market according to the local requirements. The Company’s equity ownership of CHIEF
decreased to 70.43%.
41
F
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, 2015, 2016 and 2017 was
as follows:
2015
Year Ended December 31
2016
2017
CHI
Disposed
Some
Shares of
CHPT
NT$
SENAO
Purchased
Its
Treasury
Stock
NT$
SENAO
Participated
in Youth's
Share
Subscription
CHI
Disposed
Some
Shares of
CHPT
NT$
NT$
CHI Did
Not
Participate
in the
Capital
Increase of
CHPT
NT$
(In Millions)
CHI Did
Not
Participate
in the
Capital
Increase of
CHPT
NT$
Chunghwa
and CHI
Disposed
Some
Shares of
CHIEF
NT$
SENAO
Transferred
its Treasury
Stock
NT$
Cash consideration received
from (paid to)
Noncontrolling interests
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
$
45 $
(492 ) $
— $
83 $ 1,175 $ 2,552 $
164 $
106
(18 )
416
(0.4 )
(25 )
(786 )
(1,750 )
(137 )
(29 )
$
27 $
(76 ) $
(0.4 ) $
58 $
389 $
802 $
27 $
77
$
27 $ — $
— $
58 $
— $
— $
— $
77
$ — $
$ — $
(15 ) $
(61 ) $
(0.4 ) $ — $
— $ — $
389 $
— $
802 $
— $
27 $
— $
—
—
c.
Business combinations
1)
Subsidiaries acquired
Principal
Activity
Date of
Acquisition
Proportion of
Voting
Equity
Interests
Acquired ((cid:2))
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
42
F
Youth and its subsidiaries were acquired in cash in order to continue the expansion of SENAO’s activities in
selling telecommunications products.
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
Consideration transferred
Add: Noncontrolling interest (30% of the recognized
amounts of Youth and its subsidiaries’
identifiable net assets)
Less: Fair value of identifiable net assets acquired
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)
$
135
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 evaluated the goodwill that arose in the acquisition of Youth and its subsidiaries at the end of each year.
SENAO determined the smallest identifiable group of assets that generates cash inflows as single cash
generating units by business type, and evaluated the recoverable amount of those cash generating units by their
43
F
value in use. The management of SENAO estimated the cash flow projections based on the financial budgets
for the following five years. Discount rates were 16.3%, 14.6% and 14.8% as of December 31 2015, 2016 and
2017, respectively and were used to calculate the recoverable amount of related cash generating units by
discounting aforementioned cash flows.SENAO concluded that there was no impairment loss recognized for
the years ended December 31, 2015 and 2016. Furthermore, SENAO concluded the recoverable amount of the
goodwill was lower than the carrying value and recognized impairment loss of $9 million for the year ended
December 31, 2017. The impairment loss was included in other income and expenses in the statements of
comprehensive income.
4) Net cash outflow on acquisition of subsidiaries
Consideration paid in cash
Less: Cash and cash equivalents acquired
Youth and Its
Subsidiaries
NT$
(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
ItsSubsidiaries
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 $42,774 million, respectively, for the
year ended December 31, 2015. This pro-forma information is for illustrative purposes only and is not
necessarily an indication of revenue and results of operations of the Company that actually would have been
achieved had the acquisition been completed on January 1, 2015, nor is it intended to be a projection of future
results.
In determining the pro-forma revenue and net income of the Company had Youth and its subsidiaries been
acquired at the beginning of 2015, management calculated depreciation of property, plant and equipment and
amortization of intangible assets acquired on the basis of the fair values arising in the initial accounting for the
business combination rather than the carrying amounts recognized in the pre-acquisition financial statements.
16. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD
INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD
16.
Investments in associates
Investments in joint ventures
December 31
2016
NT$
2017
NT$
(In Millions)
2,383 $
3
2,386 $
2,326
—
2,326
$
$
44
F
a.
Investments in associates
Investments in associates were as follows:
Carrying Amount
December 31
2016
NT$
2017
NT$
(In Millions)
Listed
Senao Networks, Inc. (“SNI”)
$
680 $
704
Non-listed
ST-2 Satellite Ventures Pte. Ltd. (“STS”)
International Integrated System, Inc. (“IISI”)
Viettel-CHT Co., Ltd. (“Viettel-CHT”)
Skysoft Co., Ltd. (“SKYSOFT”)
Taiwan International Standard Electronics Co., Ltd.
(“TISE”)
KingwayTek Technology Co., Ltd. (“KWT”)
So-net Entertainment Taiwan Limited (“So-net”)
Taiwan International Ports Logistics Corporation
(“TIPL”)
Click Force Co., Ltd. (“CF”)
Dian Zuan Integrating Marketing Co., Ltd. (“DZIM”)
HopeTech Technologies Limited (“HopeTech”)
Alliance Digital Tech Co., Ltd. (“ADT”)
MeWorks LIMITED (HK) (“MeWorks”)
$
467
307
275
145
142
84
111
57
37
22
24
32
—
2,383 $
472
292
256
140
132
90
104
50
38
12
23
13
—
2,326
The percentages of ownership and voting rights in associates held by the Company as of balance sheet
dates were as follows:
% of Ownership and
Voting Rights
December 31
Senao Networks, Inc. (“SNI”)
ST-2 Satellite Ventures Pte., Ltd. (“STS”)
International Integrated System, Inc. (“IISI”)
Viettel-CHT Co., Ltd. (“Viettel-CHT”)
Skysoft Co., Ltd. (“SKYSOFT”)
Taiwan International Standard Electronics Co., Ltd.
(“TISE”)
KingwayTek Technology Co., Ltd. (“KWT”)
So-net Entertainment Taiwan Limited (“So-net”)
Taiwan International Ports Logistics Corporation
(“TIPL”)
Click Force Co., Ltd. (“CF”)
Dian Zuan Integrating Marketing Co., Ltd. (“DZIM”)
HopeTech Technologies Limited (“HopeTech”)
Alliance Digital Tech Co., Ltd. (“ADT”)
MeWorks LIMITED (HK) (“MeWorks”)
2016
34
38
32
30
30
40
26
30
27
49
26
45
14
20
2017
34
38
32
30
30
40
26
30
27
49
22
45
14
20
45
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 profit
The Company’s share of other comprehensive
loss
The Company’s share of total comprehensive
income
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
557 $
926 $
2017
NT$
420
$
(19 )
(47 )
(4 )
$
907 $
510 $
416
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
2016
NT$
2017
NT$
(In Millions)
$
2,537 $
2,130
Chunghwa sold its partial ownership interest in KWT in January 2015. The gain on disposal of
KWT was $7 million.
CHYP participated in the capital increase of CF by investing $6 million in April 2015. CHYP
holds 49% ownership interest of CF. CF engages mainly in advertisement services.
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.
CHI disposed all ownership interest in Panda Monium Company Ltd. in September 2015.
As the operation of MeWorks ceased, the Company concluded that this investment was fully
impaired and recognized an impairment loss of $8 million for the year ended December 31, 2015.
Chunghwa participated in the capital increase of ADT by investing $30 million in December
2016. The Company owns 14% equity shares of ADT. As the Company remains the seat in the
Board of Directors of ADT, and considers the relative size of ownership interest and the
dispersion of shares owned by the other stockholders, the Company remains significant
influence over ADT. ADT engages mainly in the development of mobile payments and
information processing service.
The Company did not participate in the capital increase of DZIM in April 2017 and the
ownership interest of DZIM decreased from 26% to 22%. DZIM engages mainly in information
technology service and general advertisement service.
The Company’s share of profit and other comprehensive loss of associates was recognized based
on the audited financial statements.
b.
Investments in joint ventures
46
F
loss
income
follows:
SNI
None of the above associates is considered individually material to the Company. Summarized financial
information of associates that are not individually material was as follows:
Year Ended December 31
2015
NT$
2016
NT$
2017
NT$
(In Millions)
The Company’s share of profit
$
926 $
557 $
420
The Company’s share of other comprehensive
The Company’s share of total comprehensive
(19 )
(47 )
(4 )
$
907 $
510 $
416
The Level 1 fair values based on the closing market prices of SNI as of the balance sheet dates were as
December 31
2016
NT$
2017
NT$
(In Millions)
$
2,537 $
2,130
Chunghwa sold its partial ownership interest in KWT in January 2015. The gain on disposal of
KWT was $7 million.
CHYP participated in the capital increase of CF by investing $6 million in April 2015. CHYP
holds 49% ownership interest of CF. CF engages mainly in advertisement services.
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.
CHI disposed all ownership interest in Panda Monium Company Ltd. in September 2015.
As the operation of MeWorks ceased, the Company concluded that this investment was fully
impaired and recognized an impairment loss of $8 million for the year ended December 31, 2015.
Chunghwa participated in the capital increase of ADT by investing $30 million in December
2016. The Company owns 14% equity shares of ADT. As the Company remains the seat in the
Board of Directors of ADT, and considers the relative size of ownership interest and the
dispersion of shares owned by the other stockholders, the Company remains significant
influence over ADT. ADT engages mainly in the development of mobile payments and
information processing service.
The Company did not participate in the capital increase of DZIM in April 2017 and the
ownership interest of DZIM decreased from 26% to 22%. DZIM engages mainly in information
technology service and general advertisement service.
The Company’s share of profit and other comprehensive loss of associates was recognized based
on the audited financial statements.
b.
Investments in joint ventures
Investments in joint ventures were as follows:
Non-listed
Chunghwa Benefit One Co., Ltd. (“CBO”)
Huada Digital Corporation (“HDD”)
% of Ownership and
Voting Rights
December 31
2016
2017
Carrying Amount
December 31
2016
NT$
2017
NT$
(In Millions)
$
$
3 $
—
3 $
—
—
—
50
50
—
—
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. HDD completed its liquidation in March 2017.
In December 2016, the stockholders of CBO approved that CBO should start its dissolution from
December 31, 2016. CBO completed its liquidation in December 2017 and recognized the
disposal loss of $0.2 million.
None of the above joint ventures is considered individually material to the Company.
Summarized financial information of joint ventures that were 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
$
$
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
(42 ) $
(29 ) $
2017
NT$
—
(29 ) $
—
(42 ) $
(1 )
—
(1 )
The Company’s share of loss of joint ventures was recorded based on the audited financial
statements.
47
F
17. PROPERTY, PLANT AND EQUIPMENT
17. PROPERTY, PLANT AND EQUIPMENT
December 31
2016
NT$
2017
NT$
(In Millions)
333
42,147
2,713
$ 103,872 $ 104,079
302
45,895
2,374
119,195 114,900
321
2,310
629
2,140
20,141
18,527
$ 291,170 $ 288,708
Carrying amount
Land
Land improvements
Buildings
Computer equipment
Telecommunications equipment
Transportation equipment
Miscellaneous equipment
Construction in progress and equipment to be
accepted
48
F
Land
Land
NT$
Improvements Buildings
NT$
NT$
Computer
Equipment
NT$
Telecommuni-
cations
Equipment
Transportation
Equipment
Miscellaneous
Equipment
NT$
NT$
NT$
(In Millions)
Construction in
Progress and
Equipment to
be Accepted Total
NT$
NT$
$
—
— $
19
(46 )
$ 102,774 $
—
—
Cost
Balance on
January 1, 2015
Additions
Disposal
Effect of foreign
exchange
differences
Acquisitions through
business
combinations
Others
Balance on
December 31, 2015 $ 102,747 $
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, 2016 $ 103,872 $
$ 102,747 $
791
(2 )
—
—
—
—
336
—
—
— $
—
1,558 $ 67,600 $ 15,318 $
37
59
(1,073 )
(11 )
—
—
695,076 $
159
(13,047 )
3,824 $
—
(69 )
8,643 $
203
(511 )
20,930 $ 915,723
23,993 24,451
— (14,711 )
—
—
—
69
—
—
—
69
—
17
7
135
—
714
—
23,115
—
60
39
363
—
(24,521 )
65
(163 )
1,575 $ 67,790 $ 14,996 $
705,372 $
3,815 $
8,737 $
20,402 $ 925,434
(1,145 ) $ (23,202 ) $ (11,308 ) $
(568,767 ) $
(2,208 ) $
(6,443 ) $
— $ (613,073 )
(53 ) (1,269 )
10
—
—
—
(1,467 )
1,061
—
(26,291 )
13,033
(138 )
(599 )
69
—
(671 )
425
—
— (30,350 )
— 14,598
(138 )
—
—
—
—
(14 )
—
—
—
(14 )
—
(5 )
(1 )
41
—
(1 )
—
(28 )
—
(12 )
(28 )
(24 )
—
—
(29 )
(29 )
(1,203 ) $ (24,421 ) $ (11,715 ) $
(582,205 ) $
(2,750 ) $
(6,741 ) $
— $ (629,035 )
1,575 $ 67,790 $ 14,996 $
42
36
(1,546 )
(35 )
—
(6 )
705,372 $
171
(11,542 )
3,815 $
1
(54 )
8,737 $
255
(625 )
20,402 $ 925,434
23,295 24,591
— (13,810 )
—
12
—
(53 )
(3 )
806
(35 )
21,726
—
104
(4 )
580
—
(23,556 )
(42 )
(45 )
1,581 $ 67,738 $ 14,295 $
715,692 $
3,866 $
8,943 $
20,141 $ 936,128
(Continued)
49
F
Land
Land
NT$
Improvements Buildings
NT$
NT$
Computer
Equipment
NT$
Telecommuni-
cations
Equipment
Transportation
Equipment
Miscellaneous
Equipment
NT$
NT$
NT$
(In Millions)
Construction in
Progress and
Equipment to
be Accepted Total
NT$
NT$
$
— $
— $
—
—
—
—
—
$ 103,872 $
—
(158 )
Accumulated
depreciation
and impairment
Balance on
January 1, 2016
Depreciation
expenses
Disposal
Impairment losses
Effect of foreign
exchange
differences
Others
Balance on
December 31, 2016 $
Cost
Balance on
January 1, 2017
Additions
Disposal
Effect of foreign
exchange
differences
Others
Balance on
December 31, 2017 $ 104,079 $
Accumulated
depreciation
and impairment
Balance on January 1,
2017
Depreciation
expenses
Disposal
Effect of foreign
exchange
differences
Others
Balance on
December 31, 2017 $
—
365
—
—
—
—
— $
— $
$
(1,203 ) $ (24,421 ) $ (11,715 ) $
(582,205 ) $
(2,750 ) $
(6,741 ) $
— $ (629,035 )
(51 ) (1,269 )
34
—
6
—
(1,332 )
1,529
—
(25,280 )
11,512
(596 )
(529 )
54
—
(626 )
583
—
— (29,087 )
— 13,718
(596 )
—
—
—
—
65
1
(65 )
7
65
—
(12 )
4
(23 )
—
—
12
30
(1,248 ) $ (25,591 ) $ (11,582 ) $
(596,497 ) $
(3,237 ) $
(6,803 ) $
— $ (644,958 )
1,581 $ 67,738 $ 14,295 $
78
30
(974 )
(108 )
—
(5 )
715,692 $
193
(13,739 )
3,866 $
1
(62 )
8,943 $
193
(402 )
20,141 $ 936,128
25,574 26,069
— (15,448 )
—
—
19 5,034
(1 )
764
(172 )
20,080
—
29
(3 )
784
—
(27,188 )
(176 )
(113 )
1,595 $ 72,694 $ 14,162 $
722,054 $
3,834 $
9,515 $
18,527 $ 946,460
(1,248 ) $ (25,591 ) $ (11,582 ) $
(596,497 ) $
(3,237 ) $
(6,803 ) $
— $ (644,958 )
(50 ) (1,402 )
47
4
(1,192 )
967
(24,492 )
13,712
(330 )
63
(677 )
389
— (28,143 )
— 15,182
—
1
—
147
—
19
45
78
—
(9 )
2
(116 )
—
—
47
120
(1,293 ) $ (26,799 ) $ (11,788 ) $
(607,154 ) $
(3,513 ) $
(7,205 ) $
— $ (657,752 )
(Concluded)
Due to technology upgrade, some telecommunications equipment became obsolete in 2015. The Company
Due to technology upgrade, some telecommunications equipment became obsolete in 2015. The Company
determined that some telecommunications equipment was impaired in 2016 due to the expiration of 2G license in June
determined that some telecommunications equipment was impaired in 2016 due to the expiration of 2G license
2017 which will lead to the termination of the related service. The Company evaluated and concluded the recoverable
in June 2017 which will lead to the termination of the related service. The Company evaluated and concluded
amount determined on the basis of value in use of aforementioned telecommunications equipment was lower than the
the recoverable amount determined on the basis of value in use of aforementioned telecommunications
carrying value, and recognized impairment losses of $138 million and $596 million for the years ended December 31,
2015 and 2016, respectively. In addition, the Company evaluated and concluded the recoverable amount of partial
equipment was lower than the carrying value, and recognized impairment losses of $138 million and $596
computer and miscellaneous equipment was nil and recognized impairment losses of $0.4 million for the year ended
million for the years ended December 31, 2015 and 2016, respectively. In addition, the Company evaluated and
December 31, 2016. The impairment loss was included in other income and expenses in the statements of
concluded the recoverable amount of partial computer and miscellaneous equipment was nil and recognized
comprehensive income. There was no indication that property, plant and equipment was impaired so the Company
impairment losses of $0.4 million for the year ended December 31, 2016. The impairment loss was included in
did not recognize any impairment loss for the year ended December 31, 2017.
