ch telecom

China Telecom Corporation Limited

Ch

ina T

ele

com

Corp

ora

tion

Lim

ited

31 Jinrong Street, Xicheng District, Beijing, PRC, 100032www. chinatelecom-h.com

Annual Report 2008

Incomparable Transformation.

Incomparable Performance

In 2008, as the Company continues to deepen its strategic transformation and prepares for the upcoming full services offering, the Company will enjoy an excellent development prospect. However, due to constant changes of the pricing policy of mobile communication and the rapid diversion of traditional services attributable to emerging telecommunication methods,the Company will encounter more challenging issues in the course of development.

2 Corporate Information

3 Chairman’s Statement

5 Management Discussion and Analysis

7 Corporate Governance Report

14 Audit Committee Report

16 Director’s Report

29 Independent Auditors Report

31 Consolidated Income Statement

32 Consolidated Balance Sheet

34 Consolidated Statement of Changes in Equity

35 Consolidated Cash Flow Statement

37 Notes to the Consolidated Financial Statements

72 Financial Summary

73 Properties held for Investment

Contents


Eng_Note: Font: Helvetica Neue 45 Light Size: 7pt Leading: 11pt Colour: Black Chi_Note: Font: 正線體 Size: 7pt Leading: 13pt Colour: Black

Eng_Table Heading: Font: Helvetica Neue 75 Bold Size: 8.5pt Leading: 13pt Colour: Black Chi_Table Heading: Font: 黑體 Size: 8.5pt Leading: 14pt Colour: Black

Eng_Table Text: Font: Helvetica Neue 45 Light Size: 8.5pt Leading: 13pt Colour: Black Chi_Table Text: Font: 正線體 Size: 8.5pt Leading: 14pt Colour: Black

Page Number: Font: Helvetica Neue 45 Light Size: 8pt Colour: 20c 100m 50y 70k

6

Annual Report 2008

7

Finanical Highlights

Operating Performance

Unit: RMB million

The Company

The NWDSH

Group

Adjustments

(Note 1) Consolidated

Item HK$’000 HK$’000 HK$’000 HK$’000

Investments in NWDSH and its

subsidiaries (“WDSH Group”) 88 0,500 — (880,500) —

Other (liabilities)/assets net (54,020) 911,249 — 857,229

Net assets 826,480 911,249 (880,500) 857,229

Share capital 6,095 — — 6,095

Capital reserve — 397,683 (60,115) 337,568

Contributed surplus 820,385 — (820,385) —

Statutory reserve — 11,360 — 11,360

826,480 911,249 (880,500) 857,229

Turnover Analysis by geograohical TURNOVER ANALYSIS BY GEOGRAPHICAL

SEGMENTS

Revenue

For further information, please browse our website at www.chinatelecom-h.com

0

50

100

150

200

250

300

350

400

03/200803/200703/200603/2005

230.5 270.3 260.8

78.7

300

80

21.5

10.7

CDM Turnover Retail Turnover

0

50

100

150

200

250

300

350

400

03/200803/200703/200603/2005

230.5 270.3 260.8

78.7

300

80

21.5

10.7


0

50

100

150

200

250

300

350

400

03/200803/200703/200603/2005

230.5 270.3 260.8

78.7

300

80

21.5

10.7


Operating Performance

Unit: RMB million

The Company

The NWDSH

Group

Adjustments

(Note 1) Consolidated

Item HK$’000 HK$’000 HK$’000 HK$’000

Investments in NWDSH and its

subsidiaries (“WDSH Group”) 88 0,500 — (880,500) —

Other (liabilities)/assets net (54,020) 911,249 — 857,229

Net assets 826,480 911,249 (880,500) 857,229

Share capital 6,095 — — 6,095

Capital reserve — 397,683 (60,115) 337,568

Contributed surplus 820,385 — (820,385) —

Statutory reserve — 11,360 — 11,360

826,480 911,249 (880,500) 857,229

The charts below are based on fi nancials excluding amortisation of the upfront connection fees China Telecom Corporation Limited was listed on The Stock Exchange of Hong Kong Limited and the New York Stock Exchange with net proceeds from IPO of approximately

US$1.3 billion.