other income and expenses in the statements of comprehensive income. There was no indication that property,
plant and equipment was impaired so the Company did not recognize any impairment loss for the year ended
December 31, 2017.
50
F
Depreciation expense is computed using the straight-line method over the following estimated service lives:
Land improvements
Buildings
Main buildings
Other building facilities
Computer equipment
Telecommunications equipment
Telecommunication circuits
Telecommunication machinery and
antennas equipment
Transportation equipment
Miscellaneous equipment
Leasehold improvements
Mechanical and air conditioner equipment
Others
8-30 years
35-60 years
3-20 years
2-8 years
2-30 years
2-30 years
3-10 years
1-6 years
3-16 years
1-10 years
18. INVESTMENT PROPERTIES
INVESTMENT PROPERTIES
18.
Carrying amount
Investment properties
December 31
2016
NT$
2017
NT$
(In Millions)
$
8,115 $
8,048
51
F
Cost
Balance on January 1, 2015
Disposal
Reclassification
Balance on December 31, 2015
Accumulated depreciation and impairment
Balance on January 1, 2015
Depreciation expense
Disposal
Reclassification
Reversal of impairment loss
Balance on December 31, 2015
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
Cost
Balance on January 1, 2017
Reclassification
Balance on December 31, 2017
Accumulated depreciation and impairment
Balance on January 1, 2017
Depreciation expense
Reclassification
Reversal of impairment loss
Balance on December 31, 2017
Investment
Properties
NT$
(In Millions)
$
$
$
$
$
$
$
$
$
$
$
$
8,883
—
175
9,058
(1,262 )
(18 )
—
(18 )
142
(1,156 )
9,058
—
137
9,195
(1,156 )
(19 )
(53 )
148
(1,080 )
9,195
(60 )
9,135
(1,080 )
(21 )
3
11
(1,087 )
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, 2016
and 2017. Therefore, the Company recognized reversals of impairment loss of $142 million, $148 million and
$11 million for the years ended December 31, 2015, 2016 and 2017, respectively, and the amounts were
recognized only to the extent of impairment losses that had been recognized in prior years. The reversal of
impairment loss was included in other income and expenses in the statements of comprehensive income.
52
F
The fair values of the Company’s investment properties as of December 31, 2016 and 2017 were determined by
Level 3 fair value measurements inputs based on the appraisal reports conducted by independent appraisers.
Those appraisal reports are based on the comparison approach, income approach or cost approach. Key
assumptions and the fair values were as follows:
Fair value
Overall capital interest rate
Profit margin ratio
Discount rate
Capitalization rate
December 31
2016
NT$
2017
NT$
(In Millions)
$
17,778 $
1.46%-
2.20%
17,728
1.46%-
2.20%
10%-20% 12%-20%
1.04 % 1.04%
0.47%-
1.69%
0.43%-
1.78%
All of the Company’s investment properties are held under freehold interest.
19. INTANGIBLE ASSETS
INTANGIBLE ASSETS
19.
Carrying amount
3G and 4G concession
Computer software
Goodwill
Others
December 31
2016
NT$
2017
NT$
(In Millions)
$
$
45,796 $
995
218
344
47,353 $
53,469
880
209
325
54,883
53
F
Cost
Balance on January 1, 2015
Additions-acquired separately
Disposal
Effect of foreign exchange difference
Acquisitions through business combinations
Others
Balance on December 31, 2015
Accumulated amortization and impairment
Balance on January 1, 2015
Amortization expenses
Disposal
Effect of foreign exchange difference
Others
Balance on December 31, 2015
Cost
Balance on January 1, 2016
Additions-acquired separately
Disposal
Effect of foreign exchange difference
Others
Balance on December 31, 2016
Accumulated amortization and impairment
Balance on January 1, 2016
Amortization expenses
Disposal
Impairment losses
Effect of foreign exchange difference
Balance on December 31, 2016
Cost
Balance on January 1, 2017
Additions-acquired separately
Disposal
Effect of foreign exchange difference
Balance on December 31, 2017
Accumulated amortization and impairment
Balance on January 1, 2017
Amortization expenses
Disposal
Impairment losses
Effect of foreign exchange difference
Balance on December 31, 2017
3G and 4G
Concession
NT$
Computer
Software
NT$
Goodwill
Others
NT$
(In Millions)
NT$
Total
NT$
$ 49,254 $
9,955
—
—
—
—
$ 59,209 $
3,192 $
424
(375 )
—
—
8
3,249 $
$
(8,104 ) $
(2,504 )
—
—
—
$ (10,608 ) $
(1,793 ) $
(565 )
375
—
—
(1,983 ) $
$ 59,209 $
—
—
—
—
$ 59,209 $
3,249 $
277
(121 )
—
3
3,408 $
$ (10,608 ) $
(2,805 )
—
—
—
$ (13,413 ) $
(1,983 ) $
(551 )
121
—
—
(2,413 ) $
$ 59,209 $
10,935
—
—
$ 70,144 $
3,408 $
366
(462 )
—
3,312 $
$ (13,413 ) $
(3,262 )
—
—
—
$ (16,675 ) $
(2,413 ) $
(481 )
462
—
—
(2,432 ) $
181 $
—
—
—
55
—
236 $
(18 ) $
—
—
—
—
(18 ) $
236 $
—
—
—
—
236 $
(18 ) $
—
—
—
—
(18 ) $
236 $
—
—
—
236 $
(18 ) $
—
—
(9 )
—
(27 ) $
151 $ 52,778
1 10,380
(377 )
(2 )
—
—
314
259
—
8
409 $ 63,103
(9,953 )
(38 ) $
(3,080 )
(11 )
377
2
—
—
—
—
(47 ) $ (12,656 )
409 $ 63,103
282
5
(121 )
—
—
—
3
—
414 $ 63,267
(47 ) $ (12,656 )
(3,379 )
(23 )
121
—
—
—
—
—
(70 ) $ (15,914 )
414 $ 63,267
4 11,305
(462 )
—
—
—
418 $ 74,110
(70 ) $ (15,914 )
(3,766 )
(23 )
462
—
—
(9 )
—
—
(93 ) $ (19,227 )
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. For long-term business development,
Chunghwa submitted an application to NCC for 4G mobile broadband license in 1.8 and 2.1 GHz frequency
54
F
bands and obtained certain spectrums. Chunghwa paid the 4G concession fee amounting to $10,935 million in
November 2017.
The concessions are granted and issued by the NCC. The concession fees are amortized using the straight-line
method from the date operations commence through the date the license expires. The carrying amount of 3G
concession fee will be fully amortized by December 2018, and 4G concession fees will be fully amortized by
December 2030 and December 2033.
The computer software is amortized using the straight-line method over the estimated useful lives of 1 to 10
years. Other intangible assets are amortized using the straight-line method over the estimated useful lives of 1
to 20 years. Goodwill is not amortized.
20. OTHER ASSETS
20. OTHER ASSETS
Spare parts
Refundable deposits
Other financial assets
Others
Current
Spare parts
Others
Noncurrent
Refundable deposits
Other financial assets
Others
December 31
2016
NT$
2017
NT$
(In Millions)
$
$
$
$
$
$
1,776 $
2,083
1,000
2,288
7,147 $
1,776 $
346
2,122 $
2,083 $
1,000
1,942
5,025 $
2,059
1,860
1,000
2,800
7,719
2,059
124
2,183
1,860
1,000
2,676
5,536
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
HEDGING DERIVATIVE FINANCIAL INSTRUMENTS
21.
December 31
2016
NT$
2017
NT$
(In Millions)
Hedging derivative financial liabilities
Cash flow hedge - forward exchange contracts
$
1 $
1
Chunghwa’s hedge strategy is to enter forward exchange contracts - buy to avoid its foreign currency exposure
to certain foreign currency denominated equipment 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.
55
F
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, 2015, 2016 and 2017, gain
(loss) arising from changes in fair value of the hedged items recognized in other comprehensive income was
gain of $1 million, loss 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, 2016 and 2017, Chunghwa expected part of the equipment purchase transactions will
not occur and reclassified the related loss of $1 million, gain of $1 million and gain of $2 million, respectively,
arising from the forward exchange contracts of the aforementioned transactions from equity to profit or loss.
The outstanding forward exchange contracts at the balance sheet dates were as follows:
December 31, 2016
Forward exchange contracts - buy
December 31, 2017
Forward exchange contracts - buy
Currency
Maturity
Period
Contract
Amount
(Millions)
EUR/NT$ 2017.03
EUR3/NT$102
EUR/NT$
2018.03-
06
EUR4/NT$142
Loss (gain) arising from the hedging derivative financial instruments that have been reclassified from equity to
initial cost of the property, plant and equipment were as follows:
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
2017
NT$
Construction in progress and equipment to be
accepted
$
(18 ) $
(15 ) $
(2 )
22. SHORT-TERM LOANS
22. SHORT-TERM LOANS
Secured loans (Note 41)
Unsecured loans
The annual interest rates of loans were as follows:
Secured loans
Unsecured loans
December 31
2016
NT$
2017
NT$
$
$
(In Millions)
20 $
118
138 $
—
70
70
December 31
2016
1.98%
1.95%-
2.25%
2017
—
2.15%-
2.19%
56
F
23. LONG-TERM LOANS
23. LONG-TERM LOANS
December 31
2016
NT$
2017
NT$
(In Millions)
Secured loans (Note 41)
$
1,600 $
1,600
The annual interest rates of loans were as follows:
Secured loans
December 31
2016
0.91%
2017
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 entered into a contract with Chang Hwa Bank to renew the
contract upon the maturity of the aforementioned contract in December 2017 and the due date of the renew
contract is extended to September 2021. 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
24. TRADE NOTES AND ACCOUNTS PAYABLE
Trade notes and accounts payable
$
18,810 $
19,396
Trade notes and accounts payable were attributable to operating activities and the trading conditions were agreed
separately.
December 31
2016
NT$
2017
NT$
(In Millions)
57
F
25. OTHER PAYABLES
25. OTHER PAYABLES
Accrued salary and compensation
Payables to contractors
Accrued compensation to employees and
remuneration to directors and supervisors
Payables to equipment suppliers
Accrued franchise fees
Amounts collected for others
Accrued maintenance costs
Others
26. PROVISIONS
26. PROVISIONS
Warranties
Trade-in right
Employee benefits
Others
Current
Noncurrent
December 31
2016
NT$
2017
NT$
$
(In Millions)
9,770 $
2,396
9,748
2,058
2,015
1,623
1,326
1,407
1,062
6,819
26,418 $
1,949
1,690
1,248
1,203
1,081
6,024
25,001
December 31
2016
NT$
2017
NT$
(In Millions)
111 $
31
38
5
185 $
119 $
66
185 $
132
87
43
5
267
189
78
267
$
$
$
$
$
Warranties
NT$
Trade-in
rights
NT$
Employee
Benefits
NT$
(In Millions)
Others
NT$
Total
NT$
Balance on January 1, 2015
Additional provisions recognized
Used / forfeited during the year
Balance on December 31, 2015
Balance on January 1, 2016
Additional provisions recognized
Used / forfeited during the year
Balance on December 31, 2016
Balance on January 1, 2017
Additional provisions recognized
Used / forfeited during the year
Balance on December 31, 2017
$
$
$
$
$
$
212 $
100
(99 )
213 $
213 $
81
(183 )
111 $
111 $
79
(58 )
132 $
— $
—
—
— $
— $
31
—
31 $
31 $
69
(13 )
87 $
55 $
12
(37 )
30 $
30 $
9
(1 )
38 $
38 $
7
(2 )
43 $
5 $
—
—
5 $
5 $
—
—
5 $
5 $
—
—
5 $
272
112
(136 )
248
248
121
(184 )
185
185
155
(73 )
267
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.
58
F
b.
c.
The provision for employee benefits represents vested long-term service compensation accrued.
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
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 $797 million as of December 31, 2017.
28. RETIREMENT BENEFIT PLANS
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 contributi
on plan. Based on the LPA, Chunghwa and its domestic subsidiaries make monthly contributions to em
ployees’ individual pension accounts at 6% of monthly salaries and wages. Its foreign subsidiaries woul
d 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 accru
ed 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 Sta
tute Governing Privatization of Stated-owned Enterprises. After paying all pension obligations for priva
tization, 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, Chunghw
a transferred the remaining balance of fund to the Privatization Fund. However, according to the instruc
tions of MOTC, Chunghwa was requested to administer the distributions to employees for pension oblig
ations including service clearance payment, lump sum payment under civil service plan, additional separ
ation payments, etc. upon the completion of the privatization and recognized in other current monetary a
ssets.
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 bas
ed 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 p
ension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (t
he Committee) and deposited in the names of the Committees in the Bank of Taiwan. The plan assets ar
e held in a commingled fund which is operated and managed by the government’s designated authoritie
s; 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 ba
lance of the Funds is insufficient to pay employees who will meet the retirement eligibility criteria withi
n next year.
59
F
The amounts included in the consolidated balance sheets arising from the Company’s obligation in respe
ct of its defined benefit plans were as follows:
Present value of funded defined benefit obligation
Fair value of plan assets
Funded status - deficit
Net defined benefit liabilities
Net defined benefit assets
December 31
2016
NT$
2017
NT$
(In Millions)
$
$
$
$
34,572 $
(33,954 )
618 $
1,537 $
(919 )
618 $
37,663
(34,972 )
2,691
2,704
(13 )
2,691
60
F
Movements in the defined benefit obligation and the fair value of plan assets were as follows:
$
Balance on January 1, 2015
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
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 changes in
demographic assumptions
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
Balance on December 31, 2016
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 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, 2017
$
Present
Value of
Funded
Defined
Benefit
Obligation
NT$
Fair Value of
Plan Assets
NT$
(In Millions)
21,496 $
—
444
444
27,958 $
2,884
546
3,430
Net Defined
Benefit
Liabilities
(Assets)
NT$
6,462
2,884
102
2,986
—
11
136
(136 )
—
11
(1 )
357
367
—
(717 )
(156 )
30,882 $
2,866
600
3,466
—
—
136
2,435
(717 )
—
23,794 $
—
573
573
(1 )
357
231
(2,435 )
—
(156 )
7,088
2,866
27
2,893
—
(352 )
352
(124 )
—
(124 )
1,715
100
1,691
—
(1,296 )
(171 )
34,572 $
2,918
506
3,424
—
—
(352 )
11,235
(1,296 )
—
33,954 $
—
519
519
1,715
100
2,043
(11,235 )
—
(171 )
618
2,918
(13 )
2,905
—
(193 )
193
15
1,816
1,831
—
(1,943 )
(221 )
37,663 $
—
—
(193 )
2,635
(1,943 )
—
34,972 $
15
1,816
2,024
(2,635 )
—
(221 )
2,691
61
F
Relevant pension costs recognized in profit and loss for defined benefit plans were as follows:
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
2017
NT$
Operating costs
Marketing expenses
General and administrative expenses
Research and development expenses
$
$
1,794 $
856
162
102
2,914 $
1,732 $
838
155
97
2,822 $
1,734
847
156
97
2,834
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 r
ate on a two-year time deposit published by the local banks and the government is responsible for any sh
ortfall 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 depo
sits which is operated and managed by the government’s designated authorities; as such, the Company d
oes not have any right to intervene in the investments of the funds.
b.
Interest rate risk
The decline in government bond interest rate will increase the present value of the obligation on the defi
ned 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’ futu
re salary. Hence, the increase in plan participants’ salary will increase the present value of the defined b
enefit 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:
Discount rates
Expected rates of salary increase
Measurement Date
December 31
2016
1.50%
1.20%-
2.00%
2017
1.50%
1.20%-
2.00%
62
F
If reasonably possible changes of the respective significant actuarial assumptions occur at the end of rep
orting periods, while holding all other assumptions constant, the present value of the defined benefit obli
gation 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
2016
NT$
2017
NT$
(In Millions)
$
$
$
$
(1,219 ) $
1,298 $
(1,232 )
1,310
1,379 $
(1,306 ) $
1,398
(1,326 )
The sensitivity analysis presented above may not be representative of the actual change in the present va
lue of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolat
ion 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 obligat
ion has been calculated using the projected unit credit method at the end of the reporting period, which i
s the same as that applied in calculating the defined benefit obligation liability recognized in the consoli
dated balance sheets.
There is no change in the methods and assumptions used in preparing the sensitivity analysis from the pr
evious period.
December 31
2016
NT$
2017
NT$
(In Millions)
The expected contributions to the plan for the next
year
4,393
The average duration of the defined benefit obligation 7-14 years 6-13 years
2,724 $
$
The Company’s maturity analysis of the undiscounted benefit payments as of December 31, 2017 was a
s follows:
Year
2018
2019
2020
2021
2022 and thereafter
Amount
NT$
(In Millions)
2,042
$
4,716
8,088
11,201
48,310
74,357
$
63
F
29. EQUITY
29. EQUITY
a.
Share capital
1)
Common stocks
Number of authorized shares
Authorized shares
Number of issued and paid shares
Issued and outstanding shares
December 31
2016
NT$
2017
NT$
(In Millions)
12,000
12,000
$ 120,000 $ 120,000
7,757
77,574
7,757
77,574 $
$
The issued common stocks of a par value at $10 per share entitled the right to vote and receive
dividends.
2) Global depositary receipts
The MOTC and some stockholders sold some common stocks of Chunghwa in an international
offering of securities in the form of American Depositary Shares (“ADS”) (one ADS represents 10
common stocks) in July 2003, August 2005, and September 2006. The ADSs were traded on the
New York Stock Exchange since July 17, 2003. As of December 31, 2017, the outstanding ADSs
were 261 million common stocks, which equaled 26 million units and represented 3.36% of
Chunghwa’s total outstanding common stocks.
The ADS holders generally have the same rights and obligations as other common stockholders,
subject to the provision of relevant laws. The exercise of such rights and obligations shall comply
with the related regulations and deposit agreement, which stipulate, among other things, that ADS
holders are entitled to, through deposit agents:
a)
b)
c)
Exercise their voting rights,
Sell their ADSs, and
Receive dividends declared and subscribe to the issuance of new shares.
b. Additional paid-in capital
64
F
The adjustments of additional paid-in capital for the years ended December 31, 2015, 2016 and 2017 were
as follows:
Movements of
Additional
Paid-in
Capital
for Associates
and Joint
Ventures
Accounted
for
Using Equity
Method
NT$
Share
Premium
NT$
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$
(In Millions)
Stockholders’
Contribution
Due to
Donated
Capital
NT$
Privatization Total
NT$
NT$
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
Balance on December 31, 2015
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
Balance on December 31, 2016
Balance on January 1, 2017
Unclaimed dividend
Change in additional paid-in
capital from investments in
associates and joint ventures
accounted for using equity
method
method
Partial disposal of interests
in subsidiaries
Change in additional paid-in
capital for not participating
in the capital increase of a
subsidiary
Other changes in additional
paid-in capital in subsidiaries
Share-based payment
transactions of subsidiaries
Treasury stock transfer
of subsidiaries
Balance on December 31, 2017
$ 126,045 $
— $
14 $
— $
13 $
20,648 $ 146,720
—
—
—
$ 126,045 $
$ 126,045 $
—
—
—
— $
— $
—
27 —
—
27
1
— —
—
1
(15 )
— $
— $
— —
13 $
27 $
13 $
27 $
—
(15 )
20,648 $ 146,733
20,648 $ 146,733
—
—
—
58 —
—
58
—
—
389
— —
—
389
—
$ 126,045 $
$ 126,045 $
—
—
— $
— $
—
—
389 $
389 $
—
— —
13 $
85 $
13 $
85 $
3
—
—
—
20,648 $ 147,180
20,648 $ 147,180
3
—
—
—
—
—
—
—
—
—
—
—
—
— —
1
76 —
—
—
—
77
802
— —
—
802
—
— —
—
—
2
— —
—
2
—
$ 126,045 $
—
— $
27
1,221 $
— —
16 $
161 $
—
27
20,648 $ 148,091
65
F
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 except the additional paid-in
capital arising from unclaimed dividend can only be utilized to offset deficits.
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.
Among additional paid-in capital from movements of investments in associates and joint ventures
accounted for using equity method, the portion arising from the difference between consideration received
and the carrying amount of the subsidiaries’ net assets upon disposal may be utilized to offset deficits;
furthermore, when the Company has no deficit, it may be distributed in cash or capitalized. However,
other additional paid-in capital recognized in proportion of share ownership may only be utilized to offset
deficits.
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 $0.10 per share, such cash dividend shall be distributed in the form of common stocks.
For the information on compensation to the employees and remuneration to the directors accrued based
on the Chunghwa’s amended Articles of Incorporation, please refer to Note 31.g. Employee benefit
expenses.
Special reserve was appropriated in accordance with the relevant laws and regulations or as requested by
local authority. Pursuant to existing regulations, Chunghwa is required to set aside additional special
reserve equivalent to debit balances under stockholder’s equity. For subsequent decrease in the deduction
amount to stockholder’s equity, the decreased amount could be reversed from the special reserve to
retained earnings.
The appropriation for legal reserve shall be made until the accumulated reserve equals the aggregate par
value of the outstanding capital stock of Chunghwa. This reserve can only be used to offset a deficit, or,
when the legal reserve has exceeded 25% of Chunghwa’s paid-in capital, the excess may be transferred
to capital or distributed in cash.
Except for non-ROC resident stockholders, all stockholders receiving the dividends are entitled to a tax
credit equal to their proportionate share of the income tax paid by the Company.
66
F
The appropriations of the 2015 and 2016 earnings of Chunghwa approved by the stockholders in their
meetings on June 24, 2016 and June 23, 2017 were as follows:
Appropriation of Earnings
Dividends Per Share
For Fiscal
Year 2015
For Fiscal
Year 2016
For Fiscal
Year 2015
NT$
NT$
NT$
For Fiscal
Year 2016
NT$
Special reserve
Cash dividends
$
(In Millions)
— $
42,551
5
38,336 $ 5.4852 $ 4.9419
The appropriations of earnings for 2017 had been proposed by Chunghwa’s Board of Directors on
March 13, 2018. The appropriations and dividends per share were as follows:
For Fiscal Year 2017
Reversal of special reserve
Cash dividends
Appropriation
of Earnings
NT$
(In Millions)
5
$
37,205 $
Dividends
Per Share
NT$
4.796
The appropriations of earnings for 2017 are subject to the resolution of the stockholders’ meeting planned
to be held on June 15, 2018.
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
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
2017
NT$
Beginning balance
Unrealized gain (loss) on available-for-sale
financial assets
Income tax relating to unrealized gain and
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
Ending balance
$
740 $
91 $
(51 )
(670 )
(721 )
607
(2 )
2
—
—
$
23
91 $
577
(51 ) $
2
—
—
558
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.
67
F
e.
Noncontrolling interests
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
2017
NT$
Beginning balance
Attributable to noncontrolling interests
$
4,924 $
5,065 $
6,272
Net income for 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 gain and 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 (loss)
of associates accounted for using equity
method
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
Other changes in additional paid-in capital of
subsidiaries
Share-based payment transactions of subsidiaries
Subsidiary purchased its treasury stock
Net increase in noncontrolling interests
Ending balance
$
813
1,141
1,172
(3 )
(41 )
(12 )
2
—
—
—
(3 )
(18 )
(2 )
1
(8 )
1
3
—
2
(350 )
18
(1 )
(710 )
25
(2 )
(942 )
29
—
786
1,750
2
36
(416 )
39
5,065 $
—
17
—
5
6,272 $
—
20
—
196
8,474
30. REVENUE
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.
31. NET INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)
31. NET INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)
a.
Other income and expenses
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
2017
NT$
Loss on disposal of property, plant and
equipment
Impairment loss on property, plant and equipment
Reversal of impairment loss on investment
properties
Loss on disposal of intangible assets
Impairment loss on intangible assets
$
(109 ) $
(138 )
(48 ) $
(596 )
142
—
—
(105 ) $
148
—
—
(496 ) $
$
(107 )
—
11
—
(9 )
(105 )
68
F
b. Other income
Dividend income
Rental income
Income from Piping Fund
Others
c.
Other gains and losses
Net foreign currency exchange gains (losses)
Gain on disposal of financial instruments
Valuation gain (loss) on financial assets and
liabilities at fair value through profit or loss, net
Gain (loss) on disposal of investments
accounted for using equity method
Impairment loss on investments accounted for
using equity method
Impairment loss on available-for-sale financial
assets
Others
2017
NT$
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
391 $
41
202
438
1,072 $
218 $
38
202
192
650 $
328
61
—
447
836
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
2017
NT$
181 $
—
(88 )
3
$
$
$
63 $
—
—
4
(1 )
(2 )
1
—
—
(8 )
—
(107 )
(180 )
(228 ) $
(577 )
(49 )
(448 ) $
—
(48 )
(132 )
$
d.
Impairment loss (reversal of impairment loss) on financial instruments
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
2017
NT$
Trade notes and accounts receivable
Other receivables
Available-for-sale financial assets
$
$
$
480 $
39 $
107 $
943 $
(2 ) $
577 $
578
65
—
e.