Chairman‘s Statement





Annual Report 2008

9

Dear Shareholders,

Employee benefi t expense increased by 14.4% from HK$128.8 million in FY2006 to

HK$147.4 million in FY2007. This increase was primarily due to increase in wages

and salaries and other employment benefi ts as a result of recognising a full year’s

operations of certain stores opened in last year and new stores openings in current

year under review. Employee benefi t expense as a percentage to revenue decreased

by 2.2% in FY2007 primarily due to improved operating effi ciency.

Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in

FY2006 to HK$97.5 million in FY2007. This increase was primarily due to increase

in depreciation and amortisation as a result of recognising a full year’s operations

of certain stores opened in last year and new stores openings in current year under

review. Depreciation and amortisation expense as a percentage to revenue decreased

by 1.0% in FY2007 primarily due to strong performance of revenue. Operating lease

rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7

million.

Other Operating Expenses

Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5 million in

FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of recognising a

full year’s operations of certain stores opened in last year and new stores openings in current year under review.

Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in FY2007 primarily due to

strong performance of revenue.

Operating Lease Rental Expense

Operating lease rental expense increased by 14.1% from HK$234.7 million in FY2006 to HK$267.7 million in

FY2007, primarily due to the effect of recognising a full year’s operations of certain stores opened in last year and

new stores openings in current year under review. Operating lease rental expense as a percentage to revenue

Wang XiaochuChairman and Chief Executive Offi cer






10

Annual Report 2008

11Chairman’s Statement

Chairman’s Statement




decreased by 4.0% in FY2007 mainly as a result of operating leverage of the expense.Other operating expenses

increased by 23.8% from HK$149.8 million in FY2006 to HK$185.5 million in FY2007. This increase was primarily

due to a HK$13.7 million increase in water and electricity expenses relating primarily to the newly opened stores

and the effect of recognising a full year’s operations of certain stores in current year, a HK$6.4 million increase in

promotion, advertising and related expenses. Other operating expenses as a percentage to revenue decreased by

1.1% in FY2007.







Operating Lease Rental Expense









1.1% in FY2007.

Gain on Disposal of Subsidiaries

Gain on disposal of subsidiaries of HK$58.0 million was primarily a result of the HK$31.9 million gain on disposal of

Dalian Store on 1 July 2006 and the remaining HK$26.1 million gain on disposal of subsidiaries mainly represented

the gain on disposal of Kunming Store and Ningbo Trendy Store to Solar Leader Limited, a related company of the

Group, on 1 January 2007.









1.1% in FY2007.

Gain on Disposal of Subsidiaries

Gain on disposal of subsidiaries of HK$58.0 million was primarily a result of the HK$31.9 million gain on disposal of

Dalian Store on 1 July 2006 and the remaining HK$26.1 million gain on disposal of subsidiaries mainly represented

the gain on disposal of Kunming Store and Ningbo Trendy Store to Solar Leader Limited, a related company of the

Group, on 1 January 2007.

Employee Benefi t Expense

Employee benefi t expense increased by 14.4% from HK$128.8 million in FY2006 to HK$147.4 million in FY2007.

This increase was primarily due to increase in wages and salaries and other employment benefi ts as a result of

recognising a full year’s operations of certain stores opened in last year and new stores openings in current year

under review. Employee benefi t expense as a percentage to revenue decreased

by 2.2% in FY2007 primarily due to improved operating effi ciency.

Wang Xiaochu

Chairman and Chief Executive Offi cer

Beijing, China

31 March 2008






12

Annual Report 2008

13

In 2007, emphasizing on both scale and profi tability as well as differentiation in products, applications and services forbroadband business, the Company achieved revenue of RMB31,340 million from Internet access services, representing an annual growthof 32.1%. The proportion of revenues from Internet access services to operating revenues increased by 4.0 percentage points to 17.9%from 2006. In 2007, as the Company insisted on the strategy of scale development of broadband subscribers, the total number of broadband subscribers increased by 7.33 million to 35.65 million.






14

Annual Report 2008

15

Business Review

Employee benefi t expense increased by

14.4% from HK$128.8 million in FY2006 to

HK$147.4 million in FY2007. This increase

was primarily due to increase in wages and

salaries and other employment benefi ts as a

result of recognising a full year’s operations

of certain stores opened in last year and

new stores openings in current year under

review. Employee benefi t expense as a

percentage to revenue decreased by 2.2% in

FY2007 primarily due to improved operating

effi ciency.

Depreciation and amortisation expense

increased by 19.8% from HK$81.4 million in

FY2006 to HK$97.5 million in FY2007. This

increase was primarily due to increase in

depreciation and amortisation as a result of

recognising a full year’s operations of certain

stores opened in last year and new stores in

FY2007 primarily due to strong performance

of revenue.

Operating lease rental expense increased by

14.1% from HK$234.7 million in FY2006 to HK$267.7 million in FY2007, primarily due to the effect of recognising

a full year’s operations of certain stores opened in last year and new stores openings in current year under review.

Operating lease rental expense as a percentage to revenue decreased by 4.0% in FY2007 mainly as a result of

operating leverage of the expense.



full year’s operations of certain stores..

Unit 2006 2007 2008 Rate of Change (2008-2007)

Local wireline access lines in service Million 210.09 223.04 220.33 (1.2%)

Local voice usage Million 449,404 422,562 406,268 (3.9%)

Domestic long distance usage Million minutes 93,817 95,567 98,251 2.8%

International, Hong Kong, Macau

and Taiwan long distance usage Million minutes 1,711 1,601 1,588 (0.8%)

Broadband subscribers Million 21.02 28.32 35.65 25.9%

Volume of Inbound local calls Million minutes 102,670 124,452 135,447 8.8%

Caller ID service subscribers Million 131.46 145.73 146.74 0.7%

SMS usage volume Million messages 17,254 23,277 23,346 0.3%

Colour Ring Tone subscribers Million 18.16 36.68 63.19 72.2%

The following table sets out key operating data in 2005, 2006 and 2007:

Business ReviewThe Company gained momentum in its business transformation.

+19.8%HK$81.4 million






16

Annual Report 2008

17

In 2007, emphasizing on both scale and profi tability as well as differentiation in products, applications and services forbroadband business, the Company achieved revenue of RMB31,340 million from Internet access services, representing an annual growthof 32.1%. The proportion of revenues from Internet access services to operating revenues increased by 4.0 percentage points to 17.9%from 2006. In 2007, as the Company insisted on the strategy of scale development of broadband subscribers, the total number of broadband subscribers increased by 7.33 million to 35.65 million.






18

Annual Report 2008

19Directors, Supervisors and Senior Management

Directors, Supervisors and Senior Management

01 Mr. Wang Xiaochu

• Chairman of the board of directors and Chief Executive• Offi cer of the Company. Mr. Wang served as Director General

• Deputy Director General of the Hangzhou Telecommunications Bureau in Zhejiang

province,

• Director General of the Tianjin Posts

• Telecommunications Administration, Chairman and Chief Executive

• Offi cer of China Mobile (Hong Kong) Limited, Vice President of China

• Mobile Communications Corporation. He is also President of China

• Telecommunications Corporation and Chairman of the board of directors and a Non-

Executive Director of China Communications

• Services Corporation Limited. He was responsible for the development of China Telecom’

s telephone network management systems and various other information technology

projects and as a result, received the Third-Class Award from the State Scientifi c and

Technological Progress Award and the First-Class Award from the former Ministry of Posts

• Telecommunications Scientifi c and Technological Progress Award.

• He graduated from Beijing Institute of Posts and Telecommunications in 1989 and

received a doctorate degree in business administration from The Hong Kong Polytechnic

University in 2005.