Impairment loss (reversal of impairment loss) on non-financial assets
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
2017
NT$
Inventories
Property, plant and equipment
Investments accounted for using equity method
Investment properties
Intangible assets
$
$
$
$
$
198 $
138 $
8 $
(142 ) $
— $
192 $
596 $
— $
(148 ) $
— $
52
—
—
(11 )
9
69
F
f.
Depreciation and amortization expenses
Property, plant and equipment
Investment properties
Intangible assets
Total depreciation and amortization expenses
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
2015
NT$
2017
NT$
Year Ended December 31
2016
NT$
(In Millions)
$ 30,350 $ 29,087 $ 28,143
21
3,766
$ 33,448 $ 32,485 $ 31,930
19
3,379
18
3,080
$ 28,292 $ 27,214 $ 26,402
1,762
$ 30,368 $ 29,106 $ 28,164
1,892
2,076
$
$
2,742 $
178
116
44
3,080 $
3,042 $
173
126
38
3,379 $
3,473
154
104
35
3,766
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
2017
NT$
$
489 $
2,914
3,403
544 $
2,822
3,366
594
2,834
3,428
Equity-settled share-based payment
36
17
22
Other employee benefit
Salaries
Insurance
Others
Total employee benefit expenses
Summary by functions
Operating costs
Operating expenses
25,526
2,643
15,717
43,886
25,760
2,748
15,449
43,957
$ 47,325 $ 47,750 $ 47,407
25,985
2,652
15,730
44,367
$ 25,320 $ 25,190 $ 24,725
22,682
$ 47,325 $ 47,750 $ 47,407
22,005
22,560
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 shall distribute employees’ compensation at the rates from 1.7% to 4.3% and remuneration
to directors not higher than 0.17%, respectively, of pre-tax income. As of December 31, 2017, the
payables of the employees’ compensation and the remuneration to directors were $1,596 million and
$41 million, respectively. Such amounts have been approved by the Chunghwa’s Board of Directors on
March 13, 2018 and will be reported to the stockholders in their meeting planned to be held on June 15,
2018.
70
F
If there is a change in the proposed amounts after the annual financial statements are authorized for
issue, the differences are recorded as a change in accounting estimate.
The compensation to the employees and remuneration to the directors of 2015 and 2016 approved by the
Board of Directors on March 11, 2016 and March 7, 2017, respectively, were as follows.
Compensation distributed to the
employees
Remuneration paid to the directors
2015
Cash
NT$
2016
Cash
NT$
(In Millions)
$
1,928 $
45
1,702
42
There was no difference between the initial accrual amounts and the amounts proposed in the Board of
Directors in 2016 and 2017 of the aforementioned compensation to employees and the remuneration to
directors.
h.
Reclassification adjustments of other comprehensive income (loss)
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
2017
NT$
Unrealized gain (loss) on available-for-sale
financial assets
Arising during the year
Reclassification adjustments
Upon disposal
Upon impairment
Cash flow hedges
Gain arising during the year
Reclassification adjustments included in profit
or loss
Adjusted against the carrying amount of
hedged items
$
(671 ) $
(721 ) $
605
—
26
(645 ) $
—
577
(144 ) $
—
—
605
18 $
15 $
1
(1 )
(18 )
1 $
(15 )
(1 ) $
3
(2 )
(2 )
(1 )
$
$
$
71
F
32.
32.
32. INCOME TAX
INCOME TAX
INCOME TAX
a.
a.
Income tax recognized in profit or loss
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:
$
$
Current tax
Current tax
Current tax expenses recognized for the year
Tax on unappropriated earnings
Current tax expenses recognized for the year
Income tax adjustments on prior years
Tax on unappropriated earnings
Others
Income tax adjustments on prior years
Others
Deferred tax
Deferred tax
Deferred tax expense recognized for the year
Income tax adjustments on prior years
Deferred tax expense recognized for the year
Income tax adjustments on prior years
2015
NT$
2015
NT$
Year Ended December 31
2016
Year Ended December 31
NT$
2016
(In Millions)
NT$
(In Millions)
2017
NT$
2017
NT$
8,570 $
821
8,570 $
(83 )
821
15
(83 )
9,323
15
9,323
(222 )
—
(222 )
(222 )
—
(222 )
9,101 $
9,101 $
6,736 $
(346 )
6,736 $
(22 )
(346 )
15
(22 )
6,383
15
6,383
1,404
—
1,404
1,404
—
1,404
7,787 $
7,787 $
7,996
(60 )
7,996
(2 )
(60 )
10
(2 )
7,944
10
7,944
(101 )
6
(101 )
(95 )
6
(95 )
7,849
7,849
Income tax recognized in profit or loss
Income tax recognized in profit or loss
Reconciliation of accounting profit and income tax expense was as follows:
Reconciliation of accounting profit and income tax expense was as follows:
$
$
2017
NT$
2017
NT$
2015
NT$
2015
NT$
Year Ended December 31
2016
Year Ended December 31
NT$
2016
(In Millions)
NT$
$ 51,953 $ 49,413 $ 48,009
(In Millions)
$ 51,953 $ 49,413 $ 48,009
8,162
$
8,162
$
34
—
34
(1 )
—
10
(1 )
(87 )
10
(60 )
(87 )
(212 )
(60 )
(212 )
(2 )
4
(2 )
1
4
7,849
1
7,849
Income before income tax
Income before income tax
Income tax expense calculated at the statutory rate
(17%)
Income tax expense calculated at the statutory rate
Nondeductible revenues and expenses in
(17%)
determining taxable income
Nondeductible revenues and expenses in
Imputed income on tax
determining taxable income
Unrecognized deductible temporary differences
Imputed income on tax
Unrecognized loss carryforwards
Unrecognized deductible temporary differences
Tax-exempt income
Unrecognized loss carryforwards
Income tax on unappropriated earnings
Tax-exempt income
Investment credits
Income tax on unappropriated earnings
Effect of different tax rates of group entities
Investment credits
operating in other jurisdictions
Effect of different tax rates of group entities
Income tax adjustments on prior years
operating in other jurisdictions
Others
Income tax adjustments on prior years
Income tax expense recognized in profit or loss
Others
Income tax expense recognized in profit or loss
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
The applicable tax rate used above is the corporate tax rate of 17% payable by the entities subject to the
25%. Tax rates used by other entities in the Company operating in other jurisdictions are based on the
Income Tax Act of the Republic of China, while the applicable tax rate used by subsidiaries in China is
tax laws in those jurisdictions.
25%. Tax rates used by other entities in the Company operating in other jurisdictions are based on the
tax laws in those jurisdictions.
In February 2018, it was announced by the President that the Income Tax Act in the ROC was amended
and starting from 2018, the corporate income tax rate will be adjusted from 17% to 20%. In addition, the
In February 2018, it was announced by the President that the Income Tax Act in the ROC was amended
tax rate applicable to 2018 unappropriated earnings will be reduced from 10% to 5%. Deferred tax assets
and starting from 2018, the corporate income tax rate will be adjusted from 17% to 20%. In addition, the
and deferred tax liabilities recognized as at December 31, 2017 are expected to increase by $480 million
tax rate applicable to 2018 unappropriated earnings will be reduced from 10% to 5%. Deferred tax assets
and $236 million, respectively, as a result of the aforementioned tax rate changes in 2018.
and deferred tax liabilities recognized as at December 31, 2017 are expected to increase by $480 million
and $236 million, respectively, as a result of the aforementioned tax rate changes in 2018.
8,400 $
8,400 $
5
—
5
(9 )
—
12
(9 )
(25 )
12
(346 )
(25 )
(234 )
(346 )
(234 )
(8 )
(22 )
(8 )
14
(22 )
7,787 $
14
7,787 $
8,832 $
8,832 $
28
—
28
11
—
83
11
(183 )
83
821
(183 )
(329 )
821
(329 )
(94 )
(83 )
(94 )
15
(83 )
9,101 $
15
9,101 $
$
$
72
F
b.
Income tax expense (benefit) recognized in other comprehensive income
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
2017
NT$
Deferred tax
Unrealized gain or loss on available-for-sale
financial assets
Remeasurement on defined benefit plan
Total income tax benefit recognized in other
comprehensive income
$
2 $
(39 )
(2 ) $
(347 )
(3 )
(344 )
$
(37 ) $
(349 ) $
(347 )
c.
Current tax assets and liabilities
Current tax assets
Tax refund receivable (included in other current
assets - other)
Current tax liabilities
December 31
2016
NT$
2017
NT$
(In Millions)
$
5 $
2
Income tax payable
$
6,522 $
8,674
73
F
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, 2015
Deferred Income Tax Assets
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
Estimated warranty liabilities
Unrealized foreign exchange loss, net
Accrued award credits liabilities
Property, plant and equipment
Others
Loss carryforwards
Deferred Income Tax Liabilities
Temporary differences
Defined benefit obligation
Land value incremental tax
Intangible assets
Deferred revenue for award credits
Valuation gain or loss on financial
instruments, net
Unrealized foreign exchange gain, net
Others
January 1,
2015
NT$
Recognized in
Other
Comprehensive
Income
NT$
Recognized in
Profit or Loss
NT$
(In Millions)
From Business
Combination
NT$
December 31,
2015
NT$
$ 1,096 $
71 $
39 $
— $
1,206
277
114
32
156
41
19
—
28
—
34
1,797
29
$ 1,826 $
48
55
12
(20 )
(8 )
(1 )
18
(6 )
—
6
175
17
192 $
—
—
—
—
—
—
—
—
—
—
39
—
39 $
—
—
—
—
—
—
—
—
2
—
2
2
4 $
325
169
44
136
33
18
18
22
2
40
2,013
48
2,061
January
January 1,
1,
2015
NT$
Recognized in
Other
Comprehensive
Income
NT$
Recognized in
Profit or Loss
NT$
(In Millions)
From Business
Combination
NT$
December 31,
2015
NT$
$ — $
(95 )
—
(5 )
(3 )
(29 )
—
(132 ) $
$
(1 ) $
—
1
3
—
28
(1 )
30 $
— $
—
—
—
(2 )
—
—
(2 ) $
— $
—
(44 )
—
—
—
—
(44 ) $
(1 )
(95 )
(43 )
(2 )
(5 )
(1 )
(1 )
(148 )
74
F
For the year ended December 31, 2016
For the year ended December 31, 2016
For the year ended December 31, 2016
For the year ended December 31, 2016
For the year ended December 31, 2016
For the year ended December 31, 2016
For the year ended December 31, 2016
For the year ended December 31, 2016
Recognized in
Recognized in
Recognized in
Recognized in
Recognized in
Recognized in
Recognized in
Recognized in
Other
Other
Other
Other
Other
Other
Other
Other
Comprehensive
Comprehensive
Comprehensive
Comprehensive
Comprehensive
Comprehensive
Comprehensive
Comprehensive
December 31,
Recognized in
Recognized in
January 1,
January 1,
Recognized in
January 1,
January 1,
Recognized in
Recognized in
Recognized in
January 1,
Recognized in
January 1,
Recognized in
January 1,
2016
Income
Profit or Loss
Profit or Loss
2016
Income
Profit or Loss
2016
2016
Profit or Loss
Income
Income
Income
2016
Profit or Loss
Income
Profit or Loss
2016
Income
Profit or Loss
2016
Income
Profit or Loss
2016
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
(In Millions)
(In Millions)
(In Millions)
(In Millions)
(In Millions)
(In Millions)
(In Millions)
(In Millions)
January 1,
2016
NT$
December 31,
December 31,
December 31,
December 31,
December 31,
December 31,
December 31,
2016
2016
2016
2016
2016
2016
2016
NT$
NT$
NT$
NT$
NT$
NT$
NT$
Deferred Income Tax Assets
Deferred Income Tax Assets
Deferred Income Tax Assets
Deferred Income Tax Assets
Deferred Income Tax Assets
Deferred Income Tax Assets
Deferred Income Tax Assets
Deferred Income Tax Assets
Temporary differences
Temporary differences
Temporary differences
Temporary differences
Temporary differences
Temporary differences
Temporary differences
Temporary differences
Defined benefit obligation
Defined benefit obligation
Defined benefit obligation
Defined benefit obligation
Defined benefit obligation
Defined benefit obligation
Defined benefit obligation
Defined benefit obligation
Share of profits of associates and joint
Share of profits of associates and joint
Share of profits of associates and joint
Share of profits of associates and joint
Share of profits of associates and joint
Share of profits of associates and joint
Share of profits of associates and joint
Share of profits of associates and joint
ventures accounted for using equity
ventures accounted for using equity
ventures accounted for using equity
ventures accounted for using equity
ventures accounted for using equity
ventures accounted for using equity
ventures accounted for using equity
ventures accounted for using equity
method
method
method
method
method
method
method
method
Allowance for doubtful receivables over
Allowance for doubtful receivables over
Allowance for doubtful receivables over
Allowance for doubtful receivables over
Allowance for doubtful receivables over
Allowance for doubtful receivables over
Allowance for doubtful receivables over
Allowance for doubtful receivables over
quota
quota
quota
quota
quota
quota
quota
quota
Impairment loss on property, plant and
Impairment loss on property, plant and
Impairment loss on property, plant and
Impairment loss on property, plant and
Impairment loss on property, plant and
Impairment loss on property, plant and
Impairment loss on property, plant and
Impairment loss on property, plant and
equipment
equipment
equipment
equipment
equipment
equipment
equipment
equipment
Deferred revenue
Deferred revenue
Deferred revenue
Deferred revenue
Deferred revenue
Deferred revenue
Deferred revenue
Deferred revenue
Valuation loss on inventory
Valuation loss on inventory
Valuation loss on inventory
Valuation loss on inventory
Valuation loss on inventory
Valuation loss on inventory
Valuation loss on inventory
Valuation loss on inventory
Estimated warranty liabilities
Estimated warranty liabilities
Estimated warranty liabilities
Estimated warranty liabilities
Estimated warranty liabilities
Estimated warranty liabilities
Estimated warranty liabilities
Estimated warranty liabilities
Unrealized foreign exchange loss, net
Unrealized foreign exchange loss, net
Unrealized foreign exchange loss, net
Unrealized foreign exchange loss, net
Unrealized foreign exchange loss, net
Unrealized foreign exchange loss, net
Unrealized foreign exchange loss, net
Unrealized foreign exchange loss, net
Accrued award credits liabilities
Accrued award credits liabilities
Accrued award credits liabilities
Accrued award credits liabilities
Accrued award credits liabilities
Accrued award credits liabilities
Accrued award credits liabilities
Accrued award credits liabilities
Property, plant and equipment
Property, plant and equipment
Property, plant and equipment
Property, plant and equipment
Property, plant and equipment
Property, plant and equipment
Property, plant and equipment
Property, plant and equipment
Others
Others
Others
Others
Others
Others
Others
Others
Loss carryforwards
Loss carryforwards
Loss carryforwards
Loss carryforwards
Loss carryforwards
Loss carryforwards
Loss carryforwards
Loss carryforwards
$
$
$
1,206 $
$
$
$
$
$
$
1,206 $
1,206 $
1,206 $
1,206 $
1,206 $
1,206 $
1,206 $
(179 ) $
(179 ) $
(179 ) $
(179 ) $
(179 ) $
(179 ) $
(179 ) $
(179 ) $
347 $
347 $
347 $
1,374
347 $
347 $
347 $
347 $
347 $
1,374
1,374
1,374
1,374
1,374
1,374
1,374
325
325
325
325
325
325
325
325
5
5
5
5
5
5
5
5
—
—
—
330
—
—
—
—
—
169
169
169
169
169
169
169
169
61
61
61
61
61
61
61
61
—
—
—
230
—
—
—
—
—
330
330
330
330
330
330
330
230
230
230
230
230
230
230
44
136
33
18
18
22
2
40
2,013
48
2,061 $
$
$
$
$
$
$
44
44
44
44
44
44
44
136
136
136
136
136
136
136
33
33
33
33
33
33
33
18
18
18
18
18
18
18
18
18
18
18
18
18
18
22
22
22
22
22
22
22
2
2
2
2
2
2
2
40
40
40
40
40
40
40
2,013
2,013
2,013
2,013
2,013
2,013
2,013
48
48
48
48
48
48
48
2,061 $
2,061 $
2,061 $
2,061 $
2,061 $
2,061 $
2,061 $
78
(19 )
(13 )
1
(18 )
(2 )
—
(6 )
(92 )
6
(86 ) $
78
78
78
78
78
78
78
(19 )
(19 )
(19 )
(19 )
(19 )
(19 )
(19 )
(13 )
(13 )
(13 )
(13 )
(13 )
(13 )
(13 )
1
1
1
1
1
1
1
(18 )
(18 )
(18 )
(18 )
(18 )
(18 )
(18 )
(2 )
(2 )
(2 )
(2 )
(2 )
(2 )
(2 )
—
—
—
—
—
—
—
(6 )
(6 )
(6 )
(6 )
(6 )
(6 )
(6 )
(92 )
(92 )
(92 )
(92 )
(92 )
(92 )
(92 )
6
6
6
6
6
6
6
(86 ) $
(86 ) $
(86 ) $
(86 ) $
(86 ) $
(86 ) $
(86 ) $
—
—
—
—
—
—
—
—
347
—
347 $
122
—
—
—
—
—
—
—
117
—
—
—
—
—
—
—
20
—
—
—
—
—
—
—
19
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
20
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
—
34
—
—
—
—
—
—
2,268
347
347
347
347
347
347
347
54
—
—
—
—
—
—
—
2,322
347 $
347 $
347 $
347 $
347 $
347 $
347 $
122
122
122
122
122
122
122
117
117
117
117
117
117
117
20
20
20
20
20
20
20
19
19
19
19
19
19
19
—
—
—
—
—
—
—
20
20
20
20
20
20
20
2
2
2
2
2
2
2
34
34
34
34
34
34
34
2,268
2,268
2,268
2,268
2,268
2,268
2,268
54
54
54
54
54
54
54
2,322
2,322
2,322
2,322
2,322
2,322
2,322
$
Recognized in
Recognized in
Recognized in
Recognized in
Recognized in
Recognized in
Recognized in
Recognized in
Other
Other
Other
Other
Other
Other
Other
Other
Comprehensive
Comprehensive
Comprehensive
Comprehensive
Comprehensive
Comprehensive
Comprehensive
Comprehensive
December 31,
Recognized in
Recognized in
Recognized in
January 1,
January 1,
Recognized in
January 1,
January 1,
Recognized in
Recognized in
January 1,
Recognized in
January 1,
Recognized in
January 1,
2016
Income
Income
Profit or Loss
Profit or Loss
2016
Profit or Loss
Income
Income
Profit or Loss
2016
2016
Income
2016
Profit or Loss
Income
2016
2016
2016
Profit or Loss
Income
Profit or Loss
Income
Profit or Loss
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
NT$
(In Millions)
(In Millions)
(In Millions)
(In Millions)
(In Millions)
(In Millions)
(In Millions)
(In Millions)
January 1,
2016
NT$
December 31,
December 31,
December 31,
December 31,
December 31,
December 31,
December 31,
2016
2016
2016
2016
2016
2016
2016
NT$
NT$
NT$
NT$
NT$
NT$
NT$
Deferred Income Tax Liabilities
Deferred Income Tax Liabilities
Deferred Income Tax Liabilities
Deferred Income Tax Liabilities
Deferred Income Tax Liabilities
Deferred Income Tax Liabilities
Deferred Income Tax Liabilities
Deferred Income Tax Liabilities
Temporary differences
Temporary differences
Temporary differences
Temporary differences
Temporary differences
Temporary differences
Temporary differences
Temporary differences
Defined benefit obligation
Defined benefit obligation
Defined benefit obligation
Defined benefit obligation
Defined benefit obligation
Defined benefit obligation
Defined benefit obligation
Defined benefit obligation
Land value incremental tax
Land value incremental tax
Land value incremental tax
Land value incremental tax
Land value incremental tax
Land value incremental tax
Land value incremental tax
Land value incremental tax
Intangible assets
Intangible assets
Intangible assets
Intangible assets
Intangible assets
Intangible assets
Intangible assets
Intangible assets
Deferred revenue for award credits
Deferred revenue for award credits
Deferred revenue for award credits
Deferred revenue for award credits
Deferred revenue for award credits
Deferred revenue for award credits
Deferred revenue for award credits
Deferred revenue for award credits
Valuation gain or loss on financial
Valuation gain or loss on financial
Valuation gain or loss on financial
Valuation gain or loss on financial
Valuation gain or loss on financial
Valuation gain or loss on financial
Valuation gain or loss on financial
Valuation gain or loss on financial
instruments, net
instruments, net
instruments, net
instruments, net
instruments, net
instruments, net
instruments, net
instruments, net
Unrealized foreign exchange gain, net
Unrealized foreign exchange gain, net
Unrealized foreign exchange gain, net
Unrealized foreign exchange gain, net
Unrealized foreign exchange gain, net
Unrealized foreign exchange gain, net
Unrealized foreign exchange gain, net
Unrealized foreign exchange gain, net
Others
Others
Others
Others
Others
Others
Others
Others
$
$
$
$
(1 ) $
$
$
$
$
$
(95 )
(43 )
(2 )
(1,268 ) $
(1 ) $
(1 ) $
(1 ) $
(1 ) $
(1 ) $
(1 ) $
(1 ) $
—
(95 )
(95 )
(95 )
(95 )
(95 )
(95 )
(95 )
3
(43 )
(43 )
(43 )
(43 )
(43 )
(43 )
(43 )
(44 )
(2 )
(2 )
(2 )
(2 )
(2 )
(2 )
(2 )
(1,268 ) $
(1,268 ) $
(1,268 ) $
(1,268 ) $
(1,268 ) $
(1,268 ) $
(1,268 ) $
—
—
—
—
—
—
—
3
3
3
3
3
3
3
(44 )
(44 )
(44 )
(44 )
(44 )
(44 )
(44 )
— $
—
—
—
— $
— $
—
—
—
—
—
—
(1,269 )
— $
— $
— $
— $
— $
(95 )
—
—
—
—
—
(40 )
—
—
—
—
—
(46 )
—
—
—
—
—
(1,269 )
(1,269 )
(1,269 )
(1,269 )
(1,269 )
(1,269 )
(1,269 )
(95 )
(95 )
(95 )
(95 )
(95 )
(95 )
(95 )
(40 )
(40 )
(40 )
(40 )
(40 )
(40 )
(40 )
(46 )
(46 )
(46 )
(46 )
(46 )
(46 )
(46 )
—
(5 )
(5 )
(5 )
(5 )
(5 )
(5 )
(5 )
(5 )
(9 )
(1 )
(1 )
(1 )
(1 )
(1 )
(1 )
(1 )
(1 )
—
(1 )
(1 )
(1 )
(1 )
(1 )
(1 )
(1 )
(1 )
(1,318 ) $
(148 ) $
$
$
(148 ) $
$
(148 ) $
(148 ) $
$
(148 ) $
(148 ) $
(148 ) $
$
$
$
(148 ) $
—
—
—
—
—
—
—
(9 )
(9 )
(9 )
(9 )
(9 )
(9 )
(9 )
—
—
—
—
—
—
—
(1,318 ) $
(1,318 ) $
(1,318 ) $
(1,318 ) $
(1,318 ) $
(1,318 ) $
(1,318 ) $
2
—
—
2 $
2
(3 )
2
2
2
2
2
2
(10 )
—
—
—
—
—
—
—
(1 )
—
—
—
—
—
—
—
(1,464 )
2 $
2 $
2 $
2 $
2 $
2 $
2 $
(3 )
(3 )
(3 )
(3 )
(3 )
(3 )
(3 )
(10 )
(10 )
(10 )
(10 )
(10 )
(10 )
(10 )
(1 )
(1 )
(1 )
(1 )
(1 )
(1 )
(1 )
(1,464 )
(1,464 )
(1,464 )
(1,464 )
(1,464 )
(1,464 )
(1,464 )
75
F
For the year ended December 31, 2017
Deferred Income Tax Assets
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
Estimated warranty liabilities
Unrealized foreign exchange loss, net
Accrued award credits liabilities
Trade-in right
Property, plant and equipment
Others
Loss carryforwards
(cid:1)(cid:1)
(cid:1)(cid:1)$
January 1,
2017
NT$
Recognized in
Other
Comprehensive
Income
NT$
Recognized in
Profit or Loss
NT$
(In Millions)
December 31,
2017
NT$
$
1,374 $
5 $
344 $
1,723
330
230
122
117
20
19
—
20
—
2
34
2,268
54
2,322 $
1
59
(10 )
(11 )
3
3
17
(5 )
15
—
(5 )
72
(8 )
64 $
—
—
—
—
—
—
—
—
—
—
—
344
—
344 $
331
289
112
106
23
22
17
15
15
2
29
2,684
46
2,730
Deferred Income Tax Liabilities
Temporary differences
Defined benefit obligation
Land value incremental tax
Intangible assets
Deferred revenue for award credits
Valuation gain or loss on financial
instruments, net
Unrealized foreign exchange gain, net
Others
(cid:1)(cid:1)
January 1,
2017
NT$
Recognized in
Other
Comprehensive
Income
NT$
Recognized in
Profit or Loss
NT$
(In Millions)
December 31,
2017
NT$
(cid:1)(cid:1)(cid:1)(cid:1)
$
(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)
(1,269 ) $
(95 )
(40 )
(46 )
(3 )
(10 )
(1 )
(1,464 ) $
(cid:1)(cid:1)$
(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)
4 $
—
1
17
(1 )
10
—
31 $
(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)
— $
—
—
—
3
—
—
3 $
(cid:1)(cid:1)
(1,265 )
(95 )
(39 )
(29 )
(1 )
—
(1 )
(1,430 )
76
F
e.
Items for which no deferred income tax assets have been recognized
Loss carryforwards
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
Expire in 2027
Deductible temporary differences
f.
Information about unused loss carryforwards
December 31
2016
NT$
2017
NT$
(In Millions)
$
$
$
126 $
138
42
13
1
1
—
14
—
—
335 $
3 $
126
138
42
9
11
—
—
13
—
2
341
2
As of December 31, 2017, unused loss carryforwards was as follows:
Remaining
Creditable Amount
NT$ (In Millions)
Expiry Year
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
126
138
45
20
12
1
4
28
10
3
387 (cid:1)(cid:1)
$
$
g.
The related information under the Integrated Income Tax System was as follows:
Unappropriated earnings information
Chunghwa’s earnings generated prior to June 30, 1988 have been appropriated.
Imputation credit account
Balance of Imputation Credit Account (“ICA”)
December 31
2016
NT$
(In Millions)
$
7,691
77
F
The creditable ratio for distribution of earnings of 2016 was 20.48%. 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 in June 2014.
However, starting from January 1, 2018, the imputation tax system was abolished and imputation credit
account is no longer applicable based on amended ROC Income Tax Act announced in February 2018.
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, HHI, CHSI and CHPT have been examined by the tax authorities
through 2015. Income tax returns of CHI, SFD, SHE, CHYP, LED, CHIEF, Unigate, CLPT, ISPOT,
Youth, Youyi, Aval and CHST have been examined through 2016, and 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.
33. EARNINGS PER SHARE
33. EARNINGS PER SHARE
Net income and weighted average number of common stocks used in the calculation of earnings per
share were as follows:
Net Income
Net Income
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
2017
NT$
Net income used to compute the basic earnings
per share
Net income attributable to the parent
Net income attributable to the parent
Assumed conversion of all dilutive potential
common stocks
Employee stock options, employee bonus and
Employee stock options, employee bonus and
compensation of subsidiaries
compensation of subsidiaries
Net income used to compute the diluted earnings
per share
$ 42,039 $ 40,485 $ 38,988
(1 )
(1 ) (cid:1)
— (cid:1)
$ 42,038 $ 40,484 $ 38,988
Weighted Average Number of Common Stocks
Weighted Average Number of Common Stocks
(Millions Shares)
Year Ended December 31
2016
2017
2015
Weighted average number of common stocks used
to compute the basic earnings per share
Assumed conversion of all dilutive potential
common stocks
Employee bonus or employee compensation
Weighted average number of common stocks used
to compute the diluted earnings per share
Employee bonus or employee compensation
7,757
7,757
7,757
19
12
11
7,776
7,769
7,768
Because Chunghwa may settle the 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
78
F
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.