02 Mr. Chen Yi

• Executive Director, President and Chief Operating Offi cer

• Offi cer of the Company. Mr. Wang served as Director General

• Deputy Director General of the Hangzhou Telecommunications Bureau








• He graduated from Beijing Institute of Posts and Telecommunications in 1989 and received

a doctorate degree in business administration from The Hong Kong Polytechnic University

in 2005.

03 Ms. Yeung Meiling

• Executive Director, Executive Vice President and Chief Financial Offi cer• Offi cer of the Company. Mr. Wang served as Director General

• Deputy Director General of the Hangzhou Telecommunications Bureau in Zhejiang

province,








04 Mr. Leng Rongquan

• Chairman of the board of directors and Chief Executive• Offi cer of the Company. Mr. Wang served as Director General







• Services Corporation Limited. He was responsible for the development of China Telecom’

s telephone network management systems and various other information technology

projects and as a result, received the Third-Class Award from the State Scientifi c and

Technological Progress Award and the First-Class Award from the former Ministry of Posts


• He graduated from Beijing Institute of Posts and Telecommunications in 1989 and

received a doctorate degree in business administration from The Hong Kong Polytechnic

University in 2005.






20

Annual Report 2008

21

Management Discussion and AnalysisManagement Discussion and Analysis

Unit 2006 2007 2008 Rate of Change

(2008-2007)











The following table sets out key operating data in 2005, 2006 and 2007:

OTHER OPERATING EXPENSES












Notes to the Financial Statements(Expressed in Renminbi)






22

Annual Report 2008

23

Unit 2006 2007 2008 Rate of Change

(2008-2007)






























Consolidated Statement of Changes in Equity(For the year ended 31 December 2007)


1. Depreciation and amortisation expense increased by 19.8% from HK$81.4 million in FY2006 to HK$97.5

million in FY2007. This increase was primarily due to increase in depreciation and amortisation as a result of

recognising a full year’s operations of certain stores opened in last year and new stores openings in current

year under review. Depreciation and amortisation expense as a percentage to revenue decreased by 1.0% in

FY2007 primarily due to strong performance of revenue. Operating lease rental expense increased by 14.1%

from HK$234.7 million in FY2006 to HK$267.7 million in FY2007, primarily due to the effect of recognising a full

year’s operations of certain stores opened in last year and new stores openings in current year under review.

Operating lease rental expense as a percentage to revenue decreased by 4.0% in FY2007 mainly as a result of

operating leverage of the expense.

2. Other operating expenses increased by 23.8% from HK$149.8 million in FY2006 to HK$185.5 million in FY2007.

This increase was primarily due to a HK$13.7 million increase in water and electricity expenses relating primarily

to the newly opened stores and the effect of recognising a full year’s operations of certain stores in current

year, a HK$6.4 million increase in promotion, advertising and related expenses. Other operating expenses as

a percentage to revenue decreased by 1.1% in FY2007Gain on disposal of subsidiaries of HK$58.0 million

was primarily a result of the HK$31.9 million gain on disposal of Dalian Store on 1 July 2006 and the remaining

HK$26.1 million gain on disposal of subsidiaries mainly represented the gain on disposal of Kunming Store and

Ningbo Trendy Store to Solar Leader Limited, a related company of the Group, on 1 January 2007.Employee

benefi t expense increased by 14.4% from HK$128.8 million in FY2006 to HK$147.4 million in FY2007. This

increase was primarily due to increase in wages and salaries and other employment benefi ts as a result of

recognising a full year’s operations of certain stores opened in last year and new stores openings in current year

under review. Employee benefi t expense as a percentage to revenue decreased by 2.2% in FY2007 primarily

due to improved operating effi ciency.









decreased by 4.0% in FY2007 mainly as a result of operating leverage of the expense.

ch telecom

Documents

item hk

amortisation expense

operating lease rental

current year

new stores openings

employee benet expense

strong performance of

geograohical turnover