34. SHARE-BASED PAYMENT ARRANGEMENT
34. SHARE-BASED PAYMENT ARRANGEMENT
a.
SENAO share-based compensation plan (“SENAO Plan”) described as follows:
Effective Date
Grant Date
Stock
Options Units
(In Thousands)
2012.05.28
2013.05.07
10,000
Exercise Price
NT$
$70.70
(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 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.
The compensation costs of stock options granted on May 7, 2013, were $35 million, $13 million and $4
million for the years ended December 31, 2015, 2016 and 2017, respectively.
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 2017, the exercise price changed
from $76.10 to $70.70 per share. The modification did not cause any incremental fair value granted.
Information about SENAO’s outstanding stock options for the years ended December 31, 2015, 2016 and
2017 was as follows:
Employee stock options
Options outstanding at beginning of the year
Options exercised
Options forfeited
Options outstanding at end of the year
Year Ended December 31, 2015
Granted on May 7, 2013
Number of
Options
(In Thousands)
Weighted-
average Exercise
Price
NT$
9,027 $
—
(1,240 )
7,787
84.30
—
—
81.40
Options exercisable at end of the year
4,049
81.40
79
F
Employee stock options
Options outstanding at beginning of the year
Options exercised
Options forfeited
Options outstanding at end of the year
Year Ended December 31, 2016
Granted on May 7, 2013
Number of
Options
(In Thousands)
Weighted-
average Exercise
Price
NT$
7,787 $
—
(1,200 )
6,587
81.40
—
—
76.10
Options exercisable at end of the year
4,947
76.10
Employee stock options
Options outstanding at beginning of the year
Options exercised
Options forfeited
Options outstanding at end of the year
Year Ended December 31, 2017
Granted on May 7, 2013
Weighted-
average Exercise
Price
Number of
Options
(In
Thousands)
NT$
6,587 $
—
(661 )
5,926
76.10
—
—
70.70
Options exercisable at end of the year
5,926
70.70
As of December 31, 2016 information about employee stock options outstanding was as follows:
Range of Exercise
Price
NT$
$
76.10
Options Outstanding
Options Exercisable
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$
6,587
2.35
$
76.10
4,947
$
76.10
As of December 31, 2017 information about employee stock options outstanding 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$
$
70.70
5,926
1.35
$
70.70
5,926
$
70.70
80
F
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.
SENAO transferred the treasury stock
The Board of Directors of SENAO resolved to transfer treasury stock to specific employees in May and
November 2017. The aforementioned treasury stock transferred to employees were measured at the fair
value of the grant date. SENAO totally transfered 3,342 thousand shares of treasury stock and the
compensation cost of $9 million was recognized for the year ended December 31, 2017.
SENAO used the fair value method to evaluate share-based payment transaction using the Black-
Scholes model and the related assumptions and the fair value of the option were as follows:
Grant-date share price (NT$)
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 23 , 2017
Stock Options
Granted on
November 17 ,
2017
$
$
$
53.60 $
49.28 $
—
0.59 %
9 days
12.35 %
4.33 $
51.00
49.28
—
0.59 %
14 days
9.94 %
1.75
Expected volatility was based on the historical share price volatility of SENAO over three months
before the grant date.
c.
CHIEF share-based compensation plan (“CHIEF Plan”) described as follows:
Effective Date
Grant Date
Stock Options
Units
2015.10.22
2015.10.22
2017.12.18
2017.12.19
2,000
950
Exercise Price
NT$
$34.40
(Original
price$43.00)
147.00
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 $147.00 and $43.00,
respectively. 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
81
F
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.
The compensation costs recognized for stock options granted on October 22, 2015 were $1 million, $4
million and $3 million for the years ended December 31, 2015, 2016 and 2017, respectively.
The compensation cost recognized for stock options granted on December 19, 2017 was $0.1 million for
the year ended December 31, 2017.
CHIEF modified the plan terms of the outstanding stock options in July 2016, the exercise price
changed from $43.00 to $34.40 per share. The modification did not cause any incremental fair value
granted.
Information about CHIEF’s outstanding stock options for the years ended December 31, 2015, 2016 and
2017 was as follows:
Employee stock options
Options outstanding at beginning of the year
Options granted
Options forfeited
Options outstanding at end of the year
For the year ended December 31
2015
2016
Granted on October 22, 2015 Granted on October 22, 2015
Weighted
Average
Exercise
Price
(NT$)
Number of
Options
Number of
Options
Weighted
Average
Exercise
Price
(NT$)
— $
2,000
—
2,000
—
43.00
—
43.00
2,000 $
—
(52 )
1,948
43.00
—
—
34.40
Option exercisable at end of the year
—
—
—
—
For the year ended December 31
2017
Granted on October 22, 2015
Granted on December 19,
2017
Weighted
Average
Exercise
Price
(NT$)
Number of
Options
Weighted
Average
Exercise
Price
(NT$)
Number of
Options
1,948 $
—
(12 )
1,936
34.40
—
—
34.40
— $
950
—
950
—
147.00
—
147.00
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
968
34.40
—
—
82
F
As of December 31, 2016, information about employee stock options outstanding was as follows:
Options Outstanding
Options Exercisable
Granted on October 22, 2015
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
—
$
—
As of December 31, 2017, information about employee stock options outstanding was as follows:
Options Outstanding
Options Exercisable
Granted on October 22, 2015
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
1,936
2.81
$
34.40
968
$
34.40
Options Outstanding
Options Exercisable
Granted on December 19, 2017
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$
$
147.00
950
4.96
$
147.00
—
$
—
CHIEF used the fair value method to evaluate the options using the Black-Scholes model and 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
Stock Options
Granted on
December 19,
2017
$
$
$
39.55 $
43.00 $
—
0.86 %
5 years
21.02 %
4,863 $
95.92
147.00
—
0.62 %
5 years
17.35 %
2,318
Expected volatility was based on the average annualized historical share price volatility of CHIEF’s
comparable companies before the grant date.
d. New shares reserved for subscription by employees under cash injection of CHPT
1) Capital Increase in March 2016
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.
83
F
The aforementioned options granted to employees are accounted for and measured at fair value. The
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.
2) Capital Increase in September 2017
On February 8, 2017, the Board of Directors of CHPT approved the cash injection to issue 2,000
thousand shares and simultaneously reserved 300 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. The
compensation cost was $6 million for the year ended December 31, 2017.
CHPT used the fair value method to evaluate the options granted to employees on September 18,
2017 using the Black-Scholes model and the related assumptions and the fair value of the options
were as follows:
Stock Options
Granted on
September 18,
2017
Grant-date share price (NT$)
Exercise price (NT$)
Dividends yield
Risk-free interest rate
Expected life
Expected volatility
Weighted average fair value of grants (NT$)
$
$
$
1,295.00
1,267.33
—
0.35 %
4 days
28.30 %
31.60
Expected volatility was based on the historical share price volatility of CHPT over the period equal
to the expected life.
35. NON-CASH TRANSACTIONS
35. NON-CASH TRANSACTIONS
84
F
For the years ended December 31, 2015, 2016 and 2017, the Company entered into the following non-cash
investing activities:
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
$ 24,451 $ 24,591 $ 26,069
806
$ 25,084 $ 23,517 $ 26,875
(1,074 )
2017
NT$
633
Increase in property, plant and equipment
Other payables
36. OPERATING LEASE ARRANGEMENTS
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
2016
NT$
2017
NT$
(In Millions)
$
$
2,811 $
5,450
960
9,221 $
2,918
5,796
779
9,493
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
2016
NT$
2017
NT$
(In Millions)
427 $
600
321
1,348 $
353
659
243
1,255
$
$
37. CAPITAL MANAGEMENT
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.
85
F
According to the management’s suggestion, the Company maintains a balanced capital structure through paying
cash dividends, increasing its share capital, purchasing outstanding shares, and proceeds from new debt or
repayment of debt.
38. FINANCIAL INSTRUMENTS
38. FINANCIAL INSTRUMENTS
Categories of Financial Instruments
Categories of Financial Instruments
Financial assets
Measured at FVTPL
Held for trading
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
2016
NT$
2017
NT$
(In Millions)
$
— $
2,140
70,040
4,764
—
—
68,983
5,751
1
1
40,553
1
1
39,725
Note a:
The balances included cash and cash equivalents, trade notes and accounts receivable, receivables
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.
Financial Risk Management Objectives
Financial Risk Management Objectives
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.
86
F
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
2016
NT$
2017
NT$
(In Millions)
5,327 $
14
106
30
13
4,238
968
1
—
10
5,584
28
63
3
36
4,964
1,323
96
—
12
The carrying amounts of the Company’s derivatives with exchange rate risk exposures at the
balance sheet dates were as follows:
Assets
USD
Liabilities
USD
EUR
December 31
2016
NT$
2017
NT$
(In Millions)
$
— $
—
2
—
—
1
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
87
F
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
Liabilities
USD
EUR
SGD
RMB
JPY
USD
EUR
SGD
RMB
JPY
Assets
USD
Liabilities
USD
EUR
December 31
2016
NT$
2017
NT$
(In Millions)
$
5,327 $
5,584
14
106
30
13
1
—
10
4,238
968
4,964
1,323
28
63
3
36
96
—
12
—
—
1
December 31
2016
NT$
2017
NT$
(In Millions)
$
— $
—
2
The carrying amounts of the Company’s derivatives with exchange rate risk exposures at the
balance sheet dates were as follows:
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.
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
2017
NT$
Profit or loss
Monetary assets and liabilities (a)
USD
EUR
SGD
RMB
JPY
Derivatives (b)
USD
EUR
Equity
Derivatives (c)
EUR
$
21 $
(62 )
5
2
12
1
33
54 $
(48 )
5
1
—
3
8
15
5
31
(65 )
(2 )
—
1
6
3
7
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.
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
Cash flow interest rate risk
Financial assets
Financial liabilities
Interest rate sensitivity analysis
December 31
2016
NT$
2017
NT$
(In Millions)
$
28,303 $
25,911
6,582
1,738
6,715
1,670
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.
88
F
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 $12 million, $12 million and $13
million for the years ended December 31, 2015, 2016 and 2017, 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
investment 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 $162 million, $126 million and $156 million as a result of the
changes in fair value of available-for-sale assets for the years ended December 31, 2015, 2016 and
2017, respectively.
b.
Credit risk
Credit risk refers to the risk that a counterparty would default on its contractual obligations resulting in
financial loss to the Company. The maximum credit exposure of the aforementioned financial
instruments is equal to their carrying amounts recognized in consolidated balance sheet as of the balance
sheet date.
The Company has large trade receivables outstanding with its customers. A substantial majority of the
Company’s outstanding trade receivables are not covered by collateral or credit insurance. The
Company has implemented ongoing measures including enhancing credit assessments and strengthening
overall risk management to reduce its credit risk. While the Company has procedures to monitor and
limit exposure to credit risk on trade receivables, there can be no assurance such procedures will
effectively limit its credit risk and avoid losses. This risk is heightened during periods when economic
conditions worsen.
As the Company serves a large number of unrelated consumers, the concentration of credit risk was
limited.
c.
Liquidity risk
The Company manages and maintains sufficient cash and cash equivalent position to support the
operations and reduce the impact on fluctuation of cash flow.
1)
Liquidity and interest risk tables
89
F
The following tables detailed the Company’s remaining contractual maturity for its non-derivative
financial liabilities with agreed repayment periods. The tables had been drawn up based on the
undiscounted cash flows of financial liabilities based on the earliest date on which the Company is
required to pay.
Weighted
Average
Effective
Interest
Rate (%)
Less Than
1 Month
NT$
1-3
Months
NT$
3 Months
to 1 Year 1-5 Years
NT$
NT$
(In Millions)
More than
5 Year
NT$
Total
NT$
—
1.00
$ 43,975 $
—
$ 43,975 $
— $
38
38 $
2,015 $
100
2,115 $
4,610 $
1,600
6,210 $
— $ 50,600
—
1,738
— $ 52,338
—
0.97
(cid:1)(cid:1)(cid:1)(cid:1)
(cid:1)(cid:1)
$ 41,884 $
50
(cid:1)(cid:1)(cid:1)(cid:1)$ 41,934 $
— $
—
— $
3,197 $
20
3,217 $
4,671 $
1,600
6,271 $
— $ 49,752
1,670
—
— $ 51,422
December 31, 2016
Non-derivative financial liabilities
Non-interest bearing
Floating interest rate instruments
December 31, 2017
Non-derivative financial liabilities
Non-interest bearing
Floating interest rate instruments
(cid:1)(cid:1)
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 1-3 Months
NT$
NT$
3 Months to
1 Year
NT$
(In Millions)
1-5 Years
NT$
Total
NT$
December 31, 2016
Gross settled
Forward exchange contracts
Inflows
Outflows
December 31, 2017
Gross settled
Forward exchange contracts
Inflows
Outflows
$
$
$
$
55 $
55
— $
267 $
269
(2 ) $
— $
—
— $
— $
—
— $
322
324
(2 )
125 $
126
(1 ) $
173 $
174
(1 ) $
36 $
36
— $
— $
—
— $
334
336
(2 )
90
F
2)
Financing facilities
Unsecured bank loan facility
Amount used
Amount unused
Secured bank loan facility
Amount used
Amount unused
39. FAIR VALUE INFORMATION
39. FAIR VALUE INFORMATION
December 31
2016
NT$
2017
NT$
(In Millions)
$
$
$
$
118 $
46,219
46,337 $
90
45,749
45,839
1,620 $
200
1,820 $
1,600
1,910
3,510
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 (unadjusted) 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).
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
financial assets and liabilities not measured at fair value approximate their fair values or the fair values
cannot be reliable estimated:
December 31, 2016
Held-to-maturity financial assets
Corporate bonds
Bank debentures
Carrying
Amount
Level 1
Level 2
Level 3
Fair Value
$
$
1,990 $
150
2,140 $
— $
—
— $
1,996 $
150
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.
91
F
b.
Financial instruments that are measured at fair value on a recurring basis
December 31, 2016
Financial assets at FVTPL
Derivative
Available-for-sale financial assets
Listed securities
Equity investments
Financial liabilities at FVTPL
Derivative
Hedging derivative financial liabilities
December 31, 2017
Available-for-sale financial assets
Listed securities
Equity investments
Financial liabilities at FVTPL
Derivative
Hedging derivative financial liabilities
Level 1
Level 2
Level 3
Total
$
— $
— $
— $
—
$
2,521 $
— $
— $
2,521
$
$
— $
— $
1 $
1 $
— $
— $
1
1
Level 1
Level 2
Level 3
Total
$
3,125 $
— $
— $
3,125
$
$
— $
— $
1 $
1 $
— $
— $
1
1
There were no transfers between Levels 1 and 2 for the years ended December 31, 2016 and 2017. 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)
2)
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.
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.
40. RELATED PARTIES 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.
92
F
a.
a.
a.
The Company engages in business transactions with the following related parties:
The Company engages in business transactions with the following related parties:
The Company engages in business transactions with the following related parties:
Relationship
Relationship
Company
Taiwan International Standard Electronics Co., Ltd.
Company
Company
Taiwan International Standard Electronics Co., Ltd.
Taiwan International Standard Electronics Co., Ltd.
So-net Entertainment Taiwan Limited
So-net Entertainment Taiwan Limited
So-net Entertainment Taiwan Limited
Skysoft Co., Ltd.
Skysoft Co., Ltd.
Skysoft Co., Ltd.
KingwayTek Technology Co., Ltd.
KingwayTek Technology Co., Ltd.
KingwayTek Technology Co., Ltd.
Dian Zuan Integrating Marketing Co., Ltd.
Dian Zuan Integrating Marketing Co., Ltd.
Dian Zuan Integrating Marketing Co., Ltd.
Taiwan International Ports Logistics Corporation
Taiwan International Ports Logistics Corporation
Taiwan International Ports Logistics Corporation
Huada Digital Corporation
Chunghwa Benefit One Co., Ltd.
Huada Digital Corporation
Huada Digital Corporation
Chunghwa Benefit One Co., Ltd.
Chunghwa Benefit One Co., Ltd.
International Integrated System, Inc.
International Integrated System, Inc.
International Integrated System, Inc.
Senao Networks, Inc.
Senao Networks, Inc.
Senao Networks, Inc.
EnGenius Tech. Co., Ltd.
EnGenius Tech. Co., Ltd.
EnGenius Tech. Co., Ltd.
HopeTech Technologies Limited
HopeTech Technologies Limited
HopeTech Technologies Limited
ST-2 Satellite Ventures Pte., Ltd.
ST-2 Satellite Ventures Pte., Ltd.
ST-2 Satellite Ventures Pte., Ltd.
Viettel-CHT Co., Ltd.
Viettel-CHT Co., Ltd.
Viettel-CHT Co., Ltd.
Click Force Co., Ltd.
Click Force Co., Ltd.
Click Force Co., Ltd.
Other related parties
Other related parties
Other related parties
Chunghwa Telecom Foundation
Chunghwa Telecom Foundation
Chunghwa Telecom Foundation
Senao Technical and Cultural Foundation
Senao Technical and Cultural Foundation
Sochamp Technology Co., Ltd.
Sochamp Technology Co., Ltd.
E-Life Mall Co., Ltd.
E-Life Mall Co., Ltd.
Engenius Technologies Co., Ltd.
Engenius Technologies Co., Ltd.
United Daily News Co., Ltd.
United Daily News Co., Ltd.
Shenzhen Century Communication Co., Ltd.
Shenzhen Century Communication Co., Ltd.
United Daily News Co., Ltd.
Shenzhen Century Communication Co., Ltd.
Sochamp Technology Co., Ltd.
E-Life Mall Co., Ltd.
Senao Technical and Cultural Foundation
Engenius Technologies Co., Ltd.
Relationship
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Joint venture
Joint venture
Joint venture
Joint venture
Joint venture
Joint venture
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
A nonprofit organization of which the funds donated by
A nonprofit organization of which the funds donated by
A nonprofit organization of which the funds donated by
Chunghwa exceeds one third of its total funds
Chunghwa exceeds one third of its total funds
Chunghwa exceeds one third of its total funds
A nonprofit organization of which the funds donated by
A nonprofit organization of which the funds donated by
A nonprofit organization of which the funds donated by
SENAO exceeds one third of its total funds
SENAO exceeds one third of its total funds
SENAO exceeds one third of its total funds
Investor of significant influence over CHST
Investor of significant influence over CHST
Investor of significant influence over CHST
One of the directors of E-Life Mall and a director of
One of the directors of E-Life Mall and a director of
One of the directors of E-Life Mall and a director of
SENAO are members of an immediate family
SENAO are members of an immediate family
SENAO are members of an immediate family
Chairman of Engenius Technologies Co., Ltd. is a
Chairman of Engenius Technologies Co., Ltd. is a
Chairman of Engenius Technologies Co., Ltd. is a
member of SENAO’s management
member of SENAO’s management
member of SENAO’s management
Investor of significant influence over SFD
Investor of significant influence over SFD
Investor of significant influence over SFD
Investor of significant influence over SCT
Investor of significant influence over SCT
Investor of significant influence over SCT
b.
b.
b.
Balances and transactions between Chunghwa and its subsidiaries, which are related parties of
Balances and transactions between Chunghwa and its subsidiaries, which are related parties of
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
Chunghwa, have been eliminated on consolidation and are not disclosed in this note. Terms of the
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-
foregoing transactions with related parties were not significantly different from transactions with non-
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
related parties. When no similar transactions with non-related parties can be referenced, terms were
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
determined in accordance with mutual agreements. Details of transactions between the Company and
determined in accordance with mutual agreements. Details of transactions between the Company and
other related parties are disclosed below:
other related parties are disclosed below:
other related parties are disclosed below:
1) Operating transactions
1) Operating transactions
1) Operating transactions
Associates
Associates
Associates
Joint ventures
Joint ventures
Joint ventures
Others
Others
Others
$
$
$
$
$
$
2015
NT$
2015
NT$
2017
NT$
2017
NT$
Revenues
Year Ended December 31
Revenues
Revenues
2016
Year Ended December 31
Year Ended December 31
NT$
2016
2016
(In Millions)
NT$
NT$
(In Millions)
292 $
(In Millions)
292 $
292 $
7
7
7
49
49
49
348 $
348 $
2015
NT$
333 $
333 $
333 $
9
9
9
81
81
81
423 $
423 $
423 $
348 $
2017
NT$
344
344
344
1
1
1
65
65
65
410
410
410
93
F
Operating Costs and Expenses
Year Ended December 31
2016
NT$
(In Millions)
2017
NT$
2015
NT$
Associates
Joint ventures
Others
2) Non-operating transactions
$
$
1,451 $
17
62
1,530 $
1,405 $
17
74
1,496 $
1,197
2
71
1,270
2015
NT$
Non-operating Income and Expenses
Year Ended December 31
2016
NT$
(In Millions)
37 $
—
37 $
36 $
—
36 $
2017
NT$
32
—
32
December 31
2016
NT$
2017
NT$
(In Millions)
9 $
—
5
14 $
43
—
6
49
December 31
2016
NT$
2017
NT$
(In Millions)
757 $
1
4
762 $
680
—
4
684
December 31
2016
NT$
2017
NT$
(In Millions)
10 $
1
11 $
6
—
6
$
$
$
$
$
$
$
$
Associates
Others
3)
Receivables
Associates
Joint ventures
Others
4)
Payables
Associates
Joint ventures
Others
5)
Customers’ deposits
Associates
Joint ventures
94
F
6) Acquisition of property, plant and equipment
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
2017
NT$
Associates
Joint ventures
7)
Prepayments
$
$
314 $
11
325 $
313 $
7
320 $
390
—
390
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, 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 total rental expense
for the year ended December 31, 2017 was $392 million, which consisted of an offsetting credit of
the prepayment of $204 million and an additional accrual of $188 million. The prepaid rents
(classified as prepayments) as of December 31, 2016 and 2017, were as follows:
Prepaid rents - current
Prepaid rents - noncurrent
December 31
2016
NT$
2017
NT$
(In Millions)
204 $
1,755
1,959 $
204
1,551
1,755
$
$
c.
Compensation of key management personnel
The compensation of directors and other key management personnel for the years ended December 31,
2015, 2016 and 2017 were as follows:
Short-term employee benefits
Post-employment benefits
Share-based payment
$
$
2017
NT$
2015
NT$
Year Ended December 31
2016
NT$
(In Millions)
251 $
8
2
261 $
212 $
9
3
224 $
254
9
2
265
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 materials.
Property, plant and equipment
Land held under development (included in
inventories)
Restricted assets (included in other assets - others)
December 31
2016
NT$
2017
NT$
(In Millions)
$
2,580 $
2,550
1,999
21
4,600 $
1,999
3
4,552
$
42. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS
42. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS
The Company’s significant contingent liabilities and recognized commitments, excluding those disclosed in
other notes, were as follows:
a.
Acquisitions of land and buildings of $118 million as of December 31, 2017.
b. Acquisitions of telecommunications equipment of $16,199 million as of December 31, 2017.
c.
Unused letters of credit amounting to $50 million as of December 31, 2017.
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.
e. CHPT signed the contract for its headquarters construction amounted to $1,614 million in July 2017.
The payment of $98 million has been made as of March 31, 2018.
43. SEGMENT INFORMATION
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.
d.
e.
Internet business - the provision of HiNet services and related services;
International fixed communications business - the provision of international long distance telephone
services and related services;
Others - the provision of non-telecom services and the corporate related items not allocated to reportable
segments.
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 are similar; and (e) the methods used to provide the services to the
customers are similar.
96
F
There was no material differences between the accounting policies of the operating segments and the accounting
policies described in Note 3.
a.
Segment revenues and operating results
Analysis by reportable segment of revenue and operating results of continuing operations was as
follows:
Domestic
Fixed
Communi-
cations
Business
Mobile
Communi-
cations
Business
Internet
Business
NT$
NT$
NT$
International
Fixed
Communi-
cations
Business
NT$
Others
NT$
Total
NT$
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
Year ended December 31, 2017
Revenues
From external customers
Intersegment revenues
Segment revenues
Intersegment elimination
Consolidated revenues
Segment income before income tax
(In Millions)
$ 72,535 $ 114,877 $ 25,777 $
21,401
3,475 4,701
$ 93,936 $ 118,352 $ 30,478 $
$ 23,231 $ 19,394 $ 9,918 $
15,460 $ 3,146 $ 231,795
2,120 3,214 34,911
17,580 $ 6,360 266,706
(34,911 )
$ 231,795
1,120 $ (1,710 ) $ 51,953
$ 72,784 $ 110,801 $ 28,100 $
22,669
2,530 4,734
$ 95,453 $ 113,331 $ 32,834 $
$ 25,658 $ 13,926 $ 10,729 $
14,434 $ 3,872 $ 229,991
2,680 4,122 36,735
17,114 $ 7,994 266,726
(36,735 )
$ 229,991
1,098 $ (1,998 ) $ 49,413
$ 71,137 $ 109,376 $ 28,917 $
22,515
2,031 4,209
$ 93,652 $ 111,407 $ 33,126 $
$ 24,888 $ 12,433 $ 11,118 $
13,552 $ 4,532 $ 227,514
2,375 4,600 35,730
15,927 $ 9,132 263,244
(35,730 )
$ 227,514
1,029 $ (1,459 ) $ 48,009
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:
97
F
For the year ended December 31, 2015
Domestic
Fixed
Communi-
cations
Business
Mobile
Communi-
cations
Business
International
Fixed
Communi-
cations
Business
Internet
Business
Others
Total
NT$
NT$
NT$
NT$
NT$
NT$
(In Millions)
— $
19 $
— $
Share of the profit of associates and joint
— $ — $
ventures accounted for using equity method $
19 $
11 $
$
Interest income
$
Interest expenses
10 $ — $
$ 64,960 $ 81,213 $ 12,062 $
Operating costs and expenses
$ 17,487 $ 10,444 $ 3,611 $
Depreciation and amortization
Capital expenditure
$ 10,196 $ 8,596 $ 4,795 $
Impairment loss on property, plant and
equipment
Reversal of impairment loss on investment
properties
116 $ — $
— $ — $
142 $
22 $
$
$
— $
2 $
— $
897 $
255 $
23 $
897
306
33
14,411 $ 8,683 $ 181,329
370 $ 33,448
1,536 $
529 $ 25,084
968 $
— $ — $
138
— $ — $
142
For the year ended December 31, 2016
Domestic
Fixed
Communi-
cations
Business
Mobile
Communi-
cations
Business
International
Fixed
Communi-
cations
Business
Internet
Business
Others
Total
NT$
NT$
NT$
NT$
NT$
NT$
(In Millions)
— $
15 $
— $
Share of the profit of associates and joint
— $ — $
ventures accounted for using equity method $
7 $
11 $
$
Interest income
$
Interest expenses
2 $ — $
$ 64,230 $ 79,593 $ 13,160 $
Operating costs and expenses
$ 16,414 $ 10,620 $ 3,626 $
Depreciation and amortization
Capital expenditure
$ 9,846 $ 8,981 $ 2,718 $
Impairment loss on property, plant and
equipment
Reversal of impairment loss on investment
properties
596 $ — $
— $ — $
148 $
— $
$
$
— $
6 $
— $
515 $
150 $
18 $
515
189
20
14,313 $ 10,094 $ 181,390
374 $ 32,485
836 $ 23,517
1,451 $
1,136 $
— $ — $
596
— $ — $
148
98
F
For the year ended December 31, 2017
For the year ended December 31, 2017
For the year ended December 31, 2017
Domestic
Domestic
Fixed
Domestic
Fixed
Communi-
Fixed
Communi-
cations
Communi-
cations
Business
cations
Business
Business
NT$
NT$
NT$
Mobile
Mobile
Communi-
Mobile
Communi-
cations
Communi-
cations
Business
cations
Business
Business
NT$
NT$
NT$
International
International
Fixed
International
Fixed
Communi-
Fixed
Communi-
cations
Communi-
cations
Business
cations
Business
NT$
Business
NT$
NT$
Internet
Internet
Business
Internet
Business
Business
NT$
NT$
NT$
(In Millions)
(In Millions)
(In Millions)
— $
— $
21 $
— $
21 $
21 $
— $
— $
— $
Share of the profit of associates and joint
Share of the profit of associates and joint
— $ — $
ventures accounted for using equity method $
Share of the profit of associates and joint
— $ — $
ventures accounted for using equity method $
9 $
15 $
$
Interest income
— $ — $
ventures accounted for using equity method $
9 $
15 $
$
Interest income
$
Interest income
15 $
9 $
6 $ — $
$
Interest expenses
6 $ — $
$
Interest expenses
$ 62,795 $ 80,275 $ 13,288 $
Operating costs and expenses
$
Interest expenses
6 $ — $
$ 62,795 $ 80,275 $ 13,288 $
Operating costs and expenses
$ 15,614 $ 11,001 $ 3,385 $
Depreciation and amortization
$ 62,795 $ 80,275 $ 13,288 $
Operating costs and expenses
$ 15,614 $ 11,001 $ 3,385 $
Depreciation and amortization
Depreciation and amortization
$ 15,614 $ 11,001 $ 3,385 $
$ 11,647 $ 9,742 $ 2,779 $
Capital expenditure
$ 11,647 $ 9,742 $ 2,779 $
Capital expenditure
Impairment loss on property, plant and
$ 11,647 $ 9,742 $ 2,779 $
Capital expenditure
Impairment loss on property, plant and
— $ — $
$
equipment
Impairment loss on property, plant and
— $ — $
$
equipment
— $ — $
$
equipment
Reversal of impairment loss on investment
Reversal of impairment loss on investment
— $ — $
$
properties
Reversal of impairment loss on investment
— $ — $
$
properties
— $ — $
$
properties
c. Main products and service revenues
c. Main products and service revenues
c. Main products and service revenues
— $
— $
— $
11 $
11 $
11 $
Others
Others
NT$
Others
NT$
NT$
Total
Total
NT$
Total
NT$
NT$
419
419 $
— $
419
419 $
— $
205
145 $
15 $
419
419 $
— $
205
145 $
15 $
205
145 $
15 $
22
16 $
— $
22
16 $
— $
13,385 $ 10,963 $ 180,706
16 $
— $
22
13,385 $ 10,963 $ 180,706
453 $ 31,930
1,477 $
13,385 $ 10,963 $ 180,706
453 $ 31,930
1,477 $
1,477 $
453 $ 31,930
1,580 $ 1,127 $ 26,875
1,580 $ 1,127 $ 26,875
1,580 $ 1,127 $ 26,875
—
—
—
11
11
11
— $ — $
— $ — $
— $ — $
— $ — $
— $ — $
— $ — $
The following is an analysis of the Company’s revenue from its major products and services.
The following is an analysis of the Company’s revenue from its major products and services.
The following is an analysis of the Company’s revenue from its major products and services.
Mobile services revenue
Mobile services revenue
Local telephone and domestic long distance
Mobile services revenue
Local telephone and domestic long distance
telephone
Local telephone and domestic long distance
Local telephone and domestic long distance
telephone
services revenue
telephone
telephone services revenue
services revenue
Sales of product
services revenue
Sales of product
Broadband access and domestic leased line services
Sales of product
Broadband access and domestic leased line services
revenue
Broadband access and domestic leased line services
revenue
Data communications internet services revenue
revenue
Data communications internet services revenue
International network and leased telephone services
Data communications internet services revenue
International network and leased telephone services
revenue
International network and leased telephone services
revenue
Others
revenue
Others
Others
2015
2015
NT$
2015
NT$
NT$
Year Ended December 31
Year Ended December 31
2016
Year Ended December 31
2016
NT$
2016
NT$
(In Millions)
NT$
(In Millions)
$ 80,867 $ 78,788 $ 75,823
(In Millions)
$ 80,867 $ 78,788 $ 75,823
$ 80,867 $ 78,788 $ 75,823
2017
2017
NT$
2017
NT$
NT$
36,690
36,690
36,509
36,690
36,509
36,509
23,711
23,711
17,455
23,711
17,455
17,455
11,319
11,319
25,244
11,319
25,244
25,244
32,247
32,247
37,649
32,247
37,649
37,649
22,950
22,950
21,143
22,950
21,143
21,143
9,328
9,328
28,374
9,328
28,374
$ 231,795 $ 229,991 $ 227,514
28,374
$ 231,795 $ 229,991 $ 227,514
$ 231,795 $ 229,991 $ 227,514
34,531
34,531
35,377
34,531
35,377
35,377
23,315
23,315
20,906
23,315
20,906
20,906
10,634
10,634
26,440
10,634
26,440
26,440
d. Geographic information
d. Geographic information
d. Geographic information
The users of the Company’s services are mainly from Taiwan, ROC. The revenues it derived outside
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
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 are mainly revenues from international long distance telephone and leased line services. The
geographic information for revenues was as follows:
geographic information for revenues was as follows:
Taiwan, ROC
Taiwan, ROC
Overseas
Taiwan, ROC
Overseas
Overseas
2015
2015
NT$
2015
NT$
NT$
Year Ended December 31
Year Ended December 31
2016
Year Ended December 31
2016
NT$
2016
NT$
(In Millions)
NT$
(In Millions)
$ 220,917 $ 218,933 $ 217,568
(In Millions)
$ 220,917 $ 218,933 $ 217,568
9,946
$ 220,917 $ 218,933 $ 217,568
9,946
$ 231,795 $ 229,991 $ 227,514
9,946
$ 231,795 $ 229,991 $ 227,514
$ 231,795 $ 229,991 $ 227,514
11,058
11,058
11,058
10,878
10,878
10,878
2017
2017
NT$
2017
NT$
NT$
99
F
The Company has long-lived assets in U.S., Singapore, Hong Kong, China, Vietnam, Japan, and
Thailand and except for $3,947 million and $4,445 million as of December 31, 2016 and 2017,
respectively, in the aforementioned areas, the other long-lived assets are located in Taiwan, ROC.
e. Major customers
For the years ended December 31, 2015, 2016 and 2017, the Company did not have any single customer
whose revenue exceeded 10% of the total revenues.
100
F
LIST OF SUBSIDIARIES
LIST OF SUBSIDIARIES
(as of March 31, 2018)
Exhibit 8.1
NAME OF ENTITY
JURISDICTION OF INCORPORATION
CHIEF Telecom Inc.
CHYP Multimedia Marketing & Communications Co., Ltd.
Taiwan, ROC
Taiwan, ROC
(formerly known as Chunghwa International Yellow Pages
Co., Ltd.)
Chunghwa Investment Co., Ltd.
Chunghwa Precision Test Tech. Co., Ltd.
Chunghwa System Integration Co., Ltd.
Light Era Development Co., Ltd.
Senao International Co., Ltd.
Spring House Entertainment Tech. Inc.
Unigate Telecom Inc.
Honghwa International Co., Ltd.
Prime Asia Investments Group Ltd.
Donghwa Telecom Co., Ltd.
Senao International HK Limited
Chunghwa Hsingta Co., Ltd.
Chunghwa Telecom Japan Co., Ltd.
CHPT Japan Co., Ltd.
Chief International Corp.
Senao International (Samoa) Holding Ltd.
Chunghwa Precision Test Tech. International, Ltd.
Chunghwa Telecom (China), Co., Ltd.
Chunghwa Telecom Singapore Pte., Ltd.
Chunghwa Telecom Global, Inc.
Chunghwa Precision Test Tech USA Corporation
Chunghwa Telecom Vietnam Co., Ltd.
Chunghwa Sochamp Technology Inc.
Smartfun Digital Co., Ltd.
Senao Trading (Fujian) Co., Ltd.
Senao International Trading (Shanghai) Co., Ltd.
Senao International Trading (Jiangsu) Co., Ltd.
Jiangsu Zhenhua Information Technology Company, LLC.
Shanghai Taihua Electronic Technology Limited
Youth Co., Ltd.
Aval Technologies Co., Ltd.
ISPOT Co., Ltd.
Youyi Co., Ltd.
Shanghai Chief Telecom Co., Ltd.
Chunghwa Leading Photonics Tech Co., Ltd.
Chunghwa Telecom (Thailand) Co., Ltd.
CHT Security Co., Ltd.
SENYOUNG Insurance Agent Co., Ltd.
Taoyuan Asia Silicon Valley Innovation Co., Ltd.
Taiwan, ROC
Taiwan, ROC
Taiwan, ROC
Taiwan, ROC
Taiwan, ROC
Taiwan, ROC
Taiwan, ROC
Taiwan, ROC
British Virgin Islands
Hong Kong
Hong Kong
Hong Kong
Japan
Japan
Samoa Islands
Samoa Islands
Samoa Islands
People’s Republic of China
Singapore
United States of America
United States of America
Vietnam
Taiwan, ROC
Taiwan, ROC
People’s Republic of China
People’s Republic of China
People’s Republic of China
People’s Republic of China
People’s Republic of China
Taiwan, R.O.C.
Taiwan, R.O.C.
Taiwan, R.O.C.
Taiwan, R.O.C.
People’s Republic of China
Taiwan, R.O.C.
Thailand
Taiwan, R.O.C.
Taiwan, R.O.C.
Taiwan, R.O.C.
Exhibit 12.1
Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Yu Cheng, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Chunghwa Telecom Co., Ltd.;
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;
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;
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):
(e) All significant deficiencies and material weaknesses in the design or operation of internal control over
(a)
financial reporting which are reasonably likely to adversely affect the company’s ability to record,
process, summarize and report financial information; and
(b)
(f) 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 27, 2018
By:
/s/ YU CHENG
Name: Yu Cheng
Title: Chairman and Chief Executive Officer
Exhibit 12.2
Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Shui-Yi Kuo, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Chunghwa Telecom Co., Ltd.;
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;
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;
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 27, 2018
By:
/s/ SHUI-YI KUO
Name: Shui-Yi Kuo
Title: Chief Financial Officer
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
Exhibit 13.1
In connection with the Annual Report on Form 20-F of Chunghwa Telecom Co., Ltd. (the “Company”) for the
year ended December 31, 2017 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 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 27, 2018
By:
/s/ YU CHENG
Name: Yu Cheng
Title: Chairman and Chief Executive Officer
Certification by the Chief Financial Officer
Certification by the Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 13.2
In connection with the Annual Report on Form 20-F of Chunghwa Telecom Co., Ltd. (the “Company”) for the
year ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Shui-Yi Kuo, 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 27, 2018
By:
/s/ SHUI-YI KUO
Name: Shui-Yi Kuo
Title: Chief Financial Officer
Chairman and CEO
Yu Cheng
President
Chi-Mau Sheih
Spokesperson
Shui-Yi Kuo
Chief Financial Officer
Tel: +886-2-2394-0043
E-mail: harrison@cht.com.tw
Acting Spokesperson
Hsiu-Gu Huang
Senior Executive Vice President
Tel: +886-2-2344-5768
E-mail: hg_huang@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 Co.Ltd., Registrar & Transfer Agency Department
Address: B1, No. 210, Sec. 3, Chengde Rd., Datong Dist.,
Taipei City 10366
Tel: +886-2-2586-5859
website: http://www.yuanta.com.tw
Auditor
Deloitte & Touche
Exchange of ADR Listing
ADR Depositary Bank
Inquiries on ADR Investment
CPA: Hung-Peng Lin, Ching-Pin Shih
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
New York Stock Exchange
Ticker Symbol: CHT
Information website: https://www.nyse.com
JPMorgan Depositary Receipts
4 New York Plaza , Floor 12,
New York, NY 10004, U.S.A.
Service No. in USA: 1-866-JPM-ADRS
website: https://www.adr.com
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: admin@cht-china.com
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 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 (Thailand) Co., Ltd
65/131 16th Floor Chamnan Phenjati Business Centre, Rama
9 Rd., Huay Kwang District, Bangkok 10320, Thailand
Donghwa Telecom Co., Ltd.
Unit A, 7/F., Tower A, Billion Cenre, No. 1 Wang Kwong
Road, Kowloon Bay, Kowloon, Hong Kong
Tel : +66-2-2487101
Fax: +66-2-2487100
E-mail: fr-tseng@cht.com.tw
Tel : +852-3586-2600
Fax: +852-3586-3936
E-mail: morris@donghwatele.com
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
(Note: The office may be revoked by the end of May 2018.)
Tel : +81-3-3436-5988
Fax: +81-3-3436-7599
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: ccjane@cht.sg
Chunghwa Telecom Singapore Pte., Ltd.
(Jakarta Office)
Cyber Building 1, 6th Floor, Room 612, Jl. Kuningan Barat
No. 8 south Jakarta 12710, Indonesia
Tel : +65-6337-2010
Fax: +65-6337-2047
E-mail: sales@cht.sg
Chunghwa Telecom Co., Ltd.
(Yangon Rep. Office)
4F, No. 171, 50th Street, Upper Block Yangon,
Yangon, Myanmar
Tel: +95-9767-833-589
E-mail: chengku@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
Tel : +84-4-3795-1150~1
E-mail: arthur@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: arthur@cht.com.tw
Chunghwa Telecom Global, Inc.
2107 North First Street, Ste. 580, San Jose, CA 95131, USA
Tel : +1-408-454-1680
Fax: +1-408-573-7168
E-mail: phoebe.wang@chtglobal.com
Chunghwa Telecom Global, Inc.
(Los Angeles Office)
21671 Gateway Center Drive, Suite 212, Diamond Bar,
CA 91765, USA
Tel : +1-909-978-5388 #101
Fax: +1-909-978-5380
E-mail: phoebe.wang@chtglobal.com
Annual Report 2017
Initiating the New Era of Smart Living
永 遠 走 在 最 前 面
2
0
1
7
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
Respect the earth. Printed on environmentally friendly paper using soy inks
CHT annual report is a vailable at http://www.cht.com.tw/en/ir/stockit-annualreport.html
Taiwan Stock Exchange Market Observation Post System http://mops.twse.com.tw
Printed on April 27, 2018
Annual Report 2017
Initiating the New Era of Smart Living
永 遠 走 在 最 前 面
2
0
1
7
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
Respect the earth. Printed on environmentally friendly paper using soy inks
CHT annual report is a vailable at http://www.cht.com.tw/en/ir/stockit-annualreport.html
Taiwan Stock Exchange Market Observation Post System http://mops.twse.com.tw
Printed on April 27, 2018